The Bidvest Group Limited

Bidvest is a leading business-to-business trading, distribution and services group, operating through seven divisions: Services, Freight, Automotive, Office and Print, Commercial Products, Financial Services and Electrical. The Group owns 66.0% of Bidvest Namibia and a significant Bidvest-occupied property portfolio. Bidvest continues to hold investments in Adcock Ingram (38.5%), Comair (27.2%) and Mumbai Airport (6.75%) (MIAL), as well as other listed and unlisted investments.

Bidvest has produced a good result despite a frail economic backdrop as well as significant business and political uncertainty. The value of a diversified portfolio and the quality of the underlying businesses continue to manifest in the financial performance. Gross profit margin growth was pleasing, augmented by strong cost discipline as well as good capital management.

Trading profit grew by 6.3% off flat revenue. The Services, Freight and Office and Print divisions delivered standout performances. Some bolt-on acquisitions were concluded but have not fully contributed as yet. Difficult equity markets have impacted the results, specifically within the Financial Services division.

Bidvest’s headline earnings per share (HEPS) increased by 9.6% to 629.1 cents (H1 2018: 574.0 cents).

Progress has been made on the non-core asset divestments. Our associate, Adcock Ingram, delivered strong results and secured a significant portion of the Government’s ARV tender. Although Comair’s profits contracted, a recent claim awarded against SAA should go some way in closing our value gap expectation.

The financial position of the Group remained very strong with net debt at R8.9 billion, representing net debt to rolling EBITDA cover of 1.1x, despite working capital absorption, continued corporate action and capital investment. Cash management has been good, as evidenced by flat net finance costs.

The Group has declared an interim dividend of 282 cents, 10.6% higher than last year and payable on 25 March 2019. The dividend per share is based on normalised HEPS.

Group revenue remained flat at R40.0 billion in growth constrained economies. The gross profit margin improved by 120bps to 29.3%, despite the mix impact of lower-margin Noonan and the fierce price competition in the market. A more meaningful evaluation is at divisional level. Operating expenses were well managed, increasing by only 4.7%.

Income from investments improved to R86.5 million (H1 2018: R24.9 million). This was as a result of the profit realised on the disposal of Bidcorp shares, an exchange rate revaluation gain on MIAL and unrealised losses on other smaller investments. The returns on the insurance investment portfolios were negative as at 31 December 2018, a negative swing of R85.6 million year-on-year.

Trading profit grew by 6.3% to R3.3 billion (H1 2018: R3.1 billion), with a higher trading margin of 8.3% (H1 2018: 7.9%). Services’ trading profit broke through the R1.0 billion mark with strong growth, both locally and internationally, underscoring their annuity nature. Office & Print’s result was pleasing given the structural decline of the industry in which it operates. Freight delivered a strong result off a high base benefitting from greater volumes handled and capacity investments made. Commercial Products posted a mixed result while a reasonable underlying result in Financial Services was dragged down by the investment portfolios’ returns. Both Electrical and Automotive reported lower trading profit, both operating in challenging industries. Properties benefitted from rentalisation of projects and low vacancies. Results from continuing operations in Namibia improved off a depressed base.

Net capital items of R112.5 million resulted from positive adjustments of R123.2 million to the investment values of mainly Adcock Ingram and Comair compared to negative adjustments last year. The balance relates to the insurance receipts on storm-damaged Freight assets as well as closure costs.

Share of profit from associates decreased by 7.4% due to the decline in Comair profits as a result of the higher aviation fuel price, which offset a strong performance from Adcock Ingram.

Net finance charges were largely unchanged at R524.0 million (H1 2018: R523.5 million), reflecting solid cash generation during the period despite continued bolt-on acquisitions and capital expenditure. In November 2018, Bidvest successfully raised three long-term bonds, totalling R1.3 billion, which were significantly oversubscribed, at attractive rates. The Group’s average cost of funding is 6.6%.

The implied tax rate was influenced by capital items, the non-taxable MIAL mark-to-market gain and a lower corporate tax rate in the foreign operations.

Bidvest’s headline earnings increased by 10.0% to R2.1 billion (H1 2018: R1.9 billion). Normalised HEPS (HEPS excluding acquisition costs and amortisation of acquired customer contracts), a metric used by management to assess the underlying business performance, is 635.7 cents. Basic earnings per share increased by 17.7% to 660.0 cents (H1 2018: 560.6 cents) mainly due to the increase in the share prices of the associate companies, compared to share price decreases in the prior period.

R4.1 billion cash was generated by the businesses, up from R3.9 billion in the prior year. Seasonally, working capital is absorbed during the first half of the financial year. During the six months to December 2018, the R3.1 billion working capital absorption was exacerbated by significantly lower disbursements as well as a slowdown of bank deposits. Strategically, Electrical and Office and Print stocked up on certain key inventory lines.

