Basis of presentation of condensed consolidated financial statements
The interim condensed consolidated financial statements have been prepared in accordance with and containing information required by IAS 34: Interim Financial Reporting, as well as the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, and Financial Reporting Pronouncements as issued by Financial Reporting Standards Council and the Companies Act of South Africa, and the JSE Listings Requirements. 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 these interim condensed consolidated financial statements, management 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 interim condensed financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ending 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)
- 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:
| R'000 | Half-year ended 31 December 2018 Unaudited |
||
| 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) | (37 062) | ||
| Customer acceptance (IFRS 15) | 3 431 | ||
| Expected credit loss model (IFRS 9) | (58 107) | ||
| Taxation effect | 35 580 | ||
| Non-controlling interest | 14 506 | ||
| Restated retained earnings at the beginning of the period | 22 405 047 | ||
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 arrangements. 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 contracts. Following adoption of IFRS 15 revenue is recognised at the point in time when control transfers to the customers.
- 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 condensed segmental revenue analysis presents the nature and amount of Group revenue streams with sufficiently different characteristics not obscured by insignificant detail, and therefore fulfills 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.
Impairment
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 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 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.
Comparatives
During the period, certain operations were reclassified between segments as a result of an internal reporting restructure. The comparative period’s 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.
Significant commitments
Bidvest Freight is in the process of constructing an LPG tank farm in the port of Richards Bay. To 31 December 2018, R308 million has been spent with an additional R629 million committed to the project, the estimated completion date is July 2020. Bidvest Properties and Bidvest Bank are parties to the development of a property in the Sandton CBD and have a combined commitment of R250 million.
Fair value of financial instruments
The Group’s investments of R2 822 million (H1 2018: R3 442 million) include R11 million (H1 2018: R34 million) recorded at amortised cost, R1 706 million (H1 2018: R2 455 million) recorded and measured at fair values using quoted prices (Level 1) and R1 105 million (H1 2018: R953 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 R45 million (H1 2018: R43 million loss).
Analysis of investments at a fair value not determined by observable market data
| R'000 | Half-year ended 31 December 2018 Unaudited |
Half-year ended 31 December 2017 Unaudited |
Year ended 30 June 2018 Audited |
||||||
| Balance at the beginning of period | 1 056 988 | 995 961 | 995 961 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Purchases, loan advances or transfers from other categories | 4 283 | – | 5 434 | ||||||
| Fair value adjustment arising during the period recognised in the income statement | 45 019 | (43 151) | 56 559 | ||||||
| Proceeds on disposal, repayment of loans or transfers to other categories | (12 906) | – | – | ||||||
| Profit on disposal of investments | 11 459 | – | – | ||||||
| Exchange rate adjustments | 38 | 14 | (966) | ||||||
| 1 104 881 | 952 824 | 1 056 988 | |||||||
The Group’s effective beneficial interest in the Indian based Mumbai International Airport Private Limited (MIAL) is included in unlisted investments held-for-trade, where the fair value is not based on observable market data (Level 3). The carrying value of this investment at 31 December 2018, based on the directors’ valuation of 30 June 2018, is R1 036 million (US$72 million) (H1 2018: R892 million (US$72 million)). The valuation of MIAL is fair value less cost to sell. The calculation used the actual operating results for MIAL based on its most recent financial statements and a discounted median multiple for the peer group which is in a range of 12,5 and 14,1x EBITDA. A 1% change in the multiple or EBITDA will result in US$1,4 million change in the value.
MIAL is a foreign based asset and the ruling period end exchange rate, US$1 = R14.39 (H1 2018: US$1 = R12.38), 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 105 million whose carrying value is R14 098 million.
Net disposal of businesses, subsidiaries, associates and investments
During the period the Group disposed of its entire shareholding in Al Jaber Coin Security Company LLC (Al Jaber), a security services company domiciled and operating in the UAE, and it’s 50% share of Gerlan Properties (Pty) Ltd (Gerlan).
The Group made a number of small bolt-on acquisitions during the period. These acquisitions were funded from existing cash resources.
The final accounting for all the acquisitions had not been completed at the time these condensed consolidated interim financial statements were issued, in each case the final accounting will be completed within 12 months of the acquisition date, as allowed by the applicable accounting standard.
The following table summarises and incorporates the provisional amounts of assets acquired and liabilities assumed which have been included in these results from the respective dates.
| R’000 | Al Jaber | Gerlan | Other | Total | ||||||||
| Property, plant and equipment | (1 565) | (37 282) | 50 | (38 797) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Deferred taxation | – | 6 568 | 1 650 | 8 218 | ||||||||
| Interest in associates | – | – | 8 367 | 8 367 | ||||||||
| Investments and advances | – | – | (39 800) | (39 800) | ||||||||
| Inventories | – | – | 3 804 | 3 804 | ||||||||
| Trade and other receivables | (153 646) | (142) | (9 937) | (163 725) | ||||||||
| Cash and cash equivalents | (5 627) | – | 24 648 | 19 021 | ||||||||
| Borrowings | – | – | (6 307) | (6 307) | ||||||||
| Trade and other payables and provisions | 120 920 | (204) | 227 | 120 943 | ||||||||
| Taxation | – | 1 193 | (19 902) | (18 709) | ||||||||
| Intangible assets | – | – | 651 | 651 | ||||||||
| (39 918) | (29 867) | (36 549) | (106 334) | |||||||||
| Non-controlling interest | – | 14 934 | 7 500 | 22 434 | ||||||||
| Realisation of foreign currency translation reserve | 18 131 | – | 1 172 | 19 303 | ||||||||
| Goodwill | – | – | 80 896 | 80 896 | ||||||||
| Net assets acquired | (21 787) | (14 933) | 53 019 | 16 299 | ||||||||
| Settled as follows: | ||||||||||||
| Cash and cash equivalents acquired | (19 021) | |||||||||||
| Acquisition costs | 3 222 | |||||||||||
| Net loss on disposal of operations | 10 539 | |||||||||||
| Settlement of receivable arising on disposal of subsidiaries and associates in prior periods | (190 741) | |||||||||||
| Net change in vendors for acquisition | (1 425) | |||||||||||
| Net disposal of businesses, subsidiaries, associates and investments | (181 127) |
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 in the market place.
The small bolt-on acquisitions did not contribute materially to the Group’s revenue or operating profit for the period under review.
Subsequent events
Subsequent to half year-end Pureau Fresh Water Company Proprietary Limited, 82% owned by the Group, acquired 100% of the ordinary share capital 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 and plumbed in water dispensers (bottleless water coolers) to households and to a wide variety of corporate customers. The acquisition was funded using existing facilities.
Bidvest made a take-over cash offer of N$10.50 to the minority shareholders of Bidvest Namibia, conditional on a delisting from the Namibian Stock Exchange.
Unaudited results
These results have not been audited or reviewed by the Group’s auditors. The interim condensed consolidated financial statements have been prepared under supervision of the Chief Financial Officer, MJ Steyn BCom CA (SA), and were approved by the board of directors on 1 March 2019.