Chief executive's report

This was certainly achieved: this year's reported trading profit is similar to the profit generated before the 2016 unbundling. Cash flows from operating activities, excluding dividends and on a comparable basis, are almost R0.5 billion higher. This is a remarkable achievement.

One of the early decisions we made after the unbundling was to embark on an international growth strategy, focused on acquiring niche businesses in the facilities management, hygiene services, plumbing and related sectors. Our clearly defined acquisition criteria – of acquiring asset-light businesses that are highly cash generative, are established market players with identifiable opportunities to scale, together with good entrepreneurial management teams – has proven successful. Our strong balance sheet allows us to continuously assess and pursue opportunities across the world.

We quickly evolved our strategy of product and geographic diversification and, in 2017, acquired Noonan, followed by PHS in 2020. These acquisitions resulted in the entry into the UK, Ireland and Spain. We increased the scale of our operations with several bolt-on acquisitions. The consolidation, in a somewhat fragmented market, led to Bidvest enabling Noonan to scale-up to become a top 10 facilities management business in the UK. More recently, we entered Australia after acquiring BIC Services, providing a platform to introduce a similar growth strategy in that region. At a trading profit level, Services International delivered over R3.0 billion in trading profit, which is 31.4% of the Group total and more than 30 000 of our 126 468 employees work internationally – all of this achieved in less than five years.

The extraordinary growth achieved internationally led to a decision, taken in the past year, to split the Services division into Services International and Services South Africa, resulting in the formation of our seventh division. The intended consequences, which are already evident, is that management capacity was increased to pursue our ambitions to build a global hygiene and facilities management services business, and Services South Africa now has a clear and dedicated focus on enhancing the division's value proposition.

The Group is constantly assessing and launching actions to disrupt the industries in which it operates. This is done, largely, by including technology and innovation advancements in all businesses. Key among many introductions, were upgrades in security services, such as facial recognition technology and using drones to patrol high-risk areas, as well as environmentally friendly products and services across the Group. Electric vehicles, autonomous robots and collaborative robots (cobots) are being used in the facilities management, cleaning and hygiene sectors, while artificial intelligence has improved planning, monitoring, reporting, and therefore governance, throughout Bidvest.

People: where it all starts

We strive for a Bidvest that is relevant, innovative and future fit. This, we believe, can only be achieved if we ensure that all stakeholders are treated fairly and with respect. We are unwavering in our approach to provide a safe and healthy workplace with equal opportunities, conducive to learning and personal development.

Diversity and inclusion are critically important aspects and remain a big focus. For us, the jurisdiction in which we operate does not matter: all Group businesses must reflect the demographics of that country. We worked hard to ensure our diversity targets are achieved, and it is satisfying that all internal targets were exceeded. Today, 93% of our SA employees are black and 42% are female. At the Board level, 83% of the Directors are black and 75% female. At our most senior level of leadership, 45% are black and 34% female. People with disabilities now make up just more than 1 000 of our employees, up from 790 in the prior year.

We have 6 325 people on training, internships and bursary programmes, and we have invested almost R550 million on these initiatives. We also have employee well-being programmes across the Group to support Bidvest employees and their families.

Job creation remains critical, especially in SA considering the high levels of unemployment. It is important that, as we grow, we create more jobs. Over the past year, we absorbed 406 learners across our various programmes into permanent positions within the Group. We introduced new work opportunities wherever possible, such as the more than 400 people employed into the G. Fox facility, and the 150 new drone pilots employed in UDS. In our travel businesses, and as this sector continues to rebound and recover, we were able to re-employ a significant number of people back into the industry.

Our focus also extends externally, into the communities we serve, and specifically those regions where members of the Bidvest family live. We contributed R148 million to various community programmes across the country, including the support provided to employees and communities during the floods and riots in KwaZulu-Natal. In many instances we are actively involved in community development to enhance education, health, economic upliftment and diversity.

We are immensely proud that we were able to spend an additional R3 billion, making the total R8 billion, on procuring goods and services from black-owned and black womanowned small- to medium-sized (SME) businesses in SA. Our view is that improving the country's economy is reliant on a growing SME sector. Big business must play a more active role, we believe, in supporting SMEs in SA. We aim to have more than 90% of total local procurement spend directed toward Level 1-4 B-BBEE suppliers, compared to 74% in FY2022.

Planet: looking beyond the financial statements

At Bidvest, we believe in doing the right thing, even when no one is looking. Doing what is right is different to doing what is easy. Wherever we work, even though we ensure we operate profitable entities, we insist on all business being conducted in a responsible and accountable manner. This includes sourcing products and services from supply chain partners who share our views on sustainable enterprises. Consequently, and in our efforts to contribute to the circular economy, we offer innovative customer solutions to aid sustainability. Examples of this include the LPG storage terminal we established in Richards Bay to facilitate reliable availability of an affordable low-carbon energy alternative, offering a vast range of renewable energy products and solutions through Bidvest Electrical, using fuel-free drone and remote-monitoring security services, environmentally sustainable cleaning materials and increased recycled material content in products.

