Divisional review

Bidvest Commercial Division

The division, formerly known as Bidvest South Africa, produced a solid set of results where revenue increased 10,0% to R32,2 billion (2010: R29,3 billion) and trading profit improved 13,6% to R1,8 billion (2010: R1,6 billion). Trading conditions remained tough but management rose to the challenge aggressively. The new divisional structures have bedded down well.

Bidvest Automotive

Automotive made a positive start to the year, with trading profit up 73,1% at R187,1 million (2010: R108,1 million) while revenue rose to R10,4 billion (2010: R9,1 billion). Results were driven by strong new vehicle sales, the efforts of more focused decentralised teams and more efficient expense management following the restructuring of the central services. Profitability was also assisted by a R27,8 million contribution from Bidvest Financial Services arising out of insurances and financing commissions.

Though new vehicle sales were robust, day-by-day activity levels dipped in the second quarter. Margin pressure was intense and the trading environment remained challenging. The VW/Audi branches had an outstanding six months. The smaller franchises faced continued pressure, however, and some recorded losses. Working capital management remains a focus area. Used vehicle sales were sluggish and performance at the parts departments was flat. The service contribution moved higher. Improved performance was seen late in the period at Burchmores as the introduction of the online Autobid system for trade buyers proved positive. The new management team will focus on underperforming franchises and margin restoration as trading is expected to remain difficult in the second half of the financial year. New vehicle sales growth should be supported by improving consumer sentiments, low interest rates, new model introductions and declining vehicle prices in real terms.

Bidvest Electrical

Electrical delivered pleasing results in view of continuing pressure on the building and construction industry in both the residential and commercial sectors. Revenue rose 6,4% to R2,1 billion (2010: R2,0 billion) while trading profit moved 16,8% higher to R70,0 million (R2010: R59,9 million).

Trading challenges were compounded by copper price volatility. Margin pressures are intense and debtors management and expense control remain key focus areas. Repositioning and rebranding of the operations continues across the division. Significant management effort has enabled the integration of the loss-making Solutions business into the core Voltex operations. Atlas maintained good volumes, but margin pressure is severe. Most Voltex regions delivered reasonable performances other than the eastern Cape where trading conditions remain weak. Overall management focus remains on margin management. Sanlic performance was disappointing, but Waco returned another satisfactory result. Voltex Retail did well. Staff motivation remains good despite the high levels of change and the division is well positioned to meet the challenges ahead.

Bidvest Financial Services

Financial Services returned acceptable results in a tough low-growth market.

Bidvest Bank achieved 10,6% growth in profit before tax to R207,2 million (2010: R187,3 million) on a strong second quarter, a weaker rand and the low interest rate environment. Capital adequacy remained healthy at 17,4%. Deposits grew to R1,5 billion (2010: R1,2 billion) and total assets reached R3,9 billion (R3,1 billion). Expenses were effectively managed while maintaining marketing investment to support the Bidvest Bank brand and promote more diversified product offerings. Net cash flow from operations was R545 million. Branch modernisation continued and four new branches were opened. Product innovation gained momentum while encouraging growth in corporate leasing was achieved. The leasing business successfully diversified its leasing revenue streams and its fleet topped the 12 000 vehicle-mark.

The insurance businesses returned good results, notwithstanding an 8,1% drop in profit before tax to R110,6 million (2010: R120,4 million). Net underwriting profit grew 22,0% to R89,2 million (2010: R73,1 million). Policy penetration levels remained healthy, benefitting from higher new vehicle sales. Vehicle financing returns improved significantly due to higher deal approvals and the improved bad debt profile on the book. Profitability was impacted by R27,8 million payment to Bidvest Automotive in respect of insurance and financing commissions. Overall expenses remained well controlled despite additional investment into systems development and growth strategies. The equity portfolio delivered unrealised profits of R29,1 million (2010: R41,9 million), impacted by the volatility in the overall JSE. Management have laid solid foundations for growth into 2012.

Bidvest Freight

Growth at Freight was driven by an excellent contribution from the bulk terminals operations. Trading profit of R439,6 million was up 10,1% on the corresponding period (2010: R399,4 million) while revenue rose to R10,5 billion (2010: R9,6 billion), up 9,1%.

