COMMENTARY

FINANCIALS

ADDITIONAL INFORMATION

Notes to the condensed consolidated financial statements

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 2013 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 financial statements as at and for the year ended 30 June 2013.

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 25 February 2014.

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 2013 except where the group has adopted new or revised accounting standards.

Changes in accounting policies

The group has adopted all the new, revised or amended accounting pronouncements as issued by the IASB which became effective to the group on 1 July 2013, including some of the more significant changes as listed below:

IFRS 10 Consolidated Financial Statements

The objective of IFRS 10 is to provide the framework on when an entity is controlled and must be consolidated.

IFRS 11 Joint Arrangements

Where joint arrangements exist the investor is required to assess whether the joint arrangement is a joint operation or a joint venture based on the legal structure of the investee and the investor’s right to and obligations for the underlying assets and liabilities of the investee. IFRS 11 requires equity accounting for joint ventures and eliminates the proportionate consolidation option of accounting.

IFRS 12 Disclosure of Interest in Other Entities

IFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and unconsolidated entities. In general, the disclosure requirements in IFRS 12 are more extensive.

IFRS 13 Fair Value Measurement

IFRS 13 aims to improve consistency and reduce complexity by providing a single definition of fair value and a basis for fair value measurement and disclosure requirements for use across all accounting standards.

IAS 19 Employee Benefits

The amendments to IAS 19 require all actuarial gains and losses to be recognised immediately in other comprehensive income so that the pension asset or liability reflects the full value of the plan deficit or surplus.

The new, revised or amended standards were adopted in accordance with their transitional provisions with the adoption of amendments to IAS 19 resulting in the only restatement of the comparative amounts as follows:

	Effect on December 2012 Rm	Effect on June 2013 Rm
Financial position
Assets
Deferred tax assets – increase	69	80
Total assets	69	80
Capital and reserves
Other reserves – movement through other comprehensive income – reduction	(7)	(9)
Retained income – opening balance as at 30 June 2012 – reduction	(40)	(40)
Retained income – movement through comprehensive income – reduction in prior periods	(102)	(123)
Attributable to owners of Imperial	(149)	(172)
Non-controlling interests – reduction	(3)	(5)
Total equity – reduction	(152)	(177)
Liabilities
Retirement benefit obligations – increase	221	257
Total liabilities – increase	221	257
Total equity and liabilities – increase	69	80
Profit or loss
Net operating expenses – reduction	1	3
Income tax expense – increase		(1)
Net profit for the period – increase	1	2
Earnings per share, headline earnings per share and core earnings per share
– basic – increase (cents)	1	1
– diluted – increase (cents)	1	1
Comprehensive income
Net profit for the period	1	2
Other comprehensive income	(111)	(137)
Items that may be reclassified subsequently to profit or loss	(7)	(9)
– Exchange gains arising on translation of foreign entities – reduction	(7)	(9)
Items that will not be reclassified to profit or loss	(104)	(128)
– Additional actuarial losses on defined benefit plans	(151)	(186)
– Income tax relating to items that will not be reclassified to profit or loss	47	58
Total comprehensive income for the period – reduction	(110)	(135)
Total comprehensive income attributable to:
Owners of Imperial	(109)	(132)
Non-controlling interests	(1)	(3)
	(110)	(135)

Circular 3/2013 Headline Earnings

The group also adopted Circular 3/2013 Headline Earnings as issued by the South African Institute of Chartered Accountants (SAICA). The adoption of the new Circular was applied retrospectively and had no impact on the way the group calculates its headline earnings per share for the comparative periods.

New and revised International Financial Reporting Standards in issue but not yet effective

The following standards will become applicable to the group in future reporting periods:

IFRS 9 Financial Instruments (amended) – This standard introduced new requirements for the classification and measurement of financial assets and financial liabilities and for derecognition.

IAS 16 Property, Plant and Equipment (amended) – The amendments clarify that spare parts, stand-by equipment and servicing equipment should be classified as property, plant and equipment when they meet the definition of property, plant and equipment in IAS 16 and as inventory otherwise.

IAS 32 Financial Instruments: Presentation (amended) – The amendment clarifies how income tax relating to distributions to holders of an equity instrument and how transaction costs of an equity transaction should be accounted for in accordance with IAS 12 Income Taxes.

IAS 36 Impairment of Assets (amended) – This amendment requires additional disclosures about recoverable amount where the recoverable amount is calculated with reference to fair value less cost to sell.

IAS 39 Financial Instruments: Recognition and Measurement (amended) – The amendment allows hedge accounting to continue in a situation where a derivative, designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws and regulations.

