Independent auditor's report

To the shareholders of Bid Corporation Limited

Report on the audit of the consolidated and separate financial statements
Opinion

We have audited the consolidated and separate financial statements of Bid Corporation Limited (the group and company) set out here, which comprise the consolidated and separate statements of financial position at June 30 2017, and the consolidated and separate statements of profit or loss and consolidated and separate statements of other comprehensive income, the consolidated and separate statements of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the consolidated and separate financial statements, including a summary of significant accounting policies and the directors’ remuneration.

In our opinion, the consolidated and separate financial statements present fairly, in all material respects the consolidated and separate financial position of Bid Corporation Limited at June 30 2017, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

Basis for opinion

We have conducted our audit in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the group and company in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Group key audit matter
Revenue recognition – sale of goods

Refer to note 1.7 for the accounting policy and note 2 of the consolidated financial statements.

  The key audit matter   How the matter was addressed in our audit
 

The group focuses on earnings growth as one of the measures for management’s key performance, which may create an incentive for revenue to be recognised before the risks and rewards have been transferred, resulting in a significant risk associated with revenue from an audit perspective.

Due to the significant risk associated with revenue recognition and the work effort from the audit team, the recognition of revenue is considered to be a key audit matter.

  

Our audit procedures included an assessment of the group’s revenue recognition accounting policies including those relating to discounts and rebates and assessing compliance of the policies in terms of IFRS (namely IAS 18 Revenue).

Controls testing over the point of transfer of risks and rewards was supported by substantive audit procedures including, among others:

  • Agreeing a sample of sales invoices to cash receipts from customers and/or proof of delivery documents;
  • Testing a sample of sales transactions around year end to ensure inclusion in the correct period;
  • Testing the provisions for credit notes, rebates and discounts by testing a sample of credit notes, rebates and discounts processed immediately preceding and post-year-end.

Findings

We found the recognition of revenue to be appropriate in terms of the requirements of the financial reporting framework.
Recoverability of trade receivables

Refer to note 1.20 for the accounting policy and notes 21, 33.2.1 and 36 of the consolidated financial statements.

  The key audit matter   How the matter was addressed in our audit
 

Trade receivables represent a significant balance on the statement of financial position.

Management identifies possible impairment of trade receivables on an ongoing basis. Significant judgement is applied by management in the following areas when performing this assessment:

  • Age of the debtor;
  • Current financial status of the debtor; and
  • Any disputes.

Due to the level of judgment involved in the assessment of the recoverability of the trade receivables, this is considered to be a key audit matter.

  

Our audit procedures included controls testing which was supported by substantive audit procedures including, among others:

  • Agreeing a sample of outstanding sales invoices at year-end to subsequent cash receipts from customers and/or obtaining confirmations of selected balances;
  • Reperforming the ageing of the trade receivables to verify the accuracy of the age analyses;
  • Reviewing management’s calculation of the trade receivables impairment allowance by predicting our own impairment allowance based on the age, financial status and problematic/legal accounts and comparing our impairment allowance to management’s impairment allowance. The assessment considered:
    • comparing agreed payment terms to payment history;
    • examining credit insurance policies; and
    • inspecting securities held.
  • Reviewed the adequacy and appropriateness of the disclosures in the financial statements.

Findings

We found the judgments and estimates made by management in their assessment of trade receivables to be reasonable and the disclosures to be acceptable in accordance with the requirements of the financial reporting framework.
Assessment of the carrying value of goodwill

Refer to note 1.13 for the accounting policy and notes 15 and 36 of the consolidated financial statements.

  The key audit matter   How the matter was addressed in our audit
 

Goodwill impairment testing involves valuations which are complex. Management applies significant judgment in relation to the assumptions used in the group’s goodwill impairment models.

