MOTUS

The preliminary summarised audited consolidated annual financial statements have been prepared in accordance with the framework concepts, 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 30 June 2019 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 contain the minimum information as required by 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 annual 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 2019.

These audited summarised consolidated annual financial statements are an extract of the full consolidated annual financial statements, both the summarised and full annual financial statements have been prepared under the supervision of OJ Janse Van Rensburg, CA(SA) and were approved by the board of directors on 26 August 2019.

The accounting policies adopted and methods of computation used in the preparation of the preliminary summarised consolidated annual financial statements are in accordance with IFRS and are consistent with those of the annual financial statements for the year ended 30 June 2018, with the exception of new policies as required by new and revised IFRS issued and in effect.

International Financial Reporting Standards that have become applicable to Motus for the 2019 financial year are IFRS 9 – Financial instruments and IFRS 15 – Revenue from contracts with customers.

IFRS 9 – Financial instruments

The standard requires that impairment provisions for receivables are to be calculated on an expected loss basis rather than incurred loss basis. Motus Financial Services has profit share arrangements with banks. The banks are now required to accelerate their expected credit losses (ECL) on non-arrear stage 1 portfolios resulting in lower impairments when the loans become irrecoverable. This had a minor impact on the results of the profit share arrangements that Motus has with the banks. The change from the incurred loss to the expected loss model was applied to trade and to other receivables within the Group and due to the short-term nature of the credit policy in place for sales to external customers the impact is minor. All trade receivables are held to collect contractual cash flows.

Motus has adopted the simplified approach in terms of IFRS 9 – Financial Instruments (IFRS 9), the credit loss allowance on the trade receivables is determined by the lifetime ECL for the Group. The ECL on trade receivables are estimated using a provision matrix by referencing to past default experience, an analysis of the customer’s current financial position and reasonable and supportable forward looking information.

In the Group’s condensed interim unaudited financial statements for the six months ended 31 December 2018 and the consolidated financial statements for the year ended 30 June 2018, Motus disclosed the following in relation to the application to IFRS 9: "The standard has also resulted in a more simplified approach to hedge accounting which affects the Motus Import and Distribution segment".

However, it was erroneously omitted that the Group would still apply IAS 39 – Financial Instruments for hedge accounting until such time as the macro hedging project has been concluded. The principal difference in the two standards is the hedging documentation requirements. Under IFRS 9 there is greater detail required on the Group's risk management strategy and risk management’s objectives, the eligibility of more items that can be utilised as hedging instruments and determination and measurement of hedge effectiveness. Motus is still assessing the impact that the application of IFRS 9 will have on the disclosures and other factors relating to hedge accounting.

The application of IFRS 9 had no material impact on the amounts reported in respect of the Group’s financial assets and financial liabilities. However, there is a requirement for increased disclosure.

IFRS 15 – Revenue from contracts with customers

A detailed review of the potential impact of IFRS 15 has been finalised. All material contracts have been assessed for any impact in terms of the five-step approach. The only change that this review resulted in, was a change to the application of the principal and agency decision processes in the recognition of revenue. As a retailer the nature of the sales process is that transactions are completed in a short space of time and so the impact of the new accounting standard would be expected to be minor.

Under the previous accounting standard (IAS 18 – Revenue Recognition) one of the indicators relating to the principal and agency decision processes was who took on the credit risk. In terms of the agreements with certain of the suppliers in the Aftermarket Parts segment, one of the entities agreed to carry the credit risk and reimburse the suppliers in the event of default. As this was seen as an unusual practice in the industry it was agreed that the entity treat the accounting as a principle arrangement and recognise the revenue accordingly.

Under the new accounting standard, IFRS 15, credit risk is no longer an indicator, requiring that the transactions are now accounted for on the basis of an agency relationship.

The restatement had no impact on profits, cash flows and the financial position, it only affected revenue and net operating expenses as detailed below.

Statement of profit or loss	FY 2018  Rm
Revenue decrease	(658)
Net operating expenses decrease	658
Profit from operations before depreciation and recoupments (no impact)	–

IFRS that will become applicable to the Group in future reporting periods is IFRS 16 Leases (effective for Motus from 1 July 2019). Details of this standard was outlined in the 31 December 2018 interim results. An update of the Group’s assessment of the potential impacts of the new standards on the Group’s financial statements is as follows:

Based on an assessment of operating leases that would be raised as assets and liabilities on 30 June 2019, adopting IFRS 16 – Leases, would have the following indicative impact, with the Retail and Rental segment being the main contributor:

As at 30 June 2019 the right of use asset for the leases would amount to R1 983 million. This balance is the take on balance at inception of the leases being the present value of the minimum lease payments less the amortisation to 30 June 2019. The related lease liability would amount to R2 349 million being the present value of the minimum lease payments plus the related interest less the rental payments to 30 June 2019. The difference between the asset and the liability will be adjusted to retained income.

In total, operating expenses will decrease due to a reduced rental expense partially offset by an increased amortisation on the right of use asset. Interest will be increased by the interest on the lease liability. The impact on net profit before tax is immaterial.

