The consolidated financial statements (financial statements) have been prepared in accordance with IFRS, the interpretations adopted by the International Accounting Standards Board (IASB), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Limited Listings Requirements and in terms of the requirements of the Companies Act of South Africa.
Basis of preparation
The consolidated financial statements are prepared on the historical cost basis, other than certain financial instruments, which are carried at their fair value.
The preparation of consolidated financial statements in conformity with IFRS requires the board of directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Although estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances (the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources), the actual outcome may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made in the application of IFRS that have influenced the financial statements and estimates with a risk of adjustment in the next year are discussed in note 43 of the notes to the financial statements.
Except as detailed below, the accounting policies have been applied consistently to all periods presented in these financial statements. The financial statements are presented in South African Rands, which is also the Group's functional currency. All financial information has been rounded to the nearest thousand unless stated otherwise.
The principal accounting policies set out below apply to the financial statements.
New and revised accounting standards
The Group has adopted one new accounting standard (IFRS) and one accounting standard interpretation (IFRIC) issued by the IASB, which were effective for the Group from 1 July 2019:
In transitioning to IFRS 16 the Group used a modified retrospective approach where the right-of-use asset is recognised at the date of initial application (1 July 2019) as an amount equal to the lease liability, using the entity's prevailing incremental borrowing rate at the date of initial application, adjusted for any prepaid or accrued lease payments relating to that lease that were recognised in the statement of financial position immediately before the date of initial application.
The Group has applied the following practical expedients allowed under IFRS 16:
- reliance on onerous lease assessments under IAS 37 to impair right-of-use assets recognised on adoption instead of performing a new impairment assessment for those assets on adoption;
- elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease;
- accounting for leases with remaining lease terms of less than 12 months as at 1 July 2019 as short-term leases;
- the low value expedient;
- the use of single discount rates for portfolios of leases with reasonably similar characteristics; and
- the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group recognised right-of-use assets of R5 billion and lease liabilities of R6 billion, during the year. Lease liabilities at 1 July 2019 were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rates of between 4.25% and 9.28%, due to the Group's geographic spread and variation in lease terms.
The impact of IFRS 16 on the consolidated income statement and consolidated statement of cash flows is as follows:
R000s 2020 Continuing operations Operating expense 203 154 Net finance charges (436 295) Net capital items (145 144) Taxation 89 568 Share of (loss) profit of associates 5 800 Loss for the period (282 917) Non-controlling interest 7 399 Attributable to shareholders (275 518) Impairment of property, plant and equipment, right-of-use assets, goodwill and intangible assets 114 936 Right-of-use assets 145 144 Taxation effect (30 208) Headline loss (160 582) Impact of cash flows Cash flows from operating activities (1 052 307) Loss before finance charges and associate income (58 010) Depreciation and amortisation (1 225 089) Impairment of property, plant and equipment and right-of-use assets (145 144) Net finance charges paid 375 936 Cash flows from financing activities 1 052 307 Repayment of lease liability 1 052 307 Net increase in cash and cash equivalents – Reconciliation of lease liability raised on adoption of IFRS 16 Undiscounted contractual maturities as at 30 June 2019 6 077 086 Effect of discounting the above (1 244 133) Impact of option periods excluded from contractual maturities under IAS 17 326 084 Adoption/transition balance as at 1 July 2019 5 159 037
The incremental borrowing rate was determined using the overnight call rate charged to Group treasury by commercial banks as a base and applying it to the ZAR swap yield curve.
On adoption the Group has elected to raise temporary timing differences between lease liabilities and right-of-use assets and recognise deferred taxation. The Group did not need to make any adjustments to the accounting for assets held as lessor under operating leases as a result of the adoption of IFRS 16. In respect of full maintenance leases and property leases the Group acts as lessor and these are classified as operating leases. Full maintenance lease assets relate to vehicles which have been provided to customers as part of full maintenance lease arrangements (refer note 1 Revenue commissions and fees earned).
