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Bid Industrial and Commercial
Products |
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Bid Industrial and Commercial
Products is South Africa ’s leading supplier
of electrical products and cable, furniture and
stationery products, industrial sewing and embroidery
machines and market leader in packaging closures,
fastenings and tape conversion. |
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Trading
profit rises 28,7% to R483,9
million |
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Revenue
increases by 18,4% to R6,7 billion |
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Achieved
a return on funds employed of
39,5% |
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Major
supply contracts signed, with
increased sales to the mining
industry |
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Tender
success highlights impact of
improved BEE credentials |
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Strategic
shift at Afcom-GE Hudson and
Seating strengthens
focus on import and distribution |
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Buffalo
Executape launches DIY range
in pursuit of retail sector
opportunities |
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Cecil
Nurse re-branded CN Business
Furniture |
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Kolok’s
business restructured to focus
on market channels |
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Successful
roll-out of national network
specialising in electrical supplies
to the retail industry |
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Myron
Berzack
Chief
executive |
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Introduction |
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Industrial and electrical products, incorporating
the Voltex group, Afcom-GE Hudson and Buffalo
Executape, have been successfully consolidated
with the stationery and office furniture business
of what was previously Bidoffice. Revenue increased
by 18,4% to R6,7 billion while trading profit
rose 28,7% to R483,9 million. Strong organic growth
underpinned these successes. Two targeted acquisitions
occurred in the electrical distribution business.
Significant growth was achieved in electrical
distribution and the newly incorporated commercial
business units. However, import pressures and
aggressive competition reduced margins in certain
business units.
The division was a net creator of jobs and now
employs 6 976 people.
The office businesses achieved pleasing volume
growth. Waltons achieved a bridgehead into the
public and parastatal sector, confirming growing
acceptance of Bidvest’s BEE credentials.
A strategic shift at Afcom-GE Hudson resulted
in greater emphasis being placed on import and
distribution activities.
There was a positive response to consumer-focused
range extensions at Buffalo Executape, previously
a dedicated supplier to industrial users.
Berzack continues to concentrate on embroidery
machines and up-market domestic appliances to
counteract weakness in the clothing manufacture
industry. |
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Afcom-GE
Hudson
is the leading manufacturer and distributor of
packaging closures and fastening solutions |
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Macro-economic
factors |
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Strong economic growth, low
interest rates, modest general inflation and increased
spending on national infrastructure created a
positive business environment. High GDP growth
drives up energy consumption and sharpens the
need for improved demand-side management –
positive factors for our electrical supply business.
World demand for commodities, especially copper,
proved positive for Voltex, though greater volatility
became a cause for concern. A more buoyant construction
sector also supported demand for electrical cabling
and equipment. Specialist tool supplier Ramset
(a subsidiary of Afcom-GE Hudson) benefited from
construction industry growth.
High levels of business confidence and a year
of better-than-expected earnings by corporates
created marketing opportunities while strong consumer
spending was positive for business units with
direct retail exposure.
The strong rand affected exporters in the manufacturing
sector while encouraging cheaper imports; a threat
to a number of traditional locally manufactured
products.
The move into a higher interest rate environment
was a reminder of the need for credit extension
vigilance. |
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Buffalo
Executape
is an importer and convertor of
self-adhesive tape |
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Berzack
Brothers
holds the agency for leading
brands – Moulinex, Krupps, T-Fal
and Rowenta |
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Pago
manufactures and distributes
office furniture to corporate and
commercial markets |
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| Industry-related
issues |
The dominant factor
in the electrical distribution industry
was the substantial increase in the
price of copper. The effect was to
prompt electrical cable customers
to increase stock levels to cover
both current and projected needs.
Copper prices declined marginally
toward year-end, though the effect
was masked to some extent by rand
weakness.
Trading was adversely affected by
high levels of Chinese imports, resulting
in lower margins across many product
lines. Local manufacture of certain
low-cost seating ranges became uneconomical
and was discontinued.
The business environment encouraged
opportunistic competition from entrepreneurs
seeking quick profit as direct importers
of specific lines.
A strategic initiative with long-term
significance for Bid Industrial and
Commercial Products is government’s
commitment to national energy savings
as power demand threatens to outstrip
supply. Demand will continue to rise
through further economic growth, coupled
with plans to step up the national
electrification programme. In the
2006 Budget, government pledged R4,4
billion over three years to help bring
electricity to more low-income families.
