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

Good day, ladies and gentlemen, and welcome to Bidvest's interim results presentation. [Operator Instructions] Please note that this conference is being recorded. I'd now like to hand the conference over to Ilze Roux. Please go ahead, ma'am.

Thank you, Judith. And good afternoon, ladies and gentlemen. As Judith said, my name is Ilze Roux. And we thank you for dialing in to The Bidvest Group's results for the 6 months period which ended on the 31st of December 2020. As customary, Mpumi Madisa and Mark Steyn will present the results and the outlook, after which there will be a question-and-answer session, but before we go into the details, I would like to hand over to Bonang Mohale, the Chairman of Bidvest Group. Bonang?

Good afternoon, colleagues. After this, I'll hand over to my boss, Ms. Nompumelelo Thembekile Madisa, but on behalf of the Board of Directors and the entire Bidvest family, we express our heartfelt sympathies, sincere condolences to the families, friends and colleagues of those many thousands of people that have lost their lives to this dreaded pandemic which has disrupted our lives in such a dramatic way. The consequential effect have been grief and severe disruption to livelihoods, which makes the critical return to a form of a better normal economic activity such an urgent imperative. Our hope for this is centered on the successful vaccine rollout throughout not only our country but the world because it's when all of us can travel freely and safely, that we can look forward to indeed a better normal life. Government must be commended for their rapid rollout program now underway, with nearly 70,000 health care workers already vaccinated. Significant work is also ongoing to secure sufficient vaccines for the future, which will allow us to move deeper into the Phase 1 rollout campaign while also ensuring readiness for the Phase 2 and 3 campaigns. This will ultimately cover the majority of other population. Over the past year, Bidvest has participated in many different ways to assist in countering the effects of this pandemic. And we are continuing to work closely with all our social partners, agencies to ensure a successful vaccine rollout by providing numerous resources at various levels of the program, but turning to the financial and operating performance, I'm pleased to say that the group has produced a pleasing set of results in all aspects. This is directly related to the agility and experience of our entire management team ably led by [indiscernible] Nompumelelo Thembekile Madisa and the over 10,000 people that make up the family. We thank them for their continued contribution to creating value for all our stakeholders. [indiscernible] Nompumelelo, over to you.

Thank you very much, Chair. Good afternoon, ladies and gentlemen. I'd like to start with just some introductory remarks before going into the financial highlights for the period and, as an opening, just to say that it really gives myself and Mark huge pleasure in really presenting a set of results that we are really proud of. The first 6 months of the financial year have been tough from an economic perspective, as across all our 3 major territories, South Africa, U.K. and Ireland, we've obviously been experiencing the knock-on effects of the various lockdowns in those territories. In South Africa, in fact, we only went into level 1 lockdown yesterday. And in fact, in the U.K. and Ireland they're still in their third lockdown. And we're hoping that, by end of March, they'll be coming out of that phase. Notwithstanding the really tough economic environment, our business has really weathered the storm. Recovery has been good across all our divisions. And while some of our businesses have been impacted by structural changes such as work-from-home policies and practices, constrained consumer spending, et cetera, on the other hand, we've really had spectacular individual performances from some of our businesses and significant market share gains, in particular in our trading businesses. Just 2 characteristics stand out for me in terms of what I think were really big drivers for these results in the first half of the year, and the first one being the strength of our diversified operating model. Our diversity enabled us to weather a very difficult economic environment. We had exceptional, outstanding performances from some of our businesses. And while some of our other businesses were challenged by the various economic challenges, we were able to, through our diversified model, present what is a solid consolidated set of results. Secondly, the strength of our decentralized operating model really, really came through. Our decentralized operating model gave us agility. It gave us flexibility and nimbleness, and this really [ shot out ] in the first 6 months. Each and every one of our businesses very quickly got to work, controlled costs and used the levers available to them to rightsize their businesses for the current and anticipated future demand. And at the same time, we continued to look for growth opportunities, with many of our trading businesses, as I indicated earlier, increasing market share in a globally contracting economic environment. At Bidvest, our people are our most important assets, so reiterating what my Chairman has already said, I'd like to take this opportunity to pass condolences to the families, friends and colleagues of the 44 Bidvest employees who sadly succumbed to the COVID-19 virus in the recent months. [ From ] the start of the pandemic, at Bidvest we have lost 79 of our colleagues. And today, most of us have now been directly impacted by COVID-19, having buried our own close family members and friends. I suppose one of the things this pandemic has reminded us is how valuable life is and how valuable family is. Touching further on the Bidvest family: It gives me great pleasure to report that 95% of our employees are back at work, from 75% who were not working in the hard lockdown of April 2020. We are back full time in the offices in most of our 200-plus businesses, with the COVID-19 health and safety protocols implemented across all our operations. At this point in time, let me also take a moment to pass a really big thank you to governments in South Africa, the U.K. and Ireland for their employee support that they've provided. In South Africa, the UIF TERS benefit; and furlough support programs in the U.K. and Ireland created significant safety nets for our people. And for that, we are really truly grateful. Lastly, as I close out the introduction, it gives me great pleasure to report that Bidvest will pay for the costs of vaccines for all our employees who are not on medical aid. Turning to the financial highlights for the period, Slide 5 of the presentation. Trading profit is up 3.5% to ZAR 4.1 billion. We had really excellent performances from our Services and Commercial Products divisions. Automotive and Freight also performed well. Branded Products delivered a really resilient result. And unfortunately, Financial Services fell short of expectation, and I'll unpack this further when I get to the divisional review. As expected, we closed our acquisition of PHS in May 2020. And so in the first half of this financial year, PHS is a significant contribution to the results. Cost management has been outstanding. Expenses increased 1.3%, but on a like-for-like basis, expenses were down 9.6%. Our standout performance has to be cash. Operational cash generated is up 86.2% to ZAR 6.2 billion. We strengthened our balance sheet. And when Mark goes through the key highlights of the balance sheet, he'll touch on the salient features, but really balance sheet performance in the group has been quite spectacular. ROFE has improved to 31.3%. Normalized HEPS is up 6.1%. And I'm pleased to also report that we'll be paying an interim dividend of 290 cents per share, which is up 2.8%. On the same slide, if I can just talk to the graph. And really one of the things that we have been doing over the last half year is measuring our performance on a month-by-month basis and really looking out for that recovery out of, call it up, what we call the COVID month. So from April, you see the kind of the drop in trading profit. And that's really April hard level 5 lockdown, particularly mainly in South Africa. In May, that uptick in revenue -- sorry. This is a revenue slide, not trading profit -- in revenue is really because of PHS coming into the numbers. So PHS came into the numbers in May. And what I think is important on this slide is the recovery that you see from May into July, August, September, October; and holding at our revenue number of ZAR 7 billion-plus per month. And that's really the underlying business recovering. And I think that slide kind of shows you how the business has really just showed a very resilient performance. Moving on to the next slide in terms of our journey. And we continue to focus on diversification and cash generation and obviously focusing on capital-light businesses. From 2016, when we unbundled our food distribution business, Bidvest really became a, call it, almost 100% South African entity, mainly an industrial business. And at that time, we articulated our ambitions around expansion both locally but also into niche areas from an international perspective. In terms of geographic mix, it's great to see that we grew from 2016 financial year, when we were predominantly South African, to today where 20% of our trading profit is offshore. Equally so, from a service mix, we'd indicated that we want to grow our defensive Services contribution. And today, 65% of our trading profit comes from our service business, with 36% from our trading and distribution businesses. At this point, I'd like to hand over to Mark to talk you through the financial highlights for the period. Thanks.

