South Africa

BIDVEST SOUTH AFRICA

South Africa  
South Africa
Lindsay Ralphs
Lindsay Ralphs
Chief executive, Bidvest South Africa

Highlights and challenges

Bullet Double-digit revenue and profit growth in challenging trading conditions.
Bullet Lean, delayered Bidvest model fit for purpose in a tough economy.
Bullet Successor generation of younger managers prove their worth.
Bullet Progress in the development of black female executive directors.
Bullet Amaps acquisition, rebranded Home of Living Brands, sets scene for launch of Bidvest Consumer Products division.

Material issues and risks

Bullet Lack of consistent interpretation of BEE codes presents challenges for businesses around black ownership.
Bullet Higher fuel and utility costs contribute to margin squeeze in many businesses.
Bullet Management has little influence on derived demand volumes at Freight as macro-economic factors drive the import and export of goods.
Bullet Labour unrest in the country puts pressure on wage costs in labour-intensive businesses.

The division includes a variety of service and product offerings: freight management, logistics services, terminal operations and marine services; office automation, stationery and furniture; leading motor brands and vehicle auctioneering; travel management solutions, aviation services, airport lounge access and car rental; outsourced cleaning, landscaping services, security as well as specialised services to the industrial sector; hygiene rental equipment, cleaning consumables; laundries; indoor plants; water coolers and light industrial and commercial products; the full range of Yamaha products; consumer appliances, packaging closures and catering equipment; distribution of electrical products and services and a comprehensive range of banking and insurance products; printing and related products.

Financial performance

Revenue
(R’billion)
Revenue
 
Trading profit
(R’billion)
Trading profit

Non-financial performance

Greenhouse gas emissions
Greenhouse gas emissions
 
 

 
Total water usage (Megalitres)

Training spend
Training spend
 
CSI spend
CSI spend

QUICK LINK: Comparative sustainability data
http://www.bidvest.com/ar/bidvest_ar2013/005.php

Bidvest South Africa   Bidvest Freight
Peter Meijer
Financial director
  Mpumi Madisa
Executive director
  Gillian McMahon
Executive director
 
Mark Steyn
Financial director
  Anthony Dawe
Chief executive
Full review here
   
Revenue R25,1 billion
Trading profit R979,4 million
Contribution to trading profit 23,2%
Employees 4 733
     
    Bidvest Automotive
   
Carla Seppings
Financial director
  Steve Keys
Chief executive
Full review here
   
Revenue R20,7 billion
Trading profit R641,0 million
Contribution to trading profit 15,2%
Employees 5 831
     
Bidvest Electrical   Bidvest Office
Eric Immermann
Financial director
  Stanley Green
Chief executive
Full review here
 
Alan Griffith
Chief executive
  Ivan Keshwar
Financial director
Full review here
Revenue R4,5 billion
Trading profit R224,6 million
Contribution to trading profit 5,3%
Employees 2 214
 
Revenue R4,2 billion
Trading profit R324,3 million
Contribution to trading profit 7,7%
Employees 4 206
     
  Bidvest Services
Neil Birch
Chief executive
  Colin Adendorff
Financial director
Full review here
 
John Taylor
Chief executive
  Bina Gosai
Financial director
Full review here
Revenue R4,0 billion
Trading profit R281,3 million
Contribution to trading profit 6,7%
Employees 4 197
 
Revenue R3,2 billion
Trading profit R276,5 million
Contribution to trading profit 6,5%
Employees 47 209
     
Bidvest Rental and Products   Bidvest Travel and Aviation
Trevor Scruse
Financial director
  Alan Fainman
Chief executive
Full review here
 
Kevin Wakeford
Chief executive
  Allen Kotze
Financial director
Full review here
Revenue R2,2 billion
Trading profit R435,8 million
Contribution to trading profit 10,3%
Employees 6 282
 
Revenue R2,2 billion
Trading profit R379,9 million
Contribution to trading profit 9,0%
Employees 5 410
     
Bidvest Financial Services   Bidvest Industrial
Thinus Liebenberg
Financial director
  Japie van Niekerk
Chief executive
Full review here
 
Howard Greenstein
Chief executive
  Craig Turnbull
Financial director
Full review here
Revenue R1,5 billion
Trading profit R594,9 million
Contribution to trading profit 14,1%
Employees 1 223
 
Revenue R1,5 billion
Trading profit R86,0 million
Contribution to trading profit 2,0%
Employees 1 173

Performance overview

Results once again demonstrated the value of tight managerial focus on industries our executives know well. Revenue rose 10,5% to R69,3 billion (2012: R62,7 billion) while trading profit was 10,5% higher at R4,2 billion (2012: R3,8 billion). This performance was achieved against a backdrop of slow economic growth and low business and consumer confidence.

