MOTUS - Unaudited condensed interim results for the six months ended 31 December 2020 | Notes to the summarised consolidated financial statements

Notes to the summarised consolidated financial statements

1. Basis of preparation

The unaudited condensed consolidated financial statements have been prepared in accordance with the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and financial reporting pronouncements as issued by the Financial Reporting Standards Council ("FRSC"). The results contain the information 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 unaudited condensed consolidated financial statements do not include all the information required for a full set of consolidated 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 unaudited condensed consolidated financial statements have been prepared under the supervision of Ms U Singh, CA(SA) and were approved by the board of directors on 22 February 2021.

2. Going concern

The unaudited condensed consolidated statement of financial position as at 31 December 2020 reports a positive total equity balance of R12 053 million (2019: R12 011 million) and net interest-bearing debt of R2 886 million (2019: R8 799 million).

The directors have reviewed and approved the Group budgets, cash flow forecasts, the solvency and liquidity positions and banking covenants and based on the budgets prepared by management, it is concluded that the Group will remain comfortably within the existing bank facility limits for at least the next 12 months from the date of approval of these unaudited condensed consolidated financial statements with significant headroom available.

On the basis of this review, the directors have concluded that there is a reasonable expectation that the Group will continue to meet its obligations as they fall due for at least the next 12 months from the date of approval of these unaudited condensed consolidated financial statements.

3. Accounting policies

The accounting policies adopted and methods of computation used in the preparation of the unaudited condensed consolidated financial statements are in accordance with International Financial Reporting Standards ("IFRS") and are consistent with those of the consolidated annual financial statements for the year ended 30 June 2020, with the exception of new and revised policies as required by new and revised IFRS issued and in effect. The new and revised standards issued have not had a significant impact on the unaudited condensed consolidated financial statements.

4. Update on previously disclosed impacts as a result of the application of IFRS 16 – Leases

In the prior period, effective 1 July 2019, IFRS 16 became applicable to the Group for the first time as was outlined in the 30 June 2020 consolidated annual financial statements.

In the unaudited condensed consolidated financial statements for the six months ended 31 December 2019, the impact of the adoption of IFRS 16 was disclosed with regards to the effect on the consolidated statement of financial position. As is noted in the 30 June 2020 consolidated annual financial statements, the value of the day one adjustment changed as follows:

	Audited 30 June 2020 Rm	Unaudited 31 December 2019 Rm

Right-of-use assets	2 036	1 881
Net investment in lease receivables	133	133
Lease liabilities	(2 389)	(2 336)
Net adjustment:	(220)	(322)
Allocated as follows:
Retained earnings	105	176
Non-controlling interest	3	2
Deferred tax asset	41	71
Operating lease smoothing liability	71	73

These changes have resulted in the 31 December 2019 financial position being restated with the impact as follows:

	As previously disclosed Rm	Adjustments Rm	Restated balance Rm

Right-of-use assets	1 896	155	2 051
Lease liabilities (Long-term and short-term)	2 352	53	2 405
Retained earnings	9 241	71	9 312
Non-controlling interest	59	(1)	58
Deferred tax asset	1 184	(30)	1 154
Trade and other payables	8 928	2	8 930

The adjustments primarily related to an error in the assessment of the lease start dates which arose as part of business combinations in the United Kingdom (UK) prior to the application of IFRS 16.

Previously, the initial value recognised was based on the contractual start date of the lease. In terms of the guidance given in IFRS 3 – Business Combinations, the right-of-use asset was to be measured as if it arose under a new lease commencing on the date of business combination (either through a trade and asset acquisition or share purchase), As a result, the right-of-use asset had a lower accumulated depreciation as at 1 July 2019, which resulted in a higher cost recognised and a decrease in the adjustment to retained earnings and the deferred tax.

Due to the lease expiry dates remaining the same, there was a minimal impact on the related lease liability. Further, the discount rates were reassessed, which resulted in further adjustments to the lease liability and the related right-of-use assets.

The impact of these adjustments on the statement of profit and loss, statement of cash flows and the related impact on the earnings per share and headline earnings per share were not significant.

5. Exchange rates

	Closing rates			Average rates for the period
	31 December 2020	30 June 2020	31 December 2019	6 months 31 December 2020	12 months 30 June 2020	6 months 31 December 2019

US Dollar	14,65	17,37	14,01	16,26	15,67	14,73
British Pound	20,01	21,46	18,51	21,23	19,73	18,50
Australian Dollar	11,32	11,96	9,84	11,75	10,49	10,05
Euro	17,97	19,51	15,72	19,19	17,31	16,29

6. Goodwill

	Unaudited 31 December 2020 Rm	Unaudited 31 December 2019 Rm	Audited 30 June 2020 Rm

Carrying value at the beginning of the period	1 556	1 020	1 020
Acquisition of subsidiaries and businesses	37	142	482
Impairments	(26)	(68)	(182)
Currency adjustments	(75)	33	223
Re-allocations from intangible assets	–	–	13
Carrying value at the end of the period	1 492	1 127	1 556

The impairment of goodwill is in line with the group policy, where any business acquisitions which results in goodwill below R10 million is impaired on acquisition.