IFRIC 23: Uncertainty over Income Tax Treatments – Interpretation
IFRIC 23 clarifies the recognition and measurement of IAS 12 income taxes when there is uncertainty over income tax treatments. The Group has reassessed the tax treatment of international transactions completed in prior periods and considering the requirements of IFRIC 23 has estimated and recognised an additional R173 million tax liability. In accordance with the transitional provisions allowed in IFRIC 23 the Group elected to account for the additional provision retrospectively without restating comparatives. Accordingly, the R173 million tax liability was recognised in the current period and opening retained earnings was reduced by the same amount.
Details of new standards and interpretations not yet effective and the expected impact on the Group results are contained in the financial statements note 46 Accounting standards and interpretations not effective at 30 June 2020.
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are entities controlled by the Group. Control is achieved when the Company has the power over an investee, is exposed, or has rights, to a variable return from its involvement with an investee; and has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the following.
When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Company, other vote holders or other parties; rights arising from other contractual arrangements; and any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group's accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.
Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. Non-controlling interest is initially measured at fair value or at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.
Changes in the Group's interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.
When the Group loses control of a subsidiary, the gain or loss on disposal recognised in profit or loss is calculated as the difference between either the aggregate of the fair value of the consideration received and the fair value of any retained interest and the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRS).
Puttable non-controlling interests
Put options held by non-controlling interests in the Group's subsidiaries entitle the non-controlling interest to sell their interest in the subsidiary to the Group at pre-determined values and on contracted dates. In such cases the Group consolidates the non-controlling interests' share of the equity in the subsidiary and recognises the fair value of the non-controlling interest's put option, being the present value of the estimated future purchase price, as a financial liability in the statement of financial position. In raising this liability, the non-controlling interest is de-recognised and any excess or shortfall is charged or realised directly in retained earnings in the statement of changes in equity.
The unwinding of the present value discount on these liabilities is recorded within finance charges in the income statement using the effective interest rate method. The financial liability is fair valued at the end of each financial year and any changes in the value of the liability as a result of changes in assumptions used to estimate the future purchase price are recorded directly in retained earnings in the statement of changes in equity.
The Group principally generates revenue from providing a wide range of goods and services through its six core trading operations, Services, Freight, Commercial Products, Branded Products, Financial Services and Automotive (refer accounting policy 27).
IFRS 15 established a comprehensive framework for determining whether, how much and when revenue is recognised. 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.
The Group satisfies its performance obligations at a point in time or over a short period of time as a result the Group has an immaterial balance of contract assets. The majority of the Group's revenue is generated from point-in-time or month-to-month service contracts, which means the Group has no material revenue contracts for which they have contracted but not satisfied the performance obligations. There is no material or significant financing component to Group revenue and contracts with customers do not include material amounts of variable consideration. Due to the standard nature of the Group's contracts with customers there were no significant areas of judgment required to be applied by the Group. The Group has no complex agent/principal arrangements.
Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of the transaction at the statement of financial position date. The stage of completion is assessed by reference to the terms of the contract.
Given the diverse nature of the business, management believes the segmental revenue analysis read together with the revenue note to the financial statements (refer note 1 Revenue) 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.
Distributions to shareholders
Distributions to shareholders are accounted for once they have been approved by the board of directors.
Finance charges comprise interest payable on borrowings calculated using the effective interest rate method. The interest expense component of lease payments is recognised in the income statement using the effective interest rate method.
Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash on hand, deposits held on call with banks net of bank overdrafts and investment in money market instruments, all of which are available for use by the Group unless otherwise stated.
Property, plant and equipment
Property, plant and equipment are reflected at cost to the Group, less accumulated depreciation and accumulated impairment losses. Dispensing and cleaning equipment relates to assets held by the Group which are used as part of the rendering of cleaning services in the Services segment of the business. Land is stated at cost. The present value of the estimated cost of dismantling and removing items and restoring the site in which they are located is provided for as part of the cost of the asset. Depreciation is provided for on the straight-line basis over the estimated useful lives of the property, plant and equipment to anticipated residual values. Estimate useful lives are:
Buildings Up to 50 years Leasehold improvements Over the period of the lease Plant and equipment 5 to 20 years Office equipment, furniture and fittings 3 to 15 years Vehicles and craft 3 to 15 years Vessels 28 to 55 years Dispensing and cleaning equipment over the period of the contract Full maintenance lease assets over the period of the contract Capitalised leased assets the shorter of the useful life or the period of the lease
Residual values, depreciation method and useful lives are reassessed annually.
