Basis of presentation of summarised consolidated financial statements
These summarised provisional 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, the Companies Act of South Africa and the JSE Listings Requirements. They do not include all the information required for a complete set of 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 2018.
In preparing the consolidated financial statements from which these summarised consolidated financial statements are prepared, 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 management 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 2018.
Significant accounting policies
The accounting policies applied in these summarised consolidated financial statements are in terms of IFRS and the same as those applied in the Group’s consolidated financial statements as at and for the year ended 30 June 2018, except as detailed below:
The Group has adopted the following new accounting standards as issued by the IASB, which were effective for the Group from 1 July 2018:
- IFRS 15 Revenue from Contracts with Customers (IFRS 15); and
- IFRS 9 Financial Instruments (IFRS 9).
The application of both IFRS 15 and IFRS 9 has had no material impact on the Group’s results.
Retained earnings as at 1 July 2018 has been restated as follows:
|Retained earnings at the beginning of the period||22 486 993|
|Bill-and-hold arrangement (IFRS 15)||(40 294)|
|Performance obligations satisfied over time (IFRS 15)||(37 000)|
|Customer acceptance (IFRS 15)||3 431|
|Expected credit loss model (IFRS 9)||(58 280)|
|Taxation effect||35 042|
|Non-controlling interest||17 018|
|Restated retained earnings at the beginning of the period||22 406 910|
Adoption of and transition to IFRS 15
In transitioning to IFRS 15 the Group applied the cumulative effect method and retained prior period figures as reported under the previous standards, recognising the cumulative effect of applying the new standard as an adjustment to the opening balance of equity as at the date of initial application (beginning of current reporting period).
The Group principally generates revenue from providing a wide range of goods and services through its seven core trading operations, Services, Freight, Commercial Products, Office and Print, Financial Services, Automotive and Electrical.
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled for transferring goods and services to a customer. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over products or services to a customer.
On conclusion of a detailed assessment the Group identified the following impact of the change in accounting policy, the prior period financial effects of which are detailed in the table above.
- Bill-and-hold arrangement. Upon review of the IFRS 15 requirements for satisfaction of performance obligations and acceptable measures of progress, management concluded that the Group did not fully satisfy the performance obligations at inception of the contract. Following adoption of IFRS 15 revenue is recognised at the point in time when control transfers to the customer.
- Performance obligations satisfied over time. Upon review of the IFRS 15 requirements for satisfaction of performance obligations and acceptable measures of progress, management concluded that the Group did not fully satisfy the performance obligations at inception of the contract. Following adoption of IFRS 15 revenue is recognised at the point in time when control transfers to the customer.
- Customer acceptance. Upon review management has concluded that these sales meet the IFRS 15 requirements to recognise revenue when control transfers, and although customer acceptance is required, the other determinants of control in IFRS 15 indicate that revenue should be recognised prior to customer acceptance. Therefore revenue for these services will be recognised earlier under IFRS 15.
Given the diverse nature of the business management believes the summarised segmental revenue analysis presents the nature and amount of Group revenue streams with sufficiently different characteristics not obscured by insignificant detail, and therefore fulfils the disaggregation disclosure requirements of IFRS 15.
Adoption of and transition to IFRS 9
As a result of the adoption of IFRS 9 the Group changed from the incurred credit loss model detailed in IAS 39 to the expected credit loss (ECL) model to calculate impairments of financial instruments. IFRS 9 also resulted in a change in the classification of the measurement categories for financial instruments. In transitioning to IFRS 9 the Group has applied the changes retrospectively but has elected not to restate comparative information.
Applying the incurred loss model, the Group assessed whether there was any objective evidence of impairment at the end of each reporting period. If such evidence existed the allowance for credit losses in respect of financial assets at amortised cost was calculated as the difference between the asset’s carrying amount and its recoverable amount.
Following the adoption of IFRS 9 the Group calculates allowance for credit losses as ECL's for financial assets measured at amortised cost, debt investments at fair value through other comprehensive income (FVOCI) and contract assets. ECL's are a probability weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls, the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive. ECL's are discounted at the original effective interest rate of the financial asset. The Group applies the simplified approach to determine the ECL for trade receivables, contract assets and lease receivables (collectively, accounts receivable). This results in calculating lifetime expected credit losses for these receivables. ECL for accounts receivable is calculated using a provision matrix.