Thank you, Mpumi. And good afternoon, everyone. As per normal, I'd like to say a special thank you to all those involved in the production of these results as well as the operating teams in each division. The results presented today are a reflection of the -- their successful efforts in a difficult trading environment. As opposed to the last year-end, this period did not present any material new accounting complexities, and it was nice to have a little bit of a breather. There has been a reclassification between goodwill and intangibles on the balance sheet as a consequence of the completion of our PHS PPA but otherwise no other material changes. Just some general comments before we actually jump into the numbers. I think it's important to contextualize this result in particular with regard to the COVID-19 impact, and both Bonang and Mpumi have already talked to it. While the last 6 months gave rise to ZAR 84 million in direct COVID-19 related costs, which is obviously much reduced from what we saw in June last year, the trading impact in a number of sectors continues to be significant. Travel and related businesses are still materially affected, but these have all been appropriately resized to absorb this low cycle. Similarly, the extension of work from home and the delayed educational return has created pressure. Both these areas, though, will present upside once we start to emerge from the lockdown fog. Despite this, most businesses have produced really good results. And we're encouraged by the post-year-end trading to date, as Mpumi has already indicated. The strong steps we took last year to protect our financial position continue to bear fruit. Our liquidity and solvency have improved. Expenditure control has been good, and cash management has been exceptional. The success of this is evidenced by our closing balance sheet and cash position, both of which we are very proud of. In terms of acquisitions, there have been no material acquisitions in the last 6 months. As you recall, we did acquire PHS in May last year, and that's bedding down well and meeting expectations. We had one smaller bolt-on in Noonan. They acquired a group called the Axis Group in the U.K., which is a security-focused business, at an equity value of GBP 24 million. We are also very pleased to have finally disposed of our Mumbai airport investment last month after a number of years in this process. And the disposal of our Bidvest Car Rental business is ongoing. With that as the backdrop, let's dive into the numbers, and turning to Slide 9, revenue up 3.4% to ZAR 44.4 billion. It has been enhanced by PHS in the numbers for 6 months and Adcock for an additional 1 month. Again, to really understand the group revenue, you do need to unpack the individual divisional performances, and we'll do that a little bit later in the presentation. I think what we're very encouraged by, though, is revenue has steadily improved, as you can see, as you've seen from the graph that Mpumi talked to just now, post the lockdown. We're seeing the businesses stabilizing. We've seen very good organic growth in Commercial Products, with Services flat; the rest of the divisions, from a revenue perspective, down single digits, except Freight. I guess the one area that we obviously we're managing very closely, travel, aviation and hospitality, which is -- still remains very weak with the current lockdown in place; as well as the related foreign exchange trading. From a gross income perspective, we've managed to maintain broadly flat our gross margin at 30.2%, which was very pleasing. We did have, with the inclusion of PHS, an enhancement to the margin, but this was offset by the trading in Branded Products, Financial Services and the travel-related businesses. From an expenses perspective, and this has always -- well, certainly for the last couple of years, have been a highlight for a Bidvest presentation. On a gross basis, we've maintained -- or operating expenses, rather, are up at 1.3%, but on a like-for-like, they're down 9.6%. We're very, very happy with this performance. We are obviously benefiting from restructure programs that took place last year, but there is a continued strong focus on cost containment in each of the divisions. From a trading profit perspective, trading profit up 3.5% to ZAR 4.1 billion. We're very happy with this result, especially given that the comparative was a pre-COVID comparative. We've seen excellent results from Commercial Products and PHS. Automotive, Freight and Noonan delivered good results, particularly given that the revenue pressures that those sectors faced. Our SA Services businesses, if you exclude the impact of the travel and related businesses, also performed very well. Profits were lower in both Branded Products and Financial Services. Our organic trading profit contracted 8% off a pre COVID base. However, this does include the final MIAL mark-to-market adjustment of minus ZAR 144 million. In terms of other costs, not a lot to talk about on the acquisition line. Acquisition costs of ZAR 8 million mainly relate to our -- the Plush acquisition in Adcock, and there were some sundry disposal processes. And then on the amortization of acquired customer contracts, that's up quite a lot. On the completion of the PHS PPA, there was additional amortization there of the intangible of an additional ZAR 99 million. The net capital items line, that's predominantly the disposal of our Ontime Automotive business in the U.K., which was slightly offset by insurance claims proceeds across the group. Moving to our financial charges. They're up 3.6%, including IFRS 16. So it's on a like-for-like basis now. I think we're very happy with that result given that we had additional funding come into the mix because of the PHS acquisition, which resulted in additional 5.5% finance costs. Across the group, we maintained our CapEx programs. We haven't stopped spending. That continues. Our average borrowing cost across the group has reduced, now down to 4.6% pretax versus 6.5% last year, obviously, a reflection of lowering interest rates across the board. And our EBITDA interest cover remains