Engineering News

Appraising a financial year characterised by an “increasingly disruptive” strike-hit fourth quarter, service, trading and distribution company Bidvest CEO Brian Joffe has described the company’s overall results as “satisfactory”, buoyed somewhat by a strong showing from the Bidvest Foodservice business.

“The last quarter trading conditions in South Africa became increasingly disruptive, compounded by prolonged labour unrest and declining consumer demand.

“[However,] Bidvest Foodservice results reflected improved performances and real growth in home currencies,” he told investors at a results presentation for the year ended June 30, on Monday.

Joffe surprised the market by announcing the group was considering a London listing of the group’s food division, saying this business had made “remarkable” progress after scale had been added through its various acquisitions.

“It would be wrong if [a London listing] was not considered if it is a value proposition for shareholders. We expect the [listing] to be some months away, but the process has already started,” he commented.

Describing Bidvest Foodservice’s general performance as “highly satisfactory”, Joffe reported a divisional trading profit jump of 28% to R3.2-billion for the year, as well as a 23.6% increase in turnover to R102.3-billion.

Several “small” acquisitions were completed during the 12 months, including a deal that marked the group’s first foray into Brazil and formed part of Bidvest’s expansion into South American foodservice markets – the purchase of a 60% stake in food service company Distribuidora E Importadora Irmãos Avelino on January 1 for R229.7-million.

Further bolstering the food division’s portfolio, Bidvest in July acquired 60% of Gruppo Dac S.p.A., an Italian foodservice provider, as well as taking control of PCL 24/7, a British chilled products storage and distribution business, for a combined R1.7-billion.

EARNINGS GAIN
Turning to the company’s financial showing, Bidvest posted an 11.1% rise in headline earnings a share to R17.33, while basic earnings a share fell 4.2% to R14.62, after being impacted on by capital items that included a R1.05-billion impairment of the investment in pharmaceuticals group Adcock Ingram Holdings (Adcock).

In January and February, Bidvest acquired another 44.5-million Adcock shares for R3.9-billion, bringing its total voting interest to about 30%.

A frustrated Joffe told investors that Adcock’s performance had since been negative, below expectation and at “complete variance” to what was portrayed in publicly published information prior to and at the time of Bidvest’s investment.

“Given uncertainty around current trading performance, Bidvest continues to evaluate its position and has not determined whether to take steps to achieve control,” he asserted.

Overall turnover, meanwhile, rose 19.7% to R183.6-billion, with “major” income increases in Bidvest Asia Pacific, to R4.8-billion, and Bidvest Europe, to R14-billion, reflecting organic growth and currency effects.

Acquisitions accounted for R7.2-billion of total revenue growth.

Gross profit rose 23.1% off a revenue increase of 22%, while the group grew trading profit by 16.6% to R8.9-billion. The gross trading margin dipped to 4.9%.

Meanwhile, Bidvest acquired the remaining 71.7% of Home of Living Brands for R538-million over the period, as well as the majority shareholding of outsourcing firm Mvelaserve, in which it had already owned just under 35%, for R846.6-million.

“Bidvest South Africa delivered improved trading results in most divisions, assisted by the acquisitions of Home of Living Brands and Mvelaserve, but Bidvest Namibia’s trading profit declined as lower fishing performance negated improved commercial results.

“The core Australian and New Zealand markets remain resilient, driven by expansion and innovation into new segments of the food market, while the UK businesses did well, particularly the specialist fresh businesses.

“In Europe, signs of recovery were evident across some markets, though improvement was subdued in the Netherlands and Belgium,” he noted.

Joffe said Bidvest’s financial position remained robust and its attitude to gearing prudent “while retaining adequate headroom to accommodate expansion opportunities”.

Net debt rose to R7.9-billion from R4.5-billion as at June 30, 2013, largely driven by cash used for investments and acquisitions of R5.3-billion.

The board declared a final distribution by way of fully paid ordinary shares of 5c apiece as a scrip distribution, payable to ordinary shareholders, who would be entitled to elect to receive a gross cash dividend of R4.32 a share in lieu of scrip.

At the closing price of R281.32 on August 29, the scrip dividend equated to R4.36 a share based on 1.55 shares for every 100 held.

DIVISIONAL REVIEW
Reviewing the performance of the group’s various operating divisions, Joffe said Bidvest South Africa delivered a “highly creditable result”, which he believed reflected meaningful contributions by all operations.

Turnover increased 15.7% to R80.2-billion, while trading profit rose 17% in “challenging business conditions” to R4.9-billion.

Automotive trading profit dipped 3.6% to R618-million amid a “significant market slowdown” but, at R21.9-billion, turnover was up 5.7% – largely the result of new vehicle price inflation.

New vehicle sales dropped on the exit of certain low-selling brands, while used vehicle sales rose 14.6% in a market characterised by “fierce” discounting and margin erosion.

The consumer products division, under which the newly acquired Home of Living Brands fell, achieved “pleasing” turnover of R1.3-billion, with trading profit of R102.1-million.

“Exchange rate volatility, competitor brands and house brands impacted margins in this business, but a sales division restructure contributed to rigorous cost management and promotional activity helped drive sales,” the company outlined.

The electrical business achieved “satisfactory” results, with turnover up 8.6% to R4.9-billion, while trading profit rose 14.9% to R258.2-million.

Financial services, meanwhile, also put in an acceptable performance, achieving trading profit of R616.7-million and increased turnover of R1.7-billion.

At Bidvest Bank, the pre-tax profit fell 4.5% to R346.5-million, as a major leasing contract wound down.

Joffe said this division’s acquisition of Grindrod Bank and Grindrod Financial Services, announced earlier this year, was currently progressing through due diligence.

Meanwhile, the freight division put in a “strong” performance, increasing trading profit by 13.7% to R1.1-billion and turnover by 6.7% to R26.8-billion.

Results from the group’s industrials division were considered “satisfactory”, with trading profit rising 46.1% to R125.7-million and turnover increasing 30.8% to R2-billion.

The office division’s results were bolstered by the acquisition of Zonke Monitoring Systems, with turnover up 10.8% to R4.7-billion, while turnover from the Paperplus business was up 21.1% to R4.9-billion.

The rental and products business achieved turnover growth of 6.4% to R2.4-billion, while trading profit rose 9.6% to R477.6-million.

Bidvest’s services division was, meanwhile, buoyed by the Mvelaserve integration, lifting turnover by an impressive 123.8% to R7.2-billion and trading profit by 90.8% to R527.5-million.

Trading profit in the travel and aviation division rose 10.9% to R421.4-million over the year, with a strong performance by Bidvest Premier Lounges and average growth by Budget Rent-a-Car.

PROSPECTS
Looking ahead, the group believed its prospects remained positive, supported by the anticipated benefits of recent acquisitions and investments.

“In South Africa, trading conditions are expected to remain tough, compounded by the impacts of a rising interest rate climate, its impact on consumer demand and low economic grow. Divisional teams continue to focus on delivering real organic growth and unlocking synergies while seeking acquisitive opportunities,” noted Joffe.

Further opportunities would be sought in consumer products, while in products-related businesses “progress continues to be made as we implement our Africa strategy”.

In Asia Pacific, opportunities for expansion of the wholesale model would be explored, particularly to independent foodservice customers.

Broader exposure to mainland China was being achieved, along with South American expansion.