Transcript Interim Results Dec 31 2003 - Bidvest

BIDVest Interim Results
for the six months ended
December 31 2003
An operationally active investment holding company
whose core competence is the management of a
balance of cash generative and growth businesses
Agenda
Group overview
Financial Results
Divisional Results
Strategy & Outlook
Group Overview
The BIDVest Business Model
An operationally active investment holding company of
market-leading service, trading & distribution businesses
Strategy
Own the cash flows
Control distribution channels
A balance of mature & growth businesses
Funds allocated across asset base according to proven
return criteria
Vigorous capital management - cash used from mature
businesses to fund growth businesses and acquisitions
Identifying acquisitive value
The BIDVest Business Model
An operationally active investment holding company of
market-leading service, trading & distribution businesses
Strategy
Implementation
 Own the cash flows
 Businesses actively & successfully managed
Control distribution
 Control distribution
channels
channels:

business units
 Decentralised,
A balance of mature &focused
growth assets
 Funds allocated across asset base
 Market
in distribution
channels:
according leaders
to proven return
criteria
 Critical
for sourcing
& funding
 Vigorous
capital mass
management
- cash
used from mature businesses to fund
 Reaching
common
customers
growth
businesses and
acquisitions
 Tying
the customer
in
 Identifying
acquisitive
value
The BIDVest Business Model
An operationally active investment holding company of
market-leading service, trading & distribution businesses
Strategy
Management FocusImplementation

Own
the cash
A
team
of flows
operationally
 Businesses actively & successfully
strong owner-managers:
 Control distribution channels
Control
managed
distribution channels:
 Financial disciplines (working capital,
managing sustainable
 Decentralised, focused business units
 A balance of mature & growth assets
returns)
 Market leaders in distribution channels:
mass for sourcing &
businesses to Critical
perform
funding
 Vigorous capital management - cash
 Reaching common customers
Financial
integrity
used from mature
businesses to fund
 Tying the customer in
growth businesses and acquisitions
 Funds allocated across asset base
according
to proven
returnfrees
criteria
Corporate
office
up
Proven ability to correct underperformance
 Identifying acquisitive value
Proven ability to create value in businesses
The BIDVest Business Model
An operationally active investment holding company of
market-leading service, trading & distribution businesses
Strategy
Implementation
 Own the cash flows
 Control distribution channels
 A balance of mature & growth
businesses
 Funds allocated across asset base
according to proven return criteria
 Vigorous capital management - cash
used from mature businesses to fund
growth businesses and acquisitions
Control distribution channels:
 Businesses actively & successfully
managed
 Decentralised, focused business units
 Market leaders in distribution channels:
 Critical mass for sourcing &
funding
 Reaching common customers
 Tying the customer in
 Identifying acquisitive value
Management Focus
 A team of operationally strong owner-managers:
 Financial disciplines (working capital, managing sustainable returns)
 Corporate office frees up businesses to perform
 Financial integrity
 Proven ability to correct underperformance
 Proven ability to create value in businesses
BIDVest Group Structure