Strong contributions came from the Automotive, Travel and Aviation, Services, Rental and Products and Office divisions.

Though business conditions were challenging overall, pockets of opportunity were evident. Our management teams are to be congratulated on making the most of them.

The uptick in national new vehicle sales was maximised by a more streamlined Automotive division under a new and energetic leadership team. Our Rental and Products and annuity-based businesses demonstrated their resilience in a generally tough environment.

Some economic headwinds were difficult to avoid. Exports of manufactured goods dropped as South Africa’s manufacturing sector remained under pressure. Consumer spending was subdued and the rand weakened considerably, putting a brake on imports. Clearly, this had impact on our freight business volumes.

Mining industry cutbacks had knock-on effects in several divisions as mining groups are often major customers. Low infrastructure investment by government also created challenges.

Material issues

The South African operations are dependent on tender success within the mining sector, government departments and major private sector companies. Empowerment status is often key when these tenders are awarded. Bidvest South Africa has made improved B-BBEE scorecard results a priority and most of our businesses have acquired Level 2 or Level 3 B-BBEE certification. However, pending amendments to the B-BBEE Codes of Good Practice could pose challenges going forward. This challenge is faced by all businesses in South Africa, including competitors of Bidvest South Africa who will also have to step up their efforts. Continued scorecard success is a strategic imperative.

Inflation in the 5% range can be helpful for trading businesses within the Bidvest South Africa stable. Above that, customer resistance can set in and margin management may be affected. Distribution is a key function at many businesses within the division. When fuel and electricity prices push internal inflation above CPI it becomes difficult to pass on to customers the full extent of the increase. This became a concern in a year when fuel costs mounted steadily. Most contracts are CPI-linked, but CPI-plus creates a challenge.

Bulking up in South Africa

Substantial progress was made with our strategy of bulking up our services and distribution business in South Africa. By year-end, Competitions Board approval was awaited on the Bidvest offer to acquire additional shares in the outsourcing and services company, Mvelaserve Limited. This would give the Group a majority stake and open the way for a bid to minority shareholders.

Bidvest South Africa and Mvelaserve have complementary operations, creating opportunities to grow the combined business while achieving synergies across our outsourcing services.

Late in the year, Bidvest completed the acquisition of Home of Living Brands, a leading national and southern African distributor of kitchen and household brands such as Hoover, Russell Hobbs, Bell, Salton, TDK, Pineware, Berda and many more. Home of Living Brands is the initial base for the creation of an 11th division, Bidvest Consumer Products.

The acquisition opens up strategic growth opportunities. South Africa is no longer a resources-based economy. The consumer sector accounts for most of the country’s economic activity. Urbanisation and family formation are the big drivers of growth. A business dedicated to the distribution of household and kitchen appliances will clearly be at the heart of these positive developments.

International prospects

Our growth strategy is not limited to South Africa. The wider continent is also being explored. Plans are well advanced for the opening of an industrial products-based business in Swaziland, Botswana, Zimbabwe and Zambia.

The division has set up an Africa team to investigate acquisition opportunities in southern Africa and further afield. One opportunity is currently being investigated in West Africa.

Acquisitions of established businesses are preferred, but opportunities will also be examined to launch greenfields operations in collaboration with local partners. Focus areas are trading businesses and industrial services and distribution.

Africa holds growing interest, but in addition the division is aggressively pursuing acquisition opportunities outside the continent. Conditions are conducive to deal-making. Many international banking groups are re-examining their balance sheets and disposal of equity in their non-banking interests receives increasing attention. This creates opportunities for an acquisitive business like Bidvest.

People

Growth continued in our domestic market and Bidvest South Africa continued to create jobs. By year-end, staff numbers went up marginally to 82 478. Employment gains were achieved without losing focus on operational efficiency and stringent cost control. Both remained areas of focused management attention.

Development of our people remained a priority and our training budget increased by 17% to R277,9 million (2012: R237,6 million).

Workplace safety remains a priority and can be a challenge as some teams – especially in the Freight division – work in environments that are inherently dangerous. We not only comply with relevant legislation, we regularly launch awareness drives to combat complacency and keep accident rates low. Unfortunately despite these efforts, one fatality occurred.

Team spirit across our operations came into strong focus in a year when labour difficulties arose in several sectors of the economy. By delayering management structures and keeping executives close to day-to-day issues we are often able to address worker concerns at an early stage. Closeness to “the coalface” ensures managers and staff stay in touch.

Some strikes occurred, but issues were generally resolved without acrimony or antagonism.

Many of our businesses, notably in the services field, are unionised. Our companies are often party to industry-wide wage settlements that run for up to three years. Any uncertainties in the labour environment are cyclical and occur when one settlement comes to a close and a new pay deal has to be agreed.

