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Five of Bidvest’s seven divisions deliver trading profit growth

‘We are looking quite aggressively at…infrastructure growth into South Africa,’ notes Bidvest CEO Lindsay Ralphs.

NASTASSIA ARENDSE:  Lindsay Ralphs is the chief executive of the Bidvest Group, and joins us now.

Lindsay, thank you so much for your time. You delivered numbers today. How did you do?

LINDSAY RALPHS:  I think generally up to our expectation. We set ourselves our company goals at the beginning of the year, and that was to deliver well on our core South African businesses. We’ve seven core areas of activity and five of those seven businesses performed nicely. One of them was marginally down 1%, and the other business, our office and print business, was down about 6 or 7%. But overall I think the diversification of Bidvest did quite well for us, and we came through the market up to our expectation.

NASTASSIA ARENDSE:  The CEOs who have delivered numbers over the past few days or weeks talk about the operating environment, particularly in South Africa, and the many regions that they do business in. For you, let’s start off in South Africa. How difficult has it been for you to be able to deliver the numbers you’ve delivered over the past year, taking into consideration perhaps other parts of the business that function in different regions? How are you assessing the market right now and the environment?

LINDSAY RALPHS:  Bidvest is a very large South African company. Our turnover is R71 billion; we employ 117 000 people. So we are very reliant on how South Africa Inc is doing. Obviously with the GDP growth that we’ve experienced and the difficult headwinds that have faced South Africa, we have faced them as well. There is no doubt about that.

I think the diversity, however, as I’ve already mentioned, does assist us quite tremendously. But as an example we are involved in a large amount of retail, and the retail sector has been down.

In other areas of our business, about 58% of our business is in our services business. That is quite centered around some contractual businesses, annuity-based businesses, so that is a very defensive part of our business and by far the largest scale of our business.

The other main area is trading and distribution, and I think we have performed better than market in many cases, and therefore delivered quite good results this year.

NASTASSIA ARENDSE:  When you are looking for plans to grow the business, as you look at your war chest or what your balance looks like, what do you take into consideration when you make those investment decisions – whether organic growth or acquisitive kind of decisions? What do you and your team look for?

LINDSAY RALPHS:  Asset allocation is a very, very important part of our decision-making process, and at Bidvest we do have a very healthy war chest, as you mentioned. We have an exceptionally strong balance sheet. Our gearing ratio is 0.7 times ebitda, which is certainly low. We could probably go up to as much as 2.5 times ebitda. So we probably have headroom in debt of as much as a billion dollars.

That said, we are looking quite aggressively at firstly infrastructure growth into South Africa. We do believe quite strongly that the public sector and the private sector both need to contribute. So we have committed significant capex into our terminal operations, to develop new LPG gas terminals for over R1 billion into the next year.

Secondly, we continue to do bolt-on small medium-sized acquisitions, and that would come out of very careful capital allocation that needs to fit our strategy.

Then we would look both locally in South Africa and internationally for larger-sized acquisitions, and they would need to fit our criteria. The criterion in South Africa is that they must fit within our seven spheres of activity in which we operate currently.

And then internationally we’d probably look preferably at our services sector, and take that internationally. We’ve recently concluded our first acquisition in that space. Plus in our light industrial products distribution business we would look internationally.

So those are our core base criteria for how we would allocate capital.

NASTASSIA ARENDSE:  If I understand this correctly, you’ve been working alongside Brian Joffe for about 24 years, and some of the style that he applies to the business you’ve picked up. You’ve watched him, you guys have made decisions together. When it comes to looking at the different parts of the business that you and your team may not necessarily believe are performing the way that you want them to perform, what needs to happen before you say you let, say, Bidvest Namibia, go or a different part of the division that isn’t doing well?

LINDSAY RALPHS:  I think the core measuring criterion is does it fit into our core activities? We’ve got a number of investments such as a big slug of 38% of Adcock, the pharmaceuticals, a big slug of Comair, which is an airline, and neither of those two fit into the long-term vision of what the trading and distribution service business does.

Namibia is primarily a fishing business. We own a whole lot of vessels and we’ve fished for horse mackerel. We don’t do that anywhere else. Those decisions are taken on the facts that those businesses don’t really fit. So with regard to Namibia, because it’s at stage where the government of Namibia has indicated their desire to move quota to local Namibians, we have issued a cautionary statement on the Namibian Stock Exchange because it’s a listed company we have up there, and we will deal with our fishing investment appropriately.

And then with regard to Adcock and Comair and some of the other investments like Mumbai Airport – we own a portion of Mumbai Airport – it’s not what we do as our core business. Those assets are being dealt with in an appropriate manner.

NASTASSIA ARENDSE:  Okay, Lindsay. And in terms of prospects for the rest of the year?

LINDSAY RALPHS:  Obviously the economy is still quite difficult. We all accept that we are going to an election year in December for the ruling party, and that always causes drama and trauma. I think it has happened in every country round the world. We’ve kind of discounted that and are fairly confident that going forward it will return to normality, and we do see some green shoots going forward. So it will still be a pretty tough financial year.

We have made the acquisition of Noonan, which is an international acquisition. That will benefit us. We did buy Brandcorp last year and we’ll get the full benefit of that this year. Plus we do see some nice organic growth coming forward into this year. So we are cautiously optimistic, and still have a lot of confidence in the South African medium to long-term economy.

NASTASSIA ARENDSE:  Lindsay, thank you so much for your time.

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