The Bidvest Group Limited (BVT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the business trading update. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Ilze Roux. Please go ahead, ma'am.

Thank you, Claudia, and good afternoon, good morning to all of you on the line. Thank you very much for making the time this afternoon to participate in this 10 months to end of April trading update call with the Bidvest executive management team. The SENS announcement was released at noon on the Johannesburg Stock Exchange, and Lindsay Ralphs, the CEO of Bidvest, will take us through some of the highlights of the trading update, and we will then open the floor up to questions. Lindsay, please go ahead, sir.

Thank you very much, Ilze. Good afternoon, and good morning to everybody. In the room with me is Mpumi Madisa; Mark Steyn, our CFO; and Gillian McMahon, also Executive Director. And we will all be prepared to take questions at the end should you have any from any of the specific individuals. As Ilze has said, we have released the SENS announcement at 12:00 today. So most of you would have had a chance to read through it. I don't intend to read the entire document. I'll just take you through some of the highlights, and then we have allocated until an hour for this presentation. So we probably anticipate about a 10-minute talk from me, followed by as many questions as we possibly can get. The last time we addressed you was at our interim -- was the announcement of our interim results, which was held on the 2nd of March. We did indicate at that point in time that trading conditions were challenging. There was very low business confidence in South Africa, constrained consumer spending and overall a pretty weak economy. We were looking -- I think, everyone was anticipating a potential downgrade and the economy was not in a good state. Obviously, at that same time, COVID had hit China, no one really fully understood what it was all about. But the COVID pandemic has resulted in economic and social environment becoming extremely demanding, not just here but worldwide. Impact on Bidvest trading businesses, particularly our trading businesses, we will touch on that a bit more later, is significant, but our services business has also been affected as people are planning to return to work and offices and tourism and so on remain closed. As we all know, we met -- pre-27 March, there was the lead up to lockdown and that sort of happened around about mid-March. So we definitely started to feel the impact of COVID before the lockdown. So March month itself was not a great month for us. But we'll touch on the sort of difference between the various periods, absolutely end of March and then again, what's happening in full lock down mode in April. Obviously, there were some partial lockdowns that were announced in the United Kingdom and the Republic of Ireland, and those lockdowns happened before they happened in South Africa. I think I have to just accept that considering South Africa's economy was a really significant constraint pre-COVID and just noting that from our perspective, Bidvest perspective, the pandemic impacted most the April month. We're quite happy with the 10-month result that we have -- that we've seen for the 10-month period to the end of April. But obviously, it is at a slower pace than it was at our interim results. Our group financial position does, however, remain exceptionally strong, and Mark will be able to take any questions you have on that a little bit later. And we're very comfortable that we're very sustainable in these uncertain times. COVID. In order to give you an idea of how we were going and how COVID has impacted, given in the SENS announcement breakdown of the 9 months to March and then later when we talk about April. In fact, I think a better way to depict it is actually almost 9.5 months because March is really half a month to be quite frank. Those last few weeks when everybody started to prepare for COVID. So it had -- we had some very good aspects in March months, particularly with selling sanitizers and face masks. But we also had some very poor results in that second half of March where people canceled things like automotive vehicles, new vehicles, used vehicles, et cetera. So in that period, I think the service-related businesses, which are normally quite durable through difficult terms, were reasonable. Our offshore operations delivered, interestingly enough, a very strong result. We had recently acquired a business for future cleaning, and that business performed out very nicely into that period. The annuity businesses, the take-or-pay businesses in our freight operations, performed in line. And in the lead up to the lockdown, as I've already said, demand for hygiene products and services was very high. Unfortunately, in our freight operations, we still continue to see lower cargo evolvement. China had shut down by then. So there's no cargo coming into the country and very little stuff was leaving the country to go to China. In addition, maize in that particular period was low and that did negatively impact the freight results. We had noticed that for some time there had been quite severe pressure on our hospitality, travel and aviation-related businesses in March and February. So that -- the first 3 months of this year really in the service businesses were adequate, but now have great, great shapes. Other than we were impressed, as I've said, with the performance of the overseas businesses being Noonan. The majority of the trading businesses and distribution businesses, which includes commercial products and branded products and our automotive division, faced some pretty tough trading months in January, February and March. Commercial products, there were some highlights in our DIY to work with cluster. We saw a particularly strong March as people would demand for PPE or protective clothing. Branded products had a very good quarter and that we had now consolidated Adcock. And the pharmaceutical business of Adcock performed exceptionally well in the month of March. That had a weak-ish average January and February. And as COVID started to come, people, with no doubt, there was a huge amount of stocking up domestically, and I guess in the professional market for pharmaceutical products. I think the weak demand for new vehicles is well known, and these are based on published norms and statistics. So that gives you a bit of an idea of how we went up to the end of March in our services business and our trading businesses. Come the actual lockdown, which took place on the 27th of March and good under level 5 right through to the end of April, activity was extremely limited, and it was particularly devastating on our trading businesses because virtually all of our trading businesses had to close up. There were a couple of our trading businesses that were considered emergency services or products, and we could open them but the demand for most of the products was exceptionally low. Our revenue in the month of April, as we've stated, was about 50% of last year's revenue. But notwithstanding that 4 of our 6 divisions generated profit in the month. And on an overall basis, we broke even. Major businesses, I think, that were really negatively impacted was automotive. In fact, I think in the month of April, there were only 500 vehicles sold in all of South Africa, which the dealer network sold about 250. And in a normal month, the dealer network would sell about 50,000 new vehicles. So that gives you an idea. Other businesses, such as other nonessential service businesses, were completely shut down and revenue went to 0. So it was a very, very, very poor month that we had in April. And as we've discussed in our SENS announcements, we were quite happy with the fact that we managed to break even for the month of April. Just going on to our people. Our people do remain our most important part of business. We employ 125,000 people. About -- in South Africa, there's about 100,000. And obviously, in Europe and in other parts of Africa, we've got the other 25,000. Our monthly salary and wage, as you can imagine, is enormously high. We do employ a lot of people at the lower end of the income scale. And in order to assist those people, we did create a ZAR 400 million COVID fund, which is -- which we're using to assist in paying our employees during this -- partially paying our employees during this lockdown process. We've also contributed many other ways with broader humanitarian efforts in the country, including the Solidarity Fund. I think we