Financial director's review

David Cleasby Group financial director
David Cleasby Group financial director

Management focus remains on product and service innovation to assist in growing revenue on a sustainable basis, ongoing cost control, which combined with good working capital management, will assist in generating acceptable returns on funds employed


Bullet Revenue grew 14,9% to R153,4 billion
(2012: R133,5 billion)
Bullet EBITDA up 8,4% to R9,8 billion
Bullet EBITDA interest cover up to 12,8 times
(2012: 11,5 times)
Bullet Normalised headline earnings up 16,2%
to R4,9 billion
Bullet Net debt has increased to R4,5 billion
(2012: R3,6 billion) driven principally by
the absorption of working capital
Bullet Bidvest’s attitude to gearing remains
conservative while retaining adequate borrowing capacity
Bullet Low gearing, high interest cover
Bullet Financial discipline remains a key priority

Strategic overview/Macro conditions/ Trading environment

The Group delivered solid trading results for the year ended June 30 2013, achieved against a backdrop of challenging trading environments in many geographies in which we operate. The Bidvest team is to be complimented on a job well done.

The business environment was especially challenging in the UK and Europe. Asia Pacific maintained its growth trajectory, making a strong profit contribution. Results in South Africa were solid in the context of lower growth and further pressure on consumers. Namibia’s contribution to profit was below expectation but credible in the context of a volatile fishing industry.

The average rand exchange rate weakened against major currencies in which the Group operates, in particular against the Australian dollar and sterling. A marked weakness occurred in the last quarter, the full effects of which are likely to be evident in 2014.

Financial performance

Revenue rose by 14,9% to a new record level of R153,4 billion (2012: R133,5 billion). Major contributions to the increase came from Bidvest Europe (R7,0 billion) and Bidvest Asia Pacific (R5,1 billion). Results were mainly driven by organic growth and some acquisitive growth, as well as assistance from currency effects of translation.

At 19,8%, gross margin eased lower while the trading margin of 5,0% (2012: 5,3%) declined slightly, impacted by the relative increased contribution from lower margin businesses such as automotive retailing and the marked decline in trading profit in a few foreign operations.

The Group grew trading profit by 9,4% to R7,7 billion (2012: R7,0 billion). Operating expenses rose by 12,3 % driven by the full cost of acquisitions in the 2013 base and the impact of the translation of the foreign businesses at weaker rand average exchange rates. Although not apparent, cost increases reflect continued focus on efficiency improvements by management at all operating divisions and increased by only 6,2% as measured on a constant currency basis.

Rand weakness, notably in the second half of the year, was beneficial on the translation of overseas earnings. Bidvest derives 38,8% (2012: 40,1%) of its trading profit from businesses outside South Africa. Accordingly currency volatility has an impact on reported rand results.

At Bidvest, incentivisation of management remains a critical component of securing business growth significantly higher than the national or industry norm. Share-based incentive costs for staff amounted to R119,7 million (2012: R121,5 million).

Associate earnings from Group investments showed a healthy increase to R161,8 million (2012: R77,3 million) buoyed by the full-year contribution from the 38,4% equity accounted interest in Mvelaserve Limited and the improved performance of Comair Limited, reflecting a more normalised return.

Return on funds employed (ROFE) – a key benchmark for operational performance – declined marginally to 37,3% (2012: 39,9%) driven mainly by the investment into working capital across the Group.

Cash flow analysis

The Group’s balance sheet remains robust, notwithstanding the fact that the working capital absorption increased during 2013. Cash generated by operations before working capital changes increased 5,9% to R9,3 billion (2012: R8,7 billion).

The Group absorbed R1,9 billion of working capital reflecting growth and strategic stocking in a number of businesses. The net working capital cycle increased to 12,1 days from 8,2 days in 2012.

Inventories remain well controlled and appropriately valued however strategic investments were made in a number of industries, particularly the automotive sector.

Accounts receivable have increased in line with revenue growth across the businesses. Credit extension and debtors collections remain critical focus areas of management as the Group is exposed to sectors such as construction and out-of-home eating where operators continue to face a high risk of business.

Trade and other payables days declined to 56 days (2012: 59,4 days) reflecting normalisation off a high base in 2012.

Net capital expenditure on property, plant and equipment is up in the current year to R2,2 billion (2012: R1,8 billion) as the ongoing investment into Group infrastructure continues. Depreciation and amortisation charges amount to R2 billion which reflects the Group’s continued strategy of ongoing appropriate investment into fixed assets. Net additions to intangibles are flat year on year at R0,3 billion. Net capital items for the year of R102,5 million arise primarily from the impairment of intangibles and associates.

Net debt rose to R4,5 billion (2012: R3,6 billion) driven primarily by the investment into working capital. The Group took advantage of the low-interest environment during the year and both foreign bank funding and the local capital markets were accessed.

Net finance charges declined by R20,1 million to R764,5 million, indicative of the lower interest rate environment which was offset to some degree by the increased investment in working capital. Though advantageous rates are sought in capital markets from time to time, our philosophy on debt remains unchanged. We take a conservative approach to gearing and Bidvest remains well capitalised, with normalised interest cover increasing to 10,0 times (2012: 8,9 times).

