Positioning and reputation

Bidvest Services businesses are often industry leaders and champions of best practice. A national footprint and substantial resources enable our brands to work as long-term partners of the companies they serve.

Macro- and trading environment

The depth of the recession in the first half prompted strategic reappraisals across industry and commerce. The business-to-business trading environment was characterised by deep cost cuts and intense contract negotiation. Volumes dropped sharply in some areas.

Major customers in the resources sector applied rigorous cost controls. Bidvest Services has little direct exposure to the consumer economy, but many customers depend on retail sales. Our businesses felt sometimes severe knock-on effects as consumers tightened their belts and unemployment rose. Trading conditions improved in the third and fourth quarter.

Lower interest rates and rand stability were negative for banking and foreign exchange operations. The World Cup effect was beneficial, but was not as significant as we expected.

Performance

Pleasing results were recorded in the face of challenging trading conditions for most of the year. Trading profit of R1,1 billion was 4,7% down (2009: R1,2 billion). Revenue dipped 2,2% to R7,9 billion (2009: R8,1 billion).

Bidvest Services exceeded the billion rand trading profit-mark for the first time thanks to the inclusion of our new acquisition, McCarthy Fleet Services from Bidvest Automotive. The business is being integrated into Bidvest Bank.

Particularly pleasing was that we almost achieved our Bidvest conference stretch target set in February of R1,120 billion trading profit, despite underperformance at Bidvest Bank and TMS.

Good performances were recorded by Steiner Group, Magnum in our cluster of security businesses, MFS, Prestige Group, Konica Minolta, Global Payment Technologies and Green Services.

Improved asset management, stronger cash flow and progress on our BEE scorecards contributed to the satisfactory result.

The World Cup was generally positive, particularly at Prestige and TopTurf. Bidtravel disappointed.

Rationalisation and restructuring proved necessary in several businesses and regrettably some jobs were lost.

Debtors collections were ahead of budget and record cash flow was also achieved.

No major capital expenditure projects were initiated. However, return on funds employed fell from 46,1% to 36,7%, though year-on-year results are not directly comparable. Once the fleet services/Bidvest Bank effect is stripped out, ROFE moves to 48,1% – a pleasing result in challenging conditions.

The system of sustainability committees and constant sustainability measurement and reporting has bedded in and became part of our culture. A comprehensive energy audit was carried out.

Strategic and industry dynamics

Bidvest Services is active in many sectors. The common factor is the cost sensitivity of clients and intense focus on expense management. This led to renegotiation of rates. Many of our businesses are labour intensive. Wages therefore are a major cost component and became more so as annual wage negotiations resulted in pay awards above prevailing inflation. Some clients were unwilling to agree to increases or tried to keep rates unrealistically low. On occasion, we walked away from contracts rather than agree to terms that delivered zero value.

Travel and banking businesses were severely affected by much-reduced levels of corporate travel and lower transaction values. Operations serving the tourism industry were affected by lower inflows of visitors and belt-tightening by domestic consumers. In some areas, hotel occupancy fell to as low as 25%.

Contract-based activities held up remarkably well and annuity income was maintained at pleasing levels by businesses such as Steiner Hygiene Services, Prestige and Magnum.

Some smaller competitors were severely affected by the harsh economic climate. Industry casualties occurred. In this tough trading environment many of our operations increased market share.

Our cleaning and banking businesses had major exposure to the World Cup and new infrastructure was added to maximise revenue opportunities in the fourth quarter.

Efficiencies

Every business re-examined costs and pursued savings. In many cases, sales, administration and management teams were trimmed. Various retrenchment programmes were carried out. Rightsizing of various businesses in the previous financial year and the first six months of the current year paid dividends in the second half of the year. Konica Minolta is a good example of these successes.

Replacement cycles were reviewed. Where there was no risk to safety and customer service levels could be maintained, equipment replacement was deferred.

The result was a significant improvement in asset management and cash generation.

Benchmarks

Target achievement was a major challenge in the face of a severe first-half downturn. However, our teams derived maximum advantage from the second-half improvement in trading conditions.

Individual benchmarks are set for each business. Every business is measured monthly and quarterly. ROFE, cash flow and asset management goals are set as well as profit targets.

Transformation progress is a business imperative and measured constantly, as is workplace safety.

Brand and operational dynamics

Our businesses are industry leaders in their respective sectors. Positioning is supported by a customer-centric philosophy, high quality standards and reliable delivery.

Service quality was underlined when Bidvest Bank won the Acsa Feather Award as the best provider of airport-based financial services at both OR Tambo International Airport and Cape Town International Airport. Category honours were won in the face of competition from the Big Four high street banks and specialist foreign exchange bureaus.

The bank opened its flagship branch at ORT’s new central terminal building and won Acsa tenders for foreign exchange and banking services at Cape Town International Airport and the new Durban International Airport which opened at year-end.

Our security brands had a good year thanks in part to their ability to offer several security solutions from a single source.

Research has confirmed that bizhub, Konica Minolta’s flagship product, is South Africa’s favourite brand in its category. Strong awareness is supported by sustained sports marketing.

New initiatives

McCarthy Fleet Services was successfully integrated into Bidvest Bank, a realignment from Bidvest Automotive that significantly expands Bidvest Services. Consolidation widens the bank’s previously narrow base as the fleet services operation is a strong player in the market for asset-based finance.

Bidvest Bank has become a high profile brand in a little over a year after strong TV advertising. The bank pioneered the use of the Bidvest name at operational level in South Africa and showed that the Group’s name could be successfully leveraged by individual businesses.

Bidvest Prestige Group, Magnum, Steiner, TMS and TopTurf are being rebranded to emphasise the Bidvest link. It is likely that other brands will follow suit.

Prestige, our cleaning services arm, acquired NICE Equipment, a nationally represented toilet hire and waste management company and a leader in the provision of portable executive toilet solutions. The deal strengthened Prestige’s toilet hire capabilities ahead of the World Cup.

Our securities business acquired Bandit, a vehicle-tracking company. Vehicle tracking is seen as a growth area that offers opportunities for synergies with Bidvest Automotive’s interests. Rebranding of Bandit to Bidtrack is under way.

We merged our Puréau Water business with Nestlé Water Coolers, maintaining 82% ownership overall.

Business risks

The risk of reliance on labour in sometimes heavily unionised environments was highlighted in a year when wage awards were sometimes significantly above inflation. The risk is managed by focused attention on industrial relations. There is also broad acknowledgement that Bidvest Services is a socially responsible employer that respects industry agreements.

Credit risk heightens in uncertain trading conditions. Debtors departments showed they were up to the risk-management challenge by consistently meeting their targets.

There is no risk of a World Cup hangover. Some infrastructure was added to maximise the opportunity and the NICE Equipment acquisition widened our service offering. However, all expansion was in areas in which we see long-term opportunity. The World Cup did not lead to overcommitment on our part.

Many of our services are vulnerable to corporate cutbacks as quantities or frequency of service can be curtailed. The risk is addressed by remaining flexible and retaining the ability to rightsize our businesses when volumes fall.

Agency risk is ever present as local distribution can be affected by changes affecting an overseas brand principal. Our broad national footprint and reputation for quality service help manage the risk.