Bidvest

This financial year has been unprecedented. Never has the world, our country, Group and our people been tested to such an extent. But the true Bidvest spirit shone through. Numerous cost containment, liquidity preservation and strategic steps were implemented in rapid response to considerable demand changes. Various wellness and support interventions were rolled out to assist our employees and communities as their livelihoods were severely impacted. At the same time, innovation within our businesses ramped up to continue to add value to our customers. The Bidvest family is proud of what has been achieved, providing a solid platform to ensure that we are capable of #EmergingStronger.

The Group implemented various measures to lessen the impact of COVID-19 infections on its employees, communities and operations. Prevention and treatment interventions were rolled-out across the Group to manage health, safety and recovery during this time. Our sincerest condolences go to the families, friends and colleagues of the 35 Bidvest employees that sadly succumbed to the COVID-19 virus.

The Group delivered a credible financial performance during the financial year which ended on 30 June 2020, considering the already significantly constrained South African economy pre-COVID-19 and the pandemic's impact on the last quarter. Post the complete national lockdown in April, monthly trading results have progressively improved.

At the onset of the lockdown, Bidvest proactively bolstered its liquidity position by securing R4.5 billion additional general credit facilities with South African banks, taking committed general banking facilities to a total of R11.6 billion. An intensified focus on cash generation and working capital management, together with rapid and decisive cost containment measures, resulted in R2.5 billion more cash generated from operations to total R9.2 billion. As a consequence, the Group had no need to access the additional credit facilities secured, a truly remarkable result and testament to Bidvest's long-standing cash generation focus.

The acquisition of PHS Group (PHS), a leading hygiene service provider in the United Kingdom (UK), Ireland and Spain, for GBP495 million was concluded and funded with a GBP-denominated bridge facility. Despite adding this significant amount of debt on the balance sheet, the net debt EBITDA remained well within the Group's gearing tolerance.

Exceptional cost discipline and improved gross profit margin were highlights in a very challenging year. Trading profit declined 19.9% after taking account of R1.6 billion in COVID-19 related charges. Almost two-thirds of profit originated from the services businesses, comprising the Services, Freight and Financial Services divisions, and provided a defensive underpin.

An imperative during this crisis is to protect and provide for the safety, health and well-being of employees who are, collectively, the backbone of our businesses.

Bidvest established a R400 million Bidvest COVID-19 Fund ("Fund"), to assist our South African employees not working due to the lockdown restrictions. The 30% salary and fee sacrifice by the executive management team and board members respectively, during the last quarter, was added to the Fund. Various other employee and family support initiatives, such as a Group-wide comprehensive employee wellness support programme, COVID-19 testing and bursary extensions for children of those retrenched were rolled out.

Applications to the UIF on behalf of our employees for the COVID-19 TERS benefit were made and are ongoing. Furlough support programmes by the governments of the UK and the Republic of Ireland are comprehensive in supporting the livelihoods of our employees in these countries.

During the most stringent lockdown periods, approximately 75 000 of our employees were not working. Today, 91% of our employees are back at work.

Bidvest is also contributing to the social needs of the broader stakeholder community in the country, including a donation to the Solidarity Fund, a donation of PPE, cleaning and hygiene products and decontamination services to 2 800 schools as part of a nationwide school readiness project.

In addition, we sponsored the launch of the Woza Matric of 2020 campaign, a free-to-air television initiative aimed at grade 12 learners, in partnership with the SABC and Department of Education. We are also in the process of distributing food hampers in low-income communities across three provinces, to reach a total of 20 000 households once the project is completed.

Revenue from continuing operations was R76.5 billion (2019: R76.1 billion). On a comparable basis, the impact of the national lockdown on trading was broadly neutralised by the maiden consolidation of Adcock Ingram ("Adcock") and two months of PHS.

Gross profit margin improved from 29.6% to 30.6%. Operating expenses increased by 9.6%. Cost containment received extra attention, particularly at the onset of the pandemic. Excluding the impact of material acquisitions, IFRS 16 and COVID-19 related expenses, as a direct result of actions taken, expenses declined by 6.3%.

Services delivered a good overall result, with an excellent performance from Noonan while the SA profitability was negatively impacted by no travel- and hospitality-related activity in the last quarter. Freight delivered a resilient result on lower trade activity through South Africa's ports. Branded Products' result was a combination of a solid Adcock performance while the balance of the division bore the brunt of lower demand and trade restrictions during lockdown. The results from Commercial Products and Automotive mirrored the latter. In Financial Services the negative impact of a complete drop-off of foreign exchange demand in the last quarter and fleet contracts rolling off, more than outweighed higher investment income.

