Release Date: September 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bidvest Group Ltd (BDVSY, Financial) reported a solid financial performance with a 6.7% increase in group revenue to ZAR122.6 billion.
- The company executed 11 acquisitions, expanding its footprint in Australia, Asia Pacific, Northern Ireland, Dublin, the UK, and South Africa.
- Cash generated by operations was strong at ZAR14 billion, up 15% year-on-year, with an excellent cash conversion rate of 83.4%.
- Five of the seven divisions reported profit growth, with offshore operations now accounting for 22% of profit compared to 20% in the prior year.
- The company created 5,841 new jobs, invested ZAR740 million in staff training and development, and reduced group water intensity by 43% and emission intensity by 59%.
Negative Points
- Gross margin declined to 28.4% from 29% due to higher distribution costs, wage inflation, and rand weakness.
- The automotive division faced significant challenges with a 24.8% decrease in trading profit and a decline in new vehicle volumes by 7.8%.
- The commercial products division saw a 10% decrease in revenue due to a significant decline in renewable sales.
- The financial services division experienced a 7.8% decrease in revenue, mainly due to declines in the short-term insurance business and challenges in Bidvest Life.
- The company decided to exit the banking industry, commencing the sale of Bidvest Bank and FinGlobal, which could create uncertainty and transition challenges.
Q & A Highlights
Q: Could you please provide some color on how the public-private partnership landscape has changed during the past six months and how confident and willing Bidvest is about participating in the opportunities relative to further international ambitions?
A: (Nompumelelo Madisa, CEO) We've had various engagements with the new management team in Transnet. The PSP framework has been finalized, and we now have a clear understanding of the operating environment. Business is contributing through the NLC, and there is collaboration between business and government. We are pursuing opportunities and are relatively bullish about the progress since the new management is in place.
Q: To focus on reducing debt levels, what is the targeted gearing and what are the levers that can be pulled with regards to funding?
A: (Mark Steyn, CFO) Our covenant limit is 3 times net debt-to-EBITDA, with an internal limit of 2.5 times. Currently, we are at 1.7 times. The range depends on our M&A cycle. We manage synergies from new acquisitions and optimize funding by raising debt in different jurisdictions and extending the maturity profile of our debt.
Q: Are there specific debt financing plans for FY25?
A: (Mark Steyn, CFO) Yes, we have plans to extend the maturity of our offshore syndicated RCF term loan by another year and are looking at the renewal or extension of the Eurobond due in September 2027.
Q: Can you comment on the lag between wage inflation and contract adjustments in the UK services business?
A: (Nompumelelo Madisa, CEO) The lag is embedded in the operating model, but we are comfortable with the extent of recovery in the UK this financial year. We have no concerns regarding this issue.
Q: How does the dealership franchise footprint look now post-acquisition and closure of loss-making dealerships?
A: (Mark Steyn, CFO) We closed about five dealerships and replaced them with more than five new ones from newer Chinese and Indian OEMs. We have also introduced Cubbi and built a third pillar within the division, including Dekra for motor vehicle condition testing and licensing. This gives us a proper division in the Bidvest sense.
Q: What is the rationale for buying Dekra?
A: (Mark Steyn, CFO) Dekra provides motor vehicle condition testing and licensing, which is a value-added service similar to insurance products. It aligns well with our automotive division strategy of diversifying into allied automotive services.
Q: Could you provide some details on the Australian businesses and their integration?
A: (Nompumelelo Madisa, CEO) BIC operates predominantly in Sydney, while Consolidated is in Melbourne. There are no significant overlaps, and the integration focuses on creating a cohesive sales team and consistent service levels. This positions us to bid for larger national contracts.
Q: What is the expected impact on the freight division when Transnet is performing as it should be?
A: (Nompumelelo Madisa, CEO) Efficient supply chains would increase volumes through our terminals, leading to higher profitability. We have the capacity and infrastructure to handle more cargo, and improved performance would open up further investment opportunities.
Q: What are your expectations for CapEx and interest rates in FY25?
A: (Mark Steyn, CFO) CapEx is expected to be around ZAR3 billion to ZAR3.5 billion, with ZAR2 billion for maintenance and ZAR1 billion to ZAR1.5 billion for expansion. We anticipate a 25 bps interest rate cut in the next cycle, with potential further cuts thereafter.
Q: Can you provide some color on the bank sale process and how the proceeds will be deployed?
A: (Nompumelelo Madisa, CEO) We have significant interest in the bank assets, with more than 60 initial interested parties. We are now down to the teens with parties capable of executing the transaction. The proceeds will be used to pay off debt, and the bank and FinGlobal will be accounted for as discontinued operations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