Foodservice
Products
Services
Bidfreight
Namsov Fishing
Commercial
Products
Corporate
I-Fusion
Bidcorp plc
Bidserv
Bidvest plc
Bidoffice
Caterplus
Bidpac
Combined Foods
Voltex
mymarket.com
Investments &
other income
Group properties
Renfin
% of op income
69%
% of op income
% of op income
31%
39%
61%
% of op income
26%
74%
96%
4%
Group performance summary for the
half-year to December 2003
 HEPS: +2% to 248.0cps; DPS: +5% to 113.4cps
 Group operating margins up to 5.1% from 4.6%
 Operating income pre-translation losses up 1.4% to
R1.14bn
 8% organic growth in operating income for domestic
operations
 Bidvest plc headline earnings up 22% to £17.2m
Organic operating income growth
from acquisitions
Note: All figures indexed to 1999
400
350
Index
300
250
200
150
100
1999
2000
Waltons
2001
2002
Rennies
2003
3663
Historic Performance
Operating profit & margins
2500
Rm
2000
1500
1000
5.0%
4.9%
4.8%
4.9%
500
0
4.8%
5.1%
4.7%
4.6%
4.4%
2000
2001
2002
1H
2003
2H
2004
Historic Performance
Operating profit & margins
2500
Rm
2000
5.0%
1500
1000
4.8%
500
0
4.8%
4.9%
5.1%
4.9%
4.7%
4.6%
2001
2002
2003
4.4%
2000
1H
2H
2004
Historic Performance
Annualised Returns
%
60
50
40
30
20
10
0
57
49
44
42
30
2000
34
32
25
2001
ROFE
2002
ROE
2003
Historic Performance
Operating profit & margins
Annualised Returns
2500
60
50
40
5.0%
1500
1000
4.8%
500
0
4.8%
4.9%
5.1%
4.9%
4.7%
4.6%
2001
2002
2003
4.4%
2000
%
Rm
2000
1H
2H
2004
30
20
10
0
57
49
44
42
30
2000
34
32
25
2001
ROFE
2002
ROE
2003
Historic Performance
HEPS
600
500
cps
400
300
220.3
180.2
152.8
200
100
235.8
153.6
181.6
215.9
243.2
248.0
2003
2004
0
2000
2001
2002
1H
2H
23% CAGR over 5 years
Historic Performance
Operating profit & margins
Annualised Returns
2500
60
50
40
5.0%
1500
1000
4.8%
500
0
4.8%
4.9%
%
Rm
2000
5.1%
4.9%
4.7%
4.6%
2001
2002
2003
4.4%
2000
1H
2004
2H
600
500
cps
300
180.2
152.8
200
100
235.8
220.3
153.6
181.6
215.9
243.2
248.0
2003
2004
0
2000
2001
2002
1H
49
44
42
30
2000
34
2H
23% CAGR over 5 years
32
25
2001
ROFE
HEPS
400
30
20
10
0
57
2002
ROE
2003
Historic Performance
DPS
250
cps
200
150
112.0
100.0
78.3
88.2
100
50
72.0
81.0
90.0
2000
2001
2002
108.0
113.4
2003
2004
0
1H
2H
17% CAGR over 5 years
Historic Performance
Operating profit & margins
Annualised Returns
2500
60
50
40
5.0%
1500
1000
4.8%
500
0
4.8%
4.9%
%
Rm
2000
5.1%
4.9%
4.7%
4.6%
2001
2002
2003
4.4%
2000
1H
30
20
10
0
2004
57
34
30
2000
2001
2H
2003
ROE
DPS
250
500
400
200
235.8
220.3
cps
cps
2002
ROFE
600
180.2
152.8
200
100
32
25
HEPS
300
49
44
42
153.6
181.6
243.2
215.9
248.0
150
100.0
88.2
78.3
100
50
0
112.0
72.0
81.0
90.0
2000
2001
2002
108.0
113.4
2003
2004
0
2000
2001
2002
1H
2003
2H
23% CAGR over 5 years
2004
1H
2H
17% CAGR over 5 years
Financial Results
Consolidated Income Statement
Half-year ended December 31
2002
2003
Unaudited
Unaudited
R000s
Revenue
22 211 643
% change
24 565 364
(9,6)
 Negative rand impact (R3bn translation difference for Bidvest plc
alone)
 Volumes increased, but deflationary pressure on selling prices
 Foreign currency-denominated revenues (Safcor Panalpina)
Year ended
June 30 2003
47 073 375
Consolidated Income Statement
Half-year ended December 31
2002
2003
Unaudited
Unaudited
R000s
Revenue
22 211 643
1 132 873
Operating Income
Operating
Margins
Offshore
% change
24 565 364
1 128 347
(9,6)
0,4
1H2004 1H2003
2.5%*
2.7%
Improved operating efficiencies &
better buying at Bidvest plc, but
losses from Bidcorp and Litho France
Improved operating efficiencies, cost
containment and limitation of price
