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

Good day, ladies and gentlemen, and welcome to the Bidvest Interim Results Presentation. [Operator Instructions] Please note that this call is being recorded. I'd now like to turn the conference over to Ilze Roux. Please go ahead, ma'am.

Good afternoon, good morning all. Thank you for your interest in Bidvest and joining this interim results presentation today. I use land language intentionally and leave the descriptive words for Mpumi when she speaks to you through them. I'm joined by Bonang Mohale, the Chairman of the Bidvest Board; Mpumi Madisa, the Chief Executive; Mark Steyn, CFO; and Gillian McMahon, the Executive Director for the group. As is customary, the team will walk you through the results, and then there will be time for Q&A. With that, let me hand you over to Bonang for some opening remarks.

Good afternoon, colleagues. It is an absolute honor to be with you today and to be given the privilege of welcoming you on behalf of our Board of Directors and the entire Bidvest assembly. It is very pleasing that the group has produced another [ sterling ] set of results, achieving strong growth time after time. This isn't something that happens by chance. It is a result of our people's collective will, determination and dedication to succeed, and the Bidvest Group's carefully considered strategic intent, together, delivering superior products and services each and every day to our vast customer base in South Africa, the United Kingdom, Republic of Ireland, Spain and Australia. These half year results are an accolade to our dedicated leadership team as well as the group's more than 120,000 committed employees in 7 divisions and about [ 250 ] companies. Accomplishing this whilst the pandemic is still lingering, persistent energy crisis, with increasing frequency and severity and a time of general geopolitical and socioeconomic turmoil is simply spectacular. We remain very aware of the many local and global challenges that exist. And it gives us great comfort that our leadership is constantly planning and preparing to manage these risks wherever possible. As former President Mandela once said, he or in Bidvest's case, she who does not see the opportunity today will be unable to take tomorrow's opportunity. We certainly abide by this across the group, and it is reassuring that our diverse portfolio of businesses, coupled with a team's humble agility and deep experience, will ensure that we remain on track for continued value creation for all our broader stakeholder community. [ I'm pretty ] energized and emboldened to hand over to Ma-Nompumelelo Thembekile Madisa and the team to take us through these results.

Thank you very much, Chairman. Good afternoon, everybody on the line. Thank you very much for taking the time to join us today. I am extremely pleased with the group's first half performance. This result is excellent given the macroeconomic and local headwinds we faced during the period under review. The story of the first half of the financial year is 1 of 2 things: firstly, strong organic growth and this organic growth is across all 7 divisions; and secondly, significant market share gain. And our Southern African operations capitalized on the growth nodes in the agricultural sector, the mining industry, renewable energy, and the continued recovery of the travel and hospitality sector, which is now sitting at around 85% to 90% of pre-COVID volume. Our hygiene and facilities management operations are undergoing a COVID normalization period after 2 years of very strong COVID-related revenue and profit. Six divisions posted impressive double-digit trading profit results. Our overall returns are stable, notwithstanding the high investment in working capital and mergers and acquisitions continue, and the M&A activity in the first half of the year has also been strong. In terms of disposals, we disposed of T&C in Namibia. This was part of our portfolio cleanup process. The sale process for T&C started in 2020. It's been a long and hard process, and I'm very happy that the sale is now concluded. We disposed of BWEB as employee benefit is not a core product offering in our insurance cluster. I'm happy to report that the big disposal and portfolio streamlining process we started in 2017 is now complete. In terms of acquisitions, just to mention a few, we acquired BIC Australia in July last year. I reported on this at the year-end results. We also acquired A2, a forklift hire business, in august 2022. In November last year, we acquired Autosure, a small bolt-on for Bidvest Insurance. And in October last year, we acquired Sahicasa, a small hygiene and pest bolt on for PHS in Spain. Lastly, on this slide, I'd like to highlight the negative impact of the energy crisis in South Africa. The challenge of uncertain and unreliable access to power in South Africa has moved from a load shedding risk to a business continuity risk. We've done well in the period under review to weather the storm, but keeping operations running has come at a significant cost. Fuel increases across the group are primarily due to increased diesel costs for generators, and additional CapEx has also gone into solar solutions for new warehouses. Our businesses are in the process of evaluating the most optimal mix between electricity, alternative and renewable energy. It's difficult to quantify the rand value impact of load shedding, but at an individual business unit level, we can see the negative impact on profitability. And so whilst our results are good, I have absolutely no doubt that they could have been better. We will therefore be increasing our focus on solutions across the group for sustainable and consistent access to power. Moving to the next slide. I'm going to touch on some of the highlights of the interim results. Trading profit at ZAR 5.8 billion is up 14.5%, with excellent performances from Services South Africa, Freight, Commercial Products, Branded Products and Automotive. We've also seen a fantastic turnaround in financial services. And while flat, the results from Services International is solid given the high 2022 base. And just to contextualize this profit number, in 2016, trading profit was ZAR 5.8 billion for the full 12 months; and in 2023, 7 years later, trading profit is ZAR 5.8 billion for the 6 months. We've maintained our growth and trading margins at 29.4% and 10.2%, respectively, notwithstanding the high inflationary environment and increasing energy and distribution costs. Operating cash pre-working capital was ZAR 7 billion, and we had a significant working capital outflow of ZAR 5.5 billion. Mark will unpack this in his section, but just to comment there from an elevated inventory perspective, we are selling into increased demand across various parts of the business. There's an element of normalization of inventory levels in some divisions, and there's also an inflationary impact on that inventory line. But as I said, Mark will talk to it a little bit more in his section. The balance sheet remains strong with net debt-to-EBITDA slightly increased at 1.9x versus 1.8x in the prior year. But this remains below our internal tolerance level of 2.5x and below our debt covenant of 3x. Returns remain solid in the business with ROFE at 37.6% versus 40.4% in the prior year, and that decrease was due to an increase in funds employed. ROIC at 16.3% is nicely up from 15.5% in the prior year and remains above our weighted average cost of capital. HEPS and normalized HEPS are both up 15%, and the dividend for the half year at ZAR 4.37 per share is also up 15%, and I trust this will be well received by our shareholders. I'd like to hand over to Mark for the financial overview.