conservative at 8.6x. From an associated income perspective, now that we've effectively exited from Comair and have got very, very small shareholding remaining there, the only material JVs left in the group are within Adcock in India. And the reason there's been such a big shift in the comparative is the prior year included Comair losses which are now no longer repeated. From a tax perspective. Our tax expense, if you exclude the impact of the MIAL ForEx impairment, and our capital items are broadly in line with the SA statutory rate which is really the core rate for the group as a whole, obviously we enjoyed slightly lower tax rates in both the U.K. and Ireland. And as these businesses continue to grow in the group, this will overall -- this will lower the overall group tax rate. From a noncontrolling interest and minorities perspective, this is now predominantly Adcock, which was consolidated from June last year. Our effective shareholding now in Adcock is 56.1%. From a HEPS perspective. As Mpumi mentioned, HEPS from continuing operations, up 6.3%. Normalized HEPS from continuing operations, and you'll recall that normalized for us excludes acquisition costs, the amortization of acquired customer contracts and the COVID-19 costs, is up 6.1%. HEPS from discontinued operations, which is the BCR business, was negative 7.5 cents. It's pleasing to be able to report the resumption of dividends again after the COVID delay at year-end; as Mpumi mentioned, the interim dividend 290 cents, which is 2.8% above the 282 cents declared last year. Our cover ratio is 2.25x, which is consistent with the policy range of 2 to 2.5x normalized HEPS. Moving then to our balance sheet and our debt and funding. I think broadly we're very comfortable with where we've landed from a balance sheet perspective. Our balance sheet is certainly stronger. We maintain a conservative approach which is consistent to previous years with -- particularly with respect to our debt and funding, net debt after cash and cash equivalents is down to ZAR 15.8 billion, from ZAR 9.2 billion (sic) [ ZAR 19.2 billion ], at the end of the year. You'll recall that the year-end position was elevated because of the PHS bridge. We're comfortably within all our covenants. And in fact, the -- both key ratios are improving, EBITDA interest cover to 8.6x versus [ 8.4x ] at year-end. Our covenant there is 3.5x. And then net debt-to-EBITDA at 1.7x versus year-end at 2.1x. Our covenant there is 3x. And what's obviously benefited that ratio is the significant net debt repayment of ZAR 2.5 billion which has come through our cash flow. 64% of our gross debt is now long term. We successfully raised a long-term debt program of ZAR 4.75 billion locally, that I -- we did talk to on a previous call. That was finalized in November, which has been used to assist with the PHS bridge takeout. Moody's did downgrade the group last year, in line with the sovereign, to Ba2. We've continued to monetize our noncore assets and generate good free cash flow to further enhance headroom, and we've got adequate funding facilities in place. So from a debt and funding perspective, very comfortable where the group has landed. We have included, as per normal, an interest cover graph really to demonstrate the relative stability of our interest cover being very consistent over the last few years. The spike in net debt that you see in the 2020 year was the PHS bridge, and obviously you're now going to see that start to come down. In terms of that bridge, we have repaid GBP 330 million in December 2020. GBP 234 million of that was via local debt, and GBP 96 million was via free cash. In terms of our debt maturity profile, as you can see, there's no significant maturities in the 2021 financial year. In 2022, the foreign debt reflected there is the PHS bridge. And then in 2023, the foreign debt there is the euro term loan, but just to remind everyone: We have 2 further 1-year extensions on that facility. And then lastly, moving to our cash burn. As Mpumi said, this is an absolute highlight for us. I mean cash conversion at 124% is exceptional. Really it has been a great cash result. Cash generated from operations at ZAR 6.2 billion versus ZAR 3.3 billion last year is fantastic. What we have seen in this number is a very strong working capital position. Working capital released by ZAR 336 million versus a ZAR 2 billion absorption last year. This is uncharacteristic, and it resulted from reduced inventories and accounts payable. While we're obviously very pleased, particularly with the inventory release, we are monitoring our inventory levels quite closely in the light of supply chain restrictions which we are seeing across some markets. And we're unsure at this point as to whether we're going to see a working capital absorption in the second half of the year, and I think that largely depends on the strength of what the second half recovery looks like. From a CapEx -- from a cash flow perspective, we still continue to spend CapEx, so that's still in the numbers. And we have seen a very strong debt repayment in the last 6 months. Our cash generation graph, which we always include, normally demonstrates an absorption of working capital in the first half of the year and then a release in the second half. Obviously this 6 months [ stranded on its head ] a little bit with the strong release. My expectation would be that -- if businesses starts to come back strongly in the second half, that we will see an absorption. So this year will be a bit of a reverse, quite uncharacteristic of our normal cycle. And then just finally some concluding comments. It's very encouraging to see the improvement of the COVID-19 statistics both in South Africa and in the U.K. and Ireland, and the rollout of the vaccine programs will obviously enhance this. This will stimulate an acceleration of the return-to-work scenario. Our businesses have been appropriately rightsized for current demand levels, and so we expect upside as businesses come out of lockdown. Profitability has returned across the group. And our financial position is strong, with good capacity for growth. Thank you.