Energy efficiency and cost savings
have become key factors for major
users of power in all sectors of the
economy. This gives added impetus
to the strategy of achieving stronger
market penetration. |
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Business risks |
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Cyclical risk applies to various
product lines, but the risk is balanced by enduring,
day-in-day-out demand for many items in our range.
The timing of office furniture purchasing is discretionary
and influenced by the general business climate.
However, demand for office consumables is ongoing.
Demand for packaging closures is affected by demand
in the manufacturing sector, but there is a continuing,
solid underlying demand for a wide range of electrical
products.
Political risk is present as sales can be affected
by policy priorities in areas such as housing,
infrastructure investment and industrial development
where backlogs currently exist.
The policy climate can also mitigate risk such
as tactical incursions by direct importers and
wholesalers focused on short-term profit. Such
entrepreneurs rarely invest in skills transfer,
make social investments or commit to empowerment.
In view of BEE procurement policies, these opportunists
may receive less support from major customers.
International manufacturers wishing to align themselves
with the needs of our market should also be made
aware of the long-term benefit of supporting businesses
that make wider social commitments.
Exchange-rate risk applies to all imported lines
as order patterns are affected by expectations
of rand weakness or strength. The risk is addressed
by rigorous inventory control and judicious buying
by an experienced management team with a proven
track record.
Commodity price fluctuations – notably the
copper price – create similar risks. Given
appropriate buying skills, these fluctuations
can represent a significant opportunity.
Competition from foreign imports affects some
areas of the business, making it necessary to
select the product lines in which to compete and
those areas where an alliance with foreign manufacturers
is more appropriate. This flexible approach has
been adopted by Seating and Afcom-GE Hudson.
Skills shortages are an enduring challenge. Bid
Industrial and Commercial Products responds by
ongoing people development. Some technical fields
are becoming progressively more complex. Bid Industrial
and Commercial Products increasingly consults
to customers and offers optimum solutions. This
deepens relationships, but requires training investment
and the development of specialist staff.
Large, national companies all face attack by smaller
competitors. Bid Industrial and Commercial Products
responds by maintaining a balanced mix of customers
and by offering South Africa ’s most extensive
product lines and most substantial stockholding
on a national basis.
Crime is another risk. Stockists of high-value
goods are targets for organised theft. Constant
vigilance and rigorous stock control are the only
defence. |
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Voltex
is active in the industrial, reticulation, domestic
and general electric markets |
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Sensitivity analysis |
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Major movements in exchange
rates and copper prices are material risk factors.
Metals prices can be volatile. In one short period
of 2006, the copper price rose by R13 000 per
ton. An inflationary pricing environment appears
to favour a trading business, but cost increases
of this magnitude are difficult to pass on to
end-users. Conversely, significant price reductions
can prompt strategic de-stocking by customers.
Prolonged bouts of rand strength reduce demand
from the manufacturing and export sectors. Imports
become even more price competitive and can make
it uneconomic to continue with the manufacture
of some items in our own range. Flexible staffing
arrangements, therefore, have to be maintained.
Management has to be vigilant to the risk of price
and currency movements. |
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Structures and
growth |
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The office stationery and office
furniture businesses previously housed within
Bidoffice have been integrated into Bid Industrial
and Commercial Products. In common with our electrical
distribution operations, these businesses have
extensive branch networks and face similar warehousing
and distribution challenges. Across certain lines
it will be possible to offer a bigger basket of
products to the same customer-base. These synergies
will be pursued.
Two acquisitions took place. Versalec Cables,
a specialised cable distributor based in Johannesburg,
further broadened the extensive cable range. Litemor
Electrical, an electrical wholesaler, which has
a strong base in Mossel Bay and Oudtshoorn. These
acquisitions strengthen our geographic coverage
in an area of strong growth potential.
The businesses were buoyed by substantial organic
growth.
National reach was achieved by our new specialist
initiative to serve the retail supplier market.
Our original stockist to this industry is located
in Pretoria and has now been joined by sister
operations in Cape Town, Durban and East London.
Marketplace response has been positive.
The 50% holding in UK-based Stenochair was sold.
The business had under-performed in recent years.
Kolok, South Africa ’s leading supplier
of printer consumables, computer peripherals and
data storage products, relocated its Gauteng operations
to larger, purpose-built premises south of Johannesburg. |
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Black economic
empowerment |
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Almost all business units across
the expanded division have now achieved empowerment
ratings. In most cases, “A” ratings
have been achieved. Strong buy-in is evident by
all businesses. The aim in the short to medium
term is to further improve our ratings.
