Bidvest still cleaning up

Bidvest adopted the slogan #EmergeStronger in its fight against Covid-19, and figures presented during the discussion of the results covering this difficult period show the group seems to have achieved this objective.

“I am patting my team on the back,” remarked chief executive Lindsay Ralphs on Monday, during the results presentation for the year to June 2020.

It is remarkable that revenues increased compared with the previous year, admittedly due to an enlarged stake in Adcock Ingram and the inclusion of the newly acquired PHS Group (a large hygiene service provider operating in Britain and Spain) for a few months.

The gross operating margin also improved slightly, while operating costs were largely unchanged, except for additional Covid-19 costs of R1.6 billion.

It was largely extra costs due to the pandemic that lie behind the 23% decline in normalised headline earnings per share.

Clear run

Ralphs listed cleaning services as one of the group’s opportunities. The figures show revenue from these businesses was well above the previous year during June, July and August.

Management expects an acceleration in the development and maturity of this industry and looks forward to widening the scope of cleaning services.

Described as “washroom, healthcare and floor care” services in annual reports, it delivers good margins.

“The pandemic increased the awareness of out-of-home hygiene. It is now central to the new normal,” says Ralphs.

The flipside

Ralphs says the new phenomenon of empty-building syndrome, with people working from home, has impacted on some services businesses.

“We have a lot,” says Ralphs. “Contracts have been suspended for a while. Then there are the problems at Comair.

Bidvest’s stake in the airline was worth a few billion rands a couple of years ago; this year prompted further write-downs.

Net negative adjustments of R485.7 million were made to the investment values of Adcock and Comair prior to the former becoming a subsidiary and the latter being put into business rescue.

In total, Bidvest charged nearly R2 billion worth of capital items to the income statement and another R1.3 billion of impairments, acquisitions costs, losses by associates and adjustments to the value of long-term contracts with clients, to eventually report a loss of R186 million compared with a profit of R3.8 billion in the 2019 financial year.

Chief financial officer Mark Steyn said of the net capital items of R2 billion that were recognised, R1.1 billion can be directly attributed to the Covid-19 pandemic.

Property, plant and equipment and goodwill and intangible assets (such as automotive dealerships) were impaired as a result of lower forecast cash flows.

Bidvest’s net debt increased from R7.8 billion to R19.2 billion, largely due to the acquisition of PHS for £495 million (R10.5 billion).

Management had to quickly look at new financing options when the original plan to replace the temporary bridging finance with bonds became too expensive as a result of SA’s deteriorating credit rating

This article first appeared on Moneyweb and was republished with permission.

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