The Bidvest Group Limited

Good day, everyone, and welcome to the BidVest Interim Results Presentation, FY26. All attendees will be in listen-only mode. There will be an opportunity to ask questions when prompted. If you should need assistance during the call, please signal an operator by keying in star and then zero. Please note that this event is being recorded. I would now hand you over to Corporate Affairs Executive, Ilza Roo. Please go ahead, ma'am.

Thank you Judith. Good morning and good afternoon everyone. Good morning, good afternoon everyone. My name is Il Zeru, the Corporate Affairs Executive and I have the pleasure of welcoming you to this call today. Thank you for your interest in BitBest. These results reflect resilience and our focus on operational excellence and cash generation. As discussed earlier, Sumi Medita, Group CEO, will make some high-level remarks before Mark Spain, our Group CFO, delves deeper into these interim numbers. Sumi will then follow with a detailed review of each division's performance and close with a reflection of progress against our priorities and the outlook. There will be an opportunity to ask questions at the end of the session. Without further delay, I hand over to Pumi. Thank you. Thank you very much, Elza. And good morning or good afternoon, depending which part of the world you're joining us from. Thank you for joining us this morning. We are very pleased to present a resilient set of results for the first half year. Reflecting on progress made since the unbundling of BitCorp in 2016, it's really pleasing to note the portfolio realignment and the extent to which we have rebuilt our international footprint. Our 150,000 employees are located in 14 countries across approximately 750 branch locations. Our client base remains extremely diversified with about a million customers across the group. We serve multiple industries and all geographies with limited concentration risk. 27% of our revenue is generated offshore, And of the 25% of our profits that are earned offshore, 55% are from our global hygiene operations. We're proud of the above progress and remain focused on generating sustainable profit growth and returns. In the period under review, we increased revenue by 4% and profitability by 7%. Free cash generation is a highlight of the results. We optimized our debt profile, and Mark will elaborate on this in his presentation. We closed out the remaining acquisitions in the pipeline, with the large one being Aquatico, a water testing business in South Africa. Our M&A pipeline is now materially depleted, with very small transactions to be finalized in the second half. Adcock has been successfully delisted, with synergies being explored. We're nearing closeout timelines for finalization of our Terminal Operator Agreement. And lastly, as communicated in the recent SENS announcement, The business bank transaction with Axis Bank PLC has terminated due to Axis Bank being unable to secure the required approval within the long-stop date. Our sales process has already been restarted, and we're confident that we'll be able to accelerate the timeline. Moving to the operational overview, group revenue of $67 billion is up 4%, with services international, services South Africa, and automotive delivering strong revenue growth. The gross margin increased 43 basis points to 28.1% due to an improved sales mix, lower disbursements in our clearing and forwarding operations, and improved factory recovery. Operating expenses were well managed, increasing 3.4% and only 1.2% excluding acquisitions. Trading profits increased by 7% to 6.7 billion, with all divisions making a positive contribution. Our trading margin expanded from 9.8% to 10.1%, reflecting margin improvement in five of the six divisions. As indicated earlier, the highlight of the result is our cash generated by operations, which is up 36%, and free cash, which is 2 billion rand higher than prior. Our balance sheet remains strong, and our gearing levels remain unchanged from the junior end at 2.2 times negative to EBITDA. ROFI at 37.6% compared to 37.9% in the prior year, and ROIC at 13.4% compared to 14.4%. We recognize that returns have tapered due to capital deployed over multiple financial years whilst we were rebuilding our international footprint. We are comfortable with the size and scale of the offshore operations and are now focusing on improving group returns. We have a clear plan, and we'll detail this later in the presentation. Our overall result is HEPs at 5.1% and normalized HEPs at 5.3%. In line with our dividend policy of two to two and a half times cover, the group declared an interim dividend of 495 cents per share at 5.3% on the prior year. And then just giving an update on our hygiene story, we remain focused on building an international hygiene services business with our hygiene footprints now spanning across 11 countries where we occupy a number one position in eight of those countries. Structural drivers such as urbanization and growing health and wellness awareness remain intact and will continue to support future growth. As indicated earlier, 55% of profits in services international are from our hygiene operations, and this compares to 50% in the prior year. Hygiene profit growth in the first half has been strong, up 20%, whilst profit margins have accelerated from the industry norm of around 15% to 18.2%. We remain confident in our ability to take a leading position in the hygiene lifted space in the near future. And now I'd like to hand over to Mark for the financial overview.

