Operational review – Bidvest Industrial review

Bidvest South Africa Bidvest Industrial

Howard Greenstein: Chief executive Craig Turnbull: Financial director

Left to right: Cliff Rostowsky – Managing director Bidvest Afcom, Howard Greenstein – Chief executive Bidvest Industrial, Pieter Fourie – Managing director Bidvest Materials Handling, Craig Smith – Managing director Academy Brushware, Margaret Crawford – Managing director Vulcan Catering, Craig Turnbull – Financial director Bidvest Industrial, Mike Hardy-Brown – Managing director Yamaha, Shanilla Chuturgoon – Commercial manager Bidvest Industrial, Wayne Pollak – Managing director Bidvest Buffalo Tapes

Bidvest Industrial comprises manufacturing and trading businesses and is the South African representative of strong global brands such as Yamaha, Nissan forklifts, ITW Signode, Rational ovens and Tesa Tapes.

Domestic sales are supported by exports to selected markets. Activities include the manufacture of packaging products, fasteners and closures, self-adhesive tape, catering equipment and the manufacture and distribution of brushware. The division is also engaged in the distribution of machinery and accessories to the clothing industry. The business is the sole South African importer and distributor of the full Yamaha range of products and spares. Rapidly expanding materials handling operations focused on the Nissan brand are supported by an extensive dealership network.

Highlights

	Turnover, boosted by acquisitive growth, rose 30,8% to R2,0 billion (2013: R1,5 billion) while trading profit moved 46,1% higher to R125,7 million (2013: R86,0 million)
	Successful integration into the division of newly acquired Academy Brushware
	The brushware business performed at pleasing levels, ensuring significant growth in line with expectations
	Strong performance by Yamaha, Vulcan, Afcom and Bidvest Materials Handling in a challenging trading environment
	Solid market share gains in several sectors
	Good expense management across all businesses
	Return on funds employed rose to 19,2% (2013: 13,3%)
	Strong focus on debtors’ management proved beneficial in an environment in which several business casualties occurred
	Jobs growth was achieved, principally the result of acquisition
	B-BBEE ratings remained stable
	Strong cash generation was maintained, but working capital moved out slightly.

2015 targets, objectives and factors affecting future results

	Economic activity is expected to remain sluggish and pressure will remain on the industrial and manufacturing sectors
	Revenue and profit growth will be pursued as we continue to seek market share gains
	Debtors’ management and expense control will remain focus areas
	Further expansion of the materials handling network is planned
	Implementation of the Yamaha IT system will enable greater efficiency, smart utilisation of market data and further customer service improvements
	The full-year effect of new investment in the Babelegi factory will support continued growth by the Academy Brushware business
	The new management team will drive performance improvements at Berzacks
	Further opportunities for acquisitive growth will be explored
	African growth opportunities will receive focused attention
	Further jobs growth will be pursued.

Material issues and performance

MATERIAL ISSUE		WHY IT IS IMPORTANT AND STRATEGIC OBJECTIVES	KPIs AND TARGETS	PERFORMANCE AGAINST TARGETS AND ACTIONS GOING FORWARD
Performance Maintain consistent financial performance		Why: Growth, service improvements and innovation have to be underpinned by solid financial results over time Objective: To maintain profitability	Margins Value added services	Performance Trading profit up 46,1% Actions: Focused marketing efforts to drive market share gains Rigorous expense management Rapid integration of Academy Brushware
People Promote employee health and satisfaction Enhance talent attraction and retention		Why: People have a right to be healthy and happy. A healthy workplace is essential if workers are to achieve their goals, secure productivity improvements and integrate themselves into cohesive teams To improve talent attraction and retention Objective: To use innovative approaches to improving the health and wellbeing of all employees and create a positive work environment that enhances talent attraction and retention	KPIs: Resignation rates Absentee rates	Performance: The resignation rate remained stable Absentee rates continue to be a challenge
Promote skills development		Why: Our competitive position can only be maintained through service improvements, efficiencies and innovation. These can only be delivered by skilled, knowledgeable people	KPIs: Training spend per employee Training hours per employee	Performance: Average annual training spend per employee increased Average annual training hours per employee increased
CSI		Why: A wider perspective is necessary if strategic gains are to be secured. CSI demonstrates our relevance to our market and helps to align us with the community	KPIs: CSI spend CSI spend as percentage of trading profit	Performance: CSI spend doubled

Innovation and new investment

	Capital expenditure rose 38,0% to R29,8 million (2013: R21,0 million) as the business invested in sustained growth and operational efficiency
	Successful entry into the brushware sector following the acquisition of Academy Brushware (effective July 1 2013) – a manufacturer and distributor of brooms, mops, paint brushes and related products
	Significant investment in new plant and revamped systems at the Babelegi factory of Academy Brushware
	Afcom installed a new state-of-the-art strapping line late in the first half
	Training investment rose, with the upskilling of Academy Brushware personnel a point of focus
	Development work on a new Yamaha IT system was largely complete by year-end
	Vulcan’s launch of a new bakery range for domestic and export markets was well received
	Continued investment in the growth of the materials handling business
	The Yamaha dealership base was rationalised and augmented, contributing to pleasing gains in market share. Improvements were particularly evident in the motorcycle and marine market segments.

Disappointments and challenges

	Continued pressure on consumers and the manufacturing sector created challenges for all teams
	Pressure was acute in the clothing and associated industries, contributing to disappointing results by Berzacks. Significant changes to management were implemented
	Margin pressure continued as cost-sensitive customers resisted price increases necessitated by higher labour, utility and fuel costs and significant rises in the cost of imported products and inputs
	Continued rand weakness and occasional bouts of currency market volatility complicated the task of inventory management and procurement.

Changes in the operational environment

	Difficult trading conditions in several industries resulted in the failure of some businesses, including some customers and suppliers. Debtors’ management and prompt collections became focus areas
	Our strategy of added-value selling continued to deliver good results in an environment in which customers demanded optimum service. Business retention was pleasing in a trading climate in which customer loyalty cannot be assumed
	Tough decisions had to be taken when certain contracts and accounts became uneconomic. In some cases we walked away from unprofitable business.

Risks and responses

	Risk of business failure by a customer – even a substantial one – sharpened as the economy remained sluggish. We remain vigilant for danger signs and stepped up our debtors’ management process. Back-office staff performed well in this challenging environment
	Currency volatility remains a risk area as many products and inputs are imported. Our businesses have successfully managed these risks for many years. Continued vigilance is necessary to avoid loss and protect margins
	Loss of a brand principal is acknowledged as a possible risk, though relationships are well entrenched. We stay close to all brand principals. Our businesses are often industry leaders with a strong national footprint. This enables us to support all our brands and achieve a strong presence in the marketplace. Market share gains were achieved by many of our brands, despite tough trading conditions
	Competitive risk is ever present. Barriers to entry are relatively low in some sectors. Attack by new competitors can occur. In response, we ensure all our products are price competitive. Customer relationships are strong, underpinned by our customer-centric approach to every market in which we operate
	Depressed industry conditions for prolonged periods create pressure on margins and volumes, especially when consumer spending is also constrained. Diversified product and service offerings enable the division to seek opportunities in various areas. The acquisition of Academy Brushware has further diversified our range of services.