Positioning and reputation

Bidvest Freight’s key port facilities and the safe, efficient and innovative operation of its goods- and materials-handling infrastructure drive the business’s positioning as a reliable long-term partner of importers and exporters, many of whom are key contributors to the nation’s bottom line. In a tough year, Bidvest Freight strengthened its reputation as a partner customers can trust and further tightened its focus on the core terminals business.

Macro- and trading environment

World trade stalled as a result of the international financial crisis while South Africa slid into recession at the beginning of the period. Recovery has been slow. These macro-factors were reflected in the performance of Bidvest Freight. Prospects of a strong finish to the year were impacted by the national Transnet strike in the fourth quarter. Rail freight and container terminals came to a standstill for several weeks. Knock-on effects at Bidvest Freight were significant.

Performance

Bidvest Freight did well in this challenging environment.

Despite poor economic conditions, good performance in bulk commodities offset low demand for consumer retail products.

Revenue fell by 14,5% to R15,9 billion (R18,7 billion). This was largely the result of much lower clearing and forwarding volumes, which although low-margin activities are by far the biggest contributor to Bidvest Freight’s revenue.

Trading profit of R794,3 million (R770,7 million) was 3,1% higher than last year, reflecting the relatively strong performance of the terminals business following an improvement in bulk commodity volumes.

All bulk businesses performed well, including Island View Storage, Bulk Connections, South African Bulk Terminals and Bidvest Port Operations.

Cash flows remained strong.

Unfortunately, depressed consumer demand affected many import and export categories and some jobs were lost. Total staff complement fell from 5 212 to 4 860. The main cause was a restructuring and retrenchment programme at Safcor Panalpina, the international clearing and forwarding business. All retrenchment costs were fully expensed.

Regrettably, the division suffered two fatalities. Some activities at Bidvest Freight are inherently high risk as they involve the storage and the hazardous nature of handling bulk commodities. Safe working practice is continually reinforced and safety training provided on an ongoing basis.

Strategic and industry dynamics

A critical strategic objective was realised with the renegotiation and finalisation of long-term leases for the Bulk Connections facilities in Durban and the Island View Storage facilities at Richards Bay.

Certainty of tenure permits long-term investment at all sites. R503 million was invested this year.

Renegotiation, however, leads to higher rentals and other demands from our Transnet landlord. The overall effect is to increase our overheads. New operational efficiencies then have to be sought if appropriate returns are to be earned.

Tenure certainty was welcome, but other types of “certainty” were challenged by a new strategic environment. In the past, a strong rand meant increased imports of consumer goods; a weak rand meant increased exports, bringing an element of balance to our activities at different stages of the business cycle. However, volatility and inconsistency have replaced old certainties.

The rand remained strong throughout the period, but heavily indebted consumers were reluctant to spend. Imports therefore remained sluggish. A relatively strong rand may have inhibited some exports, but the volume of commodity exports moved higher as the year progressed. The east’s position as a leading customer for South African commodities was entrenched.

Over many years, the view has been that in the movement of goods, state control of large parts of the industry is justified. However, the recent Transnet strike has shown that difficulties experienced by one big employer have the potential to choke rail and port traffic.

In the wake of the Transnet strike, we believe it is time to reconsider the case for greater private sector participation in the port and rail sectors.

Efficiencies

Restructuring was necessary at Safcor Panalpina to create a leaner team to deal with lower volumes. Efficiencies were realised across the board. The net effect was to remove an entire management tier. Slimmer structures are working well, though the full benefits will not be apparent until the coming year. Safcor Panalpina is simultaneously investing in new IT systems.

A key aspect of Bidvest Freight’s sustainability model relates to equipment efficiency. To ensure maximum uptime, support a safe workplace and create a ‘no surprises environment’ for customers, the business invests in replacement plant well ahead of any threatened breakdowns.

A major contributor to efficiency is the knowledge and skill of our people. Training is continuous and the training spend for the year was R23,9 million.

Benchmarks

The key financial benchmark of all operations is to raise trading profit by inflation plus a specific percentage. Last year the objective was inflation plus 6%. Bidvest Freight fell below the target.

A further key benchmark is the return on funds employed, which focuses on the management of assets and cash flow as well as trading profit.

Workplace safety is benchmarked rigorously.

BEE progress is measured monthly and reviewed every quarter at all operations. All businesses, with two exceptions, are certificated level 4 empowerment contributors or better.

Brand and operational dynamics

Every business at Bidvest Freight is a strong corporate brand in its own right. Common characteristics are performance reliability, industry-leading facilities and strategically located infrastructure. Safcor Panalpina is an internationally known brand thanks to its relationship with Panalpina, one of the world’s leading providers of forwarding and logistics services.

The main operational challenge at several businesses remains variable service levels from Transnet’s freight rail operations. Unfortunately, this frequently necessitates a switch to road transport, adding to the carbon footprint while increasing traffic congestion. Bidvest Freight teams have put considerable effort into increasing truck throughput. For example, Bulk Connections handled 400 trucks in a single day. We still believe rail to be the most efficient means of transporting cargo and are in discussions with Transnet to achieve this.

Interest rates moved lower. This reduced earnings at clearing and forwarding and agency businesses.

Working capital management remained a priority. “Over-age” debtors and the number of debtors handed over for legal action rose. The issue received focused management attention. Improved collections were evident by year-end.

Fuel costs were relatively stable. Diesel costs are expected to drop as Bidvest Freight has continued the conversion from diesel-powered to electric forklift trucks. Whatever the source, Bidvest Freight remains a large power user with a relatively large carbon footprint. For the last three years, fuel and energy use has been closely monitored, creating a benchmark against which consistent improvements will be achieved.

The general operational and environmental target is performance to world best practice; especially in safety-critical areas such as the handling of chemicals and other hazardous substances.

New initiatives

Capital expenditure of R503 million drove significant growth in capacity.

A further 60 000m³ was added to the tankage at the IVS facility in Richards Bay. The project began in June last year and was completed ahead of schedule in April. New storage capacity addresses the needs of a large chemical exporter. The work included the construction of a one kilometre rail siding.

SACD’s Cape Town 20 000m² warehouse has been completed. This project gives SACD state-of-the-art racking and storage facilities to assist exporters, especially the wine industry.

All businesses are engaged in projects to expand existing capacity or accelerate throughput.