did -- I'm not sure if we put this out, but the executive directors and the nonexecutive directors took a 30% salary cut for the 3-month period, and that would also go to this COVID fund that we are using to support our staff. Applications related to the UIF, in order to ensure that the staff at least got additional amounts of income that they could survive while not at work. And we do commend the UIF, I must say, for facilitating and processing and paying out plans in a pretty short space of time. We refound the system to -- relatively well. And we received a couple of $100 million from the fund. In the U.K. and in Ireland, the furloughing systems supported by government are very comprehensive and those staff were looked after extensively. Just to give you an idea, in the month of April of the 100,000 people in South Africa, about 75,000 staff were at home, not working, not required to, which has the impact of them not being able to generate income. Some of our clients did pay through that period of April even though the offices were not being cleaned, just to give an example, but we're not too sure how long that will sustain as this lockdown continues and carries on. Just moving on to our liquidity, solvency and gearing. We have been extremely proactive in enhancing our liquidity position. We managed to obtain an extra ZAR 4.5 billion general banking facilities from the South African banks, which has pushed our general banking facility up to ZAR 11 billion, which gives us quite a lot of headroom and comfort. The PHS transaction was closed on the 28th of April. We did put out a SENS announcement for that. We had secret trending already raised in place in the U.K. in British pounds for GBP 495 million. That amount was paid across on the 28th of April. We have often spoken about the MIAL disposal process. That unfortunately has been delayed due to the Indian calls being closed. I think they're slowly opening up again, and we hope to see some movement. But for this 10-month period, there was nothing we could do about that. The construction of our LPG terminal, which we're hoping would commission in about May, June, that was also delayed due to the lockdown, and we now expect it to be operational by about September. Construction has restarted on that site now. But it won't be ready until about September, unfortunately. We continue to focus very heavily on liquidity, cash flow, working capital management, et cetera, et cetera. We're ensuring the group remains financially viable. But we do, at the same time, have to maintain very good relationships with our customers, our suppliers and all our other stakeholders. Traditionally, I think, as you would all remember, we generate a lot more cash in the second half of the year -- second half of our financial year, which is January to June 2021 -- 2020, sorry. This hasn't been the case in this particular quarter -- 4-month period due to both production and trading and lower trade receivables. But this debt covenants remain unchanged at 3x debt to EBITDA -- rolling EBITDA that's pre-IFRS and greater than 3.5x cover. We have acquired PHS, as I mentioned. That will utilize a meaningful portion of the financial headroom around those covenants, but we're clearly confident that we will remain within the covenants and we are in close discussions with the bank in that regard. Anyway, I think I do understand that the PHS acquisition will come in very close to the end of the year, but the full purchase price has already been paid out. So Mark is working very closely with the banks on that. And just to give you an idea, our net debt position at 30th of April was ZAR 12.5 billion compared to ZAR 10 billion at 31 December 2019, as that include the IFRS lease liabilities, which are noncash items, as you know. Just a little bit on PHS. We will consolidate that from the 1st of May 2020. So that will benefit our results for 2-month period. Their financial performance for their 12-months to 31 March was in line with expectations. So we were comfortable that the final figures came in up to expectation. The business has been around since 1963. It's about 120,000 customers. Most of those customers are very sticky. They've been with PHS for a long period of time. The contracts may be only 3 to 5 years, but actual amount of time that they remain with PHS is significantly longer than that. They do have a system of advanced billings, which is also a big advantage. And we have, in our due diligence process, identified certain synergies and cost-saving measures -- cost-saving initiatives that we can -- that we will be putting into PHS to improve their operating margins. We still believe the hygiene market is increasingly resilient. I think COVID-19 will -- has undoubtedly heightened the awareness of hygiene, and I'm sure that will be there even in the very long term. We did announce that the initial Eqstra transaction, which had an original stop date at March 31, that was extended -- automatically extended to the 4th of May. The potential authority did not approve it by the long-stop date and that the transaction of ZAR 3.2 billion has been terminated. Unfortunately, with regard to Comair, Comair's results, which were -- Comair, which we own about 27%, so it's an associate company of ours, had, had a very poor 6 months till December. In addition to that, they -- SAA went into business rescue, as you will remember, and they had a claim against -- Comair had a claim against SA of about ZAR 800 million on a competition commission settlement. That money was no longer forthcoming. And then when COVID hit, to be quite frank, they just didn't have the liquidity to continue operating and exit has been placed into business rescue. We also are not optimistic that it can be saved. But I mean, I think we all would have seen what it's going through aviation industry around the world. Under level 3, there is some very limited flying that can take place. We do have -- I do have a meeting this week with the business rescue practitioners, and I will then give an update as to where it's going. But I think it may well stay fairly quiet for some time as the business rescue puts its plan in place and the banks side on what is the best route for Comair. From a business perspective, we've obviously decided to impair that asset. So we have had a corporate loss of about ZAR 332 million. And we've made a trading loss of ZAR 207 million in this particular period versus a profit last of ZAR 257 million. So investor comment on our 6 months results, it will be significant. That impact is about 10% of the entire Bidvest group profitability. But I think, I'm confident that it is now been written down to 0, and we will no longer equity account it or show it as an associate. Just looking at the way forward. We do recognize that this pandemic is going to have long-term effects. We're going to have to strategically review our business, every one of our businesses, like we always do. We're really going to have to rightsize some of our operations as I think post-COVID life will be very different going forward. Industries that remain under incremental pressure particularly include our travel businesses, airline-related businesses and air services that operate at airports while out of Comair offers some very good structural growth opportunities for us. So all that done, I think the operating environment does remain very uncertain for the balance of this year. We should be in a budget process as we speak. But we're finding -- we're spending a lot of time on strategy and deciding on how the business will look going forward. We still remain very optimistic, but it is very, very difficult to do any sort of decent financial forecasting or budgets. I think that, obviously, therefore, the decision on the final dividend will only be taken once we finalize our year-end results in August. I think it is appropriate now than ever just to put out a trading statement, which really just indicates that due to the COVID-19 impact, the write-off of the Comair -- of Comair going into business rescue and the associated write-off plus we had to write-down Adcock shares before it became a subsidiary just mark-to-market as well as the adverse impact of IFRS 16, we have to announce that our earnings for the year 2020, we expect to be 20% lower than they were last year. And I think that was probably to be expected anyway. I think that really does just bring me to the end of my overview. And if I could use, just open up to questions. And as I say, all 4 of us are happy to take any questions you may have.

