The Bidvest Group Limited ANNUAL INTEGRATED REPORT 2012
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Chief executive’s statement

 

Brian Joffe Chief executive

 

We are well capitalised and under-geared, creating capacity for further acquisitions. We will explore new geographies and, where appropriate, the resilient, adaptable Bidvest model will be introduced to new national markets.

 

A special word of appreciation goes to the people of Bidvest in all markets and sectors. In a challenging year, you have again performed at exceptional levels.

 

Performance overview

Pleasing trading results were achieved. Trading profit reached R7,0 billion while revenue rose to R133,5 billion. These results were supplemented by a R399,1 million profit on the partial disposal of the Group’s stake in Mumbai International Airport Private Limited (MIAL).

Normalised headline earnings per share rose 16,8% to 1 352,3 cents while headline earnings per share increased 26,4% to 1 474,2 cents with ordinary dividends per share up by 29,6% at 622,0 cents. A special dividend of 80,0 cents per share was paid.

Performance was largely driven by organic growth. However, significant investments included the acquisition of 26% of the equity in Mvelaserve Limited for R424,2 million.

Beating geographic norms

Every national market in which Bidvest is active faced economic challenges. However, declining growth rates across national markets is not a signal that Bidvest has to rein in its ambitions for growth.

Economic data from Bidvest geographies creates a context. It does not create an excuse for under-performance. Our locally focused businesses and their empowered managers consistently out-perform the national growth average.

Our businesses are often industry leaders, but in no geography are they so large that generally sluggish business conditions automatically result in a slowdown. There is always room for market-share growth or internal efficiencies.

The quest for sustained growth may seem ambitious, but is not an unreasonable expectation. Over many years, Bidvest businesses have grown in the face of adverse economic conditions. Businesses that dedicate themselves to sustainable success find opportunities across market cycles.

Three decades of Bidvest growth confirms it.

Leverage global, respect local

Bidvest is an international business, but is not a multinational enterprise in the sense that it takes a uniform worldwide approach. We don’t have one standardised product for global markets on the pattern adopted by some car manufacturers; nor do we have one head office-approved ‘menu’ for all Bidvest options like some transnational fast food companies. We operate in multiple national markets rather than in a single global space.

The reach of technology and the internet, international investment flows, growing world trade, faster transport links, the lowering of some tariff barriers and harmonisation of some regulations seem to suggest the world is shrinking and globalisation continues at pace. But national differences and local pride are not being eroded.

We believe Bidvest is well suited to a world that is coming closer together while we still take pride in our individual countries’ uniqueness.

Big is better in that you can take advantage of scale to deliver benefits to your customers. But big does not mean you can ignore the special requirements of each unique market.

In South Africa, for example, the need to support small business remains a priority, therefore it would be inappropriate to leverage Bidvest’s size in an uncompetitive manner. A sense of responsibility to the society in which you operate is essential.

Best of both worlds

The challenge for a decentralised business like Bidvest is to internationalise in a manner that gives us the best of both worlds. We can draw on a world of experience across the Bidvest Group and make sure this knowledge is shared with our businesses worldwide. Best practice in one market can give us a head-start in another. We can also use reach and scale to secure procurement efficiencies – an issue that receives growing attention.

Simultaneously, we have to use local market knowledge to ensure our products and services are appropriate for local customers and create competitive advantage in specific national markets.

We leverage our global reach, but we maintain a respect for local conditions. Perhaps our African heritage with its strong focus on respect for diversity helps us achieve this balance.

Internationalisation

The internationalisation of Bidvest continued with the acquisition of a controlling interest in a small Chilean foodservice operation – our first entry into South America.

We find South American growth prospects exciting. It was widely reported at the end of 2011 that Brazil, South America’s largest economy, has overtaken the UK as the world’s sixth largest economy – just one indication of growing momentum on the other side of the South Atlantic.

It has also been widely reported that Europe faces a ‘lost decade of growth’ in the wake of the Eurozone debt crisis. Despite these concerns, Bidvest still finds Europe an attractive region for selective investments. It has a well-educated workforce, infrastructure is generally well developed and the population is sizeable.

