Notes to the summarised consolidated financial statements

for the year ended 30 June 2017

 

1. BASIS OF PREPARATION


The summarised consolidated financial statements have been prepared in accordance with the framework concepts and measurement requirements of International Financial Reporting Standards (IFRS) 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 summarised consolidated financial statements are an extract of the full audited consolidated annual financial statements for the year ended 30 June 2017.

These summarised consolidated financial statements and the complete set of consolidated financial statements have been prepared under the supervision of R Mumford, CA (SA) and were approved by the board of directors on 21 August 2017.

2. ACCOUNTING POLICIES


The accounting policies adopted and methods of computation used in the preparation of the summarised consolidated financial statements are in accordance with IFRS and are consistent with those of the annual financial statements for the year ended 30 June 2016.

3. RESTATEMENT OF 2016


The Regent Insurance operations have been classified as discontinued operations since 30 June 2015. Protracted negotiations and regulatory requirements resulted in the sale being concluded on 30 June 2017. The final transaction was amended so that Imperial retained the Value Added Products (VAPS) businesses in Regent which resulted in lower proceeds, lower net asset value disposed and lower profits lost due to the disposal.

As a result the 30 June 2016 consolidated financial statements are restated to reflect the revised split between continued and discontinued operations on the statement of profit and loss and the lower assets and liabilities of discontinued operations on the statement of financial position. The impact is that the continuing operations profits increase and the discontinued operation profits decrease. The various assets and liabilities of the businesses retained were reclassified from assets and liabilities of discontinued operations back to their appropriate categories.

In reviewing the 30 June 2016 VAPS businesses it has been discovered that certain provisions were understated by R40 million which impacts the continuing operations results. In addition the charge to profit and loss for the non-controllinginterests for discontinued operations was understated by R25 million. The total earnings impact on 2016 is R52 million. These amounts are not material and do not warrant restatement however as the group is restating 30 June 2016 for the VAPS businesses retained, these restatements have also been included.

The 2016 statement of cash flows was restated to reclassify the cash inflows for interest-rate swap instruments amounting to R19 million from investing activities to operating activities and to reclassify the cash outflows for cross-currency swap instruments amounting to R157 million from investing activities to financing activities.

The effects of the restatement on the prior year consolidated financial statements were as follows. The amounts below are the changes to the 30 June 2016 financial statements:

STATEMENT OF FINANCIAL POSITION 2016 
Rm 
  2015 
Rm 
 
ASSETS             
Investment in associates and joint ventures       
Property, plant and equipment  137     137    
Deferred tax assets  11     11    
Investments and loans  105     54    
Tax in advance       
Trade and other receivables          
Cash resources       
Assets of discontinued operations  (265)    (209)   
Total assets          
EQUITY AND LIABILITIES             
Retained earnings  (52)         
Attributable to owners of Imperial  (52)         
Non-controlling interest  25          
Total equity  (27)         
LIABILITIES             
Trade and other payables and provisions  137     95    
Current tax liabilities  (8)         
Liabilities of discontinued operations  (97)    (95)   
Total liabilities  32          
Total equity and liabilities       

 

STATEMENT OF PROFIT OR LOSS VAPS 
restatement 
2016 
Rm 
  Error 
restatement 
2016 
Rm 
  Total 
restatement 
2016 
Rm 
 
Continuing operations            
Revenue  62           62    
Net operating expenses  33     (40)    (7)   
Operating profit  95     (40)    55    
Share of result of associates and joint ventures             
Profit before tax  100     (40)    60    
Income tax expense  (13)       (5)   
Profit for the year from continuing operations  87     (32)    55    
Discontinued operations                   
Profit for the year from discontinued operations  (82)          (82)   
Net profit for the year     (32)    (27)   
Net profit attributable to:                   
Owners of Imperial     (57)    (52)   
–  Continuing operations  87     (32)    55    
–  Discontinued operations  (82)    (25)    (107)   
Non-controlling interest        25     25    
–  Continuing operations                   
–  Discontinued operations        25     25   

 

STATEMENT OF COMPREHENSIVE INCOME VAPS 
restatement 
2016 
Rm 
  Error 
restatement 
2016 
Rm 
  Total 
restatement 
2016 
Rm 
 
