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 event is being recorded. I'd now like to turn the conference over to Ilze Roux. Please go ahead, ma'am.

Thank you, Judah. Good morning, good afternoon, everyone. My name is Ilze Roux. I'm the Corporate Affairs Executive for Bidvest, and I have the pleasure of welcoming you on to the call today. Thank you for your interest in Bidvest. These results reflect resilience in diversity, our focus on operational excellence regardless good cash generation, our distinctive approach to creating social value for all and executing our simple and clear strategy. As is customary, Mpumi Madisa, our Group CEO, will make some high-level remarks; before Mark Steyn, Group CFO, delves deeper into the numbers. Mpumi will then follow with a detailed review of each division's performance and close out with our value proposition and outlook. There will be an opportunity to ask questions at the end of the session. Without further delay, I hand over to Bonang Mohale, our Chairman, for some opening remarks. Bonang?

Thank you, Ilze. This is always a really interesting and engaging time of year for us here at Bidvest as we get the chance to share and discuss our half year results, future prospects and the many and very external sectors currently at play globally. I'm continually amazed at how Nompumelelo and her leadership team continue to demonstrate the resilience and agility to continually reposition our business for success in response to the world around us. And at the same time, advance Bidvest attractive growth prospects and thereby ensuring that Bidvest remains well positioned to continue delivering value for many years to come. We continue to have a resilient, diverse portfolio with substantial embedded optionality, a strong balance sheet and robust capital allocation framework that positions us well to unlock even greater value from our assets, always starting with our people, while allowing us to deliver great results for shareholders and to create social value for those around us. Nompumelelo.

Thank you very much, Chairman. Good morning, everybody, and thank you very much for joining us. In a tough trading environment, I'm confident that the group delivered a decent half year result. Our performance over the past 6 months is characterized by the following 2 occurrences. The first grouping of events is really exceptional performances from 4 of our 6 divisions, with Services South Africa, up 16% on the trading profit line followed by Automotive, up 14%; then Branded Products, up 10%; and our international operations, up 9%. The second grouping of occurrences is a contraction in 3 isolated areas, being zero export maize, which I indicated at the 2024 year-end results presentation, continued decline in renewable sales, also signaled at 2024 year-end and an unexpected drop in volumes and margins in Adcock. The impact of these 3 isolated areas of contraction is roughly 7% on the trading profit line. On corporate actions, we concluded 6 transactions in the period, which strengthened our operations in the following manner. Dekra, a vehicle inspections and roadworthy testing business, and Serco, a truck body building business diversified our automotive offering and reduce the cyclicality of our motor retail earnings. Spec Systems has expanded our print labeling and bar coding offering, WearCheck, a condition monitoring and water testing business has added a new growth pillar, an area of expansion for our Services South Africa portfolio. Nexgen expanded our niche facilities management offering in the U.K., and lastly, Countrywide expanded our hygiene consumable offering to the health care sector in the U.K. We've executed well on our strategic decision to exit the banking industry, having signed a binding agreement for Access Bank PLC to acquire 100% of Bidvest Bank for ZAR 2.8 billion. Mark has included a slide for discontinued operations, so I'll leave the balance for him to talk through. Lastly, in my opening, the financial results are coupled with a continuing strong focus on business sustainability and creating social value in all our operating territories. I'm pleased to report that for the first time ever, the group achieved a Level 1 B-BBEE rating, a really outstanding milestone for us our size. This reflects the focus across all our businesses on inclusive growth and reflects the strong socioeconomic commitment we have to broader society. I'll expand on our sustainability progress later in the presentation. Moving to the results highlights. Group revenue of ZAR 64.5 billion is up 5.7% with a strong contribution from the acquisitions. 5 divisions reported revenue growth. However, the contraction in maize export volumes, renewable and Adcock sales eroded the overall organic growth to 1%. Our gross margin was lower at 27.6% compared to 28.3% mainly due to a change in mix across the divisions. Expense control was excellent with expenses increasing 5.1% and impressively only 1.8%, excluding acquisitions. Our expense margin remains relatively stable at 18% compared to 18.1% in the period. Our 3 isolated headwinds being zero maize export volumes, lower renewable and Adcock sales, unfortunately, neutralized the organic and acquisitive growth, resulting in a flat trading profit of ZAR 6.3 billion and a trading margin declined from 10.3% in the prior year to 9.7% in the period. As indicated earlier, 4 of the 6 divisions reported profit growth and our offshore operations now account for 25% of profit compared to 22% in the prior year. Cash generated by operations was excellent, increasing by 18.4% to ZAR 4.5 billion, and our balance sheet remains strong with our gearing levels unchanged at 2x, notwithstanding the additional ZAR 4 billion capital deployed for acquisitions. Returns have tapered due to capital deployment on the back of flat earnings and so we've delivered a 37.9% ROFE compared to 40.9% last year and a 14.4% ROIC, which compares to 15.5% in the prior year. We still remain comfortable that our ROIC remains a hit of the group's weighted average cost of capital. In relation to overall earnings, group headline earnings per share increased by 2.8% with the associated group normalized HEPS, up 0.6% and on a continuing basis, HEPS was down 1.1% and normalized HEPS, down 0.4%. Lastly, in line with our dividend policy of 2 to 2.5x cover, the group declared a interim dividend of ZAR 4.70 per share, which is up 0.6% on the prior year. I'd like to now hand over to Mark for the financial overview.

