Tiger Brands

The preparation of these results has been supervised by Noel Doyle, Chief Financial Officer of Tiger Brands Limited.

The condensed consolidated interim results for the six months ended 31 March 2019 have been prepared in accordance with the International Financial Reporting Standard, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, the requirements of the South African Companies Act No 71 of 2008 and the Listings Requirements of the JSE Limited. These statements have not been audited or reviewed.

The accounting policies adopted in the preparation of the condensed consolidated interim results are consistent with those applied in preparation of the group’s annual consolidated financial statements for the year ended 30 September 2018, except for IFRS 9 Financial Instruments which was adopted 1 October 2018 and applied using a modified retrospective approach. The majority of the group’s financial instruments measured at fair value in terms of IFRS 13, are noted as level 1 hierarchy, which are valued based on quoted market prices.

Goodwill and indefinite useful life intangible assets are tested for impairment annually (as at 30 September) and when circumstances that indicate the carrying value may be impaired. The group’s impairment tests for goodwill and intangible assets with indefinite useful lives are based on the value-in-use calculations. The key assumptions used to determine the recoverable amount for the different cash-generating units were disclosed in the annual consolidated financial statements for the year ended 30 September 2018. During the current period, goodwill relating to VAMP (R6,0 million) and Davita (R100,0 million) was impaired.

Davita is included in the Exports and International cash-generating unit. The impairment arose as a result of the consistent risks associated with key export markets, with lower sales projected for Nigeria and Mozambique, as well as lower sales forecasted for the powdered seasoning brand, Benny. All assumptions have remained in line with the prior year as disclosed in the 2018 annual financial statements, however the post-tax discount rate utilised for the purposes of the impairment testing has been revised to 16,9% (2018: 17,9%). A +1%/-1% change in the post-tax discount rate would result in an approximately +/-R100 million change in the valuation.

As a consequence of the decision taken to unbundle the company’s investment in Oceana, the company ceased to equity account the earnings of Oceana with effect from 1 December 2018. From this date, the investment has been accounted for as a held-for-sale asset on the balance sheet. The Brimstone sale was concluded on 20 March 2019. The total sale consideration amounted to R581,4 million, giving rise to a capital profit of R281,9 million and a release of R26,4 million on FCTR. Following the completion of the Brimstone sale, the board proceeded with the unbundling of the remaining Oceana shareholding to Tiger Brands shareholders.

IFRS 9 replaces IAS 39 and addresses the classification, measurement and derecognition of financial assets and liabilities. IFRS 9 introduces new rules for hedge accounting and a new impairment model for financial assets.

The group has adopted IFRS 9 and applied the new rules using a modified retrospective approach from 1  October 2018. Comparatives for 2018 have not been restated. In terms of IFRS 9, the group has applied the expected credit loss (ECL) model rather than the incurred loss model. The calculation of ECLs incorporates forward looking variables which include potential risks in the current economic environment, historic trends and expert management judgement. The group did not present an adjustment to opening retained earnings and its impairment losses/reversals determined in accordance with IFRS 9 separately in the statement of profit or loss as the amounts are not material. As the remeasurement on available-for-sale investments have previously gone through other comprehensive income, there is no change in terms of IFRS 9 for FVOCI.

IFRS 16 introduces significant changes to lessee accounting as it removes the distinction between operating and finance leases under IAS 17 and requires a lessee to recognise a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets. IFRS 16 will be effective for the group for the financial year commencing 1 October 2019.

IFRS 16 will impact most significantly the group’s leases relating to property, plant, equipment and vehicles. The group has elected to apply IFRS 16 using the modified retrospective approach. As prescribed by IFRS 16, lease liabilities are measured at the present value of remaining lease payments discounted at the incremental borrowing rate at the date of initial application. Tiger Brands has elected to measure right-of-use assets on transition date at their carrying amounts as if IFRS 16 had applied since the lease commencement dates, discounted using the incremental borrowing rate at the date of initial application. Right-of-use assets relating to new leases are measured at the amount of initial measurement of the lease liability plus initial direct costs. As part of the modified retrospective transition approach, Tiger Brands has elected to apply the practical expedient which allows a single discount rate to be applied to a portfolio of leases with reasonably similar characteristics.

As an accounting policy election, Tiger Brands has applied the following recognition exemptions which allow for certain lease payments to be expensed over the lease term as opposed to recognising a right-of-use asset and related lease liability on the lease commencement date:

• Short-term leases – these are leases with a lease term of 12 months or less; and
• Leases of low value assets – these are leases where the underlying asset is of low value.

The company has not yet determined the exact quantitative impact of applying IFRS 16, however, the operating lease commitment disclosure provided in the September 2018 financial statements provides a good indication to the extent of the potential impact.

Given the developments in Zimbabwe since October 2018, it became necessary to reconsider the functional currency of NFH. NFH operates in Zimbabwe and its key operations are driven by local currency transactions. It was determined that the functional currency changed from USD to real time gross settlement (RTGS) dollar. As a result, the RTGS equity-accounted earnings from October to March were translated at an equivalent ZAR parallel rate as this represents the most appropriate rate when applying the guidance in IAS 21.

On 3 April 2019, the board formally approved the unbundling of the remaining 49  104  774 shares that the company holds in Oceana (equating to approximately 36,2% of the issued share capital of Oceana) (the unbundled shares) by way of a distribution in specie in terms of the company’s memorandum of incorporation. This was concluded on 29 April 2019.

Shareholders are referred to the SENS announcement issued by the company on 17 April 2019 with regards to the Class Action summons issued against Tiger Brands. No specific amount of damages is being claimed in the summons. The quantum of damages will be dealt with in the second stage of the Class Action, after the court has made a ruling with regard to liability, and only if the court finds that the company is liable.