Basis of presentation of the condensed interim consolidated financial statements

The condensed interim consolidated financial statements have been prepared in accordance with the JSE Limited Listings Requirements for interim reports, and the requirement of the Companies Act of South Africa applicable for condensed interim consolidated financial statements. The Listings Requirements require interim 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 include disclosure as required by IAS 34: Interim Financial Reporting and the Companies Act of South Africa. With the exception of IFRS 16: Leases (as described below), the accounting policies applied in the preparation of the condensed interim consolidated financial statements from which the condensed interim consolidated financial statements were derived in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements.

In preparing these interim condensed consolidated financial statements, management has made judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these judgements, estimates and assumptions.

Preparation of results

These half-year ended December 31 results have not been audited or reviewed by the group's auditors. The condensed interim 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 February 18 2020.

(a) Revenue and cost of revenue restatement of comparatives

Following a reassessment of the group's judgements of agent versus principal, it was detected that Bidfood Netherlands was acting as an agent, instead of as a 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 
H1F2019 
Restatement  Restated 
revenue
and cost of 
revenue 
H1F2019 
  
Revenue  66 413 585  (321 610) 66 091 975    
Cost of revenue  (50 902 290) 321 610  (50 580 680)   

This restatement had no impact on the group’s gross profit, earnings per share, headline earnings per share or statement of financial position.

(b) 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 and vendors for acquisition were reclassified from cash effects from financing activities to 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 re-presentation 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. There is no effect to cash flows from operating and financing activities. The comparatives were re-presented to show this cash flow activity change. This re-presentation had no impact on the group's cash and cash equivalents or statement of financial position.
R000s  Previously 
reported 
H1F2019 
Payments to  puttable 
NCI and  VFA 
re-presentated 
as investing  activities 
Group share 
incentive 
scheme 
payments 
and treasury 
shares sold 
re-presented 
on a net basis 
Re-presented 
H1F2019 
Operating activities  414 116  –  57 663  471 779 
Investing activities  (1 632 931) (179 021) –  (1 811 952)
Financing activities  317 585  179 021  (57 663) 438 943 
Net change in cash and cash equivalents  (901 230) –  –  (901 230)
(c) Changes in accounting policies

With effect from July 1 2019 the group adopted IFRS 16: Leases (IFRS 16). IFRS 16 replaces IAS 17: Leases which requires that all operating leases, other than short-term and low-value leases, to be recorded on the statement of financial position in a similar manner to finance leases under IAS 17.

The group elected to adopt IFRS 16 using a modified retrospective approach. Under a modified retrospective approach, the group applies IFRS 16 from the beginning of July 1 2019 and has not restated prior-period financial information. The lease liability was measured using the present value of the remaining lease payments discounted at the incremental borrowing rates at July 1 2019. The Right-of-Use lease assets was measured as if IFRS 16 had always been applied (but using the incremental borrowing rates at July 1 2019). The cumulative effect of initially applying IFRS 16 has been recognised as an adjustment to the opening balance of retained earnings on date of initial application (being July 1 2019).

The group leases various leasehold property, vehicles and equipment as the need arises. Lease contracts are negotiated on an individual basis and contain a wide range of different terms and conditions. Extension and termination options are included in a number of leases across the group. These options are used to maximise operational flexibility in terms of managing lease contracts. The majority of extension and termination options held are exercisable only by the group and not by the respective lessor.

Judgements and assumptions made by management in applying the related accounting policies for IFRS 16:

  1. In determining the incremental borrowing rates, management considers the term of the lease and the nature of the asset being leased.
  2. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

The adoption of the IFRS 16: Leases from July 1 2019 complicates the comparison of the performance of H1F2020 and H1F2019. In order to provide comparative information to assess the group's performance, a pro forma condensed consolidated statement of profit or loss, pro forma summarised consolidated statement of financial position, pro forma summarised consolidated statement of cash flows and pro forma supplementary information regarding the currency effects of the translation of foreign operations on the group (the pro forma information) has been presented for the half-year ended December 31 2019. Refer to the Annexure for the pro forma financial information of the group that reflects the group as if IFRS 16 had not been adopted on July 1 2019.

Puttable non-controlling interest (NCI) liabilities

During the period the puttable NCI for 40% of Distrubuzione Alimentari Convivenze (DAC) expired. In December 2019, a new shareholders agreement was signed with the minority shareholders of DAC which included an option for the minority shareholders to put their 40% interest to the group on or about June 30 2024. The minority shareholders agreed not to directly or indirectly sell, transfer or otherwise dispose their stake in DAC for 5 (five) years.

The group accounts for puttable NCI liabilities under the anticipated acquisition method whereby the put option is derecognised from NCI and accounted for as a financial liability. The puttable NCI liability is calculated as the present value of the contracted redemption value discounted from the expected redemption date to the reporting date. The R2,5 billion recognised as an equity adjustment in the period relates to the net increase between the expired put option value of R1,1 billion and the present value of the expected contracted redemption value for the put option calculated in terms of the December 2019 shareholders agreement of R3,6 billion.

The main assumptions used in the calculation of the liability is the contracted redemption value at the expected redemption date and the discount rate used to discount the expected redemption value to the reporting date.

Acquisitions and disposals

Acquisition opportunities in the period were limited, due to unrealistic vendor expectations and management's focus on bedding down recently acquired underperforming businesses, a consequence of which is only one bolt-on acquisition was concluded. The acquisition of Elite Frozen Foods Limited, a regional wholesaler in the United Kingdom supplying ambient, chilled and frozen products was completed in July 2019. Total investment in the acquisition was R159,0 million, and its contribution to revenue and trading profit for the half-year ended December 31 2019 was R450,7 million and R9,7 million respectively.

Bidfood Australia disposed of its Fresh business for R33,2 million in September 2019.

Exchange rates

The following exchange rates were used in the conversion of foreign interests and foreign transactions during the periods:

    December 31 June 30
    2019
Unaudited
2018
Unaudited
2019
Audited
Rand/Sterling
  Closing rate 18,43   18,29 17,82  
  Average rate 18,49   18,34 18,35  
Rand/Euro
  Closing rate 15,73   16,49 15,97  
  Average rate 16,29   16,32 16,18  
Rand/Australian dollar
  Closing rate 9,83   10,15 9,87  
  Average rate 10,05   10,26 10,14  

Financial instruments

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).