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Notes to the summarised consolidated financial statements

1. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) and its Interpretations adopted by the International Accounting Standards Board (IASB) in issue and effective for the Group at 31 December 2014 and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and financial reporting pronouncements as issued by the Financial Reporting Standards Council. The results are presented in accordance with IAS 34 – Interim Financial Reporting and comply with the Listings Requirements of the Johannesburg Stock Exchange Limited and the Companies Act of South Africa, 2008. These condensed consolidated financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements as at and for the year ended 30 June 2014.

These condensed consolidated financial statements have been prepared under the supervision of R Mumford, CA (SA) and were approved by the board of directors on 23 February 2015.

2. ACCOUNTING POLICIES

The accounting policies adopted and methods of computation used in the preparation of the condensed consolidated financial statements are in accordance with IFRS and are consistent with those of the annual financial statements for the year ended 30 June 2014.

New and amended accounting standards that became effective during the period
The Group applied the following amended statements during the reporting period. None of the amendments has had a material impact on the consolidated financial statements of the Group.

IAS 16 – Property plant and equipment (amended)
IAS 39 – Financial Instruments – Recognition and Measurements (amended)
IAS 19 – Employee Benefits (amended)
IFRS 2 – Share Based Payments (amended)

3. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS IN ISSUE BUT NOT YET EFFECTIVE

The following standards will become applicable to the Group in future reporting periods:

IFRS 9 Financial Instruments (amended) will introduce new requirements for the classification and measurement of financial assets and financial liabilities and for derecognition, with effect from 1 January 2018.

IFRS 15 Revenue From Contracts With Customers establishes the principles that an entity shall apply to report useful information to users of its financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. This standard was issued in May 2014 and replaces IAS 11 – Construction contracts, IAS 18 – Revenue, IFRIC 13 – Customer Loyalty Programmes, IFRIC 15 – Agreements for the Construction of Real Estate, IFRIC 18 – Transfers of Assets from Customers and SIC-31 – Revenue – Barter Transactions Involving Advertising Services.

The Group is in the process of assessing the impact of these standards on its consolidated financial statements.

4. PRESENTATION OF STATEMENT OF PROFIT OR LOSS

To improve the content and format of the statement of profit or loss, certain items that are not operational in nature have been shown in total with the details given in the notes.


    31 December
2014
    31 December
2013
  30 June
2014
 
5. FOREIGN EXCHANGE RATES              
  The following major rates of exchange was used in the translation of the Group’s foreign operations:              
  SA Rand : Euro              
  –  closing 14,06     14,45   14,51  
  –  average 14,15     13,50   14,07  
  SA Rand : US Dollar              
  –  closing 11,57     10,49   10,62  
  –  average 10,98     10,06   10,38  
    Unaudited
Six months ended
31 December
2014
Rm
    Unaudited
Six months ended
31 December
2013
Rm
  Audited
Financial year
ended
30 June
2014
Rm
 
6. OTHER NON-OPERATING ITEMS              
  Remeasurement of financial instruments not held-for-trading 101     (16)   (28)  
  Foreign exchange gains (losses) on foreign currency monetary items 117     (16)   (31)  
  Loss on remeasurement of put option liabilities (21)         (16)  
  Gains on remeasurement of contingent consideration liabilities 4         18  
  Realised gain on disposal of available-for-sale investment 1         1  
  Capital items (39)     79   14  
  Impairment of goodwill (16)         (38)  
  Profit (loss) on disposal of investments in associates and joint ventures       1   (7)  
  (Loss) profit on disposal of subsidiaries and businesses (11)     86   81  
  Business acquisition costs (12)     (8)   (22)  
  Other items 1     (99)   (141)  
  Net cost of meeting obligation under onerous contract       (29)   (64)  
  Change in economic assumptions on insurance funds 1         (7)  
  Charge for amending the conversion profile of the deferred ordinary shares       (70)   (70)  
    63     (36)   (155)  
7. NET FINANCE COSTS              
  Net interest paid (580)         (926)  
  Fair value loss on interest-rate swap instruments (18)            
    (598)         (926)  
8. GOODWILL AND INTANGIBLE ASSETS              
  Goodwill              
  Cost 5 987     5 185   5 596  
  Accumulated impairments (875)     (821)   (859)  
    5 112     4 364   4 737  
  Carrying value at beginning of period 4 737     3 926   3 926  
  Net acquisition of subsidiaries and businesses 429     171   579  
  Impairment charge (16)         (38)  
  Currency adjustment (38)     267   270  
  Carrying value at end of period 5 112     4 364   4 737  
  Intangible assets 2 285     1 363   2 029  
  Goodwill and intangible assets 7 397     5 727   6 766  
9. CASH AND CASH EQUIVALENTS              
  Cash resources 2 620     1 693   3 103  
  Short-term loans and overdrafts (Included in interest-bearing borrowings) (3 780)     (2 460)   (2 205)  
    (1 160)     (767)   898  
10. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial assets and liabilities carried at amortised cost

The following table sets out instances where the carrying amount of financial liabilities, as recognised on the statement of financial position, differ from their fair values.

