Bidvest expects its full-year earnings to exceed that of the prior year

International services, trading and distribution company Bidvest’s growth for the 2021 financial year is set to accelerate, compared with its performance in the prior financial year.

The company on June 1 reported that the first ten months of the 2021 financial year has made it clear that “earnings will exceed that of the prior financial year”, mainly owing to limited demand and restricted trade activity that impacted on its performance in the last quarter of the 2020 financial year.

This positive growth trajectory indicates improvement in the second quarter, compared to the first quarter, with further growth expected in the third quarter, Bidvest CEO Nompumelelo (Mpumi) Madisa said during a conference call on June 1.

Group headline earnings a share and earnings a share for the financial year to June 30, 2021, are expected to be more than 20% higher year-on-year, as its year-to-date operating and financial performance exceeded pre-pandemic comparatives for the ten months ended April 30, with sequential trading profit growth accelerated in almost all businesses.

The JSE-listed company said it was supported by “excellent” cash generation, as the benefits of decentralisation and agility materialised. All divisions delivered improved performances compared with the interim period.

However, while Bidvest’s annuity-type businesses (bulk terminals, as well as industrial and vehicle trading) delivered strong growth, the businesses exposed to travel, tourism and hospitality-related activities remain under pressure as tight expense control and efficiency improvements have resulted in margins either being maintained, or improved in most businesses.

Bidvest’s growth and investment aspirations, both locally and internationally, have been further advanced since December 2020, with the bolt-on acquisitions of Irish technical service provider Interact, and UK-based security and cleaning group Axis Group.

These businesses performed in line with expectations, Bidvest said.

The same can be said for the liquefied petroleum gas (LPG) terminal in Richards Bay, which is operating well, with management working on closing out the final conditions precedent in terms of the signed sale and purchase agreements relating to the disposal of both Bidvest Car Rental and BidAir Services.

A solid balance sheet, which strengthened since the end of the interim period, is a key enabler of the group’s strategy, the company added, noting that operational cash generation and asset management have been strong, particularly in light of supply chain challenges and cash flow pressures experienced by some customers. 

SEGMENTAL OVERVIEW

Trading profit growth by the services division has been “exceptional”, with good underlying performance from all three territories. PHS, acquired May 1, 2020, delivered a strong performance as the hygiene pool continued to grow while hygiene services delivered to government vaccination sites and other Covid-19 related revenue streams were optimised.

Referring to the pandemic and the group’s response, Madisa said that the group is “much better prepared” for the pandemic, compared to last year.

Further, Noonan’s facilities management services continued the growth trajectory and was augmented by Axis, despite no cleaning of entertainment venues and a competitive UK market.

The South African businesses delivered good results with the exception of the travel, hospitality and related activities, and the facilities management and security and aviation clusters performed “particularly well”.

Office occupancy rates remained broadly unchanged.

Despite the market remaining price sensitive, with little tender activity, Bidvest continued to extract value through a broader product and services basket and active cost management.

Sales pipelines are actively built and converted, and the funds employed were “very well managed”.

Branded products revenue declines moderated sequentially, while the good management of costs and funds employed delivered an acceptable financial result.

Adcock Ingram delivered a resilient result, especially considering the panic buying experienced in March 2020.

Overall, however, demand was lower in all of Bidvest’s businesses, as these were driven by structural changes such as hybrid work- and learn-from-home practices and increasing digitisation.

Currently, 95% of Bidvest’s employees are back at the office, with the group aiming to have 100% of its employees back by July 1.

Packaging volumes into, and products sold through, on-line channels increased, and the Bidvest management is now focused on simplifying businesses and enhancing efficiencies.

Freight and terminal operations, stevedoring and ships agency businesses, meanwhile, performed well on the back of bulk commodity, agricultural and LPG volumes, Bidvest said, noting that on the other hand, general cargo, air freight and import volumes remained weak.

Container shortages, port congestion and imbalances in global cargo flow resulted in significantly higher freight logistics costs, which negatively impacted on volumes handled by the rest of the freight businesses.

The overall strong trading performance reported for commercial products at the interim period continued unabated, with Bidvest noting that through pro-active sourcing and inventory management in the face of increasing product and raw material shortages, “businesses were able to satisfy demand”.

In recent months, trading with industrial and basic infrastructure businesses picked up.

New renewable energy tenders in the market have attracted divisional attention and the Bidvest management now continues to actively source and refine the product range in various businesses, it said.

Automotive’s operational results are good despite a decline in new and used vehicle sales volumes, but Bidvest’s management is now focused on realising an improved margin per sale, “rather than chasing volumes”.

Aftermarket activity was lower, particularly into the panel shop segment, but gross profit margin was broadly maintained.

Supply constraints from key original-equipment manufacturers (OEMs), however, remain material challenges and are not expected to ease in the next few months.

As a consequence, good-quality used vehicle inventory is difficult to secure at appropriate pricing, though various automation initiatives have started to yield benefit.

In the financial services segment, profit remained under significant pressure with Bidvest Bank’s non-interest revenue well down owing to less foreign exchange demand, reduced transactions across channels and the net roll-off of fleet management units.

Lower interest rates resulted in a reduced net interest margin, and Bidvest Bank’s liquidity and capital ratios remain strong.

Gross written premiums in the insurance and related businesses held up relatively well, and investment portfolios have delivered a “pleasing” rebound in returns.

The division is focused on driving revenue opportunities across the complete spectrum of products and services offered, Bidvest said.

Bidvest expects to publish its full-year results by September 6.