Group financial performance

Summarised consolidated statement of profit or loss for the period ended 31 December 2020

R million		% change		December  2020			December   2019~
CONTINUING OPERATIONS
Revenue		15		26,360			22,955
Net operating expenses				(23,809)			(20,361)
Profit from operations before depreciation and recoupments				2,551			2,594
Depreciation, amortisation, impairments and recoupments				(1,350)			(1,131)
Operating profit		(18)		1,201			1,463
Recoupments net of impairment to properties				10			15
Amortisation and impairment of intangible assets arising on business combinations				(195)			(174)
Foreign exchange gains				263			18
Profit before net finance costs		(3)		1,279			1,322
Net finance cost		27		(395)			(312)
Profit before share of results of associates and joint ventures				884			1,010
Share of results of associates and joint ventures				8			4
Profit before other non-operating items		(12)		892			1,014
Other non-operating items				(435)			(32)
Profit before tax				457			982
Income tax expense				(158)			(316)
Profit for the period from continuing operations		(55)		299			666
DISCONTINUED OPERATIONS				582			(166)
Net loss from Consumer Packaged Goods (CPG)							(283)
Net profit from the European shipping business				582			117
Net profit for the period				881			500
Net profit (loss) attributable to:
Owners of Imperial				814			423
– Continuing operations				232			590
– Discontinued operations				582			(167)
Non-controlling interests				67			77
– Continuing operations				67			76
– Discontinued operations							1
~ Represented for the classification of the European shipping business as a discontinued operation.

Operating profit from continuing operations decreased by 18%, negatively impacted by COVID-19, increased depreciation due to the weaker Rand/Euro exchange rate, associated once-off costs, and investment in people, structure, processes and systems to support future growth and efficiencies.

The R122 million decrease in profit before other non-operating items to R892 million is mainly attributed to:

• the decrease in operating profit;
• the increase in net finance costs due to the inclusion of CPG's finance costs in the current period, which was reflected under discontinued operations in the prior period;
• the increase in amortisation of intangibles arising on business combinations as a result of businesses acquired during F2020 and the weaker Rand exchange rate;
• offset partially by a foreign exchange gain of R364 million due to reduction in capital in foreign subsidiaries (offset by foreign exchange losses in the African operations of both Market Access and Logistics Africa that arose due to the significant devaluation of most of the functional currencies against the Rand).

Other non-operating items comprised mainly of assets of the South American shipping operation that has been classified as a disposal group.

Significant contributors to the higher effective tax rate are the non-taxable items included in other non-operating items.

The gain from discontinued operations includes the profit arising on disposal of the European shipping business of R573 million.

Non-controlling interests' share of income decreased due to a weaker performance in some businesses with minority shareholders.

Core EPS

Core EPS is a measurement of pure trading performance and is calculated as headline earnings less amortisation of intangible assets arising from business combinations, acquisition cost, re-measurement of put option and contingent consideration liabilities. As a reminder, we have re-introduced core EPS as management believes it is a more accurate reflection of Imperial's trading performance. Please see full reconciliation for earnings per share below.