decreases
Local
6.7%
6.0%
Group
5.1%
4.6%
* Offshore margins include a R19.3m loss from Bidcorp plc and a R10.5m
loss from Litho France (Bidvest plc operating margins increased to 3.1%
from 2.9%)
Year ended
June 30 2003
47 073 375
2 244 121
Consolidated Income Statement
Half-year ended December 31
2002
2003
Unaudited
Unaudited
R000s
Revenue
Operating Income
Operating Income before translation effects
Translation gains (losses)
Amortisation of goodwill
Net capital items
% change
Year ended
June 30 2003
22 211 643
24 565 364
(9,6)
47 073 375
1 132 873
1 128 347
0,4
2 244 121
1 140 120
(7 247)
(35 532)
(13 924)
1 124 621
3 726
(22 449)
(877)
1,4
2 259 197
(15 076)
(64 887)
(61 548)
Translation loss: R7m on conversion of offshore cash
balances
Consolidated Income Statement
R000s
Half-year ended December 31
2002
2003
Unaudited
Unaudited
Revenue
% change
Year ended
June 30 2003
22 211 643
24 565 364
(9,6)
47 073 375
Operating Income
1 132 873
1 128 347
0,4
2 244 121
Net finance expenses
(52 898)
(36 865)
 R644m net cash offshore
 R427m net debt in SA
 43% increase in net interest paid but 29%
decrease off 2H 2003
 R1bn funds used for McCarthy acquisition will
affect interest paid in 2H 2004
 Cash applied where necessary in the group
(110 982)
Consolidated Income Statement
Half-year ended December 31 2003
2002
2003
Unaudited
Unaudited
R000s
Revenue
% change
22 211643
24 565 364
(9,6)
1 132 873
1 128 347
0,4
(52 898)
(36 865)
Income before taxation
1 030 519
1 068 156
Taxation
(289 271)
Operating Income
Net finance expense
1H2004
(299 607)
1H2003
Offshore
27%
27%
Local
28%
28%
Group
27.3%
27.4%
Note: Rates exclude goodwill amortisation
Edging toward
maximum
rate
……
of 30%
Year ended
June 30 2003
47 073 375
2 244 121
(110 982)
(3,5)
2 006 704
(557 148)
Consolidated Income Statement
R000s
Revenue
Operating Income
Net finance expense
Income before taxation
Half-year ended December 31 2003
2003
2002
Unaudited
Unaudited
% change
Year ended
June 30 2003
22 211 643
24 565 364
(9,6)
47 073 375
1 132 873
1 128 347
0,4
2 244 121
(52 898)
1 030 519
(36 865)
1 068 156
(110 982)
(3,5)
2 006 704
(289 271)
(299 607)
741 248
768 549
9 308
15 921
30 328
Outside Shareholders’ interest
(44 218)
(52 158)
(97 576)
Income attributable to shareholders
706 338
732 312
Number of shares in issue (weighted 000)
302 085
310 402
749 070
754 906
Taxation
Income after taxation
Income from associates
Headline earnings (Rm)
(557 148)
(3,6)
(3,5)
1 449 556
1 382 308
308 116
(0.8)
1 475 856
Consolidated Income Statement
Half-year ended December 31 2003
2002
2003
Unaudited
Unaudited
R000s
Revenue
22 236 884
24 565 364
% change
(9,6)
0,4
1 132 873 of shares
1 128 due
347 to share
 2.7% decrease in weighted average number
repurchases
Operating Income
Net finance expense
(52 898)
(36 865)
(289 271)
(299 607)
741 248
768 549
Year ended
June 30 2003
47 073 375
2 244 121
(110 982)
 2H HEPS will include McCarthy (pro forma
impact: 17%
for full year
to June
1 030 519
068 156
(3,5)
2 006 704
Income before taxation
2003)
Taxation
(557 148)
 Bidvest to use its treasury stock in satisfaction of Dinatla transaction options
Income after taxation
 17% enhancement in dividend due to Dinatla
15 921
9 308 transaction
(3,6)
30 328
Income from associates
Outside Shareholders’ interest
(44 218)
(52 158)
Income attributable to shareholders
706 338
732 312
Number of shares in issue (weighted 000)
302 085
310 402
Headline earnings (Rm)
749 070
754 906
 Dividend cover will remain around 2x
Distribution per share (cents)
