Bidvest, a nearly R100bn bellwether of the SA economy, profited handsomely in the year to the end of June and showered investors with hefty dividend payouts, thanks to a surge in demand for renewables, improved travel and a surprise uptick in basic infrastructure services from municipalities.
However, the diversified conglomerate may be in for a harsh reality check as the Treasury looks for ways to cut spending to cope with lower revenue collection in a weak economy.
CEO Mpumi Madisa said Bidvest is seeing demand coming through specifically from municipalities for basic infrastructure, with the group providing cables, basic electrical products and consumables, and even plumbing.
“In the fourth quarter of the 2023 financial year, we saw a new green shoot which was an increase in spend mainly in local government on basic infrastructure,” she told Business Day.
“I think it’s because it’s coming from a local government perspective; we [are] making an assumption that it could be stimulated by wanting to show service delivery prior to an election period, which generally happens.”
Electioneering
She said the consumer product business would continue to reap the benefits if that demand holds beyond electioneering. “It’s still early days but if the stimulus continues into the 2024 financial year it will be good for our trading businesses.”
Still, Bidvest’s fortunes, as far as demand from local government clients is concerned, may be short-lived. The Treasury, which is preparing for the medium-term budget policy framework, is asking municipalities to cut spending by R25bn to make up for the mismatch between spending and revenue collection.
Tax revenue has fallen sharply, with some economists forecasting a budget shortfall of nearly R100bn due to lower commodity prices and mining sector earnings. At the same time, public spending has risen due to higher social grants, wages and debt servicing costs.
Madisa was speaking to Business Day shortly after the company issued its annual earnings report, which showed a rise of nearly one-fifth in trading profit to R11.4bn, allowing it to lift its final dividend by about the same margin 4.39c per share.
Exponential renewable energy sales growth, improved demand for travel and related services, price inflation and market share gains were the key growth drivers, according to Bidvest, the operations of which span cleaning, freight, and renewable and travel services.
Lamenting unprecedented and persistent inflation, particularly in the group’s international geographies, Bidvest said it also had to grapple with record wage inflation and the additional cost of doing business caused by load-shedding and unreliable rail services in SA. However, its freight services division did advance on the back of Transnet woes, delivering a trading profit that exceeded R2bn for the first time — double its contribution a mere three years ago.
“This business has obviously benefited from the poor performance within the Transnet environment,” said CFO Mark Steyn, “so we’ve been building infrastructure around that. The customers and suppliers continue to try to move product.”
He said a major frustration of exporters has been that even though pricing in recent times has supported good product movement, those volumes have just not flowed.
Group revenue grew 15% to R114.9bn with recent acquisitions of A2, a complementary forklift hire business, and hygiene services company BIC Services boosting the growth rate by 2.3%.
Acquisitions
However, it said a decision was taken to exit the life assurance business, which is reported as a disposal group held for sale on the balance sheet.
Madisa said the group’s acquisition pipeline is exciting and readily executable.
“We’ve got a really good M&A pipeline. It’s the richest pipeline we have had in a long time,” she said. “We’ve got small to medium transactions across SA, Europe, UK and Australasia, so we are hoping that by half-year we will be able to make some good announcements from an M&A perspective.”
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