Strategic factors

The 10 divisions of Bidvest South Africa operate in distinct, although dissimilar sectors. Though a measure of economic recovery is evident in most areas, the rate of recovery differs markedly and recessionary conditions continue in the construction sector. In many of our businesses, significant improvements in trading volumes did not come through until quarters three and four, suggesting that recovery is under way, but progress is slow.

Increases in the rate of inflation since our second quarter can be marginally positive for some trading activities, but price resistance is stiff in both the business-to-business environment and the retail economy. The net effect at Bidvest South Africa is continued margin pressure. High levels of inflation are a concern as we are a major employer and rising grocery bills translate into mounting pressure for wage increases.

Performance

Overall performance was pleasing. Revenue of R59,0 billion (2010: R51,8 billion) was up 14,0%. Trading profit rose to R3,4 billion from R3,1 billion in 2010.

The major contributors were Bidvest Freight, Bidvest Travel and Aviation, Bidvest Rental and Products, Bidvest Financial Services, Bidvest Services and Bidvest Paperplus.

A robust performance was put in by all the people at our realigned divisions.

Returns on funds employed (ROFE) was 40,8%, a result of continued focus on efficiency and inventory management at divisions firmly focused on core competence in industries they know well.

Margins remained flat, a pleasing performance in a highly competitive trading environment. Our people did well to optimise growth opportunities as buoyant trading conditions on the pre-recession pattern were not evident.

Performance by sector

The automotive industry enjoyed relatively buoyant demand for new vehicles, though the rate of industry growth may be starting to slow. However, margin pressure was intense while belt-tightening by consumers impacted parts and service volumes.

A low interest rate environment and stable rand are generally negative for the financial services industry. Nevertheless, our financial services division performed exceptionally well and maintained strong growth, benefiting from an expanded range of services.

Bidvest Electrical faced particular challenges as a major supplier to a construction sector in recession. Low tender activity compounded the trading challenge. Teams did well to maintain sales and market share.

Demand for resources and agricultural products was positive for our freight management businesses, which put in a strong showing. An increase in container traffic was especially encouraging as it suggests recovery of the retail economy may be under way. Infrastructure investment in recent years allowed management to optimise the opportunities presented by the uptick in trading activities.

Pressure on the manufacturing sector and the impact of the strong rand on exporters had significant knock-on effects at Bidvest Industrial. Margins narrowed, but revenue growth was achieved.

Office supplies were impacted by the reluctance to spend of both consumers and business. Furniture and stationery faced continuing pressure, but technology businesses seized new growth opportunities.

Printing and related activities faced trading challenges in South Africa’s generally weak economy, but continued migration to new technology and export growth enabled Bidvest Paperplus to cushion industry pressures.

Bidvest Rental and Products did well by delivering solutions in a business-to-business environment that is increasingly characterised by the corporate quest for efficiencies and savings.

Pressure on important customer groups in construction and hospitality was negative for services such as cleaning, security, industrial cleaning and green services. But Bidvest Services proved resilient thanks to niche market gains and strong performance by industry-leading teams.

In the travel industry, volumes began to revive from a depressed base while price-driven competition in the car rental sector remained intense. Despite the challenges, Bidvest Travel and Aviation put in an excellent performance, winning new contracts from the airlines while taking advantage of corporate demand for travel management cost efficiencies.

Risk and sustainability

Risks have not changed, but may have sharpened. The business impact of volcanic ash clouds in northern Europe and earthquake and tsunami in Japan is a reminder that some risks are difficult to avoid or predict. Thankfully, our geographic base of operations did not experience natural disaster.

Though our division is rooted in South Africa, our operations – especially in the freight business – are far from insular. Worldwide catastrophe highlighted the inter-connectedness of geographic markets. For example, in Japan the closure of some tsunami-affected automotive parts and electronic component plants subsequently led to supply problems at Bidvest Office and Bidvest Automotive.

We therefore appreciate the effects of climate and environmental factors on business. Risk and sustainability processes are in place at all divisions of Bidvest South Africa. Improved reporting on sustainable business performance is a priority.

When risks cannot be tackled at source, energetic measures are taken to lessen the impacts. Many businesses were adversely affected by rising energy prices. All have programmes in place to reduce fuel and power usage. Unfortunately the level of price increases was such that it proved impossible to offset these impacts.

People

We entrenched our position as one of the largest employers in the South African private sector, with a headcount of 83 900.

Employee engagement
We monitor staff turnover and absenteeism as indicators of employee satisfaction and some divisions conduct employment satisfaction surveys.

One benefit of the recent restructure is that divisional management remains close to worker concerns and there were no major disputes at any division in the 12 months to June 2011. Unfortunately, early in the year, South Africa witnessed a wave of strike action and businesses in several of our divisions were affected.

Working relations with unions remained positive and effective.

Training and skills
Finding and retaining skilled employees, particularly at senior level, remains an on-going focus. Continual training and development is integral to our employment strategy, which includes on-the-job training and formal classes. Constant training helps boost staff enthusiasm and work ethic.

Training spend continues to rise, with strong focus on the upskilling of historically disadvantaged individuals. Skills spend on black people reached R197,6 million.

Adult basic education and training is a focus area at many divisions. Further investment was channelled into training in technical, sales and general upskilling. Management training was also stepped up.

While all training is tailored to the needs of particular businesses, there is also a move to refocus training spend to gain more leverage by investing in selected, high-potential employees.

