Material issues and risks Market leading operations need to set industry standards for safety Black economic empowerment a focus area Talent attraction and retention critical to long-term growth Continued education on HIV/Aids Rising energy and fuel costs Crime a risk to business

Material issues

Many businesses are major employers which brings with it certain challenges. Operations tend to be leaders and endeavour to set industry standards for workplace safety.

Government agencies and parastatals are important customers of some divisions while many major corporates expect their outsourced service providers to maintain a high B-BBEE profile. Black economic empowerment remains a focus area.

Talent attraction and retention are critical to long-term growth.

The division benefits from the fundamental nature of many of its services and strong annuity income streams.

Performance overview

Our realigned and refocused businesses achieved positive revenue and earnings growth in challenging market conditions. Revenue increased from R59,0 billion in 2011 to R62,7 billion in the current year. Trading profit increased by 13,0% to R3,9 billion with impressive contributions by Automotive and Office. Market-share gains and efficiency improvements were substantial.

Results were driven by organic growth. No significant acquisitions were made.

Targets were met or exceeded at all divisions. Our overall ‘stretch target’ – a deliberately challenging objective – was also achieved; a tremendous performance by our teams.

The new structure contributed to improved performance by management as operational managers are now closer to each divisional team who in turn are much closer to senior executives at Bidvest South Africa.

Reporting lines are significantly shorter. As a result, operations receive focused attention from senior decision makers, ensuring that every business responds that much faster to marketplace conditions and opportunities.

Within businesses, management is able to concentrate on priorities and fix specific problems. Across our South African operations we witnessed tighter controls, improved expense management and better margins.

Though considerable progress has been made, efficiencies and growth potential are still being unlocked and continued gains are expected from teams that are close to their businesses and alive to new opportunities.

People dependence

The success of the realignment re-emphasises the strength and resilience of the decentralised Bidvest model and the ability of locally empowered teams to drive sustained growth in the face of economic headwinds.

Our divisions are not dependent on one technology set or any specific trend or strategic shift. The one common characteristic is people dependence. No significant investment in outside resources was made. Our principal investment is our investment in our people.

The desire to optimise the potential of our people drove the realignment. The intention – successfully realised – was to ensure the right people with the right skills, experience and aptitudes were in place to run each business.

New divisions were put in place at a challenging time for the South African economy. Yet strong growth was soon evident, an early signal that the right teams had been deployed and were drawing the expected benefits from sharper industry focus.

The intensity of that focus should not be under-estimated.

Our divisional management teams are not weighed down by internal corporate structures or distracted at local level by specialised functions like human resources. They concentrate on their industries and customers. Dedicated automotive teams run the automotive business, dedicated services managers run the services division and so on. There is no confusion about where priorities lie.

Operational managers are there to build their businesses. They can look to a lean senior strategic executive team at divisional level for support when considering acquisitions or looking to move the business in new directions. But day-by-day their concerns are business growth, customer needs, people development and expense management.

Divisional report card

The reorganisation of Automotive gathered pace. Corporate activities were significantly reduced and certain businesses were de-layered. Expense management was much improved and helped to drive pleasing results. Many gains were achieved by applying the Bidvest culture of local accountability without reliance on top-heavy structures.

Office did well by maximising the opportunities presented by office automation and continued innovation. Travel and Aviation faced general industry challenges, but put in a strong performance. A significant turnaround was achieved by Electrical in a far from favourable environment.

Financial Services faced challenges in South Africa’s low interest rate climate, but the banking and insurance businesses performed strongly. Rental and Products performed well by delivering procurement efficiencies to its corporate customers.

Freight achieved good growth in the first half, but could not maintain momentum as lower import and export volumes became evident. Mixed performance was apparent at Paperplus as traditional print continued to decline, putting a brake on overall results. Mixed results were also seen at Services, though the cleaning and security clusters again secured pleasing growth.

