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

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

Thank you, Danney. Good morning, good afternoon, everyone. My name is Ilze Roux, the Corporate Affairs Executive, and I have the pleasure of welcoming you to the call today. Thank you for your interest in Bidvest. These results reflect resilience, our focus on operational excellence and cash generation, our distinctive approach to creating social value and executing our clear and simple strategy. As is customary, Mpumi Madisa, Group CEO, will take -- will make some high-level remarks before Mark Steyn, Group CFO, delve deeper into the numbers. Mpumi will then follow with a detailed review of each division's performance and close with some reflections and our outlook. There will be an opportunity to ask questions at the end of the session. Mpumi, over to you.

Thank you very much, Ilze, and good morning and afternoon to everyone, and thank you for joining us today. This has been a year with a mixed bag of performances with some highlights and at the same time, some lowlights. On a net basis, I must say, though, that whilst the financial numbers don't reflect this, as a management team, we believe that a lot has been executed this year and the benefits of this work will materialize in the coming years. From a performance perspective, excellent results were reported by Services South Africa, Services International, Branded Products and Automotive, who increased profits by 14%, 12%, 8% and 2.5%, respectively. These strong results were moderated by the profit contraction in Freight, Commercial Products and Adcock. To contextualize these numbers, the profit uplift from the 4 divisions equated to ZAR 731 million, a 6.1% increase on the prior year. And this was unfortunately neutralized by the contraction in earnings from the 3 divisions whose profitability reduced by ZAR 665 million or 5.5%, resulting in a net growth in trading profit of roughly 1%. We concluded 9 transactions in the period with majority of the increase in capital deployment for M&A allocated to funding the acquisition of Citron, making our maiden entry into North America. The resultant headline earnings impact is a 1% increase in normalized HEPS from continuing operations and a 3.2% decline in HEPS from continuing operations. Operationally, the core fundamentals of the business remain intact, and we continue to invest in the group's future earnings potential. When earnings are under pressure, the ultimate indicator of quality is cash. And so a key highlight of this year's results is the outstanding cash conversion of 95%, which compares to 88% in the prior year. The process of streamlining our operations remains underway with the FinGlobal sale concluded. The Bidvest Bank sale process is awaiting regulatory approval and the Bidvest Life process is progressing well. Lastly, we continue to look for opportunities to expand our terminal operations, and I'm proud to announce that Bidvest Freight has been awarded a 25-year bulk liquid terminal concession in the Port of Richards Bay. Moving to the results highlights slide. Group revenue at ZAR 127 billion is up 5% with a strong contribution from the acquisitions. On an organic basis, the top line was flat, impacted by price-sensitive demand, lower renewable energy product sales, negative price/mix and a stronger rand against major currencies. Our gross margin reduced slightly to 27.7%. There was good gross margin expansion in Services South Africa, Branded Products and Services International, but this was neutralized by the negative operating leverage in Freight due to the change in mix. Expense control was excellent with expenses increasing 6.2% and impressively only 2.8%, excluding acquisitions. This below inflation organic expense increase must be seen within the context of higher-than-inflation wage costs, increasing regulatory costs and restructure costs, which are added to this expense line. Trading profit of ZAR 12 billion is up 1% and the trading margin declined from 9.9% to 9.5% in the period. As indicated earlier, the highlight of the results is our cash generated by operations, which grew by 5.8% to ZAR 14.7 billion and cash conversion increased to 95%. Our balance sheet remains strong and post the acquisition of Citron, which took place in the second half of [Audio Gap] Returns have tapered due to capital deployment on the back of flat earnings. And so ROFE at 36.9% compared to 39.3% in the prior year and ROIC at 14% is 370 basis points above the group weighted average cost of capital. In line with our dividend policy of 2 to 2.5x cover, the group declared a final dividend of [ ZAR 4.53 ] per share, an increase of 1.3% over the prior year. These financial results are coupled with a strong focus on creating social value, and this is reflected in the following areas. we rolled out a new medical insurance benefit for our lower-income employees who are currently using the public health care system in South Africa. I'm proud to report that just over 12,000 employees and about 2,000 of the independents have been onboarded onto this private medical insurance. We also invested ZAR 734 million in various skills development programs, learnerships and bursaries and just over 111,000 employees are registered on the group wellness program. We're all acutely aware of the rising need for mental and overall wellness support. And so we're happy that a large majority of our employees have full access to this support, not only for themselves, but also for their families. At this point, I'd like to hand over to Mark for the financial overview.