Thank you, Mpumi, and good afternoon, everyone. A quick thank you first to all the teams who prepared these results. We're really appreciative of all the effort that goes into putting the numbers together. A few general comments as Mpumi indicated. Really pleased with these results with solid organic growth supplemented by acquisitions, 6 of the 7 divisions producing double-digit trading profit. The ghost of COVID is still evident in the base and will be with us for 1 more quarter. However, supply chains are now mostly normalized and inventory availability has certainly improved. The increase of inflation, fuel and distribution costs, interest and exchange rate movements are -- or is putting impact on our margins and is reducing operating leverage. But despite this, we've managed to maintain our trading margin for the group. We have increased our investment in working capital, especially in our trading businesses with higher levels of inventory and debtors. We anticipate a continued net investment for the remainder of the year, reflecting the underlying growth in these businesses. There have been no significant funding activity during the last 6 months. Our debt mix has reduced the impact of interest rate hikes with only a very small increase in our average funding cost. We have good debt capacity, both locally and internationally, and we'll take appropriate steps to increase this should potential M&A opportunities materialize. As we previously reported, we closed the acquisitions of BIC, which is a niche cleaning business in Australia; and A2, which is an electric forklift business in South Africa during the 6 months, together with a number of smaller bolt ons. These businesses are all performing in line with expectation. Our pipeline is looking very positive with some reasonable-sized opportunities in Europe and smaller bolt ons in both Australia and South Africa, and we're encouraged by the opportunity set that's available. There were also a few small disposals concluded, as Mpumi mentioned, with the largest being the noncore food distribution business, T&C, in Namibia. From an accounting perspective, the only IFRS change we're preparing for is IFRS 17, which is applicable to our insurance businesses, and that's for the 2024 financial year, so next year. With this as a backdrop, let's have a look at the detailed results. Revenue perspective, revenues up 14% to ZAR 57.2 billion, with double-digit revenue growth being achieved in 5 divisions in Freight, in Services International, Services SA, Commercial Products and Branded Products. Our acquisitions provided 2.5% revenue growth. We'll unpack the divisional results in more detail later in the presentation. From a gross income perspective, the gross profit margin is largely stable at 29.4% due to the divisional mix. And it's a very good result given the significant increase in low-margin revenue streams from freight disbursements. You can see the freight revenue is up 28.7%. And then in Services SA, from travel and hospitality, Services SA is up 22.4%. This half also did not contain any COVID revenue. From an expense perspective, I think the expense performance has been good. Operating expenses are up 11% versus a revenue increase of 14% from -- in terms of organic expense growth, expenses up 9.1%, driven by payroll inflation, fuel and distribution costs, and ForEx movements. And ECL provisions have also increased due to the growth in the underlying debtors book. Our expense ratio, though, has improved from 19.8% last year to 19.3%, and there's a continued strong focus on cost containment right across the group. Other income is down quite significantly on the basis -- on the back of lower investment income in our Financial Services division. From a trading profit perspective, overall trading profit up 14.5% to ZAR 5.8 billion. Very happy with this result, with good underlying organic growth of 10.9%. Happy to see that we've got double-digit growth from all the divisions, except Services International, which was flat. If we then just look briefly at each of the divisions, Services SA was outstanding, continuing to benefit from the benefit of -- on the rebound rather of travel, hospitality in the catering sectors as well as improved office occupancies. Freight results reflect strong bulk mineral and LPG volumes, a resurgence of clearing and forwarding revenues and strong regional results. Commercial Products benefited from exponential renewable energy sales and good margin management in an environment which saw operating leverage reducing. Branded Products produced a [ good ] round of results with good top line revenue off a high base. Office Products and Data, Print and Packaging continued last year's good momentum and consumer products, excluding electrical products, traded well. Adcock produced excellent results. Automotive benefited from improved new vehicle volumes as supply chains start to ease, but we have seen in the used car side, used car margins are starting to normalize. Aftermarket sales are now close to pre-COVID levels. The Financial Services turnaround is very pleasing with core trading up substantially, partially offset by reduced investment income. And this has been supported by a stable insurance performance. It's great to see the turnaround program that we put in place coming to fruition. Services International was flat, including the BIC acquisition and down organically following the nonrepeat of COVID-related revenues. But importantly, organic performance, excluding the COVID impact, was up 7.6%. If we look at our finance charges, we're up 16.1%, including the impact of IFRS 16 fair value adjustments and hedge costs. Borrowing costs excluding IFRS 16, et cetera, are up 21.2%, and this reflects the higher average gross debt levels due to the working capital investment and M&A as well as higher interest rates, which were mitigated to some extent by the fixed rate debt mix. Our interest cover remains conservative at 9.4x. Other costs, including acquisition costs, are up following higher levels of corporate activity; and customer amortization is up as a consequence of the inclusion of the BIC acquisition. Our taxation rate -- the effective tax rate is at 27%, down 1% from this time last year, the decrease largely reflecting the reduction of the SA corporate rate. And then just to note that the U.K. tax rates will increase from 19% to 25% with effect from April this year. In terms of net capital items, they reflect a capital loss of ZAR 51 million, and this is largely to do with the loss on disposal by our Namibian T&C and Rennies Logistics businesses as well as some nonstrategic properties. Our HEPS, as Mpumi mentioned, up 15.3%. And our normalized HEPS, which is kind of the baseline that we look to manage is also up 15.3%, very, very nice result. And dividends, an interim dividend declared of ZAR 4.37, up 15% on the ZAR 3.80 declared last year with a cover ratio of 2.25x within our policy range of 2x to 2.5x normalized headline earnings. If we move now to the balance sheet in our debt and gearing, we maintain a conservative and consistent approach to both debt and gearing. We hold 59% of our debt offshore, which is similar to last year. And our gross debt is up ZAR 2.4 billion to ZAR 25.8 billion. Net debt, debt, which is after cash and cash equivalents is up ZAR 6.7 billion to ZAR 18.6 billion. Our debt levels have increased following the investment in working capital of ZAR 5.5 billion, which I'll talk about just now and the acquisition of BIC for ZAR 1.8 billion. We're well within our covenants, and both key ratios are stable. Our net debt to EBITDA, as Mpumi mentioned earlier, 1.9x versus last year's 1.8x. Importantly, the net debt to EBITDA for our offshore businesses is at 5x post the BIC acquisition. This is consistent with our year-end position. 79% of our gross debt is long term, with 49% of the debt subject to fixed rates, and we obviously clearly benefited from that in the dramatic hardening of interest rates that we've seen. And if you look at our average cost of debt, it's only -- it's moved up just 50 bps to 5.2% pretax, which is a really good result given the significant movement in the base rates. Net interest cover is at 9.4x. We've had limited funding activity over the last 6 months with just 1 pref share extended for 3 years on improved terms and then a small domestic bond of ZAR 614 million redeemed. We've got good funding facilities in place with GBP 240 million offshore available for M&A, and that's post the acquisition of BIC and then a further ZAR 17 billion available in South Africa from domestic facilities. Our interest cover graph reflects the relative stability of our interest cover over the last number of years. And obviously, you can see the increase in net debt, which has been impacted by the working capital absorption. No significant changes in our debt maturity profile. We've got no sizable maturities in the near term. 79% of our debt is long term in nature, 21% current. You'll see in the 2025 year, we've got an RCF and term loan maturity then, which has got a further 2-year extension option, and we've got relatively balanced domestic maturities. We move now to our cash flow. Cash flow was a key focus for Bidvest. The underlying cash generated by operations before working capital has been good at ZAR 7.3 billion, which is up 10.9% on the prior year. While we typically see an absorption of working capital in the first half, the increase this year of ZAR 5.5 billion versus ZAR 2.6 billion in the prior is noticeably up. To unpack this, if we look at first year, our inventory growth, which is up ZAR 2 billion, this is uniformly spread across the 3 trading businesses, automotive, Branded Products and Consumer Products. We flagged the normalization of the auto inventory last year and are pleased to see supply chains easing, which has enabled us to get more stock. The growth in inventory in Branded Products and Commercial Products reflects good underlying trading and extra safety stock held as well as product price increases impacted by both inflation and ForEx movements. Overall, though, our stock days have only moved up slightly. I think it's about 1 day in total, and we're comfortable with the quality and salability of the stock. Debtors are up 5.8%, which is in line with our revenue performance, and the underlying book is in good shape with better overall aging. Our bank has increased net advances by ZAR 600 million, which represents positive business growth. Creditors have increased -- decreased rather by ZAR 1.8 billion, following increased prepayments to secure imported inventory and a large early settlement of a [ ZAR ] deferment. As I said earlier, we anticipate a continued investment in working capital for the remainder of the year, reflecting the underlying growth of the group. Our CapEx spend has increased to ZAR 1.5 billion in the current year and reflects a consistent level of investment in our facilities. While our mergers and acquisition spend of ZAR 2.3 billion represents BIC and a few smaller bolt ons, we have a nice pipeline, which we actively pursuing. Our cash conversion is down to 4% from 51% last year due to the investment in working capital, and we expect this to improve in the second half. Just some concluding thoughts. Our business model is decentralized and dynamic, which means that we can quickly reprioritize growth opportunities. We focus on sectors showing structural growth, and so we are less susceptible to the tepid GDP environment. The upside in the renewable energy sector is just one example of this. Margin management and expense control will remain top of mind over the next 6 months. Lastly, we've expanded our M&A team and are actively pursuing new acquisition opportunities. Thank you.

