Bidvest Group Limited

Chairman's report

In a landmark year, the unbundling of the foodservices business from the Bidvest Group achieved all its objectives and unlocked value for shareholders. Our seven streamlined divisions have sturdy platforms for expansion and delivered pleasing annual results while ensuring continued growth for Bidvest. Succession planning contributed to these successes while our decentralised business model demonstrated its enduring value. Meanwhile, acquisitive growth continued as Bidvest positioned itself for further gains.

HISTORIC CHANGE
The single most significant event since the inception of Bidvest occurred in the year under review. On May 30 2016, after 27 years of operating as a single entity, Bidvest unbundled and separately listed its foodservices interests on the JSE.

In typical Bidvest fashion, this historical event was handled in a most professional and businesslike manner, with minimal disruption. Our people got on with the job. Customer needs were met, operational goals were achieved and our people’s morale remained at its usual level, in other words, stayed exceptionally high.

The rationale for the unbundling was clearly communicated. Separation of the foodservice operations enables the Group to streamline its activities, creating an improved platform for growth. Furthermore, the unbundling improves management focus, creates absolute clarity around the Bidvest vision, and gives full rein to entrepreneurial flair.

Clearer focus on the Bidvest future will be extremely beneficial when identifying acquisition opportunities and new areas for strategic growth. The sense of business ownership felt by Bidvest teams has been reinforced and leadership teams, more than ever, can take direct responsibility for the growth and performance of the companies.

Another central driver was the opportunity to release significant value for shareholders while giving investors a chance to take a direct stake in the foodservice business.

All indications are that every objective has been realised.

I have presided over this Group as chairman for the past three years, and I am proud to have overseen the natural separation of the Group into its significant industrial services interests (local) and equally significant food business interests (predominantly offshore).

An important outcome of these processes is the emergence of a major industrial services group with a pre-eminent position within southern Africa. These are exciting times and Bidvest’s leadership is eager to make the most of them.

A NEW ERA
This annual integrated report is the first presentation of annual results post the unbundling.

The year was also notable for the restructuring of Bidvest businesses and the consolidation of 11 divisions into seven, each with the scale and drive needed to achieve leadership status in its chosen segment.

Consolidation and integration went exceptionally well, further confirmation of the strength and enduring relevance of the Bidvest business model.

A RESILIENT NATION
Change at Bidvest occurred at a time when South Africa addressed significant national challenges and achieved some encouraging outcomes.

Student protests and strident calls for service delivery improvements left no room for doubt that efforts must be redoubled if we are to meet the needs and aspirations of all South Africans.

Simultaneously, the threat of a sovereign rating downgrade highlighted the need to strengthen the economy, create jobs and build forward momentum.

These economic challenges occurred as the nation prepared for local government elections.

South Africans can take pride in the fact that the elections were not only free and fair, they confirmed the strength of our young democracy. One welcome development following this well-managed election process was the immediate strengthening of the rand against most major currencies.

What’s more, the country successfully avoided a downgrade.

LEADERSHIP AND MANAGEMENT
Successful change does not just happen. Hard work and robust systems must be in place. This was certainly the case at Bidvest as the business was reshaped and re-energised.

Key drivers of change without disruption were the absence of complexity within our businesses and the history of operational self-reliance driven by independent leaders and managers.

Thanks to these features of the Bidvest model, separation was achieved without negative impact on operations. A key positive is that exciting opportunities have now opened up for our managers.

Lindsay Ralphs was the natural successor for the chief executive position. His knowledge and experience will be invaluable assets as Bidvest moves into an exciting period of new growth. I take pride in welcoming Lindsay to his new position.

Succession planning at senior level and across our divisions has been undertaken for several years. These robust processes contributed significantly to the successful management of the unbundling and restructuring.

PERFORMANCE
Our businesses have again put in a solid performance and met expectations. Bidvest’s growth continues and I congratulate all our people on their unstinting efforts.

Growth in revenue at 3,6% (R68,2 billion) is commendable in contracting economic conditions.

Headline earnings remain significant at R3,5 billion. Headline earnings per share from continuing operations rose by 2,5% to 1 054,1 cents and a final dividend per share of
232 cents was declared.

Organic growth drove many of our gains in 2016, but Bidvest remains an acquisitive Group and early in the 2017 financial year we acquired Brandcorp, pending regulatory approvals.

We will continue to explore acquisitive opportunities.

THE FUTURE
Trading conditions in the ensuing year are likely to remain challenging. Politically, the focus is expected to move to the 2019 elections. Service delivery will remain a key item on the agenda, both for those seeking a mandate in national elections and those who secured seats in the recent municipal elections. Increased infrastructure spending would certainly be beneficial for many Bidvest companies and their customers.

All our businesses can expect to benefit from the positive mood generated by our restructure. Our teams are upbeat and confident of their ability to secure growth, even in a weak economy.

We therefore look forward to continued gains in the year ahead.

FOND FAREWELLS
While separation has been positive and strategically beneficial to all stakeholders, it entailed the departure of some longstanding colleagues.

On behalf of the board and the people of Bidvest, I extend our sincere thanks to the Group founder Brian Joffe for his outstanding leadership over many years. We wish him every success in his new role as executive chairman of Bidcorp. At the same time, it gives me great pleasure to welcome Brian to the Bidvest board as a non-executive director.

We also convey our thanks to former financial director, David Cleasby and Bernard Berson, former executive director of the Foodservice division, and wish them well in their new roles at Bidcorp.

In addition, we welcome Peter Meijer and congratulate him on his new appointment as Bidvest chief financial officer.

On behalf of the board, I also thank retiring non-executive directors Nolwandle Mantashe, Alfred da Costa and Paul Baloyi for their valued service to the Group and wish them well in their future endeavours.

PASSING OF DONALD MASSON
It is with deep sadness that I record the passing of my board colleague, Donald Masson. He passed away in March following a short illness. Donald (85) had been a Bidvest director since 1992 and made a substantial contribution to Bidvest’s development. He will be sadly missed. The board and senior management of Bidvest express their heartfelt condolences to the Masson family.

APPRECIATION
I extend my deepest gratitude to the board of the Bidvest Group for their unwavering support and guidance, particularly through the restructuring and unbundling processes. I look forward to their continued strategic input as we steer the Company toward a new future.

I also thank the management and staff of Bidvest and congratulate them on pleasing results achieved in very difficult trading conditions. Your loyalty and commitment give Bidvest a firm foundation on which to build.

Our people remain our single most valuable asset and we have every confidence they will continue to make us proud.

Lorato Phalatse
Chairman