Divisional report card

Automotive put in a strong performance. Sustained low interest rates were a positive as they give corporate and individual vehicle buyers certainty on the monthly repayment. But the energetic pursuit of sales and other business opportunities was also a function of the streamlined structures put in place over the last three years. Management is focused on trading opportunities and has taken all unnecessary expenses out the business. The benefit of this approach was highlighted by a 27,6% rise in trading profit.

As a major supplier to an embattled construction sector, Electrical faced ongoing challenges. However, the benefit of rationalisation and reorganisation over the past two years created a platform for modest, but pleasing growth. Construction firms and subcontractors remain under pressure, but our leaner Electrical team has maintained its position as a leading, nationally represented supplier and is positioned for further gains.

The trading environment for Financial Services remained challenging. At Bidvest Bank low business confidence inhibited lending activities to the corporate sector while leasing was affected by the winding down of full-maintenance leasing volumes relating to a substantial contract that ended last year. Travel forex in the leisure sector was impacted by consumer pressures. At Bidvest Insurance it remains our strategy to reduce reliance on the volumes generated via McCarthy dealerships. However, traction has been slow to build.

Freight did well to achieve a measure of growth at a time when volumes were under constant pressure. The economy slowed, steel exports stalled and the movement of some agricultural commodities was sluggish. Energetic action was needed to find replacement volumes. Substantial investment has been made in infrastructure. As the economy picks up, Freight is well placed to benefit.

Business conditions remained difficult at Industrial and the team did well to achieve a measure of growth. Demand for leisure products remained subdued, though improvement was evident by year-end. The team will continue building on good brand recognition and the acquisition of a R300 million turnover brushware manufacturing and distribution business will create greater opportunities going forward.

Office returned pleasing results in a highly competitive environment. Waltons made a strong comeback, thanks to a revitalised business model and a new senior management team. Cecil Nurse and the furniture businesses also did well. The technology businesses and the flagship Konica-Minolta brand put in another strong performance. South Africa is the only national market worldwide where Konica-Minolta is the undisputed number one.

Paperplus had a disappointing year. Six new subdivisions reflect the prioritisation of resources for managing both declining and new growth. Falling demand and margin pressure highlighted the need to accelerate this strategy, seek further growth across digital formats and look for new opportunities in the packaging sector. Masterpack, a carton maker, was acquired to give added bulk in this area. Other growth avenues include speciality packaging and electronic communications alternatives to print.

Annuity-based income streams at Rental and Products remained robust. A large majority of the operational entities contributed positively, with a notably strong contribution from
G Fox. Organic and complementary product and service opportunities are being pursued. Acquisitions that further extend and strengthen the offering are under consideration. The product-based expansion into Africa is well under way.

Contract-based volumes at Services held up well, with good contributions from the cleaning and security businesses. Effective margin management helped drive the result in a price-sensitive market. Trading profit moved substantially higher on the back of a successful turnaround strategy at TMS, the specialised industrial cleaning business that was a loss-maker the previous year.

Travel and Aviation put in a strong showing as corporate travel held up well and Budget car and van rental gained momentum as a new management team took over. BidAir Services put in a resilient performance, cargo volumes improved and specialist operations like Bidvest Lounges continued to show good growth.

Growth in tough times

Continued growth in a difficult trading environment is attributable to single-minded application of the proven Bidvest business model.

There are few corporate frills at our operations. Lean teams focus on the basics while taking time out to invest in future growth. Good teamwork and superior management performance are responsible for winning market share and reducing costs.

We are also drawing benefit from timely succession planning and the progress being made by a new generation of younger managers. Over the last two years, many managers in their 40s and early 50s have taken up the reins and proved themselves in a tough economy.

“Our people and their managers have a proven ability to adapt to circumstances and achieve growth in challenging conditions.”

This process continues. Japie van Niekerk, former CEO of Old Mutual Bank, is positioned to take over the leadership of the Financial Services division as current CEO Alan Salomon prepares for retirement.

Management development

Nurturing and strengthening in-house managerial talent receives heightened priority. An executive development programme was launched last year in collaboration with the Gordon Institute of Business Science to complement the management development work at the Bidvest Academy. The focus is on the further development of senior and executive management. The new programme is working well.

The development of black female managers is receiving focused attention. Two black females were promoted to executive director during the course of the year.

Our managers receive market-related salaries and benefits and are incentivised by profit participation and share options.

Empowerment

Targets of some of the elements of the B-BBEE scorecard have changed, making continued empowerment progress mandatory if ratings are to be retained or improved.

Empowerment status is regarded as an opportunity rather than a risk. Our empowerment credentials remain good and our track record shows we are capable of securing sustained improvements.

We are proud of our empowerment ratings. They supported several important tender successes, including new contracts for our laundries, Waltons and our office technology business.

