International investment holding company Bidvest has lifted headline earnings a share by 5.2% to 886.3c for the six months ended December 31, helped by an “excellent” contribution from the group’s Foodservice business and positive currency effects.
Bidvest CEO Brian Joffe told investors on Monday that the half-year’s “solid” trading results also saw basic earnings a share increase by 0.6% to 863.3c apiece, driven by a 16.5% jump in turnover to R104.4-billion.
Good performances at most Bidvest Foodservice businesses delivered real growth in local currencies, he added, while the acquisitions of Italian foodservice provider Gruppo Dac (DAC) and UK chilled products storage and distribution business PCL 24/7 expanded the division’s product offering and provided geographical diversity for the UK and European operations.
Bidvest last year acquired 60% of DAC and a controlling stake in PCL for R1.7-billion.
“We have the option to increase our interest in these businesses, which, together with other targeted acquisitions, form part of our strategic expansion plans in the international foodservice industry,” he commented.
Bidvest Australasia, Bidvest Europe and Bidvest UK recorded “major” improvements, reflecting organic growth, positive currency effects and benefits from the recent acquisitions.
Meanwhile, despite South African trading conditions “remaining tough” –compounded by electricity supply disruptions, further labour market instability and weak consumer demand – Joffe said Bidvest South Africa delivered a slightly improved trading performance.
“Looking at the trading performance of the group, it’s excellent; no-one can take that away. In terms of the whole picture, it’s not the best set of results…[but] I don’t think people realise how difficult the South African trading conditions really are.
“We’re an emerging democracy and things are not always smooth and, as a company, we have a lot of exposure to labour issues in [several] sectors, as well as [exposure] to electricity shortages. But we need to take a lesson from these events – as a company and as a country – to ensure they don’t happen again,” Joffe held.
The group’s gross profit percentage rose 20.1%, while operating expenses increased by 6.2% on a like-for-like basis, excluding currency effects and the impact of material acquisitions.
Other income fell “significantly”, owing mainly to reduced mark-to-market gains on the equity portfolio investments, while trading profit rose 8.9% to R4.6-billion.
“The trading margin dipped slightly to 4.4%, impacted by reduced fair value gains and underperformance by some businesses. The average rand exchange rate weakened against the major currencies in regions where the group operates,” noted Joffe.
Bidvest declared an interim cash distribution of 426c apiece for the six months under review.
BIDVEST SOUTH AFRICA
The performance of Bidvest’s South Africa business remained “muted overall”, despite performance levels varying “considerably”.
Turnover rose 11% to R43.9-billion, while trading profits rose 5.2% to R2.5-billion, with good growth from the services, electrical, rental and products, freight and industrial subdivisions.
“Paperplus was significantly below expectation, while the office business also faced challenges,” Joffe said.
The South Africa-based automotive division returned “satisfactory” results in a tough environment, delivering increased turnover of R11.8-billion but a lower trading profit of R328.2-million.
New vehicle sales eased higher to 264 881 units, while used vehicle volumes dropped marginally to 21 701, although volumes strengthened late in the period.
“The after-sales market grew after several years of contraction. Among the dealerships, [Mercedes-Benz] put in an outstanding performance and Land Rover–Jaguar returned excellent results.
“A strong turnaround is under way at Ford and BMW–Mini, with repositioning and rationalisation continuing at several dealerships,” Joffe outlined.
Consumer products, meanwhile, faced a “tough” trading environment and exchange rate volatility.
Turnover fell 7% to R639.3-million, while trading profit fell to R47.9-million as margin pressure intensified.
The group’s local electrical division performed solidly in a difficult market, Joffe added, lifting turnover 14.3% to R2.6-billion.
Trading profit rose 36.5% to R121.9-million, despite slow and nonpayments to contractors by their customers remaining a concern.
“Cost savings remain a focus area and we continue to explore new opportunities in Botswana,” he remarked.
Meanwhile, Bidvest Bank’s trading profit fell 2.5% to R184.9-million for the six months, while total gross profit grew 1% to R438.2-million.
“The run-off of the Transnet book continued to impact performance, but will be offset by significant new business in full maintenance leasing. However, deposits fell as did trading and investment income,” Joffe outlined.
Bidvest Insurance’s trading profit of R70.5-million was impacted by the fall in investment returns under tough trading conditions, while core operating profit, before investment income, rose 7.9% to R29.5-million and revenue increased 16.1% to R190.5-million.
The freight business put in a “satisfactory” performance on a stronger second quarter, while turnover rose 3.3% to R14.4-billion.
Trading profit rose 4.9% to R566.9-million over the period.
Bidvest’s industrial business achieved “strong” results over the half-year, lifting turnover 13.9% to R1.2-billion, while trading profit rose 40.2% to R90.6-million.
The office division was, meanwhile, impacted by an “exceptionally” difficult start to the financial year, but achieved 6.2% turnover growth to R2.6-billion.