Thank you for me. Good morning, good afternoon everyone. Just some quick introductory comments before we dive into the detail. The first half saw resilience and strategically disciplined performance, revenue growth, improved growth and operating margins and good cash generation. And all this despite mixed macroeconomic conditions and some sector specific challenges. That said, it's very pleasing though to see some South African tailwinds start to come It has come off the FATF grey list, and S&P have upgraded our sovereign rating. The interest rate cuts are starting to have a meaningful impact, especially in the automotive and property sectors. The energy and logistics sectors are being supported with meaningful government spend on infrastructure, which is evident in both. We are seeing land strength against a broad basket of hard currencies, and while this may be earnings negative in the short term, the stable land is good for the country in the longer run. And finally, it's encouraging to see that the SA budget was a bit more expansionary than in previous years, which will hopefully support medium-term growth. In terms of our divisions, they've all shown growth in the half, especially services SA and commercial products perform very well. Our hygiene services, both locally and offshore, continue to show robust growth. Freight was able to turn around a soft top line result with good margin and expense control. And similarly, Branded Products delivered strong margin management, cost control and improved inventory management. The automotive division benefited from improved new vehicle volumes, although margins are under pressure following the large influx of lower priced Chinese vehicles. And Adcock had a very strong result of what was a seasonally low base. Generally, while the consumer remains under pressure, we're starting to see pockets of improvement. Our cost control was excellent as evidenced by the improvements in both our gross and net margins. The cash performance was very pleasing with good operating cash generation and a significantly reduced seasonal absorption of working capital. Our cash conversion and free cash flow generation was also very solid. Strategically it's been a very good period and as promised much work has been done on the funding structures. We successfully completed our second Eurobond issuance for a $500 million seven-year bond. You'll recall the first one was five years. The bond price had a spread of just 40 bits above the SA sovereign curve at the time, which was a very pleasing outcome. These funds were used to part redeem the existing Eurobond and also pay down a portion of the offshore RCF. We also issued a new £130 million five-year term facility, which was entered into at very favourable rates, which was used to further repay the RCA. Domestically in South Africa, we successfully issued three five- and seven-year bonds, the value of £2.3 billion. These were issued at record-low spreads, and that funding was used to purchase Aquatico and to repay a maturing bond. We also utilize surplus funding to repay two preference shares of $2.1 billion, which was our most expensive debt in the mix. We have good debt capacity both internationally and locally, and our net debt to Iberta has increased slightly as a result of M&A this half, but it still has come to be within our covenant. From an acquisition perspective, we closed three acquisitions in the quarter, so we're working down our pipeline, with Acratico, an environmental monitoring and testing business being the largest of these. This now forms part of our testing, inspection and compliance TIC offering within Services SA. As Pramila mentioned already, the disposal of Business Bank continues. Despite the expiration of the sale of the sale of Greenfield Access Bank, a new process has commenced. In terms of bid-based rights, we have signed an SBA, which has been concluded and we await regulatory approval for that. Both these two entities continue to be disclosed as discontinued operations. And then finally, Adcock Ingram, the scheme of arrangement was approved by shareholders in October 25 and has been finalized. Adcock has now been delisted with just two shareholders and bid-based remains the majority shareholder with substantially the same shareholder. This is a backdrop, let's look at now the more detailed results. From a revenue perspective, revenue up 3.7% to 66.7 billion was supported by good acquisitive growth. We've seen good growth in the revenue terms across the mix and specifically in services SA and international which was supported by acquisitions. Only two divisions, branded products and freight, saw top line contraction and both responded well with very positive operating leverage to ensure profit growth. Low GDP growth that is prevalent in most of our jurisdictions is leading to competitive and price-sensitive demand. To some extent, this is also exacerbated by slower customer decision-making. These have all put pressure on revenue levels. It will unpack the divisional results in a bit more detail later in the presentation. In terms of gross income, our gross profit is up 5.3% with a 43 BPS improvement in the margin to 28.1%. That's very pleasing. Overall margins and margin mix are actively managed across the businesses. And the improved operating leverage and positive business mix was somewhat offset by structural shifts in the auto sector and certain contract rescoping. Expense performance is very pleasing. Operating expenses up 3.4% in total with organic expense increases of 1.2%. In certain of the services businesses, we are seeing wage inflation in excess of CPR, which is impacting margins. And a number of businesses through the half have completed restructuring and rationalization processes, which should further improve the operating leverage into the second half. Our expense ratio was very similar to last year at 18.1%. Overall, this is an excellent broad-based expense outcome. Trading profit is up 6.9% to $6.7 billion, very pleased with that, and with an almost equal contribution from organic and acquisitive growth. Services, SA and Services International produced excellent results. Commercial products and branded products produced good results. As trading pressures, particularly on margins persist, freight overcame a soft revenue line as disbursement level fell with good margin mix and excellent expense control. Automotive was stable, supported by a good insurance result and higher new car volumes, but retail margins are being materially impacted by the influx of cheaper Chinese vehicles. And Adcock had a very pleasing result, up 20% albeit of a slightly lower prior year base. Our effective tax rate at 26.7% is unchanged from last year. And finally, our acquisition costs are pleasingly down 5.7% due to lower M&A activity in the half. The bulk of these costs that we did incur relates to the ADCOF delisting and the Aquatico acquisition. We expect these costs to lower significantly in the second half. Moving then to our cash generation, cash flow for the first half was very good. Underlying cash generation for operations before working capital up 7.2% to 8.7 billion. We traditionally absorbed working capital in the first half. No different