Island View Storage turned in acceptable trading results despite disappointing throughput levels. Southern Africa Bulk Terminals had a record six months, boosted by high maize export volumes. Additional external storage facility usage added to overall costs. Bidfreight Port Operations experienced difficult trading on lower volumes from key clients. Safcor Panalpina and Rennies Distribution Services were amalgamated into a new business – Bidvest Panalpina Logistics – to provide customers with a broader service range. Marketplace acceptance has been good. SACD Freight faced volume pressures. Bulk Connections achieved pleasing growth. Rail service improvements were evident and good progress was made on the facilities upgrade. Lower volumes contributed to a lower result at Naval. Manica continued to under-perform. New management have been appointed.

Bidvest Industrial

Industrial returned disappointing results. Revenue was flat at R775,3 million (2010: R773,8 million). Trading profit fell 20,9% to R49,2 million. Challenges were particularly evident early in the financial year however some improvements were recorded in the second quarter. Performance at Afcom and Vulcan was affected by industry-wide strikes. Price pressures remain acute and exchange rate volatility complicated the trading challenge. Operating expenses moved higher on investment in the World of Yamaha project and Materials Handling expansion. Afcom returned poor results as market conditions remained difficult. Berzack Brothers turnover declined as the sewing machine division experienced a difficult period. Materials Handling achieved pleasing turnover growth as new branch expansion progressed. Machine rental business opportunities are being pursued. Results at Buffalo Executape were flat, but momentum was built in the second quarter. Vulcan had a much improved first half, achieving solid sales growth as factory volumes improved. Yamaha sales dipped and overall performance was disappointing. Management was strengthened.

Significant work is being undertaken within each business so as to maximize opportunities going forward.

Bidvest Office

Office put in a good performance, boosted by a strong second quarter. Revenue at R2,1 billion was 13,3% up (2010: R1,8 billion) while trading profit rose 41,7% to R141,2 million (2010: R99,6 million). ROFE showed pleasing improvement and expenses were well controlled. Management has been strengthened following the appointment of a new Waltons MD and a manufacturing manager at the Cape Town furniture factory. Strong technology sales were a key driver of overall performance, with a big contribution from Global Payment Technologies. The furniture sector showed signs of revival and Cecil Nurse optimised the market opportunity. Furniture manufacturing performed above expectations. Closer collaboration across business units is increasingly evident. The division has built momentum ahead of the second half, but the trading environment remains uncertain.

Bidvest Paperplus

Paperplus achieved a pleasing first-half result, despite intensely competitive markets, rising costs and a weakening rand. Revenue rose 3,6% to R2,0 billion (R1,9 billion) while trading profit moved 7,8% higher to R186,2 million (2010: R172,8 million). Results were lifted by a strong December. A new sub-divisional structure is in place and Kolok is now well integrated into the business. Print and Conversion was impacted by falling demand and ongoing restructuring costs. Print Sales optimised revenue and export opportunities were delivered. Labels and Packaging faced cost increases following the creation of separate packaging production facilities. Sprint continues to perform in line with expectation. Silverray Statmark showed improvement and Kolok did particularly well. Personalisation and Mail achieved good growth on the back of exceptional performance at Email Connection. Afric Mail entrenched its leadership position with further investment into full colour digital printing in progress. Labels continued to improve off a low base and Lufil enjoyed good volume growth. Expenses and debtors were well managed across the business.

Bidvest Rental and Products

Rental and Products performed well, with revenue up 17,8% to R989,4 million (2010: R840,1 million) and trading profit 17,2% higher at R171,6 million (2010: R146,4 million). Results reflect the first contribution of newly acquired Alsafe. Steiner again returned another set of good results, underpinned by stringent cost controls and good margin management. Promising new business gains were achieved. Laundry was impacted by low revenue and rising factory and distribution costs, but First Garment improved market share despite stiff competition. In Industrial Products, G Fox put in another strong performance. Phased integration of Alsafe operations is under way. Puréau performed reasonably off low revenue growth. Execuflora did well and secured good revenue streams for the second half. Silk by Design exceeded expectations. Synergies with Execuflora are being explored. Hotel Amenities performed strongly while improving expense management. Steripic was impacted by rising costs. Liquipak under-performed.