[Operator Instructions] The first question comes from James Twyman from Prescient.

Just 2 questions from me. Firstly, in terms of PHS, you said the results were up to expectations. Could you just give an idea of what that means? Was it better or worse than last year? And then secondly, I'm assuming that May will be similar to April. I know you're not -- you're giving a 10-month statement rather than 11 months. But certainly, if you could give any reasons why it would be any different to April? Otherwise, I think it's probably safe to assume it might be the same. Those are my questions.

Okay. So can I answer your second question first, if you don't mind? In South Africa, Level 5 was locked down in April, and that was virtually everything closed other than real exception of circumstances. The month of May was what we refute as Level 4 and quite a lot of businesses were allowed back. As an example, the automotive industry partially opened and numerous other manufacturing businesses and mining businesses opened in April. We saw of our about 10,000 of our staff are coming back to work actively in May. Obviously, with that does come additional costs. So we haven't -- it's a little too early to give you an idea of how our May numbers are. We expect it to be marginally better than April, but not a lot better I think would be the best way to answer that. With regard to your first question, Mark, do you want to take that?

Well, I mean, with respect to PHS, we obviously, in terms of the transaction, we're doing the transaction just after the year-end. So we had an expectation from December -- November, December of what the earnings were going to be and what are expectations coming back from November to what they actually made in March was spot on the money. In fact that was slightly up, which is marginally up on last year. But there were no huge surprises in the PHS number.

And it was slightly better than last year to answer your question.

The next question comes from Nick Webster from HSBC.

Two questions, if I could. One, just on the freight business. I guess slightly 2 parts. But firstly, on the maize side of things. When should we expect that to recommence? I think it should have been any time around now just to see if that is still a current expectation? And maybe just a broader view of activity in the different segments of freight, obviously, different kinds of disruptions from, I guess, the general cargo side from the early China effects, different commodities and on the liquid side. So a bit more color on the freight side would be very helpful. And also secondly, on sourcing of products in the trading and distribution businesses and how that's looking in terms of supply?

Okay. Let's go to your first question. The maize has commenced. And what we do is we sell slots at the berth for ships, for vessels coming in. And we sold 100% of our slots that we have available. So we're expecting an absolute bumper export of maize, and that has already commenced and that -- Mark, that goes on for about 3 months?

So it should go through until September.

