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

Good day, ladies and gentlemen, and welcome to Bidvest annual results presentation for the year ended June 30, 2020. [Operator Instructions] Please note that this conference is being recorded. I'd now like to hand the conference over to Mr. Lindsay Ralphs, Chief Executive of Bidvest. Please go ahead, sir.

Good afternoon, all. This Ilze Roux from Bidvest. Welcome, and thank you very much for making the time to listen to the Bidvest financial year '20 results. We appreciate you dialing in. With me in the room, we have got Lindsay Ralphs, the Chief Executive; Mark Steyn, the Chief Financial Officer; Mpumi Madisa, CEO-designate; and Gillian McMahon, one of our executive directors. Lindsay will start the presentation, as usual, to give you some of the highlights. We'll hand back to Mark to take us through the financial elements of the results, and then Lindsay will come back to talk a little bit more detail on the divisional results across the group. Lindsay, please go ahead.

Thank you very much, Ilze. Good morning, ladies and gentlemen. Thank you very much for joining us. It's a pretty weak one if we're doing this live. And hopefully, this time next year, we will be -- or Mpumi will be sitting with you doing a live presentation. The way that we'd like to handle this morning is really just to take you through the highlights for the financial year. And then on this slide, you can see I'm going to touch on how COVID has impacted Bidvest because I think the impact of COVID would obviously be very different on all different businesses around South Africa. So a quick look at the highlights. We're very proud of these results, I think I should just kick off by saying. All the key features where Bidvest likes to focus, I think, we've really shone through. And I think when Mark takes you through the financial numbers in detail, I think you'll get a very warm feeling coming out of the balance sheet and some of the other ratios. So the first item that we've highlighted for the year is ZAR 9.2 billion cash generated from our operations, which is 38% up on last year, which I think is really -- I'm patting myself on the back, patting my team on the back. That's a very good performance. From a free cash flow perspective, ZAR 3.7 billion. That's also a ZAR 1.4 billion increase over last year, which we're very proud of. I think what will come through this morning's presentation, particularly on the financial side, is exceptional asset management during very challenging times. And these have been tough times. And they were tough before COVID, which I'm going to touch on a little bit later. So we achieved a ROFE, which is our big measurement criteria in The Bidvest Group, the return on funds employed, of 23%, which is a really good result. When you get into the balance sheet, you can see very robust balance sheet. Another proud item that we have, which we've highlighted, is an increase in margin by 100 basis points from 29.6% to 30.6%, and that's right through COVID as well. On a like-for-like basis, we'll show you detail later but like-for-like excludes Adcock and excludes PHS. The way that our business is rightsized, continued focus on expense control, we managed to reduce our expenses during the 12-month period, including COVID lockdown, by 6%. The actual businesses -- and I'm going to keep reemphasizing, the actual businesses, how did they perform, they made a profit, a trading profit pre ZAR 1.6 billion worth of COVID actual expenses. So we haven't accounted in any way for reduced turnover during COVID, just what we spent on COVID expenses of ZAR 1.6 billion. Before that, the actual trading businesses, our 6 divisions, made a profit of ZAR 6.9 billion, which is 3% up on last year. That includes -- that's for the full 12-month period, including April through June. We had -- there was just no doubt we just had to have a very rapid response to liquidity. I think when the lockdown -- when we saw this happening in China, in Europe and in the U.K., we -- everybody got very concerned, and we had to have an extremely rapid response to liquidity, to costs and to the changes in our demand structures for our various businesses. We rolled out a whole lot of initiatives through this COVID program, which we can give you details on, if you would like, to assist our employment and communities around South Africa. They're quite significant, those programs, and very welcome to take questions on those. And as we did announce, we concluded the biggest-ever Bidvest deal, PHS, and that came through in May and was accounted for a 2-month period. So that really is the big picture highlights of how we performed in this 12-month period to 30th of June 2020. Just looking at the right-hand side of the slide. Just before I go to the actual -- what happened since March. I think one does need to recall that pre-March, South Africa has gone into technical recession. We were definitely heading for junk status. The economy was in real bad shape. That was in South Africa. And in the U.K., there was quite a lot of uncertainty because Brexit was coming. There's been a change in government, Brexit was coming, and there was uncertainty. So in the 2 areas in which we operate, there were sensitivities and there were some difficult times. COVID has overtaken all of that. People don't talk much about junk status anymore. This is a factor. When we look at our debt position, it's a factor. But people aren't really talking about the fact that we've gone into junk. And in our case, Brexit is coming back onto the horizon and onto the equation but in a much reduced and much suppressed way. So since March, when COVID did arrive in South Africa, as I've already said, we had to immediately go out and speak to the banks and bolstered our liquidity because we had no idea what was coming. We knew that revenue was going to drop dramatically because everything has just been closed out. But we did manage to secure very easily and quickly and comfortably an extra ZAR 4.5 billion in general banking facilities. I'm very proud to say that we haven't actually touched ZAR 0.01 of that, but it is there and it remains there. We had to immediately focus on costs and cash generation. And focus on costs meant the need to furlough a lot of our staff. We're obviously one of the largest employers in South Africa, and we are a large employer in the U.K. and Ireland as well. The furloughing system in the U.K. was very generous. The TERS grants, I can just refer to them -- they call it something else in the U.K. but TERS type grants that you're familiar with here, were very, very generous in the U.K. And it was an absolute natural that people were furloughed. In South Africa, it was much tougher for us as we had to go out and furlough tens of thousands of staff. We were very pleasantly surprised that at least the first couple of months of the TERS system, the UIF TERS system worked pretty well. And our average staff were getting paid close to what they would normally get paid. The reason behind that is that the TERS contribution was [ X ], and Bidvest puts about ZAR 400 million into a fund, a COVID fund, and we contributed ZAR 2,000 per person, over