Thank you very much, Mark. We're going to move to the operational overview, and I'll start with Services International. Revenue at ZAR 15.9 billion is up 14.5%, driven by strong contribution from the facilities management businesses and the inclusion of the acquisitions of BIC, Mayflower and Sahicasa. Gross margin contracted mainly in the cleaning and hygiene businesses as the high-margin COVID work was discontinued. Costs were primarily impacted by acquisitions, and trading profit at ZAR 1.6 billion is flat year-on-year, was roughly normalizing at 104.6%. Moving to the operational overview. The facilities management businesses delivered solid results, with strong new contract wins in South Africa, Ireland and Australia. Office occupancies and professional services remain below pre-COVID levels, and some clients starting to reduce their building footprint to align to the current lower office occupancies. The teams are focused on deploying technology across their contracts in the facilities management space, and this is in an effort to lower cost of service. From a hygiene perspective, the hygiene businesses are realigning due to the drop-off in COVID-related work. What is so important to note is that the core underlying hygiene and washroom pool both in South Africa and in our U.K. operations continues to grow. And we're also seeing an increase in consumable sales. And in the U.K., these sales are boosted by Mayflower, whose focus is pure consumable. Overall, I want to highlight that whilst our profit is flat on year-on-year, as Mark has indicated, if you exclude acquisitions and COVID work, organic growth is up 7.6%. So I can assure you that the underlying core business is still very healthy and growing strong. And so I must congratulate the Services International team for a solid set of results. Moving to Branded Products. The team delivered an excellent result. Revenue at ZAR 10.7 billion is up 12%, driven primarily by an increase in demand for over-the-counter and prescription products, strong volume demand across the rest of the businesses and price increases. Gross margin decreased slightly due to higher input costs and the negative ForEx adjustment. Cost control was very good, with expenses up 8%, notwithstanding much higher increases in fuel and distribution costs and load shedding, which impacted factory production and recovery. Trading profit of ZAR 1.1 billion is up 14.3%, and the trading margin at 10.7% is also up on prior year, a fantastic result. ROFE at 29.8%, slightly down on prior year, and this is due to an increase in funds employed. Operationally, Adcock delivered a solid result driven by good turnover growth in OTC due to volume increases in major brands like Allergex. The onboarding of ophthalmic products from Novartis boosted the prescription portfolio, and the consumer and hospital divisions also contributed positively to Adcock's results. The Office Product cluster delivered a standout performance, driven by a strong back-to-school season, good commercial office automation sales, very strong furniture sales that were driven by innovation and also the team just thinking very differently about the new way of work. The Data, Print and Package cluster delivered a good performance driven by an increase in demand for print and packaging products in the recovering travel and tourism industry, strong demand from the fast food industry and also increased demand for mobile computing technology. Consumer Products unfortunately struggled as electrical appliance sales were significantly low due to load shedding and consumer spend that was constrained. And the last cluster, office and leisure, delivered an excellent result as sales across all customer groups increased and major product categories also increased in volume. I'd like to congratulate the Branded Products team for a fantastic set of results. Moving to the Freight division, an outstanding result from the Freight off a high 2022 base. Revenue at ZAR 5.1 billion is up 28.7%, driven by higher bulk mineral volumes, LPG volumes, improved lead capacity, increased volumes in our Namibia and Mozambique terminal operations, and strong activity in clearing, forwarding and warehousing. Operating expenses increased mainly due to the increased volumes handled. Trading profit at ZAR 1.1 billion is up 31.5% on prior year, and the trading margin is also up at 21.7%, an outstanding result. ROFE of 51.9% for a CapEx-intensive business is excellent, and this compares to a 43.6% ROFE in the prior year. Operationally, the terminal operations in South Africa, Mozambique and Namibia all outperformed. And this was on the back of increased volumes and in particular, increased volumes of coal and copper concentrate. Maize volumes were down in prior year, but this must be seen within the context that the prior year was a record maize export season. Liquids and LPG volumes were good, and lead capacity also improved. The recovery in our clearing and forwarding operations continues to exceed expectation driven by new business wins and increased activity in the automotive sector. Lastly, we remain focused on CapEx investments in this division, and various possible partnerships are under consideration. I'd like to congratulate the Freight team for an exceptional set of results. Moving to Commercial Products. The team delivered an excellent result following 2 years of very strong performance. Revenue at ZAR 8.4 billion is up 17%, driven by exponential growth in renewable energy sales, revenue growth from new stores and Plumblink , the inclusion of the A2 acquisition, and increased trade sales across most businesses. Gross margins reduced due to pressure from competitors were dropping their prices in an attempt to regain market share; load shedding, which impacted factory recoveries; supply chain inflation; and exchange rate volatility. Expenses grew due to the addition of A2, increased revenue, and rising fuel and distribution costs. Trading profit of ZAR 726 million is up 17%, and the trading margin at 8.7% was up on prior year, an excellent result. ROFE at 31% is down on prior year's 33%, and this is due to an increase in funds employed. Operationally, the Trade cluster delivered an excellent result, driven by a significant uptick and renewable energy sales. The catering cluster was flat year-on-year, but King Pie improved profitability. The leisure, packaging, DIY and workwear clusters were down year-on-year due to factory under recoveries, increasing fuel prices to keep generators running for extended periods of time and increased distribution costs. The Warehousing cluster performed well and was further boosted by the acquisition of A2. And lastly, the general