Notes to the condensed 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 2016 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 annual financial statements as at and for the year ended 30 June 2016.
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 20 February 2017.
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 2016.
3. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS IN ISSUE BUT NOT YET EFFECTIVE
International Financial Reporting Standards that will become applicable to the group in future reporting periods includes IFRS 9 Financial Instruments (effective 1 January 2018), IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018) and IFRS 16 Leases (effective 1 January 2019). The details of these standards are outlined in the 30 June 2016 annual financial statements.
The group is in the process of assessing the impact of these standards on its consolidated financial statements.
4. NEW HEADLINE EARNINGS CIRCULAR
Circular 2/2015 Headline Earnings which was issued by the South African Institute of Chartered Accountant (SAICA) in October 2015 replaces Circular 2/2013 Headline Earnings. The revisions contained in the new circular relate primarily to IFRS 9 Financial Instruments and has had no impact on the way the Group computes headline earnings
5. BASIS OF SEGMENTATION
In line with the Group's organisational changes as announced on 3rd June 2016 the basis of segmentation for the 2017 financial year has been revised as follows:
The Logistics division will report segmentally on three sub divisions namely:
- Logistics South Africa
- Logistics African Regions
- Logistics International
The Vehicles division will report segmentally on four sub divisions namely:
- Vehicle Import and Distribution
- Vehicle Retail and Rental
- After Market Parts
- Motor Related Financial Services
The revision resulted in the restatement of certain amounts that was previously disclosed in the segment reports.
6. FOREIGN EXCHANGE RATES
31 DECEMBER 2016 |
31 DECEMBER 2015 |
30 JUNE 2016 |
|||
SA Rand : Euro | |||||
– closing | 14,40 | 16,79 | 16,31 | ||
– average | 15,31 | 15,03 | 16,10 | ||
SA Rand : US Dollar | |||||
– closing | 13,69 | 15,46 | 14,70 | ||
– average | 13,96 | 13,62 | 14,51 | ||
SA Rand : Pound Sterling | |||||
– closing | 16,89 | 22,79 | 19,58 | ||
– average | 17,83 | 20,87 | 21,47 | ||
SA Rand : Australian Dollar | |||||
– closing | 9,85 | 11,24 | 10,95 | ||
– average | 10,52 | 9,84 | 10,56 |
7. OTHER NON-OPERATING ITEMS
UNAUDITED SIX MONTHS ENDED 31 DECEMBER 2016 RM |
UNAUDITED SIX MONTHS ENDED 31 DECEMBER 2015 RM |
AUDITED FINANCIAL YEAR ENDED 30 JUNE 2016 RM |
|||
Remeasurement of financial instruments not held-for-trading | (123) | 93 | (122) | ||
Foreign exchange (losses) gains on foreign currency monetary items | (121) | 126 | (72) | ||
Charge for remeasurement of put option liability | (13) | (32) | (64) | ||
Remeasurement of contingent consideration liabilities | 3 | (1) | 14 | ||
Reclassification of gain on disposal of available-for-sale investments | 8 | ||||
Capital items | (78) | 290 | 20 | ||
Impairment of goodwill | (152) | (258) | |||
Profit (loss) on disposal of investments in associates and joint ventures | 6 | (2) | (89) | ||
(Loss) profit on disposal of subsidiaries and businesses | (46) | 447 | 520 | ||
Impairment loss on assets of disposal group | (90) | ||||
Business acquisition costs | (38) | (3) | (63) | ||
(201) | 383 | (1 440) |
8. NET FINANCE COSTS
UNAUDITED SIX MONTHS ENDED 31 DECEMBER 2016 RM |
UNAUDITED SIX MONTHS ENDED 31 DECEMBER 2015 RM |
AUDITED FINANCIAL YEAR ENDED 30 JUNE 2016 RM |
|||
Net interest paid | (823) | (696) | (1 462) | ||
Fair value (loss) gain on interest-rate swap instruments | (5) | 45 | 22 | ||
(828) | (651) | (1 440) |
9. GOODWILL AND INTANGIBLE ASSETS
UNAUDITED SIX MONTHS ENDED 31 DECEMBER 2016 RM |
UNAUDITED SIX MONTHS ENDED 31 DECEMBER 2015 RM |
AUDITED FINANCIAL YEAR ENDED 30 JUNE 2016 RM |
|||
Goodwill | |||||
Cost | 7 106 | 6 642 | 6 286 | ||
Accumulated impairments | (409) | (1 078) | (862) | ||
6 697 | 5 564 | 5 424 | |||
Carrying value at beginning of period | 5 424 | 5 018 | 5 018 | ||
Net acquisition (disposal) of subsidiaries and businesses | 1 987 | (111) | (130) | ||
Impairment charge | (152) | (258) | |||
Reclassified to assets held for sale | (53) | (28) | |||
Currency adjustment | (714) | 862 | 822 | ||
Carrying value at end of period | 6 697 | 5 564 | 5 424 | ||
Intangible assets | 3 067 | 2 302 | 2 077 | ||
Goodwill and intangible assets | 9 764 | 7 866 | 7 501 |
10.CASH AND CASH EQUIVALENTS
UNAUDITED SIX MONTHS ENDED 31 DECEMBER 2016 RM |
UNAUDITED SIX MONTHS ENDED 31 DECEMBER 2015 RM |
AUDITED FINANCIAL YEAR ENDED 30 JUNE 2016 RM |
|||
Cash resources | 2 339 | 2 740 | 2 317 | ||
Cash resources included in assets of discontinued operations and of disposal groups | 1 379 | 1 211 | 1 356 | ||
Short-term loans and overdrafts (Included in interest-bearing borrowings) | (4 922) | (4 837) | (2 954) | ||
(1 204) | (886) | 719 |
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
11.1 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 2016 | CARRYING VALUE Rm |
FAIR VALUE* Rm |
Listed corporate bonds (included in interest-bearing borrowings) | 5 342 | 5 287 |
Listed non-redeemable, non-participating preference shares | 441 | 357 |
The fair values of the remainder of the Group's financial assets and financial liabilities approximate their carrying values.
