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

Good afternoon and good morning, everyone. And thank you for dialing into Bidvest's Year-end Results Presentation. We appreciate you taking the time to listen to us unpacking FY '23's results and provide feedback on the various activities that has kept us busy over the past financial year. Before we dive into the detail, I just wanted to point out an error in our new Nonexecutive Director announcement, which is part of the results announcement this morning. Khumo Shuenyane was the former chair of Investec Bank, not Investec group, so our apologies for that. In the room with me this morning, I've got the 3 Bidvest Executive Directors, Mpumi, Mark and [ Joel ]. Unfortunately, Bonang Mohale, our Bidvest Chairman could not join us today but he did record a special message that we would like to play.

Good afternoon, colleagues. The past year's results are in short, exemplary. While economies around the world are stumbling, Bidvest has again demonstrated its ability to participate meaningfully in its selected areas of operation and where pockets of robust activity are evident. The results speak for themselves. But what is not always evident is the focus and commitment provided by the management teams and indeed, the over 120,000 people that make up the Bidvest family. I would like to take this opportunity to express my appreciation for the considerable and unselfish contributions made by all our employees. It is only because of them that we're able to deliver these excellent results. Before we continue with the results, I would like to announce the appointment of Dr. Khumo Shuenyane to the Bidvest Board. Khumo recently serves on various boards, including Vodacom and an investment firm, Ninety One. He recently retired as Chairman of Investment (sic) Investec Bank and is a member of the Institute of Chartered Accountants in England and Wales. We look forward to his contribution as well as his sound guidance and advice during our Board deliberations. Thank you.

All right. So as is customary, Mpumi and Mark will take us through the presentation, after which we will open for Q&A. Mpumi, over to you.

Thank you very much, Ilze. And good morning -- good afternoon, sorry. Good afternoon, everyone and thank you for taking the time today. I'm really proud to deliver what is a truly exceptional set of results. In this financial year, our group's scale, our focus on innovation, our focus on strategic geographic expansion and our obsession with achieving real economic growth and increasing our market share again demonstrated the robustness of the Bidvest Group. There are some achievements that I would like to highlight that I really believe are worth celebrating. First, we scored a hat trick. For 3 years in succession, the group has delivered growth in headline earnings per share in excess of 20%. Second, all 7 divisions are up year-on-year. Not only are the divisions up but they all reported double-digit increases in trading profit. We are firing on all 7 cylinders. Thirdly, 6 of our 7 divisions generated returns from a ROFE perspective in excess of 30%. This demonstrates the group's focus on maximizing shareholder returns. Fourth, our largest division, Services International with operations across South Africa, U.K., Ireland, Spain and Australia, reported a trading profit in excess of ZAR 3 billion. We are focused on building a big international business. Fifth, our second largest division, Freight, reached the ZAR 2 billion profit mark for the first time. And just as a reminder, Freight delivered ZAR 1.1 billion profit in 2020. So this division has doubled profitability in 3 years. This performance is nothing short of remarkable. And lastly, we welcome the Services South Africa team to the billionaire's club as they breached the ZAR 1 billion profit mark for the first time this year. I'm extremely proud of these achievements and I must extend congratulations to all the teams across the group and around the world. Reflecting more broadly on the results, we capitalized on the exponential growth nodes in the mining, agriculture, renewables and travel and tourism sectors. We've also made a firm commitment to improve the financial services results and we've delivered on that promise. The turnaround, particularly in Bidvest Bank, has materialized and I'll cover that in more detail later in the presentation. We expanded our facilities management footprint into Australia and this business is performing in line with expectations. We generated a phenomenal ZAR 10 billion in cash from operations in the second half of the year and improved returns both at a ROFE and ROIC level. Our M&A pipeline is full and we have the capital to execute on these opportunities. Moving to the next slide, just to highlight some of the areas from a financial performance perspective. Trading profit at ZAR 11.4 billion is up 18% with really extraordinary performances from all divisions. Our organic performance is a highlight and has been particularly strong and this is reflected in a 13% increase in revenue and a 14% increase in trading profit of Eqstra Fleet acquisition. Our trading margin is now double digit, at 10%. Expense management has been solid with expenses increasing 8% on a like-for-like basis. This is a really good performance given the high levels of inflation across all our geographies. Operational cash generated at ZAR 12 billion is solid with 76% of the trading profit from the acquisition. Our balance sheet remains strong and net debt/EBITDA at 1.7x has improved from 1.9x at half year. As I said earlier, we are always focused on maximizing returns and are proud to report a solid increase in ROFE that is now 38.3%, up from 37.6% in the prior year and ROIC at 17.3%, is up from 17.1%. Our ROIC is 480 basis points above the group WACC. Headline earnings per share increased by 24.5% and normalized HEPS is up 17.7%. We declared a final dividend of [ ZAR 4.39 ] per share, up 20.6%, and this brings the total dividend for the year to [ ZAR 8.76 ] per share, up 17.7% on prior year and I hope our shareholders will be happy with that. I'd like to hand over to Mark for the financial overview.

