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THE BIDVEST GROUP LIMITED - Bidvest business update for the ten months to April 2018

Release Date: 07/06/2018 17:32
Code(s): BVT     PDF:  
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Bidvest business update for the ten months to April 2018

(“Bidvest” or “The Group”)
(Incorporated in the Republic of South Africa)
(Registration number 1946/021180/06)
JSE Share code: BVT
ISIN: ZAE000117321


Bidvest executive management are briefing stakeholders, including shareholders and financial
analysts, on Friday, 8 June 2018 with regards to the performance of the Group for the ten months
ended 30 April 2018.

Overall, the year to date operating performance has been satisfactory. As anticipated, the positive
sentiment stemming from the political changes post the December 2017 ANC elective conference
has not, as yet, translated to increased economic activity. This is also evident in the GDP contraction
in the first quarter of 2018. Spend at some State Owned Enterprises contracted even further as
procurement decisions and policies are interrogated and delayed.

Despite this background, Bidvest’s trading profit continued to grow, albeit at a slower pace than that
reported to December 2017. This is testament to the resilience of the underlying Bidvest businesses,
tight expense control, strategic measures implemented to remain relevant and competitive, as well
as the continuing strong focus of the management team on ensuring an acceptable shareholder

The South African operations delivered a solid trading result, which was also partially assisted by the
acquisitions of Brandcorp (effective 1 October 2016) and Noonan (1 September 2017). Given the
broad reach of activities, Bidvest has benefitted from greater commodity and agricultural volumes in
various businesses, as well as the annuity-type nature of many of its operations.

Contract pricing is very competitive and has challenged margins to some degree. Businesses exposed
to the infrastructure and construction sectors witnessed further contraction in demand. Consumer
facing businesses reported weak results.

Bidvest has always maintained strong B-BBEE credentials. Current demands around economic
transformation are varied and the heightened focus on black ownership presents its own set of
challenges. The Group continues to address this on a basis that is both relevant and commercially

The Group concluded bolt-on acquisitions and assessed several opportunities during this period,
some of which are still being pursued. Recent acquisitions, Noonan and Ultimate Security Services,
have traded in line with expectations.

Investment activity continues unabated. Bidvest Freight's ZAR1 billion Liquified Petroleum Gas (LPG)
project in Richards Bay is on track. Piling of the site and manufacturing of the tanks have started and
two-thirds of the multi-purpose tanks have been commissioned. Our specialist alternative energy
solutions business, Electech, implemented a significant green laundry solution at Bidvest Laundry’s
Spartan facility. This solution takes significant consumption off the electricity grid, thereby giving real
relevance to going green and resulting in sustainable and meaningful savings, including the
reduction in carbon emissions.
Discussions and processes continue with regards to the strategic assessment of Bidvest’s non-core
assets. No further monetisation has occurred since year-end. Bidvest Namibia continues to trade
under a cautionary. Bidvest divisional management have critically evaluated all businesses and are
discontinuing various smaller operations in a portfolio clean-up exercise.

Asset management remains a core focus. Management of debtors is a key focus in these challenging
times and the current profile is acceptable. In line with normal seasonality, the Group absorbed
working capital as at the end of the interim period. This is expected to reverse by year end. Net debt
/EBITDA remains healthy, despite the acquisition of Noonan and capital investments in projects in
South Africa.

Bidvest's sound financial position and strong balance sheet provides adequate headroom to support
our growth and investment aspirations, both locally and internationally.

Additional operational commentary:

Higher agricultural and bulk commodity volumes have driven greater utilisation and therefore
operating leverage. The benefit from investments in liquid fuel and multi-purpose tanks during the
2017 and 2018 financial years continues to flow through in higher trading profit. Activities exposed
to airfreight and other discretionary consumer product imports improved recently after a weak first
half period. Margin pressure in general logistics type activities remain a feature. Operating
conditions have been suboptimal in the handling of non-agricultural bulk commodities due to ship
collision damage caused to a berth. Despite this, the division delivered a strong result.

The core annuity income businesses in Services delivered good results with pleasing performances
from Facilities Management, BidAir, Allied Services, Steiner, Bidtrack and Laundries. Industrial
project services weakened further with a lower trading result year on year. Travel results have been
negatively impacted by lower volumes and less lucrative rebate structures. Security held its own.
Noonan's maiden contribution is in line with expectations and contract wins recently have been
pleasing. Management interventions across the division continue to lower the cost of doing business
and further diversify the portfolio. Sizeable contracts are up for tender and are very price sensitive.

Commercial Products
Overall, the business result has been positive but below expectation, with the industrial focused
businesses performing better than the consumer facing operations. Academy Brushware, Plumblink,
Bidvest Materials Handling, Berzacks and Vulcan delivered good results. Constrained consumer
spending, delayed industrial projects and margin pressure continue to weigh on the results. There
are some early signs of the benefits from the structural changes implemented.

Financial Services
Banking advances and deposits continue to grow. Fleet contract roll-off and the termination of a
major short-term rental contract are material headwinds to both revenue and trading profit. Certain
large fleet contract tenders have been delayed. Net interest income and gross written premiums
continued to grow. The negative new business drag from the fast growing life insurance activities
remain a feature. The investment portfolio’s good performance has been moderated by recent
market softness.
New vehicle sales volumes continued to grow, but margin retention is poor. The luxury segment is
particularly challenging with trading profit lower year on year. Used vehicle gross margins improved
and aftersales are stable. Bidvest Car Rental revenue, cost control and fleet management have been
disappointing. This was recently exacerbated by a very competitive market, resulting in a contraction
in trading profit.

Considering the challenging conditions in the building and construction industry and the severe
downturn that the larger construction companies are experiencing, Electrical continued to hold its
own. Project-type businesses were depressed as key programmes have stalled. Despite a cable
market in flux, Voltex managed margins well. Niche products and services performed nicely.

Office & Print
The year to date result is good, especially considering the contracting industry in which it operates
and the loss of the Zonke monitoring contract, effective December 2017. Initiatives to simplify
businesses, improve efficiencies and tight cost controls were the main contributors to the improved
result. Gross profit margins continue to be well managed. The furniture order book remains healthy.
Packaging experienced both volume and pricing pressure. A key contract tender within the
Technology division is receiving focused attention.

Bidvest Namibia recorded weaker results as difficult macro-economic conditions persist. The
disposal of the fishing interests remains a work in progress.

Bidvest intends issuing its results for financial year to 30 June 2018 on Monday, 3 September 2018.

Shareholders are advised that the financial information relating to the 2018 financial year has not
been audited, reviewed or reported on by the Group’s auditors and that this update does not
constitute a forecast.

A recording of the stakeholder briefing will be available on shortly after the event.

Date: 7 June 2018
Sponsor: Investec Bank Limited

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