Thank you, Mpumi, and good morning, good afternoon, everyone. Just some opening comments before we dive into the detail. While the first half opened with the anticipated promise of supporting tailwinds, the resulting trading environment was somewhat more constrained. Generally, the consumer is under pressure. The infrastructure revitalization remains frustratingly elusive. Despite this, we have strategically delivered on a number of our key objectives and maintained the growth mindset, which Bidvest is known for. We saw good performances in 4 divisions, while 2 others saw volumes materially decline. Our M&A momentum from last year pleasingly continued. Cost control remained good and further action is being taken to enhance our operating leverage. The cash performance was very solid with good operating cash generation supplemented by a seasonally lower working capital outflow and our investment in both CapEx and acquisitions continue. This half has been very active from a debt perspective. On the domestic front, we've issued our largest bond to date the ZAR 2.9 billion over 4 tenors. We achieved our best spreads on this issuance and have also increased our debt maturity profile. Internationally, we successfully tendered $322 million of the Eurobond at a discount to par of 1.75% and unwound the related hedges. This reduced the overall Eurobond to $478 million and thereby reduces the placement risk of this bond later this year. We have good debt capacity, both internationally and locally, which is sufficient for the potential M&A pipeline. Our net debt EBITDA has been maintained despite increased investments in M&A, CapEx and working capital. As Mpumi reference, we have completed 6 transactions in the half, including 2 businesses in the U.K. and 4 businesses in South Africa. The pipeline remains good and we are awaiting feedback from the U.K. CMA on potential acquisition of Citron, which is a hygiene services business in Canada, the U.S. and the U.K. The disposal of Bidvest Bank, FinGlobal and Bidvest Life is progressing well. We have binding SPAs signed for Bidvest Bank and FinGlobal and the principal CPs on these 2 relate to regulatory approvals, which are currently being engaged. These entities have been disclosed as distributioncontinued operations. But this is the backdrop, let's have a look at the more detailed results. Driven by income statement, revenue up 5.7% to ZAR 64.5 billion, supported by good acquisitive growth. We've seen growth in Services international, Services SA, Automotive and Branded Products. Good business wins and some volume growth have been partially diluted by increased price competition. We've also seen within the commercial product space, some revenue pressure with a slowdown in renewables and similarly in Adcock with the destocking of the pharmaceutical wholesale supply chain. In terms of our acquisitions, the acquisitions have provided 480 bps of growth, but we'll unpack the divisional results in more detail later in the presentation. From a gross income perspective, our gross profit is up 3.2%, while our gross profit margin was under pressure and has fallen 66 bps to 27.6%. This was impacted by business mix as well as margin contraction on certain contract renewals. More contracts are going out from tender and e-procurement systems create less opportunity to differentiate our product and service offering. The gross margin has also been impacted by higher wage inflation, which is prevalent in most jurisdictions, but most noticeably the U.K. From an expense performance perspective, I think our expense performance was particularly pleasing. Operating expenses up 5.1% versus a revenue increase of 5.7%. At an organic level, though expenses are up just 1.8%. Payroll inflation as reflected in the gross margin above as well as utility costs are impacting operating expenses. These inflationary pressures were partially moderated by lower overtime costs. A number of the businesses are engaged in restructuring and rationalization processes to improve the operating leverage. Our expense ratio improved to 18%. There's a keen focus on cost containment right across the group, which is again a feature of these results. From a trading profit perspective, overall trading profit is down 0.5% to ZAR 6.3 billion, and while underlying organic growth was negative, it was supported by good acquisitive growth. In terms of the individual divisions, Services SA had a great first half with a good contribution from the Security and Aviation cluster, higher volumes through the lounges and improved inbound travel. The Allied cluster was similarly good with good water sales. The acquisition of this division, WearCheck is performing very well. In Branded Products, Office Products, and Office Automation remains strong, supported by Packaging and Consumer Products, good M&A progress is being made with a number of opportunities still in process. Strong results were generated by Services International, supported by continued strategic M&A, creating enhanced geographic representation and a broader service offering. The benefits of the diversification strategy within the Automotive division are clearly evident with a soft franchise retail environment being supported by the growth in the used vehicle portfolio, the contribution from the Allied acquisitions and good performance of the insurance businesses. While freight was materially down, this was largely expected due to high maize and mineral volumes in the prior year. The remainder of the division performed well with increased volumes benefiting from greater handling capacity. Commercial Products results were down following lower renewable sales, which is a function of the reduced load shedding and stagnant overall industrial demand. We're not yet seeing the benefit of material infrastructure renewal programs. The Adcock result was disappointing, impacted by declining consumer spend, reduced inventory holdings in the pharmaceutical wholesale channel and factory under recoveries. Looking now at our debt and our long-dated funding. As I said earlier, it's been a very active half, but we continued to maintain the conservative and consistent approach with prior years. In terms of net debt, net debt after cash and cash equivalents is up ZAR 5.7 billion to ZAR 30.9 billion and this is following investment in working capital of a further ZAR 3.6 billion and similarly a further ZAR 3.5 billion in M&A as we continue to build our base. We continue to proactively manage our debt mix. In SA, we have increased our domestic bonds at better spreads and with increased tenure. We've also issued preference shares for certain of the bolt-on acquisitions. Internationally, we've had a successful tender of $322 million by Eurobond, which was funded by the RCF. We have now substantially derisked the Eurobond refinancing with only $478 million outstanding or only, it is still a big number, and we tend to renew this funding in the latter part of this calendar year. We hold 61% of our gross debt offshore and 60% of our net debt, and 81% of our growth debt is of a long-term nature. Our debt mix, as we reported at year-end remains overweight on variable interest rate debt, and we benefited from the rate reductions, but we are closely watching pricing at the moment as increased geopolitical tensions has slowed the rate reduction momentum. The growth in the underlying net debt base, together with higher average interest rates have increased our interest costs. And while the overall cost of debt is up just 5.4%, if the impact of IFRS 16 and the hedge value -- the hedge fair value adjustments are excluded, finance costs are up 17%, reflecting the growth in the debt base. We are well within our covenants. Our net debt to EBITDA is at 2x versus 2x a year ago, and the M&A added about 0.25 of a turn in this regard. From a purely offshore perspective, the net debt EBITDA in hard currency sits at 5x post the Nexgen and Countrywide acquisitions. What is important to remember though in this context, this is effectively a permanent feature of our capital structure as we remain overweight on our offshore capital allocation. Our overall average cost of debt at 6.9% pretax is up slightly from the close FY '24. And that really reflects the growth in our gross debt as well as the more expensive RCF debt, which has replaced $322 million of the cheaper Eurobond, and this will impact the second half of the year. In terms of our EBITDA interest cover at 6.4x, well in excess of our covenant of 3.5x. In terms of M&A capacity, we have sufficient M&A capacity for our pipeline with EUR 102 million available offshore and ZAR 16 billion available domestically. Moving now to cash flow. The cash flow in the first half has been very good. The underlying cash generated by operations before working capital is up 8.1% to ZAR 8.1 billion. We have invested ZAR 3.6 billion in working capital in the first half, which is about ZAR 600 million lower than the seasonal outflow in the prior year. In terms of the various components, we've increased inventory, but relatively modestly with increases in Branded Products and Adcock. And we're actively destocking in Commercial Products, renewables and in certain OEM lines in Automotive. Our stock days in certain of the businesses remain under pressure, although we are comfortable with the quality and the salability of the stock. Our debtors have decreased by 1.7% since June, with a slight increase in the overall aging, but the underlying book remains in good shape with adequate provisions. The creditors have decreased in line with the normal first half seasonality. As per normal, I've included the cash generation graph, reflecting the first half where you can see the seasonal cash outflow, which is consistent with the normal working capital cycle for the group. And our cash -- our operating cash generation remains strong. Then from a discontinued operations perspective, the disposal process for Bidvest Bank, FinGlobal and Bidvest Life continues to make progress. We have signed SPAs for both Bidvest Bank and FinGlobal and in the process of working through the various regulatory approvals, which are the primary CPs. We hope to have these processes completed by June '25. From an operational perspective, Bidvest Bank is performing satisfactorily, with the deposit book and regulatory ratio is healthy. Both FinGlobal and Bidvest Life reflect good growth. These 3 entities have been separately disclosed as discontinued operations in terms of IFRS 5. Just to note that in terms of the standard, the depreciation and amortization is suspended as part of this disclosure and we have adjusted for this in the normalized headline earnings. The proceeds from these sales will be used to repay debt. Just some final concluding thoughts. In a trading environment that remains tight, good progress has been made on a number of our key strategic objectives. We continue to deliver on our M&A pipeline with a number of transactions still in process for the second half. We continue to actively manage our capital structure and debt profile and are closely monitoring funding costs. Cash flow and cost management remain core to our day-to-day management. And finally, geographically, we're making steady progress, and our international revenues now represent more than 1/4 of the group, and this remains a key focus area. Thank you.

