Bidvest and the joys of diversification

Bidvest’s results for the year to June 2022, with trading profit up 23% to R9.7 billion, show the power of diversifying across regions and sectors.

Six of its seven divisions reported double-digit profit growth, the exception being financial services, where some weighty once-off costs, including branch closures and Covid-related credit impairments, knocked trading profit to R85.6 million from the previous year’s R331.6 million.

“We took a lot of impairments [in financial services] now, that our competitors took two years ago,” Bidvest CEO Mpumi Madisa tells Moneyweb. “The worst is now behind us.”

Having absorbed the pain in 2022, expect to see a financial services recovery in 2023.

Pleasing notes

For the rest of the divisions, it was a symphony of beautiful sounds. Most of the growth coming out of SA was organic, with only two significant acquisitions.

At group level, revenue grew 13% to R99.9 billion, and trading profit by 23% to R9.7 billion. The total dividend for the year was 744 cents, a 24% improvement on the prior year.

Bidvest defies the conventional logic that conglomerates don’t work, that they are unwieldy and breed inefficiencies.

Part of its founding ethos under Brian Joffe was that Bidvest would provide a home for entrepreneurial management, and give them systems to free up time and capital to unleash growth.

New businesses could then be bolted onto the group, providing them with almost instant, in-house growth, providing products and services to other companies within the group.

Read: Brian Joffe may be vacating the CEO seat at Long4Life, but his magic sauce remains

There is enough diversification within Bidvest for stronger performers to cover the inevitable weak spots that emerge in any business, but when (virtually) all divisions are firing at a high rev, the result is something like we saw over the last year.

Services South Africa romped home with a trading profit of R880 million, up 37% over the previous year.

After two years of agonising travel restrictions, South Africans started to move again, and this is reflected in Bidvest’s travel-related businesses such as travel management, PetLounge (airport-to-airport pet travel) and airport lounges. There was also a slow return to some kind of office normal, with demand for drinking water, coffee machines and other office services offered by Bidvest increasing.

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Services International, the biggest division, reported a decent profit improvement of 14.7%, and a trading profit of R3.1 billion. The market is quickly normalising as demand for wellness and hygiene products and services maintained brisk demand both during and after Covid.

The automotive division grew profit 25.6% to R819 million, an all-time high, following on from last year’s 267% post-Covid profit surge.

Read: SA’s new vehicle sales almost at pre-Covid levels

Bidvest McCarthy increased new vehicle sales by 8.6%, though 9.6% fewer used cars were sold during the year. Madisa says management focused on margin rather than volumes, a strategy that paid off handsomely. Return on funds employed (ROFE) was 50%, up from 37% the year before.

For the first time, the Commercial Products division popped the R1 billion trading profit milestone – which means four of the group’s seven divisions are now generating profitability in excess of R1 billion each.

This division covers manufacturing and trading business in SA as well as global brands such as Unicarriers Forklifts, Rational Ovens and Plumblink.

The forklift business was virtually doubled with the acquisition of A2 Group, adding roughly 700 mainly electric forklifts to the fleet, for R92 million. An interesting side business acquired as part of this transaction is the retailing and distribution of lithium batteries, an essential part of the green energy transition.

Overall, Commercial Products grew trading profit by 27.4% to R1.2 billion, following last year’s profit increase of 134.5%.

Freight had an excellent year, with trading profit up 36.5% to R1.8 billion. Maize exports had a record season, with huge demand for SA minerals such as coal, anthracite, iron ore and manganese. The division has capacity to handle six million tons of minerals a year, with storage capacity of about 500 000 tons. It also has two world-class bulk agricultural handling facilities in Durban, and handles about 3.5 billion litres of bulk liquid products a year. Container rail services had a difficult time of it, though terminal operations operated by Bidvest, both inside and outside SA, handled exceptional volumes.

Read: Salvation in sight for key ports of Durban and Ngqura

The Branded Products division, which includes pharmaceutical and health care business Adcock Ingram, reported a 28.4% jump in trading profit to R1.9 billion. Other business in this division benefitted from the post-Covid recovery, including office products, furniture, packaging and printing.

Across the divisions, there was an impressive improvement in return on funds employed. Net debt decreased from R15.5 billion in December 2021 to R12 billion at year-end, with the gearing ratio falling to 1.5 from 1.8.

Madisa concedes that it will be tough to maintain this high energy growth rate.

“The coming year will be tougher. Inflation is starting to show up, especially in areas such as wages and energy prices. Our focus going forward will be protecting the margin. We’re used to functioning in a high-inflation environment, but we’ll have to control our operating expenditure and be efficient.

“On the plus side, we see further uplift in travel and tourism, as well as private sector infrastructure investment, though we’re not seeing much infrastructure spending coming from government as yet.”

The recovery in corporate office occupancies, though on a price-sensitive basis, is good for Bidvest. Last year it acquired a facilities management business in Australia, which will provide a bump to revenue and profits in the coming year. With that, and a recovery in financial services, Bidvest may have a few more surprises up its sleeve going forward.

Listen to Nzinga Qunta’s interview with Bidvest CEO Mpumi Madisa (or read the transcript here):