Chief executive's statement
“The successful and value-enhancing unbundling of Bidcorp has allowed Bidvest’s management team to move forward with a refocused platform from which to pursue growth.”
CHANGE AT BIDVEST
South Africa underwent significant change in 2016. So did Bidvest.
On October 7 2015, Bidvest announced that a formal restructure was under way. Subsequently, we informed the investment community the Group was planning to unbundle its foodservices operations to unlock shareholder value. Specifically, we proposed a separate JSE listing of the food businesses, thereby giving investors the chance to participate directly in these operations, most of which are based offshore.
On Monday, May 30 2016, trading began in the refocused Bidvest and the unbundled Bidcorp.
The objective of realising shareholder value was rapidly achieved. Bidvest shareholders who participated in the split soon achieved net gains as the combined value of the two shares was significantly up on the Bidvest closing price on May 27.
Our market value of over R50 billion ensured that Bidvest retained its position not only in the JSE Top 40 Index, but also as South Africa’s largest diversified industrial services and trading group. We are also one of the country’s biggest employers and by year-end we employed over 114 000 people.
International investors remained firm supporters of Bidvest and early in the new period it was apparent that 55% of our shares were still held by foreigners, primarily offshore fund managers. We view this as a significant endorsement of the proven Bidvest business model and the ability of our teams to secure growth.
Bidvest teams put in a satisfactory performance in line with expectation. The successful and value-enhancing unbundling and separate listing of Bidcorp on the JSE was effected on May 30 2016. This transaction will enable both Bidvest and Bidcorp’s management teams to move forward with a refocused platform from which to pursue growth.
Despite the headwinds in the 2016 South African economic environment, Bidvest people did well to maximise opportunities and build momentum.
Especially good results were achieved by Commercial Products, Financial Services and Services. The exceptional performance by Commercial Products was aided by the Plumblink acquisition. Financial Services performed well with Bidvest Bank delivering a solid above market result. Services delivered an improved contribution, demonstrating its resilience to economic cycles. The performance of the Electrical division was also noteworthy as profit improvements were registered in an embattled sector.
Profits fell at Automotive, Freight and Office and Print. Motor vehicle retailing was under severe pressure throughout the year while Freight was impacted by declining commodity volumes. Our Print business was faced with various uncontrollable factors – it had to contend with the loss of the volumes previously provided by the Océ wide format printing business, which was sold in the prior period. Reduced export volumes is as a result of a substantial voter registration contract in Tanzania in the prior year that was not reported in the current year.
Trading profit again declined at Bidvest Namibia, a business in which we hold a 52% stake. Fishing quotas remained under pressure, while the newly acquired Novel Motors performed in line with management’s expectations.
Bidvest’s headline earnings per share were 1 054,1 cents (2015: 1 028,9 cents per share) with basic earnings per share of 692,6 cents (2015: 969,9 cents).
Group turnover rose 3,5% to R91,8 billion (2015: R88,6 billion) and trading profit moved 3% higher to R5,8 billion (2015: R5,6 billion). Headline earnings rose to R3,5 billion (2015: R3,4 billion), an increase of 3,6%.
The South African economic environment was characterised by rising interest rates, higher inflation, a falling and volatile rand and declining GDP growth. Depressed conditions persisted in the mining industry and infrastructure investment remained low. Meanwhile, drought drove up food prices and kept household budgets under pressure.
Notwithstanding these challenging economic conditions, some strong positives became evident.
The Constitutional Court confirmed the robustness of our democracy and affirmed the powers of the Public Protector.
The well-conducted municipal elections ushered in a new era of multi-party governance, a watershed moment in the history of democratic South Africa.
A major impediment to national growth – uncertain power supplies – is progressively being removed, a milestone for which Eskom should be applauded.
Healthy industrial relations are also evident. Wage negotiations were entered into in good faith and reasonable settlements were agreed in the vast majority of cases, without conflict or confrontation.
Student protests are a reminder that much remains to be done if we are to build a country that meets the needs of all segments of the population. As our year closed, we were reminded of the strength and tenacity of our young people.
The collaboration between the private sector, government and labour is yielding positive outcomes. The overarching purpose of this collaboration is to improve the rate and sustainability of South Africa’s economic growth, with the immediate priority of preventing a sovereign downgrade. The success achieved in preventing a downgrade in June 2016 must be acknowledged and commended and the greater challenge of driving sustainable inclusive growth remains a key priority.
YOUTH AND TRAINING
Poverty and joblessness – especially the disturbing rate of youth unemployment – create continuing challenges.
Bidvest is keenly aware of these challenges and whenever possible, our divisions created jobs for young South Africans.
Bidvest remains one of the nation’s biggest trainers. Much of this investment is targeted at young black entrants, equipping them with the knowledge and skills necessary for continuous career development. In 2016, we spent R557 million (2015: R524 million) on training.
STREAMLINED AND FUTURE READY
Early in our 2016 year, we streamlined our divisional structure; consolidating 11 South African divisions into seven. All divisional teams are headed by executives with many years of Bidvest experience.
Each division is made up of complementary businesses and is focused on a specific segment of the economy. We believe the seven pillars within the structure are capable of accommodating continued growth for some time to come. We do not foresee any need to broaden the framework by adding new divisions at some future stage.
The streamlining and unbundling processes were handled without any disruption to management. Changes were well communicated to customers, suppliers and staff. All stakeholder groups reacted positively.
