Business context and trading conditions

Bidvest Industrial comprises both manufacturing and trading businesses, which means we are sensitive to a wide range of macro-economic and political developments.

Business conditions were difficult from the outset. Competition was intense and discounting rife. Some competitors made heavy price cuts to reduce stock. ‘Grey market’ imports added further pressure. The rand and yen were strong throughout the year, compounding the trading challenge.

Some areas of the business saw improvements. Certain segments of the automotive industry showed continued recovery, but general manufacturing remained depressed.

As local representatives of strong global brands, we are exposed to the risk of brand principal loss. We address this through continued infrastructure and training investment in support of our brands and maintain a high profile nationwide.

We face currency risk (both rand and yen), but this exposure has traditionally been well managed. We have robust processes to manage credit risk. No significant losses were experienced.

We are exposed to knock-on effects when a downturn in industry sectors reduces demand among our business-to-business customers. This risk is mitigated by diversification. Yamaha is a strong retail brand and Buffalo Executape has penetrated the retail market with selected self-adhesive products.

The Bidvest South Africa restructuring that created our focused industrial division was a highly positive development. Each business within Bidvest Industrial has a well-defined role in a distinct field of operations. Our challenge is to build from this base by leveraging core competencies.

Businesses in our division have not traditionally shared customers. This presented us with potential for new growth. Senior managers in each business launched a cross-selling drive to secure new contracts by introducing prospective customers to other companies in our division. This executive-led referral approach is delivering promising results.

Close collaboration to achieve sustained sales and efficiency gains is ongoing.

Capital investment rose from R20 million to R110 million. The largest commitment was the R65 million invested in the Bidvest World of Yamaha project at the M1 Gateway to Johannesburg. The Marlboro facility was officially opened in May. The concept is a world first. We are the only distributor worldwide (including Japan) to carry all Yamaha’s products from musical instruments to jet skis – an indication of the strength of this relationship. The project reportedly represents the largest single investment in South Africa’s motorcycle industry.

We invested R12 million on the refurbishment and expansion of Vulcan Catering Equipment’s facilities in Cape Town and Johannesburg.

Bidvest Materials Handling bedded in well after being transferred between Bidvest divisions. The business holds the exclusive South African rights for the distribution of the Nissan range of forklift trucks and warehousing equipment.

Performance

Divisional revenue increased 3,6% to R1,5 billion (2010: R1,4 billion), a satisfactory performance in adverse industry conditions. Trading profit fell by 11,7% to R118,4 million (2010: R134,2 million). Trading margins narrowed to 7,9% (2010: 9,3%) while ROFE dipped to 23,9%. Inventory management was rigorous across all teams, especially Yamaha.

The Yamaha distribution business put in a steady performance.

It was our first full year in materials handling. The new addition to our division did well to build and maintain early momentum.

Sustainability

Employee numbers increased from 1 236 to 1 375. Although we had to retrench a small number of people, 30 new jobs were created at the Bidvest World of Yamaha and additional people were hired by our new materials handling business.

In July Afcom and Vulcan were affected by an industry-wide two-week strike. Deliveries were impacted. A new three-year wage agreement was subsequently reached.

Owing to reduced net profit, corporate social investment spend fell significantly this year. However, training efforts were boosted at several companies and the growth of the materials handling business also contributed to a large increase in training spend.

While energy supply has been stable, the high cost is a continuing concern. All businesses intensified their efforts to improve energy and fuel efficiency. At our manufacturing plants, we have switched to low-voltage lighting systems and reduced load pressure by starting machines gradually, one by one. However, machines for manufacturing remain heavy users of power. Efforts to improve the efficiency of these and other processes are ongoing.

Wherever possible, we recycle water and waste materials. Scrap plastic (mostly polypropylene and PET) is chipped and reprocessed.