Net profit for the year   (32)   (27)  
Total comprehensive income for the year  5    (32)   (27)  
Total comprehensive income attributable to:            
Owners of Imperial   (57)   (52)  
Non-controlling interest     25    25   
    (32)   (27)  

 

STATEMENT OF CASH FLOWS VAPS 
restatement 
2016 
Rm 
  Reclassification 
2016 
Rm 
  Total 
restatement 
2016 
Rm 
 
Cash flows from operating activities            
Decrease in cash generated by operations before movements in working capital (40)   19    (21)  
Increase in movements in net working capital 40        40   
Increase in cash from operating activities     19    19   
Cash flows from investing activities            
Increase in net movement in investment, loans and non-current financial instruments     138    138   
Increase in cash from investing activities     138    138   
Cash flows from financing activities            
Settlement of cross currency swap instruments     (157)   (157)  
Decrease in cash from financing activities     (157)   (157)  

4. BASIS OF SEGMENTATION


In line with the Group's organisational changes as announced on 3rd June 2016 the basis of segmentation for the 2017 financial year has been revised as follows:

Logistics division reports segmentally on three sub divisions namely:

  • Logistics South Africa
  • Logistics Africa Regions
  • Logistics International

The Vehicles division reports segmentally on four sub divisions namely:

  • Vehicle Import and Distribution
  • Vehicle Retail and Rental
  • Aftermarket Parts
  • Motor Related Financial Services

The revision resulted in the restatement of amounts that was previously disclosed on the June 2016 segment reports.

5. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS IN ISSUE BUT NOT YET EFFECTIVE


International Financial Reporting Standards that will become applicable to the group in future reporting periods includes IFRS 9 Financial Instruments (effective 1 January 2018), IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018) and IFRS 16 Leases (effective 1 January 2019). The details of these standards are outlined in the 30 June 2017 annual financial statements.

The group is in the process of assessing the impact of these standards on its consolidated financial statements.

6. FOREIGN EXCHANGE RATES


  2017   2016  
The following major rates of exchange was used in the translation of the Group's foreign operations:        
SA Rand : Euro        
–  closing 14,92   16,31  
–  average 14,81   16,10  
SA Rand : US Dollar        
–  closing 13,06   14,70  
–  average 13,58   14,51  
SA Rand : Pound Sterling        
–  closing 17,02   19,58  
–  average 17,23   21,47  
SA Rand : Australian Dollar        
–  closing 10,04   10,95  
–  average 10,24   10,56  

7. OTHER NON-OPERATING ITEMS


  2017 
Rm 
  2016 
Rm 
 
Remeasurement of financial instruments not held-for-trading (29)   (50)  
Charge for remeasurement of put option liabilities (39)   (64)  
Gain on remeasurement of contingent consideration liabilities   14   
Reclassification of gain on disposal of investment in associate      
Capital items (328)   20   
Impairment of goodwill (123)   (258)  
Impairment of investments in associates and joint ventures (34)   (89)  
(Loss) profit on disposal of subsidiaries and businesses (89)   520   
Impairment losses on assets of disposal group     (90)  
Business acquisition costs (82)   (63)  
  (357)   (30)  

8. NET FINANCE COSTS


  2017 
Rm 
  2016 
Rm 
 
Net interest paid (1 670)   (1 462)  
Fair value (losses) gains on interest-rate swap instruments (10)   22   
  (1 680)   (1 440)  

9. GOODWILL AND INTANGIBLE ASSETS


  2017 
Rm 
  2016 
Rm 
 
Goodwill        
Cost  7 679     6 286    
Accumulated impairments  (985)    (862)   
   6 694     5 424    
Carrying value at beginning of year  5 424     5 018    
Net acquisition (disposal) of subsidiaries and businesses  2 012     (130)   
Impairment charge  (123)    (258)   
Reclassified to assets held for sale        (28)   
Currency adjustments  (619)    822    
Carrying value at end of year  6 694     5 424    
Intangible assets  2 835     2 077    
Goodwill and intangible assets  9 529     7 501   

10. CASH AND CASH EQUIVALENTS


  2017 
Rm 
  2016 
Rm 
 
Cash resources 4 499    2 321   
Cash resources included in assets of discontinued operations and of disposal groups     1 352   
Short-term loans and overdrafts (Included in interest-bearing borrowings) (2 058)   (2 954)  
  2 441    719   

11. FAIR VALUE OF FINANCIAL INSTRUMENTS


11.1 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.

