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Bidvest lifts H1 earnings, appoints CEO designate

Bidvest CEO-designate Mpumi Madisa (left) and Bidvest CEO Lindsay Ralphs (right)

Bidvest CEO-designate Mpumi Madisa (left) and Bidvest CEO Lindsay Ralphs (right)

4th March 2019

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

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JSE-listed services, trading and distribution company Bidvest’s headline earnings for the six months ended December 31, 2018, increased by 10% year-on-year to R2.1-billion, while headline earnings per share (HEPS) increased by 9.6% to 629.1c.

The group declared an interim dividend of 282c a share, representing a year-on-year increase of 10.6%.

Speaking to media during a conference call on Monday, Bidvest CEO Lindsay Ralphs said the group had delivered “a pleasing six-month trading profit”, which increased by 6.3% year-on-year to R3.3-billion.

The gross profit margin improved by 120 basis points to 29.3%, while the overall trading margin was 8.4% higher year-on-year.

“The gross profit margin growth was pleasing, augmented by strong cost discipline as well as good capital management.”  

The trading profit, which was off flat revenue, was boosted by good performances by the group’s services, freight, office and print divisions, Ralphs explained, adding that Bidvest’s properties division also had a “pleasing period”.

Unfortunately, difficult equity markets impacted on the overall results, particularly within the group’s financial services division.

However, despite the frail economic backdrop and lacklustre business environment, Ralphs believes the group’s results demonstrate the value of Bidvest’s diversified portfolio and the quality of its underlying businesses.

Group revenue remained flat at R40-billion. Return on funds employed also remained flat, at 22.8%, on a 4.9% higher average asset base.

Return on invested capital was 16%.

Meanwhile, in a statement released on Monday, Bidvest noted that the financial position of the group remained very strong, with net debt having decreased to R8.9-billion, representing net debt to rolling earnings before interest, taxes, depreciation and amortisation (Ebitda) cover of 1.1x.

This, despite working capital absorption, continued corporate action and capital investment, the company said.

About R4.1-billion in cash was generated by the businesses, up from R3.9-billion in the prior year.

UNDERLYING BUSINESSES

Bidvest associate Adcock Ingram delivered strong results and secured a significant antiretroviral tender.

Although Comair’s profits contracted, a recent claim awarded against South African Airways should crystallise part of the valuation gap. 

Bidvest’s total share of profit from associates decreased by 7.4%.

The income from investments, however, improved substantially to R86.5-million, which was as a result of the profit realised on the disposal of Bidcorp shares, exchange rate revaluation gains on Mumbai International Airport and unrealised losses on other smaller investments, the company said.

The Services division’s trading profit broke through the R1-billion mark with strong growth, both locally and internationally, underscoring the annuity nature. Office and Print’s result was pleasing given the structural decline of the industry in which it operates, Ralphs told the media.

Freight delivered a strong result off a high base, benefitting from greater volumes handled and capacity investments made, while Commercial Products posted a mixed result.

Further, a reasonable underlying result in Financial Services was dragged down by the investment portfolio’s returns.

Bidvest’s business strategy comprises that of a “very niche” banking service for small businesses, Ralphs explained, adding that Bidvest does not intend to become a retail bank, but focuses instead on growing its foreign exchange business and delivering services to small businesses.

Electrical and Automotive reported lower trading profit, both operating in challenging industries.

With regard to Automotive experiencing a cyclical decline, Ralphs noted that Bidvest’s strategic initiatives for this division are aimed at continuing to work closely with original-equipment manufacturers as part of the company’s ongoing process to reduce costs.

Properties benefitted from rentalisation of projects and low vacancies, while results from continuing operations in Namibia improved off a depressed base.

GROWTH EXPECTATIONS

Ralphs on Monday confirmed that, amid a critical short supply of liquefied petroleum gas (LPG) in South Africa, progress on Bidvest Freight’s R1.2-billion LPG project, to be based in Richards Bay, was on schedule.

About R300-million of the R1.2-billion investment has been spent so far, Ralphs said, adding that commissioning is targeted for the middle of 2020.

Civil work is complete and construction has started in preparation for the arrival of the storage tanks toward the middle of this year.

The LPG project should have a significant impact on rural areas, Ralphs said, with particular use for cooking and heating set to reduce electricity costs for households.

Bidvest further concluded bolt-on acquisitions in Services as well as Office and Print, while minorities were bought out in Glassock (Financial Services) and Glenryck (in Namibia).

Sebenza was merged into Bidvest Panalpina Logistics, which forms part of Freight. Services’ acquisition of Aquazania for R390-million was concluded post end of the interim period, Ralphs noted.

Several other opportunities were assessed, some of which are still being considered; however, Ralphs added that Bidvest “remains steadfast in [its] disciplines when evaluating and responding to opportunities”. 

OUTLOOK

Economic growth, industrial activity and consumer spend are expected to remain lacklustre until certainty emerges post the national elections in May, especially considering that the economic damage caused by corruption would take time to remedy, Bidvest said.

Government’s ability to drive infrastructural spending, initiate development programmes and ongoing maintenance in key entities and facilities remain critical to kickstart the economy.

However, despite some of the negative prospects, 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 chosen niche areas, Ralphs said on Monday.

“The core competencies and drivers of Bidvest remain firmly intact and we expect that continued growth will be achieved in the next financial year,” he noted.

Additionally, Bidvest also announced on Monday, in a separate statement, that it has appointed Mpumi Madisa CEO-designate.

Ralphs will continue as CEO until the 2021 financial year and will work with Madisa to ensure a smooth transition.

Commenting on the appointment, Ralphs said Madisa was “a perfect example” of one of Bidvest’s key priorities, focussing on developing the next generation of leaders.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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