We made good progress in achieving the goals set in our ESG Framework. Several projects are underway across most of our businesses, including greywater wash bays, an electric fleet at PHS, recycling activities, natural offset initiatives, and we are retrofitting the Bidvest property portfolio with solar energy capabilities in a phased approach.

Our Framework includes explicit targets to reduce scope 1 & 2 emissions, as well as our water and waste footprint by 20% by 2025, off the 2019 base. Emissions and water intensity, off the FY2019 base, declined by 30% and 26%, respectively. Yearon- year, emission and water footprints reduced on an absolute and intensity basis. All businesses have initiatives to reduce their footprint further in the coming year.

Performance: record results

The past year was extraordinary, with four divisions – Freight, Commercial Products, Branded Products and Automotive – delivering best-ever performances. There were pleasing performances from the Freight, Services South Africa, Services International, Branded Products, Commercial Products and Automotive divisions. Key growth drivers included pharmaceutical sales, record bulk commodity volumes handled, new vehicle prices, new business growth, a strong rebound in travel- and tourism-related revenue, and full year contributions received from the acquisitions concluded in the UK and Ireland in the latter part of the 2021 financial year.

This was the first year of reporting for the new Services International division, which delivered strong top line and organic growth. Trading profit between the facilities management and hygiene businesses is now almost equally split. The SA businesses delivered solid results and Noonan, the facilities management business, reported an outstanding organic result, with operations in Ireland performing particularly well. The hygiene business, PHS, delivered an excellent performance, and its hygiene pool continues to expand. The recent acquisition of Mayflower, will enhance PHS's consumable offering. As expected, there was a decline in high margin COVID-19 work. This division's cost control was excellent with expenses up only 4.4%, significantly below average inflation across SA, the UK and Ireland. Cash generation and conversion was strong, with the high return hygiene and facilities management businesses delivering an excellent ROFE of 203.0%.

Branded Products' improved results were driven, primarily, by an increase in demand for Adcock Ingram's over-thecounter and consumer products, a more normalised back-to-school season, and the increase in e-commerce packaging demand. There was excellent cost control, and the operating leverage was clearly visible, with a 7.2% increase in divisional revenue translating into a 28.4% higher trading profit. All businesses exceeded last year's profits with the overall margin increasing from 8.2% in the prior year to 9.8%. ROFE at 29.6% is up from 24.4% in the prior year, and cash generated from operations was excellent. For the first time, Adcock Ingram surpassed the R1.0 billion profit mark, and the office products cluster delivered a standout performance, as stock was on hand to meet demand. The data, print and packaging cluster performed well, driven by an increased demand for print and packaging products, where the online delivery space is steadily increasing. The consumer products cluster remains consumer-spending constrained, but businesses did well to reduce costs.

The Freight division's record performance was driven by volume increases across most of the bulk commodities handled. This year was the first full twelve-month contribution from our LPG terminal, and we also experienced a significant rebound in clearing and forwarding. Considering the significant volume increases, operating expenses were very well controlled. The trading margin increased from 20.9% to 23.7%, and the ROFE of 44.6%, up from 30.8%, for a capex intensive business is excellent. The terminal and related operations in SA, Mozambique and Namibia all outperformed, each without exception, due to higher volumes of chrome, manganese, maize, copper concentrate, iron ore, coal and gasses. There were also good new businesses wins leading to a recovery at Bidvest International Logistics. We continue to invest in the future of this division, and recently approved R1.0 billion in capital expenditure to build an inland LPG terminal as well as additional multipurpose tanks in Richards Bay. The Freight division's primary operations are in KwaZulu-Natal, which experienced rioting and floods during the past year, as well as a cyber-attack on Transnet, which impacted efficiencies. It is remarkable that the team managed to produce this exceptional performance.

Commercial Products' best-ever performance was due to improved sales, gross margin management and outstanding cost control, with expenses growing by only 3.1%. The leverage is also clearly demonstrated in this division, where the 7.2% revenue increase translated into a 27.4% higher trading profit, with most of the businesses increasing profits year-on-year. The trading margin at 7.8% is up from 6.6% and ROFE at 31.1% is materially up on last year, with excellent cash generation. The trade cluster delivered outstanding results with the electrical business delivering record profits, as sales into the renewable and private sector increased, and Plumblink opened 15 new branches. The catering cluster was down on the prior year, with King Pie, which opened 16 new stores, outperforming. The leisure, warehousing and general product clusters delivered superb results, notwithstanding supply chain disruptions, with Berzacks and Yamaha exceeding expectations. The DIY and packaging sectors delivered excellent trading results. A2 Forklifts was acquired in August 2022, which will increase market share in the forklift hire space, while also introducing electric forklifts to the product range, which is firmly in line with our sustainability strategy.