The year was disappointing at Industrial. Demand remained low from key customer groups in the manufacturing and exporting sectors while pressure on disposable income in the consumer sector was negative for Yamaha.

Sustainable growth

We are confident the business models at all 10 divisions are sustainable into the mid- and long-term future. Experience in the 15 months since the new structure was announced shows us that we have the platform for growth, even in a challenging environment.

Strong audit, risk and sustainability structures have been built into each division. These divisions are not only equipped to deal better and faster with day-by-day issues, they are able to identify future challenges and opportunities in their respective industries.

Sustainability committees backed by sustainability champions keep environmental and long-term sustainability top of mind for all executives. Formalised reporting systems ensure important issues are escalated to operational company management, then on to divisional heads; from there to senior executives at Bidvest South Africa and through to the board.

Strong future focus has bedded in at all divisions.

Business risks

Divisional executives give close attention to strategic risks. An example at Freight is the attention paid to Transnet’s ownership of the ground on which most of the division’s terminal assets are located. Close liaison with the government owned state enterprise remains a priority.

Operations are so diverse that risk is spread and cushioned across very dissimilar sectors. Two common risks are apparent, however – people risk and disintermediation.

All our businesses are reliant on trained and motivated people. Uncertain economic times reduce the risk of heightened staff turnover, but in the long term it is clear that talent attraction and retention remain key issues for senior management.

Mitigation methods include the payment of market-related remuneration while incentives make a successful career at Bidvest highly rewarding. Recent realignments and the creation of a broader divisional base have sent a clear message to ambitious people – Bidvest not only builds businesses it builds careers.

Modern technology can sometimes create the opportunity to deal direct with a manufacturer without the need for a wholesaler or provider of intermediary services. On occasion, ‘grey importers’ also have the opportunity to import directly rather than go through the local representatives of an international brand principal.

In cases where ‘going direct’ has emerged as a key issue, Bidvest businesses have innovated to ensure one of the preferred channels is via Group companies. For example, our travel booking engine is an industry leader and has become an important method of cementing relationships with corporate customers.

It is also apparent that major international brands look for strongly resourced local representatives as their products often require substantial local support if the quality expectations of end-users are to be realised. This bestows competitive advantage on a business like Bidvest, but we acknowledge the potential risk and remain alert.

Empowerment

The new targets in relation to preferential procurement and employment equity was initially delayed, however, it is now fully enforced. Our businesses are making positive strides in all aspects of transformation, which is clearly reflected in the overall measurement and resulting B-BBEE status of our Group and individual operations. Empowerment and change is entrenched and adopted as part of our business. We would like to see more black South Africans contributing to mainstream economy and are delighted to see, albeit slow, the increasing number of black managers and supervisors progressing to more strategic positions.

Bidvest works hard to achieve a real sense of partnership with our suppliers and we constantly aim to place a major portion of our procurement spend with black-owned businesses.

We derive competitive advantage from our training investment and take pride in the contribution made to communities through our socio-economic development programmes.

Of course, more work needs to be done. However, we are confident that we are on the right path to building a diverse workforce, empowered community and strong partnership with small business entrepreneurs.

Internationalisation

The Group is significantly under-geared while our operations remain strongly cash-generative. We therefore have the necessary resources to fund strategic acquisitions, not only in South Africa but in international markets, including Africa and Europe.

International growth opportunities in the commercial space demand close attention.

Branding Bidvest

The introduction of new structures in South Africa was an opportunity to apply Bidvest branding across a broad range of local operations. This effort will continue. The initial focus was on company names and signage. Now branding is being extended to more and more elements, including employee overalls and uniforms. The process has been supported by staff at all levels.

Innovation

Sharing best practice across divisions and geographies receives increased management attention.

Success in one area of activity can help accelerate innovation in other sectors, enabling us to develop new revenue streams and entrench customer relationships.

An innovative entrepreneurial mindset has always been part of the Bidvest culture.

