Business expansion
Even in a challenging environment we
did not stop investing. Our commitment
to long-term business sustainability
underpins our growth strategy. Net capital
expenditure of R2,7 billion, is 21,4% up
(2009: R2,3 billion). We invested
R1,6 billion in capacity expansion and we
continue to demonstrate our confidence in
the future through major, long-term
investments to ensure medium-term growth
and sustainability; for example, the
R503 million spent by our freight business
on upgrading and expanding facilities.
Continuing focus on internal expansion is
complemented by awareness of outside
opportunities. Early in the period, the
€250 million Nowaco group acquisition
demonstrated that our ability to conclude
major acquisitions is undiminished. We
carried through the deal in the face of
strong opposition from private equity
groups, an indication that we retain
considerable "fire power".
Key contributors
Major contributions came from our
foodservice businesses, though the
respective contributions from each
business reflect changes in national
markets and different rates of business
growth. Our Australian foodservice
business now accounts for 10,3% of Group
revenue. New accounting requirements in
terms of IFRS 3 in the treatment of
acquisition costs largely nullified the
headline earnings contribution from our
new eastern European foodservice
business.
Results from our retail automotive business
are much improved yet still way below
previous levels achieved. However, much
of the new vehicle sales activity is
attributable to the fleet and corporate
business segments. The vehicle market
for retail consumers remains subdued as
credit approval rates remain low.
In Freight, commodity exports improved
while demand for outsourced services
increased. Businesses in the printing and
related products sector faced strong
challenges, but performed well.
The major area of underperformance is
in the Industrial and Commercial division.
Voltex, historically a major contributor, has
been hit by a major decline in volumes as
construction work dried up and the
demand for copper-related products fell.
Simultaneously, cutbacks in the corporate
office market had significant impact on the
furniture businesses.
Financial performance
Revenue fell 2,3% to R109,8 billion
(2009: R112,4 billion), impacted by lower
import revenue in Safcor Panalpina, price
deflation and the impact of the appreciating
rand. Deflation was evident in all
geographies as lower demand drove
product prices down. Many operations
achieved market-share gains as they
traded aggressively and took advantage
of market weakness.
Operating expenses were well controlled
across the Group, reflecting a decline on
the prior year. The trading margin improved
to 5,1% (2009: 4,6%).
Headline earnings were impacted by
abnormal charges of R61,2 million relating
to acquisition costs, mostly attributable to our new eastern European businesses.
Previously, these once-off acquisition costs
would have been capitalised to the cost
of the investment, but under the revised
IFRS 3 accounting standard are now
included as an expense in headline
earnings, impacting headline earnings per
share negatively by 2,1%.
Our balance sheet remains strong and
appropriately capitalised. Net debt declined
assisted by a R0,7 billion reduction in
working capital and despite additional
debt funding of R1,7 billion for the Nowaco
group acquisition. Bidvest normally
absorbs working capital in the first half
of the financial year and releases working
capital in the second half. This year,
seasonality showed a key shift. The depth
of the recession in the first half was one
factor as we acted promptly to cut our
cloth according to lower activity levels in
key areas. The effect of cost-cutting measures came through early on. On the
flip side was the hosting of the 2010 FIFA
World Cup™ in June and July. Some
businesses, notably in foodservices,
stocked up ahead of the event.
Interest cover improved to 7,4 times from
5,0 times in 2009, reflecting significant
borrowing capacity. Net debt to equity at
23,1% shows pleasing improvement
(2009: 29,2%). Net finance charges
declined 26,3% to R758,5 million.
We benefited from a prompt response to
increased credit risk. This was already a
focus area as the year began. We took
an aggressive view, applied strict credit
extension criteria and gave focused
attention to debtors collections throughout
the year. We lost some business as a result
of this cautious approach, but as the year
progressed we experienced relatively few
bad debt problems. Such action will undoubtedly benefit the businesses as
markets return to some form of growth.
Return on funds employed showed
pleasing improvement, rising from
36,4% to 38,7%. |