this time around. We absorbed 2.6 billion in working capital. What was very pleasing, though, is this number was a billion rand lower than the outflow of 3.6 billion last year. In the mix, organic trade payables decreased, which is seasonally consistent, and there's been a very focused or continued focus on reducing inventories, and it's pleasing to see this coming through, particularly in commercial products and automotive. Our cash conversion is at 70% nicely up from 45% last year and our free cash flow at 3.8 billion is well up on the 2 billion from last year. The bulk of the cash generated has been applied to working capital, debt repayment and normal capex with very limited M&A through the period. In terms of the cash generation graph which we've presented here, you can see the seasonal cash outflow which is consistent. which is consistent with the group's normal working capital cycle. I think what's really pleasing though, you can see how this is getting progressively over the last four years. Moving then to our capital structure, and as I said earlier, this has probably been one of the busiest six months that we've ever had from a treasury perspective, both from an international issuance perspective and domestically. On the offshore front, we issued the new $500 million seven-year bond. That's extended from the initial five-year bond that we issued in 2022. This bond was issued at 6.2%, with the spread just 40 bps above the SA sovereign curve at the time, which was very pleasing. And we subsequently won an award for this issuance. The funding was used to settle a tender offer on the 2026 Eurobond for $292 million, with a balance of $186 million due in September this year, and that will be settled from the off-year. We also raised offshore a £130 million term facility at 5.6%, which was used to further pay down the RCF. On the domestic front, we issued €2.3 billion in bonds over three, five, and seven years, ten years, and these were all issued, all three categories were issued at the lowest spreads we've achieved to date. From a capacity perspective, we have €412 million available offshore via the RCF and a further €12 billion available domestically. We have also reflected on this graph, on the graph on the bottom left, the maturity profile which has been nicely extended with both the pound term facility that we've taken up and the 2033 Euro bond. So there's a very conscious decision about managing the maturities over time. If we then move to our overall debt funding and just how we're looking at optimizing it, We have redeemed our most expensive debt in the mix, which was the $2.1 billion in preference years that was redeemed using existing facilities, and our weighted average cost of debt has stabilized now at 6.4%. We do, however, continue to retain an overweight position in variable rate debt, 63% variable, which is aligned to expectations of further rate cuts. Our finance costs excluding IFRS 16 and the hedge accounting adjustments is up or up 6.8% which have been impacted slightly by the higher net debt levels. A net net to EBITDA, as we said earlier, at 2.2 times remains comfortably within our cabinet of three times, although we are targeting a lower level in the near term of below two with an internal sweet spot of about one and a half times. We will use the bank proceeds to further reduce costs, and this will also then lower this ratio. We've included a net debt graph here, and what you can see from this is the accelerated M&A over the last three years, particularly from 23 to 25, has grown the base. What you can see is this has stabilized now in this half following the suspension of M&A while we are reducing gearing levels, and we expect this to reduce further in the second half with a stronger working capital release. Similarly, the growth in our debt cost is also flattened. Our EBITDA interest cover is at 6.4 times, comfortably in excess of the covenant of 3.5. We continue to add new and cheaper funding sources into the mix. Moving now to our returns. As Pumi said earlier, we're very cognizant of return levels and managing these over time in alignment with our M&A and CapEx investments. As we add investments into the base, these are brought on board with a very clear plan to deliver value over the medium term and we actively track this. Our base specifically over the last three years has expanded materially with the majority of the M&A in services businesses. These investments typically have low funds employed and high goodwill and intangible. This is evidenced by the graph alongside where you can see the invested capital growing disproportionately over the last three years. This will start to normalize with the slowdown in M&A, and more specifically, as we increase our cash generation and start to pay down debt, we will see that number come down further. We have seen some softer macro conditions in the last two years, which have also softened returns. The expectation is that we should see a stronger second half both from the slowdown in the M&A and the increase in or the greater release of working capital in the second half which should aid this ratio. In terms of levers to further build returns, the focus of the group is driving organic growth which has been flattish in the recent past and we do see growth accelerating in the second half. Traditionally, the second half also produces improved free cash flow generation off the back of the written capital release. We've also added more high-gen and FM businesses into the mix, which structurally are more cash-generative. So with the suspension of M&A in the short to medium term, this will allow more free cash flow to be allocated against debt levels. Finally, just moving to the discontinued operations, I think we've largely covered this, but obviously the disposal process for BitLift Bank continues. We're working very hard on getting a transaction over the line as soon as possible. From an operating perspective, the bank did experience some top line pressure in the half with interest rates declining and slower capital deployment, but the deposit continues to remain very stable and all the regulatory ratios are healthy. In terms of business life, as I mentioned, the SPA and SPA have been signed. We're waiting for regulatory approvals on that transaction. Both of these entities have been disclosed as discontinued operations in terms of IFRS 5. Also in terms of IFRS, the depreciation and amortization in relation to these two disposed entities continues to be suspended and we have adjusted for that in the normalized headline earnings calculation. Just some final concluding thoughts. It's encouraging to see some tailwinds in South Africa, even when other parts of the world have been adversely impacted by the geopolitics. While the trading environments and border macros remain challenging, we've positioned the group both operationally and strategically for good growth. We will continue to focus on utilizing free cash flow to further deleverage the group. Margin and cost management, as well as cash generation, continue to remain core to our And our international expansion specifically into hygiene services is gaining proper momentum and making us a force to be reckoned with. Thank you.