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 2019.
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 2019.
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 2019, except those relating to the accounting for and treatment of, operating leases. Effective 1 July 2019 the Group adopted IFRS 16 Leases (IFRS 16) as issued by the IASB. 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;
- Accounting for operating 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 adoption of IFRS 16 has had a material impact on the Group’s statement of financial position, right-of-use assets of R5.4 billion and R5.6 billion operating lease liabilities were recognised during the period. Profit attributable to ordinary shareholders for the period declined R86.8 million as a result of IFRS 16. Trading profit increased R99.6 million due to an equivalent decrease in operating expenses, finance charges increased R228.8 million and deferred taxation declined by R36.2 million. Share of associate and joint venture income increased R5.8 million and NCI declined R0.3 million.
Pro forma information
For ease of comparison to the prior period a pro forma unaudited condensed consolidated income statement, a pro forma unaudited condensed consolidated statement of other comprehensive income, a pro forma unaudited condensed consolidated statement of cash flows, a pro forma unaudited condensed consolidated statement of financial position, a pro forma unaudited condensed consolidated statement of changes in equity and a pro forma unaudited condensed segmental analysis, which apply IAS 17 to operating leases in the current period, have been presented for illustrative purposes only and do not constitute financial statements fairly presented in accordance with IFRS. The directors of the Group are responsible for compiling the pro forma financial information on the basis applicable, of the criteria as detailed in paragraphs 8.14 to 8.33 of the JSE Listing Requirements and the SAICA Guide on Pro forma Financial Information, revised and issued in September 2014 (applicable criteria).
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 transactions, therefore the prior period 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 R59 million in H1 2019 and the cash flow from financing activities declined by R59 million.
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 changes. No comparative information has been changed following the adoption of IFRS 16.
Significant commitments
Bidvest Freight's construction of the LPG tank farm in the port of Richards Bay is progressing on time and on budget. At 31 December 2019 R607 million has been spent with an additional R363 million committed to complete the project, the estimated completion date is May 2020. Bidvest Freight has committed R201 million to an LPG tank farm project in Isando, Gauteng. The estimated completion date for the Isando LPG project is March 2022.
Fair value of financial instruments
The Group's investments of R3 801 million (H1 2019: R2 822 million) include R142 million (H1 2019: R11 million) recorded at amortised cost, R2 323 million (H1 2019: R1 706 million) recorded and measured at fair values using quoted prices (Level 1) and R1 336 million (H1 2019: R1 105 million) recorded and measured at fair value using factors not based on observable data (Level 3). Fair value losses on Level 3 investments recognised in the income statement total R18 million (H1 2019: R45 million gain).
Analysis of investments at a fair value not determined by observable market data
Half–year ended 31 December |
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R000s | 2019 Unaudited |
2018 Unaudited |
Year ended 30 June 2019 Audited |
|||
---|---|---|---|---|---|---|
Balance at the beginning of period | 1 311 132 | 1 056 988 | 1 056 988 | |||
On acquisition of business | 29 627 | – | 3 798 | |||
Purchases, loan advances or transfers from other categories | 14 429 | 4 283 | 10 540 | |||
Fair value adjustment recognised directly in equity | – | – | 5 | |||
Fair value adjustment arising during the period recognised in the income statement | (18 324) | 45 019 | 248 830 | |||
Proceeds on disposal, repayment of loans or transfers to other categories | (723) | (12 906) | (12 906) | |||
Profit on disposal of investments | – | 11 459 | 2 085 | |||
Exchange rate adjustments | (39) | 38 | 1 792 | |||
1 336 102 | 1 104 881 | 1 311 132 |
The Group’s effective beneficial interest in the Indian based Mumbai International Airport Private Limited (MIAL) is an unlisted investment held at fair value through profit or loss, where the fair value is not based on observable market data (Level 3). The carrying value of this investment at 31 December 2019, based on the directors’ valuation of 30 June 2019, is R1.2 billion (US$86 million) (H1 2019: R1.0 billion (US$72 million)). The valuation of MIAL is fair value less cost to sell and was based on a signed sale agreement, subject to suspensive and conditions precedent. The investment is classified as a current asset and is expected to be sold within the next 12 months.
MIAL is a foreign based asset and the ruling period end exchange rate, US$1 = R13.98 (H1 2019: US$1 = R14.39), 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 R16 939 million whose carrying value is R16 926 million.
Business combinations
The table below summarises the derecognition of the associate investment in Adcock Ingram and recognition and consolidation of Adcock Ingram as a 51.40% held subsidiary effective 1 August 2019, following additional investment in Adcock Ingram and the dissolution of the Adcock Ingram Broad-Based Black Empowerment Scheme (Scheme). No additional consideration was paid for the ordinary shares received on the dissolution of the Scheme.