We invest in new technology and build ‘green’ features into the design of new premises. But innovation is not always dependent on new technology. Simply thinking in new ways can reveal new opportunities. New business models and new products can be developed by staying close to needs and societal concerns.

Environmental concerns about the impact of throwaway plastic bottles have led Puréau Fresh Water Company at Rental and Products to put new focus on water-cooler systems. Execuflora now markets its indoor plants on the basis of proven health and productivity benefits, widening the previous focus on aesthetics.

Innovation in route scheduling, energy efficiency, water usage and full-colour digital printing add to the competitiveness of many of our businesses. Innovation is continuous. We are making Bidvest future-ready. The process won’t stop. Sustainable business practice is a permanent agenda item at all management meetings.

Future

Though pleasing growth has been achieved, consolidation after changes to the divisional structure was the principal theme of 2012. We are confident all structures have bedded in well, paving the way for aggressive growth in the year ahead and perhaps some significant acquisitions.

Clearer focus has enabled management to identify growth areas. Simultaneously, areas where under-performance is apparent have been closely scrutinised.

In future, we will reinforce winning businesses by making further investments in infrastructure or new acquisitions while disposing of operations that have experienced continuing losses or where we see little prospect of significant gains.

The scope of activities is currently restricted to South Africa. This is not viewed as a permanent restriction. Where opportunities exist for international expansion they will be carefully considered.

	Bidvest South Africa has a heart • Bidvest Automotive Education and literacy remain the focus areas of the organisation as a whole and the Rally to Read is the principal CSI project. Rally to Read has an impact. Independent evaluations of the Rally to Read programme have shown that after a three-year READ intervention in a school, learners on average advance two years in reading skills, and four years in writing skills, compared to learners in other schools. • Bidvest Financial Services The philosophy behind Bidvest Bank CSI is the desire to include a programme of involvement and interaction with disadvantaged communities and not just chequebook philanthropy. Each region or branch is encouraged to become involved in local community projects. Education is a way to develop future clients and employees. Resources are provided to matric students who are studying mathematics and science subjects. Children are our future employees. With this in mind, the division provides assistance to crèches such as Bathabile in Daveyton, Pennyville in Pennyville, Soweto and Simamisa orphanage in Kingsway, where they pay teachers, provide weekly groceries and assist in building classrooms and facilities for the children. The division partners with charity organisations, such as Union of Jewish Women, who provide assistance to disadvantaged women by teaching them to sew and bake, enabling them to start their own businesses. Other projects include a feeding scheme and soup kitchen, the Stop Hunger Project, where meals are packed and provided to early childhood development centres, also providing assistance to blind and physically disabled children. The Bidvest Bank 2012 Mandela Day project entailed erecting practice nets at Lodirile Secondary School in Krugerdorp for the cricket team. • Bidvest Freight Divisional businesses assist local communities, focusing on education and youth development. The division adopted a disadvantaged school south of Durban where the matric pass rate was low. Improved pass rates have been monitored. Interventions include the deployment of tutors to the school. Initially, the school made pupil attendance at extra classes optional. Success is such that the principal now makes participation compulsory. The programme focused at the outset on Grade 12 pupils. The initiative has since been widened to cover Grade 11 as well as Grade 12 pupils in two other local high schools. • Bidvest Office The division supports the World Wildlife Fund Rhino DNA Index System or RhoDIS project. Project teams have developed a DNA profiling technique that can identify individual rhino horns. Teams sample rhino across Africa (and soon Asia) so seized horn can be traced to specific poaching incidents. This helps to combat poaching by making it easier to prosecute poachers. A donation is made to the project every time a Konica Minolta Bizhub is sold. • Bidvest Paperplus Bidvest Paperplus employees are involved in nominating disadvantaged schools within their local communities and near the business units which need scholastic stationery. Through the business unit employee forums, schools are evaluated and prioritised according to those most in need of assistance. The employees from the division then visit the school to hand over the stationery and other donations. More than 34 schools, orphanages and other charitable institutions have benefited from this Bidvest Paperplus initiative.