Where parts of an item of property, plant and equipment have different useful lives to the item itself, these parts are depreciated over their individual estimated useful life.
Right-of-use assets and lease liabilities
Lease liabilities are measured at the present value of the future lease payments, discounted using the interest rate implicit in the lease agreement or, if not available, the lessee's incremental borrowing rate. Right-of-use assets are measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease (only applicable at adoption date of IFRS 16).
The Group leases various offices, warehouses, equipment and vehicles. Rental contracts are typically made for fixed periods of between three to twelve years but may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.
Until the end of the 2019 financial year, leases of property, plant and equipment were classified as either finance or operating leases (refer accounting policy 11). From 1 July 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. The recoverability of the right-of-use asset has been considered for impairment under IAS 36.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
- fixed payments; and
- payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment and currency with similar terms and conditions.
Certain variable lease payments (including, but not limited to, municipal rates and taxes, water, and electricity charges) are not permitted to be recognised as lease liabilities and are expensed as incurred.
Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. All the extension and termination options held are exercisable only by the Group and not by the respective lessor.
Right-of-use assets are measured at cost comprising the following:
- the amount of the initial measurement of lease liability; and
- any initial direct costs.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets in terms of IFRS 16 comprise smaller items of equipment. At implementation date the Group has applied materiality in excluding certain lease premises for which there is not a substantial lease term remaining. Materiality was assessed against the impact these leases would have on the consolidated statement of financial position and consolidated income statement lines. These leases will be reassessed should they be renewed.
Where the Group acts as lessor (in terms of the full maintenance lease assets) these leases are accounted for as operating leases (refer note 1 Revenue).
IAS 17 Leases
Assets acquired in terms of finance leases are capitalised at the lower of fair value and the present value of the minimum lease payments at inception of the lease, and depreciated over the estimated useful life of the asset. The capital element of future obligations under the leases is included as a liability in the statement of financial position. Lease payments are allocated using the effective interest rate method to determine the lease finance cost, which is charged to profit or loss over the lease period, and the capital repayment, which reduces the liability to the lessor.
Operating leases, which have a fixed determinable escalation, are charged to profit or loss on a straight-line basis. Leases with contingent escalations are expensed as and when incurred.
Goodwill arising on acquisition of a business is carried at cost, as established at the date of the acquisition of the business, less accumulated impairment losses.
For the purposes of impairment testing, goodwill is allocated to groups of cash-generating units that are expected to benefit from the synergies of the business combination. Goodwill is monitored at an operating segment level.
Software development costs are capitalised and are stated at cost less accumulated amortisation and accumulated impairment losses.
Development cost and other intangible assets acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.
Expenditure on research, internally generated goodwill and brands is recognised in the income statement as an expense when incurred.
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are tested for impairment at each statement of financial position date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are currently:
Patents, trademarks, tradenames and other intangibles 3 to 20 years or indefinite life Computer software 3 to 8 years
Useful lives are examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
Included in patents, trademarks, tradenames and other intangibles arising on the acquisition of businesses in the current year are indefinite life intangibles. There is no foreseeable limit to the period over which they are expected to generate net cash inflows. These are considered to have an indefinite life, given the strength and durability of the acquired brands and the level of marketing support.
Impairment of non-financial assets
The carrying value of tangible and intangible assets are reviewed annually to assess whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated. Where the carrying value exceeds the estimated recoverable amount, such assets are written down to their recoverable amount.
The recoverable amount of the cash generating unit or groups of cash generating units or segments to which goodwill is allocated is estimated annually. For intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each statement of financial position date.
Impairment losses are recognised in the income statement.
Impairment losses recognised in respect the cash generating unit or groups of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to groups of cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.
Groups of cash-generating units for goodwill impairment testing purposes are not larger than any operating segment. (refer accounting policy 12).
Impairment losses in respect of goodwill are not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. Impairment losses are reversed if there has been a change in the estimates used to determine the recoverable amount.
Impairment losses are reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Income taxation comprises current and deferred tax. An income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current taxation comprises tax payable calculated based on the expected taxable income for the year, using the tax rates enacted or substantially enacted at the financial position date, and any adjustment of tax payable for previous years.