The Group operates a decentralised structure and the provision matrix is deployed for each operating entity’s accounts receivable as follows: ECLs are calculated by applying a loss ratio to the aged balance of accounts receivable at each reporting date. The loss ratio is calculated according to the ageing/payment profile of sales by applying historic write-offs to the payment profile of the sales population. In instances where there was no evidence of historical write-offs, management used a proxy write-off. Accounts receivable balances have been grouped so that the ECL calculation is performed on groups of receivables with similar risk characteristics and ability to pay. Similarly, the sales population selected to determine the ageing/payment profile of the sales is representative of the entire population and in line with future payment expectations. The historic loss ratio is then adjusted for forward-looking information to determine the ECL for the portfolio of accounts receivable at the reporting period to the extent that there is a strong correlation between the forward-looking information and the ECL.
In determining the ECL for its financial assets Bidvest Bank applies the three stage general approach, which is based on changes in credit quality since initial recognition. ECLs are calculated using, a probability of default, a loss given default and the exposure at default. Both forward-looking macro-economic information and historical data are considered in the assessment of ECL.
The financial impact on prior periods of changing from an incurred loss model to an ECL model has been detailed in the table above.
Classification, initial recognition and subsequent measurement
IFRS 9 introduces new measurement categories for financial assets. The measurement categories of IFRS 9 and IAS 39 are illustrated in the comparative table below. From 1 July 2018 the Group classifies financial assets in each of the IFRS 9 measurement categories based on the Group’s business model for managing the financial asset and the cash flow characteristics of the financial asset.
|IAS 39 category||IFRS 9 category|
|Financial assets at fair value through profit or loss (FVTPL)||Financial assets at FVTPL|
|Loans and receivables||Financial assets at amortised cost|
|Available for sale||Investment at fair value through other comprehensive income (FVOCI)*|
|Held to maturity|
|*||This includes both debt and equity instruments. The biggest change is that on derecognition of equity instruments gains and losses accumulated in OCI are not reclassified to profit or loss.|
On initial recognition of equity investments not held for trading the Group may elect to present subsequent changes in fair value in other comprehensive income. This election is made on an investment-by-investment basis. Fair value gains or losses on these instruments will not be recycled to profit and loss when sold, but rather transferred within equity.
Financial liabilities are measured at amortised cost.
During the period, certain operations were reclassified between segments as a result of an internal reporting restructure. The comparative periods segmental information has been amended to reflect these insignificant changes. No comparative information has been changed following the adoption of IFRS 9 and IFRS 15.
Bidvest Freight is in the process of constructing an LPG tank farm in the port of Richards Bay, to 30 June 2019 R489 million has been spent with an additional R460 million committed to the project, the estimated completion date is July 2020.
Fair value of financial instruments
The Group's investments of R2 944 million (2018: R2 803 million) include R135 million (2018: R32 million) recorded at amortised cost, R1 498 million (2018: R1 714 million) recorded and measured at fair values using quoted prices (Level 1) and R1 311 million (2018: R1 057 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 R249 million (2018: R57 million).
Analysis of investments at a fair value not determined by observable market data.
|Balance at the beginning of year||1 056 988||995 961|
|On acquisition of business||3 798||–|
|Purchases, loan advances or transfers from other categories||10 540||5 434|
|Fair value adjustment recognised directly in equity||5||–|
|Fair value adjustment arising during the year recognised in the income statement||248 830||56 559|
|Proceeds on disposal, repayment of loans or transfers to other categories||(12 906)||–|
|Profit on disposal of investments||2 085||–|
|Exchange rate adjustments||1 792||(966)|
|1 311 132||1 056 988|
The Group's effective beneficial interest in the Indian-based Mumbai International Airport Private Limited (MIAL) is an unlisted investments held for trading and classified as a financial assets at fair value through profit or loss, and the fair value is not based on observable market data (Level 3).
Based on the directors valuation at 30 June 2019 the carrying value of this investment is R1.2 billion (US$86 million) (2018: R988 million (US$72 million)). The valuation of MIAL is fair value less cost to sell and is based on a signed sale agreement, which is subject to suspensive and conditions precedent. The investment has been reclassified as a current asset and is expected to be sold within the next 12 months.
MIAL is a foreign-based asset and the ruling year-end exchange rate, US$1 = R14.09 (2017: US$1 = R13.72), is a further factor that affects the carrying value.
The carrying values of all financial assets and liabilities approximate their fair values, with the exception of borrowings of R14 456 million whose carrying value is R14 444 million.
