The past year was one of Bidvest's best in its 30-year history

R4 billion spend on acquisitions internationally and locally

Five of Bidvest's seven divisions, as well as Bidvest Properties, delivered growth in trading profit

Cash generated by operations of R9.4 billion

ROFE improved from 22.3% to 22.9%

The nature of our diversified operating model, which has been an imperative since the Group’s formation in 1988, has mitigated the economic headwinds currently being experienced in South Africa. In fact, this past year was one of Bidvest’s best in its 30-year history.

We again delivered growth in trading profit and earnings. Strong investment in infrastructure in South Africa continued and we spend some R4 billion on acquisitions internationally and locally. Our cash flow and dividend for the year was robust. We also increased our number of employees while our training spend is a Group record for an annual period.

The value of a diversified portfolio, which spans South Africa’s broad economic spectrum, and the quality of the underlying businesses continues to manifest in the performance of the Group. About 63% of our business is service related and 37% is trading, which is a comfortable balance. The overriding imperative for us, however, is to continue the core principle that Brian Joffe introduced into the Group at inception, and which has been refined and developed ever since. That is a highly entrepreneurial and decentralised approach to the management of the Group businesses and other assets.

Five of Bidvest’s seven divisions, as well as Bidvest Properties, delivered growth in trading profit, and I must acknowledge the commitment, skill and experience of our leadership team, which has remained committed to the course and continued to deliver benefit to our expanding stakeholder group.

The ‘Proudly Bidvest’ culture remains very strong. As a leadership team we firmly believe that South Africa’s greatest economic need is for increased investment and sustainable employment opportunities. Bidvest has remained true to its South African commitment and continued its acquisition strategy to fund, grow and develop local businesses, while increasing capital spend on infrastructural development programmes.

Financial overview

Group revenue for the year increased by 8.4% to R77.0 billion, with R5.2 billion of the increase attributable to the acquired international services businesses, Noonan and USS. The gross profit margin was broadly stable at 28.9% as the distribution-type businesses maintained margin, despite input cost volatility and fierce competition. Group trading profit grew 8.2% to R6.5 billion, with a stable trading margin of 8.5%. Operating expenses increased by 7.1%, and the continued strong focus on cost containment increased like-for-like expenses by a modest 3.4%.

The overall result was that headline earnings per share (HEPS) increased by 11.1% to 1 231.6 cents and normalised HEPS grew by 12.5%. It is also pleasing that we are in a position to declare a final dividend of 301 cents per share, bringing the total dividend for the year to 556 cents, up 13.2%.

As with the diversified portfolio, another Bidvest discipline is to maintain the strong financial position. We continue to maintain a conservative approach to gearing and net debt levels are acceptable at R6.3 billion. One of the outstanding measures over the year was our pleasing cash conversion rate of 106.4%. The debt is stable at 0.8x EBITDA and the interest cover of 8.0 times. These are both comfortably above the Group’s conservative targets, providing ample capacity for further expansion.

Cash generated by operations at R9.4 billion was higher than the R6.9 billion generated in the prior year. Return on funds employed (ROFE) improved from 22.3% to 22.9% as asset management remains a core focus, particularly in these challenging times.

Divisional overview

Strategically we continually aim to maximise our portfolio, and it is pleasing that we performed well, particularly given the limited economic activity in the industrial and construction sectors, as well as the infrastructure segment of the market.

Mention must be made here of our ongoing investment over the years in liquid storage. Together with a bumper agricultural season, this has been of significant benefit to our Freight division which has been the Group’s star performer this year. There have been some new large contracts signed which are increasing the annuity-based income model, and which essentially remove the reliance on the seasonality of agriculture. Our expanding Liquid Petroleum Gas (LPG) facility in Richards Bay is developing as planned, and we are on track to commission the R1 billion storage facility in 2020, which will be a game-changer in terms of a secure source of LPG supply for South Africa.