Acquisition costs of R178.2 million relate mainly to the acquisition of PHS and other corporate actions.

Net capital items of R2.0 billion were recognised, R1.1 billion of which is attributed directly to COVID-19. Property, plant and equipment as well as goodwill and intangible assets of certain Brandcorp businesses and automotive dealerships in SA and Namibia, amongst others, were impaired by R1.0 billion as a result of lower forecast cash flows impacted by COVID-19, the expected slowdown in economic activity as well as higher discount rates. The losses recognised on the closure and disposal of Glenryck, Mansfield Group, Bidvest Wits and others totalled R247.2 million. Net negative adjustments of R485.7 million were made to the investment values of Adcock and Comair prior to the former becoming a subsidiary and the latter being put into business rescue. The balance of the charge relates to the insurance receipts on damaged Freight equipment.

Excluding the impact of IFRS 16, net finance charges were 7.4% higher at R993.3 million (2019: R924.6 million). Additional borrowings were raised to fund acquisitions. Despite the higher commitment fees and spreads over base rates, the decrease in interest rates and addition of cheaper offshore funding, lowered the Group's average cost of debt to 5.7% pre-tax (2019: 6.7%).

Share of losses from associates resulted from the operating losses incurred by Comair prior to going into business rescue as well as the impairment of the full outstanding SAA settlement. Adcock was accounted for as an associate for only one month compared to a full year previously.

The Group's taxation expense decreased by 40.5% to R851.6 million (2019: R1.4 billion). The effective tax rate of 65.7% (2019: 27.1%) was impacted by non-tax deductible associate, goodwill and Mumbai International Airport Limited (MIAL) impairments, losses on disposal of businesses, no deferred tax assets raised on closed operations Bidair Services, Commuter Handling Services and Voltex Namibia and other items.

Normalised headline earnings per share (HEPS) from continuing operations, a metric utilised by management to assess the underlying business performance excluding acquisition costs and amortisation of acquired customer contracts, fair value uplift of Adcock's inventory, Bidvest's share of Comair's full impairment of the outstanding SAA settlement as well as COVID-19 expenses, declined by 22.9%.

Bidvest's HEPS from continuing operations decreased by 59.5% to 553.2 cents per share. Basic earnings per share from continuing operations decreased from 1 133.8 cents to 49.8 cents mainly due to impairments, business closures and disposals together with the contraction in the share prices of associates.

Bidvest net debt increased from R7.8 billion to R19.2 billion, largely due to the acquisition of PHS for GBP495 million, effective 1 May 2020. Strong free cash flow generation resulted in Bidvest remaining within bank covenants of 3.0x net debt / EBITDA and greater than 3.5x interest cover, despite the disproportionate amount of debt versus EBITDA added and the lost trading in the fourth quarter. Net debt/EBITDA was 2.1x (2019: 0.9x)

The PHS acquisition is funded with a GBP-denominated bridge facility, repayable in December 2021. Following the downgrade of South Africa to junk status, and the resultant impact on the Bidvest credit rating, as well as the deterioration in the country's macroeconomic position, indicative credit spreads have widened considerably. This makes the initial decision to replace the bridge facility with a foreign-denominated bond less viable. The geographic mix of debt is also misaligned relative to trading profit. Management therefore embarked on a process to review the capital structure and evaluate all alternatives. As a consequence, the following steps have been taken to date to part-settle the bridge funding: R4.0 billion debt is in the process of being raised from local banks and offshore cash of R2.5 billion has been earmarked. Expected proceeds from the MIAL disposal and normal free cash generation in the business, will go a long way in settling the bridge funding. Further steps are being contemplated.

Total assets increased by 46.6% to R90.9 billion as Adcock and PHS was consolidated and right-of-use assets recognised under IFRS 16. The acquisition of PHS brought about R11.7 billion in goodwill which represent long-standing customer contracts and a leading brand, from which Bidvest expects to derive significant future value. NAV is R68.16 per share (2019: R75.71).

Cash generated by operations at R9.2 billion, was 38.2% higher than the R6.6 billion generated in the prior year. This is boosted by the adoption of IFRS 16 (positive R1.5 billion impact). The Group released R0.9 billion of working capital in the current year compared to an absorption of R1.3 billion in the prior year. The main impact, year-on-year, was from lower trade receivables on the back of lower activity levels. Free cash flow after leases increased by R1.4 billion to R3.7 billion.

