Bidvest South Africa “In these circumstances, our businesses were challenged to protect margins while seeking market-share gains.” Highlights and challenges Double-digit revenue and profit growth in challenging trading conditions. Lean, delayered Bidvest model fit for purpose in a tough economy. Successor generation of younger managers prove their worth. Progress in the development of black female executive directors. Home of Living Brands (formerly Amaps), sets scene for launch of Bidvest Consumer Products division. Material issues and risks Higher fuel and utility costs contribute to margin squeeze in many businesses. Management has little influence on derived demand volumes at Freight as macro-economic factors drive the import and export of goods. Labour unrest in the country puts pressure on wage costs in labour-intensive businesses.

Lindsay Ralphs Chief executive, Bidvest South Africa             The division includes a variety of service and product offerings: freight management, logistics services, terminal operations and marine services; office automation, stationery and furniture; leading motor brands and vehicle auctioneering; travel management solutions, aviation services, airport lounge access and car rental; outsourced cleaning, landscaping, catering services, security as well as specialised services to the industrial and public sector; hygiene rental equipment, cleaning consumables; laundries; and public indoor plants; water coolers and light industrial and commercial products; the full range of Yamaha products; consumer appliances, packaging closures and catering equipment; distribution of electrical products and services and a comprehensive range of banking and insurance products; printing and related products.

Performance   Turnover (R’billion)   Trading profit (R’billion) People   People 2012   2013   2014   Total people 82 128   82 478   118 695   Training spend R’m (excluding bursaries and learnerships) 129,4   139,6   179,7   CSI Spend including bursaries R’m (including bursaries) 32,6   33,2   41,9   “Our three major transactions and several bolt-on acquisitions increased our work force by 36 000, taking total numbers to 118 695. This integration was achieved with minimum disruption in a difficult economy.” Lindsay Ralphs Planet   Carbon emissions     2012   2013   2014   Total Tonnes of CO2     334 394   311 453   359 536   Emissions per FTE     4,08   3,65   3,03   Carbon breakdown 2014 Consumption   Rand spend (R’m)   tCO2e   tCO2e/Revenue Rm   Diesel and petrol usage (Mℓ) 48,7   625,4   164 703*   2,055   Electricity usage (GJ) 639 435,6   201,6   181 106   2,260   Water usage (Mℓ) 2,8   33,2       First Garment Rental (laundries) contributes nearly 50% of total water usage   Increasing fuel and utility costs underpin the importance of regular monitoring. * Total tonnes CO2 includes fuel, coal and gas.     QUICK LINK: http://www.bidvest.com/ar/bidvest_ar2014/sus-com-data.php QUICK LINK: http://overendstudio.com/online_reports/bidvest_ar2014/pdf/greenhouse-carbon-footprint.pdf   Bidvest South Africa From left: Peter Meijer Financial director Mpumi Madisa Executive director Gillian McMahon Executive director QUICK LINK: Bidvest Consumer Products review         Bidvest Freight From left: Nosi Mbongwa Commercial director Anthony Dawe Chief executive Mark Steyn Financial director Turnover R26,8 billion Employees 4 540 QUICK LINK: Bidvest Freight           Bidvest Automotive From left: Carla Seppings Financial director Steve Keys Chief executive     Bidvest Services From left: Bina Gosai Financial director John Taylor Chief executive Vimla Naicker Commercial director Turnover R21,9 billion Employees 5 703   Turnover R7,2 billion Employees 83 087 QUICK LINK: Bidvest Automotive review   QUICK LINK: Bidvest Services   Bidvest Paperplus From left: Colin Adendorff Financial director Neil Birch Chief executive Mojaki Finger Commercial director     Bidvest Electrical From left: Eric Immermann Financial director Stanley Green Chief executive Bongi Twala Commercial director Turnover R4,9 billion Employees 4 255   Turnover 4,9 billion Employees 2 291 QUICK LINK: Bidvest Paperplus review   QUICK LINK: Bidvest Electrical review   Bidvest Office From left: Alan Griffith Chief executive Ivan Keshwar Financial director     Bidvest Rental and Products From left: Alan Fainman Chief executive Gail Dludla Commercial director Trevor Scruse Financial director Turnover R4,7 billion Employees 4 182   Turnover R2,4 billion Employees 6 137 QUICK LINK: Bidvest Office review   QUICK LINK: Bidvest Rental and Products review   Bidvest Travel and Aviation Allen Kotze Financial director     Bidvest Industrial From left: Howard Greenstein Chief executive Craig Turnbull Financial director Shanilla Chuturgoon Commercial director Turnover R2,4 billion Employees 5 374   Turnover R2,0 billion Employees 1 713 QUICK LINK: Bidvest Travel and Aviation review   QUICK LINK: Bidvest Industrial review   Bidvest Financial Services From left: Thinus Liebenberg Financial director Japie van Niekerk Chief executive     Bidvest Consumer Products From left: Murray Crowe Managing director AIan Coward Chief executive Bruce Drummond Financial director Turnover R1,7 billion Employees 1 201   Turnover R1,3 billion Employees 212 QUICK LINK: Bidvest Financial Services review   QUICK LINK: Bidvest Consumer Products review “Team spirit across our operations came into strong focus in a year when labour difficulties arose in several sectors of the economy. By delayering management structures and keeping executives close to day-to-day issues we are often able to address worker concerns at an early stage. Closeness to “the coalface” ensures managers and staff stay in touch.” Lindsay Ralphs

