Chief executive's statement

Brian Joffe Group chief executive
Brian Joffe Group chief executive

We are not simply investors. We are experienced managers with exposure to a wide range of industries. Our expertise and our customer base allow us to build new growth while our infrastructure can enable synergies and efficiencies.

People and performance

Bidvest delivered a generally strong performance with trading profit moving 9,4% higher to R7,7 billion while revenue rose by 14,9% to R153,4 billion. These results were achieved in the face of sometimes turbulent trading conditions by dedicated Bidvest people and resourceful Bidvest managers.

Our normalised headline earnings per share increased by a commendable 15,4% to 1 560,6 cents while ordinary dividends per share rose by 15,8% to 720,0 cents.

Several bolt-on acquisitions were concluded and acquisition activity picked up in the second half of the year, but gains were primarily a function of organic growth and the efforts of decentralised, but highly focused teams.

Figures on a financial statement are useful, but they fail to provide an operational context. We operate in highly competitive markets all over the world. There are no easy wins and there’s no low-hanging fruit. We face strong, well-resourced competitors who fiercely defend their customer base and share of market.

To grow the business against competitors like this is a challenge, and it doesn’t go away. Our people face this test every working day. In some markets we may not have achieved the growth we would have liked, but it was not for lack of trying.

Industrial relations

South Africa recently commemorated the first anniversary of the Marikana shootings in which 34 protesting mineworkers were killed. This was a national tragedy and its ramifications will be with us for some time to come.

The challenge for business, the labour movement and policymakers is to ensure that tragedies such as these never re-occur. To head off the danger, it is important to identify possible flash-points and create avenues for peaceful resolution well before violence has a chance to flare up.

Numerous opportunities for corrective action have been missed by the time a worker protest flares into violence. Workers feel unhappy and frustrated long before they take to the streets. If steps are not taken to address their concerns, they turn to the traditional avenue left open to them … action in the workplace.

Failures in business are invariably failures of management. And nearly every problem, at its core, is a communication problem. These considerations not only apply to managing assets, but to managing people.

If you as a manager are remote from shop-floor issues those problems will ultimately escalate until they are on top of you. They will impact your bottom line and your ability to do business.

The challenge is to get close to the issues before they lead to protests and adversarial position-taking.

Staying close

When discussing the Bidvest business model, focus generally falls on closeness to business opportunities, markets and customers. But another key benefit is closeness to worker concerns.

Bidvest has been affected by strikes in the year since Marikana. We have also been affected by higher wage expectations. Thankfully, however, we have not had to contend with violent confrontation.

I believe one reason for this is the hands-on approach by decentralised management teams. We might not always accede to worker demands, but our people know they can raise their concerns and will be given a hearing.

South Africa has gone through a difficult “strike season” and there may be more difficulties to come, but I remain confident that unions, worker leaders, managers and business will meet the challenge.

We are not going to totter from one crisis to the next because no alternatives are open to us. Workable agreements will be reached and we will resolve our difficulties. Democracy enables us to disagree without being destructive about it.

Positives coming through

South Africa – where Bidvest has its largest workforce and makes its biggest profits – faces substantial challenges. Crime, corruption and the crisis in our education system make the headlines, but we should also spotlight the positives that are coming through.

Unemployment remains about 25% of the economically active population, but jobs are being created every quarter. Government’s target of creating 5 000 000 new jobs by 2020 was always ambitious and may not be reached, but we are steadily moving off the 2010 bottom when the number of people in work fell to 12,9 million.

The challenge is to step up economic growth to around 5%, the point at which inroads can be made on the unemployment percentages. Some believe the key constraint is power generation, but skills generation is even more fundamental.

Currently, about a third of our university students drop out in their first year and less than half graduate. This is an unacceptable rate of attrition, but thousands of young people with tertiary qualifications still enter our workforce every year. They represent both a resource and a challenge.

Space has to be created within our economy for their talents and aspirations. They have the ability to drive higher economic growth. They will simultaneously drive demand for consumer goods, housing and services.