Deferred taxation is charged to the income statement except to the extent that it relates to a transaction that is recognised directly in equity, or a business combination that is an acquisition. The effects on deferred taxation of any changes in tax rates is recognised in the income statement, except to the extent that it relates to items previously charged or credited directly to equity.
A deferred taxation asset is recognised to the extent that it is probable that future taxable profits will be available against which the associated unused tax losses and deductible temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
An associate is a company over which the Group has significant influence, but not control. Significant influence is the power to participate in the financial and operating policy decisions of a company but is not control over those policies.
The equity method of accounting for associates is applied in the consolidated financial statements. In applying the equity method, account is taken of the Group's share of accumulated retained earnings and movements in reserves from the effective dates on which the companies became associates and up to the effective dates of disposal. In the event of associates making losses, the Group recognises the losses to the extent of the Group's exposure.
Assets and liabilities of foreign operations, including fair value adjustments arising on consolidation, are translated into South African rand at rates of exchange ruling at the statement of financial position date. Income, expenditure and cash flow items are translated into South African rand at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on translation are recognised directly in equity as a foreign currency translation reserve. When a foreign operation is disposed of, in part or in full, and control is lost the relevant amount in the foreign currency translation reserve is transferred to the income statement.
A financial instrument is a contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity. The Group recognises financial assets and financial liabilities at the date when it becomes a party to the contractual provisions of the instrument.
Trade receivables without a significant financing component are initially measured at the transaction price. Other financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Classification and subsequent measurement
A financial asset is measured at amortised cost if the financial asset is held in order to collect contractual cash flows and the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets measured at amortised cost comprise of trade and other receivables, cash and cash equivalents. These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairments are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
In assessing whether contractual cash flows are solely payments of principal and interest, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time for other basic lending risks and costs as well as profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of the contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers: contingent events that would change the amount or timing of the cash flows; terms that may adjust the contractual coupon rate, including variable rate features; prepayment and extension features; and terms that limit the Group's claim to cash flows from specified assets.
Debt investments are measured at fair value through other comprehensive income if the financial asset is held in order to collect contractual cash flows and to be sold, and the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Debt investments are subsequently measured at fair value. Interest income, foreign exchange gains and losses and impairment is recognised in profit or loss. Other net gains and losses are recognised in other comprehensive income. On derecognition, gains and losses accumulated in other comprehensive income are reclassified to profit or loss.
Equity investments are measured at fair value through other comprehensive income if the Group irrevocably elects to present subsequent changes in the investments' fair value in other comprehensive income. Dividends are recognised as income in profit or loss unless the dividend represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in other comprehensive income. On derecognition, gains and losses accumulated in other comprehensive income are not recycled through profit or loss.
The above includes investments held by Bidvest Bank, which holds these investments for a longer term and generally measures these investments at fair value through other comprehensive income.
A financial asset is measured at fair value through profit or loss unless it is measured at amortised cost or at fair value through other comprehensive income. In certain instances where the business model is not to collect contractual cash flows, nor to sell the asset, the financial asset is held at fair value through profit or loss. These financial assets are subsequently measured at fair value and net gains and losses, including any interest or dividend income, are recognised in profit or loss. The Group may at initial recognition irrevocably designate a financial asset, that otherwise meets the requirements to be measured at amortised cost or at fair value through other comprehensive income as measured at fair value through profit or loss if doing so significantly reduces an accounting mismatch that would otherwise arise. Financial assets that are held at fair value through profit or loss comprise of derivative financial instruments.
The above includes investments held by Bidvest Insurance that are measured at fair value to match the related liability through profit or loss.
Financial liabilities are classified into the following categories:
- Financial liabilities at fair value through profit or loss
- Financial liabilities at amortised cost.
A financial liability is classified at fair value through profit or loss if it is held for trading, is a derivative financial instrument or is designated as such on initial recognition. Realised and unrealised gains and losses arising from changes in the fair value of financial liabilities classified as at fair value through profit or loss are included in profit or loss in the period in which they arise.
Other financial liabilities are classified as measured at amortised cost using the effective interest method and comprise of interest-bearing liabilities, bank overdrafts, other long-term financial liabilities and trade payables.
