Investor relations
 
 
 
Frequently asked questions
 
     
     
Q:
  What is the business of Bidvest?
A:   Bidvest companies fall in to the distributive-trades (wholesaling and distribution) and outsourced-services category.
     
     
Q:
  What business areas do you operate in?
A:  

Foodservice and food ingredients, freight management, outsourced soft-service, automotive retailing and fleet management, industrial and commercial products.

     
Q:
  What was the rationale more than twenty years ago to create Bidvest and does that hold true today?
A:  

Bidvest was founded by chief executive Brian Joffe. The idea was to raise capital to acquire, fix and develop underperforming services business, consolidate what was a highly fragmented support services sector and create the enabling working conditions for people to enjoy their work and flourish. That holds true to this day. Bidvest businesses aim to be top of their game and where new opportunities present themselves within the chosen sphere of business support services we assess on the merits. South Africa is a developing country with a shortage of key skills and the Bidvest structure has proved successful at harnessing and channelling scarce resources optimally.

     
Q:
 
  What about key man risk?
A:   Bidvest may have become synonymous with the name of the founder externally but internally Brian Joffe has inculcated a unique Bidvest way of doing things that is designed to stand the test of time. The CE does not interfere in day to day operational matters and managers are given free reign within defined parameters to do what they think is right. The current CE is certain to be with the business for a number of years to come. However, Bidvest is aware that, given its unique culture and the fact that the founder continues to lead the Group, finding a suitable successor is not straightforward. The nominations committee is tasked with monitoring succession of the Group CE. Bidvest does not believe any corporate structure should be cast in stone and all options will be considered to ensure value is maximised, including demergers.
     
     
Q:
  At first glance Bidvest appears to be a conglomerate?
A:   Bidvest has never considered itself a conglomerate, the Group it is not structured as such and it is not managed like a conglomerate. There is a substantial degree of similarity between the divisions and individual businesses in the way they do things but this is as a result of the Bidvest culture. As a services Group the techniques necessary to ensure commercial success are similar across the businesses. The business philosophy is the same and the modus operandi differs little. The divisions reach common customers.
     
Q:
  How would you describe the Bidvest culture?
A:   Bidvest has an entrepreneurial, can-do culture. The Group has always believed it should shape its environment, not be hostage to it and if each business gets the basics right and staff are empowered and incentivised, the numbers take care of themselves.
     
Q:
  What is your strategy?
A:   Mastery of our distribution channels, 100% ownership of the cash flows wherever possible, an optimal balance of mature and growth businesses with capital allocated according to rate of return, need and life-cycle stage and a keen eye for exploiting opportunities and ensuring we always have sufficient resources to capitalise thereon.
     
Q:
  How do you make sure this all comes together every day?
A:   We have a small corporate office responsible for strategic direction. The centre though takes a keen interest in the operations and is well acquainted with their progress. Head office takes care of Group-wide accounting, legal, treasury and other administrative needs. There is a Bidvest “way” but each business has managerial autonomy and accountability within a devolved model. There is only executive intervention if called for or requested or if a particular business opportunity is spotted that could enhance the success of a division or company. The sheer scale of Bidvest’s resources is leveraged for collective benefit. Each business is encouraged to build and retain market leadership and tie customers in.
     
Q:
  What is the focus of individual executives?
A:   On the operations, on ensuring financial discipline is maintained, on extracting top quartile returns and on keeping staff motivated and morale high. We want Bidvest people to be Proudly Bidvest. Up and coming staff are encouraged to participate in the Bidvest Academy to further their skills and as part of our management succession plans.
     
