Salient features

             Year ended
30 June
2017
Audited
R’000 
Year ended
30 June
2016
Audited
R’000 

1. 

Interest-bearing borrowings 

   
  SG Fleet interest-bearing borrowings  1 592 338  1 479 144 
  Asset-based finance  789 977  653 210 
  Corporate bond  206 881  478 398 
  Acquisition borrowings – Allen Ford and EAG  420 102  466 667 
  Acquisition borrowings – IN tIME  769 045  905 727 
  Property and other borrowings  1 045 320  507 730 
    4 823 663  4 490 876 
  During the year, the Group settled the SPG001 Corporate bond of R471.0 million and issued the SPG002 and SPG003 Corporates bonds of R50.0 million and R154.0 million respectively. Property and other borrowings increased as a result of the property acquisitions in the Dealerships SA and Dealerships UK operating segments.     

2. 

Share statistics 

   
  Total issued less treasury shares (’000) 349 013  346 671 
  Weighted number of shares (’000) 348 355  332 387 
  Diluted weighted number of shares (’000) 350 906  338 447 
  Net asset value per share (cents) 2 394.1  2 196.4 

3. 

Capital commitments 

   
  Authorised but not yet contracted for capital commitments, excluding full maintenance lease assets.  913 103  555 355 
  Capital commitments will be funded from normal operating cash flows and the utilisation of existing borrowings facilities.     

4.

Related party transactions

   
 

The Group, in the ordinary course of business, entered into various sales and purchase transactions on an arm’s-length basis with related parties.

Certain management of subsidiary companies sub-contracts vehicles to the Group. Sales, purchases and management fees received amounted to R82.4 million (2016: R5.1 million), R48.7 million (2016: R27.0 million) and R2.7 million (2016: R1.2 million) respectively for these services. These transactions were entered into in the normal course of business under terms and conditions that were no more favourable than those arranged with third parties. Net amounts owing by key employees of this subsidiary was Rnil (2016: R0.04 million).

The Group utilises Fluxmans Attorneys, a director-related entity, to assist with corporate law advisory services in respect of various transactions and several other corporate and labour matters. These transactions are performed on an arm’s-length basis.

The Group encourages its employees and key management to purchase goods and services from Group companies. These transactions are generally conducted on terms no more favourable than those entered into with third parties on an arm’s-length basis although in some cases nominal discounts are granted. Transactions with key management personnel are conducted on similar terms. No abnormal or non-commercial credit terms are allowed and no impairments were recognised in relation to any transactions with key management personnel during the year nor have they resulted in any non-performing debts at year-end. Similar policies are applied to key management personnel at subsidiary level who are not defined as key management personnel at Group level.

5.

Subsequent events

 
Acquisition of Servicios Empres. Ader S.A

Effective 4 July 2017, SG IN tIME acquired 89.5% of the shares of Servicios Empres. Ader S.A (Ader) for a purchase consideration of €11.6 million. The principal place of business and the majority of operations of Ader are performed in Spain and the Eurozone, with 17 offices throughout Spain and 15 operations in the Eurozone. Ader specialises in the provision of dedicated and exclusive transport and logistics solutions. Ader will be included in the Supply Chain Europe operating segment. The Group is in the process of determining the initial accounting and purchase price allocation of Ader and will provide updated information in the unaudited interim results for the six-month period ending 31 December 2017.

Acquisition of Bestodeck Limited

Effective 4 July 2017, the Group acquired 100% of the shares of Bestodeck Limited (Bestodeck), the holding company of Slough Motor Company Limited (SMC), and seven freehold properties upon which the dealerships are located, for a purchase consideration of £24.0 million. SMC currently operates six Ford and two Suzuki dealerships in the United Kingdom. SMC will be included in the Dealerships UK operating segment. The Group is in the process of determining the initial accounting and purchase price allocation of SMC and will provide updated information in the unaudited interim results for the six-month period ending 31 December 2017.

 Other than the matters disclosed, the directors are not aware of other matters or circumstances arising subsequent to the reporting date up to the date of this report, which will materially affect these results.

Acquisition of an additional interest In SG Fleet

Effective 25 August 2017, Bluefin Investments Limited acquired an additional 1.63% in SG Fleet for R175.9 million, increasing the Group’s holding to 54.0%. Effective 11 September 2017, SG Fleet issued 4 136 925 shares on exercise of vested options granted as long-term incentive awards under SG Fleet’s Equity Incentive Plan, diluting the Group’s holding to 53.14%.

 Acquisition of minority interest in Digistics

Effective 18 September 2017, Super Group Holdings Proprietary Limited acquired the remaining 45.0% minority interest in Digistics Proprietary Limited for R102.7 million, increasing the Group’s holding to 100%.