and above the UIF claim that we put in on their behalf. Over and above that, we also did contribute to the Solidarity Fund. We went into a national school readiness program, and I think we readied something like 3,000-odd schools right across most provinces in South Africa. And we've recently launched a significant Woza Matric program on SABC to assist the matrics in this very difficult 2020 year, to help them get through their matric exams. We've also done numerous other things like food hampers and other distribution of sanitizing products and masks and all sorts of things across our group. So that, I think, gives you a good idea of what happened. What we did see, and the next slide will show you this, we did see a dramatic drop off particularly in our trading and distribution businesses in April. So on the right-hand side of the screen, you can see the green chart, that's the revenue that we were trading -- our trading and distribution business in March 2020, and you can see a drop down in April and the lockdown size, level size. To give you an example, in our automotive business, our automotive retail business, I think we sold 1 car, 1 vehicle in the month of April because it was total shutdown. We normally sell 5,000 vehicles per month, just to give you an idea. And numerous of our other businesses were completely shut. Essential services continued, such as security, and that's why the green chart does show some level of activity in the month of April, but it was really devastating in trading and distribution businesses. I'm pleased to say that come May, where we've got into Level 3, and in June, when we started getting into Level 2, and then more particularly in July and August, you can see that our trading and distribution businesses have recovered particularly well. If we look at July month, they're basically -- July month, the trading and distribution was on par with what it did last year. On the left-hand side of the screen is our service businesses. You could see a much more stable and resilient type of chart in that we have contractual relationships with our clients there. And that would be in our Freight businesses, in our Services businesses and in the bank. That's how we -- and properties. That's how we've grouped that particular slide. And you can see a dip obviously in April, but it comes back quite quickly, May, June. And in July and August, we're actually quite nicely ahead of previous years. Part of that is obviously due to the PHS acquisition. But on an overall basis, we're pleasantly surprised, to be quite honest, as to how well our businesses and the nature and the spread and the diversity of our businesses held up as the lockdowns both in South Africa and in the U.K. have been released. The numbers were devastating for April, May and June and have recovered quite nicely across most aspects of our business in July and August. We now go into a bit of detail, and I go through the individual companies. You will see that we still have a lot of our businesses, particularly in the travel and hospitality industries, that are still completely closed and not operating at all. [ We have mentioned the inbound ] travel business, probably an example. Many of you would be familiar with our lounges at the airport, many of those have opened. So there's still a long way to come -- a long way and a lot more recovery to come out of Bidvest, and that encourages us enormously. We've really seen it get to a level which is good, but there's still quite a ways to go. What we've done on the next slide is really to have a look at our cleaning and hygiene businesses because that's where we put a lot of money and a lot of emphasis. The big acquisition, which I already mentioned, of PHS will be included in there. But for 2020, it was only 2 months. As you can see in the revenue -- there has been a significant revenue growth into an industry which the world has become very familiar with and, in our opinion, is going to stay very, very familiar with for many, many years to come. So strategically, the decision, and it wasn't -- obviously, I think you're all aware, this decision was taken a good 4, 5 years ago when we unbundled, and we made a strategic statement to say that hygiene services was a key focus for us and was an area of international expansion, and we believe we can do a really good job with it. So our Noonan acquisition, which we'll touch on in more detail later, and our PHS acquisition are really proving to be 2 highlights, which I think reflect well on that chart. Unfortunately, the closure of our national borders, as you guys all know, ladies and gents, has hit the travel and all travel-related businesses. Accordingly, we have decided to divest ourselves of our car rental business and our BidAir Services businesses. The reason for this divestment is to retain as many jobs as we possibly, possibly can by selling the businesses. I can't take you into too much detail because we are in a process for both those 2 individual businesses. And they are -- all I can really say is that the process is progressing. The other issue that we have noticed, which is a bit of a concern, is the empty building syndrome. And that has impact on our services business to an extent. I mean we do have quite a lot of suspended business as we call it. So it's contract-led with clients for cleaning services or for hygiene services or any of those types of services, which has simply been suspended for a while because people are not going back to work. So for many of the people from South Africa and I guess even from the U.K., the [ center in those ], by way of example, the CBD [ and center ] is a ghost town. There's nobody there. Nobody has gone back to work, which we found quite remarkable. And I really think that we should go, encourage people to start kicking the engine and go back to work in a very disciplined manner that we've been directed to do. But that has not happened to the full extent. That is getting better and better every day. There was a point, as I said earlier, where we had about 75,000 people that could not come to work. That has reduced down dramatically. And each day, we're having more and more people coming back to work in the Bidvest environment. Looking at our portfolio, still very nice and diverse. The left-hand side shows you revenue, with our Services business depicting being the biggest revenue contributor, and then the rest of it is quite a nice, diverse pie chart that we have. The contribution to trading profit is very distorted in this particular period because of COVID. And I think the one that's probably distorted the most is automotive. You can see 23% of revenue and only 3% of profit. And that really is just because of the last 3 months. In fact, our Automotive business prior to COVID was actually performing quite well. So that is a bit distorted, and that will revert back to normality, I would imagine, in the 2021 financial year. That's really what I wanted to say. I think just in summary, I'm very happy with the results. We'll come into a lot more detail later. But I think at this point, I'd hand over to Mark Steyn, our Chief Financial Officer, to take you through some details. Thanks, Mark.

