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 2020 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 2020.
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 22 February 2021.
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 2020.
| 2.1 | Restatement of December 2019 for the adoption of IFRIC 23 – Uncertainty over Income Tax Treatments mid-year 2020 | |||||||||||||||||||||||||||||||||||||||
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The group adopted IFRIC 23 – Uncertainty over Income Tax Treatments mid-year during fiscal 2020, the financial position at 31 December 2019 is accordingly restated. The adoption of IFRIC 23 increased the groups current tax liabilities by R67 million and reduced equity by the same amount. In addition to restating for the adoption of IFRIC 23, the statement of financial position has also been restated for the revision to the IFRS 16 Leases to agree to the amounts as published in the June 2020 annual financial statements. The above restatements had no impact on profit or loss, other comprehensive income and cash flows. The impact of the above on the statement of financial position at 31 December 2019 was as follows:
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The European shipping business was classified as a discontinued operation at 30 June 2020 and subsequently sold at the end of July 2020. The statement of profit or loss for the six months ended 31 December 2019 are consequently restated to reclassify the results of the European shipping business from continuing operation to discontinued operations. As detailed below the reclassification has had no impact on net profit and cash flows for the period ended 31 December 2019.
| R million | ||
| Profit or loss | ||
| Continuing operations | ||
| Revenue | (2 442) | |
| Net operating expenses | 2 081 | |
| Profit from operations before depreciation and recoupments | (361) | |
| Depreciation, amortisation, impairments and recoupments | 188 | |
| Operating profit | (173) | |
| Other non-operating items | (10) | |
| Profit before net finance costs | (183) | |
| Net finance cost | 26 | |
| Profit before share of results of associates and joint ventures | (157) | |
| Share of results of associates and joint ventures | (4) | |
| Profit before tax | (161) | |
| Income tax expense | 44 | |
| Profit for the period from continuing operations | (117) | |
| Discontinued operations | ||
| Profit for the period from discontinued operations | 117 | |
| Net profit (loss) attributable to: | ||
| Owners of Imperial | ||
| – Continuing operations | (116) | |
| – Discontinued operations | 116 | |
| Non-controlling interests | ||
| – Continuing operations | (1) | |
| – Discontinued operations | 1 | |
| Earnings per share (cents) | ||
| Basic | ||
| – Continuing operations | (61) | |
| – Discontinued operations | 61 | |
| Diluted | ||
| – Continuing operations | (60) | |
| – Discontinued operations | 60 |
In line with the group’s strategy, effective 1 July 2020, management of the group has been reorganised from a regional focus to the solutions we offer, with the following major reporting segments:
The reorganisation resulted in the restatement of amounts that were previously disclosed on the segment reports.
| December 2020 |
December 2019 |
June 2020 |
|||||
|---|---|---|---|---|---|---|---|
| The following major rates of exchange were used in the translation of the group's foreign operations: | |||||||
| SA Rand:Euro | |||||||
| – closing | 17,97 | 15,72 | 19,51 | ||||
| – average | 19,19 | 16,29 | 17,32 | ||||
| SA Rand:US Dollar | |||||||
| – closing | 14,65 | 14,01 | 17,37 | ||||
| – average | 16,26 | 14,68 | 15,67 | ||||
| SA Rand:Pound Sterling | |||||||
| – closing | 20,01 | 18,51 | 21,46 | ||||
| – average | 21,23 | 18,50 | 19,74 |
The group has externally imposed capital requirements in terms of debt covenants on bank facilities. The covenant, which is calculated on a basis pre-IFRS 16 – Leases, requires the group to maintain a net debt:EBITDA* ratio of below 3,25:1.
At 31 December 2020 the group’s net debt was R5 509 million and the net debt to EBITDA ratio was 1,82 times. The covenant ratio when calculated on a comparative basis was 2,91 time at 30 June 2020. The improvement in the ratio is a direct consequence of the decrease in net debt which was R8 391 million at 30 June 2020 compared to R5 509 million at 31 December 2020. The receipt of the proceeds from the sale of the European shipping business and the implementation of strict capital management measures during the reporting period resulted in the improvement in the net debt to EBITDA ratio.
At 31 December 2020 the group held cash resources of R1 596 million and had committed undrawn credit facilities of R13 731 million.
The following table summarises the maturity profile of the group’s financial liabilities based on undiscounted contractual cash flows with the focus on the short term:
| Financial liability | Carrying value Rm |
< 6 months Rm |
6 to 12 months Rm |
> 12 Months Rm |
||||
|---|---|---|---|---|---|---|---|---|
| Interest-bearing borrowings | 7 105 | 470 | 1 629 | 5 006 | ||||
| Lease obligations | 5 185 | 967 | 930 | 3 288 | ||||
| Derivative liabilities | 75 | 4 | 71 | |||||
| Put option liabilities | 461 | 461 | ||||||
| Contingent consideration liabilities | 295 | 137 | 158 | |||||
| Other financial liabilities | 246 | 246 | ||||||
| Trade payables | 7 848 | 7 848 | ||||||
| 21 215 | 9 426 | 2 630 | 9 159 |
| * | Refer to glossary of terms. |
Trade receivables
There has been no significant change in credit risk from what we have assessed at 30 June 2020.