Services South Africa experienced a significant rebound in travel and tourism, and higher occupancies at offices, schools and universities. Cost control was outstanding, with expenses increasing only 2.6%. The trading margin increased from 8.9% in the prior year to 10.7%. Returns in the division continue to improve and ROFE at 121.1% is significantly up on the prior year's 97.1%. Operationally, the turnaround in the hospitality and catering cluster was significant, and the airport lounge business continues to grow. The security and aviation cluster delivered an exceptional performance driven by new contract wins, particularly in UDS. The rebound in the travel cluster exceeded expectations, with post-pandemic volumes increasing and efficiencies obtained from the restructuring, which started pre-pandemic. At a domestic level, travel volumes are up at about 80% of pre-COVID volumes, and while international travel volumes are higher, these are only around 25% of pre-COVID volumes. The allied cluster delivered excellent trading results off the back of increased office and hotel occupancies and the resumption of conferencing and banqueting events.

The Automotive division delivered record-breaking revenue and profit, with virtually all brands up on the prior year. There was a volume increase in new vehicle and part sales. This was an exceptional performance given the material shortage of new and used cars, increasing interest rates and constrained disposable income. The 2021 financial year's trading profit increased by 267.3%, and there was further growth of 25.6% this year. The trading profit margin at 3.5% is up from 3.1% in the prior year, and ROFE at 50.0% is the highest return this division has ever produced. This must be viewed in the context of reduced funds employed due to vehicle supply shortages. There were market share gains in the new vehicle market, with the more affordable brands performing well. Used vehicle revenue increased, despite unit volumes declining by 10.0%. The shortage of new vehicle stock continues to place pressure on the availability and pricing of used vehicles.

Financial Services experienced a difficult year, and the results are disappointing. Revenue is lower, after a reduction in non-interest income, and there was a lack of new leasing agreements as some clients are choosing to extend existing contracts and push out their re-fleeting cycle. Credit approved pay-outs at Bidvest Bank were delayed due to vehicle shortages, but forex revenue is showing signs of recovery. Overall, insurance revenue was flat year-on-year. The division's gross profit improved, but expenses increased, due largely to the significant and delayed impairment charges raised, while there were also certain one-off costs. The life insurance business, expenses and acquisition costs increased at a faster pace than revenue and the expected profit contribution from this business did not materialise. The other major impact was the investment portfolio, which declined by almost R100.0 million on the back of a more bearish market. FinGlobal delivered in line with expectations, and the short-term insurance business delivered a good result with Compendium performing very well. We have focused on stabilising and solidifying the strategy for the 2023 year, which includes the complete digital migration of the Bank. All branches were closed, a strong lending pipeline is in place, sales teams further resourced, and credit processes reviewed, streamlined and optimised. The Bank's balance sheet is strong, liquid and well capitalised, in excess of regulatory requirements. The capacity to grow is certainly evident and expense management across the division is under tight control. There has been a portfolio clean-up enabling the team to focus.

Forward into an exciting future

We have reason to remain bullish about the coming year. We see several 'green shoots,' such as the additional momentum expected from the travel and tourism sector, which remains below pre-COVID levels, and where a full recovery will be positive. Other growth areas include private sector infrastructure projects, including renewable and alternative energy projects following the lifting of the megawatt cap on self-generation.

The sectors in SA that are expected to continue to grow include the online sector while mining and agriculture should remain buoyant. This will benefit the many Bidvest businesses that are significant product and services suppliers into these industries.

The acquisitions concluded will enhance market growth and consolidation in their respective niche areas. This includes BIC Services (BIC) in Australia, which offers an exciting growth platform for facilities management, as well as leveraging our hygiene expertise across this large geographic area. We also expect a material recovery from the Financial Services division.

We remain very aware of and alert to inflationary pressures, we are carefully managing higher costs, and we will protect margins as best possible.

Closing with gratitude

I express my sincere thanks and gratitude to the remarkable management teams across SA, the UK, Ireland, Spain, Namibia, Mozambique, Swaziland and now Australia. Spectacular results were delivered by more than 125 000 people that comprise Bidvest, and we should all be proud.

My thanks also to all the members of our Board, for your guidance and wise counsel. I look forward to working with you as we move forward into an exciting future.

We have clearly defined priorities that will ensure we continue to focus. The Bidvest family is well positioned, and aligned, to deliver an improved performance, ensuring value-adding returns for all stakeholders and continuing our societal contribution. This is, after all, the Proudly Bidvest way of doing things.

Mpumi Madisa