Earnings, headline earnings and core earnings per share

R million		% change		December  2020			December   2019~
Headline earnings reconciliation
Earnings				814			423
– Continuing operations		(61)		232			590
– Discontinued operations				582			(167)
Recoupment from the disposal of property, plant and equipment (IAS 16)				(31)			(41)
Loss on disposal of intangible assets (IAS 38)							3
Impairment of goodwill (IAS 36)				11			6
Impairment reversal of investment in associates and joint ventures (IAS 28)				(2)
Loss on disposal of subsidiaries, associates and businesses (IFRS 10 and IAS 28)				54			20
Impairment of businesses held-for-sale				415
Foreign exchange gain reclassified to profit or loss (IAS 21)				(364)
Tax effects of remeasurements				8			10
Non-controlling interests' share of remeasurements				13			7
Net headline earning adjustments for discontinued operations				(573)			(69)
Headline earnings		(4)		345			359
– Continuing operations		(44)		336			595
– Discontinued operations				9			(236)
Headline earnings per share (cents)
Continuing operations
– Basic		(43)		180			315
– Diluted		(43)		173			305
Discontinued operations
– Basic				5			(125)
– Diluted				5			(121)
Total operations
– Basic				185			190
– Diluted				178			184
Core earnings reconciliation – continuing operations only
Headline earnings				336			595
Amortisation of intangible assets arising on business combinations				195			174
Remeasurement of put option liabilities				(39)
Remeasurement of contingent consideration liabilities				(7)
Business acquisition costs				16			14
Tax effects of remeasurements				(44)			(41)
Non-controlling interests' share of remeasurements				(19)			(15)
Core earnings				438			727
Core earnings per share
– Basic		(39)		235			384
– Diluted				226			372
~ Represented for the classification of the European shipping business as a discontinued operation.

Financial position

R million		% change		December  2020			June  2020
Goodwill and intangible assets		(11)		6 322			7 084
Investment in associates and joint ventures		31		259			198
Property, plant and equipment		(10)		3 004			3 326
Transport fleet		(36)		3 308			5 186
Right-of-use-assets		(16)		4 576			5 422
Investments and other financial assets		69		458			271
Net working capital*		85		1 006			544
Net assets of disposal groups and discontinued operations		(56)		1 219			2 781
Retirement benefit obligations		(9)		(1 012)			(1 109)
Net debt excluding lease obligations*		(34)		(5 509)			(8 391)
Lease obligations		(15)		(5 185)			(6 080)
Other financial liabilities		(24)		(1 073)			(1 415)
Net income tax (liabilities) assets*		10		499			455
Total shareholders' equity				7 872			8 272
Total assets		(24)		32 498			42 526
Total liabilities		(28)		(24 626)			(34 254)
Net debt:equity % (excluding lease obligations)				70,0			101,4
Net debt:equity % (including lease obligations)				135,8			174,9
* Refer to glossary of terms.

The significant variances on the financial position at 31 December 2020 when compared to 30 June 2020 are explained as follows:

• The decrease in goodwill and intangible assets is attributed to currency movements and amortisation of intangible assets arising on business combinations, offset partially by additions to intangible assets.
• The increase in investment in associates arose due to the acquisition of a 49% shareholding in Pharmafrique Proprietary Limited (trading as Kiara Health) for approximately R76 million.
• The decrease in property, plant and equipment is attributed to currency movements and to depreciation exceeding net capex.
• The decrease in right-of-use assets is due to depreciation exceeding the recognition of new leases, reclassifications and terminations and currency movements.
• The increase in investments and other financial assets is due to a reclassification of an inter-company loan with Pharmed on its disposal.
• The increase in net working capital is attributed to the growth in the business, primarily in Market Access.
• The decrease in net assets of disposal groups and discontinued operations is due to the European shipping business and Pharmed that were disposed of during the period which resulted in a decrease in this balance. This decrease was offset by the South American shipping operation that was classified as a disposal group at 31 December 2020.
• The decrease in the retirement benefit obligations balance is due to currency movements.
• The movement in net debt excluding lease obligations is explained in the cash flow summary that follows.
• Lease obligations decreased as lease payments during the period exceeded new leases recognised coupled with lower translated foreign leases.
• The decrease in other financial liabilities is due to currency adjustments, the settlement of put options as a result of the minority buy-outs in Eco Health, re-measurement of the put option and contingent consideration liabilities, as well as the settlement of loans during the period.

The balance sheet movement in net debt, excluding lease obligations of R2 882 million, includes currency movements and other non-cash movements of R225 million that are excluded from the cash flow movement of R2 657 million.

