Positioning and reputation

An extensive national footprint and investment in quality facilities and people enable Bidvest Industrial and Commercial to supply products that match specific needs. Customers in the manufacturing, wholesaling and retailing sectors appreciate the ready availability of the division’s products. Quality products are backed by quality service.

Macro- and trading environment

Recession affected every business in the division. The business is exposed to both the retail and business-to-business environments and was impacted by consumer belt-tightening and aggressive expense management by business. Many companies imposed a freeze on new capital expenditure.

There was little evidence of a beneficial FIFA World Cup 2010™ effect in the second half. Major contracts, some relating to the World Cup, wound down and were not replaced by further additions to national infrastructure. The knock-on effects for businesses serving the construction and civil engineering sectors were severe. World Cup disruptions impacted some businesses.

The strong rand was negative for imports and falling inflation impacted trading activities. Deflation was experienced in some parts of the business.

The business also felt the effects of falling copper prices and intermittent periods of volatility in the metals market.

Performance

Financial results were disappointing and reflected extremely depressed business conditions. Revenue fell 7,0% to R8,6 billion (2009: R9,3 billion). Trading profit dropped 29,4% to R421,3 million (2009: R596,9 million). Cash flow improved. Capital expenditure was deferred, inventories cut and funds employed were reduced. Expenses were aggressively managed. ERP rollouts continued.

The second half saw some improvement in revenue. However, the return on funds employed fell year on year from 24,8% to 19,6%.

Non-financial performance was often encouraging as teams prepared the business for the promised upturn. Highlights included the implementation of employment equity plans, increased focus on skills development and training, and new systems implementation.

Strategic and industry dynamics

By year-end the construction sector had endured 18 months of falling demand for both commercial and residential projects. Continued decline in the number of building plans passed suggests that depressed business conditions will continue. Our electrical wholesale division has been particularly hard hit.

South African business reacted consistently to the recession. Every business cut back; some stopped all spending. Some mining companies appeared to put a brake on new investment as the debate revived about nationalisation.

Our furniture and stationery businesses bore the brunt of the clampdown on corporate buying. The corporate furniture project market was the worst affected. Few new offices are being built and almost no corporate office suites are being fully refurbished.

Though the overall trend was toward a strong rand, currency volatility day by day was considerable and had a negative impact on companies such as Kolok where margins are thin.

In the final quarter, the impact of the Transnet strike was felt. Shipments arrived late and backlogs built up. Some business that should have been written this year will be pushed out to 2011 and some turnover was lost.

In June, the World Cup effect proved to be negative for some of our businesses. Orders being processed by some of our businesses fell dramatically as World Cup excitement mounted. Some customers simply stopped placing orders. Extended school holidays created further difficulties.

Competition intensified in every sector. As margin squeeze increased, some competitors abandoned their focus on core competence and looked to new lines of business. Some manufacturers became opportunistic importers. New entrants to sectors tended to take a short-term approach to prices. The net effect was even more pressure on margins.

As the year progressed it became evident that some of our competitors were fighting for business at any price. In some cases this will undoubtedly endanger the long-term sustainability of these businesses. But there have not been any major business casualties yet.

Efficiencies

As recession tightened, a concerted effort was made to rightsize all businesses for a new commercial environment. Costs were cut and expenses rigorously managed. Some staff members were redeployed and retrained. Regrettably, some jobs were lost.

The effects were severe in the furniture and stationery businesses where retrenchment costs totalled R9 million. As a result of retrenchment and staff attrition, the division’s staff numbers came down from 7 428 to 6 849.

Debtors management improved and cash generation remained strong. Inventory levels were cut as businesses conducted an overall review of slow-moving stock. However, business volumes were so depressed that improved working capital management failed to lift the return on funds employed.

Though non-essential capital expenditure was curtailed, spending to reinforce business sustainability was maintained. Investment on new ERP solutions continued in the Electrical Wholesale and packaging businesses.

Within the Electrical Wholesale division, Voltex Durban was the first site to implement the new system. The roll-out will continue into calendar 2011. Up-to-the-minute management information will ensure continued improvements in efficiency.

Investment was also maintained in quality. Seating, our furniture-maker, became one of the first manufacturers in South Africa to achieve ISO 9001, 140001 and 180001 compliance.

Benchmarks

A supposedly temporary slowdown in the economy lasted much longer than anticipated. Most teams failed to achieve their revenue and profit targets.

Benchmarks are set in consultation with every business and branch. They are not imposed in line with macro-economic forecasts. Though our businesses are close to their industries and customers, they grossly underestimated the impact of recession (a mistake made by many economists). As depressed conditions continued, it became apparent that many businesses would fall considerably short of expectation.

The best performers against budget were the teams focused on debtors and inventory management. A net improvement in the debtors position was achieved while the effort to reduce stockholdings to free up cash realised the anticipated benefit.

Brand and operational dynamics

Businesses were restructured and infrastructure rationalised. Management focused on maintaining staff motivation across leaner teams.

At Voltex Electrical Distribution, three branches were closed. CN Business Furniture closed three branches (Nelspruit, Witbank and Office Furniture Clearance House in Johannesburg).

Seating closed down assembly operations at its Queenstown factory and integrated this function into the company’s Johannesburg factory. Unfortunately, this led to job losses at the Queenstown premises. At year-end, Waltons began the downsizing of its bulk distribution facility in Johannesburg to eliminate the double handling of product. Waltons Promotional Gifts was scaled down.

A change of leadership at Voltex is bedding in well. The business has been restructured into two divisions, one devoted to the development and commercialisation of new technologies and products (Voltex Solutions) and the other focused on product supply and efficiencies across the 80-strong branch network. Each operation is headed by a managing director.

Though volumes fell, our brands improved their relative positions in their respective industries. The full benefit may not be seen until 2011. By that stage, recession and short-term decision-making by some players may result in insolvencies and industry consolidation.

Voltex remains the leader in the supply of electrical cable and electrical equipment. Waltons is the country’s leading stationer. Kolok is South Africa’s largest distributor of computer printer supplies. CN Business Furniture and Seating are the leading distributors and manufacturers of furniture in their respective fields. In niche markets, our name for top quality is indisputable.

Afcom acquired the South African rights to the Sellotape brand and plans appropriate marketing support in the new period.

Our determination to maintain a leadership position extends to operational health and safety within each business. Active health and safety management is a feature of all operations. Safety officers have been appointed at each site in the division; more than 200 officers in all.