The Services division, and specifically our facilities management offering, has also delivered exceptionally well this year. The South African trend to outsourcing has been mixed, but our model of bundling services together – cleaning, security, and other work-place necessities – has been well accepted by customers and is an advantage that positions us nicely for the future. Additionally, some of the learnings and trends being obtained from the recent Noonan acquisition will also be beneficial to the division going forward. Similarly, there are some aspects of the way we do business in South African that will benefit the Noonan client base as well. The inclusion of Noonan boosted revenue by 44.4% for the Services division while the overall divisional margin was lower as the offshore operations tend to operate at a lower margin. Cash generation in this divison is exceptionally good, and we are continuing to assess acquisitions both locally and internationally.

The Services division management team has also strategically developed most of the operations into annuitybased businesses, which provides for better forecasting and clarity, ultimately enabling improved risk management.

The management team has embraced innovation exceptionally well and all businesses have programmes in place to improve efficiencies and cost. The travel businesses are receiving special attention as overall returns have declined from this sector, mainly because of lower fees and rebates. The focus to counter this has been on technology to drive efficiencies and, essentially, streamline the business model.

The Commercial Products division derives two-thirds of its trading from products and services from within the industrial sector, while the balance is focused on a consumer portfolio. Together with the Automotive and Electrical divisions, this is an area of the business where we were hardest hit by the challenges and severity of the South African economic situation. Notwithstanding this difficulty, the division grew trading profit by 3.2%. Many of the industrial businesses produced excellent results, which is pleasing considering the market. The consumer businesses experienced weak demand from retailers. Some of the division’s consumer products are basic necessities in many households and a strategy of product and price relevance has ensured that we were somewhat protected from the downturn.

The Office and Print division also delivered a strong result in this market. While there was a decline in revenue as we strategically re-engineered, consolidated and focused on specific service offerings, there was an improved trading result of 6.5%. The division faced various headwinds with a voter registration contract that ceased, pricing pressure on packaging and the closure of one of the larger businesses. As digital and electronic solutions boom, traditional office products and printing are increasingly under pressure. Many of the businesses, however, did particularly well, demonstrating that strategic planning ahead of market movements, together with a focus on cost and efficiencies, will continually ensure good performances. We are considering additional bolt-on acquisitions, specifically in the digital space, to remain competitive and relevant to our markets.

Within our Financial Services division we have a fully-fledged banking offering including fleet management and pension fund administration, life and short-term insurance, and asset management. There was a 1.0% increase in trading profit as the headwinds of fleet contract roll-offs and the lag in building a life insurance business took effect. The insurance business is proving exciting and we are expecting a growth in contributions from these businesses in the future. There is also a good pipeline of fleet contacts in which we are well-placed to participate. Our bureau de change business, which was essentially the starting platform for this division, is operating in an evermore challenging environment as better technologies are introduced. This has resulted in the closure of some branches but, strategically, it has also led to a more integrated service offering across the division into certain niche areas where we see tremendous potential. In a review conducted by the South African Reserve Bank, Bidvest Bank was ranked the fastest growing bank, by assets.

The Automotive division’s performance was disappointing with a 9.2% decline in trading profit. Bidvest McCarthy, which is the core business with some 83 dealerships spanning most of the important motor brands in South Africa, outperformed the industry in terms of new vehicle sales, while used car sales softened in the second six months of the year. The competitive nature of the market meant that margins remain under pressure, specifically in the luxury segment, but there was a good performance from the volume brands where we hold strong positions. The car rental business had a difficult year, even though we retained market share. We experienced system difficulties as we switched over from a fairly old IT platform to a more technological advanced system. This is already showing a significant improvement in terms of the service and rental process in the current year.

The Electrical division is down on last year. Trading profit reduced by 14.3% as South Africa’s construction, mining and infrastructural development sectors were under severe pressure with little or no expenditure occurring. Largely because of the nature and strength of our brands, we did fairly well to hold our own in this challenging market. The move into renewable energy was paused as Eskom and the Department of Energy reassessed priorities. However, and pleasingly, this has now gained momentum and together with the recently announced infrastructure spend as part of the South African President’s stimulus package, we are expecting some normality to return to the market.

Bidvest Namibia was, again, disappointing. This business has continued to be impacted by a virtual collapse of the fishing industry following a change in policy by the Namibian government, as well as the ongoing recessionary macroeconomic environment in that country. As a result, we have disposed of the majority of our fishing business, while the other, smaller, fishing assets are in the process of being sold. The various other businesses in Namibia are being hampered by the severely strained economic situation. With fishing removed from the portfolio, we will ensure a renewed level of focus and strategic agility, which will result in these businesses performing better in the future.

