NOMPU SIZIBA: JSE-listed industrial player Bidvest came out with their interim results today [March 2, 2020]. For the six months ended December 2019 the company reported revenue at R43.7 billion. That’s up 9.2% on the year prior. Trading profit increased by 19.8% to R4 billion. However, headline earnings per share declined by 10% to 563.2 cents.
My colleague, Ryk van Niekerk, caught up with Bidvest CEO Lindsay Ralphs.
RYK VAN NIEKERK: Lindsay, thank you for joining me. Last week was probably one of the craziest weeks I’ve ever seen as a financial journalist. I see the Bidvest share price also fell by more than 10%. What do you currently make of what is happening?
LINDSAY RALPHS: Obviously the coronavirus has spread a lot of panic in all of the financial markets around the world. To be quite honest, we are in a small way starting to feel it. There is absolutely no doubt that China has come to a bit of a standstill over the last period of time. And the logistical supply base plus all the shipping lines in and out of China has a ginormous influence on world trade. And if world trade doesn’t get back into its natural flow, I think the whole world will feel it. We as Bidvest will feel it, and I guess the stock markets will feel it.
But, to put it in a nutshell, the JSE …… on the world markets. So you’ve seen what’s happened with the Dow and the FTSE, and so on, and we really just follow suit.
RYK VAN NIEKERK: How exposed are you to the Chinese market, and especially a significant Chinese economic downturn?
LINDSAY RALPHS: We split our businesses into two – 16%-odd of it is services businesses, which are not that exposed, including both locally and international, because that tends to be the supply of labour. But the rest of our product-related businesses could be exposed. So, if you take our automotive business, although you know, none of our product comes out of China per se, a lot of the commodities and product that goes into say, a Toyota or any other brand, it’s very likely to be made in China. So there could be a spinoff from that.
I would think, though, that we as Bidvest – and I would think most of South African businesses – would have about a three- to four-month buffer of inventory and work in progress, and so forth, where we’ve got a period of grace before this problem, if it takes that long to solve, kicks in. So at the moment we are not feeling anything direct.
RYK VAN NIEKERK: Let’s look at the company. Your revenue is up nearly 10%. How did you manage to grow your top line by nearly 10%?
LINDSAY RALPHS: We did it through acquiring Adcock in this period. So for five months of the six-month period we had Adcock as a subsidiary, and that would have played quite a significant role in that revenue increase.
RYK VAN NIEKERK: And Comair? Of course, Comair reported last week; not a pretty sight, and most of the woes at Comair come from the SAA [problem]. How do you see this whole situation where the business-rescue process of SAA seems to have a much bigger knock-on effect among other companies, most notably Comair?
LINDSAY RALPHS: Yeah, I don’t know if it’s just Comair. The aviation industry in South Africa is relatively small. Where the big knock-on comes is in how aircraft is maintained in South Africa, and SAA Technical is a very significant player in the maintenance of aircraft. They maintain aircraft for SAA, for Mango, for Comair. And while SAA Technical is not in business rescue, it is part of the SAA group, and relies heavily on SAA. So that’s a big worrying factor, and it does show how integrated all of these different companies are in the overall aviation sector in South Africa.
The SAA claim is just unfortunate in that Comair fought for something like 15 years to prove to the courts that there had been unfair competition. It won an award of about R1.3 billion, got paid about R500 million of that, and the balance of about R800 million is very unlikely to be paid by the business rescuer. And that will be a bit of a blow to Comair. They had expectations of receiving that money, and deserved to receive it.
The other impact on Comair is of course the Max aircraft, which have been grounded. Comair ordered a number of those aircraft and they are sitting on the ground, unable to fly. So that has also had quite an impact on Comair.
RYK VAN NIEKERK: Lindsay, the South Africa economy is not going to grow much this year. We’ll be lucky if we see 0.5% of economic growth. How do you foresee Bidvest operating within such a low-growth environment?
Bidvest is very, very diversified. So that’s a big advantage to us.
But I think if you look at the core SA Inc, we don’t understand much more than single-digit, sort of 1% growth in the next six months.
Thereafter, we are obviously a little bit more optimistic and we are hopeful that our minister will get some turnaround going, and some infrastructure spend going. But I guess balancing this budget is going to be a tough call.
[Tito Mboweni] has announced what plans he has to do to achieve his budget, and I guess it’s the execution that we get that we will be watching out for.
RYK VAN NIEKERK: How big is the Bidvest operation outside South Africa’s borders?
LINDSAY RALPHS: At the moment about 10% is offshore post our unbundling. We have just announced a very significant acquisition of a company called PHS, which is Personal Hygiene Services in the UK. It’s a £500 million, which is about R10 billion, acquisition. That’s very significant and that will move the needle quite significantly from a geographic point of view, much closer to about 20% by the time that’s bedded down.
RYK VAN NIEKERK: Are you looking at expansion at the moment, acquisitions? If so, are you looking locally or offshore?
LINDSAY RALPHS: Both, Ryk. PHS is the one I’ve just mentioned to you; it’s significant overseas. We have also announced that we are acquiring Eqstra, which is a fleet-leasing business in South Africa, the biggest corporate lease fleeting business. That was an acquisition of about R3 billion. We are just waiting for the Sarb to give us final approval on that. That will kick in in the next couple of months, or hopefully couple of weeks.
And then we have concluded a number of innovative and creative bolt-on acquisitions for our businesses in South Africa.
RYK VAN NIEKERK: Lindsay, thank you so much for your time.