HEPS (cents)
113.4
108.0
248.0
243.2
1 449 556
(97 576)
(3,5)
1 382 308
308 116
(0.8)
5.0
2.0
1 475 856
220.0
479.0
Consolidated Balance Sheet
Half-year ended December 31 2003
2002
2003
Unaudited
Unaudited
R000s
Year ended
June 30 2003
Assets
Non-current assets
Current assets
5 011 393
4 889 800
4 927 958
9 749 338
9 764 886
9 643 424
No. of Days
Total assets
30
26
39
38
59
57
50
45
1H2004
1H 2003
Debtors' Days
Creditors' Days
Stock Days
Consolidated Balance Sheet
R000s
Half-year ended December 31 2003
2002
2003
Unaudited
Unaudited
Year ended
June 30 2003
Assets
Non-current assets
5 011 393
4 889 800
Current assets
9 749 338
9 764 886
9 643 424
14 751 731
14 654 686
14 571 382
6 247 422
6 335 140
6 103 451
1 029 179
436 139
1 007 749
Current liabilities
7 475 130
7 883 407
7 460 182
Total equity and liabilities
14 751 731
14 654 686
Total assets
4 927 958
Equity and Liabilities
Capital and reserves
Non-current liabilities
14 571 382
Divisional Results
Services - Bidfreight
Contr to Group Op Income
19%
81%
 Rand strength dominant
theme - ZAR up by 30%
against USD
 Terminals produced a
strong result - BMA, SA
Stevedores, SACD and
RCT counteracted
weakness in Marine and
Manica & FedEx
 Safcor Panalpina coped
well – volumes increased,
profit slightly below
budget
 Bidlog to be split between
Bidserv and Terminals
Rm Operating Income
Rm Revenue
210
7000
190
6000
170
150
5000
130
4000
110
90
70
3.4%
3000
2.8%
50
2000
1H2003
Operating income
1H2004
Revenue
…% Operating margin
Services – Bidcorp plc
Contr to Group Op Income
0%
100%
 Tough trading conditions
 Heavy costs in Shipping
and Ports on expanded
sailing schedules and
excess capacity
 Automotive rationalised
into two operating
divisions - reduce
overheads and improve
efficiencies
 Management focus now
on operating efficiencies,
increased capacity
utilisation and greater
turnover
Rm Operating Income
Rm Revenue
10
1350
5
1150
0
950
1H2003
1H2004
-5
750
-10
550
-15
350
-20
150
Operating income
Revenue
Services - Bidserv
Contr to Group Op Income
92%
8%
 Real growth in revenue of 5%
 Margin pressure ameliorated
by strict expense control and
high degree of annuity
income
 Laundry secures significant
contract wins in healthcare
sector
 Security remains profitable
in an industry in disarray
 Execuflora acquired
Rm Operating Income
100
95
90
85
80
75
70
65
60
55
50
Rm Revenue
900
800
700
600
9.5%
8.5%
500
400
1H2003
Operating income
1H2004
Revenue
…% Operating margin
Services - Renfin
Contr to Group Op Income
6%
94%
Rm Operating Income
 Travel performed well in
flat market conditions
 Recent travel acquisitions
will boost profits
 Banking disappointed due
to currency strength,
narrower dealer margins,
and a slowdown in tourist
spending
100
90
80
70
60
Rm Revenue
310
28.6%
22.9%
50
40
30
20
10
290
270
250
1H2003
Operating income
1H2004
Revenue
…% Operating margin
Foodservice Products
– Bidvest plc
 UK, Australia, New Zealand
exceed budget in sterling
 Australian & New Zealand
dollars strengthen by 15%
against sterling
 3663 gaining share in a flat
market
 Good organic growth in
Australia & New Zealand
 8 small acquisitions to
extend customer service
offering
Contr to Group Op Income
75%
25%
Rm Operating Income
Rm Revenue
350
12000
11000
10000
9000
8000
300
250
200
150
2.9%
3.1%
1H2003
1H2004
100
Operating income
Revenue
…% Operating margin
7000
6000
5000
4000
3000
Foodservice Products
– Caterplus
Contr to Group Op Income
92%
8%
Rm Operating Income
 Food price deflation
120
 Tight trading conditions
