Imperial

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 2017 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 2017.

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 19 February 2018.

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 2017.

3.1 As a consequence of restating the group’s June 2016 annual financial statements, as disclosed in the group’s annual financial statements for the year ended 30 June 2017, the December 2016 interim financial statements have been restated with the impact of the restatements shown below.

STATEMENT OF FINANCIAL POSITION		Rm
ASSETS
Investment in associates and joint ventures		7
Property, plant and equipment		137
Deferred tax assets		10
Investments and other financial assets		135
Tax in advance		2
Cash resources		10
Assets of disposal groups		(296)
Total assets		5
EQUITY AND LIABILITIES
Retained earnings		(40)
Attributable to owners of Imperial		(40)
Non-controlling interest		45
Total equity		5
LIABILITIES
Trade and other payables and provisions		82
Liabilities of disposal group		(82)
Total liabilities
Total equity and liabilities		5

 

STATEMENT OF PROFIT OR LOSS		VAPS  restatement  Rm		Error  restatement  Rm		Total  restatement  Rm
Continuing operations
Revenue		36				36
Net operating expenses				40		40
Operating profit		36		40		76
Share of result of associates and joint ventures		2				2
Profit before tax		38		40		78
Income tax expense		(8)		(8)		(16)
Profit for the period from continuing operations		30		32		62
Discontinued operations
Profit for the period from discontinued operations		(30)				(30)
Net profit for the period				32		32
Net profit attributable to:
Owners of Imperial				12		12
– Continuing operations		30		32		62
– Discontinued operations		(30)		(20)		(50)
Non-controlling interest				20		20
– Continuing operations
– Discontinued operations				20		20
STATEMENT OF COMPREHENSIVE INCOME
Net profit for the period				32		32
Total comprehensive income for the period				32		32
Total comprehensive income attributable to:
Owners of Imperial				12		12
Non-controlling interest				20		20
				32		32

3.2 The December 2016 and the June 2017 statements of cash flows were restated to exclude short-term loans and overdrafts from cash and cash equivalents. The movements in short-term loans and overdrafts are now reflected as cash flows under financing activities as part of the net increase (decrease) in interest-bearing borrowings. The impact of the restatement was as follows:

STATEMENT OF CASH FLOWS		31 December 2016 Rm		30 June 2017 Rm
Financing activities
Net increase (decrease) in interest-bearing borrowings		1 968		(896)
		1 968		(896)

International Financial Reporting Standards that will become applicable to the group in future reporting periods include 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). Details of these standards are outlined in the 30 June 2017 annual financial statements. An update of the group’s assessment of the potential impacts of the new standards on the group’s financial statements is as follows:

IFRS 9 – Financial Instruments. The group anticipates that the application of IFRS 9 may have minor impacts on amounts reported in respect of the group’s financial assets and financial liabilities. The group’s doubtful debt provisions are being examined as it will be based on expected credit losses and not incurred losses, but anticipates that the impact is minor. The implementation will also simplify hedge accounting and result in increased disclosure. The detailed review of the potential impact of IFRS 9 is ongoing.

IFRS 15 – Revenue From Contracts With Customers. A detailed review of the potential impact of IFRS 15 is ongoing. The group, especially in the Logistics operations, has a substantial number of long-term contracts. All material contracts are being assessed for any impact in terms of the five step approach. The initial review shows that there should not be a material impact on the current measurement of revenue. The implementation will also result in increased disclosure.

IFRS 16 – Leases. The group anticipates that the application of IFRS 16 will have a material impact on amounts reported, resulting in the recognition of right-of-use assets and lease liabilities in respect of lease payments. A detailed review of the potential impact of IFRS 16 is ongoing. The group has a substantial value of operating leases with an annual expense of R2 225 million and operating lease commitments of R4 415 million. These contracts are in the process of being individually analysed. The implementation will also result in increased disclosure.

10.1 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.

31 December 2017		Total Rm		Level 2 Rm		Level 3 Rm
Financial assets carried at fair value
Unlisted investments (Included in Investments)		637				637
Cross-currency and interest-rate swap instruments (Included in Other financial assets)		22		22
Foreign exchange contracts and other derivative instruments (Included in Trade and other receivables)		17		17
Financial liabilities carried at fair value
Put option liabilities (Included in Other financial liabilities)		934				934
Contingent consideration liabilities (Included in Other financial liabilities)		48				48
Cross currency swap instruments (Included in Other financial liabilities)		31		31
Foreign exchange contracts and other derivative instruments (Included in Trade, other payables and provisions)		555		555

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 balances of level 3 financial instruments carried at fair value at 31 December 2017.

R million		Unlisted  investments		Total
Financial assets
Carrying value at beginning of period		648		648
Fair valued through profit or loss		67		67
Cash receipts		(78)		(78)
Carrying value at the end of the period		637		637

R million		Put option  liabilities		Contingent  consideration  liabilities		Total
Financial liabilities
Carrying value at beginning of period		1 553		45		1 598
Arising on acquisition and disposal of businesses				92		92
Fair valued through profit or loss		25		(31)		(6)
Settlements		(627)		(57)		(684)
Currency adjustments		(17)		(1)		(18)
Carrying value at the end of the period		934		48		982

Level 3 sensitivity information

The fair values of the level 3 financial instruments were estimated by applying an income approach valuation method including a present value discount technique. The fair value measurements are 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, expected future cash flows 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 instruments as at 31 December 2017 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 carrying  value  Rm		Decrease  in carrying  value  Rm
Unlisted investments (asset)	Income approach	Present value of expected cash flows	637		70		(74)
Put option liabilities	Income approach	Earnings growth	934		4		(7)
Contingent consideration liabilities	Income approach	Assumed profits	48				(5)

10.2 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 2017	Carrying value Rm		Fair value* Rm
Listed corporate bonds (included in interest-bearing borrowings)	4 316		4 279
Listed non-redeemable, non-participating preference shares	441		331

*	Level 2 of the fair value hierarchy as derived from a market which is not considered active.

The fair values of the remainder of the group’s financial assets and financial liabilities approximate their carrying values.

R million	31 December 2017		31 December 2016		30 June 2017
Capital commitments	807		860		1 448
Contingent liabilities	510		723		649

Acquisitions
Please refer to Business combinations during the period for acquisitions during the period.

Disposals
Please refer to Our performance for disposals during the period.

Disposal of Schirm GmbH
Please refer to Our performance.

Dividend declaration
Shareholders are advised that a preference and an ordinary dividend has been declared by the board of Imperial on 19 February 2018. For more details please refer to the dividend declaration on Declaration of interim preference and ordinary dividends.