Q:
 
  What suggestions would you offer an analyst trying to get to understand your Group for the first time and model it appropriately?
A:  

The following points may be helpful. We also encourage you to read our interim and annual investor booklets which provide comprehensive information on our results and the segment performances. The annual report provides appropriate financial disclosure and narrative on the performance of the Group. Our accounting is in compliance with international financial reporting standards:

  • We suggest at the outset taking a holistic view of the Group and what drives the profits before drilling down into the minutiae of the financials. We are accessible within reason and happy to share with interested parties the philosophy that has served the Group so successfully over two decades and explain how the Group functions practically. Bidvest businesses are not complicated nor high-tech nor glamorous – the services they provide though are essential to everyday human activity and without them much of industry and commerce would grind to a halt. We do not enter activities we do not understand or industries where the Bidvest culture would not translate particularly well. Seeing the wood for trees is paramount for good qualitative and quantitative analysis – and it will make for better forecasting.
  • An appreciation of the commonality between the various divisions in their business methodologies.
  • In your modelling simplicity is key and in line with the approach Bidvest adopts internally. There are a number of external variables that influence our results and each business is alert to those variables that directly affect it. Some of our businesses are more prone to cyclicality than others but overall trends in GDP are sufficient for modelling purposes. Bidvest’s performance as a Group is linked to GDP – which means we do not have high highs or low lows and thus there is a certain stability. The growth edge we provide comes from a tried and tested competitive philosophy that has kept group businesses leaders in their field and from a history of successful, well timed and keenly priced acquisitions. Bidvest has a trader’s mindset not a corporate mindset and this makes us adaptable, nimble and anticipatory.
     
Q:
 
  Is Bidvest reaching limits to its growth and set for a mature phase?
A:   In more than twenty years Bidvest has not delivered a shock nor underperformed on its internal benchmarks nor disappointed market expectations. The compound growth rate in revenue, profits and dividends speak for themselves. It is inevitable that the rate of growth will not be what it was in the formative years of the Group but we aspire to expand profitably and achieve earnings growth and rates of return at the forefront of the services sector. We understand business cycles and we manage for all eventualities, good and bad. Bidvest is continually evolving. We will not be quite the same business in five years time. We do not see ourselves as an ex growth mature business and we shall expand our range of services and bring in new businesses to the fold that dovetail well with our business processes and philosophy. An earnings forecast is thus only good enough for what is and Bidvest will always deliver that additional growth kicker by capitalising on opportunities.
     
Q:
  What rate of return is considered to be at the forefront of the services sector?
A:   Return on Funds Employed (ROFE) is our key operational measure of performance and we expect to achieve a return in the 40% to 50% range.
     
Q:
  What is your policy with regard to acquisitions?
A:  

Every acquisition Bidvest has undertaken has boosted earnings per share and we shall only acquire if the timing is right, the price is right, the business is right and the market opportunities warrant it. We describe ourselves as opportunist at times when it comes to deals and more often than not contrarian.

The Group is acutely aware that historical evidence worldwide reveals that M&A activity rarely achieves the synergies or additional value that was purported. Bidvest’s philosophy is different in that acquisitions are not integrated (in the true sense of the word) but are left alone as self standing entities with autonomous management teams but are integrated in terms of the Bidvest culture. All acquisitions are expected to deliver to Group return benchmarks over the course of a business cycle. A good example is McCarthy, our automotive business. Despite the sharp deterioration in the vehicle market in 2008 and 2009 McCarthy has generated operating profits of almost R3bn since being acquired for R0,8bn effective January1 2004. This excludes the fleet management and leasing acquisition that was incorporated as of August 2007. The recent purchase of foodservice assets in central Europe we estimate will be immediately EPS accretive to the extent of 4%.

     
Q:
  And what is your policy on disposals?
A:   Bidvest has disposed of or closed a number of operations and/or investments over the years, either as a means of improving efficiencies through rationalisation or because return thresholds were unable to meet internal benchmarks longer term or investment returns warrant such. Bidvest reviews its portfolio of assets regularly and would also consider demerging certain assets if there were value to be gained.
     