Financial assets are derecognised when the Group realises the rights to the benefits specified in the contract, the rights expire, or the Group surrenders or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and proceeds receivable and any prior adjustment to reflect fair value that had been reported in equity are recognised in profit or loss.
Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which a new financial liability based on the modified terms is recognised at fair value. On derecognition, the difference between the carrying amount of the financial liability, including related unamortised costs, and the amount paid for it, is recognised in profit or loss.
The Group calculates its allowance for credit losses as expected credit losses (ECLs) for financial assets measured at amortised cost, debt investments at fair value through other comprehensive income (FVOCI) and contract assets. ECLs 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. ECLs are discounted at the original effective interest rate of the financial asset.
The Group measures loss allowances at an amount equal to the lifetime ECLs, except for bank balances for which the credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. 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.
ECLs for accounts receivable are calculated using a provision matrix. Given the Group's decentralised structure 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. Due to the nature of the Group the applicable historic period and forward-looking information varies based on the relevant operating unit and the type of customer.
The gross carrying amount of the financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's procedures in respect of amounts due.
Financial assets included as part of other receivables are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
For banking advances made by Bidvest Bank (the Bank) the measurement of ECLs is performed using a "three stage" model, as outlined in IFRS 9, based on changes in credit quality since initial recognition.
The following methodologies were implemented, where ECLs are calculated using three main components; a probability of default (PD); a loss given default (LGD); and the exposure at default (EAD):
Point-in-time PD estimates:
Calibration to the Bank's existing scorecard/external ratings to a 12-month PD as required for a corporate and SME corporate portfolio. Lifetime PDs for corporate and SME corporate portfolios.
An LGD benchmarking approach was used due to limited default and recovery data.
EAD estimates were determined using a combination of external benchmark studies for committed lines and regulatory estimates for financial guarantees.
Stage 1 – A financial instrument that is not credit impaired on initial recognition is classified in "Stage 1" and has its credit risk continuously monitored by the Bank. Stage 2 – If a significant increase in credit risk (SICR) since initial recognition is identified, the financial instrument is moved to "Stage 2" but is not yet deemed to be credit impaired. Stage 3 – If the financial instrument is credit impaired, the financial instrument is then moved to "Stage 3".
Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected credit losses that result from default events possible within the next 12 months. Instruments in Stage 2 and 3 have their ECL measured based on expected credit losses on a lifetime basis. A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward looking information. The Bank does not rebut the presumption in IFRS 9 that all financial assets which are more than 30 days past are due have experienced a significant increase in credit risk, and accordingly are classified as Stage 2 in the calculation of ECL. In addition, the Bank's policy is not to rebut the presumption in IFRS 9 that financial assets which are more than 90 days past due are in default, and accordingly are classified as Stage 3 in the ECL calculation.
Derivatives and hedging
A derivative is a financial instrument whose value changes in response to an underlying variable, that requires little or no initial investment and that is settled at a future date.
The Group uses derivative financial instruments to manage its exposure to foreign exchange risk and interest rate risk. Derivative financial instruments comprise of foreign exchange contracts and interest rate swaps. Derivative financial instruments are initially measured at fair value and are subsequently re-measured at their fair value with all changes in fair value recognised in profit or loss. The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Foreign exchange contracts are entered into mainly to cover import purchases and fair values are determined using foreign exchange market rates. Interest rate swaps are entered into in order to fix interest rates for predetermined periods.
The Group designates interest rate swaps as cash flow hedges. Hedge accounting is used for derivatives designated in this way, provided specific criteria are met. The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in the cash flow hedging reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. If the hedged firm commitment or forecast transaction results in the recognition of a non-financial asset or liability, the cumulative amount recognised in equity up to the transaction date is adjusted against the initial measurement of the non-financial asset or liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.
Certain of the Group's financial instruments are carried at fair value through profit or loss such as derivative financial instruments. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability between market participants at the measurement date. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.
The method of determining the fair value of financial instruments is analysed into the following categories:
Level 1 – Unadjusted quoted prices in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions on an arm's length basis. Level 2 – Valuation techniques using market observable inputs, including: Using recent arm's length market transactions; reference to the current fair value of similar instruments; and discounted cash flow analysis, pricing models or other techniques commonly used by market participants. Level 3 – Valuation techniques, as described for Level 2 above, for which not all inputs are market observable prices or rates. Such a financial instrument is initially recognised at the transaction price, which is the best indicator of fair value, although the value obtained from the relevant valuation model may differ. The difference between the transaction price and the model value, commonly referred to as "day one profit or loss", is either amortised over the life of the transaction, deferred until the instrument's fair value can be determined using market observable inputs, or realised through settlement.