products cluster outperformed due to the growing textile industry in South Africa and some return in activity in the industrial sector. I'd like to congratulate the Commercial Products team for an exceptional result. Moving to Services South Africa. The team delivered a really phenomenal result. Revenue at ZAR 4.5 billion is up 22%, driven by a continued rebound in local and international travel volumes, improved hospitality trade, increased occupancies across office and schools and universities and a number of new contract wins. Gross margin improved to 31% from 29.8% in the prior year due to increased travel revenue and stronger margins in the Allied cluster. Expenses increased on the back of higher sales, and trading profit of ZAR 553 million is up 37% with the trading margin increasing from 10.9% in the prior year to 12.2%, a really phenomenal performance. Cash generation was strong and cash from operations also doubled. ROFE at 115% is down on prior year due to increased funds employed to mainly in receivables, which is up in line with revenue. Operationally, the Travel cluster delivered an outstanding result, far exceeding expectations. The results are driven by increased volumes with domestic travel volumes at 85% of pre-COVID levels and international at close to 90% of pre-COVID levels. Airlines are still battling to scale up, and that's why volumes are lagging behind. I'm very happy to announce that in this cluster with the growth that we've spoken about, we've been able to employ an additional 200 people. The catering cluster also outperformed due to increased airport foot traffic. The Security and Aviation cluster was a mixed bag. On the upside, the Security business has excelled due to large new contract wins that came in mainly in the first quarter, whilst the Aviation-related businesses struggled due to lower air cargo volumes. The Allied cluster delivered an excellent result due to increased water and coffee sales and increased hospitality volumes and sales. I'd like to congratulate the Services South Africa team for an incredible set of results. Moving to the Automotive division. The team delivered an impressive result also off a high base. Revenue of ZAR 12.7 billion is up 7.7% due to an increase in new vehicle and after sales revenue. There is some inflation in that revenue number. Gross margins increased slightly, and expenses were well controlled, increasing only 7% on prior year. Trading profit at ZAR 412 million is up 10.6%, an excellent performance given continued shortage of new vehicles, increasing interest rates and rising fuel costs that are continuing to put further pressure on disposable income. The trading margin at 3.3% is slightly up on prior year. ROFE at 44.7% is down due to an increase in funds employed, and this is due to a normalization in inventory levels. This is still a solid return though for an automotive retail business. Operationally, new vehicle sales for the 6 months are up 2.5% but lagged the overall dealer market growth. This is due to supply constraints from 1 or 2 of our larger OEMs and also due to mix where entry-level brands that are growing exponentially, McCarthy is unfortunately not represented in. As a result, we have seen a slight decline in our new vehicle market share. Used vehicle revenue increased despite the unit volumes declining. Used vehicle supply is starting to stabilize as car rental companies are now defleeting. We also seen used vehicle stock being more freely available, and prices of used vehicles are also softening. After sales continues to improve with service centers back to pre-COVID levels. Growth in after sales is mostly due to increased traffic volume. Parts supply is now more predictable and stable. On the downside, we are seeing an increase in generator costs in the workshops due to load shedding. I'd like to congratulate the Automotive team for an impressive set of results. Last division, Financial Services. The tough decisions and actions taken in the prior year are yielding the expected outcome. At the end of the 2022 financial year, we spoke about the plans that we put in place for a recovery in this division. That's one thing to have plans in place. It's another thing to execute. And I'm very happy to report that the Financial Services team has executed. Revenue at ZAR 2.4 billion (sic) [ ZAR 1.3 billion ], up 7.5%, and trading profit at ZAR 222 million is up 10%. These numbers don't reflect the hard work and turnaround that has taken place in this division. So I'm going to slow it down a little bit to just talk through and unpack these results. Investment income at ZAR 42 million is significantly down on the prior year gain of ZAR 108 million. What is important really here is to focus on the underlying core trading profit growth, which is what we've been watching very closely on a month-to-month basis. And I'm happy to report that underlying core trading was up 92%. The Bidvest Bank is significantly up on prior year, driven by increased loans and advances with a big focus on fleet sales, interest rate increases and a change in the deposit mix also contributed to profitability. Impairments in the bank are now under control. The lending book is growing. The cost-to-revenue ratio is improving, and the focus on fully digitizing the client experience is progressing as planned. Moving to the insurance cluster. The short-term insurance business continues to grow policy sales and gross written premium in the automotive channel. Bidvest Life has shown an improvement in profitability, and FinGlobal is reporting good sales growth and an increase in offshore lead generation. Compendium continues to impress and delivered a very good result. As part of the portfolio cleanup in Financial Services at the 2022 year-end presentation, I reported that we had closed the Bureau de Change in Namibia. We've exited Cannon Asset Management. We closed Master Currency and Tradeflow. And at the time, we signed an agreement to sell BWEB, our pension administration business, and that transaction was awaiting FSCA approval. I'm happy to report that the approval has come through, and this transaction has been finalized. I'd like to congratulate the Financial Services team for a commendable turnaround, and we look forward to more in the second half of the year. Before closing out the commentary on Financial Services, just to comment on the investigation into the life insurance industry by the Competition Commission, there has been no change since the update provided in September last year and we still await engagement with the commission. Moving to strategy and outlook. I'm on the Bidvest value proposition slide. We continue to be focused on our 4 P: people, planet, purpose and performance. And we strongly believe that it is with this integrated approach of thinking, working and delivering products and service that we will create value for all our stakeholders. Just to highlight a few advances in these areas, our group supplier diversity program is well underway. And from a procurement perspective, we shifted just under ZAR 1 billion procurement spend to compliant suppliers. Given the high inflationary environment and rising energy costs, our expense discipline remains top of mind. Our acquired businesses are performing in line with expectations and in some instances, outperforming. And the people, I'd like to announce the following management changes. Kevin Wakeford, CEO of the Branded Products division, retires on the 30th of June 2023. By way of background, Kevin joined the Bidvest Group in 2003 and held various leadership positions in the group. In 2011, Kevin was appointed division CEO of Bidvest Travel and Aviation, a division he led well and grew for 3 years. Post Bidvest acquisition of a meaningful stake in Adcock, Kevin was appointed CEO of Adcock from April 2014. During this period, Kevin was instrumental in embedding the Bidvest principle of entrepreneurial, decentralization and diversification in Adcock, spearheading a significant turnaround of that business. In November 2015, Kevin returned to Bidvest as CEO of the then Bidvest Office and Print division. In 2020, this division has expanded and restructured to incorporate Adcock and renamed Bidvest Branded Product. Kevin's leadership over the past 19 years in the group has been exemplary and his support, dedication and contribution unwavering. He's been a valuable member of our executive team for many years and will surely be missed. To replace Kevin, Gail Solomon is appointed CEO of Branded Products effective 1 April 2023. Gail is part of the Bidvest family and currently holds the position of Managing Director, Consumer division and Adcock. Gail started at Adcock in 1988 and during her 34-year career in Adcock has held various positions. During her tenure as Managing Director, Consumer division, Gail took the division from the smallest contributor in 2018 to the largest profit contributor in 2020. Gail brings with her a wealth of experience, and we look forward to her contribution. The second people change is in relation to Steve Keys. Steve retires effective 31 December 2023. Steve joined the group in 2012, and over the past 10 years, leads a division through varying cycles in the retail automotive industry. In the 2022 financial year, the Automotive division delivered record profit, the highest ever since the McCarthy Group was acquired in 2004. Notwithstanding the myriad of challenges such as disrupted supply chain, shortage of chips, vehicle and part shortages, et cetera, Steve has continued to inspire the Automotive team to go for gold. And I have no doubt that the 2022 record performance will be surpassed in 2023. Steve leaves behind a solid foundation and a sound operating model. To replace Steve, Carla Seppings is appointed CEO, Automotive effective 1 July 2023. Carla's 12-year experience in the automotive industry started in 2010 when she joined the Bidvest Automotive division as Finance Director. Her experience spans across the areas of financial control, internal audit, risk and governance, legal and contract management, acquisitions and disposals just to name a few. Carla is the current divisional CFO of the Automotive division, and we look forward to her contribution in the new role. I'd like to wish both Gail and Carla all the best. Lastly, in terms of the outlook, as always, at Bidvest, we see the glass half full and not half empty, and so we remain bullish about the next 6 months. We expect continued growth from the travel and tourism industry, from the renewable energy space, and the mining and agricultural industry. We expect further growth from the Financial Services division. And given the power challenges in the country, we will intensify our efforts to ensure consistent energy supply, and we'll be working on getting better energy mix across our operations. Margin and cost management will remain a core focus, and linked to this, we'll also focus on improving our working capital over the next 6 months. The M&A [Audio Gap] 2 divisions will be recalibrated for growth as follows. In the Automotive division, a strategy review has taken place over the past couple of months, and the intention is to expand the Automotive division's value proposition. Going forward, the division will span across the following products and service areas. Number one, [indiscernible] motor retail, which is our existing McCarthy business. Secondly, independent motor retail, this is a new cluster that we're adding and a new brand will be launched to compete in the independent motor retail space in April 2023. So please look out for this launch. And the third cluster will be automotive allied services, and we are looking at acquisitions for this cluster. The above model will add scale and diversity to the division and also contribute to the delivery of an end-to-end automotive retail offering in South Africa. In Branded Products, Adcock will no longer form part of the Branded Products division. Effective 1 April 2023, Adcock will be a stand-alone business under the leadership of the current CEO, Andy Hall. Kevin Wakeford also retires from the Adcock Board; and Mark Steyn, CFO of Bidvest, is appointed as a Nonexecutive Director effective 1 April 2023 onto the Adcock Board. Adcock is a separately listed subsidiary of the group. The current strategy of Adcock remains unchanged and be supported by the Adcock Board will continue operating independently. Bidvest remains committed to the growth ambitions of Adcock, and Andy and his team will continue to be supported by the group. And to answer the question that I know is going to be asked, no, we're not going to spend ZAR 4 billion [indiscernible] Adcock. The remaining businesses in the Branded Products division will remain in that division under the leadership of Gail Solomon. In closing, I'd like to extend a big thank you to the best team across South Africa, Namibia, Mozambique, Swaziland, the United Kingdom, Ireland, Spain and Australia, who delivered these outstanding results. This is a team that sees opportunity when the entire world sees chaos. This is a team that knows how to spot a flicker of light and turn that flicker into a giant star. This is an amazing team that knows the power of instilling hope, a team that knows how to mobilize others towards a common goal. This is a team that I am proud and very blessed to be part of. Thank you very much.