Thank you, Lindsay, and good afternoon, everyone. I'd like to say a quick thank you just to all those involved in the production of these results, particularly the financial staff and our auditors, PwC. The COVID-19 environment has asked a lot of everyone. I'm really proud of how the team has pulled together. The year-end process has been complex. For the first -- the first-time consolidation of 2 major subsidiaries in Adcock Ingram and PHS, the adoption of IFRS 16, and on top of that, we had the effect of COVID-19 on trading in quarter 4 and the resultant restructure processes and impairments. It's a complex set of circumstances to navigate. I'm comfortable that the results that we presented today are accurately reflecting these changes, and I'll take you through the detailed impact. Before we dive into the details, just to contextualize the results, in particular with respect to COVID-19, after the end of quarter 3, our businesses were trading well despite the challenging economic conditions in SA. The lockdown process brought back by COVID-19 saw a significant cessation of trading in April, which has steadily been easing, as Lindsay as indicated in the graphs, over the last few months. I think we're very encouraged by the post-year trading to date. We're almost back to prior year levels. We took stronger steps to protect our financial position by raising an additional ZAR 4.5 billion in liquidity, tightly controlling our expenditure and CapEx and managing our cash well. And I believe that the success of this is evidenced by our closing balance sheet and our cash position, both of which we're very proud of. And all the more so because during this, we also concluded our largest-ever acquisition, PHS, for just over -- or just under GBP 500 million. As you'd expect, our management team has responded very quickly to the pandemic, and plans were put in place, implemented to protect our staff and businesses where necessary, appropriately restructure for anticipated future demand levels. Unfortunately, in certain sectors, and as Lindsay has mentioned, particularly in travel and aviation, the impact of the continued lockdown has been exceptionally severe, which has led to the division -- the decision, rather, to divest of 2 businesses, being BCR, Bidvest Car Rental, and BidAir Services. And we're in discussions to sell both businesses. BCR has been shown as a discontinued operation for the purpose of these results. With that as a backdrop, let's dive into the detail. From a revenue perspective, revenue is up 0.6%. We had a benefit obviously of consolidating Adcock for 11 months and PHS for 2 months, which was largely offset by the COVID-19 impact on our quarter 4 trading. Obviously, to properly understand Bidvest Group revenue, you need to unpack the individual divisional performances, which we'll do later in the presentation. But from a post year-end perspective, I think we're encouraged that revenue is improving in most -- and most divisions are showing growth. As you can expect obviously automotive -- or the automotive sector still remains under pressure, but our business is performing well, and we're trading better than market. And similarly, travel, aviation and hospitality, while it's opening up as the lockdown eases, the sector and the related foreign exchange trading is under significant pressure. From a gross income perspective, very pleased. Gross margin is up to 30.6%, which is 100 basis points improvement. It has been enhanced by the inclusion of Adcock, which is higher margins. And over time, we will have to manage the growth of our offshore operations, which are obviously at lower margins. Most of our divisions are improving their margins, particularly post year-end. From an expense perspective and particularly operating expenses, we regard this as a highlight, as we typically do. So while on a gross basis, operating expenses are up 9.6%, included within that is ZAR 1.2 billion of direct COVID-related operating expenses. And just to give you some color on that, it's made up roughly of restructuring and retrenchment costs of just over ZAR 400 million. The Bidvest COVID-19 Fund, which was established to support our employees, of ZAR 400 million, additional provisions mainly on debtors ECL provisions and a little bit on inventory of ZAR 340 million. That gives you about ZAR 1.2 billion. On a like-for-like basis, if you strip out the impact of these expenses, the acquisitions, IFRS 16, our overall costs are down 6.3%, which is an exceptional result in this environment. And I think the businesses must be commended for some really good expense management. Moving then to trading profit. Overall trading profit is down 19.9%. It's impacted by the COVID-19 operating expenses, as I mentioned already. Also in there, but not as an operating expense but as an impairment of our investments, is a MIAL impairment of ZAR 0.4 billion. You recall that MIAL is our Mumbai airport investment. And obviously, with COVID, that investment has been under significant pressure. If you exclude the impact of COVID, this MIAL impairment and IFRS 16 and acquisitions, then our overall trading result is up 3.4% on a like-for-like, which I think is a very, very incredible result. In terms of our trading margin on a normalized basis, it will be up at 9% versus 8.8%. So we're maintaining our normalized trading margins. We've seen good trading performances in Services, Freight, Properties and Adcock. And then the businesses that were significantly impact by COVID-19, Automotive, Financial Services, Branded Products and Commercial Products, were all down on lower demand and trade restrictions. In terms of other costs, predominantly acquisition costs of ZAR 178 million which related to our PHS acquisition and then increased amortization of acquired customer contracts, mainly offshore. There was ZAR 70 million of that. The PHS PPA will be completed in 2021. Net capital items are a significant item this year, ZAR 2 billion in total. ZAR 1.1 billion of that is directly COVID-19 related. In terms of the overall mix of the impairments, we've got ZAR 1 billion in impairments to goodwill, intangibles and PPE. ZAR 0.5 billion on fair value of associates, which is Comair and Adcock, and a further ZAR 0.25 billion on the disposal and closure costs of various businesses. Moving then to our finance charges. Finance charges are up significantly. They're largely as a result of IFRS 16. We did talk about at the half year. IFRS 16 results has come in largely in line with guidance we've given. The impact in the current period, if you strip out IFRS 16, finance costs are up 7.4%. And that largely reflects the additional funding we've taken on board for acquisitions, predominantly PHS. We're pleased with the average borrowing cost. It's come down 100 basis points to 5.7%. And we benefited -- and we benefit there from lower funding costs offshore. Very comfortable with our interest cover. It's conservative at 8.45x EBITDA. Hence, it has dropped slightly on last year at 8.8x, but well in excess of our covenant of 3.5x. Moving to associate income. Associate income is down significantly on last