Bidvest lifts FY18 HEPS despite volatile market

3rd September 2018 By: Simone Liedtke - Writer

JSE-listed services, trading and distribution company Bidvest on Monday declared a final dividend of 301c a share, bringing the total dividend for the financial year ended June 30 to 556c, amid a volatile market, which the company said was characterised by weak economic growth and consumer spend, as well as significant business and political uncertainty.

During a conference call on Monday, CEO Lindsay Ralphs said the group had, to offset the volatile market conditions, achieved “exceptional cost and capital disciplines, as well as good cash generation”.

Bidvest’s headline earnings per share (HEPS) increased by 11.1% to 1 231.6c, whereas normalised HEPS grew by 12.5%.

Group revenue, meanwhile, increased by 8.4% to R77-billion, with R5.2-billion of the increase attributable to the acquired international services businesses. On a comparable basis, revenue, was, however, flat, Ralphs said.

The gross profit margin was broadly stable at 28.9%, he said, adding that the inclusion of the lower margin Noonan reset the overall margin lower.

Group trading profit grew by 8.2% to R6.5-billion, with a stable trading margin of 8.5%.

Operating expenses increased by 7.1%. The continued strong focus on cost containment increased like-for-like expenses by a modest 3.4%.

Trading operations, which exclude Namibia and Bidvest Corporate, delivered an improved result with trading profit increasing by 10.8% against revenue growth of 8.9%. These results, Ralphs explained, were bolstered by a strong focus on clients and solutions, as well as the maiden offshore acquisitions of Noonan at €175-million and Ultimate Security Services, which became effective in September and October 2017, respectively.

Additionally, smaller bolt-on acquisitions in the office, print and financial services divisions also had an impact.

Bidvest Namibia continued to be impacted on by a virtual collapse of the fishing industry and a recessionary macroeconomic environment in the country, Bidvest said on Monday. The fishing operations were, meanwhile, sold towards the end of the 2018 financial year.

Bidvest Corporate benefitted from a strong performance in the Property division, as well as a turnaround in the UK operations of Mansfield and Ontime, while the mark-to-market value of group investments, compared with the previous year, impacted negatively on the corporate office result.

Strong profitability gains were achieved at Adcock Ingram and Comair, which increased Bidvest’s share of profits from these associate companies. The profitability did not translate into higher market values for these investments, Ralphs said.

In terms of debt levels, Bidvest continues to maintain a conservative approach to gearing as net debt levels are considered acceptable at R6.3-billion, with a stable net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) metric at 0.8 times.

The Ebitda interest cover is eight times.

Meanwhile, cash generated by operations, at R9.4-billion, was higher than the R6.9-billion generated in the prior year. Bidvest Bank, however, raised R1.2-billion in additional deposits.

Ralphs also noted that the return on funds employed improved from 22.3% to 22.9% as asset management remains a core focus, particularly in these challenging times.

He further commented that “several opportunities were assessed during the year, some of which are still being considered”.

“We remain steadfast in our disciplines when evaluating and responding to opportunities. Buying into the wrong business and management team or the right business at the wrong price is not in the best interest of our stakeholders,” he added.

OUTLOOK

The core competencies and drivers of Bidvest remain firmly intact, the company said, adding that it is anticipated that continued growth will be achieved.

However, there is an expectation that economic growth will be lacklustre in the current financial year and a return to more robust consumer spending will only occur when policy and political certainty emerges, post the South African national election in 2019.

Speaking to Engineering News Online on Monday, Ralphs added that the company is “watching with trepidation to see what will happen with emerging markets and the rand.”

There are still some decent areas of activity out there, he advised, noting that one needs to find areas in the market where the economy is still moving.

Examples, he highlighted, include the agriculture sector, which is mainly dependent on the weather conditions, as well as the motor industry, in which local activity is somewhat depressed, particularly with regard to the luxury class.

He also highlighted the energy sector, with South African Energy Minister Jeff Radebe having recently released the much-anticipated updated draft of the Integrated Resource Plan for public comment.

However, Ralphs lamented that another concern for Bidvest is that the core basic elements of manufacturing in South Africa, are still continuing to see a decline in the various facilities in the country that are manufacturing goods, either for local consumption or for export.

On an overall basis, he predicts “a quiet six months”, noting that, while the first and second quarters of the 2019 financial year may be quiet, Bidvest will continue to “dig out some of the gems [in the market] that are available for harvesting”.

With elements of weakness in the industrial, petrochemicals and heavy-duty industries, Ralphs told Engineering News Online that industry stakeholders can expect to see Bidvest exit some of the businesses that are operating in these sectors, within the next 12 months.

Bidvest also intends to continue growing its services-based business organically in the upcoming financial year.

However, the company’s main concern remains the government’s ability to drive infrastructural spending and the ongoing maintenance at key entities and facilities. According to the company, it is incumbent on the State to initiate larger programmes of development to kickstart the South African economy.

“We are actively advancing our various infrastructural developments projects, specifically in liquid gas storage,” Ralphs said, adding that the company sees “pockets of activity and opportunity that exist across the economy” in which it will participate.

The company’s overall projection is for continued growth in trading profit, cash generation and the dividend.

Ahead of Bidvest’s 30-year celebration, the company’s objective is to continue investing in South African trading, services and distribution businesses and to deliver above-average shareholder returns on an annual basis.