Annual Integrated Report 2019

Chief financial officer’s report continued The strategy and intention of continuing our successful bolt-on acquisition programme remains an imperative. We are currently assessing a number of opportunities within the key regions in which we operate, but these will only be pursued when it is clear these are value adding and will achieve the group’s targeted returns. An important metric is our return on monthly average funds employed, which amounted to 32,6% (F2018: 36,3%), while the return on monthly average shareholder equity was 16,1% (F2018: 16,6%). Although these have declined over the year, the necessary investments made in the business will ensure we sustain our returns trajectory in the medium term. Digital innovation Good progress is being made on the BidOne ecommerce platform, and the CRM systems. BidOne already covers 25% of group revenues and is evolving and embracing fit-for-purpose intellectual property (IP), which is leveraged for the greater benefit of the group and remains an important competitive advantage. The new sales enabling CRM system (BidIQ) is in the user acceptance testing phase and will start implementation this year in New Zealand. Additionally, a new supplier order application is also in the testing stages. Dividend intact Our dividend policy of 2,5 times headline earnings cover remains intact, however, we have incrementally been lowering the cover. After declaring a final cash dividend of 330,0 cents per share, it resulted in a total dividend for the year of 640,0 cents per share, a 14,3% increase on last year’s total dividend, equating to a 2,26 times cover. The need to secure and sustain our licence to operate, and bring resonance to our customer value principle, has led to many other essential business requirements. These have included contributions by way of innovations, donations, workplace accord, training and development, enhancing supplier and other partnerships, as well as many other activities that define our purpose, and which have become equally important to Bidcorp. Each stakeholder is essential to us and we are committed to continue delivering value to all groups of people that have an impact on our business. Shareholder returns by way of cash distribution and capital growth will, however, always remain a commanding beacon, and we will continue to manage the business in a way that enhances this objective. We see it as a measure of our success. Driving performance Share-based payment costs increased to R114,5 million (F2018: R99,2 million) on the back of further long-term incentivisation of staff across the group. The changing dynamics of labour across the globe are clearly evident, and this drives the importance for the group to ensure the continued attraction, retention, and motivation of its existing entrepreneurial talent. Together with escalating employee costs throughout many jurisdictions, it has required a higher level of focus to ensure that we than continue to achieve our operational and strategic objectives. While costs management and efficiencies play an important role, suitable and relevant short and long-term incentives remain an important motivator of performance. Reward systems within the group are varied and determined by the achievement of realistic profit and return targets together with an individual’s personal contribution to the growth and development of the group. Going forward, we intend to further enhance the focus on the areas within the control of the individual. We also seek to ensure that the long-term incentive structure is aligned to the overriding group objectives, and in this instance we seek closer alignment between shareholders and other stakeholders for a sustainable period. Risk management measures Bidcorp’s debt is currency matched to the underlying assets, which provides a natural hedge across the group, and we continually ensure that we maintain that principle. It is critically important to us, considering the geographic spread of currency exposure risk we face. Enabling an environment where the in-country management teams are focused on the day-to-day operations and not over burdened with governance is, in effect, the key role of the Bidcorp corporate office. Additionally, the mix of fixed (long-term funding) and floating interest rates (short-term funding) is another area where we are focused on mitigating interest rate risk elements that may arise. In terms of solvency, our debt-to-equity ratio is 16% from last year’s 13%. Trading profit interest cover is at a comfortable 23,3 times (F2018: 26,2 times). Accounting policy changes The Bidcorp group financial statements are prepared in accordance with IFRS. Interpreting IFRS is complicated and is being made even more complex by the ongoing updates to various standards. Interpretations of IFRS between audit firms can also be divergent. I believe we need simplicity to return, to enable the key user of the annual financial statements, the shareholder, to be better positioned to fully understand a company’s true financial performance. Accounting policy changes for IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments have not had a material effect on the group’s financial performance, balance sheet or cash flow statement. Going into 2020 there is the new IFRS 16 Leasing Standard . The impact of the new IFRS 16 change effectively means, among other aspects, that we will be moving lease liabilities of about approximately R5,1 billion onto the balance sheet. The impact on earnings is estimated to be small, which should not affect next year’s growth. Considering we own approximately 70% of our properties and 82% of our vehicles, there will be a positive impact, by moving the right-of-use asset onto the balance sheet, in that the comparative analysis between us and our peers will become easier. 26 / Bid Corporation Limited Annual integrated report 2019