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| Review of operations – Bidserv continued |
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| Macro factors |
Sustained economic growth is good for our clients and good for Bidserv. The credit squeeze facing some South African consumers had little direct impact in our corporate services environment. Business confidence remains high.
The switch in strategic emphasis from consumer-led growth to infrastructure-led growth is advantageous as we often serve the companies that benefit from increased fixed investment by government, the parastatals and the private sector.
Some segments of high-growth South Africa are doing particularly well, including tourism, property and petro-chemicals. The knock-on effects were highly beneficial as our business units serve the travel and airline industries, provide a wide menu of services to new office parks and factories and deliver specialist cleaning expertise to the oil companies and power generation industries.
The higher interest rate trend was mildly positive for our travel-related financial services and trade finance activities. |
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| Industry dynamics |
Despite continual investment in technology and new systems, many of our companies operate in a people-rich rather than a resource-rich environment. We are proud of our record for sustained employment creation, especially as many jobs involve a low level of skills and are therefore accessible to South Africans who have not had access to higher levels of education. People-intensive operations, however, leave us vulnerable to changes in the industrial relations climate – a key feature of industry developments last year.
The greatest frustrations occur when industry-wide strike action takes place. Indiscriminate industrial action hurts the good employer along with the bad. Our terms and conditions of employment are fully compliant with all statutory requirements, but our security and cleaning operations were hard hit by prolonged national strike action.
Wage settlements were significantly higher than inflation, putting great pressure on our margins.
The strikes were extremely debilitating. Our workers lost pay. We lost both money and clients. In response to margin pressure following the pay hikes, we have had to seek efficiencies and synergies, in some cases investing in technology and smart systems to deliver long-term savings. In this environment, it was remarkable that we still managed to create 7 000 new jobs.
A trend that remains positive for Bidserv is rigorous control of service level agreements in the outsourced services industry. This is a source of competitive advantage for Bidserv as we set the industry standard in terms of equipment, reporting and performance management. |
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| In-house developments |
The effects of industry-wide strikes on people-intensive operations gave added impetus to the long-term strategy of differentiating Bidserv on the basis of higher quality and smarter solutions.
The challenge is best crystallised in the security sector where three basic offerings are evident – the people-reliant guarding service, the high-technology security solution driven by investment in sophisticated resources and, thirdly, the integrated service offering combining high-tech elements with people resources (which may require additional training investment to ensure an individual’s competence in a resource-rich environment).
Bidserv has decided to step up efforts to further expand its footprint in the last two areas. We see only limited opportunities to add value when the core offering is a service that relies solely on guards with little technology support. |
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| Challenges of national growth |
High growth translates into higher demand for skills, particularly in areas such as IT infrastructure; the focus of much of our investment.
The growth challenge that is perhaps most evident – rapidly increasing demands on transport infrastructure, including airports – is a net positive for Bidserv. More airlines are travelling more frequently to South Africa, more tourists are flying in and domestic business travel is a substantial growth area.
South Africa’s 10 airports handle more than 200 000 aircraft landings per year. Plans are under way to improve runway capacity at OR Tambo International Airport (Johannesburg) and Cape Town international airport. This will increase the traffic flow from 56 to 76 aircraft per hour. Aircraft capacity at ORTA is also being increased to accommodate new wide-body, long-haul aircraft such as the A380.
The number of airlines operating in South African airspace has grown from nine in 1994 to more than 50 today. The tempo may pick up even further on the run-in to the 2010 Soccer World Cup.
These developments are helping to grow our Aviation Services companies and travel businesses.
Power outages caused by the strain on national generating capacity have necessitated an increased investment in secondary power supplies at some business units. For example, laundry operations for hospitals and hotels can be extremely time-sensitive. The investment adds to our costs, but increases our competitive advantage versus smaller operators who cannot ensure this level of service reliability. |
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| New structures |
There were no major acquisitions, though TMS Group Industrial Services bought a small, Johannesburg-based industrial services company.
Hotel Amenities Suppliers, previously housed within Bidfood, was moved into the Bidserv fold, enabling us to create a new specialised operation to serve the growing hospitality sector – hotel amenities and accessories.
Premier Club Airport Lounges was integrated into a new unit – Premier Airport Services – and moved into the Aviation Services segment of the business. It was previously part of Bidtravel Services.
There were no disposals. |
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