Thank you, Mpumi and good afternoon, everyone. As Mpumi has indicated, it's a very solid set of results, strong organic growth with good quality of earnings, supported by steady uptick in acquisitions and good cost control, have all contributed. The final ghost of COVID is now disappearing in the distance with our quarter 4 results completely clear of the COVID impact. Supply chains have mostly normalized, inventory availability has improved. Increase of inflation, especially wages, fuel and distribution costs, interest and exchange rate movements are impacting gross margins, which have fallen slightly. However, good expense control has resulted in positive operating leverage and an improved trading margin. Our second half working capital flow reflects a strong release, which is very positive, given the level of absorption at half year. Overall, we've increased our investments in working capital, especially in our trading businesses with higher levels of inventory and debtors and the growth in trade payables, reflecting the additional inventory held. The growth in working capital is commensurate with the growth in the businesses. There has been significant offshore funding activity in the last few months. And in line with our M&A objectives, we've amended our euro loan facility by expanding the funding capacity as well as extending the maturity time frame. We have good debt capacity, both internationally and locally, which is sufficient for the potential M&A pipeline. Our debt mix continues to reduce the impact of interest rate hikes with an overall small increase in our average funding cost although growth in the underlying net debt base is increasing interest costs. The performance of our new acquisitions, BIC, which is our niche cleaning business in Australia, and A Square, our electric forklift and battery business in South Africa has been good. This has been supplemented by a number of smaller bolt-ons. Our pipeline is looking very positive with some bolt-ons and both Australia and South Africa are in play. It's a very encouraging M&A environment. There have also been a few disposals concluded, with the largest being the non-core food distribution business, TNC in Namibia, which we talked about at half year. And we're currently in the process to sell our life assurance business and this has been reflected as a disposal group for sale -- held for sale in the accounts. From an accounting perspective, we have completed our preparations for IFRS 17, which is applicable for our short-term insurance business in 2024. The impact for the group will be negligible. With this as a backdrop, let us turn to the more detailed results. From a revenue perspective, up 15% to ZAR 114.9 billion and we can now properly say that we're over the ZAR 100 billion mark. Double-digit revenue growth was achieved in most divisions with very strong performances in commercial products, Services SA and Services International. Improved activity levels drove Services SA, Freight and Commercial Products, while pricing drove the balance of the businesses. Our acquisitions have added, as Mpumi said about 230 bps in revenue growth with an organic increase of 12.7%, which is very pleasing and we'll unpack the divisional results in more detail later in the presentation. From a gross income perspective, our gross profit margin has fallen by 100 bps to 29%. This is still a very good result given the significant increase in lower-margin revenue [indiscernible] freight disbursements to travel and hospitality revenues as well as the termination of COVID revenues in the prior year. Second half of the year, continue to see higher input prices and ForEx weakness, while low trading is impacting factory efficiencies and this has all impacted the gross margin. From an expense perspective, very happy with the expense performance. Overall expenses are up 10.1% versus a revenue increase of 15%. And on an organic basis, expenses have grown 8.2% driven by payroll inflation, selling and distribution costs, ForEx movements and fuel, energy and utility costs continue to rise. Our expense ratio has improved from 20.5% last year to 19.5% and the keen focus on cost containment right across the group remains a standout feature of these results. In terms of our trading profit, trading profit up 17.6% to ZAR 11.4 billion and again, well beyond the ZAR 10 billion mark, with good underlying organic growth reflected at 14.1%. We're very happy that all the businesses came to the party. Freight, Commercial Products and Services SA were outstanding with strong mineral exports, rebound of travel, hospitality and catering sectors, as well as frenetic renewable sales, all driving growth. In Branded Products and Automotive, they produced very good results off a very big base in the prior year, while both Services International and Adcock grew off extraordinary COVID-led 2022 comparatives. Financial Services, as Mpumi has already indicated, produced a very pleasing turnaround ahead of expectation. The underlying core business was solid, supported by strong investment portfolio returns. Our HEPS is up 24.5% and our normalized HEPS, which is after acquisition costs and amortization of acquired customer contracts is up 17.7%. The prior year of normalized HEPS included an adjustment for U.K. deferred tax, which has not recurred. From a dividends perspective, the final dividend of ZAR [ 