1. |
BASIS OF PREPARATION The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited (JSE) for summary financial statements, and the requirements of the Companies Act applicable to summary financial statements. The JSE requires summary financial statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34: Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements from which the summary consolidated financial statements were derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements, with the exception of the adoption of the amendments to IAS 16: Property, Plant and Equipment and IAS 41: Agriculture. These amendments have to be applied retrospectively and accordingly the reported results of the comparative year were restated. The restatements pertain to the reclassification of bearer plants from biological assets to property, plant and equipment, the transfer of the remaining noncurrent biological assets (being the produce) to current biological assets and the measurement of the reclassified assets under the appropriate accounting treatment. Refer to note 15 for further detail. The financial statements have been prepared under the supervision of the Chief Financial Officer, Neville Williams CA(SA). The summary consolidated financial statements do not contain all the information and disclosures required in the consolidated financial statements. The summary consolidated financial statements have been extracted from the audited consolidated financial statements upon which PricewaterhouseCoopers Inc. has issued an unqualified report. The audited consolidated financial statements and the unqualified audit report are available for inspection at the registered office of the Company. |
2. |
COMPARISON WITH THE PRIOR YEAR Since 11 May 2018 Remgro holds the majority of voting rights (56.0%) in Distell, thereby resulting in the investment in Distell now being consolidated at 31.8%. Therefore, certain line items in the statement of financial position and income statement are not directly comparable with the prior year. Based on the preliminary accounting for the business combination, the fair value of the major classes of assets and liabilities acquired are as follows: |
| R million | Atacquisitiondate | ||
|---|---|---|---|
| Property, plant and equipment | 6 608 | ||
| Intangible assets | 10 169 | ||
| Inventories | 7 765 | ||
| Debtors and short-term loans | 2 149 | ||
| Cash and cash equivalents less bank overdraft | 1 306 | ||
| Other net assets | 1 229 | ||
| Long-term loans | (4 378) | ||
| Deferred taxation (assets and liabilities) | (3 693) | ||
| Trade and other payables | (3 857) | ||
| Non-controlling interest | (11 893) | ||
| Fair value of net assets acquired | 5 405 | ||
| Goodwill | 3 535 | ||
| Total purchase consideration | 8 940 | ||
| Distell's revenue contribution for the year under review is R4 219 million. Refer to “Related party transactions” here for further detail. | |||
| 3. | HEADLINE EARNINGS RECONCILIATION |
| R million |
30 June 2018 |
30 June 2017 |
|
|---|---|---|---|
| CONTINUING OPERATIONS | |||
| Net profit for the year attributable to equity holders (earnings) | 8 453 | 7 985 | |
| – Impairment of equity accounted investments | 580 | 177 | |
| – Reversal of impairment of equity accounted investments | (529) | (479) | |
| – Impairment of available-for-sale investments | 44 | 5 | |
| – Impairment of property, plant and equipment | 71 | 181 | |
| – Profit on sale and dilution of equity accounted investments(1) | (5 156) | (208) | |
| – Loss on sale and dilution of equity accounted investments | 52 | 9> | |
| – Profit on sale of available-for-sale investments | (116) | (15) | |
| – Loss on sale of available-for-sale investments | – | 15 | |
| – Profit on disposal of property, plant and equipment | (114) | (110) | |
| – Recycling of foreign currency translation reserves | (10) | – | |
| – Impairment of intangible assets | 34 | – | |
| – Loss on sale of subsidiary | 42 | – | |
| – Non-headline earnings items included in equity accounted earnings of equity accounted investments | 4 726 | 220 | |
| – Profit on disposal of property, plant and equipment | (44) | (22) | |
| – Profit on the sale of investments | (583) | (351) | |
| – Loss on the sale of investments | 78 | 26 | |
| – Impairment of investments, assets and goodwill(2) | 5 935 | 668 | |
| – Recycling of foreign currency translation reserves | (647) | (83) | |
| – Other headline earnings adjustable items | (13) | (18) | |
| – Taxation effect of adjustments | 32 | 5 | |
| – Non-controlling interest | (35) | (13) | |
| Headline earnings from continuing operations | 8 074 | 7 772 | |
| DISCONTINUED OPERATIONS | |||
| Net profit for the year attributable to equity holders (earnings) | 490 | 446 | |
| – Non-headline earnings items included in equity accounted earnings of equity accounted investments | |||
| – Loss on disposal of property, plant and equipment | 12 | 3 | |
| – Taxation effect of adjustments | (3) | – | |