Thank you, Mpumi, and good afternoon, everyone, and happy spring day. As always, a quick thank you to everyone who prepared these results. The group is large and a significant amount of work is put in both from our staff and service providers to present these numbers. Firstly, some brief introductory comments. The second half saw an improved performance with good growth from Services SA, International and Branded Products, offsetting bulk volume declines in freight and lower renewable sales in BCP. The diversification in the Auto division paid dividends with the broader portfolio producing growth, and Adcock had a much better second half. Generally, the consumer remains under pressure and infrastructure revitalization is still awaited. Strategically, though, it has been a very good year, and we positioned the group for growth in a number of new geographies and product sectors. The M&A momentum from last year continued, culminating in our second largest acquisition ever. Our cost control was excellent and reflective of deliberate actions to curb margin pressure. The cash performance was also very pleasing with good operating cash generation, supplemented by an improved seasonal release of working capital. Our investment in acquisitions accelerated in the second half, while CapEx continued. Much work has been done on our capital structure in this half. We extended our offshore RCF term, which is the group's largest facility by an additional year, so that now matures in 3 years' time. We raised new facilities in Australian and Canadian dollars to match ForEx earnings in those jurisdictions and raised and subsequently settled a Canadian bridge facility for Citron. On the domestic front, we settled a small bond and raised 2 further facilities, which allowed us to lower our average borrowing costs and increase tenor. We have good debt capacity, both internationally and locally. Our net debt to EBITDA, as Mpumi mentioned, has increased as a result of the M&A this year, but still sits comfortably within our covenant. Post year-end, we raised an offshore pound facility of GBP 130 million, which was used to pay down our RCF and separately settled domestic preference shares to the value of ZAR 1.7 billion. We've closed 9 new acquisitions in the year with the second half bringing Citron, a hygiene business in Canada, the U.S.A. and the U.K. into the fold, together with Egroup, a security business in Australia. We continue to diversify our geographical presence and the inclusion of North America represents a very exciting growth opportunity for the group. The disposal of Bidvest Financial Services is progressing well. FinGlobal has been sold and the Bidvest Bank transaction is with the Prudential Authority for final approval. These entities, together with Bidvest Life have been disclosed as discontinued operations. It would be remiss not to mention the Adcock Ingram scheme of arrangement that's currently underway. The outcome of this scheme will have no impact, though, on how we account for Adcock as we will remain the majority shareholder with substantially the same shareholding. With this as a backdrop, let's have a look at the detailed results on the next slide. Revenue is up 4.9% to ZAR 126.6 billion, supported by good acquisitive growth. We've seen good growth in revenue in Services International, Services SA and Automotive, while we've seen lower renewable sales and bulk exports impacting revenue in the second half. We continue to see price-sensitive demand as a key feature impacting our trading businesses. We will unpack the divisional results though in a bit more detail later. From a gross income perspective, our gross profit is up 4.3% with a broadly flat gross profit margin at 28%. Overall margins and margin mix are actively managed across the businesses. GP margin levels were impacted by higher C&F clearing and forwarding flows in freight and reduced renewables in BCP. Our expense performance was very pleasing. Overall, our operating expenses are up 6.2%, but on an organic basis, they're up just 2.8%, and that includes certain restructuring costs across the group. Wage and utility cost growth continues to exceed inflation, which is also impacting margins. A number of the businesses have completed restructuring and rationalization processes to improve operating leverage going into FY '26. Our expense ratio is largely similar to last year at about 18.5%. There's a keen focus on cost containment right across the group, which is a key feature of these results. In terms of our trading profit, trading profit up 0.7% to ZAR 12 billion, which is a nice improvement on the first half, and we've been supported by good acquisitive growth of 5.6%. Services SA and Branded Products produced excellent results in a trading environment which remains challenging. Services International was very solid with good geographical expansion, which will create lots of further opportunities. Automotive benefited from the diversification strategy implemented over the last 18 months. Freight was impacted by lower bulk volumes, but saw very good performance from gases and liquids and our Namibian operations. Commercial Products was below par with high renewables sales still in the base and a lack of domestic infrastructure and manufacturing investment being felt. Adcock had a very pleasing second half recovery. Our effective tax rate is slightly lower than normal at 23.3%, and that benefited from certain legacy offshore taxes, which have prescribed. And our acquisition costs are up substantially due to the high M&A activity. Moving now to our cash generation. The cash generation for the group was very good. The underlying cash generated by operations before working capital is up 2.8% at ZAR 15.9 billion. We've invested an additional ZAR 1.2 billion in working capital for the year, which is ZAR 400 million lower than the outflow of ZAR 1.6 billion last year. In terms of the break in the makeup, organic trade payables have decreased following a reduction in inventory purchases. And there's been a focus on reducing inventory right across the group. It's pleasing to see this start to come through in the cash flow statement. We can further reduce stock levels in Commercial Products, Automotive and Adcock. Debtors were flat for the year with a slight improvement in the overall aging and the underlying book is in very good shape. Our cash conversion is an absolute highlight at 95%, which is nicely up from 88% last year. And our free cash flow of ZAR 9.9 billion is up ZAR 700 million from ZAR 9.2 billion last year. The bulk of our cash generated, as you can see in the graph below, has been applied to M&A and CapEx, which is now in excess of ZAR 12 billion. In terms of the seasonal movements on our cash, you can see from the graph there, half year 2 reflects a good seasonal cash inflow, which is consistent with the group's normal working capital cycle and our operating cash generation remains strong. If we turn to our capital structure. We continue to maintain a conservative and consistent approach with previous years. We have successfully expanded our debt sources. And as you can see from the graph shown, we've expanded our debt sources and capacity to appropriately match funding currencies with new geographic earnings, and you can see both the Australian and Canadian facilities now coming in. Our net debt after cash and cash equivalents is up to ZAR 32.9 billion, up ZAR 7.7 billion, which is in the context of additional investment in M&A of ZAR 9.1 billion and a further ZAR 1.2 billion spent on working capital as we continue to build our base. We are proactively managing our debt mix. Domestically, we've increased our bonds at tighter spreads and with increased tenure and issued [ pref ] shares for certain bolt-on acquisitions. Internationally, we successfully retendered $322 million of our Eurobond, which was funded by the RCF. Our net debt-to-EBITDA is now at 2.2x, up from 1.7x last year with M&A adding 0.65x turn of EBITDA, and we're comfortably within our covenant of 3x. From a debt capacity perspective, we currently sit with GBP 219 million offshore in terms of available capacity, and that's via the RCF and a further 16 -- sorry, ZAR 14.5 billion available domestically. If we look now just in terms of growing our base and historically, what we've done. Over the last 5 years, we've very actively and disproportionately grown our offshore base. These businesses, both hygiene and FM services are typically very good cash generators. And what this graph demonstrates is how the growth in the offshore cash generation, up from ZAR 1.1 billion 5 years ago to ZAR 3.9 billion now is far exceeding the growth in the relative debt that was accumulated to acquire these businesses. That debt has grown from ZAR 17.2 billion to ZAR 19.6 billion. This cash generation is the key mechanism to deleverage these businesses over time and similarly to improve the overall cash generation of the group and manage our net debt-to-EBITDA ratio. If we turn now to our debt maturity profile. On the domestic front, we've issued longer-term bonds at improved spreads. Internationally, we extended the tenor of our RCF term Euro loan facility to June 2028, and that's our largest facility in the group. And in terms of the offshore bond, we successfully tendered, as I said earlier, $322 million to reduce the refi risk, and this was done at a discount to par. We are monitoring all the upcoming maturities to make sure that these are all appropriately managed. We are managing our interest cost by remaining overweight with about 75% -- 78%, sorry, in variable rate debt. And this is obviously in the context of interest rates coming down in most of the geographies where we have facilities. Our average cost of debt as a consequence is down to 6.2% pretax, which previously was 6.5%. And while our total finance costs are up 10.2%, this is reflective of the growth in the underlying net debt due to the M&A expansion, which is being offset by the declining interest rates. Our EBITDA interest cover sits at 6.1x in relation to a covenant of 3.5x, so comfortably in excess of the covenant. And we continue to add new and cheaper funding sources into the mix. If we turn now to our discontinued operations. The disposal process of our Financial Services division is making good progress. We've signed the SPA for Bidvest Bank, and we're just awaiting regulatory approval. FinGlobal sale has been closed. From an operational perspective, Bidvest Bank experienced some top line pressure with interest rates declining and slower capital deployment, but the deposit book remains pleasingly stable and all the regulatory ratios are very healthy. Both FinGlobal and Bidvest Life reflected good growth for the year. These 3 entities have been separately disclosed as discontinued operations as per IFRS 5. And in terms of the statement, depreciation and amortization was suspended as part of this disclosure. And this we've adjusted for in the normalized headline earnings. Just some final concluding thoughts. While the trading environment and broader macros remain challenging, we have positioned the group both operationally and strategically for good growth. We have delivered on our M&A pipeline, growing the base both geographically and within our product and service offering. We continue to proactively manage our capital structure and debt profile and are closely monitoring our funding costs. Cash flow and cost management remain core to our DNA. And our geographical expansion into North America represents a very exciting opportunity for the group, we think, for many years to come. Thank you.