Thank you very much, Mark. It takes us to the operational overview, which is starting with Services International. The team delivered an excellent result with profits roughly split equally between hygiene and facilities management services. Revenue at ZAR 21.4 billion was up 11%, driven by new business wins and continued hygiene pool groups. Contract losses in certain territories and the strengthening of the rand moderated organic growth. The top line was also boosted by the acquisitions of Nexgen and Countrywide. The gross margin was slightly diluted due to the mix change as the facilities management businesses grew at a faster rate than the hygiene businesses. The above inflation expense increase was driven primarily by the consolidation of costs from the acquisitions and on an organic basis, expense management was excellent with growth of only 3%. Trading profit at ZAR 2 billion is up 9%, an excellent results from the team. And the trading margin at 9.5% was slightly down from 9.7% in the prior year due to the gross margin impact explained earlier. ROFE at 141.7% is significantly up on the prior year's 131%. Turning to the operations. 74% of the profits in the division are generated offshore. The FM businesses delivered an excellent result driven by good new business wins, excellent cost control and a contribution from Nexgen. The BIC consolidated integration process is now materially complete. The hygiene businesses delivered a solid result, driven by continued hygiene pool growth, excellent business wins, solid retention and their contribution from the Countrywide acquisition. We're also very happy with the performance and growth momentum of our newly acquired business in Singapore. The second half focus for our hygiene and facilities management businesses in the U.K. will be on wage recovery. due to the increase in the U.K. National Insurance. And lastly, as previously reported, we completed the due diligence on Citron and announced this potential acquisition in July 2024. The U.K. decision is expected in about a week or so. Congratulations to the Services International team, I think this team has delivered a really excellent result. Moving to Freight. The Freight result is in line with expectation as signaled at the 2024 year-end results presentation. I indicated then that we expect to handle zero maize export -- zero export maize in the first half and this materialized. Revenue at ZAR 4.8 billion is up 8%, driven by billings and sales and our clearing and forwarding operations in South Africa and Namibia. Volume increases in our bulk liquid operations and increased sales in our warehousing and marine services business. This growth was offset by declines in bulk grain volumes and bulk mineral volumes in South Africa and Mozambique. The gross margin decline was primarily due to the materially lower high-margin maize and bulk mineral commodity export volumes. The increased disbursements in clearing and forwarding activities also moderated margins. Expense management was excellent with the OpEx line increasing only 3.3%. Trading profit at ZAR 1.1 billion is down 12% due to the volume and margin impact that explained earlier. The results in trading margin also declined to 23% from 28.4% in the prior year. ROFE off the back of an increased funds employed and a contraction in earnings declined to 46%. Turning to the operations. The expected bulk grain volume impact materialized as we handled no export maize in the period. This resulted in a 45% decline in overall grain volumes. On the bulk minerals side, lower commodity prices put pressure on high-margin commodity volumes, resulting in a decline of primarily coal volumes. Our bulk liquid operations delivered a stellar result off the back of customer rate escalations and improved capacity lift. The butane spheres and 18 multipurpose tanks commissioned in October 2023 and August 2024, respectively, further increased the operation storage capacity, contributing to incremental revenue and profit. Our clearing and forwarding operations delivered excellent results, growing profits on the back of higher new and extension business and higher freight rates. Our warehousing and container business delivered a solid turnaround on the back of higher volumes due to increased rail support from Transnet. Our Mozambique operations traded under very difficult conditions due to the loss of a key contract and the negative impact on port operations as a result of the post-election protest. Lastly, our Namibia operation continued to deliver a standout performance, benefiting from increased bulk volumes handled, specifically fertilizer, sulfur and copper as well as new business from the oil and gas drilling campaigns. I'm comfortable with the overall freight result. It's in line with expectation and ahead of budget. So I'd like to congratulate this team on a good set of results. Moving to Services South Africa. The team delivered an outstanding result with all clusters up on prior year. Revenue at ZAR 6.4 billion is up 9% with all clusters showing good top line growth. Strong organic growth was driven by new business, growth in our charter operations, improved inbound travel volumes, increased foot traffic in the lounges and increased water sales on the back of a heat wave in the latter part of 2024. The WearCheck acquisition further boosted the top line. The gross margin improved due to an improvement in the sales mix and good cost of sales management in our catering and hospitality cluster. Expenses increased above inflation, primarily due to the cost of the WearCheck acquisition. Excluding acquisitions, expense management was excellent with growth of only 3.8%. Trading profit at ZAR 721 million is up an impressive 16% and the trading margin at 11% is up on last year's 10.5%. And ROFE at 104.8% is up from 101% in the prior year. Turning to the operations. The hospitality and catering cluster delivered exceptional growth due to a standout performance from the lounges business. The Security and Aviation cluster delivered excellent growth due to increased new business, contract extensions, improved air cargo volumes and excellent cost control. The Allied cluster delivered outstanding profit growth due to increased water sales, higher coffee and water cooler rentals and increased sales in our indoor plants business. The travel cluster's excellent profit growth was driven by higher inbound travel volumes and improved margins across our various travel brands. And lastly, our newly formed testing and condition monitoring cluster, comprising WearCheck delivered in line with budget and expectation with growth driven by the successful onboarding and mobilization of new contracts. And to the Services SA team, congratulations on an outstanding set of results. Moving to Branded Products. The division delivered an impressive result with all clusters up on prior year. Revenue of ZAR 7 billion is up 4.6%, driven by growth in furniture and Office Automation sales. This organic performance was countered by subdued consumer demand in the retail sector, where we're seeing consumers prioritizing purchasing of essential products. Spec Systems made its -- made a contribution to the division contributing to the top line. The gross margin improved due to changes in the sales mix. Expenses were exceptionally well managed, increasing only 3.4%. And excluding acquisitions, the