Wrap Text
Management update on strategy and general trading conditions - Bidvest Industrial & Bidvest Namibian operations only
The Bidvest Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1946/021180/06)
Share code: BVT
ISIN ZAE000117321
("Bidvest" or "the Company" or “the Group”)
Divisional Day – May 12 2016
Management update on the strategy and general trading conditions in
the Bidvest Industrial and Bidvest Namibian operations only (in light of
the proposed unbundling of the foodservice business)
Shareholders are advised that the executive management of Bidvest
(excluding foodservice) met on May 12 2016 with members of the financial
community, including shareholders and financial analysts, for an update on
current market conditions and the trading environment across the Industrial
and Namibian operations.
Management commented as follows:
1. Bidvest Group (ex Foodservice) overview
• An inaugural international road show has recently been completed
indicating overall positive sentiment and an increased understanding of
the Industrial operations of the Group.
• The pleasing performance of the Industrial businesses within a
challenging southern African economy has been testament to
management’s commitment and experience.
• Management remains focused on executing on the strategic
decentralised entrepreneurial plan to organically grow their businesses,
establishing market leading positions within their industries and on
adding value to their customer offering through innovation and service
delivery.
• The proposed unbundling would result in Bidvest being a locally based
and focused trading, services and distribution business made up of
approximately R100bn of Revenue and EBITDA of R7bn (EBITDA
margin 8%), based on the previous years audited results.
• This business is structured in seven divisions, each entrepreneurially
run and managed by industry specialists on a decentralised basis.
• Employing approximately 120,000 people, the business has shown
historically solid growth, been highly cash generative and delivered a
pre-capex operating cash conversion ratio in excess of 80-90%.
• This business is largely southern African focused with some exposure
to neighboring Mauritius and other southern African environments. The
opportunity post-unbundling exists to grow these operations beyond
the South African borders, starting in niche industries where the
business model can be exported and grown over time.
• The executive team driving this business has a long standing record of
working together under the guidance of Brian Joffe and are committed
to the Bidvest culture and decentralised operating philosophy.
• The post-unbundling board will remain largely the same, with Brian
Joffe taking on a non-executive directorship and a consultancy role,
focused on assisting with strategic initiatives. Bernard Berson and
David Cleasby will resign upon unbundling.
2. Divisional review
• Bidvest is recognised for its strategy of both organic and acquisitive
growth, and this will continue to be an area of focus.
• Trading remains positive, activity levels across most markets are
resilient and management are expecting results for the year ending
June 2016 similar to H1 F2016.
• A significant acquisition will be concluded early in the new financial
year, strengthening the Commercial Products division. Recent
acquisitions such as Plumblink and Academy Brushware have both
significantly contributed to the strategy of scaling up the Commercial
Products division.
• Some small disposals may be considered, but these would not impact
materially on the Group.
Automotive
• A cyclical business that is currently halfway through an estimated
four year downturn, results will be lower than the comparative
period to June 2015.
• Management are comfortable with the business model and market
reach in South Africa, and do not intend internationalising these
operations in the foreseeable future.
Freight
• For the first time in fifteen years, the Freight business is struggling
as the lower commodities cycle impacts the flow of manganese,
steel and other products out of the South African ports.
• Some benefit is anticipated in H2 F2016 as the drought results in
imported maize but this is unlikely to be sufficient to cover the loss
experienced in the current commodity down cycle.
Commercial Products
• Management are particularly pleased with the performance of this
division. Most likely to deliver similar growth as shown in H1 F2016.
• Acquisitions of Plumblink and previously Academy Brushware have
contributed to the good performance.
• Some international expansion is likely in this division, however not
in those operations where Bidvest is restricted through agency
agreements (Yamaha for example).
Electrical
• Management is very proud of the performance of this division,
growing organically in spite of the weak infrastructural investment in
the country.
• Double digit growth is anticipated as a result of continued strong
operating performance and strategic focus into niche markets.
• No international expansion is intended for this division in the short
term, they remain focused on being the largest electrical wholesaler
in southern Africa.
Financial services
• Bidvest Bank is a specialist bank, and have positioned themselves
as the best foreign exchange service provider in the country.
• Specialised forex services, such as offering the facility of 22
different currencies on a single cash card have created a unique
niche offering.
• Fleet finance services have grown significantly and with significant
potential in the parastatal area, good growth should continue.
• Insurance product offering has diversified from vehicle insurance
products to both short and long term offerings; supported by
expansion in the travel insurance industry.
• The equity portfolio performed significantly worse on the prior year,
but this is cyclical and is subject to broader economic influences.
• Financial services will not be an international growth area, but will
continue to expand its local market presence.
