We have made excellent progress over the past year in achieving our stated objectives. Our portfolio has been strengthened and realigned, resulting in an enhanced focus on the seven core divisions and allowing us to concentrate on renewed growth. We have a strong and capable leadership team, we are directing capital spend toward meaningful infrastructural developments, and we are positioned for international diversification.
The value-creating unbundling of our foodservices businesses last year successfully transitioned Bidvest into a standalone, robust microcosm of South African business. We are now firmly focused on the business of trading, distribution and services, and we remain one of the country’s largest employers. At the end of the financial year, the Proudly Bidvest family totalled more than 117 000 people who, together, enabled the Group to generate revenue of more than R70 billion this past year.
The year in review
Bidvest delivered a solid trading result in a tough Southern African market. While consumer spend remains constrained, leading to a lack of economic growth, and amid frustrating political uncertainty, the benefits of our diversified portfolio and the quality of the underlying businesses are evident. Five of Bidvest’s South African divisions, as well as Bidvest Properties, delivered growth in trading profit.
Trading profit increased 4,6% to R6,0 billion against revenue growth of 4,0%, with a trading margin of 8,5% (2016: 8,4%).
The results were bolstered by a strong focus on clients and solutions, the acquisition of Brandcorp within the Commercial Products division, as well as smaller bolt-on acquisitions in the Electrical and Financial Services divisions. Strong profitability gains were also achieved in Adcock Ingram and Comair, which increased Bidvest’s share of profits from these associated companies and prompted a significant capital gain on these investments, arising from an increase in their respective market values.
Headline earnings increased by 6,2% to R3,7 billion (2016: R3,5 billion) and headline earnings per share by 5,1% to 1 108,2 cents per share. Basic earnings per share more than doubled to 1 430.3 cents (2016: 692.6 cents). The Group declared a final gross cash dividend of 264 cents per ordinary share for the year ended 30 June 2017, which brings the total dividend for the year to 491 cents per share.
Part of the Bidvest philosophy has always been to maintain a strong financial position, and cash generated by operations was exceptionally robust at R6.9 billion. Debt is low, at 7.2 EBITDA interest cover and less than 0.7 times EBITDA.
Over the past year, R773 million was generated from the disposal of non-core assets, including Cullinan, Cargo Carriers, about half of our Bidcorp shares, as well as other, smaller investments. We will continue to responsibly monetise the remaining non-core assets as and when we see the opportunity.
Our ability to react quickly and competitively on future acquisitions aligned to the Bidvest model is enhanced by the fact that our funding capacity is substantial.
We remain steadfast in retaining our simplicity. We operate in straightforward industries where we feel most comfortable: we are not involved in complex manufacturing, and we don’t get involved in complicated products. When we target acquisitions we look for simple, annuity-based businesses that are an appropriate fit within our core operating areas.
The well-documented entrepreneurial and decentralised Bidvest approach remains entrenched in our DNA. While Bidvest is the majority owner in all its core businesses, many of which were acquired from SMME owners over the years, the existing management teams retain the business-owner notion and these entities are managed with the same pride and passion one would find in an independently-owned company. This is certainly evident across the divisional portfolio, specifically through the continued operating and financial performances, which often match or exceed their respective market peers.
We are extremely excited about the numerous innovative products and service offerings being taken to market, or in the conceptual phase of development. These are all directed toward ensuring we can continually add value to our vast customer base across all divisions.
Bidvest’s market is, predominantly, South Africa. We are firm believers in the future growth and development of this country, notwithstanding economic challenges. We continue to seek divisional bolt-on acquisitions, and we are investing considerably in local infrastructural development projects. This is particularly evident in our freight operation where we are in the process of spending more than R1,5 billion on bulk liquids, petroleum and liquefied petroleum gas (LPG) storage facilities. The new LPG facility will add significantly to the more than three and a half billion litres of bulk liquid product that is currently handled through our terminals in South Africa each year.
Capital allocation will always be a key element of our business, and there are very few instances where the investment on capital was below our, internally-stretched, expectation. Remedial action is taken where needed.
Bidvest has a diversified and enviable blend of defensive, cyclical and growth assets, which are intentionally large and have a level of market-leading status, across the South African business spectrum.
Post year-end, a new addition to the Services division’s portfolio was the acquisition of Noonan, a Republic of Ireland and United Kingdom-based, integrated facility management services and solutions provider with a 40-year track record. We have looked at a few international acquisition possibilities, and Noonan was one we felt matched the Bidvest culture, philosophy and growth ambition best. We concluded the 100% acquisition for EUR175 million, and we look forward to its contribution to our earnings.
Noonan’s services range from cleaning and security to building services and facilities management and include soft, technical and ancillary services. It provides a strong and exciting platform from which to expand in the United Kingdom, Europe and beyond. The existing business has an established footprint and is experiencing tremendous success with its diversified services offering from its base in Ireland, and more recently in key areas within the United Kingdom. Our Services division’s track record and product offering will complement Noonan exceptionally well, and we look forward to the management teams of the two entities sharing and delivering strong growth, and innovation.
Noonan has existing bolt-on opportunities available, which are being pursued, and we believe there are some exciting, larger growth possibilities. We do not intend recreating Bidvest’s seven core divisions on an international platform. But certainly, particular divisions like Services and niche areas within Commercial Products, are well-positioned to capitalise on expansion outside of the borders of South Africa.
Market conditions remain challenging, with margins under pressure. We have had to adapt rapidly to the changing environment and become more innovative in terms of our offerings and the way in which we do business: contract terms and procurement patterns are two good examples.