Thank you very much, Mark. So let's move to the divisional overview and start with Services International. The team delivered an excellent result with profits roughly split equally between Hygiene and Facilities Management Services. Revenue at ZAR 43 billion is up 10% and trading profit at ZAR 4.2 billion is up 12%, a superb performance from the team. Organic growth was driven by new business wins and contractual revenue growth. Contract losses in certain territories and the strengthening of the rand moderated organic growth. The gross margin expansion in the division must be commended, reflecting a strong focus on wage recovery and contract margin management. Both revenue and trading profit were further boosted by the following acquisitions: Nextgen, a facilities management business, which is now part of Noonan in its U.K. operations; Countrywide, a healthcare consumable business, which has been integrated into PHS; Egroup, a security services business in Australia, which is part of BIC Consolidated; Citron U.K. hygiene business, which has been integrated into PHS; and Citron North America, which is a stand-alone hygiene business with 7 branches in Canada and 4 branches in the U.S. ROFE at 150% continues to increase as we continue adding high-return businesses in this division. And the division also delivered an outstanding cash result. Turning to the operations. 74% of profits in the division are generated offshore. In constant currency, our businesses in the U.K., Ireland and Singapore delivered outstanding double-digit performances, whilst our Australia business delivered a good result, notwithstanding contract losses in the period and the impact of integration costs for the combination of BIC and Consolidated. In South Africa, our cleaning and hygiene businesses outperformed, whilst our Facilities Management business delivered a solid performance, notwithstanding material margin reductions due to rescoping of large contracts. And lastly, Citron is in the results for 1 quarter and delivered in line with expectation. I'd like to congratulate the Services International team for an excellent result. Moving to Freight. The Freight team delivered a result in line with expectation, underpinned by the return of cyclicality in bulk commodity volumes. Revenue at ZAR 9 billion is up 2% and trading profit at ZAR 2.1 billion is down 10%. Whilst down, a profit contribution in excess of ZAR 2 billion remains significant. Growth from our clearing and forwarding operations, bulk liquid operations and bulk storage operations in Namibia was offset by declines in bulk grain, primarily maize and soybean export volumes, which declined 83% and 100%, respectively. Bulk mineral volumes also declined in South Africa and Mozambique. And so as expected, the volume declines had a knock-on effect on the gross margin due to the change in mix. ROFE off the back of an increased funds employed and a contraction in earnings declined to 41.2%. Turning to the operations. The decline in bulk volumes is well known, so I won't touch on that again. Our bulk liquid operations delivered a stellar performance, driven by rate escalations, improved capacity led, excess handling revenue and increased storage capacity. The award of a 25-year concession for a bulk liquid terminal in Richards Bay adds further growth momentum to this outstanding business. Our clearing and forwarding operations delivered excellent results, growing profits on the back of organic growth, new and extension business and higher freight rates. And lastly, outside of South Africa, our Mozambique operations struggled due to lower contract volumes and the negative impact of post-election protests while our Namibia operation continues to exceed expectation, benefiting from increased bulk volumes and oil and gas volumes. I'm comfortable with the overall Freight result. It's in line with expectation. And so I'd like to congratulate the Freight team on a solid performance under a very, very tough year. Moving to Services South Africa. The team delivered a phenomenal result with all clusters up on prior year. Revenue at ZAR 12.7 billion is up 8% and trading profit at ZAR 1.4 billion is up 14%. All clusters delivered profit growth and notwithstanding the boost from the WearCheck acquisition, outstanding 8% organic trading profit growth was delivered by this division. ROFE at 103% remains excellent and cash generation in the division was also exceptional. Turning to the operations. The hospitality and catering cluster delivered phenomenal growth, driven by an outstanding performance from the lounges business as both domestic and international client volumes grew. The Allied cluster delivered solid profit growth due to increased recurring revenue in the water business, increased coffee sales, increased contractual sales in the indoor and outdoor plants business and retention of large existing contracts. The Security and Aviation cluster delivered good profit growth due to a solid performance from the tracking business, outstanding performance from the cargo business off the back of rate increases and operational efficiencies, a good performance from the drones business and general increased new business and contract extensions across the balance of the portfolio. The travel cluster grew profits off the back of phenomenal growth in the leisure business. The leisure market has been buoyant and our forward order book remains robust. And lastly, our newly formed testing inspections and condition monitoring cluster comprising WearCheck delivered an exceptional profit result, driven by solid revenue growth, increase in the volume of samples processed and good margin management. I'd like to congratulate the Services South Africa team for a phenomenal set of results. Moving to Branded Products. The division delivered an impressive result with all clusters up on prior year. Revenue at ZAR 13 billion is up 0.8%, with the Spec Systems and LK Products acquisitions contributing to the top line. Gross margin and expense management was exceptional, resulting in strong operating leverage with trading profit at ZAR 1.1 billion, up 8% and a trading margin improvement from 7.9% in the prior year to 8.6% in the period. ROFE reduced to 37.7% due to increased funds employed primarily on the inventory line. But notwithstanding this, a 57.7% return for a trading business is excellent. Turning to the operations. The Office