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Bidvest grows profits in tough market conditions

Bidvest CEO Lindsay Ralphs presents the company's interims in Melrose Arch, north of Johannesburg, on August 29, 2016. Picture: Simphiwe Mbokazi

Bidvest CEO Lindsay Ralphs presents the company's interims in Melrose Arch, north of Johannesburg, on August 29, 2016. Picture: Simphiwe Mbokazi

Published Aug 30, 2016

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Johannesburg - The Bidvest Group managed to shake off the tough market conditions in the southern African region and reported a 3 percent increase in trading profit for the year to end June.

Bidvest, which unbundled its food services unit in May and listed BidCorp as a separate entity, said yesterday that its trading profit climbed to R5.8 billion for the year from R5.6bn last year, with commercial products, financial services, electrical and services coming in as contributors to the surge in profits.

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Bidvest was restructured into automotive, commercial products, electrical, financial services, freight, office and print and services divisions during the year.

Investments

Bidvest continues to hold investments in Bidvest Namibia (52 percent), other assets and investments including Bidvest Properties, Adcock Ingram (38.4 percent), Comair (27.2 percent), Cullinan Holdings (19.5 percent), OnTime Automotive (100 percent) and the DH Mansfield Group (80 percent) in the UK, and Mumbai Airport (6.75 percent), as well as other listed and unlisted investments.

Chief executive Lindsay Ralphs said: “The successful and value-enhancing unbundling has allowed our management team to move forward with a refocused platform from which to pursue growth. Our stakeholders will benefit in future from a greater visibility of our continued operations and their potential values.”

The group’s turnover grew by 3.5 percent to R91.8bn from R88.6bn reported last year. Headline earnings per share from continuing operations improved 2.5 percent to 1 054.1c compared with 1 028.9c in the last period.

Operating expenses increased 6.3 percent, while the operating expense ratio at 21.4 percent edged up slightly as compared with 20.8 percent of last year.

Net finance charges were 13.7 percent higher at R922 million from R811m last year, and the group said the increase was largely attributable to various acquisitions, an increased prime interest rate, as well as finance raised to acquire additional Adcock Ingram shares.

The group declared a dividend of 232c per share bringing the total dividend for the year to 714c per share, down from the 909c per share declared last year.

The group said its internal divisional restructuring and the unbundling of the food services unit had positioned it well for its next growth phase.

“Bidvest’s management teams, which are unchanged following the restructuring initiatives, remain focused on moving their respective divisions further up the value curve. The group’s financial position remains sound, cash generation is strong and it retains adequate headroom to accommodate expansion opportunities,” it said.

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the results were complicated by the effects of the unbundling of Bidvest Food Services.

He said the growth in headline earnings was, however, in line with consensus forecasts of low single-digit growth.

Exposed

Takaendesa said the business was largely exposed to the South African economy and had lost international diversification by recently unbundling Bidvest Food Services.

“The reported growth rates were also boosted by acquisitions made during the year, such as Plumblink and other smaller businesses. Without these acquisitions and strong cost control, we estimate profits would have been flat-to-marginally down in line with the South African economy,” Takaendesa said.

“There is room for further restructuring Bidvest longer term by exiting some non-core investments, as well as bolt-on acquisitions to gain further scale. But we believe overall earnings growth will remain constrained by weaker economic growth in South Africa over the mid term,” he said.

Bidvest shares fell 0.38 percent on the JSE yesterday to close at R153.10.

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