Normalised return on funds employed, which excludes the COVID-19 charges declined marginally from 23.2% to 23.0%, as asset management remains a core focus, particularly in these challenging times. Normalised ROIC was 12.9% (2019: 18.4%) which is still in excess of the Group's weighted cost of capital.

The acquisition of PHS became effective on 1 May 2020. PHS was founded in the UK in 1963 and today service more than 120 000 customers. More than half its customers have long-standing relationships with PHS. Advance billings and high retention rates result in significant revenue visibility and attractive operational cash conversion. During the due diligence, management identified five areas of synergy and cost saving to achieve an improved margin, which is more in line with industry peers. Work has started to bring this into effect.

The hygiene 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 the COVID-19 pandemic undoubtedly heightened the awareness of and need for out-of-home hygiene. This is expected to accelerate the development and maturity of the industry globally.

As previously reported, the anticipated R3.2 billion Eqstra transaction was terminated. Three bolt-on acquisitions were concluded in Services, the most notable being Future Cleaning which augmented the footprint of Noonan's UK operations.

Following a detailed strategic review of all Bidvest businesses, a decision was taken to divest of Bidvest Car Rental and Bidair Services. Formal disposal processes were kicked off and have progressed since year-end. Management's preference is to sell the businesses in order to preserve as many jobs as possible. Bidvest Car Rental was disclosed as a discontinued operation.

The disposal of our stake in MIAL has been extremely frustrating and embroiled in litigation. A reduced offer was accepted given the deteriorated financial position of the airport as a result of the pandemic. Parties have agreed to cooperate in order to expedite the closing of the transaction.

In light of the extraordinary levels of uncertainty as it relates to the economies and environments in which we operate and the restructuring actions taken, the board believes that the decision to not declare a final divided balances the interests of all stakeholders. This leaves the total dividend for the year at 282 cents per share, 53.0% lower year on year.

Bidvest recognises that the pandemic will result in socio-economic shifts and consequently long-term structural changes to the economy and business in general. In recent weeks, Bidvest right-sized operations to make sure that our operating models remain relevant and future-fit, reinforce competitive positions, and ensure that the businesses have sufficient scale for growth. This unfortunately led to retrenchments across all six divisions.

Industries that are under incremental pressure include travel- and tourism-related activities, while out-of-home hygiene offers good structural growth opportunities. Affected Bidvest businesses have taken account of this in their planning.

Overall, we expect the uncertain and fragile operating environment to persist. Bidvest's basic-need services and everyday essential product ranges should stand it in good stead, especially when coupled with an innovative, value-adding mindset. In recent weeks, we have noted anecdotal market share gains across many of our Commercial Products businesses as we have stock available to trade. Our flagship liquid petroleum gas (LPG) storage project is expected to be commissioned during September 2020. The acquisition of PHS leapfrogged our hygiene exposure and this will be leveraged going forward.

South Africa's need for real GDP growth to create employment and prosperity for all, is undeniable. Bidvest is actively participating in national workstreams incorporating labour, government and private sector to achieve this.

Bidvest will continue to invest strategically to generate sustainable profits for the long term. The Group remains alert to opportunities both locally and internationally to further its strategy to expand into niche areas but will remain steadfast in our capital allocation disciplines.

Bidvest is well positioned to participate in pockets of activity and opportunities. Disciplined asset management, cost control and an agile business approach should yield good results. We remain confident in our overall resilience and ability to deliver consistent, sustainable growth over the long-term.

On 4 March 2019, Bidvest announced the appointment of Ms Mpumi Madisa as Chief Executive – designate, consistent with a comprehensive succession plan that was developed and has been executed over the past several years. The last 18 months was spent on extensive preparation for a smooth transition. Mr. Lindsay Ralphs, the current CEO, has now reached his retirement age, and Ms. Mpumi Madisa will assume the position of Bidvest CEO, effective 1 October 2020.

The Bidvest family and board of directors thank Lindsay for 28 years of invaluable commitment and contribution. He will leave behind a deep legacy and his distinct mark on Bidvest that will continue to guide the Group in its future endeavours. We wish him well in his retirement.

Bidvest is a leading business-to-business services, trading and distribution group, operating through six divisions: Services, Branded Products, Freight, Commercial Products, Financial Services and Automotive. The Group owns a significant Bidvest occupied property portfolio. Bidvest has a 53.6% stake in Adcock.