4.39 ] is up 20.6%. Our cover ratio is 2.06x, which is within our policy range of 2 to 2.5x normalized headline earnings. Moving now to our debt and funding. We continue to maintain a conservative and consistent approach to debt. We hold about 65% of our debt offshore and 80% of our net debt. Importantly, 81% of our gross debt is of a long-term nature and 56% of our gross debt is at fixed rates. Our gross debt is at ZAR 27.4 billion for the year, up ZAR 3.3 billion, driven by a ZAR 3.2 billion ForEx translation impact. That's the weakness of the rand. Net debt after cash and cash equivalents is up ZAR 6.1 billion to ZAR 18.1 billion and largely driven by the ForEx impact of ZAR 3.2 billion and the acquisition of BIC earlier in the year for ZAR 1.8 billion. We're comfortably within our covenants, our net debt-to-EBITDA is at 1.7x. This time last year, we were at 1.5x with the ForEx impact adding around 0.2x. Offshore, the net debt-to-EBITDA in hard currency is at 4.7x post the BIC acquisition. This compares favorably to last year's 5 times. Our average cost of debt at 5.4% pretax is only up 70 bps, which is a really good result given the movement in the base rates. EBITDA interest cover of 8.2x has moved up -- moved out a bit from the 9.8x last year as reflected in the adjacent graph and it's been impacted by the growth in the underlying net debt levels and increased interest rates. The ratio though is still very comfortably in excess of our covenant and is tracking well. In fact, it reflects back to our pre-COVID levels. The debt maturity profile is good with no sizable maturities in the near term. And the RCF term loan, which is reflected as maturing in 2026 has 2 further 1-year extension options. There are no material domestic maturities. Moving now to our cash flow and cash flow is always a highlight in a Bidvest presentation. And this year, no different. The underlying cash generated by operations before working capital has been good at ZAR 14.8 billion, up 13.3% on last year. We've seen a very good seasonal release of working capital of ZAR 2.9 billion in the second half, which was better than expectation. And overall for the year, a net investment in working capital of ZAR 2.6 billion, which is commensurate with our business growth. Our inventory has grown ZAR 2.7 billion over the year, predominantly in consumer products and Automotive. The growth in consumer products or Commercial Products rather, largely affects additional renewable stock to support a revenue base that's up 10x in the sector. We previously flagged the normalization of the auto inventory at half year and overall stock levels are back to pre-COVID levels, although certain of the OEMs are a bit higher. Overall stock days have moved up slightly but we're comfortable that the quality and salability of the stock remains good. Debtors growth is well in line with the revenue performance and the underlying book is in good shape and consistent and we have consistent overall aging. Pleasingly, our bankers increased net advances by ZAR 650 million, which represents good positive business growth. Creditors have increased in line with inventory levels. Our cash conversion at year-end was 76.4%, which is very nicely up on half year at 4%, although slightly down on last year's 88.3% due to the higher working capital absorption. The cash graph reflects the seasonal cash inflow, which is consistent with the group's normal working capital cycle, albeit obviously at improved level and our cash generation remains strong. Moving lastly now to our balance sheet. CapEx has increased to ZAR 3.4 billion for the year with increased capacity spend in our packaging lines and drones business, additional maintenance CapEx in fleets and statutory liquid tank upgrades. We brought 2 new warehouses or DCs on stream in our Commercial Products business, while in Freight, a further ZAR 910 million has been spent on expansion projects, mainly in Richards Bay. As mentioned earlier, we have reflected our life assurance business as a disposal group held for sale as it's currently in a disposal process. Our mergers and acquisition spend for the year of ZAR 2.1 billion represents BIC and a few smaller bolt-ons and we have a nice pipeline, which we're actively pursuing. We've seen some focused funding activity in the last 6 months which has seen the increase or increased capacity from a euro loan perspective. We moved our euro loan from GBP 400 million up to EUR 750 million with a further 3-year term and 2 additional 1-year renewal options and this was achieved at a relatively small margin increase, which is very pleasing. We have group funding capability of facilities in play with EUR 560 million in offshore funding available and then locally a further ZAR 17 billion. Finally, just some concluding thoughts. Our business model has demonstrated its resilience in the current year with pressure on a number of -- from a number of the broader macros. The ability of our decentralized businesses to pivot and reprioritize growth opportunities have been key to this good result. We continue to focus on sectors showing structural growth to lessen the impact of the weak GDP environment. Margin management and expense control will remain top of mind over the next 6 months. And lastly, we've expanded our M&A team and debt capacity and are actively pursuing new acquisition opportunities. Thank you.