Thanks, Mark. Thank you very much. I'm now going to go through the divisional review, starting with the Services division. And with each division, I will touch on the key financial metrics and then talk to some of the key drivers behind those individual divisional results. So if we start with Services. Revenue is up 28% to ZAR 14 billion, trading profit up 38% to ZAR 1.7 billion. Trading margin at 12% increased from 11% in the prior year. EBITDA up 42% to ZAR 2.1 billion, funds employed down 40% to ZAR 1.6 billion. And ROFE at 200% -- 210% is now more than double what it was in the prior year at 92%. The Services division has really delivered an excellent set of results. The half year, as indicated earlier, was supported by PHS, whose performance is in line with expectations making a trading profit contribution of GBP 24 million. Noonan operations in the U.K. in particular continued to be impacted by lockdown restrictions, mainly in the Horeca sectors. Outside of this, the rest of the business performed well, and we continue to be impressed by that management team. In terms of our Services operations, the division was negatively impacted by declines in the businesses that are directly exposed to the travel and tourism industry, with a ZAR 250 million year-on-year swing in profits contribution. On the upside, our Facilities Management cluster did well. Our Security and Aviation cluster also delivered a good result. Our Allied Services cluster continued to be impacted by low occupancy levels and offices. Overall, the teams across all the clusters are focused on identifying opportunities for growth, and the new business pipeline is also strong. Asset management was strong, as reflected in the decline in funds employed. Cash generation was good. ROFE at [ 220% ] is really excellent. The work that's been done by this team, especially in terms of looking for growth opportunities both organically and by acquisition, is really impressive. Noonan, in fact, has made an acquisition that we brought onboard early February this year, 2021, and I'll talk to that in my closing remarks. If I move to the next division, Branded Products. Revenue is down 5% to ZAR 8.9 billion, trading profit down 19% to ZAR 800 million. Trading margin was 9.1%, down from 10.7% in the prior year. EBITDA down 17% to ZAR 900 million, funds employed up 1% at ZAR 6.5 billion. And ROFE at 26.7% is down from 32.5% in the prior year. Branded Products faced really, really significant headwinds in the first half of the year. The work-from-home and learn-from-home policies adopted by both business and education [ institutions ], together with constrained consumer spending and the absence of the flu season which impacted Adcock, have significantly impacted trading in this division. Gross profit margin pressure was apparent in most areas of the division, but expense management was really excellent, with expenses declining by 4.8%. If I move to Adcock. They have just released their results those -- so those are available on a stand-alone basis. Adcock was negatively impacted by the absence of the flu season. Gross margin deterioration is due to unfavorable exchange rates, product mix. And unfortunately, we also had lower recoveries in one of our factories. Strong performance as well came out from our consumer division, who were up 48% on the trading line. OTC was down on prior year, and that's linked to the absence of the flu season. Prescription, flat year-on-year. And the hospital division was nicely up. The balance of the division aligned their operating expenses to revenue as declining print-to-post volumes, low office occupancies and constrained consumer spend put pressure on the top line. The back-to-school season was unfortunately disrupted by COVID uncertainties, and this placed quite enormous pressure on our businesses supplying basic and tertiary education institutions. Overall, margins were impacted by mix, lower rebates and exchange rate pressure. One of the really great performances in this division: If you exclude Adcock, operating and direct expenses were down 18%. So that gives you a sense of how much work went into cost containment. The teams must really, really, really be commended. Whilst trading profit is down 19%, this division has delivered a trading profit number of ZAR 800 million notwithstanding the above-mentioned challenges. If I move to our third division, Bidvest Freight, revenues down 13% to ZAR 3.4 billion, trading profit flat year-on-year at ZAR 600 million. Trading margin at 19% is up from 16.5% in the prior year. EBITDA up 1% to ZAR 800 million, funds employed up 16% to ZAR 4.2 billion. And ROFE at 31.2% is down from 35.9% in the prior year. Just in terms of those metrics, the last two, so funds employed and ROFE, are primarily impacted by the ZAR 1 billion investment in our LPG terminal. We'll start seeing an improvement in those metrics as we move forward. Holding trading profit flat over 13% decline in revenue is a solid result from the Freight division. Bulk agric and Mineral commodities performed well in the 6 months, with volumes of yellow maize quadrupling and chrome and manganese volumes increasing year-on-year. Our bulk liquid terminal was impacted by lower fuel and chemical volumes as well as price concessions. Bulk liquid volumes are expected to recover from April onward, which is great. And export slots for maize have already been booked from the end of April onward. Our LPG terminal was commissioned in October, in line with budget and is performing well. On the other hand, import and export volumes remained slow, impacting 2 businesses in this division, Bidvest International Logistics and Bidvest SACD. Restructures in both these businesses are complete, and the teams are focusing on securing additional volumes. Our Namibia operations are experiencing similar volume changes -- challenges, while our Mozambique operations are performing well. Overall, the team did produce a solid result, and we look forward to their contribution for the second half of the year. Coming to the fourth division, Bidvest Commercial Products, Revenues up 7% to ZAR 6.9 billion, trading profit up 44% to ZAR 500 million. Trading margin at 7% is up from 5.3% in the prior year. EBITDA up 34% to ZAR 500 million. Funds employed is down 13% to ZAR 3.7 billion, and ROFE at 26.7% is up from 16% in the prior year. Commercial Products really, really delivered an exceptional set of results, with phenomenal trading profit growth achieved across most areas of the division. And in fact, in this division, most of the businesses were well up on last year. These results were driven in the main by market share gains, strong brand equity, gross margin uplift and really solid cost control. The trade cluster, which comprises our electrical and Plumblink business, produced an excellent trading profit result. The catering cluster exceeded expectation and did well in the second quarter in particular, boosted by export revenue and overall reduction in expenses. The DIY/Tools/Workwear cluster delivered an outstanding trading profit result due to the increase in DIY projects. Yamaha was a standout performer in the leisure cluster, and this was really driven by increased demand for luxury goods. The industrial cluster's trading profit result improved off the back of increased gross margin, reduced expenses and increased revenue from [ consumables ]. There is friction in the supply chain. Mark referred to it already. This is being actively managed by management, but we do highlight it because our ability to have stock and deliver on the -- on increased demand is what really also contributed to the results in this division. And so we are cognizant of those supply chain challenges, which are global, but as I indicated, management is actively managing this. A 44% increase in trading profit against a non-COVID 2019 half year is really a spectacular performance from this division. If I move to our fifth division, Bidvest Automotive, revenues down 7% to ZAR 10.6 billion, trading profit up 6% to ZAR 300 million. Trading margin at 3% is up from 2.7% in the prior year. EBITDA up 1%, ZAR 300 million. Funds employed is down 25% to ZAR 1.9 billion, and ROFE at 34.4% is up from 24.7% in the prior year. The automotive market overall in South Africa continues to be impacted by a weak macroeconomic environment, constrained disposable income and lower consumer confidence. According to naamsa, the South African new vehicle dealer market volume decreased by 12.7% year-on-year for the 6 months ended 31 December, so there's real contraction in this market. McCarthy sold fewer new and used cars, and sales to fleet customers were also depressed as customers held back on CapEx expenditure, obviously liquidity being a key focus for all businesses. Aftersales activity was impacted by lower mileage and subdued trading activity with our panel clients, but the team focused on cost containment. And the result of that is a 10% reduction in operating expenses off a 7% decline in revenue. To drive further efficiencies, innovation in technology is being leveraged through the introduction of robotics. And our online auction platform is also gaining momentum in Burchmores. Our Namibia operations