Acquisition and disposal of businesses, subsidiaries, associates and investments
The Group acquired 100% of the share capital and voting rights of UAV and Drone Solutions Proprietary Limited (UDS) for R500 million effective 1 March 2019. UDS is a profit-for-purpose South African company established in 2013 to take advantage of technological developments in the world of Unmanned Airborne Systems. UDS provides solutions for environmental conservation, security services, infrastructure inspection, survey and stockpile management and blasting profiles. In-house capabilities and competencies include mechanical, electrical and software engineering. The acquisition enhances the Group's overall service offering, particularly security services. The purchase price was funded from existing cash resources and facilities.
Effective 1 February 2019 Pureau Fresh Water Company Proprietary Limited (Pureau), 82% owned by the Group, acquired 100% of the ordinary share capital and voting rights of Zanihold Proprietary Limited (Aquazania), holding company of Aquazania Proprietary Limited and Aquazania Africa Proprietary Limited for R390 million. Aquazania supplies a range of bottled water coolers, plumbed in water dispensers (bottleless water coolers) and coffee machines to households and a wide variety of corporate customers. The acquisition increases Pureau’s market share and enhances its service and technology offering. The acquisition was funded using existing cash resources and facilities.
During the year the Group acquired an additional 10 648 542 Adcock Ingram Holdings Limited (Adcock Ingram) ordinary shares for R650 million. The additional shares acquired increases the Group’s interest in the Adcock Ingram associate from 37.6% to 43.7%. Subsequent to year-end, the Group obtained a controlling interest in Adcock Ingram. The purchase price was funded from existing cash resources and facilities.
The Group also made a number of less significant acquisitions during the year. These acquisitions were funded from existing cash resources.
The following table summarises the assets acquired and liabilities assumed at fair value which have been included in these results from the respective acquisition dates. The Goodwill and Intangible asset values represented for UDS and Aquazania are provisional, as the acquisitions were completed close the Group’s reporting date. The remaining values represent the final at acquisition fair values consolidated by the Group.
|Property, plant and equipment||2 782||28 319||67 485||98 586|
|Interest in associates||–||–||706 533||706 533|
|Investments and advances&||–||–||860 194||860 194|
|Inventories||827||7 493||45 243||53 563|
|Trade and other receivables||19 444||26 387||208 379||254 210|
|Cash and cash equivalents||975||20 990||52 017||73 982|
|Borrowings||–||–||(15 916)||(15 916)|
|Trade and other payables and provisions||(2 079)||(23 351)||(256 246)||(281 676)|
|Taxation||(924)||(7 086)||(7 072)||(15 082)|
|Intangible assets||–||–||3 090||3 090|
|21 025||53 336||1 662 843||1 737 204|
|Non-controlling interest||–||–||19 963||19 963|
|Goodwill||478 975||335 333||228 537||1 042 845|
|Net assets acquired||500 000||388 669||1 911 343||2 800 012|
|Settled as follows:|
|Cash and cash equivalents acquired||(73 982)|
|Acquisition costs||22 940|
|Net change in vendors for acquisition||(495 522)|
|Net acquisition of businesses, subsidiaries, associates and investments||2 253 448|
|&||R125 million of advances to B-BBEE and other partners, R731 million purchases made in the Group’s various investment portfolios, primarily those of Bidvest Insurance and Bidvest Bank, R4 million acquisitions.|
Goodwill arose on the acquisitions 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 acquisitions have enabled the Group to expand its range of complementary products and services and, as a consequence, has broadened the Group's base and geographic reach in the market place.
UDS contributed R47 million to revenue and R28 million to operating income, had the acquisition taken place 1 July 2018 the contribution to revenue would have been R101 million and R46 million to operating profit. Aquazania contributed R87 million to revenue and R27 million to profit and loss, had the acquisition taken place 1 July 2018 the contribution would have been R128 million and R48 million to profit and loss.
Effective 1 November 2018 the Group disposed of its entire interest in TMS Group Industrial Services Proprietary Limited (TMS), an industrial facilities cleaning and maintenance contractor, to Sekta Group for R219 million (R116 million equity and R103 million debt).
On March 2019 the Group sold its entire interest in Renfreight Proprietary Limited (Renfreight) to Makana Investment Corporation (MIC) for R110 million. The transaction was completed as part of a Broad-Based Black Economic Empowerment deal, which provides MIC via its 100% ownership of Renfreight an 11% share of the BPL partnership. BPL is a leading South African end-to-end supply chain solutions company.
Included in investments and advances is the disposal, in August 2018, of 1,3 million shares in Bid Corporation Limited (Bidcorp) for R406 million, the Group’s entire holding save for 0,4 million shares held by the Bidvest Education trust.