7. Acquisitions and disposals during the period

Acquisitions
There were no individually significant acquisitions noted during the period. The acquisitions related to bolt-on businesses acquired in the Retail and Rental and Aftermarket Parts Segment. The total purchase consideration amounted to R115 million.

Disposals
There were no significant disposals noted during the period.

8. Cash resources

	Unaudited 31 December 2020 Rm	Unaudited 31 December 2019 Rm	Audited 30 June 2020 Rm

Cash resources	2 424	788	2 121
Bank overdrafts	(45)	(503)	(136)
	2 379	285	1 985

9. Fair value of financial instruments

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 value 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:

31 December 2020	Total Rm	Level 1 Rm	Level 2 Rm	Level 3 Rm

Financial assets carried at fair value
Unlisted investments (included in investments)	356	–	–	356
Derivative financial assets	4	–	4	–
Financial liabilities carried at fair value
Contingent consideration	15	–	–	15
Derivative financial liabilities	808	–	808	–

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

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:

	Total Rm

Financial assets
Carrying amount at the beginning of the period	338
Proceeds received on disposal of investment	(6)
Dividends received	(57)
Fair valued through profit or loss as unrealised gains	81
Carrying value at the end of the period	356
Financial liabilities
Carrying amount at the beginning of the period	17
Payment made to former equity holder of the subsidiary acquired	(2)
Carrying value at the end of the period	15

Level 2 valuations 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 into the contract.

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

Level 3 sensitivity information
The fair value of the level 3 financial assets of R356 million (2019: R434 million) consists of investments in cell captives through 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 18.73% specifically linked to Financial Services. The projections are limited to five years as the investment structures are reviewed on an ongoing basis in light of changes to the regulatory and economic landscape.

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 is calculated from the assumed profits after taking into account the above-mentioned risk inputs.

The fair value of the level 3 financial liability of R15 million (2019: R17 million) is the contingent consideration which related to the purchase of Rhinoman Outdoor and Off-road Proprietary Limited, with a contingency in the purchase price depending on the profitability targets. It is anticipated that this liability will be settled early in the 2022 financial year, subject to profitability levels of Rhinoman Outdoor and Off-road (Proprietary) Limited being achieved.

Financial instrument	Valuation technique	Key assumption	Carrying value Rm	Increase in carrying value Rm	Decrease in carrying value Rm

Financial assets
Preference shares	Cash flow projections	Present value of expected dividend flows	356	8	(8)
Financial liabilities
Contingent consideration	Multiples of future net operating profits after tax	Future expected profits	15	–	–

10. Other non-operating costs

	Unaudited 31 December 2020 Rm	Unaudited 31 December 2019 Rm	Audited 30 June 2020 Rm

Impairment of goodwill	(26)	(68)	(182)
Impairment of other intangible assets	–	–	(107)
Profit on disposal of businesses	9	–	4
Profit on sale of associate	–	–	31
Reversal of impairment of associates and joint ventures	–	5	22
Total non-trading items	(17)	(63)	(232)
Amortisation of intangible assets arising on business combinations	(7)	(5)	(12)
Gain on derecognition of financial instrument	–	10	10
Business acquisition costs	–	(1)	(8)
Other non-operating items	(24)	(59)	(242)

11. Contingencies and commitments

	Unaudited 31 December 2020 Rm	Unaudited 31 December 2019 Rm	Audited 30 June 2020 Rm

Capital commitments¹	78	337	101
Contingent liabilities²	3 140	2 761	2 335

¹	The capital commitments relate to the construction of buildings to be utilised by the Group.
²	The contingent liabilities include letters of credit and guarantees issued by banks with the corresponding guarantee by the Group to the bank.

12. Events after the reporting period

Purchase of non-controlling interests:
SWT Group Proprietary Limited
The Group has acquired an additional 10% shareholding from the minority shareholder in the month of January 2021. The Group’s effective ownership has increased to 90%. The purchase price was R38 million. The purchase price, net of the attributable non-controlling interest as at the effective date, will be transferred to the premium paid on the purchase of non-controlling interests in equity.

Renault South Africa Proprietary Limited
The Group will be purchasing the remaining 40% shareholding from Renault SAS (France). The purchase price is R250 million. The purchase price, net of the attributable non-controlling interest as at the effective date, will be transferred to the premium paid on the purchase of non-controlling interests in equity. The transaction is subject to The Competition Commission approval.

Shareholders are to be advised that an ordinary dividend has been declared by the board of Motus Holdings Limited on 22 February 2021. For further details, please refer to the dividend declaration.

There are no further significant subsequent events that occurred from the period ended 31 December 2020 to the date of these unaudited condensed consolidated financial statements other than those disclosed above.