Unaudited interim results
for the six months ended
31 December 2020

Notes to the condensed consolidated financial statements
for the six months ended 31 December 2020



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 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.

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 2020.

2.1 Restatement of December 2019 for the adoption of IFRIC 23 – Uncertainty over Income Tax Treatments mid-year 2020
 

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:

R million    
Assets 
Transport fleet  (143)   
Deferred tax assets  42    
Trade, other receivables and contract assets  15    
Total assets  (86)   
Liabilities 
Interest-bearing borrowings  (48)   
Trade, other payables and provisions  (20)   
Current tax liabilities (IFRIC 23) 67    
Total liabilities  (1)   
Total equity  (85)   

3. REPRESENTING 31 DECEMBER 2019 STATEMENT OF PROFIT OR LOSS FOR DISCONTINUED OPERATION

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    
Earnings per share (cents)
Basic       
– Continuing operations  (61)   
– Discontinued operations  61    
Diluted       
– Continuing operations  (60)   
– Discontinued operations  60    

4. BASIS OF SEGMENTATION

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:

  • Logistics Africa
    • Freight
    • Contract Logistics
  • Logistics International
    • Freight
    • Contract Logistics
  • Market Access

The reorganisation resulted in the restatement of amounts that were previously disclosed on the segment reports.

5. FOREIGN EXCHANGE RATES

  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  

6. COVENANT COMPLIANCE, CASH AND LIQUIDITY

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.

7. EXPECTED CREDIT LOSS PROVISIONING

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.

8. OTHER NON-OPERATING ITEMS

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  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)   
Business acquisition costs  (16) (14)    (21)   
Net gains on termination of leases  19    
(435) (32)    52    

9. NET FINANCE COST

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)  

10. GOODWILL AND INTANGIBLE ASSETS

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)    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    

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

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)   
Contingent consideration liabilities | Assumed profits  295     22     (30)   

12. CONTINGENCIES AND COMMITMENTS

R million December
2020
December
2019
  June
2020
 
Capital commitments 110 233   114  
Contingent liabilities 514 394   786  

13. BUSINESS COMBINATIONS

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.

14. EVENTS AFTER THE REPORTING PERIOD

Refer to the dividend declaration in Declaration of interim ordinary dividend.