Thank you very much, Mark. I'm going to move to the operational review and start with Services International. You'll recall that at half year, we reported that the hygiene and FM businesses were going through a COVID normalization period, after 2 years of really strong COVID related revenue and profit. At half year, Services International was flat at the trading profit line. And in the second half of the year, this division has really presented a superb second half. Revenue at ZAR 33 billion is up 21% with strong organic growth from Noonan Ireland, Bidvest FM and PHS. And the inclusion of BIC Mayflower and the [indiscernible] acquisition also boosted our top line. Gross margin is slightly down due to the COVID normalization. Expenses increased 16% due to high inflation, distribution costs and wage inflation and the inclusion of the expenses of the acquisition, whilst high, this expense increase is below the growth in revenue. Trading profit at ZAR 3.4 billion is up 10%, an excellent result for the division. If you exclude acquisitions and the impact of the COVID revenue, the division is up 14%. A reflection of the strong underlying performance of the businesses. The trading profit margin at 10% is 1% down on prior year for reasons explained earlier. Cash generation was outstanding in this division and roughly at 133%, is a more normalized return that we are very happy with. Turning to the operations. Trading profit between the facilities management and hygiene businesses is now almost equally split with 30% of profits in the division generated offshore. The FM businesses delivered a solid set of results and these results were boosted by good new business wins in Ireland, South Africa and Australia, whilst the U.K. FM and SA cleaning operations came under pressure during the period. BIC's maiden contribution was very good and in line with expectation. The hygiene businesses delivered a good result, driven by continued strong core hygiene pool growth, both in South Africa and in the U.K. Mayflower has improved our consumable sales capability in the U.K., making a very positive contribution to our Hygiene offering. Our M&A pipeline is strong and we look forward to some positive announcements soon. And so congratulations to the Services International team for an excellent set of results. If I move to Freight, revenue at ZAR 8.4 billion is up 13%, driven by annual rate escalation, improved capacity let in our bulk liquid operations, new business and increased bulk mineral commodity volumes. Grain volumes were down year-on-year but this must be seen in light of a record maize export season in the prior year. Gross margins improved slightly and expenses increased by 12%, in line with the growth in revenue. The expense increase was also due to inflation, staff and property costs and equipment hire costs as a result of the increased volumes. Trading profit of ZAR 2.2 billion is up 23% and as I said earlier, this division has breached the ZAR 2 billion mark for the first time. Trading margin is high at 25.8%, improving from 23.7% in the prior year. And roughly at 56.2% is the highest return we've seen from this CapEx-intensive business and is really just excellent. And this compares to a roughly of 44.6% in the prior year. Turning to the operations. The bulk mineral terminal operations in South Africa, Mozambique and Namibia, all outperformed. This outperformance was on the back of increased volumes of coal, chrome, manganese, copper concentrates, filed coal, [indiscernible] and ships' spares handled for the oil and gas industry. Our bulk grain terminal performed well, notwithstanding the year-on-year decline in grain volumes. And whilst volumes are down at 4 million tonnes, this is the highest volume of grain ever handled through the terminal. The bulk liquid terminal produced a solid result further supported by an improved LPG contribution. Our clearing and forwarding operations also produced a very strong result. As we always do in this division, we always take a forward-looking approach. We look at CapEx decisions that we can make to invest into future growth. And so we're also happy that we've got the 3 following investment projects that are underway. We're in the process of repurposing our butadiene spheres to store butane and this CapEx investment is ZAR 172 million and this should come on stream in the first half of the 2024 financial year. The Board also approved ZAR 550 million CapEx to build multipurpose tanks and we expect to commission these in the first half of the 2025 financial year. And lastly, we've also approved an additional ZAR 185 million for fuel tanks in Richards Bay and these should be commissioned in the 2026 financial year. And so to the Freight team, congratulations on a phenomenal performance. Moving to Commercial Products. Revenue at ZAR 20 billion is up 32%, driven by inflation and as Mark said, a tenfold increase in renewable energy sales. The growth in the electrical cluster has been exponential and we've also seen good demand coming from the industrial, textile, automotive and mining sectors. Pressure on consumer spend and redirection of spend away from the DIY market was very evident in the period. The gross margin declined year-on-year due to factory under recoveries as a result of load shedding, the exchange rate impact and large price increases, where, in some instances, we wouldn't reprice in time. Expenses are up 11% but materially below the growth in revenue of 32%. This expense increase is attributable to the higher turnover, increase in fuel and distribution costs and increased diesel costs for generators. Trading profit at ZAR 1.4 billion is up 21%, which is outstanding and the trading margin at 7.2% is slightly below prior year. ROFE at 30.6%, this remains solid and we're very happy with this return profile from our trading businesses. Turning to the operations. The trade cluster delivered an outstanding result with the electrical business delivering record profit and we also saw a good performance coming from Plumblink. The catering cluster was supported by a good performance from King Pie and the DIY, packaging and leisure clusters came under pressure as the reduction in consumer spend and demand in the DIY and leisure products sector declined. General industrial cluster produced an excellent result and the warehousing cluster showed a strong underlying performance and then doubled in size due to the addition of the A Square Forklift acquisition. Congratulations to the Commercial Products team for an outstanding set of results. Moving to Services South Africa. Revenue at ZAR 10.4 billion is up 27%, driven by recovery in occupancies, especially in universities, which are now materially back at probably 100%. The rebound in travel and tourism volumes has been strong and we believe that the industry is now back to pre-COVID levels even though there's still some capacity constraints due to reduced airline fleet. There's also been good new contract wins in the division and market share gains in certain sectors. The gross margin is down from prior year due to increased billings in some lower margin businesses in the travel sector. Expenses were up 20% due to the increase in turnover, increased fuel costs and input costs, mainly in our catering cluster. Trading profit at ZAR 1.1 billion is up 21%, which is excellent. And as I said earlier, this division has breached the ZAR 1 billion mark for the first time. The trading margin at 10.2% is slightly down on prior year and roughly at 106% remains a solid and more normalized return for the service business. Turning to the operations. The travel cluster delivered a super standout result driven by increased volumes in the travel and tourism industry. These volumes also supported growth in our largest business who also delivered an outstanding result. The Allied cluster delivered an excellent trading result off the back of increased office and hotel occupancies, the resumption of conferencing and banqueting events and increased water and coffee sales. The security and aviation cluster delivered a mixed result with very strong performances for the security and related businesses, whilst the balance of the businesses came under pressure due to the non-repeat of significant project work in the prior year and the nonrepeat of COVID-related revenue. To the Services South Africa team, congratulations on an incredible set of results. Moving to Branded Products. At ZAR 11.7 billion is up 13%, driven by good price increases, a very strong back-to-school season, increased office, school and university occupancies, robust demand from packaging products and significant demand in the office automation space. The gross margin was slightly down in prior year as a result of a change in the sales mix and the impact of a weaker exchange rate. Expense