Services

Trading profit of R2.1 billion is an outstanding result considering the operating environment. Noonan performed exceptionally well and the results of the recently acquired PHS, which are included for the last two months of the year, are in line with expectations. Noonan widened its trading margin to 6.5% as focus on COVID-19 products and services was augmented by strong commercial and cost control. Recently acquired Future Cleaning's performance was disappointing as pubs and cinemas were closed. Both Noonan and PHS are seeing the benefits of a return to work in the UK, and synergies are being actively pursued between the two companies.

The Facilities Management cluster performed well. New contracts, the sale of COVID-19-related products and services more than offset the complete lack of hospitality business. Mastrantonio's catering operations were acquired to elevate the Bidvest offering into the corporate customer base. Within the Security and Aviation cluster, Protea Coin and UDS delivered excellent results. BidTrack, Vericon and Bidair Cargo achieved good results as it responded well to market changes. Bidair Lounges was on track for a record performance but was curtailed in the pandemic-affected fourth quarter. Bidair Services will be divested and incurred a loss during the year. Significant restructuring/closure costs were incurred. Businesses within the Allied Cluster held their own despite no hospitality demand and reduced water and coffee demand in corporate offices impacting Puréau. The Travel cluster was harshly impacted, resulting in a loss for the year. The extensive restructuring plan was accelerated. Strategically, the cost of doing business is being sharply reduced and niche inbound travel exposure increased.

Looking forward, management is monitoring how the future of remote working will impact the "empty building" syndrome in the regions where the division operates and is positioning its offering to respond. The opening up of international borders is critical to the travel- and tourism-related activities.

Branded Products

Adcock has been combined with the Office and Print division and other consumer businesses and this is the first annual reporting period of this integrated Branded Products division. Trading profit rose 49.2% to R1.4 billion. Despite the volatility and pressures with regard to demand patterns brought on by the pandemic Adcock's annual sales were 4% ahead of the prior year, but trading profit was flat. Margins were impacted by a weaker exchange rate, COVID-related costs and lower recoveries at certain facilities. There were excellent performances from Adcock's Critical Care and Consumer units, a commendable performance from OTC but the Prescription results were adversely affected by fewer patients consulting doctors and the postponement of elective surgeries.

Demand for printing and office products declined further as a result of remote working and online schooling. Technology solutions offered by Bidvest Mobility, essential product packaging and packaging geared towards e-commerce performed well. Consumer Products were negatively impacted by constrained consumer demand and trade restrictions. Almost all businesses were right-sized for expected lower demand. Online offerings are being expanded and improved. Cash generation was excellent.

Adcock continues to seek appropriate business and product acquisitions. While there has been a resumption of trade in certain segments of the office and print market, there is a large degree of hesitation. Online offerings will continue to grow.

Freight

R1.2 billion trading profit, down 16.3%, is indicative of the subdued local economy and lower global trade culminating in less volumes handled. Bidvest Tank Terminals performed well as the positive impact of efficiencies more than offset a 3% volume decline. Capacity requirements of a few customers have changed and are being managed. The LPG project was delayed due to the lockdown and travel restrictions preventing technical completion. South African Bulk Terminals produced an almost flat result even though maize exports only commenced in June, but wheat imports were strong following a poor local crop. Bulk Connections handled 1% more volume despite the lockdown disruptions. Encouragingly rail supply increased in June. Bulk Connections has ongoing engagements to optimise and increase rail allocation which should ultimately resolve some of the port congestion. The remaining result reflects the challenging trading environment in which Bidfreight Port Operations, Bidvest International Logistics, SA Container Depots and Ontime operated. Limited trading activity during the lockdown period, lockdown-led restructuring and right-sizing initiatives all had an impact.

While the immediate outlook for trade activity remains uncertain, a contribution from the LPG project is expected, a good maize crop and any economic recovery, albeit protracted, will be beneficial.

Commercial Products

Depressed trading conditions driven by little industrial and construction demand was followed by severe restrictions placed on all businesses within this division during the lockdown. Trading profit contracted 46.6% to R393.0 million. The slight decline in gross profit margin was the result of lower factory recoveries while trading margin was well controlled under the poor trading conditions. There were, however, excellent trading results from G Fox, Afcom and Bidvest Materials Handling. Bidvest's former electrical division was amalgamated into the Commercial Products division and a new management structure has been implemented with various operating changes being made. Operations in Namibia delivered poor results. Detailed and in-depth reviews of each business within the division were completed and appropriate action has been taken where necessary. Cash generation was excellent.