The previously recognised disposal group, Comet Investments Capital Inc. (Comet), was sold during the year.
|Property, plant and equipment||(43 400)||–||(39 136)||(82 536)|
|Deferred taxation||(65 653)||–||32 531||(33 122)|
|Interest in associates||–||–||(32 651)||(32 651)|
|Investments and advances**||–||–||(1 027 403)||(1 027 403)|
|Inventories||(3 360)||–||(710)||(4 070)|
|Trade and other receivables||(109 196)||(98 353)||(165 467)||(373 016)|
|Cash and cash equivalents||(100 166)||(43)||1 419||(98 790)|
|Trade and other payables and provisions||61 797||364||88 701||150 862|
|Taxation||–||(1 512)||(12 710)||(14 222)|
|Disposal group assets held for sale||–||–||(253 921)||(253 921)|
|Disposal group liabilities held for sale||–||–||31 785||31 785|
|Intangible assets||(6 491)||–||–||(6 491)|
|(266 469)||(99 544)||(1 377 562)||(1 743 575)|
|Non-controlling interest||–||–||116 705||116 705|
|Realisation of foreign currency translation reserve||–||–||42 903||42 903|
|Realisation of share-based payment reserve||(8 049)||–||–||(8 049)|
|Goodwill||(37 004)||(15 332)||(14 242)||(66 578)|
|Net assets disposed of||(311 522)||(114 876)||(1 232 196)||(1 658 594)|
|Settled as follows:|
|Cash and cash equivalents disposed of||98 790|
|Net loss on disposal of operations||177 261|
|Settlement of receivable arising on disposal of subsidiaries and associates||(190 741)|
|Net proceeds on disposal of businesses, subsidiaries, associates and investments||(1 573 284)|
|**||R406 million Bidcorp, R621 million sales made in the Group’s various investment portfolios, primarily those of Corporate and Bidvest Bank.|
The Group’s purchase of 10.6 million additional Adcock Ingram shares during the year resulted in the Group holding an effective 44.8% (2018: 38.5%) of the net ordinary shares in issue (total ordinary shares in issue less treasury shares). The Group’s economic interest in Adcock Ingram is 51.4% (2018: 45.2%) as a consequence of treating the 2015 sale of 15.0% of its holding, in terms of the Adcock Ingram Broad-Based Black Empowerment Scheme (Scheme), to Ad-izinyosi as a deferred sale. For the year ending 30 June 2019 the Group equity accounted, rather than consolidated, its 51.4% economic controlling interest in Adcock Ingram as the requirements for control detailed in IFRS 3 Business Combinations could not be met.
Re-presentation of comparatives
The Group operates an equity settled share-based payment scheme. In the comparative period, the Group presented the intragroup cash flows for settling the obligations as gross amounts in the cash flow statement. No external Group cash flows arise as a result of these transaction, therefore the prior year cash flow statement has been re-presented accordingly. This re-presentation had no impact on the Group’s cash and cash equivalents or statement of financial position, however, cash generated by operations increased by R418 million in 2018, and the cash flow from financing activities declined by R418 million.
Effective 1 August 2019 following the dissolution of the Scheme the Group attained a 51.4% economic controlling interest in Adcock Ingram. This investment will be consolidated from 1 August 2019.
The acquisition of Eqstra for R3.1 billion enterprise value, was announced on 15 July 2019 and is subject to normal approvals and conditions precedent.
The auditors, PricewaterhouseCoopers Inc., have issued their opinion on the consolidated financial statements for the year ended 30 June 2019. The audit was conducted in accordance with International Standards on Auditing. They have issued an unmodified opinion. A copy of the auditor’s report together with a copy of the audited consolidated financial statements are available for inspection at the Company’s registered office.
These summarised consolidated financial statements have been derived from the consolidated financial statements and are consistent in all material respects with the consolidated financial statements. These summarised provisional consolidated financial statements have been audited by the Company’s auditors who have issued an unmodified opinion on Independent auditor’s report on the summarised consolidated financial statements. The auditor’s report does not necessarily report on all of the information contained in this announcement. Any reference to future financial information included in this announcement has not been reviewed or reported on by the auditors.
Shareholders are advised, that in order to obtain a full understanding of the nature of the auditor’s engagement they should obtain a copy of their report together with the consolidated financial statements from the Company’s registered office.
Preparer of the summarised consolidated financial statements
The consolidated financial statements and summarised consolidated financial statements have been prepared under the supervision of the Chief Financial Officer, MJ Steyn BCom CA(SA), and were approved by the board of directors on 30 August 2019.