CEO's report

While Bidvest is familiar with change, we have never before faced the need for transformation at such a rapid rate – first, to support more than 130 000 employees in the Bidvest family through the COVID-19 pandemic and, at the same time, to ensure the success of our numerous initiatives to remain viable, competitive and future-fit.



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Lindsay Ralphs
Chief executive (retired 30 September)

The COVID-19 pandemic has resulted in a tumultuous year - around the world, within South Africa, and for our Group and our people. But, in true Bidvest spirit we were able, almost immediately, to implement cost containment, liquidity preservation and other strategic measures which have assisted our clients, employees and our communities to lessen the harsh impact on their respective livelihoods. It has enabled us to successfully navigate the pandemic and we remain stable.

This was achieved, not only because of the swift actions taken by the management team to ensure we could adapt quickly, but also because we embraced the necessary changes to reposition and reset more than 200 businesses that collectively form the Bidvest Group.

Change has been a constant feature for us over the past 32 years. The Group was formed during a period of great political turmoil, followed by the transition to a welcome change of government in South Africa, the global financial crisis of 2008/09, the investing in - and disinvestment from - many companies over the years, and the successful unbundling of our food services business, which focused the Group into its current description.

At each turn, we re-aligned rapidly and set a new course, which has served all our stakeholders well. Our response to the COVID-19 pandemic has again reflected our dynamism.

The most difficult aspect of this pandemic, however, has been the tragic loss of lives across the world and here in South Africa. The loss of livelihoods has also been a source of great distress and, despite interventions to save jobs wherever we could, the economic impacts of COVID-19 have continued unabated. It is concerning that South Africa may still be subjected to a second wave, as can be seen happening in parts of Europe and elsewhere. We have absorbed the lessons from our offshore operations and remain alert to this possibility.

The year in review

The financial highlight for the year was undoubtedly our ability to generate cash of R9.2 billion from operations, up 38% from the previous year. This is a commendable performance and our management teams must be congratulated. Free cash flow was R3.7 billion, a R1.4 billion increase over last year.

Also worthy of applauding, is the exceptional asset management during these very challenging times. We achieved a ROFE, the Group's key performance measurement criteria, of 23%.

Group revenue rose 0.6% year-on-year to R76.5 billion. Revenues from our Services operations (which incorporate businesses in the Services, Freight, Financial Services and Properties divisions) largely remained stable during the pandemic. There has been a sequential improvement since the April trough, specifically in contributions from the cleaning, health and hygiene sectors, which have continued into the new financial year. The Trading and Distribution operations (which incorporates the Branded Products, Commercial Products and Automotive divisions) were harshly affected by the lockdown and other restrictions in April, May, June and July. The tough operating environment persists, and we expect it will take some time to work through the system.

Group trading profit, before the R1.6 billion COVID-19 expenses, was 3% higher at R6.9 billion.

An important Bidvest principle is to always ensure a robust balance sheet, which we have maintained. During the early part of the pandemic and, after witnessing the events around the world, we realised we needed a rapid response to liquidity. We understood the looming impact on costs and the massive change in customer demand in the markets in which we operate, which would ultimately impact our businesses. Our thinking was also informed by events before the pandemic. South Africa had already entered a technical recession and the UK and Ireland - our other key geographic areas of operation - were experiencing their fair share of uncertainty following the confusion around Brexit and the political changes in England.

One of our early interactions, therefore, was to engage with banking and financial institutions to bolster liquidity and we were able to secure R4.5 billion in additional general banking facilities. We have not needed to access these funds, which remain available to us, as and when needed - and this can be credited to our management teams' proactive cost control and cash generation.

Protecting livelihoods

The greater focus on cost management resulted in a need to furlough many of our employees. We are one of the largest employers in South Africa and we employ more than 20 000 people in the UK and Ireland. The furlough system in the UK was generous and worked superbly well to support a continued, living wage for our employees. In South Africa, where we had to ask thousands of our people to stay at home, it was more difficult. The UIF TERS system contributed to a degree, but we wanted to ensure our employees would receive an income that was close to what they were taking home before COVID-19. Together with applications made on behalf of our employees to access the UIF TERS benefit, we established the Fund. This R400 million fund contributed R2 000 per month per employee furloughed.

The Group donated R10 million to the Solidarity Fund, with executive and board members sacrificing salaries and fees for three months. We embarked on a national school readiness programme, which saw close to 3 000 schools across most provinces in South Africa being sanitised before scholars returned. We also launched a programme in conjunction with SABC television to assist matric learners during this very difficult 2020 year and to aid during their exams. Throughout the Group we have also donated significantly to those in need by providing food hampers and distributing sanitising products and various personal protective equipment across the nation.