Cash resources
The group deposits cash with reputable financial institutions with investment grade credit ratings assigned by international or
recognised credit rating agencies or counterparties authorised by the investment committee. None of the financial institutions
displayed significant increase in credit risk during the reporting period.
| R million | December 2020 |
December 2019 |
June 2020 |
||||
|---|---|---|---|---|---|---|---|
| Remeasurement of financial instruments not held-for-trading | 46 | 300 | |||||
| Remeasurement of put option liabilities | 39 | 277 | |||||
| Gain on remeasurement of contingent consideration liabilities | 7 | 23 | |||||
| Capital items | (481) | (32) | (248) | ||||
| Impairment of goodwill | (11) | (6) | (223) | ||||
| Impairment of businesses held-for-sale | (415) | ||||||
| Loss on disposal of subsidiaries, businesses and associates | (54) | (20) | (23) | ||||
| Impairment of equity investments | (6) | (26) | |||||
| Profit on disposal of associates | 40 | ||||||
| Impairment reversal (impairment) of investments and loans to associates | 2 | 8 | (2) | ||||
| Business acquisition costs | (16) | (14) | (21) | ||||
| Net gains on termination of leases | 19 | 7 | |||||
| (435) | (32) | 52 |
| R million | December 2020 |
December 2019 |
June 2020 |
||||
|---|---|---|---|---|---|---|---|
| Net interest paid | (375) | (291) | (744) | ||||
| Fair value losses on interest-rate swap instruments | (20) | (21) | (18) | ||||
| (395) | (312) | (762) |
Movement in goodwill during the period was as follows:
| R million | December 2020 |
December 2019 |
June 2020 |
||||
|---|---|---|---|---|---|---|---|
| Goodwill | |||||||
| Cost | 7 341 | 7 544 | 7 814 | ||||
| Accumulated impairment | (2 722) | (2 483) | (2 712) | ||||
| 4 619 | 5 061 | 5 102 | |||||
| Carrying value at beginning of period | 5 102 | 4 910 | 4 910 | ||||
| Net acquisition and disposal of businesses | 16 | 148 | 477 | ||||
| Impairment charge | (11) | (6) | (223) | ||||
| Currency adjustments | (488) | 9 | 1 057 | ||||
| Reclassified to assets of discontinued operations | (1 119) | ||||||
| Carrying value at end of period | 4 619 | 5 061 | 5 102 | ||||
| Intangible assets | 1 703 | 1 682 | 1 982 | ||||
| Goodwill and intangible assets | 6 322 | 6 743 | 7 084 |
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 approximate their carrying values.
The following table presents the valuation categories used in determining the fair values of financial instruments carried at fair value.
| R million | Level 2 | Level 3 | ||
|---|---|---|---|---|
| Financial assets | ||||
| Listed investments | ||||
| Foreign exchange contracts | 11 | |||
| Financial liabilities | ||||
| Interest-rate swap derivatives | 71 | |||
| Put option liabilities (option to buy-out non-controlling interest) | 461 | |||
| Contingent consideration liabilities (arising on business combinations) | 295 | |||
| Foreign exchange contracts | 4 |
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.
| R million | Put options liabilities |
Contingent consideration liabilities |
Total | |||
|---|---|---|---|---|---|---|
| Carrying value at beginning of the period | 646 | 336 | 982 | |||
| Arising on business combinations | 12 | 12 | ||||
| Fair valued to profit or loss | (39) | (7) | (46) | |||
| Settlements | (48) | (48) | ||||
| Currency adjustments | (98) | (46) | (144) | |||
| Carrying value at end of period | 461 | 295 | 756 |
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.
| R million | Carrying value |
Increase in carrying value |
Decrease in carrying value |
|||
|---|---|---|---|---|---|---|
| FINANCIAL INSTRUMENT | KEY ASSUMPTION | ||||||
| Put option liabilities | Earnings growth | 461 | 9 | (9) | |||
| Contingent consideration liabilities | Assumed profits | 295 | 22 | (30) |
| R million | December 2020 |
December 2019 |
June 2020 |
||||
|---|---|---|---|---|---|---|---|
| Capital commitments | 110 | 233 | 114 | ||||
| Contingent liabilities | 514 | 394 | 786 |
There were no material acquisition of businesses during the reporting period or before the financial statements were authorised for issue, and the amount referred to in Results overview of the commentary includes investments made into new associates.
Refer to the dividend declaration in Declaration of interim ordinary dividend.