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The Bidvest Group Limited
Annual report 2006
Financial highlights and results
The history of Bidvest
Our Group in brief
Consolidated segmental analysis
Performance at a glance
Geographical footprint
External appraisals
Directorate
Chairman's statement
Chief executive's report
Financial director's report
Review of operations
Summarised sustainability report
Corporate governance
Financial statements
Shareholders
Management directory
Shareholders' diary
Administration
Glossary
 
Review of operations
 
  Corporate Services
   
 
   
  The Group’s corporate office, based in Melrose Arch, Johannesburg, provides strategic direction and services to the Group, houses investments, adding value through identifying opportunities and implementing Bidvest’s decentralised and entrepreneurial business model.
   
   
 
Revenue increases by 10,3% to R1,3 billion
Trading profit rises to R108,4 million
Bidvest Academy entrenches position as incubator of leadership talent
“Proudly Bidvest” positioning successfully implemented
Bidprop spends R174,4 million on new facilities for operational companies
Controlling interest taken in Namsea
Brian Joffe
Chief executive
 
   
   
  Bid Corporate Services
 
 
Corporate Services is deliberately lean. It is a facilitator for our business units, not a bureaucracy. Business units are responsible for implementation of Bidvest policy as developed by the board of directors. Corporate Services monitors policy adherence and the achievement of key strategic objectives in areas such as BEE Bidvest’s reputation as a good neighbour and respecter of the environment, and the development of the Bidvest leaders of tomorrow.

Leadership training is fostered through the Bidvest Academy and is a key focus area.

Other key responsibilities include investor relations and communications. As a listed company, we pay close attention to the needs of the investment community, but all stakeholders have a right to timely, comprehensive and open communication from Bidvest.

Marketing and advertising activities are co-ordinated by Corporate Services as is the “Proudly Bidvest” initiative. Bidvest’s operational arms are responsible for the development of individual brand identities. However, Bidvest’s reputation and stature as an international group brings an added dimension to their marketing efforts. Association with the wider Bidvest brand is emphasised by the “Proudly Bidvest” signature that underpins the communication of each individual business unit.

The “Proudly Bidvest” positioning has become a unifying component of all Bidvest communication in South Africa.

Specialist service providers and strategic investments also form part of Corporate Services, including Bid Property Holdings (Bidprop), Namsov Fishing Enterprise (Namsov), Namibian Sea Products (Namsea) and Ontime Automotive.
   
 
 
  Bidvest’s corporate office based in
Melrose Arch, Johannesburg
   
 
Bidprop’s
portfolio comprises close on
100 properties in South Africa
The Bidvest Academy
provides a platform for developing
young executive talent within the Group
Ontime Automotive
is the UK’s second largest
automotive business
 
Bid Property Holdings
The industrial property market experienced both buoyant conditions and sharp increases in building costs. Constant steel and fuel price increases and rand weakness compounded building cost inflation.

Unprecedented demand for land led to a severe shortage of vacant proclaimed industrial sites in the main centres. Land prices soared while demand put further pressure on local authorities to supply services to new sites. Disproportionate increases in the cost of these services added to the cost of bringing new land to market.

It took only a short period for rentals in new developments to climb by more than 25%.

These factors complicated the task of Bidprop as we pressed ahead with an ambitious programme of upgrades, expansion and relocation for several Bidvest divisions. In an extremely active year, Bidprop spent R174,4 million on new facilities for Group companies.

In Johannesburg, we provided new premises for Kolok, Bidbake, Crown National and Safcor. In Durban, our clients were Kolok, Minolta and Vulcan. For McCarthy, we created a new showcase dealership for Mercedes, a new mega Toyota dealership in Durban and a new dealership (for Toyota) in Paarl.

Work is in progress on several additional projects.
   
  The cost challenge may mount in view of rising interest rates and factors such as the proposal to include both land and buildings for rate assessment purposes. This will force occupiers of industrial property to make better use of facilities. Bidprop anticipates further activity as we assist Bidvest businesses to develop appropriate solutions.
   