		Closing rates					Average rates
		2019		2018			2019		2018
US Dollar		14,10		13,71			14,18		12,86
British Pound		17,95		18,10			18,35		17,31
Australian Dollar		9,90		10,13			10,14		9,97
Euro		16,06		16,01			16,18		15,34

		2019  Rm		2018  Rm
Derecognition of loans on deregistration of dormant companies		(36)		–
Impairment of goodwill		37		63
Impairment of non-current receivable		–		173
Impairment of investments and associates and joint ventures		72		8
Impairment of asset classified as held-for-sale		10		–
Other non-operating items		(3)		(2)
Total exceptional items		80		242
Gain on derecognition of financial instruments		–		(5)
Business acquisition costs		7		7
		87		244

		2019  Rm		2018  Rm
Carrying value at beginning of year		953		539
Net acquisition of subsidiaries and businesses		111		447
Impairments		(37)		(63)
Currency adjustments		(7)		30
Carrying value at end of year		1 020		953

		2019  Rm		2018  Rm
Cash resources		1 042		1 737
Bank overdrafts		(102)		(550)
		940		1 187

9.1	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.
9.2	Fair values of financial assets and liabilities
	Where the Group's financial assets and financial liabilities are not fair valued and are carried at amortised cost, they approximate their fair values. The following table presents the valuation categories used in determining the fair values of financial instruments carried at fair value.

30 June 2019		Total Rm	Level 1 Rm	Level 2 Rm	Level 3 Rm
Financial assets carried at fair value
Listed investments (included in investments)		35	35	–	–
Unlisted investments (included in investments)		474	–	–	474
Foreign exchange contracts and other derivative instruments		34	–	34	–
Financial liabilities carried at fair value
Foreign exchange contracts and other derivative instruments		135	–	135	–
Contingent consideration		26	–	–	26

There were no transfers between the fair value hierarchies during the period.

Level 2 valuation techniques

Forward exchange contracts

Future cash flows estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at the rate that reflects the credit risk of the various counterparties at the date of entering in to the contract.

Other derivative instruments

The differential on current market interest rates and contract fixed rates on interest rate swaps.

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.

Financial assets		Level 3  Rm
Carrying value at beginning of year		637
Additional investments in underlying preference shares		77
Cash receipts		(436)
Fair valued through profit or loss		196
Carrying value at the end of the year		474
Financial liabilities
Carrying value at beginning of year		–
Recognised as a result of business combinations		26
Carrying value at the end of the year		26

Level 3 sensitivity information

The fair value of the level 3 financial assets of R474 million (2018: R637 million) consists of investments in cell captives though unlisted preference share instruments in insurance companies. These fair values were estimated by applying a discounted cash flow projection technique. Cash flow projections are based on expected dividends receivable which are subject to regulation. The cash flow projections cover a five-year forecast period discounted at a WACC of 18% specifically linked to Motor-Related Financial Services. The projections are limited to five years as the underlying business will be run off over this period with reducing dividend payouts and settlement of capital. A new preference share structure with a new underwriter will be established post-year end.

The fair value measurement is based on significant inputs that are not observable in the market. Key assumptions used in the valuation include underwriting risk, operational risk and investment risk. The dividends receivable are calculated from the assumed profits after taking into account the abovementioned risk inputs.

The fair value of the level 3 financial liability of R26 million (2018: Rnil) is the contingent consideration payable in respect of the Rhino Outdoor and Off-road Proprietary Limited acquisition and is payable over the next two years. The amount payable is based on a multiple of operating profit after tax as required in the purchase agreement.

The following table shows how the fair value of the level 3 financial instruments as at 30 June 2019 would change if a significant assumption 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)	Cash flow projections		Present value of expected dividend flows			474	7		(6)
Contingent considerations	Multiples of future net operating profits after tax		Future expected profits			26	0,3		(0,3)

		2019 Rm		2018 Rm
Capital commitments#		254		343
Contingent liabilities*		3 779		3 700

#	The capital commitments relate to the construction of buildings to be utilised by Motus.
*	The contingent liabilities include letters of credit and guarantees issued by banks with the corresponding guarantee by the Group to the bank.

Acquisitions

Please refer to acquisitions for the period.

Disposals

There were no material disposals noted during the year.

Shareholders are to be advised that an ordinary dividend has been declared by the board of Motus Holdings on 26 August 2019. For further details, please refer to the dividend declaration.

On 1 July 2019 Motus acquired 100% shareholding in F&G Holdings Group and F&G Commercial in the United Kingdom for R281 million. The Group comprises four DAF dealerships along with a commercial body-building operation and a vehicle repair centre.

		2019 Rm
Fair value of assets acquired and liabilities assumed at date of acquisition:
Assets
Property, plant and equipment		233
Inventories		299
Trade and other receivables		28
Cash resources		69
		629
Liabilities
Deferred tax liability		3
Provisions		10
Trade and other payables		359
Income tax liability		7
Interest-bearing debt		101
		480
Net assets acquired		149
Total purchase consideration		281
Goodwill		132

Due to the recent nature of this acquisition, all numbers are treated as provisional.