The future

Bidvest South Africa is committed to sustained growth, though trading conditions may remain difficult for some time. Our businesses will continue the drive for organic growth and in many instances are preparing to enter new markets.

Automotive will continue to innovate and will use new technology – including a virtual car showroom – to strengthen relationships with customers. Growth into Africa will also be pursued.

Consumer Products will continue to introduce new brands, product ranges and explore opportunities in additional areas of the homeware market.

Electrical will seek further growth into areas of high potential such as energy conservation and management and smart lighting solutions.

Bidvest Financial Services will look to further diversify income streams through new product development, rolling out the travel insurance offering and an increased focus on trade finance.

Infrastructure expansion in pursuit of efficiencies, capacities and new products will continue at Bidvest Freight. Infrastructure supports South Africa’s national strategy of securing its long-term requirements through a diverse range of supplies and technologies.

Industrial showed strong capacity for acquisitive growth in 2014 and is ideally placed for further expansion. Office is building strong momentum on the back of its technology offering and ability to achieve close integration with corporate customers. Further growth on this pattern is anticipated.

Paperplus continues to demonstrate resilience despite the decline of its traditional business and will continue to innovate. Rental and Products is also focused on growth and will explore opportunities to widen its African footprint.

The product and service offering at Bidvest Services has been considerably strengthened, creating a springboard for continued gains. Our facilities management offering comprising of a strong technical and building management capability, coupled with an exceptional soft service offering, positions the division for solid future growth.

Travel and Aviation will roll out its leisure travel strategy and look to grow its cargo handling service offering by entering the night cargo market.

Bidvest South Africa took on considerable scale in 2014 following several acquisitions. The work of consolidation and integration will continue. The scaled up operations will take a stronger, more innovative product and service offering to market, creating a solid foundation for future growth.

Operational review

Pleasing results reflect meaningful contributions by most of our well-diversified operations. Turnover increased by 15,7% to R80,2 billion (2013: R69,3 billion) while trading profit rose 17,0% to R4,9 billion (2013: R4,2 billion).

The business engaged in significant corporate activity during the review period, finalising the acquisition of the Mvelaserve group, Home of Living Brands and Academy Brushware. Several bolt-on acquisitions added further scale to our operations.

The contribution of recently acquired businesses was material. The Mvelaserve operations, Home of Living Brands, and Academy Brushware collectively contributed R392,1 million equating to 7,9% of trading profit.

Bidvest South Africa now comprises 11 operating divisions and all teams performed well under tough economic conditions. Freight made a major contribution and pleasing contributions were also made by Services – boosted by the integration of several Mvelaserve operations – Electrical, Industrial, Office, Rental and Products, Travel and Aviation and Paperplus.

Lower retail spending, consumer down-trading and strike action in the mining, manufacturing and transport industries compounded the trading challenge at many of our businesses. Bidvest Automotive was hardest hit. In the business-to-business environment our teams confronted corporate cutbacks and acute price sensitivity.

Under these circumstances, our businesses were challenged to protect margins while seeking market-share gains.