Products cluster delivered an outstanding profit result, driven by superb growth in the online stationery business, significant gross margin improvement in the office automation business and strong organic growth and excellent margin and cost management in the furniture business. The Data, Print and Packaging cluster delivered an excellent profit result. Notwithstanding top line pressure, this was countered by a good gross margin management and outstanding expense control. The inclusion of Spec Systems also boosted this cluster's results. The Office & Leisure cluster delivered strong profit growth, driven by increased gross margins due to better sales mix, lower distribution costs and growth in online sales. And lastly, the Consumer Products cluster delivered an excellent profit result due to good volume growth in certain seasonal categories, margin management, improved manufacturing efficiencies and good cost control. LK Products also made its maiden contribution to the cluster. I'd like to congratulate the Branded Products team for delivering an impressive result. Moving to Commercial Products. The division reported a disappointing trading result impacted by the decline in renewable sales and tough trading conditions across the balance of the portfolio. Revenue at ZAR 17 billion is down 5.3%, reflecting low growth across most industries we supply product into and contraction in renewable sales. The gross margin declined, but excluding renewables, the gross margin is stable year-on-year. Notwithstanding exceptional expense management, trading profit at ZAR 929 million declined by 28.4% and the trading margin also contracted to 5.5%. On the positive, the division's trading profit cash conversion improved significantly to 150%, and this compares to 30% in the prior year. The lower earnings and higher funds employed resulted in a decline in returns with ROFE at 16%, much lower than the prior year's 22%. Turning to the operations. The electrical cluster declined materially due to reduced demand and the margin impact of renewables. There was some upside in this cluster in that we continue to see high double-digit sales for large power generation projects where we continue to have a strong forward order book. Our plumbing and related products business continues to outperform, whilst the packaging, catering and leisure clusters delivered solid results due to gross margin improvement, improved factory efficiencies, increased export orders and good demand for certain retail sectors. Lastly, the DIY, general industrial and warehousing clusters underperformed due to subdued market demand in the consumer, construction, mining and industrial sectors. The last 2 financial years were reset years for this division. It's been a tough year, and I can only thank the team for doing their best under very difficult circumstances. Last division being Automotive. Automotive division delivered a good result with a diversification strategy and OEM strategic alignment yielding positive results. Revenue at ZAR 27 billion is up 6% with the Dekra and Serco acquisitions making a full year contribution to the division. Gross margins reduced slightly due to pressure on new vehicle margins, whilst expenses were exceptionally well managed, increasing only 1.6%, excluding acquisitions. This translated into a trading profit of ZAR 902 million, up 3.3%. And if we exclude one-off restructure costs that are related to some of the dealerships that we closed, the pure trading profit result is actually up 9% year-on-year, a really solid performance for the division. The division's ROFE of 24% compares to 25.3% in the prior year. Turning to the operations. In the franchise motor retail cluster, new vehicle volumes contracted due to mix. This decline was partially offset by increased used vehicle and aftersales contributions. In the period, we closed 7 dealerships and the new OEMs onboarded made a positive profit contribution. Our non-franchise motor retail cluster delivered a standout performance from our auction business Burchmores and [indiscernible] continued its investments in vehicle inventory and the establishment of a national footprint. And lastly, in the Automotive Allied cluster, Dekra outperformed, delivering a record result. Serco delivered an outstanding result, way ahead of business plan and the 2 insurance businesses reported excellent results off the back of increased gross written premiums, new business and reduced costs. I'd like to congratulate the auto team for a solid result. And lastly, Adcock Ingram, Adcock delivered a much improved second half performance, and the team must be commended for this. Revenue at ZAR 9.8 billion is up 1.2% and trading profit at ZAR 1.2 billion is down 5.2%. Following a subdued first half, second half performance was supported by strong demand for our winter markets, recovery in the independent wholesale channel, improved demand from pharmacy wholesalers and an average price realization of 4%. The gross margin declined year-on-year, but expense management was excellent with an increase of only 2%. The Consumer, OTC and hospital divisions delivered solid profit growth whilst prescription contracted. Reported headline earnings per share increased by 1% and Adcock delivered a final dividend -- or declared, sorry, a final dividend of [ ZAR 1.65 ] per share. Adcock has entered into a transaction implementation agreement with Natco Pharma and on successful completion of this process, Adcock will be delisted and co-owned by Bidvest and Natco. Turning to the strategy and outlook. I thought that before looking forward to the coming year, we should pause and reflect on the past 5 years and review how the group has performed over a period and through up and down cycles. What's more interesting about the past 5 years is the extent of the complexity of the world and therefore, the complexity and volatility of the trading environment. And just as a quick reminder, in FY '21, we experienced the impact of the pandemic, keeping in mind that the start of FY '21 is July 2020. So that was really in the heart of the pandemic. And also in FY '21, the pandemic disrupted supply chains. And in South Africa, on top of that, we had floods in Durban, which permanently closed the Durban port for some time. And we also had riots in KZN and the related violence disrupted business continuity. In FY '22, the war in Ukraine broke out, further