100
 Overseas visitors not as free
spending
 Frozen division maintained
volumes
 Patleys traded well, despite
reduced rand profit on imports
 Export orders for Vulcan-Caars
Rm Revenue
1100
1000
900
80
800
60
700
600
40
500
20
9.4%
9.2%
0
400
300
1H2003
Operating income
1H2004
Revenue
…% Operating margin
Foodservice Products
– Combined Foods
Contr to Group Op Income
95%
5%
 Competitive challenges met
in bakery supplies
 Structural changes in
spending patterns
 Sales to major customer
segments up substantially;
export sales & non-meat flat
 New spice factory on double
shift to meet demand
 NCP Yeast ahead of budget
in tough market
Rm Operating Income
60
55
50
45
40
35
30
25
20
15
10
Rm Revenue
550
500
450
400
350
11.7%
10.9%
1H2003
Operating income
1H2004
Revenue
…% Operating margin
300
250
200
150
100
Commercial Products
– Bidoffice
Contr to Group Op Income
83%
17%
 Margin pressure in stationery
due to stronger rand
 Acquisition of OCE Printing
Systems benefited
Automation
 Kolok impacted by grey
products
 Dauphin and Cecil Nurse
stars of Furniture
 Lithotech strong, exceeded
budget
 Lithotech France made a loss
- poor volumes in a weak
economy
Rm Operating Income
200
190
180
170
160
150
140
130
120
110
100
Rm Revenue
2500
2300
2100
1900
1700
1500
1300
8.0%
7.7%
1100
900
1H2003
Operating income
1H2004
Revenue
…% Operating margin
Commercial Products
– Bidpac
Contr to Group Op Income
94%
6%
Rm Operating Income
 Margin held despite
continuing rand strength
 Destocking continued
through H1
 Falling unit selling prices
 Decline in manufacturing
volumes – secondary
exporters hurt by rand
Rm Revenue
70
450
60
400
350
50
300
40
250
30
20
200
15.8%
15.8%
10
150
100
1H2003
Operating income
1H2004
Revenue
…% Operating margin
Commercial Products
– Voltex
Contr to Group Op Income
96%
4%
 Downward pressure on cable
& wire markets
Rm Operating Income
Rm Revenue
50
1200
 Non-cable products held
margins
45
1100
40
1000
 Berzack & Eastman positive
contribution
35
 Large capex projects by
private and state sector on
hold
25
 National footprint, service
capability and breadth of
products
900
30
800
700
20
15
4.4%
3.9%
10
600
500
1H2003
Operating income
1H2004
Revenue
…% Operating margin
Corporate Services
Contr to Group Op Income
96%
4%
 I-Fusion
• to be profitable by year-end
• network regarded as state of
the art
• Benefit from McCarthy
 mymarket.com
• Annualised billings R500m
• Moving toward profitability
 Property rental income from
Group companies at arm’s
length
Rm Operating Income
Rm Revenue*
40
55
50
45
40
35
30
25
20
15
10
35
30
25
20
15
10
1H2003
Operating income
1H2004
Revenue
*Revenue = I-Fusion & MyMarket.com
Strategy & Outlook
Dinatla Transaction
Dinatla consortium owns 15% of Bidvest
The transaction:
A. Dinatla
 Ownership vested
 Price between R42-R60 in Oct 2006
 Right of early settlement
 Board representation
 Unfettered voting rights
 No hurdle price – the closer to R42 the better for Dinatla
Dinatla Transaction
Dinatla consortium owns 15% of Bidvest
The transaction:
B. Bidvest
 No financial impact
 Positive BEE equity scorecard impact (BEE equity ownership
increased to approximately 35%)
 Retain existing business
 New business opportunities
Dinatla Transaction
Dinatla consortium owns 15% of Bidvest
The transaction:
C. Current Shareholders
 Bidvest ords + a 17% dividend enhancement for 3 years
Dinatla Transaction
Dinatla consortium owns 15% of Bidvest
The transaction:
D. Shareholders affected by the transaction sold 15% of their
shares to Dinatla.