delivered a solid performance for the half year due to increased new and used vehicle revenue in that territory. Delivering 6% growth in trading profit off a 7% decline in revenue is a commendable result. And lastly, Financial Services. Revenue was down 5% to ZAR 1.3 billion, trading profit down 39% to ZAR 200 million. Trading margin at 12.7% is down from 19.8% in the prior year. EBITDA is down 27% to ZAR 300 million. Funds employed is down 2% to ZAR 3.7 billion, and ROFE is unfortunately disappointing at 9.2%. The Financial Services division really experienced an extremely, extremely difficult half year. And they were really impacted significantly by the knock-on effects of COVID-19. The bank's foreign exchange business has been harshly impacted by the global travel restrictions. FX notes and the world currency card reduced quite dramatically. FX trading margin remained under pressure. And interest rate cuts also had a negative impact on interest revenue and average yields on cash. In relation to our fleet business, which is a significant contributor in the bank, fleet income reduced due to higher maintenance charges as a result of an extension of a sizable fleet contract. And also, at the same time, we had a municipal contract that reached end of term. The bank's balance sheet, on the other hand, is strong, adequately liquid and adequately capitalized. Total loans and advances grew 14%, and deposits are up 8%. Cash and investments are also up on the prior year. Really our challenge in the bank's balance sheet is about declining leased asset balances. The team just really needs to secure more fleet contracts so that we can deploy the excess capital. The bank's digital journey is progressing, having reduced its retail footprint from 63 branches to 21 during the period under review. Bidvest is -- looking at our insurance businesses: Bidvest Insurance revenues were impacted by lower premium income collected as consumers' disposable income came under pressure. The negative revenue variance was offset by cost containment initiatives, lower acquisition costs and improved claims management resulting in a good trading profit growth year-on-year. Compendium held its own. However, policy consent -- cancellations remain a concern, and we've already alluded to constrained disposable income earlier. Bidvest Life new volumes were up year-on-year. However, this has been offset by higher claims. The first half of the year was really, really tough for this division. I mean, looking forward, we expect the pressure on FX income to continue into the third quarter of the financial year, but overall we expect improved trading to June. We have appointed a new CEO for the division, Hannah Sadiki. Hannah started on the 1st of October 2020. Hannah brings with her 30 years banking experience, and we are really confident that she'll be able to bring a lot of value to this division going forward. Hannah also joins us as the first black female divisional CEO in the history of Bidvest. On corporate and properties. Bidvest Properties really managed to weather the storm. The portfolio's vacancy rates are at the bottom end of industry averages. Revenue declined as a result of rental reductions and an increase in building vacancies. Operating expenses, though, remained well controlled. And the market value of the portfolio is circa ZAR 8 billion. Ontime Automotive has been disposed of. And as Mark indicated earlier, we're very relieved and very happy to have closed off MIAL on the 5th of February, and the ZAR 1 billion proceeds held and banked. Moving to just strategy and outlook. We've got a blueprint and, I suppose, let me call it, the DNA of the group that really is what drives performance and what enables us to deliver in the way that we do. And maybe just touching and highlighting some of the areas that are on the slide: Leadership, entrepreneurial leadership style and culture in the business, is really fundamental. It's our winning formula. It's part of our magic. [ This is entrenched ] across all our divisions. And our business managers, CEOs and MDs understand that what is expected of them is to treat the businesses and run them as if they were their own and take personal accountability. We also have best in breed. Our management teams are the best in their industries, and they're experts in their field. And all of this contributes to the kinds of results that we deliver. Diversity and inclusion will always be important. And I'm very happy to report that at an executive leadership level, and this is from our divisional CEOs up, 45% of the team are women and 45% are black. In relation to strategy, we'll continue to focus on diversifying our portfolio, continuing to broaden our service basket. We'll allocate capital efficiently. We'll continue watching our debt levels and keep these within an acceptable range whilst at the same time creating capacity for acquisitive growth. Expanding in niche areas internationally remains our focus. We've identified hygiene services, facilities management and plumbing and related services. And we've ticked on the hygiene and the FM side and we'll continue looking for a plumbing and related type acquisition. Our people are our #1 priority. You can imagine, when you employ more than 100,000 people, the health and safety, the livelihoods of our people are really key and important. A lot of work is happening behind the scenes that you don't see, but we're working hard in terms of ensuring that our 100,000-plus people are key Bidvest ambassadors out there for us. Technology innovation remains key [indiscernible] our business. The only way that a business remains future fit and ready is through leveraging technology as an enabler and key driver. We're very comfortable disrupting our own business. This is evident when we acquired the drone business in our security portfolio, bringing the disruption within our own organization and being comfortable to enable our businesses to evolve accordingly. Lastly, in terms of structure, our 6 pillars of operations really give us focus. We're very comfortable that we can continue to grow within those 6 pillars both organically and by acquisitions. Our decentralized model gives us the agility and flexibility that I've already spoken to. It's part of our DNA and it will remain. And I think what -- the way that we've been able to deliver in the first half of the year is really because this decentralized model enabled us to do a number of things all at the same time across 200-plus businesses. And of course, we've got our established governance processes, which we work through in line with our ethical business practices. Underpinning all of this is our core values of honesty, integrity, accountability and respect; and so we will continue focusing on these areas as we move forward. In closing. Just in terms of the outlook going forward, we anticipate that the economic -- tough economic environment is likely to persist, and really it's around quick decision making. We've taken action very quickly. We've optimized our cost bases with improved efficiencies. And we're really very comfortable that our businesses are future fit, and our models are sufficiently scalable. We've expanded our geographic footprint and we'll continue leveraging this going further. In terms of growth, we'll continue looking for growth opportunities both organic and by acquisition. And as I've indicated earlier, Noonan finalized the bolt-on acquisition in February of a company called the Axis Group, who are a security and cleaning business in the U.K.; and the value that Axis brings to Noonan is as follows. Firstly, it expands our geographic footprint in the U.K. At the moment, we've got 2 regional offices. With this acquisition, we'll move to 9 regional offices across the U.K. We'll also be merging 2 large security portfolios in the U.K. And this acquisition will take Noonan, from a security perspective, to #1 in terms of market share in London and #4 in the U.K. Our cleaning business does get a bit of scale but overall in general is still subscale, in general, when you look at the whole of the U.K. There are further synergies that have been identified. And as always, through a due diligence process, we look for areas and opportunities for EBIT uplift. The team has done this, and these will be delivered over a 2- to 3-year period. Enterprise value for this acquisition was GBP 24 million. In closing, I'd like to thank Gillian and Mark. I think we've had a fantastic 6 months. Whilst it was tough, we had fun. And in fact, I think across all our management teams we were able to bring back hope. And we were able to bring back energy, which is important. I'd also like to thank the divisional CEOs; and also in our exco, Ilze and [ Dacona ], just all for their leadership. Because good results really fall on good leadership, and the team has done exceptionally well. To our 100,000-plus ambassadors out there, I thank them because Bidvest is a people business. So we produce these results because of the people that we have. Lastly, we remain very confident in our ability to deliver sustainable growth and create long-term value for all our stakeholders. Thank you very much, and happy to take questions.