expense growth was even lower at only 1.7%. Trading profit at ZAR 710 billion is an excellent 10% ahead of prior year. Operating leverage was strong, resulting in a trading margin improvement from 9.7% in the prior year to 10.1% in the period and the already impressive ROFE improved further from 37.8% to 39.7%. Turning to the operations. The Office Products cluster delivered an outstanding profit result on the back of increased furniture orders, improved recoveries in the furniture factory and higher pricing and gross margins from Office Automation sales. The Data, Print and Packaging cluster delivered a good profit result, countering revenue contraction with solid gross margin and expense control. The inclusion of Spec Systems boosted this cluster's results. And lastly, notwithstanding the lower-than-expected consumer demand, following Black Friday sales, the Consumer Products cluster delivered a good profit result due to excellent margin management, improved manufacturing efficiencies and excellent cost control. Congratulations to the Branded Products team for an excellent performance. Moving to Commercial Products. The division reported a weak trading result impacted by the expected decline in renewable sales. Revenue at ZAR 8.4 billion is down 3.2%, primarily due to a decrease in renewable sales. The renewables base is high, and over time, we will work through this historic sales boom. We continue to supply into the renewables market. However, sales have dropped materially from the peak of the 2023 financial year. The gross margin declined due to lower margin on renewables, negative sales mix and pricing pressure across the balance of the portfolio. Expense management in the division was good and way below inflation at 2.6%. However, this was insufficient to counter the volume and margin contraction. As a result, trading profit at ZAR 542 million declined by 27% and the trading margin also contracted from 8.6% to 6.5%. The lower earnings and higher funds employed resulted in a decline in returns with ROFE at 8.6% (sic) [ 18.6% ], much lower than the 27% in the prior year. Turning to the operations. The electrical cluster declined materially due to the sales and margin impact of renewables. There were some standout performance in the cluster, driven by good project work and increased demand for large power generation projects where we continue to have a strong forward order book. Our supply of plumbing and related products went from strength to strength with the business delivering an excellent profit result as product demand remained robust and 4 additional branches were opened. The Packaging cluster delivered a superb result driven by gross margin improvement, improved factory efficiencies and good expense management. The DIY tools, workwear and warehousing clusters struggled as trading conditions worsened. Growth in the DIY segment was more than neutralized by declines in demand in the industrial, construction and mining sectors. Overall subdued market demand also impacted trading. The catering cluster reduced profitability as export orders and local demand declined, while the general industrial cluster delivered a satisfactory result. And lastly, the Leisure cluster delivered a significantly improved result driven by good demand from the motor, marine and music sectors. It's been a tough 6 months, and I know the Commercial Products team is doing their best under the circumstances, and they're keeping their heads up and aiming for a better second half year performance. Moving to Automotive. The team delivered a superb result, reflecting successful implementation of the diversification strategy. Revenue at ZAR 13.8 billion is up 4.7%, driven by gradual recovery in certain OEM brands, increased aftersales, materially improved sales in the non-franchise motor retail operations and new business and rate escalations in the insurance businesses. This revenue was partially moderated by the decline in new vehicle volumes. The Dekra and Serco businesses also contributed for the first time to the division. Gross margins improved slightly due to the addition of the higher-margin Dekra business and an enhanced margin from the non-franchise motor retail business. Expense control was excellent with costs increasing 3.7%. And excluding acquisitions, expenses were exceptionally well managed, down 0.6%. Trading profit at ZAR 506 million increased by an impressive 14%, and the trading margins followed this trend, increasing strongly from 2.8% in the prior year to 3.7% in the period. The division's ROFE at 26.8%, whilst down on prior year's 29.7% has improved from the June 2024 year-end ROFE of 21%. Turning to the operations. In the franchise motor retail cluster, new vehicle volumes were down 2.7% against a flat overall dealer market due primarily to a reduction in new truck sales in commodity-driven markets. As a result, the new vehicle contribution declined year-on-year, and this decline was partially offset by increased used vehicle and aftersales contributions. In the period, we have positive contributions from 6 new OEMs with further rationalization of our existing dealer footprint underway. Our non-franchise motor retail cluster delivered an improved performance from Cubbi and an exceptional result from our auction business, Burchmores. And lastly, in this division, the automotive Allied cluster grew profits off the back of increased gross written premiums, new business and reduced costs in the insurance businesses. In relation to the new acquisitions, Serco delivered a result in line with expectations and Dekra outperformed off the back of strong new business. The Automotive team has made a number of changes and additions to position the division for strong growth, and these results reflect solid strategy execution from the team. Lastly, on Adcock. Adcock delivered an unexpected weak performance. We really didn't see this coming as volumes declined and margins contracted. Andy has already released results, so I'll give a shortened commentary on the business. Revenue was broadly flat at ZAR 4.7 billion due to 6.5% reduction in organic volumes, primarily as a result of a slowdown in the pharmacy and independent wholesale channels. This volume decline was partially offset by an average 5.3% price increase and a mix benefit of 0.6%. The combined volume and gross margin declines resulted in a 17% trading profit reduction to ZAR 516 million and HEPS declined 9% and Adcock delivered -- or declared an interim dividend of ZAR 1.15 per share. Moving to strategy and outlook. With regards to strategy, there are no material changes to report. We're in the process of executing on the strategic decisions made in the 2024 financial year. And so the only aspect to highlight on this slide are in the following 3 areas. Firstly, given our exit of the banking industry, the Financial Services division no longer exists, and now we report only on 6 divisions plus Adcock. Secondly, on creating social value, we are working on our business sustainability framework 2.0. Our current framework comes to an end at the end of this financial year. And so in the upcoming annual report, we will be publishing our updated sustainability strategy that will probably cover a 10-year period with obviously new long-term targets that we would want to achieve. As you're aware, the group's short-term and long-term incentive scorecards