September. So it just commenced and is going through to September. With regard to the other terminal operations, our big commodity terminal, which is for bulk connections, was closed in Phase 5. China was still pretty much closed then. It is now opened up, and it is -- it will do -- I say this, but it will do about 400,000 tonnes in the month of May versus a normal month of about 300,000. So the demand from China has definitely, definitely picked up very significantly, and we anticipate -- envisage that continuing. The liquid, most of it is paid as you take a pay. Obviously, our big customer is Cecil. They have been through a little bit of turmoil with regard to the share price, to be quite honest. Those of you who hold the share will know that. But they have been a good, loyal importer to us. They've been paying their bills. So our liquid terminal business is doing okay. Oil price has recovered somewhat. So we're a little bit more optimistic about that because Puma, which is another big customer of ours, I think there's a little potential for a little wobble there, but that seems to have recovered. So we've had no issues with our liquid terminal business. Where we have had, unfortunately, poor performances and they continue is just in the general volume -- general bulk volume of terminals of general stuff commodities -- not commodities, goods coming in and out of the country. The demand has been very suppressed for a while since coming in from China. And our freight and forwarding business has seen quite a drop-off in demand. So the specialty terminals being the agriculture, the bulk commodities and the liquids are all doing well, but the others are quite weak still. With regard to sourcing, there haven't -- there was too many given elements. There were some issues to start with, but I'm giving this to Gillian.

Yes. So initially, and this is kind of pre lockdown, we had some sourcing issues, but that's because China went into their lockdown earlier. And so that kind of created some delays and time lag. We did have a certain amount of supply and stock, but we were concerned about whether we'd be able to last as long. That really recovered. So today, as we speak, we don't really have any sourcing issues. We are able to get products into the country. And what we also did during that time is also looked at local sourcing as well. So we had certain products and, in particular, PPE could be sourced from local manufacturers, we took as much of that volume as possible. So at the moment, our trading businesses are okay from a supply perspective.

The next question comes from Rowan Goeller from Chronux Research.

Two questions for me. The first is on margins. Can you just give your expectations, please, on your gross margins, whether you are maintaining them, firstly? And then secondly, demand is going to be what demand will be for the next couple of months to forecast, but to what extent do you think you can adjust your operating expenses so that your operating margins can start to normalize to an extent? Then the second question is on the debt covenant. So the PHS debt will push your numbers up close-ish to the covenants, one would expect that to be a nonissue though, given the circumstances, but in your discussions with the bank, is there any reason to concern there or is it just usual discussion with the banks?

I'm going to ask Mark to answer that, Rowan.

Thanks, Rowan. So the 10 months through April from a margin perspective, we are maintaining both our gross margin at levels that we've seen both through December and through March. And simply, we've managed to maintain our trading margin. And specifically around that, obviously, for the April month, I mean to do that, we obviously have to reduce costs quite significantly in the various businesses. And I think our guys -- our team were very responsive in terms of being able to do that. Obviously, it is having pressure on the margin. And but certainly through the 2 months -- or through the 10 months into April, we were still okay from a margin perspective. In terms of the debt covenants, I mean, no secret. Obviously, if you're adding ZAR 11.5 billion in rand debt for PHS, it's going to impact the covenant. In terms of our calculations, and obviously, we're watching those very closely with a number of permutations or a number of factors that influence them. In terms of our latest calculations as of this morning, we're going to be under the covenants. We are keeping the banks on all the various debt types appraised of where we are and monitoring it. I think the position at the end of April was impacted both by obviously a slowdown in EBITDA coming through the April results. And similarly, with the rand having tanked as much as the debt, specifically through the April month, and you've got both the euro term loan and you've now got the PHS loan there, that did have quite a big impact. We're watching that very closely.

The next question comes from Munira Kharva from Nedbank.

I just -- so my first question is on the debt. The figure that you guys have given, the $12.5 billion, is that a pre-PHS inclusion?

Yes. It's pre-PHS. Correct.

Okay. Okay. That makes more sense to me. Because I just thought because the deal closed that the money would have gone out as -- such as April.

No. No. The transaction year to close 5 business days post close. So it was closed in early May.

Okay, cool. And then just 2 other questions. One, on the retention. Do you guys have a sense of how large that could be in the context of your workforce?

All of our -- we employ 125,000 people as I've said. Each one of our businesses on an ongoing basis rightsizes the businesses. We have commenced 1 or 2 processes to rightsize our business, particularly in our travel business pre-COVID. So that process will continue. And things like aviation, very difficult for us to judge as to how quickly or how soon or how many aeroplanes will be flying post-COVID because you've got SA and rescue, maybe going to reemerge with a lot of its fleet, who knows, it may emerge none of its fleet. We've got Comair in a similar situation. So we've got a lot of people at the airport to perform those functions. But really, it's just too early days for us to give you any sort of indication on that. And that's what we -- so I think in our -- in the sense, we just say we may have to retrench. So I think no doubt there will be some retrenchments, but we're going to have to wait and see what the demand is like before we could.

And then just lastly, on a more medium-term question. Has COVID affected Bidvest's medium-term investment strategy? I mean, so I'm talking about from a spend point of view and also from an allocation -- divisional allocation point of view, like would cyclicals be deemphasized?

Sorry, could you repeat the question? Sorry. Just the last piece I couldn't get.

So I just want to know if -- I mean, I know it's early days, but has any impact you've seen from COVID so far, will it have an impact on your investment strategy going forward? So around CapEx and which divisions you would allocate to?

I don't think so. I think -- look, obviously, we're not generating the same amount of cash that we normally do. We did indicate that in the second half of our financial year, we generate a lot more than in the first half. That's not the case this year. Bidvest is a very cash-generative organization. And I would imagine there are going to be some real good volumes available for people with strong balance sheets. Our balance sheet is exceptionally strong, but we have just digested PHS. So we do need to get that done, digested, get our debt ratios down a little bit, and then we would continue on with the same philosophy.

