More than just a barometer
Bidvest’s bid to outperform the economic cycle and not just reflect SA’S state of health
He says the only thing Sibanye underestimated at Rustenburg was community issues.
Robert van Niekerk, the executive vice-president of the Southern Africa region, doesn’t believe Sibanye’s estimates of savings at Rustenburg were too conservative. “The team did well,” he says.
Overheads were cut to suit the production profile. All shafts were already producing at maximum capacity, though volumes at Bathopele shaft were increased by 3%-5%.
Van Niekerk says that at current palladium prices there is an opportunity to increase the development of UG2, a PGM reef that contains more palladium than the Merensky Reef.
Esterhuizen says the Rustenburg deal was very cleverly structured, with payments over several years and Anglo Platinum assuming some of the downside risk. But for it to work, it needs PGM prices to increase, and any gains in the prices are now being offset by the strong rand. Despite the cost savings, these mines are not generating much free cash flow at present.
Sibanye-stillwater shares, at R20.92, have added about 24% in the past month but still remain below the prerights offer price of about R28.
Putting on an upbeat show for investors at the presentation of Bidvest’s annual results to June, CEO Lindsay Ralphs assured attendees: “We do think generally speaking that we have the ability to outperform the [economic] cycle.”
Bidvest will have to if its performance is not to continue to be very much a barometer of the country’s state of health.
The results were the first for a full year since Bidvest spun off its international food distribution business, Bidcorp, on May 30 last year.
The move left the R71bn annual revenue Bidvest with its seven services, distribution and trading divisions giving it linkages to virtually every sector in the SA economy.
They include cleaning services, facilities management, travel, electrical equipment, freight, automotive retail, power tools, home appliances, financial services and office equipment and stationery. If Bidvest does have the ability to outperform the economic cycle there was little evidence of it in its results to June. Revenue came in 4% higher, trading profit 4.6% higher at R6bn and headline EPS (HEPS) 5.1% higher. Trading profit of core SA businesses was up 6.4%, noted Ralphs. Excluded in the core number is Bidvest’s interest in the struggling Bidvest Namibia.
The key comparative indicator is nominal GDP growth, essentially GDP growth including inflation. If not underperforming in its past financial year, Bidvest did not outperform.
The latest results are reflective of the state of play in SA’S economy. According to the Organisation for Economic Co-operation & Development (OECD) SA’S nominal GDP growth ran at just on 7% in 2016 and is around 6.5% this year.
It was a disappointing showing from Bidvest. At its interim stage the consensus analysts’ forecast looked to full-year HEPS rising by about 9%.
For Bidvest in its present form to outperform nominal GDP growth in SA is a big ask. Ralphs spelt out the reason clearly.
“We don’t want to be arrogant but we like to be dominant in the businesses we operate in,” he stressed. “We do not want to be a small fish in a big pond.”
By and large Bidvest’s dominant position in its markets has left it tweaking its asset base with moves in its past financial year including the sale of what it termed “lazy assets” (Cullinan Holdings and Cargo Carriers). Its strategy also includes ongoing bolt-on acquisitions, generally within a targeted range of R100m-r200m, rather insignificant in a company with total assets of R51.4bn.
The only bolt-on deal of any significance in the past year was industrial tools distributor Brandcorp, acquired in October 2016 for R2bn. In its first nine months in the Bidvest stable it provided a useful kicker to Bidvest’s commercial products division which lifted trading profit 48.5% to R689m.
Excluding Brandcorp, the division’s trading profit was up 4%. Overall, Brandcorp lifted group HEPS growth by one percentage point.