6.

Significant events

 
SG Fleet Group Limited acquisition of Fleet Hire Holdings

SG Fleet Group Limited, acquired Fleet Hire Holdings effective 4 August 2016 for a purchase price of R367.5 million. The Statement of Financial Position as at 30 June 2017 has been impacted by increases in full maintenance lease assets of R92.8 million, intangible assets of R68.7 million, goodwill of R306.5 million, trade and other receivables of R52.1 million, fund reserves of R41.1 million, full maintenance lease borrowings of R90.9 million, trade and other payables of R77.4 million as a result of this acquisition. Trading relating to the 11 months ended 30 June 2017 has been included in the Statement of Comprehensive Income.

SG Fleet Group Limited acquisition of Motiva Group Limited

 SG Fleet Group Limited acquired Motiva Group Limited effective 30 November 2016 for a purchase price of R249.0 million. The statement of financial position as at 30 June 2017 has been impacted by increases in full maintenance lease assets of R363.2 million, intangible assets of R58.2 million, goodwill of R174.6 million, trade and other receivables of R66.5 million, trade and other payables of R90.4 million, fund reserves of R23.2 million and full maintenance lease borrowings of R336.0 million as a result of the acquisition. Trading relating to the seven months ended 30 June 2017 has been included in the Statement of Comprehensive Income.

Western Cape dealerships acquisition

The Group acquired the Western Cape dealerships business from Sandown Motor Holdings (Pty) Ltd effective 1 September 2016 for a purchase price of R899.3 million. The Statement of Financial Position as at 30 June 2017 has been impacted by increases in goodwill of R399.8 million, inventories of R457.5 million, trade and other receivables of R124.5 million and trade and other payables of R621.7 million as a result of the acquisition. Trading relating to the 10 months ended 30 June 2017 has been included in the Statement of Comprehensive Income.

Essex Auto Group Limited acquisition

 The Group acquired Essex Auto Group Limited effective 1 March 2017 for a purchase price of R407.0 million. The Statement of Financial Position as at 30 June 2017 has been impacted by increases in property, plant and equipment of R266.0 million, goodwill of R212.7 million, inventories of R518.3 million, trade and other receivables of R64.5 million and trade and other payables of R639.6 million as a result of the acquisition. Trading relating to the four months ended 30 June 2017 has been included in the Statement of Comprehensive Income.

Exchange rate movements

The Group operates in foreign countries which use currencies other than presentation currency. The main currencies used in the Group’s foreign operations are Australian Dollar, US Dollar, Euro and the Great British Pound. The strengthening of the Rand against these currencies has had an effect on the Group’s financial statements and has resulted in a foreign currency translation adjustment of R418.5 million decreasing total equity.

 The table below reflects the movement in the exchange rates from the prior reporting periods:

       30 June
2017 
30 June
2016 
%
Change 
  Average currency rate to the South African Rand:       
  Australian Dollar  10.25  10.49  (2.3)
  US Dollar  13.61  14.51  (6.2)
  Euro  14.84  16.10  (7.8)
  Great British Pound  17.27  21.46  (19.5)
  Closing currency rate to the South African Rand:       
  Australian Dollar  10.07  10.98  (8.3)
  US Dollar  13.07  14.73  (11.3)
  Euro  14.95  16.34  (8.5)
  Great British Pound  17.04  19.61  (13.1)

The non-South African operations account for 58% (June 2016: 58%) and 60% (June 2016: 60%) of the Group’s total assets and liabilities respectively.

The non-South African operations generated 40% (June 2016: 42%) and 61% (June 2016: 60%) of the Group’s revenue and operating profit respectively.

The non-South African operations revenue, operating profit and profit before tax increased in the current year by 12%, 10% and 9% respectively.

    Hierarchy   
    Level 2  Level 3   

7. 

