Operational review – Bidvest Paperplus review

Bidvest South Africa Bidvest Paperplus

Neil Birch: Chief executive Colin Adendorff: Financial director

Bidvest Paperplus provides products and services across six main categories – print and related services, communications solutions, packaging solutions, labelling solutions, stationery products and office products.		Front row: Neil Birch – Chief executive, Colin Adendorff – Financial director Second row: Mojaki Finger – Commercial director, Allan Thompson – Managing director, Kolok, Johann Neethling – Managing director, Lithotech Sales& Distribution, Kevin Swan – Managing director, Bidvest Packaging Back row: Wicus Maritz – Managing director, Rotolabel, Hennie Mentz – Managing director, Bidvest Data, Trevor Girnun – Managing director, Silveray Stationery Company, Grant McWilliams – Managing director, Lithotech Manufacturing Cape

Highlights

	Trading profit rose 12,2% to R315,6 million (2013: R281,3 million) on the back of cost efficiencies and pleasing growth outside the traditional print sector
	At R4,9 billion, turnover was up 21,1% (2013: R4,0 billion), a function of strong marketing efforts by all teams
	The office products segment grew significantly, though some growth was attributable to price inflation on imports
	National voter registration project in Mozambique contributed to sizeable growth of the export business.
	Streamlining of stationery distribution was near completion by year-end and drove an improved bottom-line contribution
	Roll-out of the division’s integrated, computer-based warehouse management system continued, with resultant efficiencies
	Wide-ranging efficiency gains supported successful positioning as a low-cost producer with a quality profile
	The business successfully managed an accelerating industry shift out of paper-based postal material to enhanced electronic solutions
	Bidvest Data rebounded strongly
	All those participating in the first Bidvest Paperplus academy learnership programme were given full-time positions
	Market feedback indicates that the Paperplus voter registration solution has now become the standard solution in Africa. Instead of simply supplying registration forms, the division provides a complete, stand-alone unit complete with solar panels to ensure efficient registration in areas without mains power
	A major customer relations success was registered when the division liaised closely with several major clients to help them manage the transition from traditional postal communication to digital and electronic platforms
	Copenhagen office entrenched its position as a solid generator of export business, primarily small project work for European customers
	Rand weakness and volatility in foreign currency markets was well managed.

2015 targets, objectives and factors affecting future results

	Macro-economic conditions in the coming year will have significant influence on results. Business confidence hit new lows in 2014. However, Bidvest Paperplus showed its resilience by achieving solid growth. Management plans to maintain momentum in 2015
	Moderate topline growth and further growth in trading profit are projected
	Stagnation or contraction of traditional print and the forms business has become the norm. However, the overall impact on the division will be cushioned by growth in other areas of the business, notably digital and electronic formats
	Aggressive growth targets have been set for several silos
	The packaging business has been strengthened. Masterpack has now been integrated into the division and will introduce new product lines, including folded cardboard boxes for the quick-service restaurant sector. A strengthened national footprint will enable the packaging silo to further improve service levels and pursue renewed growth
	In the stationery sector, Silveray Statmark Stationery is on track to realise the full-year benefit of recent reorganisation
	The labels plant has been upgraded and the silo is well placed to benefit from the investment
	Our full-colour digital printing business is market leader and will seek growth opportunities in several areas, including high-volume transpromo work
	The second half of 2014 saw growing take-up of Bidvest Data’s product offering, indicating solid growth potential even in a weak economy
	Further growth in export volumes into Africa will be aggressively pursued
	Cost saving and waste reduction programmes will remain areas of management focus
	All businesses will step up the work of transformation. The success of our learnership programmes suggests meaningful progress can be made on the development of black staff into management positions
	Acquisition opportunities will not be neglected, with specific focus on niche businesses offering smart, new technology solutions
	The success of Kolok Mozambique shows the potential for wider direct representation in Africa. Opportunities for expansion into specific African markets will receive focused attention.

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: Profits sustain jobs and enable investment that supports entry into growth sectors in an industry that faces decline in traditional areas Objective: To maintain profitability	Cost containment Trading profit	Performance: Trading profit up 12,2% Actions: Cost control, focus on accounts payable, streamlining and efficiency improvements, plant relocation, distribution efficiencies, improved accounting and administrative processes
Declining business sectors and growing competitiveness		Contraction of business forms and general print work Print becoming a grudge purchase for many businesses Increase of price-competitive imports Objective: To maintain profitability		Revenue increase of 21,1% Diversification and expansion of service offering, export market growth, plant upgrades, integration of newly acquired packaging business, growth of digital solutions
People Maintain rigorous safety standards		Why: A safe workplace is a productive workplace Objective: Ensure all businesses demonstrate exceptional levels of safety performance.	KPIs: Injury rate Lost-day rate	Performance: The injury rate of 2,77 increased slightly The lost-day rate (per 200 000 hours worked) due to injuries decreased from 20 to 17
Promote employee health and satisfaction Enhance talent attraction and retention		Why: People have a right to be healthy and happy. Morale improves, staff retention rises, ensuring continuity and higher productivity by cohesive teams To improve talent attraction and retention Objective: To use innovative approaches to improving the health and wellbeing of all employees and createa positive work environment that enhances talent attraction and retention	KPIs: Resignation rates Absentee rates	Performance: The resignation rate increased to 4,5 (2013: 1,7) Absentee rates decreased to 2,5% (2013: 3,1%) QUICK LINK: Paperplus EE Report http://www.bidvest.co.za/ar/bidvest_ar2014/pdf/ee/paperplus-ee.pdf
Promote skills development		Why: Skills enable innovation and business growth in a highly competitive industry	Training spend per employee	Performance: Average annual training spend per employee decreased to R3 868 (2013: R4 530) Average annual training hours per employee increased to 60 per person (2013: 31)
CSI		Why: Well-resourced communities with appropriate infrastructure create an environment in which business can grow Our status as a supplier of stationery and school materials enables us to make a positive impact by focusing CSI efforts on basic education and disadvantaged schools	KPIs: CSI spend CSI spend as percentage of trading profit	Performance: CSI spend increased to R2,7 million CSI spend as percentage of trading profit 8,5%
Planet Reduce environmental impacts		Why: Environmental issues, such as climate change, pollution and water scarcity Good environmental practice is good business practice and helps contain long-term costs Objective: To reduce our impact, educating employees, and working with suppliers and offering customer solutions to help them reduce theirs	KPIs: Carbon emissions (Scopes 1, 2 and 3) Water used Paper consumption	Performance: Total emissions increased marginally, main contributer to carbon is Scope 2 Water usage decreased over three-year period and remain constant over two-year period Paper/cardboard used: increased dramatically Actions: Vehicle distribution route and planning optimisation Waste paper recycling initiatives and switch to electronic communication
		Greenhouse gas emissions 2012 2013 2014 Total emissions (tonnes of CO2) 39 295 36 969 37 596 Scope 2, electricity usage (tonnes of CO2) 34 836 31 228 31 625 Electricity usage in (GJ) 126 675,9 116 927,3 110 535,3