have sustainability-linked KPIs. These will also be updated in line with the framework. Lastly, in terms of financial strength and discipline, we're preparing to go back to the bond market around September this year. Our Eurobond is our biggest debt instrument in the group. So this is a very important upcoming process. Moving to our value proposition. On this slide, I'd like to draw your attention to the graphs on the right. In 2023, we started the rollout of a medical insurance program, targeting employees where affording a full medical aid is financially very difficult. This benefit is partly funded by the group. And today, I'm proud to report that we have about 7,500 Bidvest employees and 1,250 dependents in children who through this benefit can now access private medical care. We're extremely proud of this initiative and aim to have at least 20,000 Bidvest employees and their families less reliant on the public health care system in South Africa, where access to private health care for them becomes a norm. As we continue to focus on improving the group's energy mix, 5% of the group's power is sourced from renewable sources and a project is underway to accelerate installations across the Bidvest portfolio, and we aim to finalize this and improve -- further improve our energy mix by year-end. And lastly, on this slide, I'd like to talk to succession. Our CFO of the Services International division, our largest division in the group, Trevor Scruse, who's been in the group for 54 years, retires in December 2025. Divisional CFO positions of key positions in the group. And as always, at Bidvest, we're ahead of the curve in relation to succession. So I'm happy to announce the following changes. Craig Turnbull, who's the current divisional CFO for Commercial Products, has been promoted to divisional CFO, Bidvest Services International, effective September 2025. Anthea Myatt, CFO, Security and Aviation Cluster in Bidvest Services South Africa has been promoted to divisional CFO, Bidvest Commercial Products effective September 2025. These promotions are a natural progression for both Craig and Anthea, who've both been in the group for 14 years and 9 years, respectively. I'd like to wish both Craig and Anthea all the best in their new roles and to also thank Trevor for his contribution to the group. Turning to the outlook slide. In general, we expect market conditions to remain largely unchanged in all our operating territories. At a global level, the world has undergone a number of political changes in 2024. These changes have amplified geoeconomic fragmentation and global policy uncertainty, particularly where trade relations are concerned. In the group, we've assessed this geopolitical risk and do not see any direct impact on our operations. We will continuously assess this global risk and ensure our operations remain nimble and agile to enable a quick response to any material changes. In South Africa, the GNU is taking a collaborative approach. Disagreement on certain policy issues, in my view, is not a reflection of volatility or uncertainty. It's a reflection of democracy at work. When parties with differing ideologies have to find a middle ground, alignment is unlikely to take place without a bit of friction in the system. So let's give the GNU some space to figure out a new way of working. On Transport and Logistics in South Africa, in my last presentation, I commented on progress in relation to policy reforms, citing the finalization and implementation of the Transnet recovery plan, the country's freight logistics road map and the work being done by the National Logistics Crisis Committee. Another positive development is the publishing of the rail network statement by the Minister of Transport in December 2024. Progress with respect to policy reforms is undoubtedly positive. Our recent engagements with Transnet have also been positive, and the progress Transnet is making with respect to accelerating implementation of their various port master plans is pleasing. The rail piece and private sector participation is the aspect that is high on the country's agenda. And our hope is that the recently appointed Chief Executive for Transnet Engineering and the Transnet Rail Infrastructure Manager, Chief Executive also recently appointed will accelerate the pace of execution in this area of the country's supply chain. Moving away from the macros and focusing on the operations, we expect the headwinds related to maize export volumes and the elevated renewable base to continue to be a challenge in the second half of the year. On maize, the maize export season that traditionally commences in May is still uncertain. It's unfortunately too early for us to give you a view on timing and crop size. On renewables, the base remains high in the second half. On the positive side, we anticipate that by June, we would have fully cycled through the space, but we'll have a firmer view once we see trading in July and August. On the upside, we see the following positives. Inbound travel volumes remain robust and our inbound order book is also solid. Several of our lounges underwent refurbishment in the first half and are now ready for full occupancy in the second half. Added to this, South Africa hosts the G20 Summit in November 2025 and various G20 and B20 engagements are scheduled during the year in the lead up to the summit. We expect higher corporate volume travel -- higher corporate travel volumes into South Africa as a result, and this will bode well for all our businesses, supplying products and services to the travel and hospitality sector. I referred to various restructure exercises as I went through the divisional commentary, most of which will be completed in the third quarter. And there will be better revenue and cost alignment in these respective businesses from the fourth quarter of the financial year. From an M&A perspective, we'll have a full 6-month contribution from the 6 acquisitions completed. And in our pipeline, we have a few more that may come up on stream prior to year-end, with the only sensitivity being timing for regulatory approval. Lastly, on growth CapEx, I'd like to highlight the following projects that have been approved. I must reiterate that the timing of these projects falls outside of the current financial year. Firstly, ZAR 185 million was approved for fuel tanks in Richards Bay, and these are on track for commissioning in the first quarter of the 2026 financial year. Secondly, ZAR 120 million has been approved for the construction of a multipurpose container depot and an import warehouse facility in Walvis Bay, Namibia. Both these projects are expected to be commissioned in the third quarter of the 2026 financial year. Lastly, ZAR 30 million has been approved for factory expansion in our water business. This will increase our water purification and bottling capability for the 2026 financial year by about 60%. In closing, I'd like to thank our management teams across South Africa, Swaziland, Namibia, Mozambique, the U.K., Ireland, Spain, Australia and Singapore for their hard work and commitment to excellence in the period. As a team, we consistently give our best and looking forward, that won't change. We're focused on delivering a better second half result and believe that the strength of our diversified portfolio will again stand us in good stead. Thank you very much.