growth at 9% was reflected in the increase in fuel and distribution costs, the impact of load shedding on factory recoveries and reduced retail sales. This expense growth remains below the growth in revenue, which is good. Trading profit at ZAR 860 million is up 16% on prior year, an excellent results with all businesses in the division bar one, increasing profits year-on-year. The trading margin also increased from 7.2% to 7.3%. Cash generated from operations was excellent and roughly at 33.5% is a very good return for this trading division. Turning to the operations. Waltons delivered a standout performance, driven by a very strong back-to-school season and increases in office, school and university occupancies. The businesses and office automation, leisure and office products delivered a phenomenal performance with record results from Konica and Interbrand. The data, print and packaging cluster delivered an excellent performance, driven by an increase in demand for print and packaging products whilst the consumer business contracted on the back of constrained disposable income and profitability declines in certain product categories. To the Branded Products team, congratulations on a fantastic set of results. Moving to Automotive, revenue at ZAR 24.9 billion is up 5%, driven by inflation and mix, new vehicle volumes increased by 2%, while used vehicle volumes declined by 10% and I'll comment on that a little bit later. The teams prioritize the quality of the sale over volume and were thus able to protect margin, maintaining the overall margin at the same level as last year. Wealth management was exceptional, with expenses increasing only 3% and this materially boosted the operating leverage and resulted in a 5% revenue increase, translating into a 12% profit increase. Trading profit at [ ZAR 915 million ] is a record result for this division. The trading margin at 3.7% is up from 3.5% in the prior year. Roughly at 40%, down from the 50% we had in the prior year but this must be seen within the context of increased inventory levels as supply chains normalize. Our closing inventory at year-end is higher than expected, this will be addressed going forward. New vehicle sales were up 2%, as I said earlier. This is below the overall dealer market volumes that were up 10% and this is due mainly to entry-level brands where we either have no or very little representation, having the biggest market share growth. Used vehicle volumes declined by 10% as used vehicle stock became more freely available and used vehicle prices softened. After sales contributed positively as throughputs in our service centers returned to pre-COVID levels and parts supply also became more predictable and stable. Our new independent used vehicle business, Cubbi was launched, and we look forward to the success of this new venture. To the Automotive team, congratulations on a record profit result. In our last division, Financial Services, the team successfully executed an excellent turnaround. Last year this time, we communicated plans and strategies to improve performance, particularly in Bidvest Bank and the team has not only delivered on those plans but they've exceeded expectation. Revenue at ZAR 2.7 billion is up 12%, driven by increased capital deployment in Bidvest Bank and higher interest rates. The gross margin improved year-on-year and expense management was outstanding, with costs only increasing 1.2%. Trading profit at ZAR 463 million, significantly up on prior year with core trading profit at ZAR 329 million and investment income up ZAR 117 million. What is more pleasing is that the current level of profitability is 40% higher than the profits reported in the 2021 financial year. So the division is tracking well ahead of plan. The trading margin and ROFE whilst up remain a focused area of improvement in the 2024 financial year. Bidvest Bank produced an embeddable result. We are now a 100% digital bank as all retail branches have been closed. The optimization of our credit processes is yielding results. The cost to income and credit loss ratios have improved materially and the bank remains adequately capitalized. The bank team has to really be commended for this turnaround. The short-term insurance business delivered an acceptable result whilst FinGlobal and Compendium delivered excellent results. The Life business improved profitability. But notwithstanding this, as Mark indicated, a decision has been taken to exit this business and we have, therefore, made the required disclosures in the financials. Also note that there is no further update on the investigation into the life insurance industry by the Competition Commission. To the financial services team, congratulations on a phenomenal turnaround and a pleasing result. I'm going to make 1 or 2 comments on Adcock. If you recall, we did announce at half year that Adcock will no longer be reported as part of Branded Products but we'd report it separately as a subsidiary of the group. And so I will keep my commentary limited because Adcock is separately listed and Andy has already delivered the 2023 results. The Bidvest shareholding in Adcock now sits at 62.3%. And as previously communicated, we will incrementally increase our equity in the business as and when the opportunity arises. Adcock delivered revenue of ZAR 9 billion and a trading profit of ZAR 1.2 billion. The defensive nature of the product offering in this business remains appealing to us and we continue to support their strategy of increasing the nonregulated parts of their portfolio. Kevin Wakeford retired from Bidvest and therefore, from the Adcock Board at the end of March 2023 and Mark has been appointed on to the Adcock Board. This is a solid result by the Adcock team and I'd like to congratulate them for this performance. That closes out the operational review. And moving now to the next slide, which is basically just a summary on our value proposition. And just touching on the nonfinancial aspects of the business that are equally important and also drive the financial results. The wonderful thing about a growing organization is that you create jobs and so we're proud to report that we created just over 6,000 jobs during the period under review. Diversity and inclusion remain a key focus. And our ExCo team leads by example and today Exco is 58% black. And yes, 58% female, we've got more women in our ExCo team and it's wonderful. We've reduced our emission and water intensity by 32% and 38%, respectively and gradually increasing green energy sources across the group. Our focus on ESG is important. There's still a lot to be done in this space and we remain committed to matching our financial results with an equally solid nonfinancial performance. Going to the outlook. The macro factors that we contended with in the 2023 financial year remain broadly unchanged going into the 2024 financial year. Our businesses are geared to navigate these headwinds and we'll continue to find pockets of above-average demand and growth. We expect robust demand to continue in the renewable, mining, agriculture and inbound travel industry, we accept that from a renewable and a travel industry perspective, the exponential growth is probably over but we do expect the demand to remain robust. In the fourth quarter of the 2023 financial year, we saw a new green shoot, which was an increase in government spend, mainly in local government and this is on basic infrastructure. It's still early days. But if the stimulus continues into the 2024 financial year it will be good for our trading businesses. The SA consumer is under immense pressure due to rising interest rates and high inflation and we'll keep our eye on the impact of consumer buying patterns and ensure that our entry level and affordable product offering capture the shift in purchasing decision. Innovation and technology continue to support our product and service offering. And margin and cost management, as Mark said, will remain top of mind. Our M&A pipeline is full, it's exciting and it's executable. In closing, the 2023 financial year has been a remarkable year and I would like to extend a huge thank you to the 250 businesses that produced these results. Outstanding leadership is at the heart of top performance. And so to the entire Bidvest management teams across South Africa, Swaziland, Namibia, Mozambique, the U.K., Ireland, Spain and Australia, congratulations on another stellar performance. These results demonstrate your ability as management teams to drive operational excellence. The results demonstrate your ability to mobilize teams to deliver beyond their own expectations. And as I said before, I'm blessed to be part of this team and do not take this moment in time for granted. To our shareholders, thank you for backing us. We won't disappoint you. Thank you very much.