The composition of our board was largely unaffected by the changes.
A key motivation for these processes was to provide for succession at executive and divisional level. This has been successfully achieved. Today, experienced performers are increasingly complemented by teams of young, ambitious managers eager to drive Bidvest’s next phase of growth.
AUTONOMY AND EMPOWERMENT
Structural change created an opportunity to review our businesses with the aim of simplifying every activity. Bidvest has always prized lean teams with absolute focus on operational efficiency and profit generation. This focus was further entrenched.
entrepreneurship has been reinforced.
Another strategic theme to receive renewed focus is business transformation. We see transformation as the key to successful growth. Sustained progress as a major employer is impossible in South Africa without credible empowerment credentials. The Department of Trade and Industry’s amended Codes of Good Practice are not an imposition. Properly addressed, they are a means of creating shared and inclusive growth. Admittedly, the new codes move the bar higher and when they were first implemented Bidvest conducted a searching appraisal to assess possible impacts. We determined that our divisions were well positioned relative to their industries.
This is encouraging, but there is no room for complacency. In common with many South African businesses, some of our operations will be challenged to maintain their BEE status. That challenge will be taken up by every division with a view to achieving and keeping the optimum rating.
scope for renewed growth.
Every division is a substantial player in its own right. Every divisional team is close to its industry and well aware of opportunities for building new revenue streams and profits, organically or through acquisition.
At the same time, each executive team is responsible for developing a new vision of how the business will evolve and deliver sustained growth; in South Africa and further afield.
Sector knowledge will drive local expansion, and if exciting growth is achievable in industries relevant to Bidvest operations but outside South Africa, that potential will be explored in full.
The Bidvest balance sheet remains exceptionally strong. In 2016, cash generation topped R7,0 billion. Debt and gearing remain low.
Our banking facilities are substantial. We also have the capacity to raise considerable capital from our material associates and other investments, local and international. In addition, considerable value could be unlocked from our property portfolio – should we ever deem it necessary to do so.
Therefore, we are well placed to fund substantial acquisitions while investing in safe working environments, new facilities and modern infrastructure.
As our financial year came to a close, we finalised the acquisition of Brandcorp which is awaiting regulatory approvals. The transaction is significant as it highlights our approach to acquisitive growth in the new era.
Experienced performers are increasingly complemented by teams of young, ambitious managers eager to drive Bidvest’s next phase of growth.
The deal adds further bulk to our Commercial Products division while creating considerable synergies. Brandcorp’s Consumer division can dovetail rapidly with the Home of Living Brands (the consumer products arm of Commercial Products) while businesses in Brandcorp’s Industrial division – particularly those in the welding, equipment and tools sector – mesh neatly with a Commercial Products portfolio that includes forklifts, adhesives, fastenings, plumbing supplies and protective clothing.
Scale plus synergies will enable further growth while improving the customer experience. Customers will be able to source a comprehensive range of products and services from a single divisional supplier, creating time and cost savings – the core demand in a tight economy in the business-to-business environment.
Change facilitated a changed role for our founder, Brian Joffe.
Brian has relinquished his position as Bidvest Group chief executive and is now the chairman of Bidcorp. He has been appointed as a non-executive director of the Bidvest Group.
Our founder made an incalculable contribution to Bidvest. His vision drove decades of sustained growth. He is an entrepreneur and job creator without parallel. We salute him and wish him well in his new role.
We also bid farewell to financial director, David Cleasby, who moved with Brian to Bidcorp, and Bernard Berson, now chief executive of Bidcorp. We wish them all every success.
I would like to add to the chairman’s congratulations to Peter Meijer on being appointed chief financial officer. I have worked with Peter for many years and I look forward to continuing to work alongside him in moving the Bidvest Group forward.
I felt great personal pride in how the restructure and unbundling were handled. Nobody dropped the “baton”. It was passed smoothly and efficiently in every business and every boardroom.
Our people maintained high levels of performance – once again demonstrating the strength of our decentralised business model. Media comment created no unease. There was general confidence across all employee levels that we would take these processes in our stride and we did.
The transition at the corporate office was just as seamless, testimony to a well-conceived succession plan and the professionalism of all concerned.
Thanks are also due to the directors of the Bidvest Group under the leadership of our chairman, Lorato Phalatse. They gave clear direction and communicated their confidence in the future at every step of the way, ensuring successful transition.
Donald Masson tirelessly served on the Bidvest board for 24 years until his unfortunate passing. Furthermore, I would like to thank Paul Baloyi for his contribution and service on both the Bidvest Group and Bidvest Bank boards.
As always, Bidvest thanks our suppliers and customers for their contribution. We increasingly work in close collaboration with suppliers to ensure a positive customer experience. We are always mindful of the fact that without our customers we could not carry on.
Our divisional teams are largely upbeat about prospects for the year ahead, though our Namibian business may face challenges until difficulties around fishing quotas are resolved.
Positive divisional sentiment is based on confidence that sturdy, growth-focused structures are now in place, creating potential for market share gains and continued progress.
Looking at the wider economic environment, we acknowledge that whilst the GDP growth outlook for the year ahead is sombre, we remain confident that an outright recession can be avoided.
Bidvest will look to take advantage of every opportunity for growth across the national economy. However, we will not confine our attention to the domestic market. Certain international acquisition opportunities are already being explored.
We have the appetite for further growth, locally and internationally. At Bidvest we have a tradition of achieving significant growth in tough times. That tradition deserves to continue.