  Namsov Fishing Enterprise
  Namsov, in which Bidvest holds an effective 31,0% stake, recorded highly creditable results. Revenue grew 41,0% to N$378,4 million while trading profit rose strongly by 503,1% to N$75,4 million. Growth was achieved despite pressure on operating costs attributable to spiralling fuel prices (which account for 37% of input costs). Thankfully, the strategic decision was taken some time ago to convert the fishing fleet to operate on intermediate heavy fuel oils, which are more competitively priced than diesel.

Huge fluctuations in the supply of Namibian horse mackerel were mirrored by volatile price fluctuations. Foreign exchange vigilance was required in view of the continuing strength of the Namibian dollar against the US dollar, Namsov’s main trading currency. The licensing practices of a major competitor and unusually high volumes of small fish from north-west Africa caused prices to plummet in early 2006 but, by the end of the financial year, prices had recovered.

A continued improvement in Namsov’s results will be energetically pursued. New methods of managing the flow of production are being examined with the aim of creating greater price stability. Diversification into other sectors of the industry and into Angolan waters will also be considered. However, several challenges need to be addressed; including the implementation of a new Labour Act and less favourable demarcation of Namsov’s fishing areas with the pending introduction of automatic location communicators for all fishing vessels.

In terms of sensitivity analysis, the principal risk applies to fish resources and fluctuations in resource biomass beyond the control of management. The available resource affects Namsov’s annual quota allocations and this determines business volumes, revenue and profit. In the event of a catastrophic drop in the fish resource, assets could be redeployed to alternative waters (for example, off Mauritania and Chile), but the effect would still be material.
   
 
 
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  Namibian Sea Products
  Bidvest holds a controlling interest in this Walvis Bay fishing operation. In November 2005 we acquired a 30,0% stake in Namibian Sea Products Limited (Namsea) and in March of this year bought a further 35,0%. Namsea, through its subsidiary United Fishing Enterprises, owns a fish-processing factory, including buildings and plant. It is also the owner of a fleet of four Purse-Seine fishing vessels.

These operations have under-performed for several years, largely as a result of shrinking pelagic fish resources. Annual revenue stood at a modest N$58,4 million and a loss before taxation of N$6,1 million was recorded.

Namsea’s principal activity is fishing for small pelagic fish species, and the processing of the catch into canned fish, fishmeal and fish oil. A subsidiary (Atlantic Harvesters of Namibia) has a mid-water horse mackerel concession, creating opportunities for integration with Namsov’s horse mackerel fishing operations.

Namsea management will strive to stem the pattern of recurring losses while seeking new opportunities in Angolan waters to counteract the adverse pelagic fishing conditions off Namibia. Diversification into new spheres of activity, such as the development of Namsea’s seafront property and utilisation of under-roof storage facilities, will also be explored.
   
 
 
  Namsov Fishing Enterprise
the largest quotaholder in the midwater fishing industry in Namibia
   
  Ontime Automotive
  This UK business comprises Ontime Rescue and Recovery (vehicle roadside assistance), Ontime Parking Solutions (parking enforcement), Specialist Transport Operations (enclosed vehicle transport), Prestige Vehicle Distribution (worldwide vehicle distribution) and Fleet Assistance (national roadside assistance).

England ’s low unemployment rates affected the recruitment and retention of quality staff while substantial increases in fuel prices bedevilled expense management. The trading environment was characterised by supplier consolidation within the automotive industry, car market over-capacity and the fluctuating financial fortunes of original equipment manufacturers (OEMs).

A leading competitor became a victim of aggressive market testing of OEM business while Ontime won new contracts in a consolidating marketplace and, by year-end had, emerged as the UK ’s second largest automotive logistics company.

Long-term prospects of delivering consistent and acceptable financial returns were enhanced by the closure of Ontime’s French national car transport subsidiary, SVTV. This business failed to make a positive contribution despite extensive restructuring.

Specialist Transport Operations, Prestige Vehicle Distribution and Fleet Assistance performed exceptionally well.

The Group’s sale of Dartline, the cross-Channel ferry and terminal operator, creates a challenge as it affected our strategy of carrying out pre-delivery inspection work for OEM clients at port of entry. A major contract has been lost. However, management are focused on replacing this business.

Bidvest’s financial strength, the empowerment of local management and Ontime’s strategy of providing quality solutions for fair remuneration are having an impact. The market remains challenging, but growth is being achieved and the fortunes of the business are being restored.
 
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