| Headline earnings from discontinued operations | 499 | 449 | |
| Total headline earnings from continuing and discontinued operations | 8 573 | 8 221 | |
| Option remeasurement | (261) | (687) | |
| Headline earnings, excluding option remeasurement | 8 312 | 7 534 | |
| (1) | “Profit on sale and dilution of equity accounted investments” includes the profit realised on the Distell restructuring transaction of R5 150 million. | |||
| (2) | “Impairment of investments, assets and goodwill” from equity accounted investments includes Remgro's portion of the impairments of Mediclinic's investments in Hirslanden and Spire of R5 257 million. | |||
| 4. | EARNINGS AND DIVIDENDS |
| * | Capital and investment commitments at 30 June 2018 include an amount of R2 459 million from Distell | |
| 12. | Fair value remeasurements |
The following methods and assumptions are used to determine the fair value of each class of financial instruments:
Financial instruments measured at fair value are disclosed by level of the following fair value hierarchy: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – Inputs (other than quoted prices included within level 1) that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The following table illustrates the fair values of financial assets and liabilities that are measured at fair value, by hierarchy level: |
| R million | Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|---|
| 30 June 2018 | |||||
| Assets | |||||
| Available-for-sale | 934 | 41 | 2 092 | 3 067 | |
| Derivative instruments | – | 12 | – | 12 | |
| Investment in money market funds | 3 996 | – | – | 3 996 | |
| 4 930 | 53 | 2 092 | 7 075 | ||
| Liabilities | |||||
| Non-current derivative instruments | – | 112 | – | 112 | |
| Current derivative instruments | – | 34 | 43 | 77 | |
| – | 146 | 43 | 189 | ||
| 30 June 2017 | |||||
| Assets | |||||
| Available-for-sale | 1 178 | – | 2 167 | 3 345 | |
| Derivative instruments | – | 1 | – | 1 | |
| Investment in money market funds | 5 888 | – | – | 5 888 | |
| 7 066 | 1 | 2 167 | 9 234 | ||
| Liabilities | |||||
| Non-current derivative instruments | – | 363 | – | 363 | |
| Current derivative instruments | – | 13 | 49 | 62 | |
| – | 376 | 49 | 425 | ||
| The following tables illustrate the reconciliation of the carrying value of level 3 assets and liabilities from the beginning to the end of the year: | |||
| R million | 30 June 2018 |
30 June 2017 |
|
|---|---|---|---|
| Assets: Available-for-sale | |||
| Balances at the beginning of the year | 2 167 | 2 148 | |
| Additions | 103 | 119 | |
| Disposals | (356) | (67) | |
| Exchange rate adjustments | 81 | 178 | |
| Fair value adjustments through comprehensive income | 97 | 145 | |
| Balances at the end of the year | 2 092 | 2 167 | |
| Liabilities: Derivative instruments | |||
| Balances at the beginning of the year | 49 | 54 | |
| Put option exercised | (6) | (5) | |
| Balances at the end of the year | 43 | 49 | |
There were no transfers between the different levels. Level 3 financial assets consist mainly of investments in the Milestone China entities (Milestone) and the Pembani Remgro Infrastructure Fund (PRIF) amounting to R1 737 million and R234 million respectively, while the investment in the Kagiso Infrastructure Empowerment Fund was disposed of during the year under review. These investments are all valued based on the fair value of each investment's underlying assets, which are valued using a variety of valuation methodologies. Listed entities are valued at the last quoted share price on the reporting date, whereas unlisted entities' valuation methods include discounted cash flow valuations, appropriate earnings and revenue multiples. Milestone's fair value consists of listed investments (43%), cash and cash equivalents (6%), unlisted investments (60%) and other net liabilities (9%). Unlisted investments included at transaction prices in Milestone's fair value amounted to R573 million, while its remaining eight unlisted investments were valued at R469 million. PRIF's main assets are the investments in ETG Group, Nova Lumos and GPR Leasing. ETG Group was valued at its last traded price used for the acquisition of an interest by a third party. GPR Leasing and Nova Lumos were valued using the discounted cash flow method. Changes in the valuation assumptions of the above unlisted investments will not have a significant impact on Remgro's financial statements as the underlying assets of the funds in which Remgro made its investments are widely spread. |
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| 13. | RELATED PARTY TRANSACTIONS | ||