11.2 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.

30 June 2017 Carrying
value
Rm
  Fair
value*
Rm
 
Listed corporate bonds (included in interest-bearing borrowings) 5 341   5 295  
Listed non-redeemable, non-participating preference shares 441   337  
* Level 2 of the fair value hierarchy.

The fair values of the remainder 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.

30 June 2017 Total
Rm
  Level 2
Rm
  Level 3
Rm
 
Financial assets carried at fair value            
Unlisted investments 648       648  
Cross currency and interest-rate swap instruments (Included in Other financial assets) 6   6      
Foreign exchange contracts and other derivative instruments (Included in Trade and other receivables) 68   68      
Financial liabilities carried at fair value            
Put option liabilities (Included in Other financial liabilities) 1 553       1 553  
Contingent consideration liabilities (Included in Other financial liabilities) 45       45  
Swap instruments (Included in Other financial liabilities) 145   145      
Foreign exchange contracts and other derivative instruments (Included in Trade, other payables and provisions) 31   31      

There were no reclassifications between fair value hierarchy levels during the year.

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 includes the assumed probability of achieving profit targets, expected future cash flows and the discount rates applied. The assumed profitabilities and cash flows were based on historical performances but adjusted for expected growth.

The following table shows how the fair value of the level 3 financial instruments as at 30 June2017 would change if the significant assumptions were to be replaced by a reasonable possible alternative.

Financial
instruments
Valuation
technique
Key
assumption
Carrying
value
Rm
Increase
in carrying
value
Rm
Decrease 
in carrying 
value 
Rm 
 
Unlisted investments (asset) Income approach Preset value of expected cash flows 648 72 (76)  
Put option liabilities Income approach Earnings growth 1 553 8 (14)  
Contingent consideration liabilities Income approach Assumed profits 45   (8)  

12. CONTINGENCIES AND COMMITMENTS


  2017 
Rm 
  2016 
Rm 
 
Capital commitments 1 448   1 309  
Contingent liabilities 649   770  

13. ACQUISITION AND DISPOSAL OF BUSINESSES DURING THE YEAR


Acquisitions
Please refer to Business combinations during the period for acquisitions during the year.

Disposals
Please refer to Capital allocation for disposals during the year.

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 21 August 2017. For more details please refer to the Declaration of final preference and ordinary dividends.

Acquisitions
Surgipharm Limited
Logistics African Regions acquired 70% of Surgipharm Limited for a consideration of R470 million (USD 35 million). Surgipharm, which is headquartered in Nairobi, markets and distributes pharmaceutical, medical, surgical and allied supplies in Kenya, with an annual turnover of approximately R964 million (USD 73 million). The transaction was effective 1 July 2017.

Pentagon Motor Holdings
Motus acquired on 14 August 2017 100% of Pentagon Motor Holdings Limited (Pentagon), for a cash consideration of R493 million (£28 million). Headquartered in Derbyshire, Pentagon operates 20 prime retail dealerships in Derbyshire, Nottinghamshire, Lincolnshire, Yorkshire and greater Manchester. For the year ending 31 December 2016 Pentagon had a turnover of R8,715 million (£495 million). Pentagon was established in 1991 and has grown steadily from its initial Vauxhall franchise base to represent numerous leading car and van manufacturers including Peugeot, Seat, Mazda, Kia, Renault, Fiat, Alfa Romeo, Nissan, Mitsubishi and Jeep.

SWT Group Proprietary Limited
Motus entered into an agreement to acquire 75% of SWT, an Australian based group which operates 16 dealerships, for a cash consideration of R254 million (AUD 24.2 million). The transaction is subject to certain conditions precedent.

As the initial accounting for the above acquisitions were not complete at the time that the financial statements were autorised for issue no further disclosures are provided.