Q:
  What sectors of the South African economy am I exposed to through Bidvest?
A:   Bidvest has reach into every sector of the South African economy – households, commerce, government, industry and mining or to put it another way primary, secondary and tertiary sectors. No other listed JSE company is more representative of the South African economy than Bidvest. When one buys a Bidvest share you are buying a snapshot of South Africa plus exposure to selected additional geographies but with an international foodservice concentration.
     
Q:
  What strategy does Bidvest have towards international expansion?
A:   Bidvest is not fixated on a particular geography. The Group’s roots are South African but it has expanded with great success internationally, to the extent that approximately one-third of trading profits are generated from foreign operations. Foodservice has been the focus abroad and will continue to be as it a business we understand well and in which we have developed globally competitive skills. Foodservice offers tremendous scope for growth as the world urbanises and grows richer in time but we shall also be alert to other support services opportunities on a case by case basis. Creation of Bidvest Namibia and its successful recent listing further enhances Bidvest’s southern African presence.
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Q:
  How does Bidvest cope with currency volatility?
A:   Bidvest manages companies in their home currencies and foreign earnings are simply a translation to ZAR. The ZAR particularly is a volatile and highly traded currency but we do not countenance speculation or hedging and forward cover is taken on all product imports. Managers are expected to be able to realise an acceptable margin whatever the prevailing rate in whatever territory and one can expect that there will be both positive and negative short term effects but typically neutral over time.
     
Q:
  Does Bidvest have a gearing target?
A:   Bidvest will typically be geared but will prudently optimise debt and fresh equity when we acquire – as was the case recently with the foodservice acquisition in central Europe which was partially funded through the issue of new shares. An EBITDA interest cover ratio approximately 7x and an EBIT interest cover of 5 to 6x is considered a prudent level.
     
Q:
  What is Group policy on capital expenditure?
A:   On capital expenditure we have no firm target other than to ensure the assets we have are appropriately maintained to ensure their productivity and replaced as and when necessary. We believe the Group is well capitalised as a result of having spent R13,5 bn on capex and investments over the five years to June 2009. Expansion capex is on case by case basis and subject to meeting return criteria over time. Capex is part and parcel of our Group wide asset management, including working capital.
     
Q:
  Why is Bidvest a good investment proposition?
A:  

A number of reasons:

  • Overwhelming market leadership in South Africa in freight management, outsourced soft-services, foodservice and food ingredients, and industrial and commercial products and a top three position in automotive retailing and fleet management.
  • Exposure to above average growth markets ie
    • Growing trend of eating out of home in foodservice
    • Consumer spending ( Automotive )
    • GDFI and infrastructural spend ( Voltex )
    • GlobaI trade via imports/exports ( Bidfreight )
    • Trends to outsourcing ( Bidserv / Bidpaper Plus / others )
    • Emerging middle class
    • Hospitality, tourism and leisure ( SA Foodservice / Bidserv / travel)
    • FIFA World Cup 2010
  • A strong and well established international foodservice presence in Britain, Benelux, Australia and New Zealand and a growing presence in the high growth urbanising markets of Asia-Pacific (including China) and now eastern Europe.
  • A proven entrepreneurial business model and a history of well chosen, well timed and well priced acquisitions that added value and adapted well to the Bidvest philosophy.
     
Q:
  How do you expect to perform in the medium term?
A:   Bidvest is budgeting for real growth in HEPS in F2010 – a combination of organic growth and foodservice acquisitions in eastern Europe. Restructuring costs are now largely out of the system, further assisting profitability. Bidvest increased EBITDA in F2009 and will come through this economic crisis in good shape. The run up to the 2010 FIFA World Cup™ will be supportive of economic activity in South Africa and affect all our businesses but benefits are likely to be recurring. We expect GDP growth in most territories to be rather weaker than was the case up to 2007, the peak of the business cycle, and it will not be business as usual but we continue to see infinite possibilities. In F2010 Bidvest will have met its objective of doubling its size in five years and will then review what future target is appropriate.
     
 
 
 
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