Material issues

Black economic empowerment remains critical for us. As a good corporate citizen, we understand the imperative of transforming our businesses in a way that goes beyond mere compliance. Our level of transformation provides us with the advantage of being recognised as an empowered organisation, strengthening our relationship with all stakeholders, particularly our customers and employees.

Technology has growing influence on the way we do business and relate to our customers. Bidvest has traditionally not been perceived as a technology company. However, old definitions are blurring, creating opportunities for businesses with the vision, resources and energy to utilise technology for the greatest benefit of all our businesses.

Clearly, as a major employer, Bidvest South Africa is affected by labour relations issues as many of our operations are heavily unionised. Good stakeholder relationships are strategic to the sustainability of our businesses.

The inter-connected nature of today’s economy has also emerged as a material issue. Bidvest South Africa is highly diversified, but diversification cannot completely offset potential impacts when the economy confronts strategic challenges, which are rarely limited to a single sector.

The impact of strikes

The knock-on effect of the country’s longest mining strike was considerable. At the end of the reporting period, the metal workers were preparing to strike.

Mining companies are an important customer group for many divisions, including Services, Electrical and Rental and Products. The ripple effects from the mining strike in the second half of our year affected our entire business.

Mining companies declared force majeure. Contracts were in effect suspended. Our Services division was severely affected. The suspension was accepted by our staff with no disruption to our business, a testament to the resolute labour relations within our companies.

Secondary effects were also worrying. Many service and manufacturing businesses are suppliers to the mines. Their cut-back in operations and reduced orders, impacted volumes at many of our operations.

We salute the teams that continued to grow their businesses despite the impact of these labour disputes. Growth at a time like this was a remarkable achievement.

Consumer economy

South African consumers are under pressure with many of them limiting their shopping to essentials while servicing high levels of personal debt.

Bidvest South Africa still has limited direct exposure to the retail consumer. Household consumption expenditure represents more than 60% of the country’s gross domestic product. The effect of consumer belt-tightening is considerable and subdued consumer spending thus impacted on many operations, from the imports handled by our freight business and vehicle sales at Bidvest Automotive to the marketing of branded goods by our new Consumer Products division and volumes at our furniture and stationery businesses.

Our teams responded by winning market share, achieving efficiencies and driving customer service standards higher.

People and integration

Our three major transactions and several bolt-on acquisitions increased our work force by 35 567, taking total numbers to 118 695. This integration was achieved with minimum disruption in a difficult economy.

The Bidvest culture is unique. There is little “hand-holding” from the centre. Local teams are expected to make themselves accountable and develop local solutions with minimum fuss. This pragmatic approach helped us achieve a smooth transition.

The integration of Home of Living Brands was relatively straightforward with Bidvest having owned nearly 30% of this business for some time. This became part of a new division, Bidvest Consumer Products. In line with standard Bidvest practice, management autonomy was assured and the team made a rapid adjustment.

The Mvelaserve integration involved consolidation into existing – operations mainly within our Services business. Synergies started to be recognised and the potential of a world class bundled services and integrated facilities management model within Bidvest South Africa was realised.

Academy Brushware was integrated into our Industrial division and operates as a distinctive brushware subdivision.

These processes took a lot of hard work and we thank all managers and staff for a job well done.

Divisional report card

Automotive experienced tough business conditions, resulting in a dip in trading profit. Activity levels were affected by pressure on consumers, the impact of prolonged strikes on the manufacturing, retail and transport sectors, deterioration of the rand and the resultant price inflation. Continued progress was made with corrective action and expenses were well controlled. However, new vehicle sales fell in a market characterised by fierce discounting and margin erosion.

Consumer Products performed well in a difficult market. Challenges included exchange rate volatility, competitive activity by competitor brands and growing focus by retail chains on their own brands. Sales gains were underpinned by aggressive promotions and the strength of well-established brands such as Russell Hobbs and Salton. Strong category performance was put in by appliances, electrical and media accessories, FMCGs, Aerial King and Pro Audio. Good export growth into Africa was achieved.

Electrical delivered pleasing overall results. Expenses were driven higher by once-off costs to re-engineer and grow the business. Growth was achieved in several strategic areas, including the high-tech transformer, generator and substation sectors and the market for smart metering solutions and energy management. The Voltex brand positioned itself to not only offer general distribution products but customised, innovative and sustainable solutions to its customers.

