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. The interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2020 and any public announcements made by the Group during the interim reporting period (IAS 34 para 6). 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 2020.
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 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 2020. 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 2020.
Judgement was required to consider the impact of COVID-19 on the results of the Group for the period under review. The financial impact arising from the Group’s assessment is detailed below:
|COVID-19 capital impairments||–||–||1 147 958|
|COVID-19 non-capital impairments||83 878||–||1 552 086|
|Restructuring costs||60 665||–||460 443|
|Bidvest COVID-19 Fund||–||–||400 000|
|Impairment of MIAL||–||–||351 442|
|Net impairment losses on financial assets (ECLs)||7 057||–||228 315|
|Onerous contracts||675||–||57 148|
|Inventory obsolescence provisions||15 481||–||54 738|
The 30 June 2020 comparative condensed consolidated statement of financial position has been restated (refer Business combinations note for further details). Net impairment losses on financial assets, in accordance with IAS 1, were disclosed as a separate line item in the consolidated income statement for the first time for the year ending 30 June 2020, consequently the comparative period to 31 December 2019 has been restated accordingly. Geographic segmentation was included for the first time for the year ending 30 June 2020, consequently the comparative period to 31 December 2019 has been restated accordingly. The IFRS 5 Non-current Assets Held for Sale and Discontinued Operations disclosure (refer Discontinued operations note) has resulted in the restatement of the condensed consolidated income statement, headline earnings, condensed consolidated cash flow statement, condensed disaggregated revenue, condensed segmental revenue and condensed segmental trading profit for the comparative period to 31 December 2019.
Bidvest Freight has committed R201 million to an LPG tank farm project in Isando Gauteng, as at 31 December 2020 R2 million has been spent. The estimated completion date for the Isando LPG project is March 2022. During the period, R110 million was committed to a project to upgrade and replace infrastructure at South African Bulk Terminals, as at the reporting date R64 million has been spent with the balance expected to be spent before 30 June 2021. Bidvest Properties has committed R70 million to the purchase of a property occupied by a Group tenant.
Fair value of financial instruments
The Group’s investments of R3 453 million (H1 2020: R3 801 million) include R131 million (H1 2020: R142 million) recorded at amortised cost, R2 148 million (H1 2020: R2 323 million) recorded and measured at fair values using quoted prices (Level 1) and R1 174 million (H1 2020: R1 336 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 R140 million (H1 2020: R18 million).
Analysis of investments at a fair value not determined by observable market data
|Balance at the beginning of period||1 276 338||1 311 132||1 311 132|
|On acquisition of business||–||29 627||29 627|
|Purchases, loan advances or transfers from other categories||42 412||14 429||41 169|
|Fair value adjustment recognised directly in equity||–||–||55|
|Fair value adjustment arising during the period recognised in the income statement||(139 505)||(18 324)||(102 831)|
|Proceeds on disposal, repayment of loans or transfers to other categories||(4 364)||(723)||(3 396)|
|Exchange rate adjustments||(524)||(39)||582|
|1 174 357||1 336 102||1 276 338|
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 2020 is R1.0 billion ( cr 505), which is the disposal price of 5 February 2021 (refer Subsequent events note), and has been classified as a current asset. The carrying value at the comparative prior period reporting date, 31 December 2019, is R1.2 billion (US$86 million).
MIAL is a foreign-based asset and the ruling period-end exchange rate, 1cr = R2 055 303 (H1 2020: US$1 = R13.98), 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 R25 904 million whose carrying value is R25 862 million.
Bidvest Car Rental (BCR) is a motor vehicle rental business operating in South Africa, Botswana and Namibia. As a result of declining international and domestic travel brought on by the COVID-19 pandemic and a slow anticipated mid-term recovery, management took the decision to exit the business. The BCR business is an identifiable component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group. BCR represents a separate major line of business in the geographical area of Southern Africa. The relevant requirements of IFRS 5 were met for this operation to be classified as a disposal group held for sale and as a discontinued operation as at 30 June 2020. BCR is a separate and major business component of the Automotive segment.
The buyer engaged during June 2020 was unable to secure financing for the deal and has withdrawn the non-binding offer to purchase. BCR continues to be actively marketed for sale at a price which is reasonable to its fair value and a number of interested parties are being considered.
BCR was not previously classified as a disposal group held for sale and as a discontinued operation for the period ended 31 December 2019. The comparative condensed consolidated income statement and condensed consolidated statement of cash flows and financial reporting were restated to show the discontinued operation separately from continuing operations.