Thank you for that, Mpumi. Details with lots of passion and great descriptive words. Claudia, can we please check if we have any questions on the line? [Operator Instructions]

[Operator Instructions] The first question comes from Paul Steegers from Nedbank.

Can you hear me?

Yes, we can, Paul.

Great. Well done on the numbers. A great result. So my question is a bit more color maybe on Services International, Noonan and PHS performance. You mentioned, I think, 7.6% organic growth. Can you give a bit of color on those underlying businesses in terms of growth and margins? And maybe talk a little bit to office occupancy rates in the U.K. and South Africa? And maybe one last one on PHS, the contract retention rates, how they're looking there at the moment?

Okay. So Paul, just to say that I won't be able to give you numbers because we don't provide numbers at a subsidiary level. So just to talk through Noonan, the operations in Ireland are flying. I hope that with the word flying gives you a good descriptor of how Noonan Ireland is doing. In the U.K., the operations are under pressure a little bit. New business hasn't been as great as we were hoping. And so they're not doing as well in the first half of the year as the U.K. operations. But we've got various plans in place to see a better performance in the second half of the year. PHS, I did indicate that, look, the hygiene businesses are going through a normalization period. There's a significant amount of COVID-related work in the base. You will recall that we spoke about PHS providing products and services into testing stations, et cetera. All of those were closed in the U.K. in April last year. And that COVID work literally went to 0. So that has to normalize out of the base. But as indicated, the hygiene and washroom pool is growing. So there is net growth in that underlying hygiene pool. So we're very comfortable with that, and contract wins have also been good. So we're comfortable with that. From an occupancy perspective, I'm just trying to think what numbers.

So some of them are coming off very low levels, sort of double percentages, but they [indiscernible] quite low.