Thank you, Mpumi. We should have a moment of silence to take in those strong closing comments. We will take questions via the phone line and via the corpcam website. Operator if you can just give the instructions again for the phone line questions and then we'll start with those questions we've received on the website -- on the webcast.

[Operator Instructions] At this stage, there seems to be no questions on the phone lines.

Okay. All right. Let's start with those questions that I received via the webcast. There's the -- the question here around, the freight division has performed magnificently over the last 2 years, I think more. The question is, is the margin sustainable at 26%. And what's the outlook for this division?

I'll take this one. I love talking about freight. Is the margin sustainable? I mean the opportunities to improve margin in this scenario relate to improved infrastructure in South Africa and specifically rail. I think everyone has seen the rail results that have come out recently. The TFR performance, unfortunately, has not been good and we're seeing it in our underlying businesses. We've seen the lowest level of rail volumes in the history -- in our history. And really, what you need is to move high volumes of particularly the bulk products, both the minerals and the grains, you have to have an efficient rail system. So I think the opportunity for rail improvements could significantly improve margin. There are other efficiencies that also flow from that because what you would then take off is significant truck volumes off the road infrastructure, which is obviously impairing things as well. So I think that's a big opportunity to improve margin in that space. If I think across other opportunities in this business, this business has obviously benefited from poor performance within the Transnet environment. And so we've been building infrastructure around that. The customers and suppliers continue to try and move product. But the other thing that will happen, if rail infrastructure starts to improve, is you will see more volumes start to pass through the system, which is good for everyone. I mean I think one of the big frustrations of the larger exporters in the current year is that the pricing supported good product movement and we just haven't seen those volumes flow. I think the volumes on the coal line to Richards Bay are probably indicative of the scenario. I think those are good opportunities to potentially improve the volumes through the business and improve margin into the next year.

And then Mpumi, there's a few questions that still have got the same undertone. Just an update on the Transnet's project, as we've previously spoken about an opportunity there.

So maybe just to make a broader comment that, before I go into anything specific to asset, we are very pleased by the progress that we see from Transnet in terms of public sector participation. And as I'm sure most of you are aware, the tender for the PSP for the Durban Container Terminal (DCT) has been adjudicated and that's now out of the way. There was another opportunity for [indiscernible] and there is a consortium that is now leading -- putting on the table a final proposal to Transnet, which is good. So those are 2 key decisions that have been made by Transnet that really bring in private sector participation materially into the space. We still await the adjudication of the [indiscernible] line, so that tender was out beginning of this year. We've participated in that process but we don't have a result as yet. So that remains pending. And then in relation to our other conversations, we're making good progress. As I said previously, we are under NDA, so unable to disclose anything further. Other than that, I think we're making good progress. Yes. And so I think probably we need another 12 months in order for us to give a definitive view of what has been agreed.