DISTELL GROUP Holdings LIMITED (DISTELL)On 30 June 2017 Remgro had an indirect economic interest of 31.8% in Distell Group Limited (previously listed Distell). This interest was held through its 50.0% shareholding in Remgro-Capevin Investments Proprietary Limited (RCI) and 19.0% shareholding in Capevin Holdings Limited (Capevin). Capevin held the other 50.0% shareholding in RCI and RCI had a 53.5% economic interest (or 52.8% voting interest) in the previously listed Distell. On 11 May 2018 the competition authorities approved the restructuring of the previously listed Distell's multi-tiered ownership structure. In terms of the restructuring, Remgro exchanged its 50.0% shareholding in RCI for additional ordinary shares in Capevin (the RCI Exchange). The RCI Exchange increased Remgro's interest in Capevin from 19.0% to 59.5%. Following the RCI Exchange, Remgro exchanged its entire Capevin shareholding for ordinary shares in Distell, a new listed entity which is substantially similar to the previously listed Distell. Remgro also received unlisted B shares in Distell, which shares are linked to the Distell ordinary shares acquired by Remgro by virtue of the RCI Exchange, resulting in Remgro replicating RCI's 52.8% voting rights in the previously listed Distell. The unlisted B shares only carry voting rights in Distell and have no economic participation. The restructuring had no impact on Remgro's intrinsic net asset value and Remgro retained its 31.8% economic interest in Distell, but increased its voting rights in Distell to 56.0%. Remgro's investments in RCI and Capevin were previously classified as a joint venture and an associate, respectively, and accounted for using the equity method. Since the restructuring, Remgro holds the majority of voting rights (56.0%) in Distell, thereby resulting in the investment in Distell now being consolidated at 31.8% with effect from 11 May 2018, while the investments in RCI and Capevin were derecognised at their fair values totalling R8 940 million, realising an accounting profit on the sale of investments of R5 150 million. In terms of IFRS 3: Business Combinations the purchase consideration for Distell, consisting of the fair value of Remgro's previously held interests in RCI and Capevin, amounted to R8 940 million. The preliminary fair value of the underlying assets acquired and liabilities assumed at the effective date were: intangible assets of R10 169 million, property, plant and equipment of R6 608 million, and other net assets of R521 million. Non-controlling shareholders' proportionate interest in the fair value of Distell's net assets amounted to R11 893 million, while Remgro's economic interest therein amounted to R5 405 million. The balance of R3 535 million, being the difference between the purchase price and Remgro's portion of Distell's identifiable net assets, was allocated to goodwill. The fair value adjustment to Distell's statement of financial position relates mainly to the recognition of brands (inter alia Hunters, Savanna, Amarula and Bernini). The amortisation of these additional assets will result in an annual after-tax expense of R145 million (Remgro's portion being R46 million) included in headline earnings. Since Remgro retained its economic interest of 31.8% in Distell's underlying business, the impact on attributable headline earnings for the year under review only relates to the additional after-tax amortisation expense of R8 million for the period to 30 June 2018. RMI HOLDINGS LIMITED (RMI HOLDINGS)On 19 September 2017 and 12 March 2018 RMI Holdings declared its final dividend for the year ended 30 June 2017 and interim dividend for the six months ended 31 December 2017 respectively. Both dividends included an alternative to the cash dividend of either receiving a scrip distribution or reinvesting the cash dividend by subscribing for new RMI Holdings ordinary shares. Remgro elected the reinvestment alternative for both declarations. Cash dividends amounting to R471 million were reinvested for 7 691 641 new RMI Holdings ordinary shares at R38.00 per share and 4 196 921 new RMI Holdings ordinary shares at R42.50 per share during October 2017 and April 2018 respectively. These investments increased Remgro's interest in RMI Holdings marginally to 30.3% (30 June 2017: 29.9%). GRINDROD LIMITED (GRINDROD)On 19 June 2018 Grindrod distributed its shipping division to its shareholders as a dividend in specie. Grindrod shareholders received one Grindrod Shipping Holdings Limited (Grindrod Shipping) share for every 40 Grindrod shares held and, accordingly, Remgro received 4 329 580 Grindrod Shipping shares. Grindrod Shipping listed on the NASDAQ on 18 June 2018 with a secondary inward listing on the JSE on 19 June 2018. On 30 June 2018 Remgro's effective interests in Grindrod and Grindrod Shipping were 23.0% (2017: 23.1%) and 22.7% respectively. INVENFIN PROPRIETARY LIMITED (INVENFIN)During the year under review Remgro (through its wholly owned subsidiary, Invenfin) invested a further R80 million in Bos Brands Proprietary Limited (Bos Brands), thereby increasing its cumulative investment in Bos Brands to R244 million. Bos Brands is an owner, producer, marketer and distributor of a range of ice teas and sports drinks, under the BOS brand. OTHERFor other related party transactions refer to notes 5, 10 and 11. |
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