The next question comes from Ross Krige from JPMorgan.

Just wondering around your annuity income businesses within services. You alluded to some of the client activity there. Just wondering if you could give an idea of the proportion of collections across those businesses in April and any insight into how that's proceeded post April, if you can. Following from that, just around unpaid leaves and the UIF scheme that you alluded to, how long will that be in place through the various lockdown levels? Is there -- is government support expected to continue? Will the workers continue to take unpaid leave if you're not receiving payment from clients there? And then finally, just a follow-up on the covenant question. Just wondering, is that guidance of expectations to remain under covenant, is that -- for the 12 months to end of May or April or June? Or just trying to understand the timing of that expectation? And maybe just some guidance around the, I guess, denominator in that equation in terms of what you're assuming EBITDA to be over the next, I guess, month or 2 or whatever period you're looking at.

Just regard to the UIF and the tourist payments and what you're referring to as unpaid leaves, this isn't quite right. We've got ZAR 400 million fund that will be in place to pay. So I'm going to ask Gillian McMahon just to give you some idea of what our thinking is. But clearly, we really can't answer as to how long we'll get that if funding is getting evolved. We're obviously very hopeful that either staff will be able to return to work and become active. Else, we're obviously hoping that UIF fund will last. But Gill, could you just maybe give a little bit of color there?

Sure. So originally, what we did, obviously, with the initiation or establishment of lockdown, we had to make sure that we find the balance between how we're managing our businesses during the time of lockdown, those that were shut down and employees that unfortunately were unable to work. So we had a combination of people that were working from home, so they got paid the full salaries. We also had people that were not able to work and alternately what we did around that. And then we had employees that whilst they were not working, they were still in contract with our customers and salaries were being covered for those particular employees. So for employees that were not working, they got the benefit of -- I mean, we gave them the initial 3 days in March of the lockdown period that was given as a special leave day. We established a COVID employee support fund of ZAR 400 million over the months of April and May, which more than likely would extend into June. So that will cover. And out of that COVID fund, we were able to pay employees ZAR 2,000 as an ex gratia payment. So for every employee not earning a salary or only earning part salary, we were able to give them ZAR 2,000. And what they did do was cover most of the employees when combined with the benefits almost if not 100% of their salary. So what we did was some had a combination of leaves plus the ZAR 2,000 plus the UIF benefit that paid up, which worked out exceptional well for the majority of our staff. With regard to going forward, so we were able to cover ZAR 2,000 for the month of April, covered it for the month of May, and then more than likely going to be covered for the month of June as well. With regards to the UIF benefits, we were very successful in our applications for the better parts of our businesses. And for the month of April, all our businesses have been paid out and they started the application process for the month of May. How long it's going to last? We don't know. The original arrangement and agreement by the UIF was that it would last for 3 months and it said companies can claim the benefit for 3 months. We know that there are certain parties that are lobbying government to extend the benefits because of the expectation of businesses full being shut way past the month of June and also to accommodate people and employees that are going to be put on short time and reduced hours going forward. But we can't answer that, and we don't know what the intention is. We're not sure what is left of the original ZAR 30 million -- ZAR 30 billion funds that had been set aside by the UIF, but I'm sure that we'll hopefully hear about that soon.

The other question is regarding covenant question.

Yes. Just on the covenant. In terms of guidance on the timing, we've indicated that, that's through to the end of June, which is really about full quarter as we hope to see now. In terms of the denominator, the EBITDA number, I think that's quite variable. I think we've already indicated in the update here that we expect May to be slightly better than April. I'm not prepared to commit to June at this point. It's -- 4 weeks is a long way away. So let's see how we go through that period.

The next question comes from Daniel Isaacs from 36ONE Asset Management.

I just wanted to ask you 2 questions about the April numbers. Are those numbers adjusted for the inclusion of Adcock and for the IFRS 16 adjustments? And then I also wanted to ask, the revenue number went backwards 50% and bottom line was breakeven. Just looking at the business services division, which was about 60% to 70% of profits in the previous period. Going to breakeven, it would seem that this got wiped out. Was that from the carrying OpEx costs from the balance of that -- of those divisions?

I'll come back to your second question, Daniel. Just -- so the April numbers do include both Adcock and Adcock was included from August and also includes the adjustment for IFRS 16, which is in for the full year. The expectation from an IFRS 16 perspective is that it's coming in pretty much as to what guidance we gave this time last year and in December. So that's coming through consistently. And with respect to Adcock performance is slightly ahead of where they we were at half year. Obviously, they're benefiting from COVID-19 supplying into that demand curve.

So he was asking about the trading -- month of April, the trading result, whether the services component, which is a large part of the group, whether the profit there was dragged down by the operating expenses in the more trading and distribution businesses.

Yes. So Daniel, absolutely, from a trading perspective, I think the 3 core businesses, which Lindsay talked about, our services business, our freight and our banking business, the annuity components of those businesses they did okay. And in the trading businesses, and specifically, our automotive business, which is obviously no secret and our BCP business from a trading perspective certainly brought down the position -- the overall trading results of the other 3 divisions.