Our recently acquired foodservice operations in Lithuania, Latvia and Estonia bedded in well, creating a platform for further growth in central and eastern Europe. In recent years entrepreneurship has had an opportunity to flourish in eastern Europe and a business-friendly environment has developed.

Bidvest is an equal opportunity company. We succeed because we harness the contribution of all our employees.  

The policy environment is a critical consideration. It can be argued that problems in western Europe did not result from several years of debt mismanagement, but several decades of poor political decision making and the creation of unsustainable social welfare structures.

We are confident that Europe will correct these imbalances and that self-reliance rather than reliance on the state will dominate planning in the coming years, making Europe an even more attractive place in which to do business.

Into Africa

International investor perceptions of Africa have become more positive in recent years as many parts of the continent are achieving sustained growth, in contrast to sluggish recovery in more developed markets. Bidvest continues to increase our presence in sub-Saharan Africa as demonstrated by the December acquisition in Namibia of Taeuber & Corssen, the FMCG distributor.

We are well aware of the opportunities for long-term growth in territories to the north. We are excited by Africa’s future prospects. Bidvest’s full entry into any national market is somewhat dependent on the level of infrastructure development, the existence of a strong corporate sector and the potential for outsourced services. Africa is on the infrastructure path, though many jurisdictions are still at the developmental stage.

The immediate opportunity relates to the selling of many of the Group’s products, such as industrial, electrical and food ingredients.

This is a dynamic situation. We mean to stay close to it.

Commercial business expansion

The internationalisation of Bidvest has been driven for several years by our foodservice operations. However, when examining international growth opportunities we are now looking beyond only foodservice markets.

We are aware of opportunities for international growth in various commercial spheres. Thanks to the success of our South African commercial businesses, we have considerable experience of a wide range of service activities. International growth into these sectors is an area of focus.

Diversified but focused

As a Group, Bidvest is diversified. This does not mean individual businesses lack focus. They are highly focused on their sectors.

A retail business is not regarded as unfocused because the aisles in its supermarkets display different products, each of which must generate a proper return. Similarly, Bidvest has many different businesses operating in different sectors, but this does not mean those businesses don’t know exactly what their customers require and how best to serve them. Quite the opposite; the managers at the coalface are best placed to serve their customers’ needs.

Intense focus by managers steeped in their industries drove Bidvest performance in 2012, as it does every year.

Business risk

Strategic risk has sharpened for all business.

The focus in recent years has tended to fall on financial markets, debt and the danger of prolonged recession. Another risk area recently came into prominence – food security.

American farmers reportedly face the worst drought in over 50 years. Drought and high temperatures have also affected crop yields in countries like Russia and the Ukraine. As a result, prices of corn, wheat and soybeans have moved sharply higher.

Soaring food prices don’t just affect farmers; they affect politics and economics as well. The food crisis of 2007/8 led to riots in many countries. Another food crisis in 2011/12 contributed to the Arab Spring – a reminder that countries are vulnerable when staples are in short supply and food inflation sets in.

Recurring food crises and commodity shortages linked to climate events tell us that companies cannot restrict risk planning to the audit function, insurance cover and operational matters. We have to build businesses that are adaptable enough to respond to major shifts in the strategic landscape.

Bidvest often provides basic services that customers may curtail but can’t do without entirely. We dare not assume this provides recession proofing. The effort to create and sustain lean, efficient and adaptable businesses is ongoing.

Crime and corruption

Business risks linked to crime and corruption are cause for growing concern.

It is possible to track a nation’s prospects by the level of perceived corruption. There is an inverse relationship: the higher the rate of perceived corruption the lower the chance of sustained growth and prosperity. The reason is that long-term outside investment is unlikely where corruption is rife.

Bidvest has walked away from acquisition and investment opportunities once it became apparent that corporate governance was lax and corruption posed a material risk.

Unfortunately, in South Africa levels of perceived corruption are rising and the country fell to 64th in Transparency International’s 2011 Corruption Perception Index – down 10 places. This is the second lowest ranking of any national market served by Bidvest. Notably, markets like New Zealand, Singapore, the Netherlands and Australia are among the least corrupt and hold top 10 rankings.

In South Africa, it is important to note that governance measures in major private sector companies are rigorous and on a par with the best in the world. Yet the perception is growing that our country faces a corruption crisis.