Performance across the BBBEE scorecard is reviewed
every quarter. Consistent improvement has been
noted in all areas.
We are now taking the BEE philosophy to a wider
audience by organising “Supplier Days”
to communicate our policy and explain the benefits
of an improved BEE profile to late-adopters.
Each business within Bid Industrial and Commercial
Products has in place a five-year rolling employment
equity plan which is reviewed annually. Good progress
has been made at junior- and middle-management
levels. Renewed efforts are being made at senior
management level to address continuing imbalances. |
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New investments |
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Significant investment in capital
expenditure to maintain and improve the extensive
branch network is ongoing. Investments in new
technology and IT systems are progressing.
Investment continues into the upgrade of Cecil
Nurse (CN) furniture showrooms nationwide while
commitment to the new CN catalogue, the first
in four years, ensured its successful launch in
early July.
CN invested in new commercial vehicles following
a strategic decision to change from outsourced
deliveries. This resulted in the creation of new
jobs.
Investment in enterprise resource planning (ERP)
systems has been under way for more than a year
at Waltons. R20 million was committed this
year. New ERP systems are being implemented at
Seating, Kolok and Dauphin; with Voltex, CN, Contract
Office Products, Afcom-GE Hudson and Buffalo Executape
in the evaluation stage of the process.
Machinery upgrades are under way at Afcom-GE Hudson
as the business prepares to exploit growth opportunities
in label manufacture.
Buffalo Executape made a R3 million investment
in new machinery at its Spartan tape conversion
plant to support additions to its product range.
Training investment across all business units
topped R11,8 million.
Bid Industrial and Commercial Products is no longer
simply a distributor but also a consultant and
partner to our customers and increasingly markets
highly sophisticated products. In this environment,
the high quality of our people is a source of
competitive advantage, demanding appropriate investment
in training and development. |
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Innovations |
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Bid Industrial and Commercial
Products has patented a robust and energy-efficient
mining light. The new product spearheaded the
Voltex marketing push into the mining industry
and rapidly achieved broad acceptance. Sales to
the mines more than doubled.
In the field of energy efficiency, the market
shows greater acceptance of “smart solutions”
that automatically regulate levels of lighting,
air-conditioning, heating and ventilation. Building
automation has progressed to the point where virtually
all appliances and systems in residential, commercial
and industrial environments can be controlled
by intelligent systems. This is a new market,
but Bid Industrial and Commercial Products is
well positioned due to its extensive brand portfolio,
closeness to international trends and investment
in skills and training. This training covers both
internal staff and external specifiers and users.
In support of its innovative designs, CN has invested
in exclusive lines of fabrics and foils to create
a unique finish for its new furniture range. Exclusivity
will make it impossible for competitors to clone
the new look being showcased in the CN catalogue.
New specialised divisions of CN were created to
focus and expand the range of products and solutions.
CN Corporate Furniture is a corporate and project
specialist. CN Plus offers value-added services
such as space planning and consulting in respect
of white sound. CN Café specialises in
the hospitality market. CN Direct offers an online
sales facility, primarily to private individuals
and smaller enterprises. ACTA supplies a versatile
demountable wall partition system.
Seating was instrumental in developing a range
of chairs using moulded foam seats and backs as
opposed to traditional plywood. These products
have been well received by the market. They are
attractive, comfortable, technologically advanced
and copy-resistant. |
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Challenges |
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HIV/Aids remains a major concern.
Awareness and education programmes are undertaken
at regular intervals in all business units. Most
members of staff have been exposed to Aids training
at least once.
All businesses respect environmental legislation
and are committed to operating as a “good
neighbour” while showing environmental sensitivity.
Our commitment to energy-efficient solutions reflects
a wider philosophy of operating in a sustainable,
socially responsible fashion without wasteful
use of resources.
Talent identification and staff development are
special challenges for all successful businesses.
In response, the division has in place cadet training
programmes involving formal courses and on-the-job
mentoring. The aim is to prepare high-calibre
employees for supervisory and managerial roles.
The initiatives have been well received.
Another challenge is how best to leverage and
aggregate the resources of the expanded division
to ensure all brands draw benefits from the wider
structure. One method of exploiting synergies
is to extend the scope of Voltex training to include
divisional sister-companies. This effort will
gain momentum. |
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The future |
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The national economy is expected
to remain buoyant, though consumer-led growth
may begin to falter as interest rates rise. In
the 2006 Budget, government allocated an additional
R34 billion to infrastructure projects over the
next three years, indicating that infrastructure-led
growth should continue.