The valuation techniques in Level 2 and Level 3 use inputs such as interest rate yield curves, equity and commodity prices, which are calibrated against industry standards, economic models and against observed transaction prices, where available.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position, when there is a legally enforceable right to set off the amounts and there is an intention to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Financial instruments have been grouped into classes for the purpose of financial instrument risk disclosure. The classes are the segments as disclosed in the segmental report as the operations within each segment have similar types of risks.
Vehicle rental fleet
The Bidvest Car Rental fleet is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis to write off the cost of the vehicles to their residual value over their estimated useful life of between nine and twelve months.
Inventories are stated at the lower of cost and estimated net realisable value. Estimated net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of raw materials, finished goods, parts and accessories is determined on either the first in, first out or average cost basis. The cost of manufactured inventory and work in progress includes materials and parts, direct labour, other direct costs and includes an appropriate portion of overheads, but excludes interest expenses.
Vehicles and vehicle parts purchased in terms of manufacturers' standard franchise agreements or floorplan facilities are recognised as inventory when received as this is when control has been transferred.
Shares in the Company, held by its subsidiaries, The Bidvest Incentive Scheme and The Bidvest Education Trust are classified in the Group's shareholders' interest as treasury shares. These shares are treated as a deduction from the issued and weighted average number of shares. The cost price of the shares is presented as a deduction from total equity. Distributions received on treasury shares are eliminated on consolidation.
Transactions in foreign currencies are translated at the rates of exchange ruling at the transaction date. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the settlement or statement of financial position date. Translation differences are recognised in the income statement.
The Bidvest Incentive Scheme grants share appreciation rights to acquire shares in the Company to employees. The fair value of appreciation rights granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the appreciation right is measured using a modified Black Scholes model, taking into account the terms and conditions upon which the appreciation rights were granted. The amount recognised as an expense is adjusted to reflect the actual number of appreciation rights that vest except where staff are unable to meet the scheme's employment requirements.
In terms of the conditional share plan scheme, a conditional right to a share is awarded to executive directors subject to performance and vesting conditions. The fair value of services received in return for the conditional share awards has been determined by multiplying the number of conditional share awards expected to vest, by the share price at the date of the award less discounted anticipated future distribution flows.
Leave benefits due to employees are recognised as a liability in the financial statements.
The Group's liability for post-retirement benefits, accruing to past and current employees in terms of defined benefit schemes, is actuarially calculated. Where the plan is funded, the obligation is reduced by the fair value of the plan assets. Unfunded obligations are recognised as a liability in the financial statements.
The Group's obligation for post-retirement medical aid to past and current employees is actuarially determined and provided for in full.
The projected unit-credit method is used to determine the present value of the defined benefit obligations and the related current service cost and, where applicable, past service cost.
Actuarial gains or losses in respect of defined benefit plans are recognised in other comprehensive income.
However, when the actuarial calculation results in a benefit to the Group, the recognised asset is limited to the net total of any unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.
Past service costs are recognised in the income statement in the period of a plan amendment.
Liabilities for employee benefits which are not expected to be settled within twelve months are discounted using the market yields at the statement of financial position date on high quality bonds with terms that most closely match the terms of maturity of the related liabilities.
Contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.
Insurance contracts are those contracts under which Bidvest Insurance Limited (as insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects them. Short-term insurance is provided in terms of benefits under short-term policies which cover motor, property, liability, accident and health, and miscellaneous.
Claims incurred consists of claims paid during the financial year, together with the movement in the provision for outstanding claims and are charged to income as incurred. The provision for outstanding claims comprises Bidvest Insurance Limited's estimate of the undiscounted ultimate cost of settling all claims incurred but unpaid at statement of financial position date, whether reported or not. A provision for claims arising from events that occurred before the close of the accounting period, but which have not been reported to the company by that date is maintained. The calculation is based on the preceding six years' insurance premium revenue per insurance category multiplied by percentages as specified in the Short-Term Insurance Act. Related anticipated reinsurance recoveries are disclosed separately as assets.
