Basis of presentation of condensed consolidated financial statements
The summary consolidated financial statements are prepared in accordance with the JSE Limited Listings Requirements for preliminary reports, and the requirement of the Companies Act of South Africa applicable to summary financial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by Financial Reporting Standards Council, and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements from which the summary financial statements were derived are in terms of IFRS.
With effect from July 1 2018, the Group adopted IFRS 9 Financial instruments (IFRS 9) and IFRS 15 Revenue from Contracts with Customers (IFRS 15). The effects of these adopted standards have been detailed below:
The key impact of IFRS 9 for the Group relates to the application of the expected credit loss (ECL) model in the measurement of the impairment allowance of our trade and other receivables (through the application of the simplified approach). ECLs are calculated, as a function of the decentralised structure, at each operation by applying the historic loss ratios to trade receivable balances. In determining the ECL, each operation splits the trade receivables into groups based on shared credit risk characteristics and the days past due; namely, by splitting customers into the type of customer (independent, chain, logistics and retail), geographical regions, product types, customer ratings and trade credit insurances. In instances where there was no evidence of historical impairment, each operation's management used their knowledge of the business and forward looking macro-economic information to determine the potential loss rate. The Group applied the standard retrospectively but has elected not to restate comparative information, which continues to be reported under IAS 39. Differences arising from the adoption of IFRS 9 have been made to the opening balances at the date of initial application. The impact for the Group is an additional impairment allowance of R60,4 million against opening retained earnings.
The measurement of revenue is determined based on the amount to which the Group expects to be entitled, allocated to each specific performance obligation. Depending on whether certain criteria are met, revenue is recognised either over time or at a point in time, as or when control of goods or services is transferred to the customer. As at July 1 2018 there was no significant impact from the adoption of IFRS 15 due to the Group not being involved in material multiple-element arrangements with customers. Therefore, no transition adjustments have been processed to retained earnings. The majority of the Group's revenue is earned through the sale of goods relating to frozen, ambient, chilled and non-food products.
The comparatives of the consolidated statement of profit or loss, consolidated statement of cash flows and related notes have been represented to reflect PCL (a dairy distribution business for Arla) as a discontinued operation separately from continuing operations and a segmental reclassification for BidOne (which provides ecommerce support services and project upgrades for the "myBidfood" application used by Group entities) from Australasia to Corporate.
In addition, to reflect PCL separately from continuing operations, the Group re-presented cash flow payments to puttable non-controlling interests and vendors for acquisition to be re-presented as cash flows from investing activities, and the Group's share incentive plans settlement of share awards was changed from presenting cash flows on a gross basis to a net basis. Refer to the statement of cash flow re-presentation note for further details.
Other than the adopted amendments above, the accounting policies are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements.
With effect from July 1 2019 the Group will adopt IFRS 16 Leases (IFRS 16). The Group's initial assessment of IFRS 16 is that it will have an impact on the following significant areas (but not limited to):
- Recognition of a right-of-use lease asset of approximately R4,2 billion and amortisation for the 2020 financial year between R640 million and R660 million;
- An overall increase in the Group’s net debt (lease liability of approximately R5,1 billion), debt/equity ratio and total assets due to inclusion of the lease right-of-use asset (R4,2 billion) on the statement of financial position;
- Higher trading profit due to an element of the operating lease charge being disclosed as a finance charge;
- Higher finance charges (2020: estimated lease finance charge between R310 million and R330 million) and lower trading interest cover levels due to the finance element of the current lease charge being moved to the finance charges line on the statement of profit or loss;
- Lease payments for the 2020 financial year expected to be between R940 million and R980 million, in terms of IFRS 16 (ignoring lease smoothing adjustments), the “operating” lease charge is not recognised as an operating expense as it is replaced by the amortisation of the right-of-use asset and interest of the lease liability; and,
- Derecognition of the straight-line lease liabilities of R84 million as an opening retained earnings adjustment on transition.
Audit report
These summary consolidated financial statements for the year ended June 30 2019 have been audited by PricewaterhouseCoopers, who expressed an unmodified opinion thereon. The auditor expressed an unmodified opinion on the annual consolidated financial statements from which these summary consolidated financial statements were derived.
A copy of the auditor's report on the summary consolidated financial statements is included on Independent auditor’s report on the summary consolidated financial statements.
Basis of presentation of condensed consolidated financial statements continued
Preparer of the financial statements
These summary consolidated financial statements have been prepared by CAM Bishop CA(SA), under the supervision of DE Cleasby CA(SA) and were approved by the board of directors on August 27 2019.
The directors are responsible for the preparation of the preliminary report and the correct extraction of the financial information from the financial statements.
Subsequent events
The Group is currently in negotiations for the sale of the UK Contract Distribution business in the United Kingdom. The process is at an advanced stage and management is optimistic of a successful conclusion to these negotiations. Other than the matter above, there are no material events subsequent to June 30 2019.
Revenue and cost of revenue restatement of comparatives
Following a re-assessment of the Group's judgements of agent versus principal, it was detected that Bidfood Netherlands was acting as an agent, instead of as principal on certain chilled food deliveries. To reflect this restatement, the comparative revenue and cost of revenue were restated as set out below:
| R000s | Previously reported revenue and cost of revenue 2018 |
Re-presentation of PCL due to classification as a discontinued operation |
Revenue and cost of revenue post-PCL discontinued operation classification |
Restatement | Restated revenue and cost of revenue 2018 |
|||||
| Revenue | 119 359 635 | (1 154 014) | 118 205 621 | (502 665) | 117 702 956 | |||||
| Cost of revenue | (90 749 470) | – | (90 749 470) | 502 665 | (90 246 805) |
This restatement had no impact on the Group’s gross profit, earnings per share, headline earnings per share or statement of financial position.
Statement of cash flows re-presentation
The Group made the following re-presentations to the statement of cash flows and have adjusted comparatives accordingly:
- Cash effects from payments made to puttable non-controlling interests (NCI) and vendors for acquisition (VFA) were reclassified from cash effects from financing activities from cash effects from investing activities due to them being associated with the acquisition of businesses and subsidiaries. The comparatives were re-presented to show this cash flow activity change. This representation had no impact on the Group’s cash and cash equivalents or statement of financial position
- Cash effects from the Group’s share incentive plans were previously recorded on a gross basis with intergroup cash received from participant employment companies disclosed under cash flows from operating activities and the proceeds received for the sale of the treasury shares under cash flows from financing activities. As there was no change to the Group’s overall cash and cash equivalents position, this transaction is now shown on a net basis. In other words, no effect to cash flows from operating and financing activities. The comparatives were re-presented to show this cash flow activity change. This representation had no impact on the Group’s cash and cash equivalents or statement of financial position
| R000s | Previously reported 2018 |
Payments to puttable NCI and VFA represented as investing activities |
Group share incentive scheme payments and treasury shares sold represented on a net basis |
Re-presented 2018 |
|
| Operating activities | 2 427 578 | – | 193 279 | 2 620 857 | |
| Investing activities | (3 136 908) | (160 037) | – | (3 296 945) | |
| Financing activities | 708 841 | 160 037 | (193 279) | 675 599 | |
| Net change in cash and cash equivalents | (489) | – | – | (489) |