NOTES

1. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES

The preparation of these results have been supervised by Pamela Padayachee, Acting Chief Financial Officer of Tiger Brands Limited.

The condensed consolidated interim results for the six months ended 31 March 2020 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 2019, except for IFRS 16 Leases which was adopted 1 October 2019 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.

The determination of whether the VAMP business should be disclosed and measured as held-for-sale in terms of IFRS 5 as at 31 March 2020 is a significant judgement area. In applying this judgement, specific consideration was given as to whether it is highly probable that the sale will be completed within one year from 31 March 2020. As a number of the key terms and conditions are still to be agreed and inherent uncertainties exist, it is considered appropriate to treat VAMP as a continuing operation in the current period.

2. OPERATING INCOME BEFORE IMPAIRMENTS AND ABNORMAL ITEMS

3. IMPAIRMENT

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 that were disclosed in the annual consolidated financial statements for the year ended 30 September 2019 have been revised given the current market outlook. During the current period, goodwill relating to Designer Group (R36,0 million) and Davita (R250,0 million) was impaired. Property, plant and equipment in the Deciduous Fruit business (LAF) was impaired by R196,5 million, down to its carrying value. The investment in the Nigerian associate has been impaired by R74,7 million.

The impact of Covid-19 led economic challenges as far as could be estimated, in the short and medium term, have been factored into the cash flow forecasts.

Davita is included in the Exports and International cash-generating unit. The impairment arose as a result of the current risks and challenges associated with key export markets. The assumptions disclosed in the 2019 annual financial statements have been revised given the current market outlook, resulting in a post-tax discount rate utilised for the purposes of the impairment testing being revised to 18,43% (2019: 17,62%). A +1%/-1% change in the post-tax discount rate would result in an approximately +/-R250 million change in the valuation.

The Deciduous Fruit business (LAF) is also included in the Exports and International cash-generating unit. LAF is predominantly an export sales business which has seen a downturn in the business outlook due to structural category dynamics which have evolved over a prolonged period.

Given the adverse market outlook for the Nigeria economy with the possibility of another recession impending, the investment in associate UAC Foods (UAC) has been impaired down to its carrying value.

4. ABNORMAL ITEMS

5. NET FINANCE COSTS AND INVESTMENT INCOME

6. RECONCILIATION BETWEEN PROFIT FOR THE PERIOD AND HEADLINE EARNINGS

7. ANALYSIS OF LOSS FROM DISCONTINUED OPERATIONS

Loss for the period from discontinued operation (attributable to owners of the Company)

Deli Foods is in the final process of closure which is expected to be concluded by the end of June.

8. ADOPTION OF IFRS 16 LEASES

IFRS 16 introduces significant changes to lease 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 brings the majority of the Group’s long-term property, equipment, vehicles and other leases onto the statement of financial position. As an accounting policy election, the Group 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 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. The Group has elected to measure right-of-use assets on transition date (1 October 2019) 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, the Group 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.

Right-of-use assets are tested for impairment when there are any indicators of impairment. IFRS 16 removes the straight-line rent cost previously recognised in respect of operating leases under IAS 17, and replaces the cost with depreciation on right-of-use assets and interest charged on outstanding lease liabilities.

On transition date, the right-of-use asset and lease liability recognised was R356,4 million and R416,7 million respectively. The long and short-term portion of the lease liability is R281,4 million and R135,3 million respectively. The deferred tax asset recognised on transition amounted to R16,9 million.

The right-of-use assets capitalised and included in the property, plant and equipment at 31 March 2020 amounted to R288,8 million with related depreciation of R62,8 million. The long and short-term portion of the lease liability is R245,0 million and R101,5 million respectively.

9. NATIONAL FOODS HOLDINGS LIMITED

As disclosed in the 30 September 2019 annual financial statements, the equity accounted results of National Foods Holdings Limited (NFH), included in these results have been prepared in accordance with the provisions of IAS 29 Financial Reporting in Hyperinflationary Economies (IAS 29), with key accounting principles and judgements applied by the Group. In line with the judgements applied during the 2020 financial year, management assessed that the official interbank closing exchange rate is 0,33 ZWL$ to the South African rand and this was therefore used when translating the results of NFH.

The results and net asset value of NFH have been translated into the Group’s presentation currency at the closing exchange rate, in accordance with hyperinflationary provisions of IAS 21 The Effects of Changes in Foreign Exchange Rates.

10. SUBSEQUENT EVENTS

There are no material events that occurred during the period subsequent to 31 March 2020, and up to the date of these financial results being authorised for issue.