year. Two key issues. The first is we've consolidated Adcock this year. So in the current associate income, we've got 1 month of Adcock versus 12 months in the prior year. And then with respect to Comair, Comair obviously are in a business rescue process. They incurred significant trading losses up to the period where we stopped consolidating them. And we -- sorry, stop accounting for them as associate. We've taken the full trading losses and the impairment of the SAA claim, and we've written the investment down to 0. From a tax perspective, our tax expenses dropped 40%. What is a little -- unusual is our effective tax rate has jumped to 66% versus 27% last year. This has been impacted by the significant nondeductible expenses, impairments and losses related to COVID. Similarly, we haven't raised the deferred tax on the closed operations. I expect this obviously to normalize into the new year. The core effective tax rate for the group remains the SAA corporate rate at 28%. And as we continue to grow our businesses in U.K. and Europe, we will lower this rate over time. The large step-up in the noncontrolling interest, the minorities line, is predominantly Adcock now that they're consolidated. Then from a HEPS perspective, our normalized HEPS from continuing operations, so stripping out the impact of Bidvest Car Rental, is down 22.9%, obviously significantly impacted by the lost COVID-19 -- the loss trading from COVID-19, the IFRS 16 impact, the MIAL impairment and the Comair impairment. From a dividend perspective, no final dividend has been declared. We're balancing the interests of all our stakeholders in this consideration, given the enhanced levels of economic and business uncertainty, the restructuring processes that are underway and the various funding programs. Moving now to our balance sheet and our debt and funding position. I think we're very comfortable that we've managed our debt and our funding through this COVID-19 environment well. We continue to maintain a conservative approach to debt. Our overall net debt after cash and cash equivalents is up to ZAR 19.2 billion from ZAR 7.8 billion. And that's predominantly as a result of the PHS acquisition. You'll recall that the acquisition is just under GBP 500 million, equates to -- at current rates to just over ZAR 11 billion. And despite taking on all this debt, we are still comfortably within our covenants. Our EBITDA interest cover, as mentioned earlier, is 8.4x. There's a covenant of 3.5x. Our net debt to EBITDA is 2.1x. The covenant there is 3x. I think we're very, very comfortable where we've landed with that. As Lindsay did mention, we've also raised additional liquidity of ZAR 4.5 billion through the COVID period, which fortunately we haven't had to utilize but remains there. In terms of our total debt, 77% of that is long term in nature. We're busy looking at finalizing the bridge takeout. So for the PHS transaction, we raised an offshore bridge of just over GBP 500 million. In terms of that process, you recall that we had originally planned to do an offshore bond program. But obviously, with the Moody's rating of -- down rating of South Africa, there's been a significant move in total spreads. And that really necessitates us looking at other alternatives. We're largely at the end of completing a domestic bond -- debt program, rather. At the moment, we have credit approval for in excess of ZAR 4 billion, and that will obviously be earmarked as part of the bridge takeout. We've similarly got ZAR 2.4 billion in offshore cash available for the takeout. The MIAL transaction is finally now about to get over the line. And we've earmarked about ZAR 1 billion from the proceeds of that transaction for the PHS bridge. And then we've got free cash flow in excess of ZAR 2 billion. All total, that will give us approximately ZAR 8.5 billion towards what is currently about ZAR 11 billion now at current exchange rates, which means that we've got about ZAR 2.5 billion of the bridge remaining and very comfortable that we can solve this. You'll recall there's 15 months still remaining on the bridge. In terms of our debt maturity profile, which is reflected here, nothing that's currently due in 2021. 2022 year, the big foreign debt that's reflected there is the PHS bridge. I talked to how we're taking that out. And in the 2023 year, the offshore debt there is our eurobond facility we've taken out to fund the acquisition of Noonan and a couple of other small acquisitions. That eurobond facility has 2 additional 1-year extension periods available. And then just lastly, we have also included an interest cover graph just to demonstrate the stability of our interest cover through the cycle, and this despite the fact that we had taken on quite a lot of additional debt recently for the various acquisition programs. And then lastly, and I think this is probably the highlight of our overall presentation. I think our cash generation, our cash management through what has been an exceptionally extreme cycle has been really, really good. I mean cash generated from operations of ZAR 9.2 billion versus ZAR 6.6 billion last year. We have had sort of a benefit from IFRS 16 to the extent of about ZAR 1.5 billion. We're interested -- previously, we're showing that operating level has now shown further down in the cash flow statement. But that said, even if you strip that out, the cash flow performance has still been exceptional. So our cash conversion is 135%. You strip out IFRS 16 and still north of 100% on a like-for-like basis. Working capital reflects a release of working capital of ZAR 0.9 billion versus an absorption in the prior year of ZAR 1.3 billion. What's driven that largely has been a reduction in trade receivables. And that's driven, I guess, to a large extent, by COVID-19 and reduced trading. But the reason you get a good cash kicker is because the collections have been pretty robust through this time frame. Lindsay has already mentioned, the free cash flow, up to ZAR 3.7 billion, which we're really pleased about. In terms of the cash generation graph, we always like to show this graph because it sort of shows the movement of our cash flows through the various half years. Quite a significant change, I guess, in the second half this year, where our pre-working capital cash generation has been -- is down quite a lot, impacted directly by the COVID-19 trading downturn. But obviously, then we've got the kicker from the strong working capital performance from trade receivables, which is why that's significantly up. There has been some inventory buildup in quarter 4 from COVID-19 but nothing that we're concerned about from a liability perspective. And then lastly, just to close off, we have mentioned from an acquisition point of view obviously PHS. This acquisition is bedding down well. We've had a lot of interaction with the management there, albeit not personal -- not face to face yet. But we're very comfortable, the business is bedding down well and meeting expectations. We are looking at a number of bolt-ons, but there are no material acquisitions that are currently in the works. Thanks, Lindsay.