[indiscernible] yes. We stopped tracking the occupancy from a numbers perspective because we actually think that is just normalized. So it's normalized at lower rates. And just to contextualize that in South Africa, it's professional services, right, where we're talking about kind of lower occupancy rate, so your banks, auditors, lawyers, et cetera. It's normalized rates that are below 50%. That much, we can tell you. And in the U.K., that's also normalized. I mean the suspended contracts in PHS went back to 100% last year already. So we're not tracking that number closely. It's now business as usual. The occupancy is where it is at, and we're supplying product and service into current volumes.

Maybe one last question for me. Given your South African business is generally tied to GDP growth, I mean the results really are pretty outstanding given all the transmit issues that we've seen and you guys, your Freight business is absolutely flying. I'm just wondering, can you give a sort of a sense -- you said probably you're bullish for the second half, which is great. But in general, do you expect both on the revenue line things to start normalizing, slowing a little bit at the group level? And on OpEx growth, given the load shedding constraints, et cetera, would you expect organic OpEx growth to accelerate year-on-year in the second half? Or are there plans to mitigate that at sort of hopefully similar levels to what you saw in the first half?

Yes. Thanks, Paul. So I mean the expectation for the top line -- for me, it should be similar to the first half of the year because we're still talking about the same industries, right? So it's all talking about travel and tourism. The difference from a travel and tourism perspective, though, is going to for 6 months in the first half of the year, but it should start normalizing around April, May because we started seeing an uptick in the previous financial year around April and May. Renewable energy is strong, and we expect that to continue. And mining and agri also will continue at similar levels. So I mean that's how I would kind of answer that. I can't give you further more tight guidelines on the top line. And then in terms of OpEx?

I mean -- I think, I mean, from a forecast perspective, we're obviously watching it very, very closely. I think, Paul, you've got to be aware of the wage rate inflation both in SA. I mean those wage rates have already been put out. They're high. They're north of 9. In the U.K., they're almost -- they're just under 10. And those will come through certainly partially, obviously, for the balance of this 6 months and then obviously going into next year. So we're watching that. Obviously, we will try and pass on that cost from a revenue increase perspective. So yes, there will be pressure on the expense line, but we've got to drive the revenue line on a like-for-like basis.

At this time, there are no further questions on the phone lines, if we could hand over for questions on the webcast.

All right. Thanks, Claudia. So maybe while we're on renewable energies following from Paul's question, 2 or 3 questions here sort of on the same type of vein. Could you elaborate on the renewable energy sales increase that we saw? And how do we see the opportunity set for a business like Bidvest in a electricity- and power-constrained economy.

Okay. So on renewable sales and maybe just to contextualize what we're providing into the market, so on the one hand, it's your big ticket items like generators, solar panel, inverters, batteries, et cetera, all the way to the other spectrum of smaller consumable-type items, cables, [ truck ], et cetera. So whether people are looking for inverter solutions or solar solutions in their own homes or it's in a small business or big business, including IPPs, we were able to supply into that. And I suppose the reality is that as the situation with Eskom continues to deteriorate, what's happening in South Africa is that everybody from a consumer tool business, everybody is looking at alternative solutions for consistent access to power. So we're supplying into all of that. We provided some stats that the market -- what we've seen on a year-on-year basis is that the market from a renewable space is up 2.5x and we are seeing volumes 5x, right? So we're playing in a space where we're doubling what's happening in the market. So it is significant. It's continuing into the second half of the year and has really become a really nice growth opportunity and space for commercial products.

Thanks, Mpumi. That gives us a good idea. Then we have a question here around our own spend on power initiatives comes down to, suppose, CapEx and the retrofitting of existing buildings and new property developments.

If we look across our portfolio, I mean there's been a very active program now for, I guess, about 18 months where we're going through not only in the existing facilities where we're looking to try and retrofit both power and water capability to those facilities. We're working through the sort of larger assets first and going through the portfolio, and that will be something we'll drive through the group. And then we've had a number of larger builds, particularly in our commercial products space, where those new facilities, have both water and electricity renewable capability built into them, so whether it's solar, whether it's water reprocessing, water capturing from roofs, et cetera, et cetera. So that's very much key to what we're doing. And certainly, anything new that we look at, it will be part of the spec.

Thank you, Mark. I think that deals with most of the questions that we have around power. Mpumi, maybe just going back to the announced management and recalibration of division changes. Just a little -- a question for a little bit more color as to why you decided to separate Adcock from the Branded Products division but yet, appoint a senior Adcock MD to run the balance of Branded Products.

So I mean the reality is that because Adcock is listed, it gets separated out anyway. Every time when we talk to our shareholders or analysts it's listed, it gets separated out anyway. So that's -- so I mean, it gets looked at independently. It doesn't matter even if we took Adcock and we put it under another division. It would still get separated out. So that's the first answer. The second one around the remaining Branded Products division. One of the things that we do in the group that also just sets a division up for growth is when you set up a division so that you've got an acute focus on the operations and you don't have a big business that kind of pulls the division either up or down, depending on how that business is operating. And I think now that we've got Branded Products separate on its own, it's really going to be up to those clusters to continue punching up as they have. I mean, excluding Adcock, Branded Products has performed very well. But I think, going forward, those businesses now also have the opportunity of just taking a step back and just thinking about how they can think about the market differently, what more can be done, where are the other opportunities, what other capital can we put into that particular division from an M&A perspective, where are the other nodes of organic growth, et cetera, and bringing in a fresh new CEO, who understands brand, right? So that's what Gail understands. The consumer division in Adcock is all around brand and brand positioning. I mean Gail and her team in Adcock have taken the Panado brand and continue to just increase market share. And it's not the only one. They've taken leading brands in them. And we're very excited about her bringing that particular lens into Branded Products and just giving it a kind of a fresh look in terms of what other opportunities are not -- are we not seeing, what other positioning should we be taking that we are not seeing. So I think it's really going to be an exciting space. Yes. And I think Gail will do well supported by the team.