Thanks, Mpumi and Mark, for those comments and a detailed conversation around these results. Judith, I am going to hand over to you to just explain the process of loading question, and then we can get started on the Q&A.

[Operator Instructions] Our first question from the line comes from James Twyman of Prescient Securities.

I've got 3 questions, if I may. The first one is just trying to understand this increase in interest costs. So I've got interest costs up about 5%. You mentioned that it was up 17%, excluding hedging. Could you just talk us around that? Secondly, regarding renewables, my understanding was that renewable sales fell off pretty sharply in the second half of last year. So I assume that there would be an easier comparison in the second half. That doesn't seem to be the case. Could you talk us around the numbers on that? And then just finally, you've talked quite a bit in the past about buying plumbing businesses internationally. I haven't heard any results. So I just wondered whether that is still a core part of your international growth plans?

Thank you, James. Maybe Mark can answer the interest cost explanation.

No problem. James, thank you. So if you strip out -- so the total cost is up 5.4%. If you strip out 2 pieces, one is the IFRS 16 element of it; and two is the unwind of the hedges, what you do is you get kind of a more normalized or true interest cost increase, which is about up about 17%, which mirrors the growth in the underlying gross debt. The hedges piece, the fair value adjustment there, James, was quite positive for us because that was the unwind of the 3 hedges that related to the $322 million that we tendered through that offer, and that gain was about $100 million that's come into the system. In terms of the balance of the interest costs, what you've got in the system there is for 2 months, a higher interest cost on the RCF because what happened is you settled the $322 million, which was at a fixed rate of the Eurobond at 3.625% in GBP, and you replaced that with, call it, circa 7% just over on the RCF. So that hurt the last 2 months of the year will obviously impact the second half. And maybe just in terms of quantifying that impact on the second half, I mean, effectively, you've got, call it, 350 bps on that $322 million for 6 months. That's broadly ZAR 100 million in extra interest. What will mitigate that to some extent is 2 things. One, the 75 bps reduction in the local variable rates in South Africa and also, call it, circa 50 bps reduction across the U.K. and European rates. So I'm hoping to -- of that sort of ZAR 100 million impact of the swap from Eurobond to RCF to claw back about 70% of that in the second half.

Thank you, Mark. That also answered another question that we had on the chorus call line on interest. So that's fine. Mpumi, maybe you can deal with James' 2 questions, the renewable sales base and the plumbing offshore.