Thanks very much, Mark. Ladies and gentlemen, I'm going to move now to report on the various operations and take you through our 6 major divisions. Just starting with Services. Obviously, it is our largest business. It is run by a very exceptional CEO, Mr. Alan Fainman. He's been with Bidvest Group for many, many years. And he has pioneered a lot of work where we've been going over the last few years with regard to international expansion. Overall, I think Alan and his team, and it is a big team, this is where most of our people, have, in our opinion, given us an outstanding result for the 2020 year. As you can see, turnover of ZAR 22 billion and EBITDA. This is only the area where we show EBITDA, but it is a good reflection of the value of these businesses. EBITDA of 2.7 billion -- ZAR 2.669 billion, is pretty flat on last year, and a trading profit of ZAR 2.1 billion versus ZAR 2.2 billion last -- in the previous year. So it's very much an annuity-based contractual business. They have obviously been impacted very negatively in the travel sectors and the aviation sectors in which we do operate, but that has been supported, as I think we've all said, by a very good performance from our Noonan operation and by the inclusion of PHS for the first time. Just to touch a little bit on Noonan. It was our first venture internationally. It was mainly just Ireland. We have since then expanded quite significantly to the U.K. effectively, facility management, cleaning and security. We do feel very comfortable in that space, and that business is just going from strength to strength. We did acquire in the last year a company called Future Cleaning, which cleans mainly movie theaters, et cetera, and that was severely negatively impacted by the closing of all theaters in the U.K. I think that's slowly starting to open. But other than that, our Noonan business has done particularly well. We've already discussed the conclusion of the PHS business. There's still a lot of synergies. We're just beginning. There's a lot of potential synergies between our style of business in South Africa and the PHS business in the U.K. Mpumi and her team have visited Europe and U.K. quite extensively to look at the benefits and the synergies and the buying power and technology, innovation, et cetera, et cetera. And we'll go through that in more detail when we publish our annual report, there's a lot of potential synergies between our 2 businesses, and I thought it's worth mentioning that. Our Facilities Management cluster, which is -- which includes Protea Coin, our drone business that we bought last year, delivered excellent results. That business was very beneficial in COVID, when everything was shut, be able to deploy drones. So again, one could say we've got lucky, but I mean, it was strategically part of our intention to innovate and change the landscape of the security business in South Africa long before COVID hit. But this is one of the businesses that really shot the lights out and continues to do so through COVID. Our BidTrack business, our Vericon business and interestingly our BidAir Cargo business achieved very, very good results. We operate [ 40 ] aircraft and SAA and Comair and everybody else that shut down their cargo facilities, and our [ planes were flying out through COVID ] and did particularly well. We've mentioned it already, but clearly, the closures of the borders, the lockdown have hugely impacted aviation, travel and hospitality sectors. To give an example, Sun City would be a fairly significant account for us. We've had as many as 2,000 to 3,000 people there, in its [ area there ] and that has been shut. So that will give you an indication. But all of those things are slowly starting to open up. We look forward to the president's announcements [ maybe with regard to -- ] hopefully this week and maybe further things will open up and curfews will reduce, et cetera. That will definitely assist this division. We have had extensive restructuring in the travel business. We've mentioned BidAir Services will be divested. The travel restructure started on before COVID, I would just like to point out, it's not only a result of COVID. It's had -- it required restructuring prior to that. To move on to our Branded Products division. This division did take quite a bit of pain through the 3-month period of COVID. You can see that there is an inclusion at Adcock in here for 11 months of the year. So the numbers are quite distorted because we're showing a 46% increase in revenue and a 48% (sic) [ 49.2% ] increase in trading profit. That is really -- that's mainly -- well, it's only really Adcock that contributed to the additional profit. The main demand for Office products, et cetera, was significantly impacted by COVID. People are working from home, online schooling, et cetera, et cetera. What they did manage to do was to, therefore, restructure their business, particularly run and generate exceptional good cash flows. We saw some decent results in our packaging and label division, that wherever consumer demand was impacted, such as our Cellini branded products luggage division, all of those types of businesses were negatively impacted by COVID. We are starting to see, as we've already mentioned, a return to normality in our Branded Products division. Just to touch on Adcock, separately listed, have announced their results, have good results. I'm not going to go into too much detail on that. Their results are available on their website. Our freight operation has an interesting 12 months, I would say. It was interesting because ports were inoperable for -- at the beginning of COVID. I think a lot of us, including Mpumi, did a lot of work to get that fixed, get that right. But the result does indicate a subdued local economy and other global trade. China stopped importing things like manganese and chrome, et cetera, for their period of shutdown. A lot of that business has come back so both commodities and liquid volumes remain fairly strong, but other important export volumes were weak. I mean the amount of containers coming in and out of the country were severely depressed for the 3-month period, and quite a lot of that has not yet come back to normality. Our annuity income, which is something we've been pushing very hard, does represent half of our trading results. Our long-awaited LPG project, which we really were hoping would help us for a month or 2 of this last financial year, was delayed because of COVID. There were some key critical engineers who resided in the U.K. and elsewhere, who did not come into the country because of the travel ban and the border closures, and that has delayed that. They are now here, I'm pleased to tell you, and we will be opening the LPG facility this month. So that really will kick in very nicely into the profits of the business going forward. We have had COVID rightsizing in some of our businesses, particularly our freight forwarding business, which is -- was Bidvest Panalpina Logistics, is now called Bidvest International Logistics. We've had to rightsize that business because internationally, we lost the Panalpina agency, worldwide acquisition of Panalpina and that agency will be lost. So we've had to rightsize that. We've had some very successful senior management changes at a number of our businesses within Freight. So overall, Freight is in very good shape. The weaker exports have come back. And the months of July and August are particularly strong. So although there's a subtle decline in the June 2020 numbers, we have seen that the freight operation is back to where it was previously. And as I've already said, the LPG projects will kick in effective quarter 1 October from a trading profitability point of view. Commercial Products, again, it really is a mix of industrial products and consumer-based products. All of those businesses were heavily affected during the COVID lockdown. We did get interesting -- we got good results out of G. Fox, Afcom, Materials Handling, facilities. But the bulk of the business is fine, call it, industry in the [ main ], and the consumer market was severely impacted by COVID. Cash generation, however, once again, was very, very good, focus was given to that. And gross margin unfortunately did contract as factory recoveries were low in the COVID period. The Electrical division is now part of the Commercial Products division. And part of that is -- restructuring in that division is in the process of taking place. Interestingly, this division has also performed quite well in 2 months, July and August, which I think does indicate quite a nice recovery in more general industrial markets and the consumer markets in South Africa. As all shops and all factories, et cetera, open up, we are starting to see how businesses that supply those type of markets are improving. And Bidvest Commercial Products is a good reflection of that. And that is carried on into September from what I gathered recently. Financial Services, overall, the bank itself was very impacted. The bank is, as I think you all know, FX or foreign exchange business and fleet management business. The FX business dried up almost entirely as people could not travel, and there was no requirement for our World Currency Card and many of our branches -- and people are not allowed to quite well -- we're not buying any FX at all. And on the fleet management side of that business, it was very, very slow because there was no new business being written. It's a bit like the automotive industry, it really went very, very [ closed ]. So the bank contracted 63%, as we've said, and our leased assets declined about 13%. The loan book held up very, very well. Deposits continue to come in quite nicely. So we don't have -- we have made certain provisions, obviously, but we have no really significant bad debt issues at all or impairment issues on that -- on the bank's book. So that's the very positive side of it. The insurance business had a reasonable year. The life business continues to grow. We grew -- the premiums grew by 18%. But that -- obviously, that is a new business for us, a fairly new business for us, and that's in a growth phase. So that was the new gross written business that we've grown to 18%. Unfortunately, it's offset by acquisition costs and growth in commissions. Ultimately, that will come and that will turn, and we're looking for that to turn in perhaps towards the end of the new financial year. Unfortunately, and it does sound a bit strange, we might consider in the soft market, but our investment portfolio, which we changed the nature of that portfolio quite significantly, that actually showed that improved results. For the moment, I kind of touched on it in ways before, but the automotive business came to an absolute growing halt for the month of April, which was opened in mid-May, but on a very strict basis. Consumer demand and, in fact, corporate demand for vehicles was very, very flat. But it has, in the month of June and now into July, August, but that's still somewhere in the region of about 90% of where it was. I think there might be a bit of catch-up in that. So we're hoping that it will sustain up. I think Mark, in his commentary said, he's a little cautious. He's a little concerned that we'll have to do a bit more restructuring and