Business risks

At an operational level, credit risk remains acute. However, our businesses reacted appropriately to changes in the business climate and applied stringent measures to manage credit extension. As a result, our debtors remain well managed. However, continued vigilance is required.

Market risk, natural catastrophe and political upheaval have emerged as risk factors for an internationally diversified Group such as Bidvest.

An earthquake and tsunami in Japan influenced the performance of our automotive and office products business in South Africa. The Fukushima meltdown and subsequent decision by the German government to phase out its nuclear reactors raised questionmarks in Namibia about the possible impact on FDI linked to uranium mine development. The earthquake in Christchurch, New Zealand, had a direct impact on our New Zealand business and customers.

You cannot ringfence a tsunami or earthquake and, in an inter-connected world, you cannot escape the trading and economic impacts of major changes in important national markets.

Market risk was spotlighted by sovereign debt concerns and subsequent financial fallout across Europe and the USA. In addition, the political upheaval in the Middle East contributed to oil price volatility and general uncertainty.

Buoyant business conditions in the East underpin performance at several of our operations in this region. However, if European and US economic conditions deteriorate further, trading conditions could be affected in Asia Pacific. Falling demand in the East would have an effect on South Africa, Australia and New Zealand.

Another concern relates to the time it now takes for adverse effects to work their way through economies. Belt-tightening by northern hemisphere tourists and business travellers since 2008 affects our catering, travel and tourism operations to this day.

Our response

We cannot manage the creditworthiness and deficits of nation states, but we can manage our own credit exposure. We therefore maintain our prudent approach to debt and ensure strong cash generation at an operational level.

Another form of risk management is to ensure our business model remains fit for purpose. Since the global financial crisis, business has taken to heart two key lessons – that elaborate structures are the first to collapse when fissures appear in markets and that all costs have to be interrogated. If investment produces no prospect of adequate returns, why engage in it?

Bidvest’s decentralised and entrepreneurial business model continues to prove itself. Our corporate office structures remain lean. We are a big business, but we have a small business culture.

Sustainability

We are well aware that the value of Bidvest is not reflected in financial statements alone. Bidvest has an enduring commitment to sustainable business practice and, since inception, has behaved with a sense of responsibility to the community, the environment and our people.

We are a responsible corporate citizen and emphasise the need for accountability, fairness and transparency in our dealings with all stakeholders. In our view, strategy, sustainability and risk are inseparable.

Within South Africa, the King III report on good corporate governance enshrines many of the principles that have long underpinned our approach to building a sustainable business, especially the focus on effective risk management and the regard that must be paid to economic, social and environmental impacts.

As a group that makes it a priority to integrate long-term sustainability and robust governance philosophies into our business, we are enthusiastic about the key governance principles and recommendations set out in King III. It brings additional clarity to key issues surrounding reporting, responsibilities and standards. King III sets out a process and signposts a journey. We have made important strides along the King III road and we are determined to achieve continued progress.

As an internationally diversified company we operate in many jurisdictions. Obviously, domestic statutes dictate local compliance. Corporate office in Johannesburg provides a framework and support services, but hands-on responsibility for driving many aspects of sustainable business practice devolves to our divisions and individual businesses on the ground.

Our people live our values and apply our policy by doing the right thing. The latest example occurred in the aftermath of the Christchurch earthquake. Our New Zealand staff responded instantly to needs within their communities. They joined local initiatives and provided help to families.

Similar community orientation is evident in all geographies.

Stakeholder engagement

We have robust governance structures across all businesses, but Bidvest culture drives organisational behaviour day by day rather than a centralised compliance department.

Stakeholder engagement is both a national and local responsibility, complemented by interventions at Group level when appropriate. We report regularly to the investment community, to our people and to communities. Within South Africa, stakeholder engagement is assisted by our BEE partners at Dinatla.

We complement regular printed reports by digital communication, enabling interested parties to drill down to comprehensive detail on all aspects of our business.

Significant transactions

In December, we acquired 100% of the share capital of UK-based Seafood Holdings Limited for an enterprise value of £45 million (R473 million).

The acquisition is strategic as this leading national fresh fish producer and distributor finds a complementary fit with our existing UK foodservice businesses. In March, we entered into an agreement, subject to various regulatory approvals, to sell half our interest in Mumbai International Airport Private Ltd to a subsidiary of the Indian company, GVK Power & Infrastructure. The sale, if successfully concluded, is expected to realise a net R300 million to R400 million.

In April and May, we concluded a R1,6 billion share repurchase agreement with our Dinatla empowerment partners, buying back 12 million Bidvest shares at a net repurchase price of R131,75 per Bidvest ordinary share. The price represented an 11,3% discount on the 30-day volume weighted average price of Bidvest to April 5.

The transaction facilitated the early settlement of bank loans by Dinatla and ensured they were not exposed to equity market risk for any longer than was necessary – a material risk for BEE entities in view of increased share market volatility in recent years. Notwithstanding these arrangements, adequate capital was allocated to ensure continued growth through infrastructure investment and certain bolt-on acquisitions.

In June, we paid US$13,5 million for an initial stake of 14,6% of Icelandic Water Holdings, the Icelandic spring water producer. We view the investment as a value opportunity.

Opportunistic investments of this nature may well continue as prevailing business conditions in several markets create potential for long-term capital appreciation by carefully selected assets.

Future

Market risk remains substantial. Low growth remains entrenched in many of the markets in which we are active. This eventuality may present opportunities for strategic or bolt-on acquisitions. We are a well-capitalised business with considerable capacity for raising debt in both South African and international capital markets. Where appropriate, we will apply these resources to facilitate continued growth.

Internally, we will continue to pursue savings and efficiencies while retaining our strong focus on debtors management. Investment in infrastructure and modern IT systems will be maintained to improve efficiency while creating capacity.

Our objective is continued real growth in earnings in all divisions and all geographies.

David Cleasby

Group financial director