Commodity and product price increases as well as product shortages are becoming evident in the market. Bidvest operations are well stocked to take advantage of this as well as the uptick in DIY demand.

Financial Services

Bidvest Bank's non-interest revenue was severely affected by the international travel restrictions, which negatively impacted forex and currency card revenue streams. New business, including insurance policy sales, was disrupted and reduced employee headcounts affected the Bidvest Wealth and Employee Benefits business. A key challenge remains the fleet business, largely due to capital paydowns on the older fleets, while new business rollout has been slower than anticipated. Bidvest Bank liquidity remains healthy and is also very well capitalised with a further increase in deposits. The bank's balance sheet continues to grow. Payment deferrals were approved after case-by-case assessments. The IFRS 9 Expected Credit Loss provision increased driven by the impact of COVID-19 on the global and SA economy. FinGlobal and TradeFlow performed well. New banking and foreign exchange alliances are being explored and finalised. Investment income increased year-on-year.

Rationalisation of the branch network has been accelerated in response to the roll-out of digital forex and money transfer capabilities and changes in demand. Bidvest Insurance has recently launched new products for which initial demand has been encouraging. Across the division, management is focused on reducing the cost of doing business.

Automotive

Trading profit from continuing operations was decimated. This is despite producing excellent results for the first nine months of the year. The trading profit excludes Bidvest Car Rental, which has been treated as a discontinued operation, following the disinvestment of this business towards the end of the year. Even before the pandemic's effects, new vehicle sales were declining and trading conditions in the used car market were difficult given low consumer and business confidence. The rolling over effect of a declining car parc, particularly the portion under service and maintenance plans, continued to put pressure on aftermarket activities. The gross profit margin increased by an encouraging 60bps. Fixed operating costs, the bulk of which relate to facilities, could only be tweaked in response to the shutdown. Further restructuring was done based on expected buyer demand.

Recent new and used car sales, as well as workshop volumes, were surprisingly positive when compared to the pre-COVID February month. The impact of large-scale retrenchments across the SA economy and constrained disposable income could disrupt the demand rebound in the coming months.

Bidvest Properties and Corporate

Bidvest Properties delivered another strong result with trading profit largely unchanged at R579 million. The portfolio comprises 133 properties with an estimated market value of R8.6 billion, significantly higher than book value.

The R400 million Bidvest COVID-19 fund was accounted for in Corporate Office. The MIAL investment was adjusted for foreign exchange movements since the previous reporting date. A lower offer was accepted given the deteriorated financial position of the airport and the negative impact was accounted for.

For and on behalf of the board

Johannesburg
14 September 2020

To the Shareholders of The Bidvest Group Limited

Opinion

The summarised consolidated financial statements of The Bidvest Group Limited, set out on audited financial results of The Bidvest Group Limited audited financial results which comprise the summarised consolidated income statement, the summarised consolidated statement of other comprehensive income, the summarised consolidated statement of cash flows, the summarised consolidated statement of financial position as at 30 June 2020 and the summarised consolidated statement of changes in equity for the year then ended, and related notes, are derived from the audited consolidated financial statements of The Bidvest Group Limited for the year ended 30 June 2020.

In our opinion, the accompanying summarised consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements, in accordance with the JSE Limited's (JSE) requirements for summarised financial statements, as set out in the note "Basis of presentation of summarised consolidated financial statements" to the summarised consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summarised financial statements.

Summarised consolidated financial statements

The summarised consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards and the requirements of the Companies Act of South Africa as applicable to annual financial statements. Reading the summarised consolidated financial statements and the auditor's report thereon, therefore, is not a substitute for reading the audited consolidated financial statements and the auditor's report thereon. The summarised consolidated financial statements and the audited consolidated financial statements do not reflect the effects of events that occurred subsequent to the date of our report on the audited consolidated financial statements.

The audited consolidated financial statements and our report thereon

We expressed an unmodified audit opinion on the audited consolidated financial statements in our report dated 11 September 2020. That report also includes communication of key audit matters. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period.

Director's responsibility for the summarised consolidated financial statements

The directors are responsible for the preparation of the summarised consolidated financial statements in accordance with the JSE's requirements for summarised financial statements, set out in the note "Basis of presentation of summarised consolidated financial statements" to the summarised consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summarised financial statements.

Auditor's responsibility

Our responsibility is to express an opinion on whether the summarised consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 (Revised), Engagements to Report on Summary Financial Statements.

PricewaterhouseCoopers Inc.
Director: C West
Registered Auditor
Johannesburg

14 September 2020