rightsizing of that automotive business. So now we -- it's a bit of wait and see, and see whether the demand for vehicles is back. I think we've also -- if you look at the -- announced there was something like 30% or 27% down from last month. So the automotive industry is still tough. The car rental business, which is discontinued. I guess, I'll just spend a bit of time on that. We do have invested there a significant amount in the fleet, as you can imagine. Looking at the returns that we've made historically, it's always been a very tough industry to make really good results on that. And looking forward, we really could not see a business model that works for us in car rental and it's our decision -- the final decision are made to discontinue that and divest of it. We do have a few -- quite a number of staff employed in it, hence, a very strong desire to sell the business and to retain as many staff as we possibly can. And then Mark's bridge, we'll be able to pay off your bridge a little -- if we bank the money that's invested in literally like ZAR 1 billion in certain vehicles. I think that's it. Properties and corporate. The property division is a business -- mainly business listed in there that performed very well. I think the rest of the head office was impacted by MIAL that Mark has talked to you about that's about ZAR 400 million. And that really is just a factor of -- it's a factor of the value of airports worldwide has declined dramatically. It was a noncore asset for us. We had an offer. First felt that the offer did decline somewhat, which is understandable, and we've decided to accept that offer. So we've taken that and that's in the numbers. And then I think Mark has touched upon the fact that we spent ZAR 400 million on the Bidvest COVID Fund to assist our employees and then a large amount of money on the other projects, which I have already touched on. So that, I think, gives you a quick overview of the businesses. And obviously, we'll take questions later. Just looking forward, looking at the macro and operational outlook. When we all got the minus 51% GDP figures last week or -- I don't think I was -- I don't think we were initially that surprised, but still it comes with a bit of a blow to your chin. It's essentially unfortunate. I mean, clearly, we need real GDP growth to create employment and prosperity in the country, that's just undeniable. I'm clearly -- I'm always been quite optimistic. I'm optimistic that, yes, we will definitely see that start to turn around. Just not in this actual year because we do see uncertain fragile operating environment still for the next probably 4 or 5 months. I have been going on a bit about the fact that actually I hope. We've got good months. And then -- I think that's a reflection of the business that Bidvest actually operates. But from a macro perspective, I do think we're going to see some fragile operating environments within the country. The consumer is under a huge strip. The banks are having to look after a lot of people. There have been a lot of retrenchments and people having to stay at home across the country. I'm more optimistic from January onwards next year. I'm sure, by then, we will be -- we may not be out of COVID because, I guess, I mean for a long time, if we should do this be a little we of sorts or whatever that will be, and we will start to see the environment starting to improve and Bidvest is particularly well. Post restructuring, Bidvest businesses are future-fit, as we call it, just like me. And have sufficient sales just like me. And yes, I mean, even though the macro environment in the short-term is tough, we do see it in the medium to longer-term to be really good for Bidvest. Basic-need services that we invest and everyday products that we are -- we continue to invest in like plumbing supplies and electrical suppliers and booms and brushes, et cetera, they are standing us in very, very good stead. We've come up with some very good innovative new products, value-added products. We've got a value-added mindset within the group, and that's starting to pay very good dividends for us. Our pockets of opportunity are existing and we take advantage of that. We obviously did very well selling sanitizers. We did very well selling masks. We did very well in many other areas. I already mentioned the drones and security businesses. So we do participate wherever we can and take advantage. With regard to other -- just within our cash flow and our M&A issues that I think M&A will come on the next page, but we will continue to maintain a very strong financial position. That is absolutely key and primarily important Bidvest was to keep the strong balance sheet, positive cash flows, and we will exceed those steps over the next 12 months. Mark has covered our net debt-to-EBITDA ratio of 2.1x, and that includes the ZAR 11 billion acquisition of PHS. So the business is in really good shape. And I think as soon as the economy starts to improve, Bidvest will be one first to take advantage of it. One point I probably just need to mention at this level is that, I think, to some extent, COVID has hurt many, many smaller and medium-sized businesses, and some of them have not survived, and I think Bidvest will just be a natural beneficiary of certain -- in certain sectors where companies -- and it's very unfortunate but it's affected a lot and people will come to the large players who do have the stocks and the availability to provide the product and the service. And I think we're really starting to see that. We will not aggressively, but we take advantage, obviously, where that's on. From a capital allocation point of view, we're very disciplined. We put all major M&A on hold while COVID is in place, but we would continue with smaller bolt-on acquisitions. We're looking at 1 or 2 in the U.K. as we speak. And when I talk about bolt-ons, we would be talking in rand terms up to about ZAR 500 million. Those we would continue to look at. But we're not going to be looking at very big, large, significant M&A at the moment. We have a couple of opportunities that come our way already, and we have shown our interest -- expressed our interest. But the activity of pursuing those opportunities will have to wait until the economy and everything just settles down. And again, I would anticipate that, that will only happen in the new calendar, that we would start to be more aggressive and more confident about pursuing other significant acquisitions. And unfortunately, I think, I suppose, again, with COVID, there are going to be lots of those opportunities. And people have started to find us, and we are starting to get a lot of recommendations. So as we've sit here, we will invest strategically in the short term, but mainly bolt-ons. And we're alert to any opportunities locally and internationally. And internationally only in those specific areas, which we have previously identified. With regard to stewardship, I mean we always -- we are very proud of our transformation efforts and our progress. More than 50% of our businesses on level 1 or 2. They have level 1 or 2 business ratings. Notwithstanding COVID, most -- and there's just a technicality in that we couldn't train as many people as we would like and spend as much money on certain projects during COVID throughout the end of our financial year. We do expect to maintain most of our ratings. We had the intent to develop and transform our supply base and our employee base. We've already told you about our COVID Fund. And we really do see ourselves being responsible for contributing to the rebuilding of South Africa. We are one of South Africa's largest companies, and we do intend to spend a lot of time contributing to that. Just moving on to the next slide. In March of last year, it seems shorter, but it's actually 18 months ago, we announced that Mpumi Madisa who's sitting here in the room with me, will become the CEO. Mpumi and I and the exec team of Mark and Gillian have worked very closely together over this 18-month period. I think we've achieved an enormous amount. If you look at all the acquisitions, if you look at some of the restructurings, everything that we've done, I think, has been very, very successful. I've just turned 65, and the time has come and Mpumi is ready to step into the shoes to take over as formal Chief Executive from the 1st of October. We're all very, very proud of her. And I know she's going to do a great job. I think with regards to -- if you look at it from a timing perspective, I think we've come through the vast bulk of the complexities of COVID. I think we are now on the road -- upward road, either than downward, upward road to recovery. And I will be -- I'm not going anywhere. I'm not going to do any other job. I'm not immigrating. I'll always be available to everybody who need me to come and assist if there are real complications to COVID. I don't see that happening. I think we've gone through the worst of it. And we're getting on the road recovery. So obviously, from my perspective, I do wish Mpumi the very, very best. I know she's really -- she's been with the Bidvest for 15-odd years effectively, and she's experienced all of our businesses. She's been very involved. The good thing about Mpumi is that she's been very involved in all of our businesses and more particularly been very, very involved in the international businesses. And international businesses are a big part of our future strategy, and I'm sure she will do a great job there. Just to end before we take questions, what I think is also part of our stewardship and maybe the legacy of where business is going, Bidvest does have to reposition itself. So with my timely retirement and we move forward, our Board of Directors will comprise 12 people, 8 of which are black. And of the 8 black people, 5 of them are females, which is very good, and only 3 males. So the Board -- and then there are 4 white Directors. So that's a very good -- I think, a very good demographic of our main Board of Directors with some very strong Directors on the Board. The executive team will comprise 3 people, 2 black females and 1 white male. Good luck, Mark. 2 black females and 1 male, without doubt, of which one of the black females will be the CEO. Without doubt, that's #1 in South Africa, 5 million males, have 66% of the executives being black females. We're very proud of that to a great bunch and a great team. And then the ExCo itself is of 12 people, and that really is our team underneath, the 3 executives. And there we will have 6 blacks, of which 4 are females, and 6 whites, which widely are female. So the demographics of -- from the main Board to the executive team to our ExCo team, guys who run our businesses, is very well positioned. And Gillian is sitting here in front of us smiling, and a big part of their responsibility. So thank you to her. Seeing this will be my final presentation to you guys. We'll obviously take questions, but thank you very much to Mpumi. Thank you very much to Mark, thank you very much to Gil for everything especially. And thank you to all the investors who hopefully are on the line and have had to push and buy lots more shares and push the share price back to where it should be. Ladies and gentlemen, we now are happy to take questions at this time.