Strategic change and progress

The nature, spread and diversity of our businesses continue to serve us well. Although our markets were virtually devastated during April, May and June, we have seen a marked recovery in most sectors - with some exceptions, notably the travel and hospitality industries. There is a significant recovery still to come and we are exceptionally well positioned to take advantage of this resurgence, which encourages us enormously as we move into the new year.

One global growth area is the hygiene sector. This market is increasingly resilient and is supported by structural growth drivers such as urbanisation, hygiene and safety standards as well as a growing and aging population, to name a few. The global outbreak of COVID-19 undoubtedly heightened the awareness of and need for out-of-home hygiene. We have escalated our focus internationally and the acquisition of PHS is indicative of the scale we are pursuing. Even without COVID-19, we anticipated that hygiene would be a growth industry and the decision to give this sector a more strategic focus was made some years back. Our sector learnings in South Africa and now in the UK, Ireland and Spain, will stand us in good stead as we pursue other possibilities.

We are of the view that the travel, tourism and related industries will continue to underperform. We have, therefore, decided to divest from the car rental business, as well as Bidair Services, which provides ground handling services at major airports. We believe these businesses will be better served and operated by different owners and we have entered disposal discussions, with a strong imperative for the new owners to retain as many jobs as possible.

Our services' businesses will continue to be impacted by remote working and the 'empty building syndrome' that emerged with COVID-19. There is still some uncertainty as to when, and how, a full return to normal operations will resume in South Africa and abroad, but we remain in close contact with all clients as they start lifting suspensions on certain building services. We are adapting to this situation and many innovative solutions have been introduced to ensure continued, and in some case extended, client contracts.

Reviewing divisional performance

Bidvest's six major divisions delivered mixed results.

The Services division delivered an outstanding result. Revenue was 7% higher than last year and trading profit was only slightly down at R2.1 billion. This division, which largely comprises annuity-based businesses, did well to control its cost base, which is remarkable considering COVID-19 and the recent introduction of PHS. Noonan delivered an excellent performance and we have spent the past few years expanding the footprint and extending its reach into areas within the UK. PHS is our second major international acquisition since the unbundling of our food services business and is Bidvest's largest ever transaction. We have identified numerous areas of synergy and cost savings to achieve improved margins and work has started to bring this into effect.

Services' facility management cluster, which includes Steiner, Prestige, Protea Coin and UDS, the drone business we acquired last year, delivered excellent results. We have, for some time, considered how best to innovate in the security business and the use of drones is certainly proving beneficial. BidTrack, Vericon and Bidair Cargo also performed well, but the aviation, travel and hospitality sectors have been particularly badly affected by COVID-19, and we have rightsized and restructured to ensure a return to profitability as quickly as possible.

The Branded Products division incorporates Adcock for the first time and its inclusion for eleven months of the year resulted in a 46% increase in revenue and trading profit was sharply higher. Adcock's major brands showed pleasing growth. The demand for office products was significantly impacted by remote working and school closures, the demand for packaging and labels was robust and online sales were also boosted. Restructuring of the business assisted in reducing costs and generating good cash.

The result from the Freight division reflects the subdued economy and lower global trade. Revenue was down 6% and trading profit declined. Bulk volumes remained strong, but export volumes were weak and the volume of containers in and out of South Africa was severely depressed for three months, a situation which is now slowly improving. The commissioning of the Bidvest Tank Terminals' LPG storage project, one of the largest in the world, was slightly delayed by the pandemic, but is now commissioned. Other Freight division businesses have been rightsized, particularly the freight forwarding business previously known as Bidvest Panalpina Logistics. We have introduced a new partner and this business is now Bidvest International Logistics.

The Commercial Products division supplies a combination of industrial and consumer products. All businesses were heavily impacted by lockdown, with revenue declining 7% and lower trading profit. Certain of the companies - G Fox, Afcom, Bidvest Materials Handling - managed to deliver very good results, largely because of niche market offerings, but also due to restructurings in previous years. Our previous electrical division now forms part of the Commercial Products division and there has been a significant re-alignment and rightsizing of these businesses.

The Financial Services division's revenue was 2% down, but trading profit reduced markedly as Bidvest Bank was severely impacted by the complete halt on foreign exchange requirements because of travel restrictions, and the fleet management business experienced older fleet roll-off. Leased assets declined by 13%, but deposits, loans and advances held up very well. The insurance business had a reasonable year, with life products growing.

The Automotive division performed well for most of the year but came to a grinding halt for the month of April and cautiously resumed sales activity in mid-May. Annual revenues were down 20% and trading profit was sharply lower. Demand for vehicles was decimated during the height of the pandemic period in South Africa. But we have seen a return for some of the markets, particularly the online vehicle sale and auction offerings, into which we invested considerably over recent years.