Despite varying indicators, the industry should
continue to grow in preparation for 2010 which
will encompass the building of new and the upgrading
of existing soccer stadiums and peripheral facilities.
Furthermore, there appears to be a renewed demand
for infrastructural spend around hotels, offices,
apartments, hospitals and schools. The Eastern
Cape “moratorium” on the creation
of new golf estates has now come to an end, creating
expectations that resort development will also
gather pace. Investment in Gautrain can be expected
to prompt the development of new retail nodes
close to stations and terminals, supporting demand
for cabling and other electrical equipment.
When new property development takes place, energy-efficient
lighting solutions will increasingly be specified
at the outset – contributing to demand in
an area of core competence.
Bid Industrial and Commercial Products expects
further success as a facilitator of national energy-saving
initiatives. Voltex now has an established base
in the industrial and corporate sectors which
will be further expanded. Growth in the mining
industry will continue to be sought.
The challenge of maintaining appropriate stock
levels will be as crucial as ever. The dramatic
rise of the copper price during the year has continued
unabated while the rand weakened significantly.
We continue to monitor the situation on a daily
basis.
Continual improvements in BEE scores are being
achieved by operational units and the broad-based
approach to empowerment is better understood.
In some sectors of the economy – notably
among municipalities – the division continues
to communicate its BEE status, albeit with limited
success. It is imperative that government speedily
finalises the codes.
The economic environment remains highly competitive
and rigorous margin management will be essential.
Strategic investment has been, and is still to
be, made in capacity, systems and branch infrastructure,
creating a platform for growth. |
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VOLTEX ELECTRICAL
DISTRIBUTION |
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Voltex widened its penetration
of the industrial and corporate sectors. This
business is leveraging the benefits of its relationship
with Eskom to promote demand-side management (DSM)
across industry and commerce. As an accredited
energy services company, Voltex conducted a record
number of DSM audits during the year. |
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Afcom-GE
Hudson
have a well-trained team focusing
on providing customers with solutions,
supported by quality product and service
excellence |
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| Major contracts
have been signed with large corporate
groups. Energy-saving solutions increasingly
lead to new business in other areas
and continued growth is anticipated. |
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| Wholesale |
| All units performed
extremely well, achieving strong growth
in volumes and operating profit. An
acquisition will further strengthen
the geographic spread. |
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| Specialist |
| The specialist
business achieved major growth. A
significant driving force was the
ability to effectively trade with
stock accumulated prior to rises in
the copper price. This policy, however,
had a negative impact on working capital
levels. The acquisition of Versalec
Cables will further complement an
already extensive range. |
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BERZACK BROTHERS |
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The business units –
suppliers of industrial sewing and embroidery
machines, domestic appliances and ancillary products
to manufacturers in the garment, luggage and stationery
industries – felt the knock-on effect of
Chinese imports. Important segments of the customer-base
in the South African clothing and textile industries
were under great pressure and orders suffered.
In response, Berzack targeted emerging business
in the informal sector and achieved notable successes
with a new range of competitively priced machines.
Furthermore, Berzack continued its strategy of
seeking greater penetration of the domestic appliance
market. New launches in 2007 by ranges such as
Moulinex, Jamie Oliver’s Italy and Krupps
coffee-makers will further strengthen the offering. |
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EASTMAN STAPLES |
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This United Kingdom-based supplier
of sewing machines and associated items to the
clothing industry was adversely affected by a
diminishing market as its customers felt the effects
of cheap Chinese imports. Eastman Staples continues
its cost-cutting programme as it awaits positive
direction from the industry it serves. |
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STATIONERY |
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Waltons Stationery
Company/Hortors/SA Diaries/Waltons Promotional
Gifts |
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Waltons performed well while
its promotional gifts business made a positive
contribution, albeit relatively small. Growth
was fuelled by an improved performance by the
office furniture division.
Waltons continued its strategic process of relocations
and new branches were opened to heighten the brand
profile. The “mix” of premises remains
focused on retail stores, large commercial distribution
centres and combo-stores that combine a retail
front-end with distribution capabilities to support
commercial customers.
Further opportunities for acquisitions in the
gift business are being explored. Investment in
improved IT systems is anticipated.
