Remarkable
record of uninterrupted wealth
creation
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4,0% growth
in employee numbers
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BEE emerges
as a key driver of South African
economy
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Bidvest
a catalyst for change across
many industries
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Dinatla
prepares to refinance its partnership
with Bidvest
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Bidvest
sees opportunity in Africa
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Streamlined
board structure now in place
Cyril
Ramaphosa Non-executive
chairman
Introduction
Bidvest has continued its remarkable
record of uninterrupted wealth creation, delivering
year after year on its core promise of returns
and consistent growth.
Unfettered growth is achieved by setting people
free to perform to their full potential –
true empowerment. For 18 years, Bidvest has remained
true to this founding vision; in the process creating
opportunities for its people and value for its
shareholders. Headline earnings per share were
804,6 cents, an increase of 22,6%, with total
distributions per share of 369,0 cents.
Results reflect the success of operational units
in seizing the opportunities presented by largely
favourable economic conditions. All divisions
reported sales growth and strong cash generation.
Macro factors
Bidvest is an international
company, but the heart of the operation still
rests in Africa. The policy environment in our
South African home is critical to our success.
It is doubtful if the home base has ever been
in better overall shape. Our government should
be congratulated on developing a policy environment
that fosters opportunity, encourages growth and
enables job creation.
Bidvest employs more than 93 000 people (78 000
in South Africa), a rise of 4,0% at a time of
increasing domestic and international competition.
For employment opportunities to be sustainable,
those jobs have to be created within companies
that meet world-class performance standards and
are globally competitive.
The South African economy, according to official
forecasts at the time of the 2006 Budget, was
expected to grow by 5% a year over the next three
years. At the same time, the strategic commitment
has been made to halve unemployment within 10
years.
The South African government has made substantial
commitments to infrastructure development. I believe
these investments will be one of the many catalysts
that will stimulate job creation to achieve sustainable
economic growth.
This process creates an opportunity for the private
sector to partner with government in many of these
projects to grow the economy of this country.
Public-private partnerships (PPPs) have a significant
role to play as strategic emphasis shifts to physical
delivery of new infrastructure and sustainable
improvements in the quality of people’s
lives.
Bidvest, for its part, has committed to substantial
investment programmes and plans to maintain this
strategic effort.
A continuing global commodities boom was positive
for South Africa ’s resources sector, though
the strong rand created a challenge for manufacturers
and exporters. By mid-2006, the currency was exhibiting
signs of weakness. This development in tandem
with higher oil prices seems certain to re-awaken
inflationary trends.
Until the 0,5% rise announced by the South African
Reserve Bank in June, interest rates were at a
25-year low. Consumer spending and household debt
have moved higher – another signal that
inflationary pressures may soon mount. By early
2007, some economists expect inflation to exceed
the 6% limit set by the authorities when establishing
South Africa ’s inflation targets. Yet,
for much of the last year, a deflationary pricing
environment was evident, representing a challenge
for business and an opportunity for consumers.
The resultant consumer-led boom has provoked considerable
comment. It may be useful to look beyond the statistics
to the driving forces behind one of the most sustained
bouts of consumer spending in decades. The context
explains the nature of the spending and the motivation
of many of these consumers.
Black economic empowerment
Black economic empowerment
(BEE) continues to be one of the business drivers
in the current South African economy. It has not
been characterised as such, but the upswing of
the last two years was a “first” for
this country. It was South Africa ’s first
“BEE boom”. The money spent on big
ticket items and consumer goods often came from
black families that for the first time enjoyed
a measure of disposable income.
Poverty, unemployment and lack of critical skills
remain deeply entrenched in our society. Government
policy and private sector programmes are in place
to address these challenges and should remain
a priority focus for South Africa to normalise
our society.
BEE and Bidvest
Bidvest, by virtue of its size
and diversification across numerous industries,
showcases the national BEE process in microcosm.
Bidvest has made notable progress in implementing
some of the principles of BEE. It is a pleasure
to see black men and women taking up executive
roles with key responsibilities within the Group.
As a R77-billion-a-year business with 93 000 employees,
broad-based BEE developments have had a knock-on
effect with the power to transform broader society.
I am proud to see Bidvest emerge as a leading
catalyst for positive change across so many industries.
I am happy to read reports on our ongoing training
and people development, the realignment of social
investment to give priority to marginalised communities
and enterprise development to encourage start-up
enterprises. These developments are in line with
the principles of broad-based black economic empowerment.
Bidvest’s BEE procurement spend in South
Africa exceeds R4,1 billion. Increasingly, this
provides the “oxygen” for enterprise
development among small and medium-size companies
– a fundamental process that will irreversibly
change the face of the South African economy.
BEE is an idea whose time has come and I am proud
of the progress that has been made by Bidvest.
The partnership
with Dinatla consortium
The partnership with Dinatla
consortium continued to add value to Bidvest at
a strategic level and is mutually beneficial across
all of our business units.
The refinancing of the Dinatla transaction within
the envisaged time frame has been announced.