Stewardship

We are very proud of our sustainability efforts. More than 50% of our businesses have level 1 or 2 Broad-Based Black Economic Empowerment ratings. Despite COVID-19 pausing our training and some other activities, we are fast returning to our planned schedule of initiatives.

We are also developing and transforming our supplier base towards enticing local manufacture and supply. This is a key tenet of the nation's economic recovery and we will expand our reach into buying more locally and assist in the creation of new businesses and industries, where relevant and appropriate for the Bidvest Group.

Initiatives focused on energy saving, environmental sustainability and innovative products and services have been commonplace within the Group for some time. Despite the constraints introduced by the pandemic, we will continue and enhance interventions to ensure Bidvest remains a viable and responsible citizen within all our operating regions.

Looking forward

The current economic environment will endure for some time and certain industries will remain under pressure, such as the travel- and tourism-related activities. We are seeing a rapid return to normal business activity within some sectors and certain areas are showing signs of new levels of opportunity, such as out-of-home hygiene. Overall, however, we expect the uncertain and fragile operating environment to persist.

Bidvest's basic-need services and everyday essential product ranges will deliver improved contributions and we have already noted market share gains across many of our Commercial Products businesses as we have stock available to trade. The flagship LPG storage project and a full year contribution from PHS will also provide meaningfully.

We intend to maintain our strict capital allocation discipline and focus on costs to ensure strong cash flows and sustain our robust financial position - a key and fundamental characteristic of Bidvest. All major transactions and corporate activity are on hold while COVID-19 remains a dominant feature of our operating environment. We will continue our strategy of exploring smaller, bolt-on-type acquisitions and we remain alert to opportunities locally and internationally, in those areas we previously identified for growth.

Our disciplined asset management, cost control and an agile business approach should yield good results over the next year. We are confident in our overall resilience and our ability to deliver consistent, sustainable growth over the long term.

Appreciation

This is my final report back to shareholders, following my retirement from the Group. My tenure with Bidvest has been almost as long as the existence of Bidvest itself. I extend my sincere thanks and gratitude to the entire Bidvest family for the many wonderful years spent together.

I am extremely proud of what the Group has accomplished over the years and that we have been able to provide employment to more than 130 000 people. Equally, it has been pleasing to be in a position to extend our association and reach into our broader stakeholder groupings, which includes the many more thousands of people with whom we have partnered over the years.

I also extended my heartfelt appreciation to Brian Joffe, the founder of Bidvest. I worked with Brian before he founded Bidvest and he brought me into a fledging Bidvest Group 28 years ago. The unselfish sharing of his tremendous skill and knowledge has been the reason we, as the entire management team, have been able to continue his legacy and success of ensuring ongoing value for all stakeholders over the years. Under Brian's leadership, we saw the creation of one of the world's largest food service offerings, which culminated in Bidcorp's unbundling from Bidvest in 2016. This gifted us with a significant understanding of international growth. We are using this knowledge to good effect as we enter certain markets in our chosen sectors.

The phenomenal growth of our Services division is of particular pride, it is where I started my Bidvest career. At that time, we only had only two companies in the division, and it is now the major contributor to the Group in terms of people employed and profit, while also leading the charge for Bidvest's international growth plans. The management teams over the last few years have been strategically adept, extraordinarily focused and dedicated, and this has resulted in this division being a spectacular success.

I am equally proud of how the Group has managed to navigate its way through this treacherous pandemic. It is an indication of the quality of our management - and a dedication to the Bidvest purpose - which has ensured we emerge stronger and better positioned to take on a future which, while still uncertain, holds the promise of growth and stakeholder reward.

Carefully considered succession is another core Bidvest principle. We maintain our focus on ensuring that a proven team of new management and leadership is available for the future. This internal philosophy led to the appointment of Bidvest's new chief executive, Mpumi Madisa, following her appointment as CE-designate some 18 months before she stepped into the role. I, personally, am very proud of her appointment and I know Mpumi's exceptionally strong knowledge of our businesses and markets positions her well to lead Bidvest into its next chapter of growth and sustainability.

Lastly, my gratitude is also extended to my colleagues on the board of directors, and to our employees who comprise our large Bidvest family. To all our customers, clients, suppliers, partners and to our stakeholders whose lives and livelihoods we touch in some way, thank you! We simply would not have chartered this difficult and challenging year without your strong support. As a result, the Bidvest Group is #EmergingStronger.

Lindsay Ralphs
Chief executive (retired 30 September)

Bidvest Group