Okay. Yes. Thanks, James. So on renewables and maybe just to refresh minds around context will be important. So in our peak in 2023, and we had disclosed some of these numbers, we were averaging about ZAR 300 million a month on renewable sales. FY '24, that dropped to about ZAR 100 million a month. In the first half of the year, what we are seeing is an average of about ZAR 30 million a month. So I mean that just gives you a contrast in terms of volumes. And so I mean, our forecast for the second half of the year is still that, that base is still high relative to where we are at today and what the volumes look like today. And I hope that context is helpful. And then on the plumbing side, yes, so we just haven't found. There was a business in the U.K. that we were in a process with. We walked away towards the end of that process. There was another one in Europe. Unfortunately, we weren't successful, and it was just price. So we've been actively looking. We just haven't found.

Judith, you can go to the lines here while people queue on your side. Let's just have a -- so Mark, a few treasury questions. It's around the gearing, the debt that looks a little bit heavier offshore versus the EBITDA. And what will you look at and will you consider normalizing that a little bit between South Africa and internationally?

Okay. Thanks, Ilze. So we always disclose the differential between the offshore and the local. It doesn't -- that doesn't impact in terms of the overall covenants because we borrow at a group level. And from a group perspective, we are well within those covenants. The reason we want to show it is because there's an obvious difference between the level of debt versus the offshore earnings and it's disproportionate. What will happen is as we continue to invest disproportionately more offshore, that ratio will remain high. And what tends to happen is in years when you do offshore acquisitions, the ratio goes up like it has happened in this year, we've gone from 4.8 up to 5x. And then when you don't do acquisitions, what happens is the EBITDA benefit starts to come through and the ratio goes down. It's going to fluctuate as it has done for the last 5 or 6 years on exactly that basis. We're not uncomfortable with it. It is effectively part of the permanent capital structure that we have in play. But I mean, we do manage it, and we very actively do watch it.

Thanks, Mark. And while sort of on that treasury, there was also a question on the line around the flexibility, how much flexibility do we have in terms of the offshore debt maturing?

Okay. So there's 2 key elements to our offshore debt. There's an RCF term loan facility for EUR 750 million, and then there's the Eurobond. In terms of the Eurobond, I think we've been quite explicit over the last couple of calls in terms of where we land. Firstly, we had to derisk the overall quantum, the $800 million, which we have done now through this last tender down to $478 million. We are going to go back to market in about September this year and look for a similar size number depending on what the M&A pipeline internationally is looking like at that point in time. Given that this -- we've now been in the market for at least -- at that point in time, 4.5 years and the market now knows Bidvest, so it's not a vanilla offering like it was the last time. We will be able to look at longer tenors. And so we'll hopefully be able to look beyond just the standard -- stock standard 5 years and maybe look at either 8 or 10 years, something like that, depending on what the pricing has looked like. So one is the Eurobond process and extending that, and that will then take it out to 2031 and beyond. And then the RCF term, you'll recall it was 3 years plus 1 plus 1. So we effectively -- we had the option to extend up to 5 years. Last year, we had exercised the first plus 1. We're in the process now of exercising the second plus 1, and we've got broad support from the underlying lenders. So that will take that facility out to FY 2028. So we've got appropriate maturity on both those big pieces of international debt.

Thank you, Mark. Let me take one more one here on my side before we move over. A simple one on the income statement, then I can move to Mpumi. What is in the other income line on the income statement, Mark?

I think other is the clue. But the biggest single line in that is our investment income on the investment portfolios that sit in the insurance space. That makes up just under half of that number. And then there's a whole lot of other things that go into that. But as you can see, I mean, it's a very small line in our income statement.

Mpumi, there's sort of 3 questions, and I'm combining them. It all relates broadly to Services. So the first question is around, can you comment on wages and salary inflation and your ability to pass them on? Secondly, how long are the average length of customer contracts? And then thirdly, there's mention of a key contract loss in Facilities Management. Could you share a little bit of color on that? So those are 3 things.

Okay. Thanks, Ilze. So on our ability to recover wage increases, it's easier in our facilities management businesses and maybe a little bit harder on the hygiene side. Our FM contracts are people intensive. So the wage cost is the biggest cost. And so the conversation generally with our clients is wages are legislated. This is what the legislative wage increase is and that's what we need to recover. And generally, if we find that there's a short under recovery, what we would do with the clients is talk through how we restructure that contract so that we are not reducing margin in order to absorb the additional kind of wage increase. So generally, legislated, you have a conversation with your clients. If you're unable to, then you would look at a restructure. The point that we raised specifically here around the National Insurance in the U.K. is that that's a big number, right? So there's a big legislation that's come through the U.K. It's not only in our industry, though. So this is something that is U.K.-wide. across industries. So as we go to market to have these conversations with our clients, our clients are also having to do exactly the same adjustment on their side. Average length of contracts from an FM perspective, we've got many 1-year contracts, but on average, 2 to 3 years. And the more diversified your contract is or the more services you have in it once you've got kind of cleaning, security, technical, hard services, et cetera, the more bundled it is, generally, the longer it is there, you're talking about 5 years and plus. And then a key contract lost in the FM space was in Australia.

Thanks, Judith, shall we go to you and then I can finish up the questions here on my side.

Next question comes from Roy Campbell of RMB Morgan Stanley.

2 questions, please. Firstly, just on the Citron Hygiene acquisition. Are there any other...

Roy, we're losing you.

Can you hear me?

Yes.