Sorry, just to clarify, exactly what I was asking is so you've got the business services and then you've got the trading and distribution businesses. So those were obviously closed. So that took out about 1/3 of profit, but you still had about 60%, 70% of profit coming from business services. So I'm just wondering if the carrying costs of trading and distribution wiped out the full amount of the business services' operating profit contribution, which seems like it would have had to be quite a large amount, especially if you were cutting costs over April?

Yes. So we've managed to reduce our cost by something like ZAR 1 billion, our OpEx costs, which I thought was a great achievement in the past. That you are -- 4 of our 6 divisions, which were in the services piece, made profits, as we've said, 4 out for 6; and 2, the ones that Mark just mentioned, were significantly down on last year. In the automotive division, as an example, we managed to reduce the OpEx cost by 50%. But notwithstanding that they had 0 revenue. So they had 50% of the total OpEx costs with 0 revenue, and they had a significant loss, which wiped out the profits that we made in our services businesses to the end result being a breakeven at the trading profit level.

The next question comes from Anthony Geard from Investec.

I think I'm clear on a couple of the questions that I wanted to ask. So just really on the Comair impact. I hope this is not too much of a silly question, but if I just take the 27% share of the profit last year, that's $70 million, and the 27% share of the expected loss this year. And firstly, is that baked in until the 30th of June? That's then a loss of ZAR 54 million. So that's only a turnaround of ZAR 120 million. So if you're talking about a bigger turnaround -- a bigger swing of over ZAR 400 million, does that somehow include the impairment in that number as well?

No, I have included the FAA plan. So they were awarded an amount in previous financial year, ZAR 1.3 billion from SAA. They accounted for it, because you had to account in terms of IFRS, we had to follow that accounting. So we accounted for 27% of the ZAR 1.3 billion as a profit in the previous year. And then come this year, they had decided they'd pay them about ZAR 500 million, which left ZAR 800 million not paid by SAA. And they wrote that off in this financial year. They had ZAR 1.3 billion profit in -- extruding profit in last year and ZAR 800 million extruding loss this year, and we had to take our share of it in both those years.

So if we strip that out, what is the swing factor?

Then it's a lot low. Maybe we'd have to work it out. I think last year, I think that we have just have to give -- maybe I can come back to you and give you an idea of that. Because it's in the financial statement. And it's not confidential information. It's just public information.

And can I just ask, sorry, I misheard, you said that both connections, you did 400,000 tonnes in May, and that would compare to a number, and I missed that number in the prior year or the ordinary course of business.

So in a normal month -- yes, normal month is about 300,000.

So normal month is 300,000 and you did 400,000 in May?

Yes. The demand from China is really stepping up, picked up. Yes, that is good news.

The next question comes from Roy Campbell from RMB.

So the first question I had is you cleared up. I just needed to know the breakeven. And Lindsay, you just referred to it as trading profit breakeven. Second question I had is just on Eqstra. It's understandable, given the current environment, to walk away from a deal. Do you think that Bidvest could ever have a look at that deal again? Second question then is just in terms of some of the -- just in some of the potential upside that you see in PHS. Does -- it can -- if you could give us an idea now or sometime in the future of where and how you see those -- that potential upside? Is there an integration into Noonan and PHS, where the margin benefits will come through? And then last question for you specifically, please, Lindsay, is if you can just remind us of your retirement plans, that would be great.

You're planning to get rid of me, Roy. With regard to Eqstra, never say never, because there were good fundamental reasons why we wanted to buy it. There were great synergies between our FML business and their FML business. They've been great for our automotive division because it's a massive fleet from a procurement perspective and from a service perspective. So I guess when the time is right, when the liquidity is right, and we'll see what happens to Viamax over the next period of time. I would probably say that there's a fair chance that we would -- the same fundamental reasons that we looked at the first half that we potentially look at it again. With regard to PHS, the synergies are not really between Noonan and PHS. There might be a little bit of benefit of back-office there, but very little. We said more in the methodologies that we've developed in South Africa, interestingly enough, where we think we could be a benefit. I don't know, Mpumi, do you want to add a bit?

Sure. So during the due diligence process, we did identify quite firm areas, where we could get an EBITDA uplift and, in fact, had very robust conversations with the management around some of those key initiatives. And without going into all of them, but there's certainly the start of procurement/buying benefit. We've got Steiner in South Africa, which is #1 in this country, so you can imagine the volumes just from a South African perspective. And at a product line level, the product is very similar. So it's very easy for us to do bulk buying between our South Africa Steiner and PHS in the U.K. going forward. And that's going to be one of the areas that we're going to tackle first. Other areas, we've looked at their product line. Their product line is bulky old in comparison to what we do in South Africa. We flick smaller and the washroom here and therefore, think that there'll be some value to add just from a product line perspective. We've looked at their head office costs. And obviously, this was one of the tough conversations, but they've got quite a big head office infrastructure that we think could be leaner. If we look at how we're structured in South Africa exactly the same business, we definitely far leaner. So there's definitely some cutting that needs to be done with that concern. And there's another pit area in terms of efficiencies around one particular product area. So we have actually identified quite firmly 5 areas, and we're ready -- in fact we've started already with some of those initiatives. So we do know that we definitely are going to be able to add value to PHS. From a Noonan perspective, the only value really is that Noonan at the moment procures hygiene services from many other hygiene service providers in the U.K. and so there's an opportunity to shift that particular spend to PHS. But to answer your question, yes, we're very confident in terms of what we were able to do.