Thank you, Mpumi. Mark, 2 financial-oriented questions. Firstly, with the U.K. rate increasing from 19% to 26% in April, what do you expect for a tax rate for the group for the full year?

Okay. I mean from a tax rate perspective -- and we've obviously had a look from a forecast perspective in terms of the impact for the '23 year given that it's only going to be effective 1 quarter. It's for the last 3 months of the year. We're expecting tax rates not to change too significantly from where they are now. So probably in the low 27s, which is roughly what you're seeing at half year now and really, the increase being mitigated, one, by time because it's only a quarter; and two, by the extended growth of the South African portion of the business, which is obviously at much lower rates.

Thank you, Mark. And then a big working capital investment in the first half. What do we expect for the second half?

So I mean if you look at our seasonal working capital flows for the business, typically, we will absorb in the first 6 months, albeit this time around, it was a lot bigger than normal and then release in the second. I'm expecting a release in the second, but it won't be to the extent where we get to a neutral position, which is historically where we would like to be. My expectation is that we're still going to see a net outflow for the year as a whole. And really, what that reflects is underlying growth in the underlying businesses, specifically the trading businesses, which you can see at the half year position.

Thank you, Mark. Let's see. Then just before we go back to the lines, we have a question here. Just maybe an update on the LPG and [ Gauteng ] project. We previously flagged that was dependent on a commercial rail solution. Could you provide us with a little bit more comment?

Yes. So the status hasn't changed. We are dependent on rail. We're still trying to figure it out with TFR, and so we haven't been able to mobilize and start up with that in LPG terms as yet.

Claudia, shall we see if there's anyone on the line with some more questions, and then we'll come back to the webcast?

[Operator Instructions] There are no further questions on the phone lines.

Okay. Claudia, let's go with one of the other questions here on the line, has been [indiscernible] the aftermarket parts that Mpumi spoke about in automotive. The question is whether we want to tackle that aftermarket parts organically or through acquisitions, but Mpumi did mention that, that is the M&A focus area. . Staying with automotive. We flagged that the launch of a new brand and pre-owned vehicles -- what do we think about the pre-owned market, the used car market in terms of volume and pricing from here onwards?

Okay. So maybe just to give you a sense of the opportunity set that we see, so we're already in the pre-owned space, right, because in McCarthy, we do have McCarthy second hand. What is different is that in the McCarthy space, we are obviously restricted by OEM in terms of how old the vehicles can be that we retail. So we generally retail vehicles that are 5 years and less. What we're looking at now is this as a market of vehicles 5 years and older that we currently don't play in. And just to give you a sense of the market, our current market based from a pre-owned perspective is about 25% of the market. So what we wanted to do is want to start hunting in 75% of the used vehicle market where we are not represented in. Okay? And that's what we're going after. So that kind of just gives you a sense. We want to take on the independent motor retailers head on. We're very excited about the brand and the positioning that we're going to be launching in April. It's fresh. It's young. We've used technology and leveraging technology so that we quicken our response and accurate. I don't want to give it away too much, but it is what it is. From a pricing perspective, I think I've already given a sense that second-hand vehicles are softening from a pricing perspective. And so that is just the reality of the market. There are more being available, but we do have an aging carpark in South Africa. It's a big opportunity for us. And it's really just a market from an automotive retail that we haven't played in. So we're very excited about what the teams will be able to do there.

Thank you, Mpumi. Then there is a question, Mark mentioned the labor pass-through and the gazetted wage increases. The question is how does this work in our contracts. How fast? What is the process of passing this through?

Okay. So this would specifically talk to our contracts in the cleaning space. All our contracts generally have got a labor pass-through. It doesn't happen immediately when you've got changes in inflation. It happens at the anniversary of the contract. And generally, we try and recover the full lever rate and then the rest on an inflationary basis. But then it is obviously open to negotiation with the clients around tenure, how long we've had the contract, whether there's a competitive bidding process on or not, or whether we're just looking at an extension. So there are other nuances that come into it. But from a model perspective, cleaning contracts, you do have the opportunity to pass on your labor increase on anniversary of the contract.

Thank you for that, Mpumi. And then the wider comment around [ Fortinet ] as a [ trans export ] master plan, the time line, the opportunity set that we speak about in terms of potential public, private partnerships in that space, what can you share in terms of where we are?

So I'm sure you're aware that there are a couple of tenders that are out. We are looking at all of those opportunities at the moment. There's a [ nat core ] line, container line that is out on tender for a 20-year concession. There's LNG. There's a couple of others. We are reviewing all of those opportunities, and they are all competitive bidding processes. And we'll decide which ones we think are core for us that we'll participate in and which ones aren't and to what extent. And then over and above that, we also have other opportunities that we're looking at from a triple P perspective. We are under NDA, so unfortunately, I'm unable to share our purchase to some extent. So there's kind of direct conversations that we're having, and there's these other tender opportunities that we will also pursue.

Thank you, Mpumi. There's a follow-on around infrastructure spend and how supportive that would be for our Commercial Products division, which we've said they've delivered this despite no public sector or limited infrastructure spend. So any activity is good for all the businesses within Commercial Products. I think that's -- we've dealt with most of the questions here by the webcast. Claudia, can I check one last time on the line?

There are no further questions.

Great. Thank you, everyone, for your attendance. We appreciate your interest. And as we said, the glass is half full, and we are super charged for the rest of the financial year. Thank you very much for your time.

Thank you.

Thank you.

Thank you very much, everyone. Bye.

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