Premiums are earned from the date the risk attaches, over the indemnity period, based on the pattern of the risk underwritten. Unearned premiums, which represent the proportion of premiums written in the current year which relate to risks that have not expired by the end of the financial year, are calculated on a time proportionate basis. Deferred acquisition costs are recognised on a basis consistent with the related provisions for earned premiums.
Insurance contracts are those contracts under which Bidvest Life Limited (as insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects them.
Bidvest Life Limited defines significant insurance risk as the possibility of having to pay benefits, on the occurrence of an insured event, that are significantly more than the benefits payable if the insured event did not occur.
Insurance contracts are classified into two main categories, depending on the duration of the risk and the type of risk insured, individual life insurance and group life insurance.
Individual life insurance contracts insure against a comprehensive spectrum of risks, including life, disability, severe illness and income protection cover. These contracts are long-term in nature.
The actuarial value of policyholder liabilities is determined based on a prospective discounted cash flow valuation basis calculated as the difference between the present value of future benefit payments plus expenses and the present value of future premiums. Best estimate assumptions regarding the future expected claims experience, premium income, expenses and commission are used. Where the value of policyholder liabilities is negative in aggregate, this is shown as assets arising from insurance contracts.
For individual life insurance contracts, premiums are recognised as revenue when due. Premiums are shown before deducting reinsurance and commission.
Insurance benefits and claims relating to individual life insurance contracts are recognised in profit or loss based on the estimated liability for benefits owed to the contract holder. Death, disability and severe illness claims are accounted for when notified and paid. An estimate of the expected claim amount is charged to profit or loss and included in liabilities under insurance contracts. Liabilities are held to reflect incurred but not yet reported (IBNR) claims. The IBNR liabilities are modified to reflect actual current operating conditions. The liabilities are calculated gross of reinsurance. An asset is then raised to allow for the expected recoveries from reinsurers.
Acquisition costs for individual life insurance contracts represent commission and other costs that relate to the securing of new contracts and the renewing of existing contracts. The valuation basis for valuing insurance contracts makes implicit allowance for the deferral of acquisition costs and hence no explicit deferred acquisition cost asset is recognised in the statement of financial position. These are expensed in profit or loss.
Group life insurance contracts insure against a comprehensive spectrum of protection benefits on a group basis. Life cover, severe illness, disability and income protection benefits are offered. These contracts are short-term in nature and are renewable annually.
For Group life insurance contracts, premiums are recognised as revenue when due. Premiums are shown before the deducting reinsurance and commission.
Insurance benefits and claims relating to Group life insurance contracts are recognised in profit or loss based on the estimated liability for benefits owed to the contract holder. Death, disability and severe illness are accounted for when notified and paid. An estimate of the expected claim amount is charged to profit or loss and included in liabilities under insurance contracts. Liabilities are held to reflect IBNR claims. The IBNR is modified to reflect actual current operating conditions. The liabilities are calculated gross of reinsurance. An asset is then raised to allow for the expected recoveries from reinsurers.
Acquisition costs for Group life insurance contracts comprise all direct costs arising from the sale of insurance contracts. Commissions are expensed as incurred.
Contracts entered into with reinsurers under which Bidvest Life Limited is compensated for insured events on one or more contracts that meet the classification requirements for insurance contracts are classified as reinsurance contracts. Contracts that do not meet these classification requirements are classified as financial assets.
Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. The amounts Bidvest Life Limited is required to pay under its reinsurance contracts held are recognised as reinsurance liabilities (liabilities arising from reinsurance contracts). Outward reinsurance premiums are recognised as an expense and are accounted for when due under the reinsurance contract.
The amounts due to Bidvest Life Limited under its reinsurance contracts are recognised as reinsurance assets.
The reportable segments of the Group have been identified based on the nature of the businesses. This basis is representative of the internal structure for management purposes and as reported to the chief operating decision maker (CODM), Lindsay Ralphs.
The CODM has identified the six reportable segments as follows:
An industry-leader and innovator, known for setting the national standard in technical training with its rapid adoption of online motor retailing and the development of sophisticated systems to drive customer service. It also operates in the vehicle auctioneering sector.
