8.2% growth in the overall trading profit of R6.5 billion

Total headline earnings increased by 11.9% to R4.1 billion

Normalised HEPS increased by 12.5% to 1 254.9 cents

Net debt/EBITDA 0.8 times

Group average cost of debt 6.7%

A review of 2018

The majority of our core businesses have performed well, while in the areas that require improvement, there are positive strategic steps in place to ensure corrective actions.

The South African economy has remained under pressure during the review period with GDP on a declining trend. Despite these difficult conditions, the Group's trading performance was highly commendable with a trading profit increase of 8.2% to R6.5 billion.

One of the key events of the past year has been the inclusion of the Irish business, Noonan, following its acquisition into our Services division with effect from September 2017. Noonan followed this shortly afterward by concluding the bolt-on acquisition of USS, effective October 2017. These have been portfolio enhancing and, pleasingly, the businesses have performed as anticipated.

Divisional performance

There were very pleasing performances from both our Freight and Services divisions, and good results from Office and Print, as well as our Property division. The Commercial Products and Financial Services divisions had mixed growth. Despite being down on last year, the Electrical division produced a reasonable result, given the extremely harsh market in which this division is operating, specifically the South African mining and construction sectors. The Automotive division experienced significant head winds as the constraints on the South African consumer have continued unabated.

Associate earnings showed significant growth through the improved performance of Adcock Ingram and Comair.

Financial overview

Bidvest Group revenue increased by 8.4% to R77.0 billion, driven by the strong year-on-year increases from the Freight and Services divisions. The latter was enhanced by the Noonan acquisition. Overall our trading operations, which exclude Namibia and the Corporate office, grew revenue by 8.9%.

Namibia's trading result was down 12.9%. Bidvest has sold its entire shareholding in Bidvest Namibia's fishing operation (Bidfish) to Tunacor with effect from 30 June 2018. At Group level, this business was not sufficiently material to treat as a discontinued operation. Assets excluded from the sale include the Angolan fishing business, Comet, which is disclosed as a disposal group held for sale.

At a gross income level, our Group profit margin is down slightly from 29.1% to 28.9%, which is largely as a result of the inclusion of Noonan and USS. The margins in Ireland and in the UK are slightly lower than those in South Africa, but our organic margin, excluding acquisitions, has improved to 30.0%.

Overall Group operating expenses were well controlled and increased only 7.1%, while the organic operating expense increase (excluding acquisitions) was 3.4%.

This has been one of the standout features of our past year's performance, considering the difficult South African market and economic environment. The consequence of this is that our expense ratio improved to 21.0%.

The performances from Freight and Services contributed positively to the 10.8% growth in the trading profit from operations of R6.2 billion. The Group's trading profit margin of 8.5% was maintained.

HEPS increased 11.1% to 1 231.6 cents. Total headline earnings increased by 11.9% to R4.1 billion, with net headline earnings adjustments totalling R316.7 million, the majority of which relates to the mark-to-market impairments of associates Adcock Ingram and Comair, as well as a loss on the disposal of Bidfish.

Normalised HEPS increased by 12.5% to 1 254.9 cents (2017: 1 115.4 cents). This excludes acquisition costs and the amortisation of acquired customer contracts of R82.9 million, which relate mainly to the Noonan and USS acquisitions.

In terms of net capital items, there was a R352.0 million loss, compared to a R1.0 billion gain last year. This relates mainly to Bidvest's investments in Adcock Ingram and Comair, where the combined fair value reduced by some R248.7 million. There was also losses on the disposal of Bidfish, and other smaller businesses.

Net finance charges decreased by 3.7% to R1.0 billion, principally a function of the lower prime interest rate in South Africa, which dropped cumulatively 50 basis points over the year, strong cash generation and offshore funding for the acquisitions at low interest rates.

Income from investments dropped by R68.0 million to R142.8 million as a result of lower realised and unrealised gains on the listed and unlisted investments, specifically the Mumbai International Airport investment, as well as the Bidcorp shares. The insurance portfolio has performed exceptionally well in relation to the prior year.

It is also pleasing to report that the Group's financial position remains healthy. Growth in total assets reflect the acquisitions as well as higher levels of replacement and investment capital expenditure.

Cash generated by operations of R9.4 billion (2017: R6.9 billion) is extremely robust. This has been supported by a R1.5 billion release in working capital, which included an additional R1.2 billion in deposits from the Financial Services division. Our cash conversion ratio improved to 106.4% (2017: 80.4%), which has been enhanced by the acquisition of Noonan and USS, which have very good conversion ratios.

In terms of the major cash outflows, there were two key drivers. Firstly, there was capital expenditure of R2.2 billion as we continue to invest in our operating assets, particularly in South Africa. Secondly, the Group made acquisitions totalling R3.7 billion, again primarily Noonan and USS. The net result was an outflow of R5.9 billion for capex and acquisitions.

The Group's net debt increased to R6.3 billion (2017: R5.6 billion), largely driven by funding for the acquisitions of R3.7 billion, but which was offset by cash inflows from an improved trading performance, proceeds from the sale of non-core assets and a higher cash position in the Financial Services division. Historically, Bidvest has consistently maintained a fairly conservative approach to debt and gearing levels. In terms of the Group's debt, 26.0% of the net debt is fixed rate debt, while 57.1% of the total debt is long-term in nature. There is ample head room for the Group's further growth capacity, whenever this might be required.

In terms of credit ratings, Moodys' ratings for Bidvest's long- and short-term have remained unchanged, and our outlook has improved to stable.

The Group's overall weighted average interest rate is 6.7% compared to 7.9% in the prior period.

Interest cover of 8.0 times (2017: 7.2 times), and net debt to EBITDA of 0.8 times (2017: 0.7 times) improved year-on-year and remain comfortably within the Group's self-imposed limits.

ROFE remains our primary measurement for operational efficiencies across the Group. On a monthly average basis, the ROFE improved from 22.3% to 22.9%, which is based on an average funds employed increase of 6.1% and a higher trading profit (including associate income).

The taxation expense increased by 8.2% to R1.4 billion (2017: R1.3 billion). The effective tax rate of 28.0% is lower than the prior year of 28.2%. Items influencing the effective rate include non-deductible interest expense on the Group's preference share debt and a significantly lower non-taxable Mumbai International Airport mark-to-market gain in the current period. Additionally, the acquired foreign operations lowered the average tax rate by 0.4%.

Dividend declaration

The Group's final dividend of 301 cents has increased by 14.0%, which brings the total dividend for the year to 556 cents, which is 13.2% higher.

The net shares in issue increased to 336 766 410 (2017: 335 094 188) and the weighted average number of shares increased by 0.7% to 335 717 634 (2017: 333 496 899), as a result of new shares issued to settle share option obligations.

Looking forward

Bidvest is acquisitive in nature and the current low growth environment in South Africa is presenting acquisition opportunities at more attractive pricing. We remain alert to these, especially the opportunities to expand our product and service offering.

We expect that the lead up to next year's national election will dampen organic growth opportunities. We will focus on improving market share through this time, as well as maintaining our margins. We will retain our focus on cost and asset management, which is particularly important in these demanding times.

Offshore acquisitions remain part of our DNA and the process started with Noonan and USS will continue. Management will cautiously use the Group's strong balance sheet to accelerate expansion opportunities in carefully selected and considered areas of the business, as and when these arise.

Mark Steyn
Chief financial officer