And Mark, really this one is for you. We talk about the M&A pipeline, that is looking healthy and good. Can you elaborate a little bit about the size and the content of that M&A pipeline, as far as you can? And are you comfortable that the group will take on more debt with the current net debt-to-EBITDA ratio sitting at 1.7x.

I'm not going to comment on the overall size of the portfolio other than to say it's the most healthy we have seen for quite a few years. So that's very, very encouraging across a broad spectrum of industries and geographies. So we're very active in lots of areas that we've indicated strategically that we want to target. Nice to see opportunities coming up into some of the new geographies like Australia, where we entered in this last financial year for the first time. So that's progressing well. Do we have appetite to increase debt in relation to this M&A? Yes, we do. We have comfortable headroom not only in our covenants but to our internal kind of targets from a net debt-to-EBITDA perspective. We've always said that we sort of -- while the covenant is 3x, internally, we target kind of a cap of 2.5x and sort of headroom from there down to 1.7% with obviously additional EBITDA that would rise post transaction is sufficient for what we have in play. And we've got enough debt capacity to be able to handle that.

Mpumi, maybe let's -- there is a few questions on this one. We referenced a contract that was rescoped within Services International, maybe just a little bit of extra info there -- information.

No. So there is quite a sizable contract that has been rescoped. We managed to extend the tenure of that contract [indiscernible] really when you kind of get yourself additional couple of years on the tender, you have to reprice in order to be able to retain. We've repriced that contract but also the client has also just significantly reduced their portfolio. So not so much the repricing but the impact of the significant reduction in the size of the portfolio is what is reducing profitability for that business. It's material for that business. But yes, look, for us, it was important to stay in the game for another couple of years and we'll do our best to just try and hold that profitability where that contract is concerned and obviously, focus on other new business to top up.

And then 2 questions relating to the Automotive division. The first is a little bit on Cubbi, the size of the business, the plans for that business? And then a second question in that division is there seems to be a bit of auto -- excess auto stock floating around, not just here but in the industry. What are we seeing? How do we think this plays out?

So Cubbi, as Mpumi has already alluded to, has been launched. We are going in relatively slowly and we are going in quite small. We're very cognizant of pressure within the industry and specifically in the used car space. So we have in the current sort of 12-month period, we're targeting, I think it's about 5 or 6 pods in total, principally in [ Gauteng ] region first, with a slowish rollout, what we are doing is we want to be able to trade profitably from quite early on. We don't want to overly commit infrastructure or inventory into the model to impede it in a cycle which from a used car perspective, is under some pressure. That said, the appeal for the sector for us remains. The opportunity to be able to trade vehicles outside of a pure OEM retail space is certainly appealing for us, the additional margin that you can acquire in that space. And so we'll go in slowly without massive capital commitments to the process and we're still very encouraged by the opportunity. We think that the tech that sits behind this business is particularly appealing. From an excess stock perspective, yes, there is excess stock in the system. We did flag it during the presentation. The reason being that you have seen the consumer is under pressure at this point in time. And certain of the OEMs have taken a view on what they anticipated consumption levels to be. And it hasn't materialized. So as a consequence, there's a lot more stock in the system than previously there. Are we uncomfortable with that level? No. We will actively work to move that stock through the system and have comfortably taken the necessarily impairments, et cetera, to cover it. So very comfortable that we can handle the excess stock that we have in our system, it will just take a little bit of time to work through.

And maybe just to highlight that the excess stock is not sitting in Cubbi. I mean, Mark has said it but maybe just to work it over, that it's sitting in our original [indiscernible] business.

Mpumi, 2 questions relating to commercial products maybe. The first one is, you spoke about the sales mix change in commercial products affecting the gross profit margin but also flagged renewable sales at a 10x increase. Would this imply that the margins on renewable sales are lower for than the division overall. Just one. And then the second one also, could you give a little bit more color on the green shoots around public sector spend.

Yes. So if you look at the overall basket in commercial products, the margin that we're extracting out of the renewable space is lower. It's not at the same margin. It's still a good margin but it is lower than the overall basket. Public sector, look, we can only assume that it's potentially driven by an election period that is coming in 2024. We're just seeing demand coming through specifically from a local government perspective. And I think it's because it's coming from a local government perspective that we're making an assumption that it could be stimulated by wanting to show service delivery prior to an election period that generally happens. So yes, I mean it's in basic infrastructure. So I mean, the areas of our business, if that hold, that will obviously benefit, is where we're providing cable struts, basic electrical products and consumable, even plumbing, really across the board. So I think it will be good, in particular for the commercial products, if that demand holds. So yes, we'll see.

Okay. Let's take one more here and then we'll go back to lines. Let me just see. First, Mark maybe for you to sort of -- most of the other questions. Firstly, your expectations around CapEx and working capital for 2024.

Okay. From a CapEx perspective, I mean, we'd be sitting around ZAR 2.5 billion to ZAR 3.5 billion for the last number of years. Very comfortable with that level, targeting for next year, probably around the same range at around ZAR 3 billion would be from a CapEx perspective. And then working capital, overall flows will mirror our normal working capital cycle. So anticipate an absorption of working capital in the first half. It won't. We don't think it'd be at the same level as the absorption that we saw this year. So this year, we saw ZAR 5.5 billion in the first half, not anticipating anything quite that big and then a sizable lease in the second half.