Progress on Bidvest Freight’s R1.0 billion Liquified Petroleum Gas project is on schedule. Civil work is complete and construction started in preparation for the arrival of the storage tanks toward the middle of 2019. Commissioning is still targeted for the middle of 2020.

Return on funds employed (ROFE) was maintained at 22.8% on a 4.9% higher average asset base. Divisional ROFE was 34.0%, slightly down from 34.7% previously. ROIC was 16.0%.

New accounting requirements in terms of IFRS15 and IFRS9, which are effective 1 July 2018, have had no material impact on the Group’s results.

The Group concluded bolt-on acquisitions mostly in Services as well as Office & Print, while minorities were bought out in Glassock (Financial Services) and Glenryck (in Namibia). Sebenza was merged into Bidvest Panalpina Logistics (BPL), which forms part of Freight. Services’ acquisition of Aquazania for R390.0 million was concluded post interim end. Several opportunities were assessed, some of which are still being considered. We remain steadfast in our disciplines when evaluating and responding to opportunities.

The remaining 1.3 million Bidcorp shares were disposed of this period. The disposal of our stake in MIAL is progressing.

Management remains committed to non-core asset disposals, but only at fair value.

As announced by Bidvest Namibia on Friday 1 March 2019, Bidvest made a N$10.50 per share take-over offer for the shares we do not already own, conditional on the delisting approved by minority shareholders. Bidvest Namibia formed an independent board committee to deliberate this offer.

The core competencies and drivers of Bidvest remain firmly intact and we expect that continued growth will be achieved in the financial year. Pockets of activity and opportunities exist across the economy and the Group is well positioned to participate in these.

At Bidvest, governance is in our DNA, and it is the way we do business, every day. As custodians of significant financial, social, human, intellectual and natural capital we are aware of our responsibilities toward all stakeholders. We continue to strive to deliver industry-leading returns and consistent growth while at the same time committing vast resources to support many different corporate and social initiatives, both within and outside the Group.

Economic growth, industrial activity and consumer spend are expected to remain lacklustre until certainty emerges post the national election in May 2019. The economic damage caused by corruption will take time to remedy. Government’s ability to drive infrastructural spending, initiation of development programmes and ongoing maintenance in key entities and facilities remains critical to kick-start the economy.

The Group’s financial position allows sufficient headroom to advance the Group’s strategy, both locally and internationally, ensure growth in existing markets, continue to acquire bolt-on businesses, and pursue other strategic opportunities in our chosen niche areas.

Services

The Services division performed well over the six-month period with trading profit increasing by 13.0% to R1.1 billion. This included an additional two months of trading from Noonan in comparison to the previous interim period. The South African businesses increased trading profit by 7.6%, despite a challenging and price sensitive market in which higher fuel costs added pressure. Strong results were delivered by Steiner, Facilities Management, Protea Coin, BidAir and Allied Services. Disappointingly, Travel delivered a poor result. Downtrading and the loss of a few large customers were not neutralised by the technology investment and cost management efforts. Noonan continues to perform better than expected particularly on the back of integrated solutions in Ireland and cleaning in the United Kingdom. New contract wins to date are encouraging.

The Services division has sustained its expansion programme, acquiring ClickOn, an electronic visitor and resident access control system, in October 2018. Post period-end, Aquazania, a supplier of a range of bottled water coolers and dispensers, was acquired. Other opportunities in South Africa and offshore are continually being assessed and certain possibilities are being advanced.

Freight

The Freight division’s trading profit of R700.1 million increased by 8.6% compared to the prior period. Freight volumes were buoyant for the first four months, but slowed over the latter two months. This was particularly evident in maize export volumes handled by the South African Bulk Terminals business. Bidvest Tank Terminals (BTT) again delivered a good result, while BPL experienced a slow-down in warehousing volumes in the last two months of the period. BTT’s multi-purpose tanks in Richards Bay are operating as planned. Bidfreight Port Operations delivered good growth as a result of strong fertilizer and other commodity volumes. Bidvest SACD was negatively affected by reduced imports, while Bulk Connections had a very good period and handled higher chrome and manganese ore tonnages. The Freight division has assumed responsibility for the UK-based, OnTime business. OnTime is experiencing some growth.

Wheat import volumes have resumed and other commodities, specifically iron ore, manganese, coal and chrome ore remain positive.

Commercial Products

Bidvest Commercial Products delivered a satisfactory result culminating in a flattish trading profit. The Consumer division performed above expectations but those gains were neutralised by a difficult trading environment experienced by certain of the industrial focused businesses. Strong results were delivered by Burncrete, G Fox, Home of Living Brands, Interbrand, Moto Quip and Yamaha. Some market share gains, brand repositioning and a shift to trusted and supported brands contributed to this. Minimal industrial, agricultural and project work impacted Afcom, Renttech and Vulcan. The focus remains firmly on improving margins and ensuring relevant product and price points. Operational cash generation was good despite Academy Brushware and Plumblink in the Western Cape moving to new modern distribution centres which augurs well for productivity improvements going forward.

