Macro-conditions

In the geographies in which Bidvest is active, interest rates remained relatively stable, but many other variables did not. Trading conditions were uncertain and business confidence brittle while economic recovery tended to be slow. Concerns over the US economy and European sovereign debt added to general nervousness.

The rand remained stable while capital markets continued to offer reasonable value. The switch from deflation to inflation was apparent in several markets.

Trading environment

Trading conditions were extremely challenging in the UK and western Europe as a result of austerity measures and low business and consumer confidence. In central Europe conditions were mixed.

Australia’s underlying economy remains robust, despite challenges early in the calendar year. New Zealand’s gross domestic product (GDP) growth strengthened but remained modest. Singapore’s economy stalled in the fourth quarter, reversing previous strong gains. Chinese growth remained strong.

South Africa’s recovery continued, though consumers remained under pressure and performance across industry sectors was mixed. A softening of conditions became apparent in the fourth quarter of our financial year.

During the second half, our South African non-food businesses were restructured into 10 focused divisions. The smaller, more focused divisions are well positioned for the future.

Markets remained highly competitive. Our businesses imposed stringent credit management discipline. As a result, fewer additional bad debt problems were experienced. However, intense focus on the creditworthiness of customers remains a priority. Overall working capital management remained a focus area.

Financial performance and cash generation

Revenue grew 7,9% to R118,5 billion (2010: R109,8 billion), driven mainly by the improved cargo flows in Safcor Panalpina and higher new vehicle sales revenues in Bidvest Automotive. Gross margin was largely maintained. Operating expenses were well controlled across the Group, increasing by 5,9%.

Trading profit of R6,1 billion (2010: R5,6 billion) was up 9,1%. Overall trading margin improved slightly to 5,12% (2010: 5,06%). Trading profit for the first half grew at 8,0%, which accelerated in the second half despite the slowdown experienced in the fourth quarter. Net finance charges fell by 15,1% to R644,0 million.

Further restructure of Bidvest Automotive’s dealer network was completed during the year. These costs were fully expensed in the 2011 year.

Internationally, the continued rightsizing of operations at our UK foodservice businesses necessitated the impairment of certain assets. In addition, capitalised software costs in relation to an IT project were impaired following a decision to discontinue the project. This impairment totalled £13,3 million.

The Bidvest balance sheet remains strong and is appropriately capitalised.

Net debt increased to R5,0 billion (2010: R3,9 billion), impacted principally by the R1,6 billion of cash utilised to implement the share buy-back from Dinatla in May 2011. Ongoing utilisation of the short end of the funding market in South Africa’s stable interest rate environment was beneficial.

Debt to equity climbed to 29% (2010: 23%) as a result of the Dinatla share buy-back. The overall debt to equity target remains at 40%. However, this is not reflective of debt capacity across the Group. Interest cover, a truer measure of funding capacity for the Group, improved markedly – up to 9,4 times versus 7,4 times in 2010.

Our businesses remained strongly cash generative, reflecting intense focus on expense management and volume growth driven by market-share gains. Cash generated by operations before working capital changes improved by 6,6% to R7,8 billion.

Working capital generation of R0,4 billion was encouraging, showing the value of ongoing focus on asset management. Over the past two years, approximately R1,1 billion has been generated through reduced working capital requirements.

Net capital expenditure on property, plant and equipment and intangibles of R2,8 billion (2010: R2,5 billion) included significant investment into asset-based leasing and terminal assets.

Credit ratings

Bidvest’s long-term outlook improved from stable to positive as Fitch Ratings affirmed our long-term rating as A+(zaf) and our national short-term rating as F1(zaf). Moody’s maintained the Group rating at A1.za and P1.za throughout the year.

Fitch said our positive outlook reflected the faster than expected improvement in Bidvest’s financial profile as a result of increased funds from profitable operations, stronger operating cash flow and moderate net leverage. A+ (zaf) ratings indicate strong credit risk relative to other issuers of debt in the same national market.

Strong rand’s impact

South Africa’s resilient currency versus the euro and sterling inhibited the contribution of our international foodservice businesses, which now account for 27% of Bidvest trading profit.

The net effect versus the average rand position in 2010 was to cut our headline earnings by 1,3% on translation into rand.

Despite a prolonged period of consistent rand strength, it remains Bidvest policy to take forward cover or a derivative equivalent on foreign exposures.