Bidvest : 1st March 2021 - Bidvest emerges stronger. FY21 interim result

Unaudited financial results and cash dividend declaration

for the six months ended 31 December 2020

#EmergingStronger

Salient features

R4.1bn trading profit from continuing operations

Normalised HEPS from continuing operations 651.6 cents

Message to shareholders

Introduction

During the six months to December 2020, Bidvest pulled together like never before, strengthening our resolve to emerge stronger. Our entrepreneurial philosophy, agility, discipline and customer centricity enabled us to deliver a good set of results. Solid profit and HEPS growth converted into exceptional cash flow which enhanced our balance sheet.

Our people, many of whom are frontline workers, were key enablers in delivering this outcome. We are particularly pleased that today 95% of our employees have been able to return to work, a massive shift from the approximately 75% of employees that were unable to work during the height of the lockdown in 2020.

We sadly lost a further 44 employees to COVID-19 during the period as infections peaked over the past few months. We extend our sincere condolences to their families, friends and colleagues. The Bidvest COVID-19 Fund continued to support South African employees during the past six months. In the UK and Ireland, employees continued to receive support from their respective government employee relief schemes. Governments of South Africa, Ireland and the UK are commended for the support provided to livelihoods through TERS and furlough schemes.

In order to protect the health, safety and wellbeing of the Bidvest family, we will cover the cost of vaccinations of our employees not on medical aid in the coming months.

Highlights

Trading profit increased by 3.5%, off a pre-pandemic base, enhanced by the consolidation of PHS, the leading hygiene service provider in the UK. During the six months to December 2020, demand was disparate across industries. There was good demand for hygiene and facility services, DIY products and bulk commodity services. Travel and related, as well as hospitality, sectors were hard hit and remain, largely, closed.

Bidvest's focus was on expense and balance sheet management while delivering efficiently into market demand. Exceptional cost and margin management across the Group limited the negative profit impact of lower demand. This, together with excellent working capital management, resulted in cash generated by operations almost doubling to R6.2 billion (H1 2020: R3.3 billion). Free cash flow totalled R3.1 billion (H1 2020: R306.9 million). Group cash conversion was 124.3%.

Normalised HEPS1, a measurement used by management to assess the underlying business performance, grew by 6.1% to 651.6 cents from continuing operations.

The balance sheet strengthened over the period. Return on Funds Employed (ROFE) improved significantly from 17.8% at year end to 31.3%. ROIC of 12.9%, unchanged from 30 June 2020, is above the Group's weighted cost of capital.

The Group declared an interim dividend of 290 cents per share, up 2.8%.

Financial overview

Group revenue grew 3.4% to R44.4 billion (H1 2020: R43.0 billion). PHS was consolidated for six months and Adcock Ingram ("Adcock") for one additional month. Organically, revenue declined by 5.1%.

The gross and trading profit margins remained broadly flat at 30.2% and 9.2%, respectively. PHS boosted margins, but the benefit was offset by pressure in Branded Products, Financial Services and the travel and related businesses in Services. On a like-for-like basis, expenses decreased an impressive 9.6%. COVID-19 charges totalled R83.9 million during the period.

Trading profit grew by 3.5%. Commercial Products and Services delivered excellent results. The South African businesses of Services delivered a solid result after taking into account the exposure to decimated travel and related industries. Automotive's efficiency improvements and expense management culminated in good profit growth despite significantly lower vehicle sales. Freight's trading profit was solid as the terminals handled greater bulk and agricultural volumes while other general import and export volumes remained depressed. Branded Products was resilient considering the significant demand disruption caused by the work-from-home phenomena and a no flu season. Financial Services' performance was disappointing due to reduced foreign exchange demand and lower interest rates. Foreign exchange rate swings impacted the closing values of inventory and investments.

Net capital losses reduced from R300.1 million to R134.0 million and related mainly to the disposal of Ontime Automotive and the impairment of minor associates. In the comparative period, net negative adjustments were made to the investment values of Adcock and Comair.

Net finance charges were 3.6% higher at R734.4 million (H1 2020: R709.2 million). Additional borrowings were raised to fund the PHS acquisition. The Group's average cost of funding decreased to 4.6% pre-tax (H1 2020: 6.5%).

Share of profits from associates flowed through from Adcock, compared to losses incurred by Comair in the prior period.