Financial Services delivered a satisfactory result. Bidvest Bank achieved continued growth in transactional banking and treasury volumes. Deposits, cash and cash equivalents were all up, but was impacted by declining leasing revenue. Credit quality remains good, with low impairment provisions. Equity markets performed well boosting performance of Bidvest Insurance. Strong growth in gross written premiums was achieved and claims management was good. Travel insurance was launched and several new products were developed.

Freight achieved an excellent increase in trading profit. Investment in the future was maintained, notably at Island View Storage, Bidfreight Port Operations (BPO) and Bidvest Panalpina Logistics. The full-year effect of the 2013 upgrade at Bulk Connections took volumes to record levels. BPO performed strongly, with an exceptional stevedoring contribution. Naval performance in Mozambique was strong on the back of high magnetite volumes. Certain Manica operations incurred losses.

Industrial produced a good set of results, bolstered by the acquisition of Academy Brushware (effective August 2013). Strong performances were put in by Vulcan, Afcom and Bidvest Materials Handling. Yamaha made an exceptional contribution. Significant new investment was made at Academy’s Babelegi factory. Pressure continued in the clothing industry and a restructuring is underway at Berzacks.

Office performed reasonably well and benefited from a good contribution by Zonke, the former Mvelaserve business that supplies monitoring solutions to the gaming industry. Stationery faced challenges. Furniture results were mixed with Cecil Nurse, Seating and Dauphin making strong contributions, whilst furniture manufacturing capacity had to be restructured. The Technology cluster produced good results, buoyed by Konica Minolta, which entrenched its position as a South African market leader and the best performing distributor worldwide. Medical gained traction and Develop performed well.

Paperplus performed well as all businesses sought sales growth in a tough market. Notable contributions were made by Lithotech, Bidvest Data and Kolok. Bidvest Packaging developed critical mass and new growth opportunities following the Masterpak acquisition. Silveray had a better year. Rotolabel faced challenges, but staged a recovery. The Mozambique Kolok operation continues to show positive results.

Rental and Products delivered good results in spite of a price sensitive market and a weak currency. Solid contributions were made by Steiner, Laundries and Execuflora. Consumer pressure on the furniture industry had knock-on effects at Masterguard. Corporate cutbacks created challenges for all operations. Bundled services to deliver a one-stop offering remained a focus area. Newly acquired RoyalServe Hygiene and Sanicorp performed to expectation. G. Fox opened operations in Botswana, Swaziland, Zambia and Zimbabwe. Puréau’s results were disappointing. Hotel Amenities had a better year.

Services achieved substantial growth following the Mvelaserve integration. This acquisition added complementary services, providing scope for synergy benefits. TMS Industrial Cleaning, TFMC and the Protea Coin guarding and reaction units performed exceptionally well. Labour rate increases exceeded inflation, contributing to margin pressures. The TFMC acquisition enabled energetic entry into the market for facilities management. Critical mass was achieved in the security cluster while the integration of Royalserve Cleaning and Prestige created one of South Africa’s largest cleaning businesses. RoyalMnandi positioned us as a player in the catering industry while Velocity and SA Water extended our public sector offering in the areas of road infrastructure and water purification.

Travel and Aviation performed well in a challenging environment. BidTravel was impacted by fierce competition and down-trading. BidAir Services delivered excellent results on the back of higher passenger volumes, international volume growth in the lounges and higher cargo revenue. Budget Rent a Car increased profits in a highly competitive market and improved daily revenue and rental days. Budget Rent a Car Namibia – acquired from Bidvest Namibia – performed to expectation. Entry into leisure travel was achieved following the launch of the online travel portal, Webjet.

Innovation and technology

The increase of investment in technology demonstrates management’s strategic commitment to constant innovation and alignment of business initiatives and technology. To this end, Bidvest has recently formed an IT Forum which is positioned to lead innovation in the IT space and manage the risk associated with people, technology and information as well as the cost of compliance.

Investment in new systems to deliver savings and efficiencies is ongoing, but a wider vision is also evident. In many instances, we no longer only deliver the product or service. We also make use of software technologies to strengthen our relationship with customers.