Hortors, a specialist supplier of forms and diaries
to the legal profession, continued to lead its
niche in the development of electronic solutions
to a traditionally paper-based sector. |
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Kolok
wholesalers and distributors of a
wide range of stationery products
and computer consumables |
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| Kolok |
Kolok performed
satisfactorily. Operations in Johannesburg,
Durban and Namibia moved to larger
premises designed to facilitate the
company’s sales-channel strategy.
Sales volumes grew substantially,
necessitating more efficient workflows.
Simultaneously, a new marketing strategy
was adopted based on specialised support
for distinct retail, corporate and
dealer channels. The result was improved
volumes and higher levels of customer
satisfaction and further marked benefits
are expected.
New operations were opened in Port
Elizabeth and Botswana. Both are performing
in line with expectations.
Margin management continues to be
a challenge in a market characterised
by currency volatility. |
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Contract Office
Products |
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Strong demand for traditional
stationery items was seen, but offset by a margin
squeeze in the market for computer media. Contract
Office Products acquired the assets of a small
black-owned contract stationer in the Johannesburg
CBD. The effect was to save three HDI jobs at
an under-performing business while strengthening
our presence in a key area. |
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OFFICE FURNITURE |
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CN Business Furniture/CN
Manufacturing/Budget Desks and Chairs/Office Furniture
Clearance House |
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The re-branding of Cecil Nurse
to CN Business Furniture has initiated a shift
from a product-only focus to a platform offering
complete office solutions. The CN Group now comprises
specialised divisions that each target a specific
market.
CN achieved growth in both revenue and operating
profit. This trend is expected to continue following
the successful launch of the new CN catalogue.
CN’s unique designs firmly entrench the
business in style leadership. CN Manufacturing,
the dedicated desk supplier to CN, saw increased
volumes in line with the distributing arm’s
growth. The expansion into the Pretoria area by
Budget Desks and Chairs proved successful and
contributed to a pleasing performance.
The minority interest in Office Furniture Clearance
House was acquired, with Budget Desks and Chairs
assuming overall management control. |
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Seating
is a locally manufactured product,
design-rich to counter cheap
imitations |
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| Dauphin
Office Seating |
| The business benefited
from a strong order-book in the highly
cyclical corporate-project sector.
The customer-mix is well balanced
between clients from the public and
private sectors. An outstanding performance
was achieved. |
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| Seating |
| Manufacturing operations
are increasingly complemented by the
import of affordable seating ranges
from China. A flexible response to
foreign competition enabled satisfactory
results to be returned. A joint-development
project has resulted in an exclusive
supply arrangement for a new line
of seating that incorporates moulded
foam technology, an eco-friendly alternative
to more conventional methods. The
concept holds good sales potential
in both the domestic and export markets. |
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Pago |
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Last year’s marginal
loss was reversed as this soft-seating manufacturer
and importer put in a satisfactory performance.
New lines that combine good aesthetics with low
pricing were sourced from Europe and China and
achieved the anticipated sales success. |
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PACKAGING CLOSURES |
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Afcom-GE Hudson/Ramset |
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Expected growth was dented
by the effects on the local manufacturing sector
of cheap imports and a strong rand. Margin pressure
was intense. In an extremely flat year, the business
was re-focused to give greater emphasis to import
and distribution activities. Cost increases were
kept well below the prevailing inflation rate.
A number of retrenchments were forced on the business.
On the positive side, the new label machine at
the Bloemfontein factory reached full capacity
in line with projections that these activities
offered considerable growth potential. A new agency
was acquired for a fastening system that meets
the needs of both the furniture and fencing industries.
Ramset, the specialist supplier of power-actuated
tools to the construction sector, achieved pleasing
growth. The business targeted the protective packaging
sector with the launch of a new range of fastening
tools and air-pad machines.
Deflationary pressures appear to be easing while
the rand has shown signs of weakness. These developments
are positive for Afcom-GE Hudson, creating an
expectation of double-digit growth in trading
profit and solid revenue gains. |
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Buffalo
Executape |
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New investment in people and
technology created a platform for pleasing growth
in revenue and trading profit by South Africa
’s leading convertor and supplier of adhesive
tapes.
The creation of an innovative range of lifestyle
tapes enabled a highly successful entry into retail
markets. The strategy will gain further momentum
with the introduction of improved merchandising
targeted at major stores. Early identification
of the need for high-speed splicing solutions
within the paper industry created growth opportunities
in a key industrial sector.
The business will seek further growth in trading
profit and revenue. The strong BEE track record
at senior level continues to underpin marketing
efforts to the industrial sector as BEE procurement
becomes a key issue for many corporate customers. |