Thank you, Mpumi and Mark. I'm going to hand back to Judith.

[Operator Instructions]

Thank you, Judith. While we wait for any questions to be posed: We've got a question here from the webcast. It comes from Dumisani from All Weather Capital. He is commenting that we said that, our noncore assets, the cleaning up of that portfolio is nearing completion and that Adcock is now classified as core. [indiscernible] have any specific preference for holding listed or unlisted investments.

[ Okay ], happy to answer that. Yes, you're absolutely right, cleanup coming to an end. Adcock is core. We do have a preference. We prefer not holding listed entities. We've got a very clear preference. That's preference number one. And the second preference is that we also do have a preference for owning 100%. Most of our subsidiaries, we own 100%. Adcock is obviously an anomaly from that perspective. There's history to it which is known and understood, but yes, that's the answer to that question.

Okay. I suppose there was a question with Adcock. It's core, but we've mentioned that, that is indeed core. Second question, I suppose, comes from Ross Krige from JPMorgan. "Do you think Financial Services can be fixed with minor changes? Or should we expect major restructuring?"

Yes. So thanks for the question, Ross. Yes, we think it can be fixed. I mean the reality of what happened in the first half of the year for Financial Services is that, when travel bans were put in place, FX revenue just went to 0. So a significant portion of the business, that top line just really went to 0; and that's really the material impact there. As travel restrictions lift and people start moving around and that demand comes back, we'll start seeing a recovery. Really, I mean, the big thing here, and I spoke around it, we've got excess capital in the bank. We can deploy it. Great returns and margins from our fleet contracts, and we just need to land a couple of those again. And I mean really that's what's required in this business. Mark, I don't know if there's anything else you want to add, but I mean those are the two.

Yes, absolutely the key issues, yes. And I mean, Ross, they're not going to take massive amounts of change from where we are now. As you'll know, we've already done quite a lot of the actual infrastructure restructure that we needed to do. So in terms of taking out the branch network, particularly on the ForEx side, that's been done with the restructure of the appropriate people as well. So I think the heavy lifting from a restructure point of view has already been done. And the bank is now well positioned, obviously, for the travel market to then open again.