IFRIC 21 Levies – This interpretation applies to all government-related levies that are accounted for in accordance with IAS 37 Provisions and clarifies the timing of charging levies to profit or loss.

The group is in the process of assessing the impact of the standard on its results, financial position and cash flows.

Restatement of the consolidated statement of cash flows

Cash flows from financing activities

The cash flows from financing activities for the six months ended 31 December 2012 have been restated to exclude the movement in bank overdrafts and call borrowings from movements in interest-bearing borrowings. The impact of the restatement is as follows:

	December 2012 Rm
Increase in interest-bearing borrowings
Net increase in interest-bearing borrowings – as originally presented	1 190
Movements in bank overdrafts and call borrowings	(1 101)
Net increase in interest-bearing borrowings – restated	89

Representation of the segment report

At 30 June 2013, the executive committee, being the chief decision-making body, changed the basis in which the various businesses within the group are being reported as a result of the changes to the executive management of the group. This has been aligned into three main pillars with seven reporting segments being allocated to these pillars.

The principal services and products of each of these segments are as follows:

Logistics

This pillar comprises:

Africa

This segment comprises logistics businesses within South Africa and Rest of Africa, which was previously reported as part of Logistics. These businesses provide complete logistics solutions including transportation, warehousing, container handling and related value-added services within Africa.

International

This segment comprises the European logistics businesses, which was previously reported as part of Logistics. These businesses provide complete logistics solutions including transportation, warehousing, inland waterway shipping, container handling, manufacturing for principals and packaging of materials and related value-added services within Europe.

Automotive and Industrial

This pillar comprises of:

Distribution, Retail and Allied Services

This segment comprises of the distribution, retail and allied services businesses, which was previously reported as part of Distributorships. These businesses import and distribute a range of passenger, commercial vehicles, industrial equipment and motorcycles and include vehicle dealerships in South Africa and Australia.

Automotive Retail

This segment comprises the automotive businesses, which is now being reported under the pillar Automotive and Industrial. These businesses consist of a large network of motor vehicle and commercial vehicle dealerships in South Africa representing most of the major original equipment manufacturers (OEMs) and commercial vehicle dealerships in the United Kingdom. It also manufactures and sells caravans and canopies.

Other Segments

This segment comprises the businesses of Autoparts, Car Rental, Tourism and NAC. Autoparts and NAC were reported under Distributorships in 2012 and Car Rental and Tourism were previously shown as a segment on its own. The Car Rental business consists of vehicle rental operations spanning the domestic corporate sector, domestic and international leisure sectors with extensive support services. This segment also includes the sale of pre-owned vehicles. The Autoparts business is involved in wholesaling and distributing vehicle parts and accessories. NAC was sold during the 2013 financial year and Tourism during the current reporting period.

Financial Services

This pillar comprises:

Insurance

This segment was previously reported under the Financial Services segment in 2012. The insurance operations are focused on a range of short, medium and long-term insurance and assurance products that are predominantly associated with the automotive market and include cell captive arrangements.

Other Financial Services

This segment was previously reported under the Financial Services segment in 2012. These businesses comprise the sale of warranty and maintenance products associated with the automotive market, income from joint ventures on the sale of financial services and commission factoring operations.

In line with the changes to the segment report effective 30 June 2013, the December 2012 segment report has been restated as follows:

	Revenue 2012 Rm	Operating profit 2012 Rm	Profit before tax and exceptional items 2012 Rm	Operating assets 2012 Rm	Operating liabilities 2012 Rm
SEGMENTAL INFORMATION
Logistics
Total as originally reported for Logistics in 2012	15 888	707	393	18 200	6 891
– IAS 19 restatements (International Logistics)		1	1		221
Total as restated	15 888	708	394	18 200	7 112
Now disclosed separately as Africa Logistics	8 677	400	255	9 809	3 705
Now disclosed separately as International Logistics	7 211	308	139	8 391	3 407
	15 888	708	394	18 200	7 112
Automotive and Industrial
As reported originally in Distributorships in 2012	15 843	1 316	1 245	11 346	3 709
Autoparts and NAC reclassified to other segments	(2 815)	(166)	(173)	(1 576)	(604)
Total now remaining in Distribution, Retail and Allied Services	13 028	1 150	1 072	9 770	3 105
Other Segments
Autoparts and NAC reclassified from
Distributorships	2 815	166	173	1 576	604
Car Rental and Tourism reclassified in total	1 924	183	129	3 185	539
Total now disclosed in Other Segments	4 739	349	302	4 761	1 143
Financial Services
Now disclosed separately as Insurance	1 659	270	265	4 404	2 442
Now disclosed separately as Other Financial Services	506	221	237	1 476	2 571
Total as originally reported as Financial Servicesin 2012	2 165	491	502	5 880	5 013