The division will continue to pursue aggressive growth strategies in order to bulk up the various parts of the smaller businesses.

Bidvest Services

Services was impacted by margin pressure in an intensely competitive sector. Revenue increased by 2,9% to R1,5 billion (2010: R1,5 billion) while trading profit remained flat at R94,3 million (2010: R95,0 million). Prestige performed to expectation, maintaining margins despite rising wage and operating costs. Margin management improved and costs were well controlled at the Security cluster. Magnum put in a solid performance with the guarding side of the business doing well other than the mining sector. Bidtrack recorded good results and solid growth. Corrective action continues at TMS. CID and Vericon business units performed well, but overall results remain disappointing. Further cost savings will be sought. TopTurf was impacted by low contracting volumes but the maintenance business remains resilient.

Bidvest Travel and Aviation

Travel and Aviation recorded pleasing results, with revenue growing by 20,2% to R1,0 billion (2010: R852,7 million) and trading profit up 39,1% to R146,8 million (2010: R105,5 million). Performance was driven by an exceptionally strong showing by Bidtravel, which reaped the benefits of recent restructuring. The business enjoyed major tender successes and overheads were well controlled despite the impact of retrenchment costs. myMarket has been split into three distinct operations – procurement, online bookings and travel management. Bidair under-performed on the back of account losses, intense price competition and margin pressure. Further rationalisation is planned to secure continued efficiencies. Domestic cargo volumes were also under intense pressure. Premier Lounges returned improved results, buoyed by increasing passenger numbers. Budget Rent a Car traded well as additional business absorbed excess capacity. New channels to market used vehicles are being exploited. The team did well to secure new volume business and improvements were seen in the inbound sector.

Bidvest Food Division

Business conditions remained challenging, with slowing food inflation and sluggish consumer demand. Despite this, improvements on the corresponding period were achieved with revenue at R35,0 billion (2010: R29,2 billion) and trading profit of R1,1 billion (2010: R956,2 million), although the weaker Rand has contributed in part to this. The major contribution came from Asia Pacific, though momentum slackened in Singapore as the business transitions from wholesaling to foodservice operations. New Zealand exceeded expectations. Europe was impacted by adverse economic headwinds, though our UK businesses made good progress. European results were also affected by poor performance in the Netherlands and Czech Republic, where a poor summer hit ice-cream sales. Disappointing results were recorded in southern Africa.

Asia Pacific

Bidvest Australia showed a modest increase in trading profit over last year. The business experienced a tough six months where rising unemployment has affected consumer confidence and the tourism sector has been impacted by international uncertainty. The core Foodservice businesses performed strongly in a subdued market, but Fresh and Logistics (QSR) came under pressure. Corporate sales were particularly healthy in the Foodservice operation. Hospitality achieved good growth with packaging and disposable products. Fresh purchased another small fruit and vegetable distributor in Adelaide. Going forward, expense management, labour efficiencies and innovation will receive growing attention. Growth opportunities will be sought in fresh produce and meat. Bidvest New Zealand achieved satisfactory results in a changeable trading environment. Consumer confidence remains fragile and competition has sharpened from direct importers. Improved asset management was a highlight. Cash generation remains strong. The Foodservice and Fresh teams exceeded expectations but the Logistics businesses were challenged by falling sales, especially ice cream. Christchurch is still slowly recovering from the earthquakes. Results at Angliss Singapore were below expectations, mainly as a result of the Local and Export operations. Seafood achieved higher volumes and Foodservice showed a slight improvement. Angliss Greater China achieved pleasing sales growth and profitability growth in all its markets. Performance was boosted by record sales in the second quarter.