We are seeing market share gains in certain sectors, and breaking into areas of business we previously found difficult to penetrate. Similarly, our trading businesses continue to look at alternatives and complementary services or products. In our Services division, where we have traditionally focused on providing a single service to clients, expanded bundled services are being offered, leading to an integrated facilities management strategy and a total facilities management offering of both hard and soft services. There is growth from this strategic intention, which we think has the potential to get significantly bigger.
Innovation-led growth and expansion is a part of Bidvest receiving much attention and providing considerable excitement. Within the Automotive division, for example, we are introducing virtual dealerships and the Snappdrive app, a keyless application for the car rental fleet and a first in the South African market. Dry ice cleaning, a unique waterless high-pressure system, is being introduced into the mining and petrochemical industries. The Electrical division’s offering is being enhanced by new-generation smart meters, solar geysers, and large-scale generators, among other innovative products being taken to market.
Internally, Bidvest is adapting and refocusing to enhance efficiencies and processes, but it remains directly affected by the slowdown in South Africa’s development and growth. This reality, coupled with cumbersome and conflicting legislation, makes it difficult to drive sustainable businesses and, therefore, job creation.
The challenges associated with doing business in South Africa are also being intensified by political instability and volatility. The South African Chamber of Commerce and Industry’s Business Confidence Index released in September 2017 showed a decline to its lowest level since the mid-1980s, highlighting the demands of the current operating environment. We have, both directly and through Business Leadership South Africa, expressed our concern, but also our commitment to working with the South African government, and other authorities, to effect change and give shape to a renewed and re-energised growth programme. We are eager, willing and dedicated investors in South Africa, and well-positioned to augment the portfolio of initiated projects under way, which will ultimately play a part in rebuilding critical infrastructure in many sectors and regions.
We continue to work with various government departments on existing and new supply projects and we are always very clear these can only move forward within a framework of strict financial discipline and control.
South African business urgently needs stability and predictability, and we look forward to our next phase of growth, which we anticipate post the ruling party’s December 2017 elective conference.
Bidvest recognises that the relationship a business has with society is critically important. Establishing truly sustainable growth must reach beyond creating employment, paying taxes, supporting hundreds of suppliers, ensuring value-added offerings to our customers, and creating shareholder wealth. We must contribute to the alleviation of poverty and counter widening inequality, create sustainable employment, both within and outside the Group, provide better educational opportunities and access, while developing and advancing the key technical and commercial skills sets needed in South African business.
Our business growth and success over the past 29 years has enabled us to create and retain jobs, and invest in our employees to grow along with us.
Bidvest approaches transformation on an inclusive basis. We see it as a strategic opportunity and we do this by continually forging relationships with our stakeholders, be it the government, private sector customers, or the communities within which we operate. For Bidvest, the key to success is forming stronger alliances with these key stakeholders.
We also recognise there are significant environmental pressures, including improved water and energy supply management, where we can play a part in assisting better stewardship for the future.
We are not major polluters and, therefore, don’t have emerging carbon emission concerns. We look at other ways to reduce the realities of environmental disruption. In the decentralised structure of the Bidvest Group, businesses have varying focus areas within their industries, which are monitored and addressed at the individual business level, as appropriate. We work alongside stakeholders to reduce waste and promote recycling wherever possible. Water-use management across the divisions is a collective endeavour, which we promote internally as part of our day-to-day business activities. Similarly, energy efficiency and conservation within the divisions, and a shift to renewable energy sources, has already become part of the Bidvest culture.
We are quietly optimistic about marginal GDP growth in the current financial year, and do not anticipate any considerable volatility in exchange rates. We expect trading conditions to improve slightly in the coming year. We remain confident into the medium term, and our focus on enhancing customer centricity and growth in our seven core divisions will continue unabated. These divisions are well managed and cash generative, and their scope will broaden as innovative new products and services are introduced.
Bidvest will maintain its sound financial position and strong balance sheet, with adequate headroom to support growth aspirations. We will actively explore selective acquisitive opportunities in local and international markets to complement core product and service offerings.
The Namibian business will continue to face challenges, and we are dealing with the issues, which we believe will be resolved over the next year.
Our philosophy during this past year was one of an evolving Bidvest. We have successfully transitioned through the unbundling of our foodservices businesses, and achieved our immediate short-term imperatives of re-aligning and focusing the business. While we will continue to strengthen and entrench the same Proudly Bidvest operating model for which we have become known, we are better positioned for the future. Our strategy not only entrenches existing objectives, but enables a future that will achieve our ambition of “Going Beyond”, and into continued success.
My personal thanks to the directors of the Bidvest Group under the leadership of our chairman, Lorato Phalatse. Your guidance and support over the past year has been invaluable, and is much appreciated by the Bidvest management team.
We express our gratitude to Bidvest’s vast supplier and customer base for their ongoing support and dedication. We are very aware our business would not be able to continue successfully without you, and we hope we can continue our long and rewarding association.
Above all, thank you to the over 117 000 people that make up the Proudly Bidvest family and welcome to the 13 000 team members from Noonan. Without doubt, it is you that will collectively continue to drive our success. Our values encapsulate respect, honesty, integrity and accountability, and we believe good ethics come from the heart – and that is how we intend to continue to drive our business forward.
We still have an unwavering appetite for growth, locally and internationally. I believe we are now aligned and even better positioned to take advantage of the many opportunities available to us, while ensuring we adhere to our strict discipline of selection, which will ultimately drive enhanced returns to all stakeholders.