Thank you. I'm going to combine 2 or 3 sort of questions that's similar in vein is -- the question is, where will the next rand of cash flows be allocated in terms of growth, acquisitions? Then there's specifics. "You made a specific reference to a plumbing-type acquisition. Has any target been identified? And any specific geographic areas that would be of interest?"

Let me pick up the sort of capital allocation component of that. Obviously -- and you can see it from what we've done in the last 6 months. We have been looking just to pay down some debt, and that's specifically in relation to the PHS bridge. We did a significant amount of that in the 6 months. There will be some more to come now, so obviously part of the capital will be allocated to that, but we continue to look for acquisitions through this time frame. The process that the business has always gone through hasn't changed. We have -- as Mpumi already alluded to, have done one in the U.K. There are a number of others that we are actively pursuing at the moment offshore, and we will continue to do so. All of those are currently at a sort of bolt-on level, which for us is about ZAR 500 million, but certainly the capital allocation from an acquisitions point of view is going to carry on as is.

In terms of plumbing, have we found anything? We've seen many, but we are looking for a particular business model. We acquired Plumblink about 7 or 8 years ago. That business has really been absolutely spectacular, has grown from strength to strength every single year, but it's got a specific model. It's -- and it's quite unique. And so whilst we've seen a number of acquisitions, when we kind of peel it back and look at the revenue mix and the profit mix and the margin mix, we haven't yet found what we're very comfortable to proceed with, so we'll continue looking. And as you know, I mean, we very -- we don't [ rush the goalie ] when it comes to acquisitions. We must find the right operating model and then we'll look further in terms of having further conversations. From a planning perspective, we've just not yet. We haven't found it yet.

All right, Judith, I'm going to come back to Chorus Call. It's 2 questions on the line before we will revert to the webcast. The first question comes from James Twyman.

Yes, I've got a few questions. Firstly, could you just say how much debt is in the U.K. now after your refinancing and compared with how much it was at the peak? Secondly, the cars. You've sold quite a few cars from the car rentals business. Could you just give us some idea of how much cash has come in from that business, which I think is very substantial, but also how much more there is to come in the second half? And then I had a final little question, which is just on the travel business, what your plans are in terms of -- are you planning to sell all of it, some of it? Or where are we on that?

Yes. Well, let me deal with the debt question first. So in terms of overall offshore debt, and you'll recall we've got the 2 components of it. The first component relates to our FM service businesses, which was Noonan, USS, Future Cleaning, et cetera. We have a euro facility in play there for EUR 320 million, and that facility still remains in play. It, the facility had an initial period of 3 years, which terminates next year, in September, with 2 additional 1-year renewal periods. And that -- so that still remains in play at EUR 320 million. And the other debt that we put in play was the PHS bridge, GBP 516 million in total. That runs through until December 2021. We paid down GBP 350 million of that, with GBP 186 million remaining. In terms of discontinued cash, we've brought in -- and this is now obviously the sale of the vehicles from BCR, we've brought in 600 million to date.

And then James, if I can answer your question on our travel businesses and what the plan is there. So last year, when we made a decision to dispose of BidAir Services and BCR, we obviously had our travel businesses also in the mix because of the impact in the travel and tourism industry. Our travel businesses are asset light. We've restructured sufficiently. We don't have huge capital investments in those businesses at all. We're very clear that from a restructure perspective there isn't really more that can be done now and it's really around waiting for recovery from a volumes perspective. So we're very comfortable to stay with our travel businesses, and they'll rebound at the right time. BCR and BidAir Services, on the other hand, were capital heavy. We had 1.5 billion in vehicles in our car rental business. We would have need to recapitalize BidAir Services at license renewal point at 0.5 billion, and we just didn't feel that we wanted to have that kind of capital locked in when we knew that volumes would take a while to recover. So travel services, we're still in the game.

Thank you, James. The next question comes from Paul Steegers. Paul?

Yes. Hello. Can you hear me?

Yes, we can.

Yes.

Great, and well done on the numbers. 2 questions from me. Maybe just on Noonan, yes, can you give us a sense of the trends that you've seen in terms of revenue and profitability? And what do you think has been the impact maybe to Noonan but also to PHS, if any, from the sort of work-from-home phenomenon post COVID? And I'm just trying to get a sense of what the negative impact has been to some of those operations, cleaning, et cetera; and what we could see happening when things, hopefully, open up. That's the first question.

Thanks, Paul. So in relation to Noonan and kind of what's happened in that business, the business has really done well. Our biggest challenge there has been the acquisition that we've made, which is Future Cleaning. And their exposure is mainly in the Horeca center and in particular cinemas and cinemas really just closed down in the U.K., and so that's where the significant negative pressure has been. The rest of the business: Ireland is strong. Our operations in Ireland are doing very well. And the U.K. operations, the drag is just lockdown. Cinemas closed. And Future Cleaning's exposure on the cinema side is quite significant. Impact of work from home. So in both, yes, businesses, I mean, the impact is obviously, with the vacancies, your contractual revenue declines, right, because you then have clients where you're unable to bill for that full contract, but what both businesses have done is they've picked up on the one-off work. So whether it is big decontamination of offices from a Noonan perspective. And obviously, from a PHS perspective, sanitizers have become a consumable, a big consumable item that we didn't have before. And the reality, in fact, people are washing their hands more, so from a PHS perspective, consumables in terms of soap are up. And so just in terms of one-off work, both teams have been able to pick up on the one-off side to compensate for the decline on the contractual revenues.

Just in terms of the underlying contract pool, particularly around hygiene services, because that's how we really measure the sort of the growth of these businesses. Now so from a PHS perspective, that underlying contract pool now has grown consistently for, I think, end of January, with 21 months straight. So what that says is that on net basis you're growing the net amount of -- net value of contracts versus the contraction thereof. I think we're very, very comfortable that they've managed to do that despite what's happening with COVID.