Credit ratings

South Africa’s sovereign rating came under pressure as Fitch, Moody’s and Standard & Poor’s downgraded the country’s rating to just two levels above non-investment grade status. This is worrying, but is broadly in line with the national ratings of other emerging economies such as Russia and Brazil.

Sovereign downgrades push up funding costs for both government and corporates as companies are rated relative to the ratings of their countries of domicile. However, Fitch Ratings upgraded Bidvest’s national long-term rating to “AA (zaf)” while Moody’s continue to rate the Group at with a stable outlook.

“Incentivisation of management remains a critical component of securing business growth significantly higher than the national or industry norm.”

Currency market movements remained volatile and the rand came under growing pressure, particularly as foreign investors became risk averse in emerging markets and exited the South African bond markets in the latter part of the financial year. Bidvest continues to manage its transactional currency risk by taking forward cover and foreign assets are matched to foreign liabilities in their home currencies, mitigating cross currency exposures.

However, for an international business like Bidvest, rand weakness can have short-term beneficial effects on foreign earnings on conversion to rand. In the course of the 12 months to June 2013, the average exchange rate against sterling softened from R12,34 to R13,87. Against the euro, the unit fell from R10,41 to R11,46 while the rate against the Australian dollar moved out from R8,03 to R9,08.

Inflationary pressure

The currency gains should not obscure long-term risks associated with the resultant impact on the rate of inflation and pressure on consumers in South Africa. The weaker rand drove South African fuel prices higher and combined with administered price pressures, had a knock-on inflationary effect on a wide range of consumer goods. On the positive side, adequate supply side capacity negated the full effects of these increases.

As a trading company, Bidvest derives some benefit from mild levels of inflation. However, this benefit is eroded when inflation moves significantly higher than targeted levels.

High inflation reduces the consumer’s purchasing power and contributes to growing pressure on margins.

Regulatory pressure

The worldwide regulatory and legislative burden grows at an increasing rate each year. Bidvest strives to be a well-governed business and ensure compliance in all jurisdictions in which we operate, but this requires a significant investment of resources, most notably management time and focus.

Stakeholder engagement

In the face of fragile business confidence and low economic growth forecasts, the Group maintained its rate of investment in infrastructure, equipment and people. Bidvest people remain a key source of competitive advantage and training spend is regarded as a crucial investment in future growth that must be maintained.

We continue to allocate considerable resources to management training and specialist technical training. However, a significant portion of the Bidvest training budget in South Africa is channelled into adult basic education and training (Abet).

In the democratic era, South Africa’s rate of investment in education has risen to roughly 5% of national GDP, one of the highest rates in the world. However, there has long been a disturbing discrepancy between input and output. Many young people leave school without communication skills and with little grasp of the basic foundations of maths and science.

Poor educational grounding represents a material constraint to sustained business growth and continues to be a strategic risk factor for all businesses in South Africa, including Bidvest.

Economising on resources such as fuel, water, electricity, paper etc and on recycling has both environmental and bottom-line benefits and is in line with Bidvest’s integrated approach to business. Clear and comprehensive financial reporting is built into the Bidvest way of doing things. We commit to honesty and transparency at every level. Regular, accurate reporting is just one indication that we mean what we say.

Our 2012 annual integrated report again featured strongly in the awards programme run by the Investment Analysts Society of Southern Africa. Considerable resources are committed to the production of a meaningful annual integrated report and awards success is gratifying.

However, it is important to note that Bidvest does not regard corporate communications and investor relations as a once-a-year exercise. We engage continually with analysts, fund managers, the media, investors and other interest groups.

Senior executives at Group and divisional level are expected to be accessible to stakeholders and to address relevant forums; not only when our half-yearly and annual results are released, but as an ongoing responsibility.

Significant transactions

Late in the year, the Competition Commission approved the takeover of Home of Living Brands Holdings Limited (HLB) formerly Amalgamated Appliances Holdings Limited by Bidvest without attaching any conditions to the transaction. The R538 million cash transaction was funded out of Bidvest’s internal resources. HLB delisted from the JSE on July 2 2013. Save for accounting for the Group’s share of associate earnings in 2013, the full benefit of the acquisition will be in 2014.

In May, Bidvest offered to buy out the minority shareholders of outsourcing firm Mvelaserve Limited after agreeing to buy a further 17,7% of the company’s equity from Mvelaphanda Holdings. At the time of the offer, Bidvest already owned approximately 35% of Mvelaserve Limited. The R609 million cash transaction is awaiting regulatory approvals.

A number of smaller acquisitions were also made in the year.


Management focus remains on product and service innovation to assist in growing revenue on a sustainable basis, ongoing cost control, which combined with good working capital management, will assist in generating acceptable returns on funds employed. Further effort is being directed at those operations where performance is below our own expectations.

Our financial position remains strong and the Group has ample capacity to fund both organic and acquisitive growth. We continue to see opportunities to expand our product and service offering, which bodes well for the Group going forward.

David Cleasby
Group financial director

Registered office South Africa
Bidvest House
18 Crescent Drive
Melrose Arch
South Africa
Telephone: +27 (11) 772 8700
Facsimile: +27 (11) 772 8970





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