Message to shareholders

Comment

The Group delivered a pleasing trading performance for the six months ended December 31 2011, with the overall result being enhanced by profit of R399,1 million realised on the sale of 50% of the Group’s beneficial holding interest in Mumbai International Airport Private Limited (MIAL). Headline earnings per share (HEPS) has increased by 37,5% to 742,3 cents per share whilst basic earnings per share (EPS) increased by 31,2% to 710,8 cents per share. Normalised HEPS (i.e. excluding the MIAL profit) has increased by 13,6% to 613,4 cents per share. EPS were negatively impacted by an impairment of the Group’s investment in Comair Limited of R96,7 million.

Trading conditions in southern Africa have improved but certain segments such as light manufacturing, construction and discretionary consumer spending remains weak. Asia Pacific continues to show solid results albeit that Singapore’s performance lags that of the other businesses. The trading in the core Australian market remains tough but the business continues to perform well. Bidvest Europe’s results are flat in Rand terms. The improvement in 3663 Wholesale was offset as Nowaco in Czech Republic and Deli XL Netherlands reported declines in trading profit. Bidvest Namibia’s growth trajectory has continued.

The average Rand exchange rate was weaker against the major currencies in which the Group operates and in particular against the Australian Dollar and Euro. This had a positive impact on translation of foreign operations equivalent to 3,7% of normalised HEPS, with normalised HEPS on a constant currency basis calculated at 593,1 cents per share, an increase of 9,9%.

The Group’s balance sheet remains robust, with the seasonal investment into working capital once again evident as many businesses achieved growth.

Financial overview

The Group has achieved improved trading results for the six months to December 31 2011. Revenue grew 15,1% to R67,3 billion (2010: R58,5 billion) and trading profit increased by 14,9% to R3,2 billion (2010: R2,8 billion). Trading margins have been maintained at 4,8% despite the greater contribution from the lower margin automotive retailing and clearing and forwarding businesses.

The improvement in trading profit has been offset to a degree by an increase in net interest paid of R60,0 million, which in the main can be ascribed to the additional debt assumed for the Seafood Holdings acquisition from January 2011 and the R1,6 billion spent on the Dinatla share buyback in May 2011. This has been reduced by the interest saving on the net proceeds received on the disposal of MIAL towards the end of October 2011. Normalised interest cover remained flat at 8,8 times (2010: 9,1 times). The Group continues to benefit from exposure to the short end of the funding market, which has assisted overall funding costs.

Associate earnings are 48,5% lower primarily as a result of the accrual of the Group’s share of losses incurred at Comair Limited.

The Group’s financial position movements reflect the seasonal increase in working capital and the increase in Rand values of the consolidated foreign operations. Net debt has increased to R5,6 billion (2010: R4,6 billion) compared to R5,0 billion at June 2011. Bidvest’s attitude to gearing remains conservative and is appropriate in the current climate.

Cash generated by operations before working capital changes improved 9,7% to R4,0 billion. The gains made in reducing working capital over the past two years have now reversed in line with more normalised seasonal patterns on the back of robust growth. The Group utilised R1,6 billion of working capital compared to a R1,0 billion utilisation in 2010. Net capital expenditure on property, plant and equipment and intangibles of R1,4 billion (2010: R1,3 billion) included investment into the vehicle rental fleet, asset-based leasing and terminals assets.

Ratings upgrade

In December 2011, Fitch Ratings upgraded the national long-term rating to ‘AA-(zaf)’ from ‘A+(zaf)’ and national short-term rating to ‘F1+(zaf)’ from ‘F1(zaf)’. The rating action was prompted by Bidvest’s steady through-the-cycle credit profile, which has outperformed that of its national peer group.

Prospects

In a business world where the benchmarks of the past don’t hold for tomorrow and economic growth remains subdued, we believe in our tried and tested entrepreneurial and decentralised business model as a vehicle to build further value through organic and acquisitive growth. Bidvest is a demand driven business where our customers drive our focus and our results are driven by our behaviour.

Economic conditions in South Africa have improved and although the rate of growth is low, management are quietly optimistic the recent momentum will be maintained. Exposures to industries such as construction are expected to improve in the medium term as the benefits of the highly awaited government infrastructural programme kick off. Discretionary spend by consumers is expected to improve, benefitting the automotive retailing and foodservice businesses.

Activity levels are anticipated to improve within the European geographies in which the Group operates but consumer confidence remains fragile. In Asia Pacific, management are confident of further growth as demand for delivered wholesale food and value added products presents further opportunities.

Management continues to retain a critical focus on asset management and cost efficiency as we drive our businesses to deliver superior returns from funds employed. Our financial position is sound and we are well capitalised with ample capacity to fund expansion. Notwithstanding the difficult and volatile economic environments, management see genuine opportunities to further expand our geographic footprint and product and service offering enabling continued real organic and acquisitive growth.

Analyst presentation

The investor presentation will be available on the Bidvest website from 11:00 on February 27 2012.