Fair value 

R’000  R’000  Valuation technique 
  Property, plant and equipment – Land, buildings and leasehold improvements    2 120 365  Valuation performed by Onyx valuation services in June 2017. The valuation model considers the present value of net cash flows to be generated from these properties, taking into account expected rental growth rate, void period, occupancy rate, lease incentive costs such as rent-free periods and other costs not paid by tenants. The expected net cash flows are discounted using risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), tenant credit quality and lease terms. 
  Investment properties    149 800   
  Deferred contingent purchase consideration receivable
– GWM 
  60 000  Due to the sale of the GWM business in 2016 and the related profit warranties not being met, the amount receivable is certain as at 30 June 2017 according to the purchase agreement and has been assessed as recoverable. 
  Deferred contingent purchase consideration payable
– Legend 
  24 501  An obligation exists at acquisition date resulting from the possibility of the acquiree’s aggregate profit after tax for the three year period ending 30 June 2019 exceeding R60 million. The deferred contingent purchase consideration is calculated by applying 75% to every R1 excess over the R60 million aggregate profit after tax. The present value of this obligation is determined using a pre-tax discount rate of 9.5%. The date of exercise is the second business day after the aggregate profit after tax is agreed. 
  FEC Assets  1 378    The fair values are based on broker quotes. Similar contracts are traded in an active market and reflect the actual transactions in similar instruments. 
  FEC liabilities  4 343     
  Digistics put option    102 665  This put option has been based on the average non-controlling interest non-proportionate share of the profit after tax for the last three financial years preceding 1 October 2017, adjusted for dividends paid, at a price earnings ratio of 6.5. 
  Legend put option    29 744  This put option is calculated as the fair value of the business at exercise date of the option, by present valuing the free cash flows for a ten-year period post the date of exercise. The present value is determined by using a pre-tax discount rate of 9.5%. The option can be exercised on 1 October 2019. 
  IN tIME put option    138 375  This put option is calculated as the fair value determined by using the average audited EBITDA for the three years preceding the put option exercise date at a price earnings multiple of 7.5, adjusted for net debt. The present value has been determined using a pre-tax discount rate of 7.7%. The put option can be exercised from 30 June 2020 to 30 June 2025. 

The carrying value of all other financial instruments approximates the fair value of the financial instruments as at 30 June 2017.

 Movement in Level 3 financial instruments measured at fair value

 The following table shows a reconciliation from the opening to closing balances of Level 3 financial instruments carried at fair value:

  Property, plant and equipment – Land and buildings and leasehold improvements  30 June 2017
Audited
R’000 
  Opening balance  1 474 689 
  Net additions  260 956 
  Acquisition of businesses  446 492 
  Revaluation of land and buildings – through equity  (9 148)
  Other  (52 624)
    2 120 365 
  Investment properties   
  Opening balance  143 200 
  Fair value adjustment recognised in profit or loss  6 600 
    149 800 
  Financial asset/(liability) – Deferred contingent purchase consideration  GWM
R’000 
Legend
R’000 
30 June 2017
Audited
R’000
Total 
  Opening balance  57 462  –  57 462 
  Subsidiary acquired – Legend  –  (35 547) (35 547)
  Fair value adjustment to profit and loss  2 538  11 046  13 584 
    60 000  (24 501) 35 499 
  Financial asset/(liability) – Deferred contingent purchase consideration  GWM
R’000 
Legend
R’000 
30 June 2017
Audited
R’000
Total 
  Opening balance  57 462  –  57 462 
  Subsidiary acquired – Legend  –  (35 547) (35 547)
  Fair value adjustment to profit and loss  2 538  11 046  13 584 
    60 000  (24 501) 35 499 
         
  Financial assets – Put option liabilities       
  Opening balance      302 990 
  Movement through statement of changes in equity      (32 206)
  Subsidiary acquired – Legend      36 802 
  Fair value adjustment      (44 388)
  Forreign currency translation      (24 620)
     
    270 784 

Sensitivity analysis:

Deferred contingent purchase consideration

The significant assumptions included in the fair value measurement of the deferred contingent purchase consideration for Legend is based on the projected earnings that is not observable in the market. The following table shows how the fair value of the Legend payable would change if the projected earnings assumption was increased by 100bps:

    Fair value
R’000 
Increase in
liability
R’000 
  Legend – Deferred contingent purchase consideration payable  25 177  676 
 

Due to the sale of the GWM business in 2016 and the related profit warranties not being met, the amount receivable is certain as at
30 June 2017 according to the purchase agreement and has been assessed as recoverable.

Put options

The significant assumption included in the fair value measurement of the put option liabilities relates to the projected earnings that is not observable in the market. The following table shows how the fair value of the liabilities would change if the earnings assumption was increased by 100bps:

    Fair value
R’000 
Increase in
liability
R’000 
  Digistics  102 665 
  Legend  29 997  253 
  IN tIME  141 918  3 543 
    30 June 2017
Audited
R’000 
30 June 2016
Audited
R’000 

8. 

Capital items 

   
  Impairment of property, plant and equipment and intangible assets  20 604  19 715 
  (Reversal of impairment)/impairment of equity-accounted investee  (1 305) 22 620 
  Impairment of goodwill  4 521  – 
  Profit on sale of business  –  (39 629)
  Fair value adjustment to investment property  (6 600) (4 000)
  Loss/(profit) on sale of property, plant and equipment  254  (8 840)
  Capital items before tax and NCI  17 474  (10 134)
  Tax effect of capital items  (5 064) (2 297)
  NCI effect of capital items  (1 064)
  Capital items after tax and NCI  12 416  (13 495)