Europe

Europe expanded its geographical footprint, with the entry into the Baltic States of Latvia, Lithuania and Estonia, through a very small acquisition. Across the region as a whole, economic growth remained low or even negative, and trading challenges heightened. In the UK, 3663 Wholesale staged a welcome recovery buoyed by improved volumes, particularly in the free trade sector. Margin management remains a priority. The IT upgrade is proceeding on schedule. Bidvest Logistics returned to profit on the back of significant contract wins resulting in additional operational costs. The vehicle fleet modernisation was completed. Seafood Holdings was impacted by pressure on customer spend and lower average drop values, but growth in net sales was achieved. Continued falls in domestic consumption impacted Deli XL Netherlands. Pressure in the institutional sector was severe. Hospitality teams performed well. In neighbouring Belgium, all segments performed ahead of budget but trading conditions continue to deteriorate. The Middle East businesses secured continued growth, with a particularly pleasing sales performance in Saudi Arabia. In Eastern Europe, Nowaco faced downtrading and margin pressure in its core markets. Retail remains under pressure but hospitality, restaurant and catering volumes showed reasonable growth. Farutex outperformed, maximising opportunities in the recession-free Polish market.

Southern Africa

Southern Africa delivered disappointing results in a fragile market characterised by rising food inflation and rising customer price resistance. Bidvest Foodservice SA achieved pleasing sales growth, with solid gains in national business. Overall performance was impacted by margin pressures and rising operational costs. Credit risk increased, particularly in the restaurant channel. Migration of branches into multi-temperature operations continued as did the roll-out of a new ERP solution. Acquisition of the A&S food distribution business was successfully completed. Bidfood Ingredients increased sales, but gross margins were affected by higher input costs, increased discounts on consumer yeast, higher volumes in the supermarket channel and rising expenses. Continued efficiencies are being sought through IT development. New food safety systems are rolling out to trading branches. Crown factory volumes rose significantly. Conditions in the bakery division remain challenging. Speciality grew first-half sales, but results were impacted by margin pressures. Labour disruptions ahead of the annual trading peak meant second-quarter opportunities could not be optimised. Internal controls and debtors’ management are receiving focused management attention.

Bidvest Namibia

The business performed strongly, increasing revenue by 35,9% to R1,3 billion (2010: R923,0 million) while trading profit grew by 42,5% to R314,4 million (2010: R220,6 million). Excellent results were again achieved by the fishing division, buoyed by good catch rates and strong African demand for horse mackerel. All fishing businesses recorded profits at operational level, including the Angolan JV. The commercial division showed signs of an encouraging turnaround though Caterplus and Manica face continuing challenges. Taeuber & Corssen SWA (Proprietary) Limited, a leading distributor of fast moving consumer goods in Namibia, was acquired for R188,7 million with effect from December 1 2011.

Bidvest Corporate

The sale of half of the economic interest in MIAL for a profit of R399,1 million was completed in October 2011. Bidvest Properties continued to grow its portfolio both via additional developments, such as the Waltons property in Durban, as well as further strategic investments. Ontime Automotive in the UK faced challenging conditions, particularly in Rescue and Recovery. Recent contract wins will benefit the Ontime business going forward.

Directorate

As announced on September 7 2011 Mr. Myron Cyril Berzack decided to leave Bidvest to pursue his own interests and tendered his resignation as director. Bidvest acknowledges Myron for his loyalty and commitment, and for his leadership during his long period of service to the Group. Mr Nkateko Peter Mageza made himself unavailable for re-election to the Audit Committee at the annual general meeting and tendered his resignation as director of the board with effect from November 21 2011. The board would like to thank Peter for his contribution to Bidvest. Mrs Lilian Garner Boyle tendered her resignation as director with effect from February 17 2012. Bidvest thanks Lilian for her services and advice over the past number of years.

Dividends

Notice is hereby given that a normal interim cash dividend of 280,0 cents per share and a special cash dividend of 80,0 cents per share has been awarded to members recorded in the register of the Company at the close of business on Friday, April 13 2012.

The salient dates applicable to the cash dividend are as follows:

The share certificates cannot be dematerialised or rematerialised between Thursday, April 5 2012 and Friday, April 13 2012, both dates inclusive.

For and on behalf of the board

CA Brighten
Company secretary

Johannesburg
February 27 2012