Bidvest Commercial Products
The industrial grouping of companies includes manufacturing and trading businesses in South Africa, representing global brands which include Hitachi Power Tools, Signode (strapping), Unicarriers (forklifts), Rational Ovens, Tajima (embroidery machines), Juki (sewing machines) and Tesa Tapes, while Plumblink supplies a full range of bathroom and plumbing products, and through the Voltex distribution outlets is a leading distributor of a vast array of electrical cable and allied products servicing the industrial, mining, contractor, construction, engineering and retail sectors. Consumer products include motor vehicle accessories (Moto Quip), camping and outdoor equipment (Leisure Quip).
Bidvest Financial Services
Comprises Bidvest Bank, the Bidvest Insurance Group (which offers both long and short-term insurance offerings), Master Currency Foreign Exchange, Compendium and Bidvest Wealth and Employee Benefits. The segment offers services specialising in fleet management and foreign exchange services, insurance and other financial services for the corporate and business markets.
A leading private sector freight management group in sub-Saharan Africa, drawing on more than 150 years of portside experience, whose primary objective is to handle multiple products across berths and provide capacity to serve current and future demand. Independent businesses focus on terminal operations and support, international clearing and freight forwarding, integrated logistics, supply chain solutions and marine and insurance services. The segment facilitates storage, handling and movement of cargo via ocean freight, air freight, road and rail.
Bidvest Branded Products
Offers a comprehensive suite of services relating to office products, office automation and office furniture, while also meeting all print, packaging, labelling and communication requirements. Offerings include the supply of stationery, paper or printer cartridges, and packaging and data services. The consumer-facing trading and distribution businesses represent local and global brands such as Russell Hobbs, Salton, George Foreman, Maxwell & Williams and prestigious luggage and travel accessories brands such as Cellini amongst others. From 1 August 2019 this segment includes the manufacture, marketing and distribution of a wide range of healthcare products to both the private and public market sectors, through Adcock Ingram.
Operating across multiple sectors, in South Africa and abroad, Services' comprehensive and diverse range of facilities management service capabilities creates a unique platform for customised solutions. Service offerings include facilities management, security, travel and aviation services.
"Profit before finance charges and associate income" includes revenue and expenses directly relating to a business segment but excludes net finance charges and taxation, which cannot be allocated to any specific segment. Share based payment costs are also excluded from the result as this is not a criterion used in the management of the reportable segments.
"Segmental trading profit" is defined as profit before finance charges and associate income excluding items of a capital nature, acquisitions costs and amortisation of acquired customer contracts and is the basis on which management's performance is assessed.
Segment operating assets and liabilities include property, plant and equipment, right-of-use assets, investments, interest in associates and joint ventures, inventories, trade and other receivables, trade and other payables and provisions, banking assets and liabilities, lease liabilities, insurance funds and post-retirement obligations but excludes goodwill, intangible assets, cash and cash equivalents, borrowings, vendors for acquisition, puttable non-controlling interest liabilities, current taxation, and deferred taxation.
Restatement of comparatives
In the current period, a prior year acquisition UAV and Drone Solutions Proprietary Limited (UDS) was subject to a Purchase Price Allocation (PPA) review. The PPA review, which was finalised during the current financial year, resulted in the recognition of an indefinite life intangible asset, beyond visual line of sight license in the amount of R457 million, deferred tax liabilities of R128 million and the de-recognition of goodwill in the amount of R330 million. The prior year comparative consolidated statement of financial position has been restated accordingly.
As a result of an internal reporting restructure, effective 1 July 2019, Bidvest Electrical and Bidvest Commercial Products were merged and reported under the Bidvest Commercial Products segment, the prior year comparative has been restated to reflect the change. Following the rationalisation and restructure of the Group's Namibian investments, the Bidvest Namibia segment has been dissolved with the remaining Namibian operations reported under the Group's six operating segments, the prior period comparatives have been restated. Certain other operations were reclassified between segments and the comparative period's segmental information has been amended to reflect these insignificant changes.
Net impairment losses on financial assets, in accordance with IAS 1, have been disclosed as a separate line item in the consolidated income statement and the comparative period has been restated accordingly.