Paul, do you have a second question?

Okay, got it. Yes. That's helpful. Just on the Freight and LPG contract ramp-up: Obviously, it was a little bit late, but now it's operational. Can you just remind us how we should think about this in terms of sort of annualized revenue and margins going forward?

Sure. I mean so it was a ZAR 1 billion spend. We've consistently said that we're targeting a return of 20% after tax over the life of the project. Volumes have come onboard with commissioning now. As we said, we did commission [ about ] 3.5, call it, 4 months later than expected, but we were actually quite [ chucked ] with that given some of the COVID delays that were around. It's certainly performing from a financial perspective as we expected, and in fact, volume levels are looking to be better than what our anticipated plan was. So in this particular year, you'll see 8 months of LPG coming through. There is just, I guess, an extension to the same question. There is a second LPG project that we are looking at in Isando which is on the cards as well. And that's probably got another 2 years to go before we can -- we'll bring that to market.

Thank you, Mark. All right, let's go back to the webcast questions. And Mark, a question here for you: What local debt is maturing in '22, 2022?

Yes, yes.

And what is the [ base planned ] for this date?

So the local debt. And I can refer you to it actually -- we've actually put it in the presentation. Give me 2 seconds. It's on Page 11 of the presentation. We've got pref shares that are maturing and, I think, one small bond. And I mean we've got adequate free cash flow to cover those, so obviously, depending on what happens from an acquisition perspective, if there's nothing significant that we need at that point in time, we will then use free cash flow to pay them down. If there's an acquisition opportunity, we'll look to roll them.

All right. And then a question on PHS. [ Warren ] comments that PHS' trading margin of 16.2% looks ahead of prior guidance. What drove this? And how far advanced are we in terms of the synergy extractions?

[ Warren ], I'm glad that actually we've been able to deliver early, but -- so let me talk to the main drivers. So it's the one-off works that I spoke to earlier. So PHS, I mean, has picked up a significant amount in that space. And that work comes in at higher margins than the contractual revenue that we get, and that's really what's boosted PHS' numbers. And in fact, they're working a lot on vaccination...

[indiscernible].

Testing stations, et cetera. They've just -- they've picked up quite a significant amount of, call it, COVID work, which will be temporary in nature because, I suppose, once in the U.K. they're done with the rollout, all of that will dry up, but for the moment, we'll take it. And that's what boosted our margin. Unfortunately, because of lockdown and inability to travel, some of the synergies that we've spoken to, we've actually only been able to deliver on the one. So if you'll recall, we've spoken about a bin liner project. We've been able to roll that out now 100% to all our clients. That contribution is material in the number and it has contributed to that margin uplift, but the other areas, we still need to get to. And hopefully, when we can travel, we can do that. And that's obviously in relation to supply chain and kind of combined procurement between Steiner and PHS. The work with Noonan has started, but we expect that it'll pick up momentum in the second half of the year. I'm just trying to...

The extension of the range.

The extension of the range, we haven't gotten to that yet. So we do still need to have a look at their range and just bring in some of our best practice, but those -- I mean, to answer your question: We've only hit 1 of the synergy benefits. We've still got 3 others to follow. I mean it's really been the COVID work that's boosted them up.

Mpumi, maybe just as a follow-up in that region, [ Warren ] also asks what the contribution from government support systems and schemes were in this period.

I don't know if we know the split. I mean...

[indiscernible]

Certainly the contribution from a South African perspective has been very significant in terms of the UIF TERS. And I mean really it has -- given that we're such a large employer in the South African environment, it really has enabled us to support our employees and keep them in work. And I think we -- as Mpumi did in her presentation, we've got to thank government for the process that they put in play. It really has kept a lot of people in employment. From a U.K. and Ireland perspective, I mean, they've got furlough schemes in play there, and similarly it really has helped them to keep people in play. The overall support in all environments was significant.

And then a question -- thanks, Mark -- from [ Manera ] from UBS. She -- [ Mpumi ], you mentioned market share gains. She's interested to understand what the nature of the market share gains were. And is that competitors closing down or out of stock? Or what is driving those market share gains?

Okay. So most of those market share gains, I did indicate that we saw that in our trading businesses. And just maybe to tell the story of what we've seen coming from April lockdown through to December is some of our trading businesses in the lockdown were designated as essential services. And so I suppose, with limited points for purchasing, our sales did pick up. And we did pick up some new customers during that time and we've just held onto those customers, which has been great. And so there was obviously a shift from a customer purchasing perspective and we've held onto some of those customers. So that's the first point. Secondly, one of the things that we also did pick up was an increase in just sales. And what gave us the advantage, and I spoke to it as well, is just our inventory levels. So we had the stock before the lockdowns kind of hit. Our management teams and our trading businesses anticipated that something was coming, increased their inventory levels. And so when you had global lockdowns and really cargo not moving, we had stock. And so the suppliers that had the stock were the ones who could fulfill the order, and just from that perspective, we were able to pick up. And we've kept those clients because clients want to go to suppliers where you're not given these long lead times when you need to deliver. And so that's what also pushed us from a market share perspective. And yes, there are some of our competitors who have closed down. The number of companies who have gone into business rescue in the half year -- or from April lockdown across very different industries is there, and we have picked up from some of that benefit. So it's a combination really of all of that, but we definitely, definitely can see that the market share in those trading businesses is up nicely. Thanks.

All right, so those are the questions that's been noted on the webcast. No, I don't see any further questions in the queue on the call, so it's once going, going gone. So thank you very much for participating. We will load a recording of this call on the website later today.

Thank you. Thank you very much. Thank you [ all ]...

Thanks for joining us, everyone.

Thanks, everyone. Cheers. Bye-bye.

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