Unaudited interim results

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 2019 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 2019.

These condensed consolidated financial statements have been prepared under the supervision of WS Buckton, CA (SA) and were approved by the board of directors on 25 February 2020.

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 2019, with the exception of the adoption IFRS 16 – Leases as detailed in note 3 below.

IFRS 16 – Leases: As lessee

IFRS 16 – Leases, applicable to the group in 2020, introduces a single lease accounting model that requires the group as a lessee to recognise assets and liabilities for all leases with a term longer than 12 months.

The Group's previous accounting policy was to expense operating lease payments on a straight-line basis over the lease term. From 1 July 2019 the group recognised right-of-use assets and lease obligations, which represents the group's right to use the underlying leased assets and its obligations to make lease payments, on the statement of financial position. The right-of-use assets are amortised and interest on the lease liabilities are expensed, both in profit or loss. The operating lease payments previously expensed in profit or loss and classified as a operating cash flow are now accounted for as settlements of the lease obligations on the statement of financial position and interest expense in the statement of profit or loss.

The Group applied IFRS 16 fully retrospective with the impact of the adoption on the financial statements summarised below. The restatements are unaudited. The impact on equity at 1 July 2018 is disclosed in the statement of changes in equity.

The numbers reported for Motus at 30 June 2018 and for the period ended 31 December 2018 were not restated as the deconsolidation of Motus occurred prior to the adoption of IFRS 16.

IFRS 16 – Leases: As lessor

In terms of lessor accounting IFRS 16 – Leases substantially carries forward the requirements in IAS 17 – Leases and accordingly the group continues to account for its leases as operating leases or finance leases. As a result no restatement of previously reported numbers are required.

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.

Fair value of financial assets and financial liabilities carried at amortised cost

The fair values of the group’s financial assets and financial liabilities carried at amortised cost approximate their carrying values.

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

Transfers between fair value 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.

Movement 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 instruments carried at fair value:

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 include 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 information disclosed below is provisional as the initial accounting of all the business combinations is incomplete.

Fair value of assets acquired and liabilities assumed at date of acquisition:

Reasons for the acquisitions

The group acquired a 60% shareholding in Axis Group International DMCC in Dubai for R175 million. Axis Group is strategically aligned to facilitate trade between Imperial’s present customer base and companies based in the Chinese and Asian regions. Axis can facilitate the sourcing and purchasing of products in China and Asia as well as providing a route-to-market for all companies wanting to trade in these particular areas. It has more than 22 years’ experience in this market and is the go-to company for any business wanting to expand or open up trade in the Chinese and Asian region.

The other businesses were acquired to complement and expand our staffing business in South Africa.

Details of contingent consideration for acquisitions concluded during the period

The contingent consideration requires the group to pay the vendors of Axis R107 million over the next three years if the entities’ net profit after tax exceeds certain profit targets.

Acquisition costs incurred for acquisitions concluded during and after the reporting period

Acquisition costs for business acquisitions concluded during and after the reporting period amounted to R14 million and have been recognised as an expense in profit or loss in the “Other non-operating items” line.

Impact of the acquisitions on the results of the group for acquisitions concluded during the period

From the dates of acquisition the businesses acquired during the period contributed revenue of R34 million and operating profit of R2 million. A reliable estimate of the revenue and profit contributions, if the businesses were acquired on 1 July 2019, is not available.

Separate identifiable intangible assets for the Axis Group acquisition

As at the acquisition date the fair value of the separate identifiable intangible assets was R53 million. This fair value, which is classified as level 3 in the fair value hierarchy, was determined using the multi-period excess earnings method (MEEM) valuation technique for contract-based intangible assets, and the relief from royalty method for brand-based intangible assets.

Refer to the dividend declaration and to business combinations above.