31 December 2014 Carrying value
Rm
  Fair value*
Rm
 
Listed non-redeemable, non-participating preference shares 441   341  
* Level 1 of the fair value hierarchy.

The fair values of the remainder of the Group’s financial assets and financial liabilities at 31 December 2014 approximate their carrying values.

Fair value hierarchy

The Group’s financial instruments carried at fair value are classified into three categories defined as follows:

Level 1 financial instruments are those that are valued using unadjusted quoted prices in active markets for identical financial instruments.

Level 2 financial instruments are those valued using techniques based primarily on observable market data. Instruments in this category are valued using quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data.

Level 3 financial instruments are those valued using techniques that incorporate information other than observable market data. Instruments in this category have been valued using a valuation technique where at least one input, which could have a significant effect on the instrument’s valuation, is not based on observable market data.

The following table presents the valuation categories used in determining the fair values of financial instruments carried at fair value:

31 December 2014 Total
Rm
    Level 1
Rm
Level 2
Rm
Level 3
Rm
Financial assets carried at fair value            
Fair valued through profit or loss            
Investments held for trading (Included in Investments and loans)* 2 552     2 114 438  
Fair valued through other comprehensive income            
Available-for-sale investments (Included in Investments and loans) 198     198    
Foreign exchange contracts (Included in Trade and other receivables) 35       35  
Financial liabilities carried at fair value            
Fair valued through profit or loss            
Put option liabilities (Included in Other financial liabilities) 1 491         1 491
Contingent consideration liabilities (Included in Other financial liabilities) 53       10 43
Swap instruments (Included in Other financial liabilities) 173       173  
Fair valued through other comprehensive income            
Foreign exchange contracts (Included in Trade and other payables) 15       15  
Swap instruments (Included in Other financial liabilities) 58       58  
* The net fair value gains on investments held for trading amounted to R25 million, of which gains amounting to R29 million were realised and losses amounting to R4 million were unrealised. The net fair value gains on investments are included in ‘Net operating expenses’ in profit or loss.

Investments classified as level 1 were valued by quoted market prices in active markets and consists of listed equity securities. Instruments classified as level 2 use valuation techniques by observable inputs which mainly comprise of short-term deposits and over the counter (OTC) derivatives instruments.

Transfers between hierarchy levels

The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred. There were no transfers between the fair value hierarchies during the period.

Movements in level 3 financial instruments measured at fair value

The following table shows a reconciliation of the opening and closing carrying values of level 3 financial liabilities carried at fair value at 31 December 2014.

Financial liabilities Put option
liabilities
Rm
  Contingent
consideration
liabilities
Rm
    Total
Rm
Carrying value at beginning of period 990   82     1 072
Initial recognition direct in equity 391         391
Arising on acquisition of business     17     17
Fair valued through profit or loss 21   (4)     17
Settlements     (52)     (52)
Currency adjustment 89         89
Carrying value at the end of the period 1 491   43     1 534

Level 3 sensitivity information

The fair values of the level 3 financial liabilities of R1 534 million were estimated by applying an income approach valuation method including a present value discount technique. The fair value measurement is based on significant inputs that are not observable in the market. Key assumptions used in the valuations include the assumed probability of achieving profit targets and the discount rates applied. The assumed profitabilities were based on historical performances but adjusted for expected growth.

The following table shows how the fair value of the level 3 financial liabilities as at 31 December 2014 would change if the significant assumptions were to be replaced by a reasonable possible alternative.

Financial instruments Valuation technique Key assumption Carrying
value
Rm
Increase in
liabilities
Rm
Decrease in
liabilities
Rm
 
Put option liabilities Income approach Earnings growth 1 491 15 (144)  
Contingent consideration liabilities Income approach Assumed profits 43   (2)  
    31 December
2014
Rm
31 December
2013
Rm
30 June
2014
Rm
 
11. CONTINGENCIES AND COMMITMENTS        
  Capital commitments 1 656 1 239 2 285  
  Contingent liabilities 306 309 317  
12. DISPOSALS AND ACQUISITIONS DURING THE PERIOD

There were no material disposals during the period. For acquisitions during the period refer to business combinations on page 25.

13. EVENTS AFTER THE REPORTING PERIOD

Dividend declaration

Shareholders are advised that a preference and an ordinary dividend have been declared by the Board of Imperial on 23 February 2015.

For more details please refer to the dividend declaration on page 13.