Office & Print
• The 2015 voter registration project in Tanzania significantly boosted
profits reported in the prior period, and will not be repeated in
F2016. However electoral technologies have positioned the division
well to provide similar voter registration services to other countries
and management are positive about these prospects.
• Paper continues to be a declining market and management
continue to digitise where possible. Konica Minolta continues to
perform well and Walton’s is still in recovery mode. The Post Office
strike had a significant negative impact on operational performance
of this division.
• Management do not intend to grow this operation internationally
beyond the provision of the technological solutions developed.
Services
• Services is the largest of all the divisions, with an EBITDA of
approximately R1,8bn.
• Bidvest Steiner is the most significant business within this division,
having grown organically over the number of years to having an
EBITDA of R400m and is the number one operator in South Africa,
in spite of competition from many international players.
• This division is likely to be our key focus area for international
expansion. Management have identified fragmented international
markets where they can draw on their experience, acquire locally
established businesses and grow a unified single product offering to
compete in these new markets. Opportunities have been identified
in Italy and the UK.
• Industrial Services continues to deliver cash generative growth
results.
• Management will allocate capital to this division to pursue
expansion and are excited about the possibilities.
Namibia
• The ability to secure adequate quota remains a key challenge in the
Namibian horse mackerel market. Discussions with government
continue with no clear indication of resolution as yet. Resolution of
the quota issue will be a significant indicator as to whether or not
we will continue to operate in the fishing industry.
• Commercial and industrial businesses in Namibia are similar to their
South African counterparts. The recently acquired Automotive
business is performing well. Food and distribution is delivering
pleasing results. Freight and logistics are in a similar down cycle as
reflected in the Freight division in South Africa.
Properties
• A significant R6-7bn portfolio of strategically owned properties
allows us enough headroom to generate capital should it be
required.
• No short term intention to make any significant changes to this
portfolio.
Material associate investments
• A number of material associate investments will remain in the
Group structure post unbundling. Most notably Adcock (37%),
Comair (26%), Cullinan (20%), MIAL and various others such as
Cargo Carriers.
• These assets will comprise a significantly larger part of Bidvest post
the unbundling and the strategic nature of these need to be critically
re-evaluated by management over time.
• Other assets comprise the internationally owned Ontime GATS and
The Mansfield Group businesses in the UK and will fall under
divisional management going forward.
3. Financial review
• Financial disciplines continue to be strong and make up a large part of
the Bidvest DNA. Management of working capital is a core focus.
• Bidvest operate a working capital cycle that sees absorption up to
December, a small spike in March but a significant recovery at year
end.
• Management of cash flow before and after capex is a key performance
indicator, with targets of in excess of 80% conversion of operating profit
into cash.
• Dividend policy remains unchanged at 2.25x cover.
• Key internal controls assured through an independent internal audit
process with strong IT capabilities ensure a good platform for
sustainable business growth.
4. Business development and Transformation
• Bidvest has responded well to the new BEE codes, with each division
being individually assessed. Overall a Level 4 has been obtained for
the Bidvest Group. No significant contracts have been lost as a result
of the new BEE codes and we continue to be committed to CSI and
procurement initiatives that support the requirements of the BEE
codes.
• Executive training and development remain a core focus of our
executive team, growing talent through our internal programs such as
the Bidvest Academy.
• There are no changes to the shareholding from a BEE perspective.
Post the unbundling the current 62% black owned shareholding will
remain however this may change over time depending on the makeup
of the share register.
• Business development remain a core focus for the executive team.
Clients are looking for the best product and best service at the best
price which is resulting in some pressure on margins however volumes
are growing.
• Our African growth strategy remains focused on Sub-Saharan Africa;
East and West Africa has shown high levels of risk and volatility
currently beyond our appetite.
5. General
• Bidvest continues to differentiate itself through its entrepreneurial
culture. The executive management team has been around a long time
and are committed to this culture. Younger divisional management
teams have grown into their roles through the Bidvest ranks and have
shown their ability to deliver within the unique decentralized
entrepreneurial Bidvest model.
• Management remain focused on our chosen markets, steering away
from pure retail, IT, manufacturing, mining and resources industries.
We maintain light head office structures, and a divisional management
team that is accountable for their performance.
• Management is highly motivated by challenge and the opportunity
presented by the unbundling and are excited about continuing to grow
off the current solid platform.
The full presentation was recorded and a playback recording is available on
the group’s website www.bidvest.co.za
This management update has not been reviewed or reported on by the
Company’s independent auditors.
______________________________________________________________
Johannesburg
May 13 2016
Sponsor
Investec Bank Limited
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