Nationalisation debate

Debate on nationalisation has been reignited in South Africa. These discussions give the business community an opportunity to communicate its view on the role of government and how best to realise national potential.

In my opinion, government has an absolutely vital role in the economy, but as an investor in infrastructure rather than as a participant for profit.

Government can make a telling contribution as a provider of capital for major projects that are unlikely to attract private sector investment, at least at the outset.

The creation of major items of national infrastructure costs billions. To obtain a return takes years. Very few commercial enterprises have the necessary resources for such projects. Therefore, government has to give a lead, make the necessary investment and build these assets.

Once infrastructure is in place, government has fulfilled its primary role by creating strategic assets or laying the groundwork for the development of new industries.

The challenge then becomes how best to optimise economic opportunities and create jobs.

After state capital has been committed and viability assured, it is in the interest of government to encourage private sector participation by limiting its own role. Government should be a partner of business, not a competitor.

Business should be encouraged to create profits and jobs, thereby driving sustained economic growth while adding to government’s tax income. This then enables the state to make further investment in national infrastructure, schools, hospitals and social services.

At the moment, South Africa’s nationalisation debate focuses solely on the nationalisation of assets in private hands. Presumably, it is assumed government will make better returns, create more jobs and manage these assets better than the current owners. There is scant evidence of this, in South Africa or elsewhere.

In contrast, there is strong evidence that governments which intervene to build and maintain modern infrastructure create the wherewithal for sustained economic growth. Ground-up ‘nationalisation’ on this model has much to be said for it.

Regulatory rigour

A raft of new legislation affecting business in South Africa also creates an opportunity for the business community to express a view on the role of regulation in an emerging market.

I, for one, believe in the need to modernise our laws and make them fit for purpose in a dynamic environment where markets, technologies and customer needs are changing rapidly.

We have recently witnessed the phased roll-out of various elements of the Consumer Protection Act, the introduction of a new Companies Act (with new tests of solvency and liquidity among other material changes), along with new corporate governance requirements embodied in King III, the proclamation of the Second Hand Goods Act, the enactment (without implementation so far) of the Competition Law Amendment, the formulation of the Protection of Personal Information Bill and amendments to the Income Tax Act.

Measures to protect the public and prevent abuse are obviously necessary. Conditions change; so must laws. But provisions have to be simple and easy to implement without adding unduly to the cost of doing business.

Corruption concern

Fraudulent and corrupt practices are cause for growing concern.

Individual acts of bribery are bad enough, but the cancer becomes worse once a climate of corruption is created or perceived. Leaders – in business and elsewhere – have a duty to head off this danger by taking a stand and making it clear that corrupt practices will not be tolerated.

Bidvest applauds the introduction of new South African regulations to ensure better control of government procurement processes while promoting greater transparency and accountability. However, the test is not how well these anti-fraud measures are drafted but how well they are applied. Good intentions have to be supported by effective implementation.

Our approach to responsible business

At Bidvest, the way we behave is a way of life rather than a set of rules. This report and its predecessors show, through our reporting, that our business is founded on honesty, integrity, accountability and transparency.

While we have taken a fresh approach to the identification and management of risk, we maintain that our most fundamental risk-management mechanism is the multi-faceted and geographically diverse Bidvest business model. We make entrepreneurial managers accountable for all aspects of performance and delivery.

Our ‘living the values’ approach has also anticipated King III, which encourages companies to incorporate an understanding of all stakeholder issues, both risks and opportunities, into their strategic thinking as well as reporting. Individual business and divisional reports, both in this report and on the web, illustrate how we incorporate all facets of sustainability thinking into the way we deal with our customers, employees, suppliers and broader society.

Appreciation

Our growth is driven by our customers. Whatever the market or geography, our customers are the reason we are in business. I thank you for making use of our products and services and pledge that we will do all in our power to justify your faith in Bidvest.

I also extend our thanks to our suppliers. We build momentum by building relationships. The support of our suppliers is greatly appreciated and we look forward to extending and broadening the relationships that underpin our growth.

The people of Bidvest showed their worth yet again. If financial results are the only yardstick for assessing performance, 2011 was merely an average Bidvest year. In fact, performance was pleasing in difficult conditions and the most pleasing factor of all was the effort put in by our people. We’re all Proudly Bidvest and I am especially proud of our people.

At board level, I benefit from the knowledge and support of a resourceful group of executive and non-executive directors. Your advice, experience and insights are invaluable. I thank you all for your unstinting efforts in a challenging environment.

Unsolicited proposals

As a result of the unsolicited proposals relating to our foodservice interests made by external parties, we informed shareholders and issued a cautionary announcement a week after the close of our 2011 year, stressing the need for care in any dealings in Bidvest shares.

A board sub-committee was appointed to consider whether value could be optimised for our shareholders by any sale. Simultaneously, the sub-committee conducted a strategic review of our foodservice businesses.

In August, we removed the cautionary statement and announced that the unsolicited proposals had been turned down by the board.

We are heartened by outside confirmation that our foodservice assets are highly regarded. The decision not to sell in no way diminishes their value. Our strategic position remains that a de-merger of a significant part of Bidvest’s assets should not take place at the expense of critical mass and financial strength.

The strategic benefits that are likely to flow from Bidvest’s current structure outweigh any short-term cash considerations.

Future

In effect, the strategic review at board level created a blueprint for the Bidvest future.

Our business model has been closely scrutinised and endorsed as a robust vehicle that will enable the Group to build further value by the continued pursuit of both organic and acquisitive growth.

We see potential for substantial growth in the long-term value of our foodservice assets and this opportunity will be strongly pursued, notwithstanding current trading challenges.

Acquisition targets have already been identified. We have signed memoranda of understanding to buy foodservice businesses in Egypt, the Baltic States and Chile – the first time the Group has sought entry to the South American market.

These are exciting developments and underline our confidence in the ability of our people to deliver future growth, even in weak markets.

We are similarly upbeat about prospects in non-food sectors. Reinvigoration of our South African businesses sets the scene for continued improvement. Business conditions in South Africa became increasingly challenging in the fourth quarter and may remain difficult for the immediate future. However, Bidvest businesses have a remarkable record for achieving their objectives in the face of difficult conditions.

In the UK and across Europe, economic conditions are also difficult. Growth projections have recently been revised downwards. Business and consumer confidence has been severely dented and may take some time to recover. Our nimble, entrepreneurial teams will continue to seek growth, however.

While re-aligning our structures we were careful to maintain our investment in infrastructure and our people. We increased net capital expenditure on property, plant and equipment and intangibles from R2,5 billion to R2,8 billion – a significant investment in Bidvest’s future.

Our 2012 objective is to maintain momentum and secure continued growth in market share, revenue and trading profit.

Brian Joffe

Chief executive