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Bidvest shrugs off Covid woes with record profit

Trading profit is up 47.8%, with strong performance from Services, Automotive and Commercial Products.
The Automotive division reported a trading profit of R652m, up 267% on the previous year. Image: Supplied

Bidvest shrugged off the disruptive effects of Covid-19, registering a 47.8% growth in trading profit to R7.9 billion for the year to June 2021.

The Services division remains the largest contributor to profit (41%), with geographical contributions more or less equally split between SA and international businesses. Trading profit from this division was up 54.8% to R3.3 billion, despite the negative impacts of Covid on travel and services to hotels and offices. This was to some extent offset by new business opportunities, such as decontamination and cleansing services.

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Listen to Nedbank’s Preston Narainsamy as he unpacks Bidvest’s results with Simon Brown on Tuesday’s episode of MoneywebNOW: 

Branded Products

After a shaky first half to the year, the Branded Products division ended up with a 4.2% increase in trading profit for the year at R1.5 billion.

The main contributor was healthcare company Adcock Ingram, which had to contend with exchange rate fluctuations, supply chain challenges and the absence of a normal flu season. Business reengineering and expense control were major factors behind the turnaround in this division.

Automotive

In the Automotive division, Bidvest McCarthy increased sales of new and used vehicles by 1.1% and 7.2% respectively. Bidvest CEO Mpumi Madisa says the company lost some market share in new car sales by focusing on higher-margin business.

“Due to less disposable income, there is a definite shift [among consumers] from new to used vehicles. The main risk in this business is the supply chain, given the shortage of computer chips globally. Original equipment manufacturers are struggling to source chips.”

Read:
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The ability to source good quality used vehicles remains a challenge, which is driving up purchase prices. Though the new vehicle market is 15% lower today compared with the 2017 financial year, trading profit is 20% higher, due in large measure to cost cutting and rationalisation efforts undertaken in prior years.

Trading profit for the 2021 financial year was R652 million, up 267% on the previous year.

Share price

Freight

The Freight division turned in a trading profit of R1.3 billion, 11.6% higher than the previous year, helped by the commissioning of a 22 600 tonne LPG (liquid petroleum gas) storage facility in Richards Bay. This is one of the largest of its kind in the world and removes a major obstacle to unrestricted supply of LPG to the region.

Bumper maize, rice and wheat crops boosted profits in South African Bulk Terminals. Bulk Connections benefitted from surging commodity demand, along with a 17% improvement in volumes of minerals handled. This had a knock-on effect on Bidfreight Port Operations, particularly in the second half of the year.

Madisa says results from this division could have been stronger but for the global shortage of containers, and rising air and sea freight costs.

Commercial Products

One of the standout performances of the year came from the Commercial Products division, which produced a trading profit of R92 million, up 134.5% on the previous year.

Strong market share gains and some prescient inventory acquisitions just prior to the Covid supply disruptions translated into record bottom-line performance.

Several of the underlying businesses reported double-digit growth in trading profit over pre-Covid levels in 2019, including Plumblink, Bidvest Electrical, Academy Brushware, Matus, Yamaha, Bidvest Afcom, Burncrete and Vulcan.

Properties

Bidvest Properties, which earns most of its income from rentals on 136 Bidvest-occupied buildings in SA and Namibia, experienced a 4.8% drop in rentals for the year, with vacancies now standing at about 5.5%. Trading profit declined by 3.2% to R560.7 million.

Financial Services

Financial Services reported a 8.9% increase in trading profit to R331 million. The strongest performer here was insurance, which saw strong demand for life policies during the year. Bidvest Bank was hit by the slowdown in asset and fleet leasing, as well as travel-related forex transactions.

Group results

At group level, cash generation was 48.6% higher at R13.6 billion, with free cash generated doubling to R10.1 billion.

Headline earnings per share (Heps) grew by 113.9% to 1 183.3 cents from continuing operations. Normalised Heps (which excludes acquisition costs, amortisation of acquired customer contracts and Covid-19 costs), grew by 25.6% to 1 292 cents.

Return on funds employed improved from 23% to 31.6% over the year, while return on invested capital of 14.1% compares with 12.9% last year.

The group declared a final dividend of 310 cents per share, bringing the total dividend for the year to 600 cents per share.

There was limited damage to the infrastructure of the group during the riots in KwaZulu-Natal and parts of Gauteng in July this year, and thankfully no employees were harmed.

Outlook

On the prospects for the coming year, Madisa says disruptions to global supply chains continue to affect some of the group’s markets, and a rapid sustainable economic recovery is likely to be delayed.

“However, we remain positive that the group’s profitability momentum will be maintained given our spread of products and services, and there are signs of increased infrastructure investment activity out of the mining and industrial sectors,” she says.

“While we will continue to optimise our cost base and improve efficiencies across the group, the significant work already completed in these areas will positively support future results.”

Listen: CEO Mpumi Madisa on Bidvest’s ‘sweet spot’ hygiene business PHS, annual results and more (or read the transcript)

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