As indicated in note 1.13 goodwill was subject to an annual impairment test using the higher of, the fair value less costs to sell method and the value-in-use method. A price earnings multiple, consistent with similar companies, within the foodservice industry and geographic locations, was applied to determine the recoverable amount of each cash-generating unit (CGU). In addition, discounted cash flow models were used to determine the value-in-use.

The following assumptions significantly impact the models:

  • projected annualised earnings;
  • price earnings multiples;
  • discount rate (WACC);
  • cash flow growth rate; and
  • terminal growth rate.

In addition, included in the Foodservice United Kingdom (UK) CGU is goodwill relating to the Logistics business which was impaired as the businesses performance was below expectation.

Due to the level of judgement involved in relation to the assumptions used in these impairment models and due to the work effort required by the audit team, this is considered to be a key audit matter.

  

Our audit procedures included, among others, the following:

  • Obtaining the impairment assessments prepared by the management and gaining an understanding of the methodology applied to determine the recoverable amounts in respect of goodwill and evaluating the appropriateness of significant assumptions applied and the critical judgements;
  • Challenging the group’s impairment models, including the allocation to CGUs based on the geographies of the businesses which is representative of the internal structure for management purposes, by performing sensitivity analyses;
  • Evaluating the consistency and appropriateness of assumptions and methodologies used by the Group, in particular those relating to revenue, operating profit and cash flow growth, discount rates used (WACC rates) and terminal growth rates applied by comparing the group’s assumptions with our own assessment in relation to key inputs into the models including assessing historical financial performance against forecast and by benchmarking discount rates with similar companies in same geographies;
  • In certain cases, using our valuation specialist to assist us in evaluating the assumptions and methodologies used by the group; and
  • For the Logistics UK impairment assessment we challenged management’s assumptions by performing sensitivity analyses on key inputs such as the discount rate and working capital movements. The range and likelihood of each of the possible outcomes determined from these sensitivity analyses was then considered in relation to the assessment performed by management.

Findings

We found that the assumptions used by management were reasonable and we consider the disclosure of the goodwill to be acceptable in accordance with the requirements of the financial reporting framework.
Company key audit matter

Assessment of investments in subsidiaries for impairment

  The key audit matter   How the matter was addressed in our audit
 

The company’s most significant assets is its investment in subsidiaries. The company reflects its investments in subsidiaries at cost less accumulated impairment losses.

At year-end, management performed an impairment assessment and concluded that no impairment of the company’s investment in subsidiaries was necessary.

Due to the magnitude of the carrying amounts, the assessment of the investment in subsidiaries for impairment required significant auditor attention and was considered a key audit matter.

  

Our audit procedures included, among others, the following:

  • Obtaining the impairment assessment prepared by management and gaining an understanding of the methodology applied to determine the recoverable amount in respect of the investments;
  • Comparing the value of the investment in subsidiaries to the net asset value of the investees; and
  • Considering any contradictory evidence that came to our attention during our audit of both the consolidated and separate financial statements that may have had an impact on the impairment assessment.

Findings

We found that management’s assessment, that no impairment of investment in subsidiaries was necessary at year-end, was reasonable.
Other information

The directors are responsible for the other information. The other information comprises the directors’ report, the audit and risk committee’s report and the declaration by company secretary as required by the Companies Act of South Africa, and all other information included in the annual financial statements, which we obtained prior to the date of this report and the annual integrated report, which is expected to be made available to us after that date. Other information does not include the consolidated and separate financial statements and our auditor’s report thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the consolidated and separate financial statements

The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the directors are responsible for assessing the group and company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group and/or the company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated and separate financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.

As part of an audit in accordance with ISA, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group and the company’s internal control.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
  • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group and company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the group and/or the company to cease to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that KPMG Inc. has been the auditor of Bid Corporation Limited for two years.

KPMG Inc.
Per Mohammed Hassan
Chartered Accountant (SA)
Registered Auditor
Director

August 23 2017

KPMG Crescent
85 Empire Road
Parktown
2193

Private Bag 9
Parkview
2122