The Group's effective tax rate, excluding non-taxable MIAL losses and capital items, was 28.8% (H1 2020: 28.8%).

Non-controlling interest, comprising mainly of Adcock, decreased from R194.3 million to R147.7 million.

Basic earnings per share from continuing operations grew by 17.2% to 562.3 cents (H1 2020: 479.9 cents) mainly due to large impairments, disposals and associate losses in the prior period not recurring. HEPS from continuing operations grew by 6.3%.

(1) Normalised HEPS, which excludes acquisition costs, amortisation of acquired customer contracts and COVID-19 costs, is a measurement management uses to assess the underlying business performance

THE BIDVEST GROUP LIMITED Unaudited results for the half-year ended 31 December 2020

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Message to shareholders (continued)

Bidvest Car Rental is disclosed as a discontinued operation. Basic and headline losses per share from discontinued operations increased from 3.0 cents to 7.5 cents in the current period.

Bidvest's net debt decreased from R19.2 billion as at 30 June 2020 to R15.8 billion at the end of December. A reduction in long-term borrowings of R6.4 billion was partly offset by R2.7 billion increase in short-term borrowings. This is primarily due to the PHS bridge facility now being classified as short-term. Since 30 June 2020, the bridge was reduced through a combination of refinancing and free cash totalling R6.8 billion.

Strong free cash flow generation resulted in a net debt to rolling EBITDA of 1.7x compared to 2.1x as at 30 June 2020. Interest cover was 8.6x (H1 2020: 8.2x).

Cash generated by operations at R6.2 billion, was 86.2% higher than the R3.3 billion generated in the prior period. Uncharacteristically, the Group released R335.8 million of working capital in the period that, traditionally, absorbs working capital (H1 2020: R2.0 billion absorption). The main impact, year-on-year, was from lower inventories and trade payables. At this stage, it is uncertain whether this unseasonal trend will reverse by year end.

Corporate action

Disposals

The last phase of the portfolio clean up that started after the unbundling of the foodservices businesses gained traction during this period under review.

Effective 5 February 2021, Bidvest's 6.75% stake in the Mumbai International Airport Limited (MIAL) was sold and the R1 billion cash proceeds banked.

UK-based Ontime Automotive was sold, effective 23 December 2020.

A sale and purchase agreement has been signed with a purchaser consortium in relation to the disposal of Bidair Services, the airports ground handling business. Parties are working towards closing the transaction soon.

Bidvest Car Rental was identified as a discontinued operation as at 30 June 2020. A disposal process is under way.

Once the above disposals are closed out, the portfolio clean up will, in the main, be done.

Capital deployed

Bidvest's flagship liquid petroleum gas (LPG) storage facility was successfully commissioned on 22 October 2020. It is more important than ever for South Africa to secure a reliable and cost-effective energy mix to drive real GDP growth. We anticipate that the stability of supply made possible by this R1 billion LPG facility will enable South Africans to source a clean energy alternative, while also stimulating the expansion of the LPG value chain, creating opportunities for small and medium enterprises.

In early February 2021, Noonan acquired Axis Group, a UK-based security and cleaning service provider, for an enterprise value of GBP24 million (approximately R480 million). This bolt-on acquisition significantly enhances Noonan's footprint in the UK. Management identified meaningful synergies during the due diligence, and these are already being pursued.

Prospects

Looking ahead, it is likely that the economic downturn will persist with the pace of recovery remaining largely uncertain. Cognisant of the constrained operating environment, we have optimised our cost base and improved efficiencies. Our businesses are future-fit and their operating models scalable, well placed for growth.

In addition, we have better aligned our product and service mix with evolving market demands and expanded our geographic footprint.

Bidvest's comprehensive basic-need services and everyday essential products position us favourably to withstand the current headwinds as well as capitalise on the resumption of trade. Our businesses will continue to seek new revenue and take advantage of the opportunities that are evident in some sectors.

While we continue to pursue our strategy of expanding into niche areas, we will maintain our sound capital allocation disciplines. In so doing, we remain confident in our ability to deliver sustainable growth and create long-term value for all stakeholders.

Bidvest is actively participating in national workstreams to enable a return to economic activity as soon as possible. This includes working alongside industry peers to ensure the effective distribution of COVID-19 vaccines across the country.

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THE BIDVEST GROUP LIMITED Unaudited results for the half-year ended 31 December 2020