Okay. Sorry, let me just -- so diversification of autos, right, is part of the strategy. Just -- I mean, there's 2 ways to look at it. One is diversification away from new vehicle sales. Alternatively, it's within those new vehicle sales is diversification away from your traditional sales. Where is the growth coming from in that respect? And has the diversification away from traditional sales taken effect yet? Or is that only an H2 scenario?

Okay. And Roy, what was your question on Citron? We didn't hear that at all.

Sorry, with Citron, are there any other regulatory conditions that need to be met after the 6th of March? And then what is the anticipated impact on the debt covenants given the timing?

Okay. So I'll let Mark answer Citron. Let me talk to auto diversification. So within the traditional franchise motor retail space, we're looking at diversification there in terms of mix, right? And so I indicated that we've got a contribution from 6 new OEMs. So we're looking at that from a mix perspective. So we are doing that. And then the second one around away from traditional OEMs, it's not so much away. I guess it's mix again, but we're wanting to play in the secondhand space in a way that we haven't played before. I mean if you think about the car park, you actually have more vehicles in the age kind of 5 years and plus. And we haven't played in that space previously. So -- and that's what Cubbi is going to do for us. In terms of a contribution from Cubbi, don't worry about them in this financial year. Their major contribution where they really start to have scale is going to come through 2026, 2027, okay? So right now, they're building a footprint. They're building a brand, they're building a name. But what we're seeing is that in line with their business plan, they are tracking the business plan. So we're comfortable with that.

Just on Citron, so the 2 pieces, firstly, the regulatory approvals, yes, the CMA is the principal one that we are waiting for. We hope to have some indication week after next in terms where they're going to land. In terms of impact on ratios, so rough numbers, minus ZAR 5 billion in terms of cost. We've got ZAR 3 billion coming in from sale of the bank, which timing would be probably quite similar. So you're left with a net ZAR 2 billion, we can do that off current cash generation. So I'm not too concerned that -- where that will take us from a covenant perspective. I think we're okay.

Judith, is there another question on your side?

No. At this stage, we don't have any questions from the lines.

Okay. All right. So on this side, let's move to Freight. So there was a question around what does the business model transition in Mozambique entail that we referenced? If you could talk about that, Mpumi. And then a question around do we think the H2 Freight outlook and prospect is a little bit more normal, I suppose? So the question is seasonality. So if you could that, please.

Yes. Okay. So just on Mozambique, we have to restructure that business significantly. Essentially, where we're at is that -- and this is more in Maputo than it is in Beira. Volumes have reduced by about 70%. It is significant. And so the transitioning of the business model is really just a very deep restructure that we have to do given the significant decline in volumes in that space. Secondly, on the Freight side, more normal, yes, I guess we're going back to previous seasonality that we used to see at pre-COVID level. And maybe also just to touch on -- I mean, I also kind of referenced the fact that we think we may have a better second half of the year. And if I think about Freight quite specifically, one of the things that we also just need to keep in mind is the base. So the freight base is where the challenge is because in the base, you've got maize and so on. So yes, seasonality. We're hoping for a better Freight half year to half year, but there's a base that has got a significant volume that at the moment, I mean, we can't even tell you what's coming on the maize side.

There's quite a few questions on what does better 2H mean for the group. Maybe we'll [indiscernible] that sort of theme.

Yes. So better H2 for the group, we do think that we'll be able to deliver a better result H2 versus H1. But again, you have to think about the base, right? So the base in the 2 areas that we've signaled as continuing headwinds is maize in the base, and we can't even signal to you what's going to happen at the moment with maize volumes. And they generally start around May. So they also start late in the year. And if we miss that, if the volumes don't start moving by May, then they're going to move later, which means that they're not going to be in this year at all and they'll only start moving in the 2026 financial year. So that's a big sensitivity, and we can't tell you that. And the renewables base, I've even given the numbers. So you've got a sense, ZAR 300 million average versus ZAR 100 million versus ZAR 30 million, I mean, the base remains high. Those 2 sensitivities. And you've seen the extent of the contraction of those 2 sensitivities in the numbers in the first half of the year, you've seen the impact.

Thank you for that. Maybe another question that's sort of related to this, forward-looking. What do you think is sustainable margins in commercial products and branded products on a 2-, 3-year view? These are both trading distribution type businesses.

Yes. So I mean, our trading and distribution type trade margins are generally kind of higher single-digits. That's generally where those are. So if you want to think about a normalized margin for that division, that's probably where you need to take it.

All right. Thank you for that. Mark, a working capital question. Did working capital benefit or hurt by this period's cutoff relative to the prior period? Is there anything out of the ordinary to flag?

No, exactly. So what we saw in the prior year and what we saw this year at the half year point was exactly the same. There's no cutoff issue here at all. It's like-for-like.

Thank you for that, Mark. And then Mpumi, maybe sort of a high level again. Just in our short-term and long-term incentive scorecard, there's a ROFE metric. And an investor is asking, does that conflict with the premium EV EBITDA multiples that we paid for in M&A?

Okay. No, it doesn't because our ROFE is anchored on our ROIC and also anchored on what we believe is an acceptable spread over the ROIC and our WACC. So that ROFE number, I mean, we keep it because it's a measure, it's a return measure that our businesses understand. It's something that they manage on a daily basis. But the ROFE target that you see coming through our scorecards is underpinned by ROIC and WACC. So we don't have a disconnect. And so even when we're looking at ROFEs of businesses that we're acquiring, et cetera, we are in that underlying thinking process, taking into account the ROIC return.

Thank you. I think that's it. Judith, I think I've dealt with all of the questions on my side. Any last ones on your side?

No, nothing at this stage. Thank you.

Okay. All right. Thank you very much, everyone, for your interest and the time you took to listen to us today. We appreciate it.

Thank you very much. Cheers.

Thank you. Bye.

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