11.2 Fair value hierarchy
The Group's financial instruments carried at fair value are classified in 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. For assets and liabilities classified as discontinued operations.
31 DECEMBER 2016 | TOTAL RM |
LEVEL 2 RM |
LEVEL 3 RM |
||
Financial assets carried at fair value | |||||
Swap instruments (Included in Other financial assets) | 12 | 12 | |||
Foreign exchange contracts and other derivative instruments (Included in Trade and other receivables) | 13 | 13 | |||
Financial liabilities carried at fair value | |||||
Put arrangement over non-controlling interests (Included in Other financial liabilities) | 1 738 | 1 738 | |||
Contingent consideration (Included in Other financial liabilities) | 47 | 47 | |||
Swap instruments (Included in Other financial liabilities) | 151 | 151 | |||
Foreign exchange contracts (Included in Trade, other payables and provisions) | 395 | 395 |
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.
11.3 Movements in level 3 financial instruments measured at fair value
The following table shows a reconciliation of the opening and closing balances of level 3 financial liabilities carried at fair value.
FINANCIAL LIABILITIES | PUT OPTION LIABILITIES Rm |
CONTINGENT CONSIDERATION Rm |
TOTAL Rm |
||
Carrying value at beginning of period | 1 875 | 19 | 1 894 | ||
Arising on acquisition of businesses | 36 | 36 | |||
Fair valued through profit or loss | 13 | (3) | 10 | ||
Settlements | (4) | (4) | |||
Currency adjustments | (150) | (1) | (151) | ||
Carrying value at the end of the period | 1 738 | 47 | 1 785 |
Level 3 sensitivity information
The fair values of the level 3 financial liabilities of R1 785 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 includes 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 2016 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 liability | Income approach | Earnings growth | 1 738 | 8 | (118) | |
Contingent consideration liability | Income approach | Assumed profits | 47 | (7) |
12. ASSETS AND LIABILITIES OF THE DISPOSAL GROUPS
The assets of the disposal groups includes businesses in Logistics South Africa, the Logistics African Regions, the Vehicle Retail and Rental and the After Market Parts divisions as well as land and buildings that are held for sale. These assets will be recovered through disposal rather than through continuing use.
UNAUDITED 31 DECEMBER 2016 RM |
UNAUDITED 31 DECEMBER 2015 RM |
AUDITED 30 JUNE 2016 RM |
|||
Assets | |||||
Goodwill and intangible assets | 3 | 56 | 34 | ||
Investments in associates and joint ventures | 36 | 476 | |||
Property, plant and equipment | 1 414 | 96 | 114 | ||
Transport fleet | 26 | 53 | |||
Income tax assets | 57 | 19 | 65 | ||
Investments and other financial assets | 16 | 8 | 17 | ||
Vehicles for hire | 696 | ||||
Inventories | 350 | 346 | 340 | ||
Trade and other receivables | 164 | 341 | 251 | ||
Cash resources | 33 | 71 | 119 | ||
Assets of disposal groups | 2 063 | 1 667 | 1 469 | ||
Liabilities | |||||
Interest-bearing borrowings | 34 | 21 | |||
Income tax liabilities | 1 | 64 | 3 | ||
Trade, other payables and provisions | 283 | 421 | 373 | ||
Liabilities of disposal groups | 318 | 506 | 376 |
13. CONTINGENCIES AND COMMITMENTS
UNAUDITED 31 DECEMBER 2016 RM |
UNAUDITED 31 DECEMBER 2015 RM |
AUDITED 30 JUNE 2016 RM |
|||
Capital commitments | 860 | 1 213 | 1 309 | ||
Contingent liabilities | 723 | 457 | 798 |
14. ACQUISITIONS AND DISPOSALS DURING THE PERIOD
Acquisitions
Refer to Business combinations during the period for acquisitions during the period.
Disposals
The group disposed of its controlling interest in C2 Computers Proprietary Limited retaining a non-controlling interest of 49%.
15. EVENTS AFTER THE REPORTING PERIOD
Acquisition of Surgipharm
The group has entered into an agreement to acquire a 70% interest in Surgipharm Limited, a leading pharmaceutical distributor in
Kenya, for a consideration of R470 million (USD35 million). This is subject to obtaining regulatory approval.
Disposal of Regent
The disposal of the Regent Group’s non-South African operations (Regent Insurance Botswana, Regent Life Botswana, Regent
Zambia, Lesotho Life and Lesotho Insurance, collectively, “Regent Rest of Africa”) to Hollard International Holdings for an upfront
consideration of R697 million has been declared unconditional on 31 January 2017 in accordance with its terms, which included
regulatory approvals from the Botswana and Lesotho authorities. The disposal of Regent Group, excluding Regent Rest of Africa,
remains subject to approval by the South African Regulatory Authorities.
Disposal of Jurgens Ci
The disposal of Jurgens was completed on 1 February 2017.
Dividend declaration
Shareholders are advised that a preference and an ordinary dividend has been declared by the board of Imperial on 20 February 2017.
For more details please refer to the dividend declaration