| Notes to the consolidated financial statements - Note 36 |
| 36. | Capital management |
| The board of directors’ policy is to maintain a strong capital base so as to maintain investor, supplier and market confidence while
also being able to sustain future development of the businesses. The board of directors monitors both the demographic spread of
shareholders, as well as the return on capital, which the Group defines as total shareholders’ equity, excluding minority interests and
the level of distributions to ordinary shareholders. The Group’s objective is to maintain a distribution cover of approximately 2,2 times
headline earnings for the foreseeable future. The methods of distribution include dividends, return of share premium, capitalisation
issues as well as share buy-backs in lieu of distributions. The level of cover of distributions takes into account prevailing market
conditions, future cash requirements of the businesses, Group liquidity requirements, as well as capital adequacy ratios.
The board seeks to maintain a balance between the higher returns that might be possible with higher levels of gearing and the advantages and security afforded by a sound equity position. The Group’s target is to achieve a return on shareholders’ interest of between 20% and 25%. In 2013 the return was 22,1% (2012: 25,1%). Refer to pages 12 and 13 of this report for the historical return on total shareholders’ interest since 2004. In the early days of the Group, acquisition activity was generally funded via the raising of equity capital however over the past five years, far more favourable credit markets have enabled the use of debt as a far more effective tool of capital. The current credit markets have been extremely volatile, increasing the cost of debt in the weighted average cost of capital for the Group thereby enabling a potential return to tapping the equity markets to fund future growth. From time to time the Group purchases its own shares on the market, the timing of these purchases depends on market prices. Primarily the shares are intended to be used for issuing shares under the Bidvest Share Incentive Scheme (refer note 25). The maximum number of share options which can be issued to employees under the Bidvest Share Incentive Scheme is limited to 43 954 148 shares. The Group does not have a defined share buy-back plan. These shares are currently held as treasury shares. There were no changes in the Group’s approach to capital management during the year. With the exception of the Group’s banking and insurance subsidiaries, whose capital is well within the statutory requirements, neither the company nor any of its other subsidiaries are subject to externally imposed capital requirements. The Group has principally a target debt:equity ratio of 40%, however in a trading and services business, the debt/equity ratio is a poor measure of the funding capacity of the Group. In order to ensure a more reflective measure of debt capacity is utilised, the Group has adopted an interest cover target of between five to six times. Net interest cover for the year to June 30 2013 was 10 times (2012: nine times). |
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| Notes to the consolidated financial statements - Note 36 |