Joffe said stationary manufacturer Paperplus did well to grow sales over the period, notwithstanding a protracted postal strike in the second half of the 2014 calendar year.
Turnover rose 6.8% to R2.6-billion, while trading profit fell 3.9% to R187.5-million.
The rental and products division’s “solid” performance resulted in an 8.6% increase in turnover to R1.2-billion, lifting trading profit 12.4% to R246-million.
Meanwhile, Bidvest’s services business returned “creditable” results in a challenging and price-sensitive market, increasing turnover by 78.5% to R4.8-billion, while trading profit moved 53.6% higher to R315.7-million.
“Results were boosted by the inclusion of Mvelaserve for a full six months compared with two months in the prior period. The division, excluding Mvelaserve, delivered a consistent trading profit increase of 8.8%,” he noted.
Joffe added that the group’s travel and aviation business had disappointed over the period, despite trading profit easing 3.7% higher to R213.5-million off a 9.9% turnover growth to R1.3-billion.
The company reported on Monday that Bidvest Australia performed “strongly” over the half-year, making good progress with its transition to a business focused on areas of high potential.
“Foodservice again returned pleasing results, driven by growth of its ‘free trade’ street business, while the exit from low-margin businesses helped protect margins. Bidvest New Zealand’s results were excellent,” he said.
In the UK, Bidvest 3663 “exceeded expectations”, with a strong focus on customer profitability maintained and costs rigorously controlled.
“The infrastructure enhancement programme remains on track,” Joffe commented.
In Europe, the Netherlands-based Deli XL performed in line with expectations, while changes to the customer mix contributed to margin pressure.
Bidvest Belgium’s profitability fell slightly on lower sales and margins, while Bidvest Czech Republic and Slovakia exceeded expectations.
Joffe added that Bidvest Namibia delivered disappointing results over the six months, with trading profit down 20.9% to R172.5-million. Turnover rose 11.2% to R2.1-billion for the period.
Bidvest, meanwhile, retained its confidence in the potential of its investment in pharmaceutical group Adcock Ingram, noting that “corrective measures” by Adcock management had resulted in a more energised workplace.
The Competition Tribunal in August approved the merger between pharmaceutical company Adcock and Bidvest subsidiary BB Investment Company, on condition that Adcock would not retrench any employees for one year from the day the deal was approved.
Moreover, last month, Adcock resolved to terminate its existing black economic-empowerment (BEE) transaction and replace it with a new, more sustainable BEE structure.
The company noted that, given its depressed share price, the Adcock A and Adcock B ordinary shares held by BEE shareholders were unlikely to realise any value.
The existing BEE participants, which included Blue Falcon Trading 69 and the Mpho ea Bophelo Trust would now enter into an agreement to sell to Bidvest, which held a 34.5% interest in Adcock, the 2.57-million Adcock dividend shares they held at a price of R52 apiece.
Engineering News Online reported at the time that Bidvest had agreed with Blue Falcon and the Bophelo Trust to buy their dividend shares at R52 apiece, but said it required these shares to be released from the restrictions contained in the existing Adcock BEE transaction.
The proposed offer was expected to provide Adcock ordinary shareholders with certainty regarding Bidvest’s intention to buy out Adcock shareholders.
Bidvest said it had already obtained competition authority approval for the buyout.
“We don’t expect to get 100% [of the shares] at R52 a share or even at R53 or R54 a share, but it’s our intention, over time, for us, as Bidvest, to exert more management influence; remember that we don't yet have management control [over Adcock].
“There [is] still work that needs to be done at Adcock to bring certainty to the market and to sharheolders,” said Joffe.
He further told investors in Johannesburg that the outlook for the group was encouraging, underpinned by organic growth and the expected benefits arising from acquisitions and investments made over the past 18 months.
“In South Africa, trading conditions are likely to remain stifled given the current environment; however, our divisional teams are up to the challenge of delivering real organic growth and synergies. Acquisitive opportunities will continue to be sought,” he said.
The group’s focus would remain on expanding its product range into Africa; however, as progress had been slower than envisaged, the group would continue to adopt a measured approach into targeted regions.
Further opportunities continued to be sought in consumer products.
“In Australasia, expansion of our wholesale model will continue, particularly to independent foodservice customers, while growing the national footprint of the fresh offering. Innovative, technological value-adding foodservice solutions will enable further growth,” Joffe outlined.
Further exposure to mainland China through regional expansion boded well in this developing foodservice market, he added, while Bidvest’s exposure to Latin America through investments in Chile and Brazil presented “exciting” opportunities.”
In the UK and Europe, the refocusing of wholesale businesses continued.
“The acquisitions of DAC and PCL have been well integrated and present further areas of geographic and service offering expansion,” he noted.
Meanwhile, opportunities to add new product ranges and expand local footprints across all businesses would continue.