Bidcorp

Net acquisition of businesses, subsidiaries, associates and investments

Acquisitions
Bidcorp acquired 90% of the issued share capital of Guzmán for an enterprise value of €75 million (R1,1 billion), the effective date of this acquisition was April 1 2017.

Other than the Guzmán acquisition, the Group made a number of small acquisitions during the year namely Bestfood NV (Belgium), BFS Port Macquarie Proprietary Limited (Australia), Central Choices Foods Proprietary Limited (Australia), Hanlon’s Smokehouse Dublin Limited (Ireland), Mariusso Comércio De Alimentos E Representação Limitada (Brazil), Quartiglia Food Service Spa (Italy), R Noone & Son Limited (England), Wyn Lee Holdings Limited (England) and Wynne-Williams (Flint) Limited (England).

These acquisitions form part of the Group’s strategic expansion plans in the international foodservice industry. 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. There were no significant contingent liabilities identified in the businesses acquired.

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 its marketplace.

For Guzmán and the other acquisitions the Group’s revenue for the year was enhanced by R2,1 billion, and its trading profit by R69,5 million. If these acquisitions had been effective on July 1 2016, the total contribution to revenue would have been R3,6 billion and an increase in trading profit by R139,6 million.

Disposals
Effective April 1 2017, Bidcorp Food Africa Proprietary Limited, a subsidiary of Bid Corporation Limited, signed agreements with Puratos Group NV (Puratos) whereby Puratos became an equal shareholder in Bidcorp Food’s Bakery Solutions Division (subsequently named Chipkins Puratos (CP)). CP manufactures and supplies bakery ingredients to industrial bakers, the craft market and large retailers under the Chipkins and NCP brands in South Africa.

The transaction provides CP with an opportunity to grow its existing business and to develop new products and tailor-made solutions for the South African baking industry. Planned investment in new product categories and technology are very exciting and offer opportunities and development experiences to management and staff.

The following table summarises the net assets acquired/disposed and liabilities assumed/disposed which have been included in these results from the respective acquisitions and disposals.

Commitments

The Group has commitments at June 30 of approved contracted capital expenditure of R675,2 million (2016: R568,7 million) and not contracted for capital expenditure of R873,5 million (2016: R939,4 million). It is anticipated that capital expenditure will be financed out of existing cash resources.

Financial instruments

Fair value hierarchy
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques categorised as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy for financial instruments measured at fair value. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

Valuation techniques and significant unobservable inputs

Valuation technique
The expected payments are determined by considering the possible scenarios of forecast EBITDA, the amount to be paid under each scenario and the probability of each scenario. The valuation models consider the present value of expected payment, discounted using a risk-adjusted discount rate.

Inter-relationship between significant unobservable inputs and fair value measurement

The estimated fair value would increase (decrease) if:

• the EBITDA were higher (lower); or
• the risk-adjusted discount rate were lower (higher).

Exchange rates

The following exchange rates were used in the conversion of foreign interests and foreign transactions for the year ended::