BEE challenges
A key test of ownership has
always been the ability to sell a property or
a possession whenever the owner feels like it.
If you truly own something, you are free to sell
it. In practical terms, this key test of ownership
does not apply in a BEE context. In the vast majority
of BEE transactions, a BEE owner uses debt to
acquire the funds needed to pay for equity. This
debt must be serviced. Understandably enough,
the transaction terms simultaneously create “golden
handcuffs” by insisting that equity cannot
be sold for a specific period. A sale would dilute
BEE equity and compromise the organisation’s
BEE status.
It is understandable that the initial policy focus
is on BEE entry. It is a measure of the success
of our BEE policy-makers that we are now in a
position to take the logical next step and consider
the BEE exit without penalising enterprises that
have created the opportunities and delivered the
value.
I am confident that in the finalisation of the
codes of good practice for BEE the point of “once
empowered” will be positively addressed
where BEE companies are in a position to realise
their value. True empowerment would be achieved
when an enterprise does not lose credit if the
BEE partner exits, with value having been created.
African opportunities
Despite political and economic
volatility in many sub-Saharan countries, Bidvest
sees opportunity in Africa. The New Partnership
for Africa ’s Development (Nepad) provides
a framework for greater regional stability and
economic growth. Some say “ Africa ’s
time has come”.
Within Africa, Bidvest intends to replicate its
model for growth through acquisitions. The acquisition
of a majority stake in Namibian Sea Products (Namsea)
was recently finalised and forms part of this
strategy.
The integration of Namsea and Namsov Fishing Enterprise
will be implemented in 2007. Bidvest plans to
mould an entity run by Namibians largely for the
benefit of Namibians. The same decentralised,
entrepreneurial Bidvest model will be adopted.
A Namibian Bidvest is in the making. Other African
opportunities will be explored.
Governance and sustainability
Bidvest is characterised by
both rigorous governance structures and a robust
culture of compliance with the highest ethical
standards. Bidvest is committed to triple bottom
line reporting and measures community involvement
and environmental sensitivity as well as profits.
Strong structures are in place, including executive,
audit, risk, remuneration, acquisition, nomination
and transformation committees.
Bidvest believes in individual accountability
and organisational transparency. We report on
our business in an open and comprehensive manner.
These efforts were recognised for the second year
in a row, when Bidvest received the Investment
Analysts’ Society of Southern Africa award
for the best reporting in the industrial services
sector of the JSE, South Africa.
Bidvest as a group has embraced the concept of
sustainability and accepts the strategic need
to develop processes that support our reputation
for quality in everything we do – from the
development of ideas, products and people to our
interaction with customers, communities and the
environment. To enshrine the notion of sustainability,
a new culture is being inculcated at every level
in every business. One of the initiatives involves
asking all business units to define what “sustainability”
means to them.
The results of this survey will be used to develop
an implementation strategy that will take sustainable
practice to every aspect of our business.
Bidvest has adopted a policy on HIV/Aids that
ensures nondiscrimination, support and constant
education. The challenge in all areas of corporate
intervention is to develop a consistently high
standard of commitment throughout the Group.
Board composition
Our board structure has been
streamlined in recent months and now comprises
24 directors, a net reduction of 10.
Non-executive directors Nazeer Cassim, Mervyn
Chipkin and Teddy Reitman have resigned, though
Mervyn Chipkin (cofounder of Bidvest) continues
his involvement in an honorary capacity.
Executive directors Len Chimes, Alan Griffith,
David Rosevear, Charles Singer, Philip Womersley
and Howard Greenstein have resigned as directors
of the Group.
I thank them for their contribution over many
years. We retain the benefit of their knowledge
and experience as they continue to work as directors
of subsidiary companies and remain in place as
senior executives.
Lilian Boyle has resigned as executive director
responsible for travel and banking operations
and becomes a non-executive director of the board.
Anthony Dawe, chief executive of Bidfreight, has
been appointed an executive director while David
Cleasby (financial director designate) has been
made an alternate director.
Two further board appointments have been made.
They are Nigel Payne, an independent authority
on corporate governance, and Pansy Tlakula, chief
electoral officer of the Independent Electoral
Commission.
I welcome them to the Bidvest board and look forward
to working with them and benefiting from their
knowledge and perspectives.
The future
Bidvest retains its appetite
for growth, both within South Africa and across
international markets. Selected African opportunities
will be thoroughly explored.
In South Africa, rising interest rates, renewed
inflation and a weaker rand create both challenges
and opportunities. Three years of price deflation
appear to be coming to an end. This development
may take some pressure off margins. However, lower
levels of consumer spending and higher interest
rates could affect levels of business activity.
Competition will be as intense as ever.
Despite these challenges, Bidvest looks to the
future with confidence. Our people are better
trained and motivated than ever. The Group holds
a leadership position in almost every industry
in which it is represented and is well positioned
to respond to 19 years of uninterrupted wealth
generation and employment creation.
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