Bidvest Corporate had a strong performance in the Property division. However, the mark-to-market value of Group investments, compared to the previous year, impacted negatively on the corporate office result, which declined overall by some 35.3%. The Property division’s trading profit in isolation was up 11.0%, and there was also a turnaround in the UK operations of Mansfield and Ontime.

Our focus on the disposal of non-core assets remains. After year-end we disposed of our shares in Bidcorp and the sale of our minority holding in the Mumbai International Airport holding is being advanced. Comair performed well and remains an exciting and well-run business where we think there is still tremendous growth and value to be generated. Adcock Ingram is growing and continues to deliver growth under its able and wellregarded leadership team. Our intention for some time has been to dispose of our holding in this business to appropriate new investors to create a catalyst for South Africa’s first major black-owned health care company. There have been numerous discussions and some exciting prospects, but the funding of this venture is proving challenging in this economic environment. We are, however, very hopeful that a solution will be found to position this business more suitably to compete effectively in the South African market.

Sustainability and transformation remain an essential part of the Group’s operations. In terms of the latter, we have made significant progress, to the extent where about 80% of our businesses are suitably rated in terms of the new B-BBEE codes. Considering the difficulty in terms of ever-changing legislation and requirements, as well as the extremely slow decision-making process, we have done exceptionally well to achieve these levels. We spend an extraordinary amount of time interacting with regulators and industry bodies to ensure alignment between government and the corporate sector to ensure better understanding and to forge a more conducive working environment and relationship going forward.

Stakeholder commitment

We are continuing our respectable track record with regard to our ongoing initiatives to engage with all stakeholders and we are seeing the benefit, specifically in terms of employee commitment to the workplace, investor interest in our equities, growth in the customer base and improved interactions at government, regulatory, industry and supplier levels.

We remain firmly focused on our carefully managed approach to the environment, where we see an urgent need for sustainability measures to lessen the effects on our planet and all its inhabitants.

Our concern for the climate has generated remarkably successful and innovative initiatives across all divisions to ensure better operating practices. These are also closely aligned to our efficiency drive we are introducing to ensure delivery of better performances in many of our businesses.

Shared stewardship

We believe there is currently a window of opportunity for shared stewardship and mutual responsibility between all our stakeholders. This will result in rapid change to make sure the world has a sustainable future and acceptable standard of living for all.

We have increased and improved certain governance practices that we thought required enhancing and we believe we now have even better structures in place. We have further enhanced the internal audit focus and effective divisional audit committees that rigorously debate issues that are then brought to the attention of the Group risk and audit functions, and ultimately to the Bidvest Group board.

We are comfortable that our stewardship and governance policies and practices are conducive to the effective, ongoing, performance of the Group.

Looking ahead

We are anticipating fairly lacklustre economic growth over the next year, but we will continue to benefit from freight and logistics growth, as well as other pockets of activity which will increase contributions from certain of our businesses. There will be caution until the national election in 2019. It is encouraging that our President recently outlined a significant stimulus package that is squarely aimed at fast-tracking spending in South Africa, while making the country more attractive to foreign investment. The successful implementation of this package, as well as other regulatory and policy changes, will be an important catalyst to reignite growth and investment in our economy.

Our seven core divisions are wellpositioned strategically to ensure that we continue delivering returns that are competitive in the various markets in which we operate, and that we can build further value for the Group, and all its stakeholders.

The results we have achieved over the past year reflect the quality of the leadership and the amazing team of Proudly Bidvest people across the Group. I want to express my personal thanks, and that of our executive committee, to everybody that has given a considerable amount of time and commitment during the year to ensure our ongoing success.

Thank you also to the members of our board for their wise counsel and guidance during year. Apart from a successful operating year, we have made good progress with changes and advancements that have enhanced our overall governance procedures, and the stewardship of the Group.

Most importantly, my gratitude to all our shareholders, clients and suppliers that have continued to support us over many years. I sincerely hope it has been beneficial and I trust we can continue our partnership during our next 30-year tenure.

Lindsay Ralphs
Chief executive