And then -- and sort of last technical question before I move to the line. Can you explain why the Adcock number in Bidvest is different to the one [indiscernible].

This question was always coming. Okay. There are certain consolidation adjustments that take place at a group level, which don't exist within the Adcock space but exist in our space. I'll give you a very simple example of one certain of the properties within are Adcock owned by Bitprop, which sits within Bidvest. And then certain IFRS 16 adjustments happened with respect to those within Adcock, which we then unwind at a group level. So there's always going to be adjustments that will take place. Our result will mirror theirs but will never be quite the same as.

Good. Then maybe I can just check whether there's anyone on the line with some questions or else will take the [indiscernible].

At this stage, there are no questions on the conference.

Then let's just, want to go back to Services International question here is and I think you might have answered that, Mpumi. But BIC, how is that doing relative to expectations?

I think I did indicate that BIC is performing in line with expectations. They've done well in relation to the budget that they fit themselves prior to acquisition, new business has been strong. Very happy with that team. Yes, very happy.

All right. Mark, I think maybe one for you. Can you provide some color on the percentage of cash flows coming from South Africa and does management intend to restructure the debt to be mostly local and not offshore debt?

I'm not going to comment on the cash flows from SA. From a debt perspective, so it's something that we're looking at. Obviously, the movement in the rand in the last year has been quite significant. You can see the impact of it coming through the balance sheet and particularly on the debt line, on gross debt. So it's something we will monitor and should the opportunity be there, I mean, obviously, in doing that, what you do is you take a margin penalty because our rates here are more expensive than they are offshore. But it's something that we continue to monitor. And depending on what the rand does, we will look to do something or not.

All right. Let me just say there a few bits and pieces on Adcock and let me repeat what the team has said, that we will incrementally increase our stake in Adcock as and when the opportunities present themselves. There is no intention to take Adcock off, buy 100% at this point in time. Opportunistic, as we go, as you've seen us do the last few periods. That's what we'll say on Adcock for the moment. Mpumi, then a few questions, since the private sector is working with government, how is Bidvest involved in these initiatives and does it present any specific opportunities for the group?

No. So, I mean the work with government is obviously very encouraging. We've got key areas that we've identified for collaboration. And they are around the problems of the country that are our Achilles heel, right, they're around energy. They're around transport and logistics but obviously a big focus on rail. And they're around law and order and corruption. I mean those are the 3 probably key areas that if we could sort out for the country, we could just move ourselves forward in a big way. From a Bidvest perspective, we're always involved. We're close to this. Our involvement is obviously through BLSA. Our involvement is also through [indiscernible] and the implementing private sector arm, if I could call it that, is B4SA, which was formed during COVID. That's when B4SA was formed, during COVID. And that was probably the biggest PPP, not only in South Africa but I think globally. And if you saw what we were able to do during that COVID period in terms of distribution of vaccines, et cetera, what we've done is, we've taken exactly that blueprint structurally and said to government, how do we replicate what was a fantastic success over a 12-, 24-month period and do that now to move the economy forward in these 3 key areas. So I mean, we're involved. We're part of those discussions. We understand what is happening. And I think what's important is for us from a private sector perspective, to really just put as much on the table as we can to support government resources, as much as we can, to just move all of those work streams forward.

And maybe as a final question, Bidvest has reported significant trading profit growth from the 2019 base. Are there any areas that you see as particularly elevated or hard to defend then?

I mean I wouldn't use the word hard to defend. But I would certainly say that the growth rate has to normalize, right? Because if you think about coming out of 2020, we had this massive growth rate but because we were coming from a significantly down position, right, in the 2020 financial year. So you saw this big surge going into 2021. And then into 2022, there were a couple of material sectors that were still not there. And obviously, we saw another recovery coming through. And then less so in this financial year, I mean this financial year, I'd probably say the rebase in recovery has been in travel and tourism because renewables is new. That had nothing to do with COVID, that was just new opportunity coming on stream. So I mean the comment that I would make is, not so much hard to defend but that there has to be an expectation that the growth rate is not going to be at those levels. Will we still grow? Absolutely. I mean, we are intent on ensuring that we deliver a result that beats the macros and beat our competition. So that commitment doesn't go away. But certainly, the 30% pluses, et cetera, that's massive. And we accept that, that tailwind that we had isn't there but we'll continue doing what we do well, finding pockets of opportunity, finding pockets where the growth is exponential. And not worrying ourselves around this 0.3% GDP growth in South Africa, while pipeline of M&A is strong. And we're focused on executing on that pipeline. Yes, I think that's probably -- I should leave it at that.

That's it then. That is crystal clear and a good way to close this call. Thank you, everyone, for participating, taking the time to work through these results. We appreciate it and we'll be in contact and in conversations with most of you guys over the next few weeks. Thank you very much.

Thank you very much.

Thank you.

Thank you.