R000s | Derecognition of associate |
Recognition of subsidiary |
*Recognition of NCI and intangibles |
Impact on financial position |
IFRS 16 adjustment |
^Pro forma impact on financial position |
|||||
Property, plant and equipment | – | 1 534 423 | – | 1 534 423 | – | 1 534 423 | |||||
Right-of-use assets | – | 297 373 | – | 297 373 | (297 373) | – | |||||
Deferred taxation | – | (96 342) | – | (96 342) | – | (96 342) | |||||
Interest in associates and joint ventures | (5 057 908) | 519 668 | – | (4 538 240) | – | (4 538 240) | |||||
Investments and advances | – | 29 627 | – | 29 627 | – | 29 627 | |||||
Inventories | – | 1 499 187 | – | 1 499 187 | – | 1 499 187 | |||||
Trade and other receivables | – | 2 065 534 | – | 2 065 534 | – | 2 065 534 | |||||
Cash and cash equivalents | – | 467 913 | – | 467 913 | – | 467 913 | |||||
Lease liabilities | – | (327 164) | – | (327 164) | 297 373 | (29 791) | |||||
Trade and other payables and provisions | – | (2 250 520) | – | (2 250 520) | – | (2 250 520) | |||||
Taxation | – | (374) | – | (374) | – | (374) | |||||
Net tangible assets | (5 057 908) | 3 739 325 | – | (1 318 583) | – | (1 318 583) | |||||
Non-controlling interest ª | – | (3 196) | (2 111 568) | (2 114 764) | – | (2 114 764) | |||||
Intangible assets | – | 432 322 | – | 432 322 | – | 432 322 | |||||
Goodwill | – | 176 339 | 2 824 686 | 3 001 025 | – | 3 001 025 | |||||
Net assets recognised | (5 057 908) | 4 344 790 | 713 118 | – | – | – |
* | R3 billion goodwill raised on recognition as subsidiary and the fair value of assets is provisional and subject to a Purchase Price Allocation (PPA) review |
ª | Subsequent to 1 August 2019 the Group purchased an additional 1 597 100 Adcock Ingram ordinary shares for R90 million raising the Group's economic interest in Adcock Ingram to 52.3% |
^ | Pro forma impact on financial position applies IAS 17 to operating leases for the half year ending 31 December 2019 |
Net acquisition of businesses, subsidiaries, associates and investments
Effective 1 July 2019, the Group acquired 100% of the share capital and voting rights of Future Cleaning Services Limited (Future Cleaning) via its United Kingdom (UK) subsidiary, Noonan Services Group (UK) Limited. Future Cleaning, a North Yorkshire company formed in 2003, is an office and commercial cleaning services company operating throughout the UK and Ireland through bespoke packages designed to service any size company and budget providing the best value contracts. Specialist cleaning services include boat, transport and escalator cleaning, jet washing and road sweeping. General cleaning services include daily contract, commercial, industrial, window and carpet cleaning. This bolt-on acquisition increases the Group's cleaning service footprint, specialist cleaning capabilities, and market share in the UK and Ireland and was funded from existing cash resources and facilities.
In the current period, the Group disposed of 100% of the share capital and voting rights of DH Mansfield Group Limited, a rescue and recovery business in the UK. The business is considered non-core to the Group because it does not fall into the niche, focused areas in which Bidvest is looking to develop.
The Group made a number of smaller 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.
R000s | Future Cleaning |
DH Mansfield |
Other | Total | IFRS 16 adjustment |
^ Pro forma total |
|||||
Property, plant and equipment | 60 479 | (136 433) | 3 291 | (72 663) | – | (72 663) | |||||
Right-of-use assets | – | (51 011) | – | (51 011) | 51 011 | – | |||||
Deferred taxation~ | (48 603) | 19 929 | (123 290) | (151 964) | – | (151 964) | |||||
Interest in associates and joint ventures | – | – | 18 140 | 18 140 | – | 18 140 | |||||
Investments and advancesº | – | – | 283 115 | 283 115 | – | 283 115 | |||||
Inventories | 147 | (14 611) | 25 777 | 11 313 | – | 11 313 | |||||
Trade and other receivables | 111 368 | (95 489) | 100 743 | 116 622 | – | 116 622 | |||||
Cash and cash equivalents | 7 982 | 40 296 | (6 725) | 41 553 | – | 41 553 | |||||
Borrowings | (25 758) | 24 289 | (12 940) | (14 409) | – | (14 409) | |||||
Lease liabilities | – | 47 991 | – | 47 991 | (51 011) | (3 020) | |||||
Trade and other payables and provisions | (70 509) | (18 673) | (82 394) | (171 576) | – | (171 576) | |||||
Taxation | (5 832) | (13 479) | 9 | (19 302) | – | (19 302) | |||||
Intangible assets~ | 236 034 | – | 462 173 | 698 207 | – | 698 207 | |||||
265 308 | (197 191) | 667 899 | 736 016 | – | 736 016 | ||||||
Realisation of foreign currency translation reserve | – | (2 803) | – | (2 803) | – | (2 803) | |||||
Goodwill~ | 294 147 | – | (30 280) | 263 867 | – | 263 867 | |||||
Net assets acquired (disposed) | 559 455 | (199 994) | 637 619 | 997 080 | – | 997 080 | |||||
Settled as follows: | |||||||||||
Cash and cash equivalents acquired | (41 553) | – | (41 553) | ||||||||
Acquisition costs | 16 465 | – | 16 465 | ||||||||
Net loss on disposal of operations | 156 369 | – | 156 369 | ||||||||
Net change in vendors for acquisition | 88 793 | – | 88 793 | ||||||||
Net acquisition of businesses, subsidiaries, associates and investments | 1 217 154 | – | 1 217 154 |
~ | On completion of a PPA review for UAV and Drone Solutions, an acquisition made in the prior year, R459 million of the premium paid over NAV was re-allocated from goodwill to indefinite life intangible assets (“Other” column) |
º | Includes purchases of R1 559 million and disposals of R1 276 million in the Group’s various investment portfolios, primarily those of Bidvest Bank and Bidvest Insurance (“Other” column) |
^ | Pro forma total applies IAS 17 to operating leases for the half year ending 31 December 2019 |
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 marketplace.
For the period under review Future Cleaning contributed revenue of R310 million and operating profit of R29 million. The smaller bolt-on acquisitions did not contribute materially to the Group's revenue or operating profit for the period under review.
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 28 February 2020.