We are committed to developing tomorrow’s managers and supervisors from within. The benefits of this strategy were demonstrated during the creation of Bidvest South Africa and expansion of the structure. The establishment of 10 distinct divisions created a need for seven new CEs and seven FDs, with knock-on effects throughout each business. With only one exception, we did not look to the outside for new leaders and were able to fill new senior posts with internal talent without dislocation or delay.

This indicated that our succession planning is robust and the priority given to ‘people risk’ is warranted.

The development of BEE candidates into senior management remains a challenge. We continue to improve or entrench gains across all pillars of the broad-based black economic empowerment scorecard. The sole exception is the senior management area of our employment equity plans. This will continue to receive focused management attention as our strong BEE credentials are a key differentiator and point of competitive advantage.

Health and safety
Employee health and safety continues to be a key focus area. Responsibility is decentralised, with various initiatives focused on compliance, raising awareness and procedural training. Companies monitor and report health and safety and constantly strive for improvement. Lost-time injury frequency rates remain low.

Despite these efforts, we are disappointed to report nine fatalities. Five were at Bidvest Services, three at Bidvest Freight and one at Bidvest Electrical. Full investigations were conducted and measures taken to prevent any further fatalities. Work to improve safety awareness is continuous.

HIV/Aids awareness, prevention and treatment
The proportion of employees in southern Africa who are HIV positive is estimated to be as high as 15%, although out of respect for privacy, exact numbers are not available. Our businesses run various HIV/Aids programmes. Many offer voluntary counselling and testing.

Economic equity

We continued our drive towards economic equity through broad-based black economic empowerment.

Our scores show further improvement. Transformation is managed at operational level in our decentralised structure. Some companies are ahead of others.

Environment

We are aware of the need to improve our environmental impact. Initiatives at divisional and operational level are reported in divisional reports and in more detail on our website.

All divisions have taken steps to monitor water and electricity consumption and their carbon footprint. There is a widespread move to develop and highlight environmentally friendly products. Examples include the eco-friendly Form chair and paperless electronic products at Bidvest Office, the Solo low-pressure solar geyser system soon to be launched at Bidvest Electrical and the energy-saving heat exchangers for Laundries at Bidvest Rental and Products.

Increasing energy costs sharpen the ecological imperative to reduce fuel and electricity consumption. Our businesses are working to streamline processes, re-assess logistics and move to newer, more energy-efficient technologies.

Divisions continue to increase their waste reduction and recycling.

Product responsibility

The new Consumer Protection Act (CPA) has wide-ranging product responsibility repercussions, particularly relating to product safety and accurate labelling. Both retailers and suppliers can be held responsible by end-users.

With the exception of consumer-facing businesses such as Bidvest Financial Services and Bidvest Automotive, most of our companies operate predominantly in business-to-business markets where their business partners are credible and product lines stable. These operations have limited exposure to product responsibility issues such as fair product labelling and the integrity of customer information. We monitor our supply chains and limit our risk exposure by only supporting approved, reputable brands.

We are confident of the quality of our products and services and were well prepared for the CPA.

Procurement

BEE procurement remains a priority. Procurement spend overall was R33,3 billion, of which R21,7 billion was with empowered suppliers.

Innovation and investment

No major acquisitions or business disposals occurred, though the process of streamlining and rationalisation continued at Bidvest Automotive.

Infrastructure investment continued and capital expenditure of R1,7 billion was committed. Investment at ports to support Bidvest Freight was an area of focus. Substantial investment was channelled on behalf of Bidvest Industrial into the Bidvest World of Yamaha, a Bidvest Properties development in support of one of the division’s flagship brands.

The creation of Bidvest South Africa gave added impetus to the development of Brand Bidvest. Each division carries the Bidvest name in full while many individual businesses within the divisions are engaged in rebranding programmes and logo redesign to emphasise the Bidvest connection.

Feedback from operational management is that Bidvest branding is strongly positive. Recession and post-recession trading conditions have placed many under-resourced competitors under pressure. Some have struggled to maintain service standards. Service-led businesses under the Bidvest banner provide a reassurance of quality and reliability. Rebranding initiatives will continue.

In some cases, a division works within a single industry (eg Bidvest Automotive and Bidvest Electrical). Alternatively, businesses may be grouped together because they share the same business model (eg Bidvest Rental and Products). On other occasions, businesses within a division straddle sectors with strong affinity (eg Bidvest Travel and Aviation and Bidvest Services). This permits synergies through improved service to shared customers.

The structure has been expanded, complexity avoided. There is no clutter. Clear focus makes it easier to manage the business, identify growth opportunities while enabling management to take rapid remedial action when areas of under-performance emerge.

The new structure is about renewal. It empowers our managers to do the things they know best in the sectors they understand best. Without distraction, there is no reason not to do well.

Future

The pattern of inconsistent rather than general recovery is expected to continue. It is doubtful, however, whether construction activity will rebound in the short term.

It should also be pointed out that some adverse factors had growing impact in the second half of the year, notably significantly higher electricity tariffs. High fuel prices are also a concern. Some economists believe the period of rand strength may be coming to an end. If so, fuel prices can be expected to rise further, impacting our costs and the disposable income of the underlying consumer.

On the upside, strong management teams are in place at all divisions. Each division is alert for opportunities. Where appropriate, acquisitions will be made to close any gaps in our service offering.

Increased attention will be given to collaboration and synergies. All management teams will drive increased cross-divisional support and procurement.

We are cautiously optimistic the still fragile recovery will be maintained and in 2012 have targeted real growth in both revenue and trading profit.