These young, energetic South Africans give us the capacity to transform our national prospects. Don’t underestimate their ability to make a difference.

South Africa has to grow so its qualified, skilled and energetic young people can grow with it. To achieve this end we have to drive higher economic growth by harnessing the talents of all our people from every racial group.

To create more employees we have to create more entrepreneurs. A vibrant small business sector will give young, well-educated people the chance to put their ideas to work and build value – for their families and the country at large.

New middle class

The positives around the creation of a new middle class and their impact on consumer markets not only apply to South Africa, they apply to much of the African continent.

The resources sector remains important, but a new wave of international consumer, retail, leisure and telephony brands are not expanding into Africa to sink mine shafts. They are here because consumer markets in Africa have the potential for sustained growth over 20 or 30 years.

Focus on Africa

In the months ahead, expansion into Africa will receive increased attention at Bidvest.

We have always had African interests, via Bidvest Namibia, our Manica freight business and the Naval operation in Mozambique.

However, we should acknowledge that in recent years African expansion beyond that base has not been a priority for us. Perhaps it should have been.

In the last 10 years many South African businesses have established a solid African footprint and today derive a substantial portion of their revenue from these jurisdictions. They should be saluted for their vision and their skill in developing local relationships.

Today, Africa has a population of more than one billion consumers. It is a mistake, however, to treat it as a single market. Levels of development, regulatory regimes, tax structures and official policy differ from country to country.

Some broad trends are noticeable. Many African states have embarked on policy reform to make their markets business-friendly. Real GDP growth rates are trending higher across sub-Saharan Africa. They were around 2,2% in the 1990s, but a decade later had reached 6%. The forecast is that they will be at around 5,8% in 2015.

It’s interesting to note that in 2012 the growth rates of Burkina Faso and Ghana were on a par with China.

From a Bidvest perspective, it’s also interesting that the African Development Bank says service sector growth exceeds resource growth, even in some of Africa’s resource-rich economies.

Bidvest has already examined some opportunities for African expansion. We now have a dedicated African team and exploration of acquisition possibilities will continue.

Acquisition criteria

The criteria for acquisitions are simple, in Africa and elsewhere. We look for value – value in a market and within a specific business. Clearly, we are also focused on opportunities to build value by enabling local managers to grow their businesses.

We are not simply investors. We are experienced managers with exposure to a wide range of industries. Our expertise and our customer base allow us to build new growth while our infrastructure can enable synergies and efficiencies.

Acquisition activities are not driven by some grand strategic design. We are opportunistic. Once we have established a base we look for further growth. For example, our entry into the Chilean foodservice market may well create a springboard into Brazil or other South American countries. The decision will depend on the opportunities that present themselves and the value we identify.

A well-defined space

The sectors in which we are active are clear enough. We are a trading, services and distribution business and prefer to operate within this space.

Admittedly, we may widen definitions to help local managers widen the scope of their activities. Value can also be unlocked by reconfiguring a business to exploit underlying potential that has gone unrealised. The new vision you bring is sometimes your most important contribution to a business.

In other cases, a transaction creates obvious opportunities to build, scale and achieve efficiencies.

Our offer for Mvelaserve falls into this category. Hopefully, the transaction will be finalised early in the new period. Mvelaserve’s cleaning, catering and other corporate services find a ready fit within Bidvest South Africa. Consolidation of the businesses will create new opportunities for growth.

Though the growth and internationalisation of the Bidvest South Africa division have been points of focus, our international foodservice business has also made good progress. New acquisitions are bedding in well in the UK, Belgium and New Zealand while Bidvest Middle East has established a foothold in the Turkish market. Our footprint in China has grown and Bidvest Procurement company is widening its international sources of supply.

Further transaction opportunities are being pursued; internationally and in South Africa.

Other investments

Organic growth has not been neglected. Our businesses have continued to gain market share and secure operational efficiencies. This confirms the quality and energy of Bidvest people.

We continue to make major investments in training and development and in 2013 our training budget reached a new record – R313,5 million.