disrupting supply chains and triggering a global energy crisis, followed by rising energy and food prices. Come FY '23, inflation reached peak levels across the world, interest rates started rising and labor costs grew significantly ahead of inflation. In FY '24, we contended with our own highest cost of debt levels, and I recall reporting a 25% increase in net finance costs at the time. Added to this, the world had the highest number of elections and political changes. And in South Africa, the government of National Unity was established. And in FY '25, the political changes were followed by U.S. tariffs that triggered global uncertainty and volatility. Inflation and interest rates started coming down. But on the flip side, we experienced the lowest GDP growth rates across all our territories. And so through all the above, over this past 5-year period, group revenue grew by 43%. Trading profit increased by 50%. Cash generation increased by 9%. Headline earnings per share increased by 49%. Dividend per share increased by 54%. ROFE increased by 16% and ROIC, notwithstanding significant capital deployment into freight assets and acquisitions over the period remained flat at 14%, an overall strong 5-year performance. On the next slide, you'll note that our 5-year revenue and trading profit CAGR is 10.4% and 12%, respectively. You can also see the cash generated of ZAR 63 billion and debt raised and how that capital has been deployed over the period. And lastly, the growth in profitability across all divisions is very evident with Services International being the main benefactor of M&A over the past 5 years. So moving to the next slide. We've now looked back in the rearview mirror. Let's now look forward to the priorities we've set ourselves for the next 5 years. Firstly, we're extremely focused on building the largest hygiene business in the world. Secondly, in our Freight business, we expect to not only secure extensions of our leases, but plan to start construction for terminal expansion in about 3 years from now. Progress with Transnet has been pleasing, and we applaud both Transnet and the Minister of Transport for the announcement of third-party rail access to 11 private operators. Forecasts are that the increased rail capacity will come on stream around 2027 or 2028. This means that in this forward 5-year period, our terminals will be the benefactors of increased cargo on rail. Thirdly, in South Africa, we'll continue increasing our product and service offering in industries where we see long-term structural growth and our trading businesses will continue expanding their essential product offering, and we further believe there's a largely untapped export market on the continent for us to supply into. Fourth, of course, an enabling flexible and cost-efficient capital structure is the backbone of our group, and we will preserve and enhance this. Linked to this, accelerating cash generation will be a key priority. Lastly, we've reached the end of our 5-year sustainability plan, and I urge you to review our annual report as we launch our 10-year sustainability framework to 2035. Looking ahead on the next slide and just focusing on hygiene for a moment. When I said we're focused on building the largest hygiene business in the world, I meant it. This slide gives you a view of how close we are to taking the #1 position. The current #1 players' hygiene profits were GBP 103 million in the 2024 financial year, and we plan on reaching GBP 106 million in FY '26. We've built scale across 11 countries. We're #1 in hygiene in 8 of those countries and our organic growth opportunity set has just become exponential through our entry into North America. We're focused, and we will take this global leading position soon. Moving to the outlook. We're very bullish about the near term. There's a lot of uncertainty and volatility in the world right now, but we certainly see more upside than downside. Our financial focus will be on delivering strong organic growth, followed by improved cash generation. We will focus on reducing our overall gross debt levels. We'll optimize our debt mix and through both these processes, reduce our finance costs. We're targeting a net debt-to-EBITDA below 2x for FY '26 and then intend on driving it lower closer to 1.5x in FY '27. Operationally, across both South Africa and our international operations, new business prospects are strong. Our retention strategies are in place and new growth markets, new brands and new products will be launched as we focus on increasing market share. The bulk grain and mineral commodity cycle is now in the base and expansion of our existing terminal capacity remains a focus. The fuel tanks in Richards Bay commissioned in May 2025 will make a full 12-month contribution and the multipurpose container depot and import warehouse facility in Namibia will be commissioned in the third quarter of the 2026 financial year. Acquisitions concluded in the second half will make a full contribution in FY '26 and disposals underway should be concluded by December 2025. In the 2026 financial year, our group will be simpler, more streamlined, less regulated and more agile. The delisting of Adcock is imminent and an unlisted Adcock with less regulatory obligations will be easier to manage, and we look forward to the value our new co-shareholder will bring. Lastly, the sales investment required to drive growth in North America has already been approved and implementation is underway. We may be the new kid on the block in the U.S., but we bring with us 36 years' worth of experience and an unrivaled hunger to succeed. In closing, I want to thank all our teams for their contribution this year. I wish every year was smooth sailing. But there's a thing in life call seasons and sometimes the winter creeps in, but it's always followed by spring and summer. And so on behalf of myself, Mark and Jill, I'd like to thank the 125,000-plus Bidvest employees who produced these results. We showed up and delivered ZAR 12 billion in profit. And so to our management teams across South Africa, Swaziland, Namibia, Mozambique, Mauritius, the U.K., Ireland, Spain, Australia, Singapore and yes now, Canada and the U.S., thank you for your leadership and commitment to excellence. We've started the year strong. We'll keep our foot on the accelerator, maintaining this cadence all the way to the finish line. Thank you very much.