Let's go to final question. We haven't officially announced it at all, either internally or externally. So I prefer not to answer it other than to say that our original announcement we said about the second half of our financial year, and that very much still stands. But we haven't even announced it internally. So I would really prefer not to. We have discussed it, and we have a pretty firm date, but I can't announce it yet.

The next question is a follow-up question from Rowan Goeller from Chronux Research.

Lindsay, just a question on the general business in South Africa and in particular, you said pre-COVID even that you had seen a lot more companies that come across your desk acquisition opportunities than you had previously. Can you just comment on how that's changed? Has it increased now? And then secondly, price-wise, you're always looking for a good bargain. What is pricing looking like for the type of businesses you would like to acquire at the moment?

I must say on the M&A front, it's gone a little bit quiet. I guess everybody is just -- I hope that everybody is looking after their liquidity like crazy. We've had a couple of what I would refer to as merger requests, where there are people who are in real trouble think that they can simply merge their business with our business, and they will just get out of jail somehow and have a big daddy to look after them. We told them that that's not on our radar. And internally, we had -- we put a hold on M&A internally ourselves just while we navigate this COVID crisis because liquidity is king, cash is gearing at the moment, and we're not -- we don't intend to go and write checks for M&A in the next month or 2 or 3. We're going to need to see our cash flow start to become positive again, and then I think opportunities will come. Clearly, there's absolutely no doubt that the value of all companies has reduced in value, quite significantly. And when, I forgot who it was, I think it was Roy asked about a question, I'm sure that may well end up in a different negotiation just because times are different. So we're not uncomfortable with the PHS price we paid because we do think that, to a large extent, the hygiene business has got long legs and should be very sustainable in the long term. And I think COVID will help. While it's just like that, it's helped with hygiene awareness and washing of hands, et cetera, et cetera. And that's what we do. So we're comfortable with that pricing. And I think any future pricing is actually going to be on a lower scale to what it was. Probably, it could be as much as 20%, 30% down, I would suggest, but we really haven't really entered into any serious negotiations in the last month or 2.

The next question is a follow-up question from Ross Krige from JPMorgan.

I just wanted to follow-up on one of the questions I initially asked around collections. So that's with regard to the annuity income and services. Lindsay. I think you mentioned that it sounds like most clients are still paying. Just wondering, yes, if you could give an idea of the proportion of that revenue collected in April and how that's evolved subsequently?

I think if you're referring to our freight operations, we're getting -- is it also -- is your question all services or is it for our freight annuity businesses?

So in particular, with services, with the servicing of offices, with whatever subsegments it might be where offices are closed, the collections within those businesses.

So it's a little early to tell, quite honest. I think everybody initially thought this was going to be a fairly short lockdown, and we're very generous about honoring contracts. But clearly, now as it's enduring itself, and if you take the hospitality section -- sector, we are having to negotiate with our clients for relief from them where we are not cleaning the facilities. An example of that, which is the common example, would be something like Sun City. And we did have contracts to clean the facility, to do all the laundry, to secure the facility. And -- but at the moment, we have been -- and all the landscaping there and all the hygiene. But seeing the facility is closed at the moment, we got paid to some extent quite early in April, but I think that will be in our subject to negotiation. We have built in both ourselves and for PHS quite significant provisions for credit risk. So we will build based on contract but we're going to have price per note. And that will be subject to individual negotiations with each one of our products. I think maybe a good way to answer is the current earning income from -- it was there an essential service, like a bank. Now the banks may well not be going -- none of the banks are going to their head offices, but they would still generally pass because they still are earning then they are an essential service, and they are still making money and probably making quite good money, whereas certain of our customers who've simply closed and have no revenue, that's why I related it to Sun City, was sent into like Salton, that it to be a negotiation.

Okay. So in all likelihood, it's going to get worse actually from post-April at a group kind of annuity income within services level?

Well, in certain sectors, all manufacturing is now allowed back, all retail is allowed back, all wholesale is allowed back under this level 3, which is only starting today. So we're going to have to see the extent of how many people actually come back to work. We are sitting here at work, believe it or not, mostly spaced out. Not so much where we happen to operate from does look a little quiet out there. So it's a little early for us to tell whether all manufacturers will go back with all wholesalers, retailers, et cetera. The sector that is going to hurt and will get worse is the tourism-related sectors. And that's hotels, restaurants and aviation, anything to do with the airports. If airports open today, that we will have -- I know I saw things from flight, they're going to start flying I think on the 15th of June. So how many planes took off today, essential business travel, I have no idea, we'll find out, but today is the first day. Mpumi is giving me the rough number of units. And I don't even know if freight will open because then it's going to fly somewhere. In sectors, it's going to get worse and in other sectors it will get much better.

Right. Okay. If I can be cheeky and ask what proportion that most badly affected industries are from a revenue perspective?

The worst affected. It's all that tourism, hospitality.

Sure. But the size from the best perspective, what's the kind of proportional?

So we service such a massive cross spectrum of every industry in the country from learning to agriculture to tourism. Tourism is quite big, Ross, but I can't give you a percentage off the top of my head, to be quite honest.

Could we take the last question?

