Tiger Brands | Annual Financial Statements 2023

BORROWINGS

Group as a lessee

The group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

Lease liabilities

At the commencement date of the lease, the group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the group and payments of penalties for terminating the lease if the lease term reflects the group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments), or a change in the assessment of an option to purchase the underlying asset. The group's lease liabilities are included in borrowings (note 27). Accretion of interest has been included under finance costs for bank and other short-term borrowings (note 9).

Short-term leases and leases of low-value assets

The group applies the short-term lease recognition exemption to its short-term leases (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be of low value. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

IFRS 16 Leases

Where the terms and conditions of the contract have not been clearly defined in relation to renewal options, a significant judgement has been made in order to determine the lease term for specific classes of assets. Based on past practices, the lease terms were adjusted to align with these expectations of management by using historic business unit trends. The group used information supplied by the lessors where there are leases with no specific judgements. On extensions of leases, the group assumed the lease terms to a similar rental.

The lease liability was measured at the present value of the remaining lease payments, discounted using the group's incremental borrowing rate (IBR). The IBR is the rate of interest that the group would have to pay to borrow over a similar term, with similar security, to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the group "would have to pay", which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. The group estimates the IBR using observable inputs (such as market rates) when available, and is required to make certain entity-specific estimates.

In terms of the group's delegation of authority, the group's borrowings are subject to specific approval processes. Any secured and unsecured loans are all at floating rates, unless otherwise stated.

27.1

Lease liability

	GROUP
(R’million)	2023	2022
Current year movements in relation to leases are as follows:
Opening balance (1 October)	520,9	567,3
Additions, terminations and lease modifications	78,3	132,2
Accretion of interest	37,2	37,9
Payments	(240,6)	(216,5)
	395,8	520,9
The group utilised an IBR between 5,2% and 11,8% (2022: 5,2% and 9,8%) for the different classes of assets identified.
Leases liabilities relate to right-of-use assets with a book value of R348,9 million (2022: R469,0 million) as per note 13.3.
The maturity analysis of lease liabilities is disclosed in note 33.4.

27.2

Long-term borrowings*

	GROUP
(R’million)	2023	2022
Long-term borrowings*
Opening balance	–	–
Draw-down on facility*	1 002,1	300,0
Repayment of facility	–	(300,0)
Closing balance	1 002,1	–
Long-term portion of lease liability	208,9	326,5
Total long-term borrowings	1 211,0	326,5

27.3

Short-term borrowings

	GROUP
(R’million)	2023	2022
Short-term borrowings
Opening balance	972,8	–
Repayment of facilities	(1 380,0)	–
Draw-down on facilities**	1 103,9	972,8
Closing balance	696,7	972,8
Short-term portion of lease liability	187,0	194,4
Total short-term borrowings	883,7	1 167,2

This relates to a revolving credit facility (RCF) that has a 13-month notice period. The facility is denominated in South African rand and advanced at a weighted average interest rate of 9,04% (2022: 5,25%). The required covenant benchmarks agreed with lenders include (1) achieving a leverage ratio (net interest-bearing debt to earnings before interest, income tax, depreciation and amortisation (EBITDA)), and (2) achieving an interest cover ratio (EBITDA divided by gross interest expense). At 30 September 2023, the covenants achieved were well within the required covenant benchmarks

This relates to the utilisation of the general banking borrowing facilities with the group’s banking partners. The facilities are denominated in South African rand and advanced at a weighted average interest rate of 8,34% (2022: 5,22%)