Thank you, Mpumi, with those strong words, closing the formal remarks. Danney, if you could just remind the listeners about the process to load questions and then I can take the first one here from the [indiscernible] question box.

[Operator Instructions]

Thanks, Danney. Let me start here on the webcast. Mark, I think that's for you. Can you please provide guidance in respect of the tax rate and the interest rate that you expect out into 2026?

Okay. Thanks, Ilze. Tax rates expecting us to normalize back to around the 25%, which has been the sort of this normal level for the group over the last few years. So tax rate is at around 25%. Interest rates, mid- to low 6.5%, 6.2%, somewhere of that region, so the low 6s. We have some maturities coming through. And obviously, it depends on where we land with interest rate decreases that we have seen nicely through FY '25 and how far they continue into FY '26.

Thank you, Mark, for that. Mpumi, maybe first one for you. How long is the remaining concession tenure at Bulk Connections in Durban? And is that site still at risk from the ports master plan in Durban?

Thanks, Ilze. So we've got about 9 more years for that lease. So there's still quite a bit of tenure on it. Yes, I mean, the reality is that the Durban port master plan is still firmly focused on ensuring that, I guess, call it, dirty cargo is moved out of Durban port and goes to Richards Bay. I mean one of the things that we are waiting for is the release of the tender for the bulk mineral terminal in Richards Bay. It's currently with TPT, but we understand that TPT is looking for a joint venture partner to run and manage that terminal. So as soon as that comes out, we would obviously tender. And that would really be the strategy around kind of moving our operations from Durban port to Richards Bay.

Thanks, Mpumi. And maybe just linked to that following question is the bulk volume weakness, which was the largest driver, grains or mining products?

Grain.

Grains was the largest.

Grain was the largest.

Mark, then one for you. The group's current ROIC is 14% and the ROFE is 37%. What makes up this difference? And what value does that metric have?