		December 2013	December 2012	June 2013

7.	Foreign exchange rates
	The following major rates of exchange were used in the translation of the group’s foreign operations:
	SA Rand:Euro
	– closing	14,45	11,21	13,04
	– average	13,50	10,79	11,43
	SA Rand:US Dollar
	– closing	10,49	8,50	10,01
	– average	10,06	8,47	8,84


		Rm*	Rm	Rm

8.	Goodwill
	Cost	5 185	4 113	4 747
	Accumulated impairments	821	682	821
		4 364	3 431	3 926
	Net book value at beginning of period	3 926	3 238	3 238
	Acquisition of subsidiaries and businesses	171	40	331
	Impairment charge			(139)
	Currency adjustment	267	153	496
	Net book value at end of period~	4 364	3 431	3 926

~The book values are included in the goodwill and intangible assets.
*Amounts are provisional as the initial accounting for the business combinations are incomplete.

Fair value of financial instruments

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:



	Carrying value Rm	Fair value Rm

December 2013
Listed corporate bonds (included in interest-bearing borrowings)	5 855	5 897
Listed non-redeemable, non-participating preference shares	441	363

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

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 valuation techniques 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:



	Total Rm	Level 1 Rm	Level 2 Rm	Level 3 Rm

December 2013
Financial assets carried at fair value
Investments held for trading (included in investments and loans)*	3 278	2 500	778
Available-for-sale investments (included in investments and loans)	180	180
Foreign exchange contracts (FECs) (included in trade and other receivables)	118		118
Financial liabilities carried at fair value
Contingent consideration liabilities (included in non-current financial liabilities)	209		88	121
Foreign exchange contracts (FECs) (included in trade and otherreceivables)	1		1
Swap instruments (included in non-current financial liabilities)	223		223

* The fair value gains on investments held for trading amounted to R130 million, of which R40 million was realised, and is included in “Net operating expenses” in profit or loss.

Investments classified as level 1 are valued by quoted market prices in active markets consisted of listed equity securities. Investments classified as level 2 use valuation techniques based on observable inputs which are mainly comprised of short-term deposits and overthe-counter (OTC) derivative instruments.

Transfers between 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 level 1 and level 2 fair value measurements. A short-term fixed deposit which was previously classified as level 3 has been reclassified to level 2, which is considered a more appropriate classification.

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 during the period:

Opening
balance
Rm

Purchases/
settlements
Rm

Acquisitions/
disposals
Rm

Transfer to
level 2
Rm

Currency
adjustments
Rm

Closing
balance
Rm

December 2013

Financial assets carried at fair value

Fair valued through profit or loss

Investments held for trading

115

(36)

(88)

Fair valued through other comprehensive income

Available-for-sale investments

(15)

129

(51)

(88)

Financial liabilities carried at fair value

Fair valued through profit or loss

Contingent consideration liabilities

214

(19)

(88)

121

214

(19)

(88)

121

Level 3 sensitivity information

The fair value of the contingent consideration liabilities of R121 million was estimated by applying the income approach. The fair value measurement is based on significant inputs that are not observable in the market. Key assumptions include the discount rates applied and the assumed probability of achieving profit targets.

If the profit targets were to have a short fall of 10%, the fair value of the liabilities would decrease by R23 million. Exceeding the profit targets will not result in an increase in the liabilities.

Since 30 June 2013, neither the amount recognised for the contingent considerations nor the outcomes or the assumptions used to develop the estimates have changed materially.



		December 2013	December 2012	June 2013

10.	Cash and cash equivalents
	Cash resources	1 693	2 590	1 844
	Cash resources included in assets classified as held for sale		9	4
	Short-term loans and overdrafts (included in interest-bearing borrowings)	(2 460)	(1 817)	(2 328)
		(767)	782	(480)
11.	Commitments and contingencies
	Capital commitments	1 239	483	935
	Contingent liabilities	309	208	294

12.

Acquisitions during the period

The group acquired an additional 11% shareholding in Renault South Africa (Pty) Limited (Renault SA) for R65 million, thereby increasing its shareholding from 49% to 60%. The remeasurement of our previously held equity interest in Renault SA had no impact on profit or loss and other comprehensive income. For further details please refer to the business combination section.

13.

Disposals during the period

The group successfully completed its disposal of the Tourism division to Cullinan Holdings Limited (Cullinan) during the period. The purchase price was settled in
81 818 181 ordinary shares in Cullinan, representing a 10% shareholding.

14.

Events after the reporting period

Dividend declaration

Shareholders are advised that a preference and an ordinary dividend has been declared by the board of Imperial on 25 February 2014.
For more details please refer to the dividend declaration.