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Capital management
The board of directors’ policy is to maintain a strong capital base so as to maintain investor, supplier and market confidence, while also being able to sustain future
development of the businesses. The board of directors monitors both the demographic spread of shareholders, as well as the return on capital, which the Group defines as
total shareholders’ equity, excluding non-controlling interest and the level of distributions to ordinary shareholders. The Group’s objective is to maintain a distribution cover of
approximately two and a quarter times headline earnings for the foreseeable future. The methods of distribution include dividends, return of share premium, capitalisation
issues as well as share buy-backs in lieu of distributions. The level of cover of distributions takes into account prevailing market conditions, future cash requirements of the
businesses, Group liquidity requirements, as well as capital adequacy ratios.
The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of gearing and the advantages and security afforded by a sound
equity position. The Group’s target is to achieve a return on shareholders’ interest of between 20% and 25%. In 2016 the return from continuing operations was 12,6%
(2015: 19,5%). The return has been impacted by the significant net capital items in the year. If these capital items are excluded the return would be 19,2% (2015: 20,7%).
In the early days of the Group, acquisition activity was generally funded via the raising of equity capital, however, over the past five years, far more favourable credit markets
have enabled the use of debt as a far more effective tool of capital. The current credit markets have been extremely volatile, increasing the cost of debt in the weighted
average cost of capital for the Group thereby enabling a potential return to tapping the equity markets to fund future growth.
From time to time the Group purchases its own shares on the market, the timing of these purchases depends on market prices. Primarily the shares are intended to be used
for issuing shares under the Bidvest Share Incentive Scheme, Conditional Share Plan or the Share Appreciation Rights Plan (refer note 27). The maximum number of shares
which can be allocated under the Share Appreciation Rights Plan and the Conditional Share Plan is limited to 16 750 000 shares. The Group does not have a defined share
buy-back plan. These shares are currently held as treasury shares.
There were no changes in the Group’s approach to capital management during the year.
With the exception of the Group’s banking and insurance subsidiaries, whose capital is well within the statutory requirements, neither the Company nor any of its other
subsidiaries are subject to externally imposed capital requirements. The Group has in principal a target debt/equity ratio of 40%, however, in a trading and services business,
the debt/equity ratio is a poor measure of the funding capacity of the Group. In order to ensure a more reflective measure of debt capacity is utilised, the Group has adopted
a trading profit net interest cover target of between five to six times. Trading profit net interest cover for the year to June 30 2016 was six times (2015: seven times). |