Thanks, Ilze. I mean, obviously, 2 very different metrics, and we use them for 2 very different purposes. So ROFE is a pretax and interest return, okay? It's an internal measurement. It's understood very well by the entire management team within the group, has been used since the inception of the group a long time ago. And what it does is it captures a trading and operating assets performance in relation to the businesses that it can actually be controlled and influenced by management. So we understand what that metric looks like in each of the divisional spaces. So for example, in a freight space, which is asset heavy, you expect a ROFE in a particular area. In a services area where you have a lower asset base, you expect a much higher ROFE return. And it's -- what we're demonstrating by talking about it more publicly is that there is a very clear performance metric that we have in place that drives management it's appropriate to each of their divisional levels, quite separate from a ROIC return, which is obviously an after-tax return, which is an external measurement metric. And really, the focus from a ROIC perspective for us is just ensuring that we have a good spread over our WACC. So currently, I mean, our ROIC is sitting at 14%. Our WACC is in the low 10s, 10.3%. We've got a 370 bps spread over WACC. We believe that's a very adequate spread. It's showing a good outperformance.

Thank you for that, Mark. Maybe there's two questions on Adcock that I'm just going to combine. The first was, did Bidvest give any consideration to sell its shares in Adcock? And then Natco, did it have any -- does it have any ambition or interest in acquiring the majority stake in Adcock?

So the offer that was made by Natco was not for Bidvest shares. Their offer was for 35% to buy out the minority. So that was the offer on the table. And whether or not Natco has got aspirations to buy out the balance, I can't answer that. Where we sit today as potential co-shareholders is Natco is an expert in the pharmaceutical industry. We think those expertise at a shareholder level are going to add significant value. They're a shareholder with an international pharmaceutical operation, mainly in the U.S. and in India. And so we've already kind of mapped out the kind of value that Natco can bring to the table. Natco on the flip side also wants the comfort of a strong local shareholder because they are not here. They are based in India. And so they also want to be able to sleep. And so they also want on the flip side, a strong shareholder who's holding the fundamentals of the business together, understands the local environment, understands the local regulatory environment and what can be achieved in South Africa. I know that Natco has also got aspirations broadly on the continent. And that's a conversation for us to have around what makes sense for Natco to pursue on their own on the continent and what makes sense for Natco to pursue continentally through Adcock. So that's another conversation that we'll have, but we still think that there's more value to extract within the South African market.

Thank you very much for that. Danney, can I check on the line with you, if we can hear you. We were struggling to hear you. Let's try again.

There are currently no questions on the conference call.

No questions.

All right. Let me carry on here. Mpumi, sorry, this one came in a few minutes after you answered. Just what is the outlook for the maize export for the second -- for the first half of '26?

First half of '26 is not looking great at the moment. Not that the crops aren't there. The crop is there. But what's happening is that from last year, the entire normal storage was depleted. Typically, South Africa would store somewhere of the order of about 2 million tonnes. That was all exported last year, mainly up to our northern countries. And what's happened this year is 2 things. The farmers have are reestablishing that storage, so they're growing the base and the current pricing doesn't support exports. So at the moment, we're not -- even though there is excess maize available for export, it's not being exported at the moment, it's being stored.

Thank you for that, Mark. Let's go to the next one. There's quite a lot of questions around the Eurobond, Mark. So maybe it was -- I suppose you have made comments about your proactive liquidity management around those. Anything else that you wanted to add to that process?

No, nothing further. Obviously, we're monitoring the maturities. We're monitoring the discount to market and seeing where that lands. We saw a very good outcome in October last year where we retended a portion of it. And remembering that the reason we did that is that we wanted to bring the $800 million, which was the total gross number for the original debt down to a number which is more market standard, which is the which is $500 million or thereabouts, which we've done that. So I think we're well positioned ourselves that when we need to come to market, we can at the appropriate time.

Thank you very much for that, Mark. Mpumi, maybe a question for you. Please talk through the acquisitive pipeline. Does the gearing guidance suggest a period of consolidation to drive degearing. But also then how do you marry that with the largest hygiene services business in the world strategy?

Okay. So I mean, roughly over the last 24 months, we've concluded about 20 transactions, and that's excluding the disposals. Our conversion rate of our pipeline is at about 90% plus. We really just outperformed in converting what's been in the pipeline. So our pipeline at the moment is [indiscernible] because we have successfully acquired most of those businesses. So it is what it is. We're probably going to go into a process again of kind of rebuilding, scanning the market and seeing what's out there. And so yes, we're not anticipating any major M&A coming through in FY '26 only because we have executed well over the last 2 years. So yes, you're going to see a greater focus on organic growth. And as I indicated, cash generation and then deleveraging from there. How do we marry that with building the largest business in the world? Well, we don't have to buy all the time, right? So we're going to be driving organic growth across all 11 territories. And I spoke about the big opportunity set that North America gives us. The nice thing about a hygiene business is that outside of making bolt-on acquisitions, you also just grow by opening up more branches and growing your top line. And when you kind of focus on that organic growth lever, it's really just working capital driven. And I mean, just to give you a different example in South Africa, Steiner is by far the largest hygiene business in South Africa with a significant market share, which has been built over many years, but primarily organically. I think Steiner only did maybe one really small acquisition. So it is possible to continue to drive solid growth without necessarily looking at more bolt-on acquisitions. So I've got no doubt we'll get there. The number that I gave around where we're targeting profitability of our hygiene business for FY '26, that's got no M&A in it. And you can see how close we are to the current #1 player. So we don't get there next year. We've got a 5-year period. We'll definitely get to #1 position.

