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| Financial director’s report continued |
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| Offshore financial performance |
The rand’s weakness versus sterling, the euro and the Australian and New Zealand dollars augmented our international profit. Strong organic growth was maintained in the Australian and New Zealand markets.
The Angliss transaction in Asia was concluded late in the period, but is expected to make a material profit contribution in 2008.
Significant write-offs for bad debt and the loss of the Ministry of Defence contract affected the performance of our British foodservice business. Remedial action has been taken, which includes the use of credit insurance and replacement of the lost revenue. A strong contribution was made by operations in the Netherlands and overall improvements were noted in Belgium. |
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| Performance in South Africa |
Bid Industrial and Commercial Products achieved pleasing growth, with trading profit up by 48,7% and revenue up 23,8%.
Bidserv grew trading profit by 19,0% on a 16,2% revenue increase – a creditable performance after strikes in the security and cleaning industries.
The development of a high-quality portfolio at Bid Property Holdings has helped Bidvest to retain control over strategic operational properties. |
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| Acquisitions |
The acquisition of Viamax will add considerable scale to Bid Auto’s fleet management business, but regulatory approvals has delayed the effective implementation date.
In May we acquired 100% of the issued share capital of Angliss Singapore, Angliss Hong Kong and Angliss China for US$80 million. These foodservice wholesale and distribution businesses have combined sales of more than R2,1 billion a year. Angliss owns facilities in Singapore, Hong Kong and Guangzhou and has distribution platforms in Beijing and Shanghai. In the two months to 30 June, Angliss contributed trading profit of R10,8 million.
The acquisition was funded by debt raised in Australia.
The purchase price of the Viamax transaction of approximately R1 billion is based on the operation’s net asset value at 31 March 2007 and a premium of R36 million. The transaction will be funded from existing Group resources.
In addition, Bidvest acquired 20% of Comair, the JSE-listed airline group that operates the southern Africa franchise of British Airways. The investment was opportunistic. South Africa’s airline market shows continued growth and we expect this investment to perform well over time.
We made an unsuccessful bid for a major US foodservice company. We decided not to pursue an interest as valuations moved to levels we considered unrealistic. |
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| Debt levels |
Bidvest is borrowing more, a development that enables us to take greater advantage of our strong balance sheet. Funding is not only used for growth, but to maintain our investment in infrastructure to sustain our ongoing operations. However, our position on debt remains conservative.
Traditionally, our debt-to-equity ratio has been below 40%. Net debt rose to R3,7 billion, though interest rate cover at eight times reflects the Group’s significant borrowing capacity.
Our credit rating of AA-(zaf) was affirmed by Fitch Ratings in March, confirming the Group’s realistic approach to leverage.
Bidvest’s acquisitions strategy has never been governed by a policy of maintaining a prescribed percentage of onshore and offshore holdings. These activities are driven by value opportunities as, when and where we identify them. However, we need to maintain a better balance of on- and offshore debt levels.
Relative to international earnings, our offshore borrowings have been small as we used offshore cash generation to pay down offshore debt. We are looking to achieve an improved balance of on- and offshore debt without affecting our financial “firepower”. |
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