In most industries – not only high tech – it is becoming clear that the player who owns the software owns the customer. It is hardly surprising, then, that our businesses increasingly deploy systems innovation to add value.

Bidvest Bank was recently selected by Vodacom because of its advanced systems, as the banking platform for the cellphone company’s m-pesa money transfer service. Our ability to back traditional print with e-solutions creates competitive advantage for Paperplus. We use online tools to sell stationery and many other products. Online marketing and social media is integral to our vehicle retailing business. MyMarket is a well-established business-to-business procurement solution. Our purchase and customisation of Webjet puts us at the forefront of digital travel solutions. We’ve entered the medical sector on the back of exciting advances in imaging technology.

Our intention is to achieve closer integration with the back-end systems of our customers and develop unique solutions that help us become the service and support partner of choice. Bidvest Office through its technology cluster has already embarked on this journey. More and more businesses within Bidvest South Africa are building the capabilities to carry them down the same road.

We are a technology-driven solution finder in many sectors. Every division has developed, or is developing, a digital option to complement traditional methods of delivering our product and services to customers.

A technology-led expansion may in future achieve faster traction than organic growth within some areas of our business. We will remain a big generator of jobs. But in the years to come, more and more of those jobs will be highly skilled and related to new technology.

Expansion into Africa

Another growth opportunity is offered by Africa, though we have no plans for a “Big Bang” approach. The African opportunity is often spoken about as if Africa were one country. Africa is made up of many countries in which opportunities are small and niche-specific.

Bidvest South Africa is ideally suited to the identification and pursuit of individual opportunities in fragmented markets. We bring together numerous businesses, each run by entrepreneurial managers who are close to their respective industries. These managers are increasingly focused on Africa and they will closely examine all opportunities for cross-border growth.

Our long-term strategy calls for expansion into Africa, but a step-by-step approach is preferred, with the impetus coming from our divisions.

Management development

Sustainable growth is dependent to a large extent on the quality of our leadership. Investment in leadership development is therefore key, with special attention being placed on creating a generous pipeline of black leaders.

Middle management remains the feeder tier for senior positions in the Group. In 2014, 62% of middle management positions were filled by black people.

As senior management roles become available, those middle managers that have gone through various development and mentorship programmes are appointed to these positions. In the past year, 46% of top management positions were filled by black candidates.

To support constant development of our people, our training budget excluding learnerships and bursaries continues to rise and in 2014 reached R179,7 million (2013: R139,6 million).

Empowerment

Post the unbundling of the Group’s long time BEE consortium, Dinatla Investment Holdings, Bidvest embarked on an exercise to establish the level of black shareholding held by the public. The assessment resulted in a 63,42% black ownership economic interest and 59,96% black ownership voting rights.

Continuous improvement is evidenced by the scorecard measurement. The Group has either met or exceeded targets on various elements of the scorecard and has made significant in-roads in the preferential procurement element, achieving well over the 70% target.

The amended Codes of Good Practice on B-BBEE may have a material impact on the current empowerment status of many of our businesses. This is not unique to the Bidvest Group of companies, but rather a challenge faced by all businesses in South Africa.

The objectives of the National Growth and Development Plan are fully supported. This does however require some drastic changes to current practices and the adoption of new initiatives in order to meet the requirements of the amended codes. The required increase in skills development spend to 6% of payroll is commercially excessive, however, we are encouraged by the increased recognition given to the development and absorption of unemployed previously disadvantaged people through learnerships and apprenticeships.

The identification and implementation of suitable supplier development programmes is currently underway and will remain a major focus. The biggest challenge we face is sourcing suitable suppliers that have the capacity to serve the many complex product and service requirements of the Group. It is therefore our aim to find partners that we can work with to develop such capacity over the medium to long term.

Many customers are developing sophisticated systems for deciding the level of supplier transformation. They no longer take empowerment certification at face value, but drill down to test the pace of transformation, how long it has been a priority and the extent of empowerment initiatives.

We welcome developments like this. Our view has always been that transformation is more than a numbers game. The effort must be sincere, transparent and address all relevant areas of the organisation.

We recognise that amendments to the Codes of Good Practice on B-BBEE will bring about some challenges, but also opportunities that we have never previously enjoyed. It is our intention to continue on the path of meaningful transformation using the Codes of Good Practice as our roadmap.