Okay. The final question comes from Michael Jacks from Bank of America.

Looks like I just snuck in there. I have 4 questions. The first one is just in terms of the fleet management business. Can you give us an idea of the extent of balance sheet risk emanating from this business? I would imagine that revenue is a book baked on contractual terms, but that payment might not have been received in all circumstances. So that's the first question.

Sorry, Michael just before you carry on, which business are you referring to? You're very faint.

Fleet management.

Oh, fleet management. Okay. All right. Sorry. Carry on.

And the second question. And as Lindsay alluded to, the business services business serves a massive number of customers and locations in South Africa. Could you perhaps give us an idea of what sort of trends you're witnessing in terms of clients failing to reopen or filing for business rescue? Third question, just around the automotive business and dealerships, I just saw the SA motor vehicle sales print minus 68% for May. Can you give us an idea of what group sales level that the dealership businesses need to operate at in order to breakeven or to become profitable? And then lastly, my last question is just in terms of Bidvest Rental. My understanding is that typically, these rental businesses de-fleet during the months of March to May. And I would imagine that wasn't really able to take place during the lockdown period. So can you give us an idea of sort of how much de-fleeting still needs to take place in that business? And to what extent you need to de-fleet to an even lower level relative to the prior year? In fact, it's also a question in terms of operating capacity in the rental business at the moment?

Fleet management collection. Yes. I think with regard to fleet management receipts for the month of April, it was fine, 100%, and May, I think, was also fine with 100%. What we have not -- most our contracts are with the likes of Telkom, Transnet, some of the bigger municipalities, and they have been honoring their payments up until now. There are quite essential requirements for those type of operators. And we do have the ability to -- not that we would, but we do have the ability to repossess the vehicle if they don't pay. So it is one of the -- it is part of the -- most of them are essential service providers. So we've had no problem with our FML receipts to date. With regard to the auto and breakeven, what -- whether the automobile works is that the service department effective pays only. Service department is effectively pays only and then may feel profit in your positive contribution out of new and used. Once the -- once we're allowed to open at -- I think it was only 30% of our staff, we were not to say that doing about 60% of our normal service revenue in the month of May. Now we are allowed to open properly. We do think it is pent-up demand for service. And hopefully, the pent-up demand for service will wash the face, as we'd like to say, of the costs of the -- of our automotive division. But it's not going to add 100% clearly. So we're going to have to start selling some new vehicles and used vehicles. Is -- we have been selling online, and there is some demand for new and used vehicles. It is slower ever, and we'll have to see what June brings because from the month of June, we are fully open. We are allowed to be fully open. And all manufacturers are allowed to be fully open, et cetera, and all wholesalers are allowed to be fully open. So traffic should start to move significantly more, cargo movements and passenger movements should be significantly more. And we hopeful -- we're just hopeful that, that will prove to the test. With regard to the rental fleet, we haven't de-fleeted anything yet because we couldn't. We de-fleet through the motor retailers, networks, and they were all closed. So the de-fleeting will commence now, because the demand for rental vehicles is severely depressed because it obviously is -- relates to tourism and business travel, and that's only commenced now. So up until now, it's been exceptionally low. Any real demand we've had is for our chauffeur drive-type services and some emergency services on the car rental side. So the de-fleeting will commence now. Then the second question was?

What the things were in terms of customers open?

Again, so for the month of May, it was still very, very low, because lots of essential services were allowed -- nonessential services were not allowed to open. Mpumi, would you want to answer because I squeezed in some of the stuff in the middle of the month and schools are going to open today and...

Well, I mean, the month of May wasn't great. And it's just because even though there was an opening up from Level 5 to Level 4, even the businesses that were open in Level 4, you still had too many of businesses to do general that were closed. So even though you could have been designated a permitted service in Level 4, if majority of your clients were closed at Level 4, you really have no one to service. So Level 4 was a mixed bag, which wasn't great. And so we're hoping that Level 3 starts today will be even better. And as we have stated, more clients are going to be coming on stream. And really, the industries are still lagging behind is tourism, travel, hospitality, et cetera. You also asked about whether we see many businesses file for business rescue. I suppose there is a lot that isn't visible because the smaller businesses are definitely filing for business rescue. In fact, one of the things that we're definitely aware of is that we're running out of business rescue practitioners because of what's happening as a result of COVID-19. And so, yes, there is definitely some of that, that is already happening as we're kind of sitting in. If I could call it, kind of the mid-stages of the lockdown.

All right, ladies and gents, thank you very much. We got very comprehensive questions today. I hope we answered them satisfactorily. But, yes, I guess just in summary, times are very tough, I think, for the whole world, not just for Bidvest. Normally, we can sustain most things, but one can't sustain a shutdown. That's just the second last. If you can't open the doors and you get 0 revenue, you can cut down out of the costs as much as you can, but you cannot reduce them down to 0. So we're doing everything we possibly can, and we can just hope that this virus and the phases will start to allow us to get back to business. Structurally, the company is in very good shape. The balance sheet is great. So from that perspective, we're very comfortable. But we will see this thing through well. But clearly, as we put into our trading update, we have to advise it will be more than 20% below last year. That's just a section. I guess that's going to be the case for just about all companies, to be quite honest, other than a few essential service providers. Thank you, ladies and gents, and goodbye.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.