Results of the discontinued operation included in the Group’s results for the period ended 31 December are detailed as follows:
|Revenue||267 338||675 289||1 057 525|
|Cost of revenue||(196 194)||(389 268)||(840 519)|
|Gross profit||71 144||286 021||217 006|
|Operating expenses||(56 403)||(217 298)||(716 538)|
|Other income||–||898||1 063|
|Trading profit (loss)||14 741||69 621||(498 469)|
|Share-based payment expense||(702)||(693)||(1 324)|
|Impairment of property, plant and equipment and right-of-use assets||–||–||(128 300)|
|Operating profit (loss) before finance charges||14 039||68 928||(628 093)|
|Net finance charges||(47 278)||(82 092)||(210 151)|
|Finance income||63||129||5 151|
|Finance charges||(47 341)||(82 221)||(215 302)|
|Operating loss before taxation||(33 239)||(13 164)||(838 244)|
|Taxation||7 874||2 999||205 977|
|Loss for the period from discontinued operations||(25 365)||(10 165)||(632 267)|
|Basic earnings per share (cents) – discontinued operations||(7.5)||(3.0)||(186.4)|
|Diluted basic earnings per share (cents) – discontinued operations||(7.5)||(3.0)||(186.1)|
|Effect of the discontinued operation on the Group’s consolidated statement of financial position|
|Assets of disposal group held for sale||1 056 726||1 806 855|
|Current tax asset||58 361||58 335|
|Property, plant and equipment||575||–|
|Vehicle rental fleet||871 859||1 561 338|
|Trade and other receivables||97 126||168 694|
|Cash and cash equivalents||28 265||16 888|
|Liabilities of disposal group held for sale||1 258 939||1 639 219|
|Post-retirement medical aid obligations||–||1 123|
|Lease liabilities||64 269||78 096|
|Trade and other payables||90 990||195 325|
|Provisions for discontinuation||185 245||255 233|
|Interest-bearing borrowings||266 342||345 993|
|Cash and cash equivalents (overdrafts)||652 093||763 449|
|Cash flows from discontinued operations|
|Net operating activities from discontinued operations||(382 190)||387 385||232 661|
|Net investing activities from discontinued operations||600 929||(650 567)||(653 016)|
|Net financing activities from discontinued operations||(93 841)||(27 214)||290 223|
|Net increase (decrease) in cash and cash equivalents||124 898||(290 396)||(130 132)|
The prior year acquisition, PHS Group was subject to a Purchase Price Allocation (PPA) review in the current period. The PPA review, which was finalised during the current period, resulted in the recognition at 30 June 2020 of an indefinite life Brand intangible asset in the amount of R2 336 million (£108.8 million), a 15-year definite life Customer Relationships intangible asset in the amount of R2 482 million (£115.6 million) and deferred tax liabilities of R915 million (£42.6 million), a resultant net R3 903 million (£181.7 million) goodwill has been de-recognised. The 30 June 2020 comparative condensed consolidated statement of financial position has been restated accordingly, the impact of which is illustrated in the table below. The impact of the PPA on the consolidated income statement and condensed consolidated statement of other comprehensive income was considered immaterial and these statements were not restated.
30 June 2020
|Deferred taxation||–||(915 484)||(915 484)|
|Intangible asset – PHS brand (indefinite life)||–||2 336 163||2 336 163|
|Intangible asset – Customer relationships (15-year life)||–||2 482 174||2 482 174|
|Goodwill||(11 685 164)||7 782 311||(3 902 853)|
|Net assets recognised||(11 685 164)||11 685 164||–|
The relief-from-royalty method was used to determine the value of the PHS brand. A royalty rate of 3.5% was applied after considering PHS’s market-leading position, profitability levels and licensing transactions for similar entities. The Multi-Period Excess Earnings Method (MPEEM), an income-based valuation method that isolates the cash flow attributable to the customer related intangible asset, was used to value Customer Relationships, which were estimated to have a Remaining Useful Life (RUL) of 15 years. A ratio of 92.5% was applied to forecasted revenues (representing the revenue remaining after removing revenue from new customers) in addition to an existing customer attrition rate of 13.5%. The Weighted Average Cost of Capital (WACC) was calculated as 9.8%, to which a 0.25% intangible asset specific risk premium was added to arrive at the discount rate of 10.05% used in valuation of the identified intangible assets.
Net acquisition of businesses, subsidiaries, associates and investments
On 23 December 2020, the Group disposed of 100% of the share capital and voting rights of Ontime Automotive Limited (Ontime). Ontime is a specialist in vehicle transport services and is Europe’s largest enclosed car delivery operator. This disposal follows the prior period disposal of DH Mansfield and completes the divestiture of the Group’s Freight interests in the United Kingdom, which are considered non-core because of size, geographical isolation and lack of scalability.
The Group made a number of minor bolt-on acquisitions during the period. These acquisitions were funded from existing cash resources.
The final accounting for the minor 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.
|Property, plant and equipment||(140 601)||(7 573)||(148 174)|
|Right-of-use–assets||(42 609)||–||(42 609)|
|Deferred taxation||(1 404)||4 094||2 690|
|Interest in associates and joint ventures||–||31 500||31 500|
|Investments and advances º||–||375 539||375 539|
|Trade and other receivables||(74 493)||(5 732)||(80 225)|
|Cash and cash equivalents||31 262||191||31 453|
|Borrowings||18 169||3 336||21 505|
|Lease liabilities||45 151||–||45 151|
|Trade and other payables and provisions||42 958||(5 535)||37 423|
|Intangible assets||(55)||1 628||1 573|
|(122 602)||396 841||274 239|
|Non-controlling–interest||–||(3 336)||(3 336)|
|Realisation of foreign currency translation reserve||(62 143)||(1 224)||(63 367)|
|Goodwill||–||8 154||8 154|
|Net assets (disposed) acquired||(184 745)||400 435||215 690|
|Settled as follows:||–||–||–|
|Cash and cash equivalents acquired||–||–||(31 453)|
|Acquisition costs||–||–||7 580|
|Net loss on disposal of operations||–||–||114 539|
|Net settlement of receivable arising on disposal of subsidiaries and associates in prior periods||–||–||(46 854)|
|Net change in vendors for acquisition||–||–||(22 301)|
|Net acquisition of businesses, subsidiaries, associates and investments||–||–||237 201|
|º||Includes purchases of R1 246 million and disposals of R870 million in the Group’s various investment portfolios, primarily those of Bidvest Bank and Bidvest Insurance (“Other” column).|
Goodwill arose on the minor 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.
The minor bolt-on acquisitions did not contribute materially to the Group’s revenue or operating profit for the period under review.
Effective 5 February 2021, and subsequent to the reporting date, the Group unconditionally sold its entire (6.75%) equity interest in MIAL to Adani Airport Holdings for cr 505 (R1 037 million), post the effective date the Group has no commercial interest, beneficial or otherwise, in MIAL.
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 26 February 2021.