Basis of presentation of summarised consolidated financial statements
These summarised financial statements have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by Financial Reporting Standards Council, and includes, at a minimum, disclosure as required by IAS 34 Interim Financial Reporting and the Companies Act of South Africa and the JSE Listings Requirements. They do not include all the information required for a complete set of International Financial Reporting Standards (IFRS) financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding to the changes in the Group’s financial position and performance since the last annual consolidated financial statements as at and for the year ended 30 June 2016.
In preparing these summarised financial statements, directors make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
The significant judgements made by directors in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 June 2016.
The consolidated financial statements have been prepared under the supervision of HP Meijer (BCompt MBL) – Group financial director.
Significant accounting policies
The accounting policies applied in these summarised financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ended 30 June 2016.
During the year certain operations were reclassified between segments. The comparative period’s segmental information has been re-presented to reflect these insignificant changes.
Net acquisition of businesses, subsidiaries, associates and investments
During the year the Group acquired 100% of the share capital of Brandcorp with effect from 1 October 2016. Brandcorp is a value added distributor of niche Industrial and Consumer products trading under the Industrial brands, Matus, Renttech, Burncrete, Moto Quip, Leisure Quip and consumer brands, Cellini and MIC Prestige. The acquisition forms part of the Bidvest Commercial Products segment and will enable the Group to expand its range of complementary products and services. Goodwill arose on the acquisition as the anticipated value of future cash flows, that were taken into account in determining the purchase consideration, exceeded the net assets acquired at fair value. The acquisition has been funded with a combination of long-term borrowings and existing cash resources.
The acquisition of Brandcorp contributed R1,8 billion to gross revenue and R198 million to operating profit. Had the acquisition taken place on 1 July 2016, the contribution to revenue would have been R2,6 billion and R252 million to operating profit.
The Group also made a number of less significant acquisitions and disposals during the year. Certain of these acquisitions resulted in insignificant bargain purchase gains. These acquisitions were funded from existing cash resources.
The following table summarises the net assets acquired and liabilities assumed which have been included in these results from the respective acquisition and disposal dates.
|Property, plant and equipment||185 302||63 690||248 992||(9 192)||239 800|
|Deferred taxation||(116 534)||(7 664)||(124 198)||14 437||(109 761)|
|Interest in associates||27 626||32 790||60 416||(288 441)||(228 025)|
|Investments and advances||–||510 124||510 124||(941 863)||(431 739)|
|Inventories||572 519||58 695||631 214||(56 976)||574 238|
|Trade and other receivables||480 411||33 576||513 987||(16 552)||497 435|
|Cash and cash equivalents||118 444||60 080||178 524||3 176||181 700|
|Borrowings||(1 945 120)||(11 059)||(1 956 179)||108||(1 956 071)|
|Trade and other payables and provisions||(434 489)||(101 551)||(536 040)||(11 492)||(547 532)|
|Taxation||(9 277)||(5 280)||(14 557)||(649)||(15 206)|
|Intangible assets||684 282||517||684 799||(95)||684 704|
|(436 836)||633 918||197 082||(1 307 539)||(1 110 457)|
|Non-controlling interest||–||15 179||15 179||(760)||14 419|
|Realisation of foreign currency translation reserve||–||–||–||916||916|
|Gain on bargain purchase price||–||(11 374)||(11 374)||–||(11 374)|
|Goodwill||436 836||197 362||634 198||(3 212)||630 986|
|Net assets acquired (disposed)||–||835 085||835 085||(1 310 595)||(475 510)|
|Settled as follows:|
|Cash and cash equivalents acquired/disposed of||(178 524)||(3 176)||(181 700)|
|Acquisition costs||24 230||–||24 230|
|Net loss on disposal of operations||–||132 946||132 946|
|Net change in vendors for acquisition||(10 989)||–||(10 989)|
|Receivable arising on disposal of associate||–||203 110||203 110|
|Net acquisition (disposal) of businesses, subsidiaries,||669 802||(977 715)||(307 913)|
Capital expenditure amounting to R1,9 billion (2016: R1,1 billion) is in respect of property, plant and equipment.
The Group acquired 100% of the shares of Noonan from Alchemy Partners and Noonan’s current management. Noonan, which is based and operates throughout the Republic of Ireland and in the United Kingdom, has established a clear leadership position with a 40-year track-record of delivering high-quality integrated facility management services and solutions. Its services include soft, technical and ancillary services, and range from cleaning and security to building services and facilities management. The board believes that Noonan’s business model and geographic presence will be complementary to Bidvest’s Services division. Several learnings can be shared, and enhanced, thereby improving the Group’s overall service offering. The current dual geographic footprint allows for growth optionality into Europe and further afield. South African Reserve Bank approval has been obtained. The transaction was effective 1 September 2017. The EUR175 million (R2,7 billion) purchase price was settled by way of foreign credit facilities. Three-year variable rate, Euro denominated funding has been secured at an attractive rate.
Other than above, no further subsequent events have been identified.
Fair value of financial instruments
The Group’s investments of R2,8 billion (2016: R2,9 billion) include R62 million (2016: R89 million) recorded at cost, R1,8 billion (2016: R1,8 billion) recorded and measured at fair values using quoted prices (level 1) and R996 million (2016: R935 million) recorded and measured at fair value using factors not based on observable data (level 3). Fair value gains on level 3 investments recognised in the income statement total R95 million (2016: R94 million) and other reductions of R67 million relate to net sales, and foreign exchange losses of R0,4 million recognised in the currency translation reserve.
The Group’s effective beneficial interest in the Indian based Mumbai International Airport Private Limited (MIAL) is included in unlisted investment held-for-trade, where the fair value is not based on observable market data (level 3). The carrying value of this investment, based on the directors’ valuation at 30 June 2017, is R940 million (US$72 million) (2016: R853 million (US$60 million)).
When the Group performs an analysis and notes significant changes in the underlying variables included in the valuation, the value of the investment is reconsidered. As a result of consistent increases in earnings driven off increased passenger numbers the MIAL asset has been revalued in the current year. The updated value was determined as fair value less cost to sell. The calculation used the actual operating results for MIAL based on the most recent financial statements and a median multiple for the peer group which is in a range of 11.6 – 12.5x EBITDA. A 1% change in the multiple or EBITDA used results in US$1,6 million change in the value. Consideration was also given to an independent expert valuation as well as the Group’s prior disposal of the identical sized interest in the 2012 financial year, after adjusting for a control premium achieved in that transaction.
MIAL is a foreign based asset and the ruling year end exchange rate, US$1 = R13,06 (2016: US$1 = R14,79), is a further factor that affects the carrying value. The valuation is considered a level 3 type valuation in accordance with IFRS 13 – Fair Value Measurement.
The carrying values of all financial assets and liabilities approximate their fair values, with the exception of borrowings of R10,7 billion whose carrying value is R10,7 billion.