Stricter criteria under the pending and amended B-BBEE Codes of Good Practice cannot become an excuse for lower levels of empowerment performance. A prime focus of the executive director responsible for transformation will be continued enhancement of our empowerment status, with employment equity a top priority.

In the past, we have demonstrated our ability to achieve sizeable improvements in preferred procurement. Thanks to our decentralised model, our corporate social investment is well targeted and entrenches our position in the communities we serve. Our training and people development initiatives have made good progress. The vast majority of our training budget is targeted at the further development of black personnel.

Our empowerment strategy is built into our budgeting and planning processes and is driven by managers who are committed to the work of transformation.

Other business risks

We are confident of our ability to meet challenges that lend themselves to resolution through energetic action by our managers and people. For example, the scale of increases in the cost of basic utilities, much higher fuel prices and price hikes on the back of a significantly weaker rand posed a challenge for several businesses.

To cope with these pressures, teams commit to the continual quest for cost reductions and efficiency improvements.

E-tolling will have a material effect on our distribution businesses. The electronic tolling system is likely to be applied in the new year in Gauteng, where most of our activities are centred. However, the tolls have been expected for some time and management has taken appropriate steps. There are major implications for our car rental business, but provision has already been made to ensure tolls are recovered from customers.

Wage costs are a material factor at all our businesses. The level of pay settlements has moved higher, but our contracts allow for built-in rate rises when national pay scales move higher. Customers look to us to help them control costs, but appreciate that once a rise has been gazetted there is no alternative but to pass it on.

Crime is a continuing challenge and our security systems (already strict) have been stepped up. The internal audit function has been significantly strengthened and new procedures have been introduced to guard against any repetition of a serious fraud committed within our Automotive business. We also insure against crime-related loss.

In the area of policy changes, apparent challenges in the short term can often become long-term opportunities. The focus on small local business development by mining companies and others may offer opportunities to step up our enterprise development initiatives. Our Dinatla empowerment partners have strong grassroots links and are a valuable resource as we examine these opportunities.

Innovation and change

Several companies continued the rebranding and repositioning process to leverage the strength of the Bidvest name. The communication and new technology businesses within Paperplus have adopted the Bidvest Data identity. Afcom, the packaging and fastening products company, has become Bidvest Afcom.

Pride in Bidvest is a strong unifying force and the rebranding trend looks certain to continue.

Innovation is ongoing. Travel and Aviation recently purchased the rights to the Webjet online travel system, further strengthening its in-house online capabilities. Webjet attracted our attention as it has given a global lead in the smart application of travel tools and world best practice is the benchmark applied by our businesses.

Innovation by brand principles also creates opportunities for new business growth. Our office technology business is rolling out new technology from Konica-Minolta. Digital radiology promises numerous efficiencies and we are positioned to assist medical professionals looking to adopt this new approach.

The future

Our 10 divisions put in a pleasing performance in 2013. We expect our 11 divisions to continue the good work in 2014. The development of the new Bidvest Consumer Products division will be a point of focus.

Other acquisitions will be actively pursued in our domestic market, into Africa and in other international markets.

Continued organic growth will also be sought.

Our Paperplus business faced difficulties in the prior period, but has the potential to come back strongly, given greater focus on packaging and new technology solutions. Our Freight operations were also under pressure as volumes fell in important commodity categories. Sluggish import and export activities caused some shipping lines to simply bypass South Africa. However, as South Africa gradually achieves more robust growth, our Freight business is well positioned to draw advantage.

Our core contract-based businesses provide essential services and have a proven ability to add value and secure continued growth despite difficult trading conditions. These are highly efficient, well-led businesses and have the capacity to maintain sustained growth.

The weaker rand may lead to pricing pressures in new vehicle retailing, but our revitalised Automotive business has built considerable momentum and is well placed to secure further growth.

Financial Services faces challenges in a low interest rate environment and competition can be expected to intensify. That said, the potential exists for a return to vigorous growth. Opportunities to drive strong gains in the insurance sector will receive particular attention.

Infrastructure spending from government will hopefully gain traction in the coming year. A reorganised Electrical division will optimise these opportunities.

An uptick in the level of national growth will be welcome, but growth plans at Bidvest South Africa are not dependent on a sudden or dramatic improvement in the wider business environment. Our people and their managers have a proven ability to adapt to circumstances and achieve growth in challenging conditions. This will stand them in good stead as trading conditions may remain uncertain for some time.

Our diversified structure enables us to withstand the economic punches and deliver a solid performance in areas of opportunity. With the addition of an 11th division we will achieve greater balance and stronger growth.

“Continued growth in a difficult trading environment is attributable to single-minded application of the proven Bidvest business model.”

Lindsay Ralphs

 
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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