Yes. Thank you, Lindsay, for that, appreciate that. Let me see on the line. Judith, do we have any questions on the line? And I can deal with the webcast issues?

[Operator Instructions] At this stage, we have no questions on the line.

Thanks, Judith. Let me go to the webcast. And firstly there's a question from [ Daniele Crowbak ] from [ Nathan ]. She's congratulating everyone on an excellent set of results. And then she's asking, with companies' bottom line being under pressure, are any companies showing intent on in-sourcing their cleaning function. Does Bidvest believe their service offering is competitive enough -- competitively in upfront so we deter any in-sourcing?

I'm going to -- I might ask Mpumi to come in. I'm just happy to share that as far as I know, we haven't had any real strong demand at all for in-sourcing of any of our services businesses. In fact, I think the chain still continues to go to outsourcing, and the trend is tending to go more to facility management-type outsourcing. So those are big financial institutions we've recently won some very large outsourced contracts. Is there anything to add Mpumi? Mpumi is saying that that's fine. And I think we are very competitively priced. The wages and within the cleaning industry are regulated and in the -- and in the security industry. So everybody is regulated with regard to pricing. So again, our competitors, we are very, very competitive. And against in-sourcing, we would be cheaper, to be quite honest, because if people in-sourced, I'm not sure that they would necessarily pay the tax cleaning rates because their own internal rates may well be higher.

Thank you, Lindsay. The second question comes from Kgosi from Citibank. Firstly, got a few questions. I'll take them -- I'm going to read out all 3 of them. First, with regard to the PHS acquisition, you identified 5 areas of synergy and cost savings. Can you please remind us about these and the potential margin accretion that that brings? Secondly, LPG store facility is expected to be commissioned in September. Do you anticipate that this will be fully utilized? And the third question is how much revenue and profit did you do due to COVID-19 impact? I'm just reallocating the responses here in the Board room. Question one, PHS acquisition synergies?

Yes. This is a number. And again, Mpumi, if you want -- I'm going to ask Mpumi to take that.

Okay. Thank you very much, Lindsay. Yes. So you're absolutely right. During the due diligence process, we identified 5 areas of uplift. And just to give you a sense that the teams have already started implementing this. Obviously, COVID has delayed some of the rollouts. So I think we'll probably only start seeing value coming through the second half of the year of some. But just to remind you, quickly, first of all, the synergies between union and PHS. Union at the moment, outsources its hygiene services. PHS doesn't have the bulk of this work so they are going through a process kind of contract by contract, obviously, respecting contract terms. But over time, that work will move over to PHS. Secondly, we indicated that the product range within PHS, we would relook. In South Africa, we paid almost all in BMW and Toyota something at the bottom in terms of products to market. So you have a goal and a broad range. We don't have that in PHS, they have all bunch of kind of one range. So there is a process of going through and seeing how we can improve that product offering. The third area is procurement. Our business down in South Africa is very significant, in fact, that's #1. SA, we're #1, and in the U.K. now with PHS. So that volume cost in terms of procurement is quite significant. And we generally are procuring from similar suppliers. So we're going through a process of rationalizing and looking at bulk lines. I mean, obviously, that bulk line will bring some benefits from a cost perspective. Fourthly, there's a particular process that we implement, not only in South Africa, but generally worldwide with PHS behind in terms of sanitary services. At the moment, they've got an entire washing -- washbasin type system, whereas it is a replacement model in South Africa. And in fact, competitors in the U.K. are also on this model, PHS has been behind in terms of migrating. They actually have already started with the migration. They're about 50% there. It will have another 50% of their clients start to roll over to the new operating model. And so that should be complete, hopefully, early in the 2021 calendar year. And lastly, we spoke about hit of the cost. We had indicated that the hit of the cost are significant when we compare them to our operations in South Africa. They'll have a look at that, but we'll look at that last. I think when you make an acquisition, the first thing that you want to do is not create too much volatility from the stock facelift. So we'll implement that as a full first and the months, we really will then look at that hit of the cost and streamline it accordingly. Those are the 5 areas. And just to round up, that will take us closer to competitor type of margins. It's how we've answered that part of the question. Lindsay, do you want to comment on LPG?