Cash flow summary to 31 December 2020 including discontinued operations in both periods

R million		December  2020			December  2019
Cash flows from operating activities
Cash generated by operations before movements in net working capital		2 587			2 682
Movements in net working capital		(1 009)			(1 094)
Cash generated by operations before interest and taxes paid		1 578			1 588
Net interest paid		(379)			(422)
Tax paid		(304)			(261)
Cash generated by operations		895			905
Cash flows from investing activities
Net disposal (acquisition) of subsidiaries and businesses		3 390			(75)
Expansion capital expenditure		(238)			(483)
Net replacement capital expenditure		(63)			(332)
Net movement in other associates and joint ventures		(69)			39
Net movement in investments, loans and non-current financial instruments		(74)			14
Cash utilised in investing activities		2 946			(837)
Cash flows from financing activities
Settlement of interest-rate-swap instruments					(10)
Repurchase of ordinary shares		(101)			(225)
Dividends paid		(52)			(282)
Cash paid on change in non-controlling interests		(118)			(80)
Payments of lease obligations		(913)			(1 138)
Cash utilised in financing activities		(1 184)			(1 735)
Movement in net debt excluding lease obligations		2 657			(1 667)
Free cash flow*		(81)			(565)

* Refer to glossary of terms.

The following are the significant cash flow items:

• Cash generated by operations before movements in net working capital of R2 587 million decreased by R95 million due to the decrease in operating profit.
• The increase in working capital arose from the growth in the overall business. Average working capital as a percentage of revenue is at 4% at 31 December 2020 and considered to be within an acceptable range.
• Interest of R379 million and tax of R304 million were paid during the period.
• The cash inflow arising from the net disposal (acquisition) of subsidiaries includes R3 440 million that was received on the disposal of the European shipping business.
• Net capex decreased to R301 million due to optimal capex management during COVID-19 and more effective fleet management in Logistics Africa.
• The cash outflow arising from movements in other associates and joint ventures arose due to the acquisition of a 49% shareholding in Pharmafrique Proprietary Limited (trading as Kiara Health) for approximately R76 million.
• Dividends amounting to R52 million were paid to non-controlling shareholders during the period.
• Other significant cash outflow items included lease liability payments of R913 million, share buybacks of R101 million and cash paid on change to non-controlling interests of R118 million.
• Free cash outflow (post maintenance capex, payments of lease obligations and including discontinued operations) was R81 million which improved from an outflow of R565 million in the prior period. Free cash flow (post maintenance capex, payments of lease obligations excluding discontinued operations and CPG) increased to an inflow of R671 million in the period ending December 2021 from an outflow of R54 million in the period ending December 2020. This resulted in a continuing free cash flow to continuing headline earnings ratio of 0,93 times and a continuing free cash conversion ratio of 90%, which improved significantly from 76% in H1 F2020.

Movement in total equity for the six months to 31 December 2020

Total equity of R7 872 million decreased by R400 million from R8 272 million previously reported on 30 June 2020.

Decrease in equity for the period to December 2020

	Rm
Comprehensive loss	(210)
Net profit attributable to Imperial shareholders	814
Net profit attributable to non-controlling interests	67
Decrease in the foreign currency translation reserve	(1 115)
Increase in the hedge accounting reserve	24
Movement in share based reserve net of transfers to retained earnings	80
Repurchase of Imperial Logistics shares	(101)
Non-controlling interest disposed off, net of acquisitions and shares issued	(47)
Net decrease in non-controlling interests through buy-out	(70)
Non-controlling share of dividends	(52)
Total decrease	(400)

Liquidity

The group's liquidity position remains strong with R13,7 billion of unutilised banking facilities. A total of 71% of the group debt (including lease obligations) is long term in nature and 65% of the debt (including lease obligations) is at fixed rates.

Dividend

After considering the strong cash flow generation and balance sheet of the business, and the steady recovery in operations since H2 F2020, an interim cash dividend of 83 cents per ordinary share was declared by the board and will be paid to shareholders in March 2021 (H1 F2020: 167 cps). The dividend will be assessed at each reporting period. The dividend payout ratio will be assessed at each reporting period, subject to prevailing circumstances.