Investment in new equipment and systems has been maintained. Capital expenditure spending topped R4 billion, up 10%.

The overwhelming focus in our South African businesses is on the development of black staff members. It is heartening to see so many young black supervisors and managers building a career with Bidvest. Unfortunately, relatively few have made the breakthrough to senior management, but this process is underway and is irreversible.

Talent and transformation

South African can’t succeed unless it harnesses the contribution of all its citizens. The same applies at Bidvest. We are a talent-led business and we can’t maintain our rate of growth unless we mobilise all our people resources.

South Africa’s labour laws still refer to racial categories. This is essential if employment equity goals are to be reached and our country’s racial diversity is to be properly reflected in all areas of our business.

The legal categories may be sharply defined, but after nearly 20 years of democracy other lines are blurring, especially among the under-35s. In many cases these young people went to similar schools, attended the same university and now live in the same suburb. They have similar ambitions and concerns and work well together in closeknit teams.

In the end, corporate transformation will not be driven by legislation affecting the workplace, but by the people in the workplace. They have transformed and they will transform South African business. As a member of an older generation, I salute these young people for breaking down the old barriers and creating a new beginning.

However, as a society and an economy we have not yet reached the goal of full representation of all groups at all levels of business. Employment equity is a key requirement of empowerment legislation and Bidvest has to step up its efforts to develop senior black managers, especially female black managers.

Thankfully, some progress along this path has been made at executive director level and, of course, since March Bidvest has a new chairperson, Ms Lorato Phalatse. It is a pleasure to welcome Lorato to her new post. I’m convinced she will do very well indeed.

Succession

Lorato succeeds a remarkable chairman, Cyril Ramaphosa; the man who has been at the helm over the last eight-and-a-half years. It has been my privilege to work closely with him over that period. He has made a unique contribution to the transformation of Bidvest, but regrettably will be resigning both his chairmanship and his place on our board.

Cyril can now devote his full attention to his new role as deputy president of the African National Congress. We wish him well in this task. He leaves with our best wishes and our thanks for a job well done.

The seamless succession of Cyril Ramaphosa by Lorato Phalatse inevitably raises questions about my own succession.

This process is already underway. A strong senior team is already in place. They have supervised a major realignment of our businesses over the last two-and-a-half years and led our South African and international businesses to unprecedented levels of growth, despite challenging trading conditions.

Over the last year I have devolved more and more responsibilities to Bernard Berson in Sydney and Lindsay Ralphs here in Johannesburg. My focus is increasingly on strategic issues and major acquisitions.

I am reassured by the fact that the transition is underway and that business development remains firmly on track across all divisions and geographies. The effectiveness of all parties to the succession process is being closely monitored and performance standards have been maintained. For the present, succession is work in progress and the work is progressing very well.

Appreciation

Bidvest is all about teamwork and I am happy to acknowledge my debt to an extremely able team at board and senior management level. Our directors have a wealth of experience in leadership positions and in-depth knowledge of many industries. In many cases they have contributed to policy formulation at the very highest level.

They are unstinting in their support and ever ready to share insights and new perspectives. They make an invaluable contribution to the business; for which I am extremely grateful.

The boardroom is a dynamic environment and change is constant. This is positive. New input is essential. But it does mean I regularly have to say farewell to treasured colleagues. This year was no exception. Several directors have retired, including the long-serving Bidvest stalwart, Joe Pamensky. Stephen Koseff also a long-serving and invaluable board member has indicated that he will stand down at the AGM. We are also losing Peter Nyman, Lionel Jacobs, Alan Salomon, Muriel Dube and Rachel Mathabo Kunene. They have helped Bidvest achieve sustained growth over many years. I thank them and wish them every success as they go on to new challenges.

“The criteria for acquisitions is simple. We look for value – value in a market and within a specific business.”

The management team has made another notable contribution in a year when trading challenges intensified in every sector and geography in which Bidvest is active. We have a highly cohesive executive team at Bidvest. They put in exceptional efforts in 2013 and I thank them for their hard work and support.