Yes. So the LPG quote was done on a contract with the largest LPG trader in the world called Petredec, with 10-year fully paid contract and an option for another 10 years. So effectively, for the next 20 years, it's fully mutualized and it's fully funded with very good returns.

And the third question related to revenue and profits loss?

Yes. I mean it's a really interesting question. In terms of the COVID-19 impact on revenue, that's much more definitive. You can see what Q4 trading was this year versus last year. I think the overall impact we estimated around ZAR 6.7 billion in terms of lost revenue in quarter 4. The profit number is more difficult to talk to. From a pure cost perspective, it's ZAR 1.6 billion, as we've indicated in the presentation. From a capital perspective, of the ZAR 2 billion in total impairments, ZAR 1.1 billion relates directly to COVID. And then there's obviously a trading profit margin element to it, which is the part which is quite tricky to see. I mean if you take this approach that if you lost ZAR 6.7 billion in overall revenue at a trading profit margin and take last year's margin at 8.8%, you would look at about another ZAR 600 million in trading profit lost effectively, and that's just an estimate. So I guess in total, you could guesstimate the impact at about, call it, ZAR 2.2 billion, ZAR 2.3 billion. And then from a capital perspective, about another 1.1 billion purely from COVID.

Then we've got third question here is, how will the divesting of rental cars impact the used car supply in automotive?

Yes, and thanks for that question. Traditionally, if you look at South Africa, all of the major car -- car dealers and rental companies. If you look internationally, none of the major car retailers and car rental company. Used cars are available through car rental companies -- people that you trade into through various vehiculars. We have recently invested in a very sophisticated, very innovative -- it comes out of Czechoslovakia, I think it is from the Czech Republic, our vehicle procurement system. Forgot what the name of it is. And we're using that system extensively. So we really don't see any risk of shortfall of used cars within the retail space.

Thank you, Lindsay. Then another question is, in what areas or sectors in the U.K. is the company looking at bolt-on deals?

I think the 2 businesses we have there are Noonan and PHS, both of them would look for bolt-ons. And Noonan is effectively a specialized niche facility management type business, technical services, cleaning and security, and PHS is a very specialized hygiene service business. So any bolt-ons related to that, including geographic bolt-ons.

Thank you, Lindsay. And Mr. Steyn, you had some financial questions for you. Firstly, can you quantify the government support in the 6% reduction in costs. As the support falls off, are cost savings sufficient to offset? The second question is what is the total cost savings envisaged in the year ahead. And how many total job cuts are across the group? Three, as activity levels normalize, do you expect to see a working capital outflow in the year ahead? Four, given that ZAR 2 billion in free cash flow has been earmarked to fund the bridge facility, and there is still a little bit to go, is it safe to assume dividends will be withheld for the next year at least? So that's quite a mouthful. And some easy and some more difficult ones. Go.

Let's dive into that. There's a whole lot of questions there. Where do we start here? So let's -- in terms of the reduction in cost, I can't quantify the element to which the government support is in that 6%. What I can say is that we believe that we have adequately restructured the businesses to meet the demand levels that we're seeing. I think indicative evidence of that is what you're seeing in terms of our trading for July and August. We have seen, just in terms of overall trading, that our margins have improved. We're managing on reduced or sort of flattish revenue levels to improve profitability. So I think we've cut deep enough from a job reduction perspective to make the businesses sustainable on a go-forward basis at the return levels that we would expect. So I think in the answer to the second question, is all the cost savings envisaged sufficient? Yes, I think they are. I'm not going to go into the number of jobs cut just to say that it has been significantly -- significant. Obviously, the 2 biggest components of it are the 2 businesses that we're divesting of in Bidvest car rental and Bidvest services and there are reasonable numbers of employees in both of those. Objective there is obviously trying to sell the businesses. We're in processes for both. And obviously, through doing that, we'll minimize the number of jobs lost in that process. In terms of activity levels, mobilizing and expected outflow of working capital, absolutely agree. I mean what we saw in quarter 4, particularly in the working capital inflow, specifically around debtors, was abnormal. So I would expect that as trading levels normalize, that you would see a reversal of that position on the debtors line. That will be countered to some extent by inventory being released because inventory numbers were a bit higher at year-end as an impact of -- as a COVID impact. In terms of the 2 billion in cash flow, in terms of how we see that going through -- onto the bridge and the remaining shortfall, I think we're very comfortable that the sort of ZAR 2.5 billion that's left on the bridge we can adequately deal with. I mean the 2 billion I talked about from a free cash flow perspective, you'll recall that in the current year, the COVID year, we had ZAR 3.4 billion of free cash flow. So there's an excess component there that I know will come back. And it also depends, I guess, to some extent on how trading goes. I mean, indicatively, the first 2 months have been good. So I'm comfortable that we've got enough flows that we can deal with the overhang income.

Dividends are not done.

So at the moment, I'm not anticipating any changes in the dividend philosophy going forward, but we're going to have to see what the circumstances bring.

Thank you, Mark. All right. Questions from Daniel Isaacs. It looks like revenue has come back for July and August. How has profitability been?

Well, clearly, we can't give you a definitive answer. But I think that in -- I think it's very fair to say that we were very happy with our July and august results. And as you can see from the detailed slides we gave you up to 2020, in those -- in some of that commercial products, as revenue drops down trading, it really all goes to the bottom line. It's gone. So as trading comes back, it all comes back. So if you look at that slide, I think it's -- so that slide where we showed the monthly revenue returning to normal in our trading and distribution businesses, that will give you an indication.

Thank you, Lindsay. Then there is a question about how the restructuring charges are distributed across the segmental -- the segments and what do they mainly relate to. We are -- the question is what sort of cost savings have been sort of had through the cost -- through the business restructuring? And what innovation does Bidvest have planned to adapt to the empty office Lindsay referred to earlier.

Okay, I will...