For every 100 shares:



85 ordinary Bidvest shares with a 17% dividend enhancement
15 BidBEE loan notes with no dividend
• subject to a minimum of R42 and a maximum of R60
per share
• at recommendation of BidBEE board with 1 year
extension option (75% vote by loan note holders)
6 Bidvest call options at a R60 strike price
BEE at Bidvest
In addition to this equity element:
 Bidvest management at all levels committed to
transformation
 Senior BEE appointments at divisional level
–
 Exec and non-exec BEE representatives appointed to
Bidvest board
 Process being formalised by Bidvest Board
 Assessing alternatives for underlying JV’s
 The Bidvest Charter
BEE at Bidvest
BEE Scorecard
–
Credits
Bidvest progress
 Equity ownership
20%
√
 Management &
executive positions
10%
√
 Employment equity
10%
√
 Skills development
20%
√
 Procurement
20%
√
 Enterprise development 10%
√
 Residual 10% reserved for sector specific issues
********
Good = > 65%
Satisfactory = 40% - 64.9%
Limited = < 40%
Bidvest Board
 Large Board a result of Group culture
• Bidvest built by merger with like-minded entrepreneurs
 11 non-executives, of which 4 were historically disadvantaged
–
 Effective committees:
Executive Committee
Remuneration Committee
Audit Committee
Acquisition Committee
Transformation Committee
Nomination Committee
 Clear division of power, accountability and responsibility
through the organisation
Strategic Imperatives
MICRO STRATEGY
• Each business focuses on achieving excellence in its core
competence
• Executive autonomy within each business unit – decentralised
philosophy
MACRO STRATEGY
• Optimising synergies between businesses
Example:
Hotel procurement
Electronic
ordering
(mymarket)
Catering
(Caterplus)
Laundry,
Cleaning,
Housekeeping,
Hygiene,
Security,
Garments
(Bidserv)
Stationery,
Mailing,
Printing,
Office
automation,
Furniture
(Bidoffice)
Travel
(Rennies
Financial
Services)
Strategic Imperatives
MICRO STRATEGY
• Each business focuses on achieving excellence in its core
competence
• Executive autonomy within each business unit – decentralised
philosophy
MACRO STRATEGY
• Optimising synergies between businesses
• Adding to customer offering (geographically or product range)
down the Bidvest business chain
Example:
Food strategy – maintain the core business but to add ancillary businesses
Multi-temp Frozen
Objective:




Chilled
Service existing and new customers within core markets, with some overlap
Service the spectrum of customer needs
Tie the customer in
Utilise critical mass for sourcing and funding
McCarthy Acquisition
 McCarthy fits the Bidvest model of market-leadership within a new
distribution channel
 R1bn acquisition price at +/- NAV
 Transaction, effective January 2004, will be immediately earnings positive
 Synergistic benefits will come through in the next 12 months, eg.
McCarthy Club
 Currently investigating opportunities in complementary areas where
McCarthy is not trading, eg.
•
•
•
•
•
Financial leasing
Van rentals
Fleet management
FML
Private leasing
 Organic and acquisitive growth planned for McCarthy
 Bidvest – free up McCarthy management to perform
Implied valuation of local operations
Current
market
value (Rbn)
Current
market PE
Bidvest plc @ AUD 540 cps
4.6bn
12.8
Bidcorp plc @ GBP 17.0 pps
0.3bn
0.0
Lithotech France (NAV)
0.3bn
0.0
SA operations derived
10.3bn
8.6
15.5bn*
10.3
Current Bidvest Group @
5185cps
PE’s based on annualisation of interim numbers
* Market capitalisation based on 300m shares excluding treasury shares
Key growth drivers
 Cross-selling between businesses not yet fully exploited
 Electronically monitored
 Staff motivated by Group performance - share options and
Group remuneration
 Acceleration of outsourcing trend – eg, benefit to
Bidserv & Bidoffice
 Freight:
 Continued strong growth prospects - international trade growth
trend well ahead of GDP
 Key privatisation opportunity lies not in ownership, but in
freeing up the system to handle optimum product mix
 Improved efficiencies after privatisation
 Exposure to growth areas of the economy,
supplemented by acquisitive growth
Prospects for 2H 2004
 At current exchange rates Bidvest should
achieve real growth in HEPS for the full year to
30 June 2004, notwithstanding McCarthy
 Further major price deflation unlikely
 HEPS will benefit from inclusion of McCarthy in
2H 2004
• (pro forma impact as per circular: 7% for year to
June 2003)