I also have a big thank you for the people of Bidvest. Once again, they stepped up to the challenge of maintaining momentum in tough markets. I’m proud to be on your team.

I also thank all our suppliers. You are major contributors to Team Bidvest and your support is greatly appreciated.

The biggest drivers of our growth are, of course, our customers. We never take for granted their support of the Bidvest brand. They trust us to deliver and we must be worthy of that trust. We thank you for your support in 2013 and assure all our customers that we will be doing everything in our power to meet their needs in the year to come.

The passing of Mervyn Chipkin

It is with great sadness that I report the death of a major figure from the earliest days of Bidvest – Mervyn Chipkin. My friend and former colleague died in late 2012, in Australia where he had made a new home with his family. His name is synonymous with Bidvest. In 1988, Chipkins became the first business to be acquired by the Group.

Close involvement with the business, concern for your people, honesty in all dealings, unfailing courtesy and total professionalism; these qualities are embedded in the Bidvest culture. They are also the qualities that spring to mind whenever the name of Mervyn Chipkin is mentioned. He will be sadly missed.

Future

Bidvest has a positive perspective going forward. We have continued to invest in our people and infrastructure and are well positioned to derive advantage from those commitments in the coming year.

Internationally, the signals are mixed. Growth is somewhat subdued in China and parts of Europe. The previously buoyant Australian economy may also face growing pressure. However, there are hints of revival in the UK and some European markets may finally be moving out of recession.

Our international businesses have achieved growth in difficult conditions in the past. Their coping skills may be tested in some markets in 2014, but I have confidence in their resilience and ability to bounce back.

In important markets like Australia, New Zealand and the UK our businesses are leaders and innovators, while our Chinese operations have achieved growing scale in recent months. They are positioned to build their positions in their respective markets and continue recent momentum.

In all markets there are areas of opportunity and our teams have a proven ability to maximise opportunities such as these.

Here in South Africa, several challenges are evident.

In the recent past, the country has been faced with lower-than-projected growth, a sovereign ratings reduction, a weak currency and severe pressure on important industries such as mining and construction. Consumers are also under pressure. A revival in meaningful consumer spending has stalled as families pay down debt.

But we should not lose sight of some important positives. South Africa has a resourceful and youthful population. The economy may have slowed, but growth is still being achieved and may strengthen in the coming year. A much-needed boost could also be provided by government’s plan to spend R840 billion on infrastructure development.

Our businesses are positioned to take advantage of every opportunity.

Early in the new period, Bidvest South Africa launched a new division, its 11th. The Consumer Products division is in place to pursue strategic opportunities in a market with long-term growth potential. I am confident it will become a significant contributor to the business.

Strategic vision is important, but it never hurts to be a good tactician and we can rely on established teams in the other divisions to make the most of developments in their areas of focus.

Our Namibian business has faced challenges as a result of lower fishing quota allocations, but continues to seek new growth – within its home market in areas like northern Namibia and perhaps as far afield as the Pacific.

Growth is the underlying objective of all our businesses and growth by acquisition remains a key component of our strategy. We are a strongly capitalised business and are well positioned to pursue transaction opportunities whenever and wherever we see value and synergies.

We look forward to unlocking significant value in 2014 inside our existing operations and perhaps in some new ones.

Brian Joffe
Chief executive

“Growth is the underlying objective of all our businesses and growth by acquisition remains a key component of our strategy. We are a strongly capitalised business and are well positioned to pursue transaction opportunities whenever and wherever we see value and synergies.”

Brian Joffe

EXPLORE IN DETAIL

QUICK LINK: 2013 strategic objectives and Management focus
 
Registered office South Africa
Bidvest House
18 Crescent Drive
Melrose Arch
Melrose
Johannesburg
2196
South Africa
Website: www.bidvest.com
Telephone: +27 (11) 772 8700
Facsimile: +27 (11) 772 8970
Email: info@bidvest.co.za
 

 

 

 

 

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