Annual integrated report 2018

Recoverability of trade receivables Refer to notes 3 and 7.4 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 judgement 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: • Agreed a sample of outstanding sales invoices at year-end to subsequent cash receipts from customers and/or obtaining confirmations of selected balances; • Reperformed the ageing of the trade receivables to verify the accuracy of the age analyses; • Evaluated 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 compared 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. • Evaluated the adequacy and appropriateness of the disclosures in the consolidated financial statements. Findings We found the judgements 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 notes 3 and 8.3 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 judgement in relation to the assumptions used in the group’s goodwill impairment models. As indicated in note 8.3, goodwill was subject to an annual impairment test using the higher of the fair value less costs to sell method and the discounted cash flow 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 (PE 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 PCL24/7 Limited (PCL) 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 the following: • Obtained the impairment assessments prepared by management and gained an understanding of the methodology applied to determine the recoverable amounts in respect of goodwill; • Challenged the group’s impairment models by performing sensitivity analyses; • Challenged the group’s allocation of assets to CGUs based on the geographies of the businesses; • Evaluated the consistency and appropriateness of assumptions used by the group. In particular, we considered the assumptions 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 and by benchmarking discount rates with similar companies in same geographies; • In certain cases, used our valuation specialist to assist us in evaluating the assumptions and methodologies used by the group; and • For the PCL 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. 77 Bid Corporation Limited Annual integrated report 2018 This is Bidcorp ifc – 13 Leadership review 14 – 23 ESG reviews 24 – 47 Governance review 48 – 59 Financial statements 60 – ibc