Innovation and new investment

	New investment totalled R107 million (2013: R93 million) with the focus on new plant and technology
	The R32 million acquisition of Masterpack was finalised in July 2013. The packaging business has operations in Cape Town and Johannesburg. The Cape Town presence has strategic importance as it strengthens the division’s packaging footprint in an important metropolitan market
	The Masterpack brand is being supported as a vehicle for growth in the Cape Town packaging market, leveraging off Masterpack’s established base in packaging for food, pharmaceuticals and nutritional products
	Constellation, the division’s online document capture, retrieval and archiving platform, was revamped to ensure data availability across multiple data transmission formats. Reinvention also facilitates the inclusion of marketing messages when information is retrieved and submitted to consumers – an offering that reinforces the division’s relationship with major retail chains
	Part of the paper napkin and paper bag producing plant in Isethebe, KwaZulu-Natal, was relocated to new premises at Pencil Park, Johannesburg. Relocation delivers distribution efficiencies as the largest market for these products is in Gauteng
	The division built on the success of the first intake into the Bidvest Paperplus academy learnership programme by raising the entry criteria. Initially, the focus was on matriculants. However, only university or college graduates were inducted into the class of 2014. All places were filled
	Kolok Mozambique was launched in 2013 in collaboration with local partners. First-year results were in line with expectations
	Plant upgrades in the packaging business and label equipment upgrades in Spartan
	Development work continued on the Silveray Statmark Stationery self-covered school exercise book after a successful introduction during the back-to-school season
	Consolidation of Lithotech Afric Mail (conventional mail) and Email Connection (the digital solutions provider) into Bidvest Data proved successful, creating a platform for renewed growth into multiple-channel business communication.

Disappointments and challenges

	Falling demand in some market segments led to retrenchments in certain businesses. Regrettably, 72 jobs were lost in all
	Print emerged as a grudge purchase by businesses. Companies struggling to grow volumes in a stagnant domestic market are cutting all costs. They reduce print quantities and delay order placement. Cuts to marketing budgets have also impacted the printing industry
	A small bolt-on acquisition was made to pursue niche opportunities in the labels market. Some gains were made but results fell short of early projections
	The packaging industry remained ultra-competitive. Masterpack – acquired to drive further growth in this market – built momentum towards year-end. However, integration into Paperplus took longer than anticipated and the new unit’s early results were below expectation.

Changes in operational environment

	In the business-to-business environment, delaying and cutting expenses has become the new norm. The result is volatile workflow. Volumes are erratic and demand fluctuates substantially
	Local supplies are no longer assured in some paper grades and product categories. Major South African corporates have internationalised their operations and often focus on product lines for major overseas markets – lines that deliver the biggest volumes and best margins. As a result, new suppliers have to be found. This frequently means bringing in low-cost imports from China.

Risks and responses

	Technology risk is growing. Management has to be constantly alert to new systems, applications and communication formats. The product lifecycle is becoming shorter in the communication industry. This heightens the challenge of amortising technology investments – which can be substantial in view of the rand’s sustained weakness
	People risk is constant and has traditionally been addressed by increases in the training investment. Industry contraction has sometimes helped the business retain good staff. However, maintenance of team morale has emerged as an issue at businesses that are constantly looking for efficiencies. Doing more with less has become standard practice, putting pressure on teams to deliver high quality when the resources on call may be limited
	Foreign exchange risk is ever present. It is standard policy to take forward cover. However, exposure to forex risk is growing as the division has to source more and more products from overseas as local supplies dry up. Bidvest Paperplus has become a bigger net importer of stationery items, office consumables and certain grades of paper
	Planning risk has also come into sharp focus. Trading patterns can be erratic. New technology solutions are gaining ground. This means historical data and previous experience with certain categories of customer are no longer a reliable yardstick when making projections. The risk of over-stocking or under-stocking has grown. In response, management focuses on flexible responses by teams that are kept deliberately lean. Closeness to customers is a priority
	The risk of material increases in unbudgeted expenses has also sharpened. The national power provider cannot maintain stable electricity supplies as new capacity has yet to come on stream. In other cases, cable theft results in outages. As a result, investment is necessary in standby generators and additional supplies of diesel, especially at operations that offer clients a 24/7 service. This adds to the cost-base, a source of frustration when stringent cost management is necessary to ensure profitability.