And maybe just linked to that comment as you were very explicit, there is further questions around what's going to happen with the proceeds of the financial services disposals. All of those will be applied against debt. So that goes there, which talks more to Mpumi's net debt-to-EBITDA target range than Mark that likely said below 2x -- more direct about that matter. Then a question on Namibia. Have the localization elements and requirements being addressed in Namibia?

Yes. So we addressed those on a case-by-case basis. So we do have certain part of operations where we've got a JV partner and we've got a local partner. And if that is a requirement for the tender, we would address it accordingly. And there are times where we don't have that requirement. So we've got a bit of a mixed bag at the moment, but we're being responsive based on the opportunities that arise and the regulatory requirement of those opportunities.

Thank you very much for that, Mpumi. Then while we -- on Freight-related matter, how big is the new 25-year Richards Bay contract in revenue...

We can't talk to that yet because the facilities that relate to that particular opportunity, we still have to build them, okay? So when we build them and we know what it looks like, we can give you more clarity. I think the opportunity set, though for us, which is so exciting is, I mean, this is our model. We love building assets which -- with long tenure in space, you then sweat the assets, increase throughput, et cetera, et cetera. So having the investment opportunity, I think, is really the good news. It will take us a number of years to build the underlying assets. So we'll come back to you at the appropriate time when we have those numbers.

Thank you very much for that, Mark. And then we've got some people that really read the results cover to cover, and they would like to understand the difference in the Citron Hygiene profit contribution in your acquisitions notes. The one talks about a quarter's contribution versus the annual contribution and whether that includes any synergies on that transaction?

So no specific synergies built in at this point in time. Essentially, what we've done is just taken a quarter and grossed it up as best we can. I mean, really, if you think around the underlying assets, the opportunity sets as follows, okay? In the U.K. environment, what we have done is we've lifted and shifted the existing branches that were in Citron U.K., put them into the PHS network. So on the existing branches. So that was people and contracts that you've moved across. You've closed all the old branches from Citron. And so the opportunity there is, obviously, you significantly reduce the cost base, one. And two, there are efficiencies that will naturally come from adding new contract or new contract routes to an existing infrastructure that we have within PHS. So we think there's a significant accretion opportunity in the U.K. space, leveraging off our existing base that's within the PHS business, and that's already been done. We've already lifted and shifted. It's in the PHS business and the PHS team is managing that Citron U.K. business. That's the one piece. The second piece sits in Canada, Citron of Canada. And that's the #1 hygiene business in that jurisdiction. We bring a lot of synergy opportunities in terms of the number of products and services that we offer. Just if you think simply on procurement, and that isn't built into next year's numbers. For example, if you take something simplistic like hand dryers as an example, we, at the moment, have a significant supply opportunity from a hand dryer perspective and that we are sourcing for South Africa, U.K., Ireland, Australia, all through our providers in China. You then add more volume coming out of Canada. You can obviously see price points for those devices coming down and margin potentially going up. And that exists across the product range, not only in terms of what they currently offer, but the broader range that we have within Services International across -- or hygiene across the board. And then the third piece obviously sits in the growth opportunity within the U.S. piece. Currently, we have 4 branches in the U.S., and it's the opportunity to organically scale across that environment. How long that takes us and how fast we can do it is really how quickly we can push the envelope in that space. And I think for us, that's probably the most exciting piece of the 3 areas.

Thank you for that, Mark. Maybe Mpumi, the question here is Freight and Commercial Products have now gone through some rebasing. Are you budgeting for growth of these basis for FY '26?

Yes, we are. We are budgeting for growth in both divisions.

Thank you. And then a question a little bit more detail. There was excellent margin performance in Services International in the second half. What is the drivers for that?

Okay. So that's sitting in 2 areas. Firstly, we've got Citron that's come through. So that was margin enhancing. And just as a reminder, remember, when we make acquisitions of facilities management businesses, they tend to be lower margin, whereas hygiene businesses are higher margin. So just in the mix, you get the margin uplift. And then the second one is that we really had a great performance coming out of our U.K. operations from Noonan, and that was also margin enhancing. So just an improved performance out of that business. Those are the 2 main reasons for that overall divisional improvement in the second half.

Thank you very much for that. And of course, there's a perennial. Now the question can't come around Adcock and anything now. Now the perennial question is what's the path to the delist -- for the separate listing of Services International??

There's no path. There's no intention of separately listing Services International.

And then last question here is, are we part -- is part of one of the 11 private operators to be awarded third-party access from the rail network?

Thanks. No, we're not. Our expertise are around handling product and storage. Rail isn't a space that we play in. And so we did not make any submissions as part of that third-party access process.

And that is all the questions for today. Thank you very much, everyone, for joining us.

Thank you, cheers.

Thank you, everyone. Bye-bye.

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