Office and Print

This division continues to deliver pleasing results. Despite the loss of the Zonke business, which was largely as a result of losing the national contract for the monitoring of limited pay-out machines, trading profit rose 8.3% to R436 million. Konica Minolta performed exceptionally well, while all other businesses contributed strongly. Waltons has faced a difficult few years, but revenue has stabilised, costs are well controlled and gross margins are being maintained. A shift from house brands together with product innovation drove good growth in Silveray. Kolok volumes were down but market share was gained. The print segment’s growth was pleasing. The data and packaging sectors delivered acceptable growth. Cecil Nurse had a slow start. A few bolt-on acquisitions, to augment the product range, were concluded in the recent months. An enviable 40% ROFE was achieved.

Financial Services

Due to weak equity markets, the Financial Services division’s investment portfolios were the largest contributor to the R75.9 million decline in trading profit to R242.9 million. The trading profit for Bidvest Bank grew 8.3% despite a lower contribution from Leasing and the growth strategy in Personal and Business Banking is starting to gain momentum. Bidvest Bank has secured new fleet contracts, including the Transnet heavy commercial vehicle contract. Bidvest Insurance achieved only modest growth in premiums and underwriting profit as its commercial book performed below expectations. Strategic initiatives are in place to enhance the Insurance business. Bidvest Life’s strong sales growth continues to cause new business strain on the income statement. Compendium managed to grow marginally despite a hardening of the insurance market. Bidvest Wealth and Employee Benefits, previously Glassock, has turned the corner and is positioned for future growth.

Automotive

The South African vehicle retail sector continues to contract, particularly in the luxury segment. Total new vehicle dealer sales declined 2.2% over the six months under review. This led to the division’s overall trading profit being down 5.5% at R323.9 million. Bidvest McCarthy’s new vehicle sales remain the dominant contributor, and a strategy is underway to balance this with used car sales and aftermarket services. New vehicle sales were flat and used vehicle sales higher. Aftermarket revenue and margin declined. Bidvest Car Rental returned to a normalised trading profit. The strategic initiatives to lower operating costs and right-size the division are advancing, with some success already evident.

NAAMSA is expecting a modest decline in new vehicle sales for the 2019 year.

Electrical

Not surprisingly, trading profit for the Electrical division declined 18.6% to R120.0 million. The division remains fundamentally rooted in the construction, mining and infrastructural development sectors, and remains substantially affected by the current, dismal, environment. Various initiatives are underway to future-fit the businesses, specifically lowering the cost of doing business through technology and efficiency improvements. Despite the market challenges, the core Voltex wholesale business managed to deliver a solid performance in what has become a very competitive market. Circumstances within the cable market are challenging. Atlas proactively purchased cable and wire ahead of the widely publicised supply disruptions. Businesses focused on infrastructure and construction projects were hard hit. The value-added operations delivered reasonable results with pleasing orderbooks.

The industry outlook remains uncertain with financial strain very evident in the customer base.

Bidvest Namibia (66% share)

Bidvest Namibia’s trading profit from continuing operations rose 50.5% to R29.5 million off a very low base. Results have been mixed as all businesses experienced pressure on revenue due to the recession in Namibia. Freight & Logistics bucked the trend on the back of certain Oil and Gas project activities. Strategically, the disposal of the last fishing assets should be concluded in the coming months.

Bidvest Properties and Corporate

Bidvest Properties performed well with a 15.8% increase in trading profit to R269.8 million. This was the result of new projects rentalised, reasonable rental escalations and very low vacancies.

Early in the period under review, Bidvest sold its remaining shares in Bidcorp and recognised a profit. The weaker Rand resulted in a positive mark-to-market adjustment on the Mumbai International Airport investment.

Secretarial

In accordance with the Section 3.59 of the JSE Listings Requirements, the board of directors of the Group advised shareholders that, with effect from 30 October 2018, Ms XB Makasi resigned as company secretary and Ms I Roux has been appointed to the post. Ms I Roux also retains her position as the Bidvest Corporate Affairs executive and holds a BCom (Honours) CTA and CA(SA) qualification.

For and on behalf of the board

Johannesburg
1 March 2019

In line with the Group dividend policy, the directors have declared an interim gross cash dividend of 282 cents (225.6 cents net of dividend withholding tax, where applicable) per ordinary share for the six months ended 31 December 2018 to those members registered on the record date, being Friday, 22 March 2019.

The dividend has been declared from income reserves. A dividend withholding tax of 20% will be applicable to all shareholders who are not exempt.

Share certificates may not be dematerialised or rematerialised between Tuesday, 19 March 2019 and Friday, 22 March 2019, both days inclusive.

For and on behalf of the board

Ilze Roux
Company Secretary