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Q4 2019 Bidvest Group Ltd Earnings Call

Johannesburg Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Bidvest Group Ltd earnings conference call or presentation Monday, September 2, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ilze Roux

The Bidvest Group Limited - Company Secretary

* Lindsay Peter Ralphs

The Bidvest Group Limited - Group CEO & Executive Director

* Mark John Steyn

The Bidvest Group Limited - CFO & Executive Director

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Presentation

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Ilze Roux, The Bidvest Group Limited - Company Secretary [1]

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Good afternoon ladies and gentlemen, a warm word of welcome here to everyone in the audience at Melrose Arch and those that's joining us via webcast today. Thank you very much for taking the time to come and listen to the 31st set of Bidvest's annual results.

Just to liven up the day a bit, we thought it would be appropriate to show you a short video of our flagship LPG project and the progress that we've made, an interesting drone business that we acquired a few months ago called UDS. And then, of course, I hope you noticed that today you're drinking Aquazania water that is now part of the Proudly Bidvest stable.

For those on the webcast, the video clip is available on the Investor Relations tab as part of presentations. So 2.5 minutes, please enjoy.

(presentation)

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Ilze Roux, The Bidvest Group Limited - Company Secretary [2]

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I hope you are as impressed with that as we are proud of what you just saw. As is customary, Lindsay Ralphs, the CEO, will take us through introduction of the results. Mark Steyn, our CFO, will give you a little bit more detail on the numbers. And then Lindsay will come back with the operational update and the outlook.

Thank you. Lindsay?

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Lindsay Peter Ralphs, The Bidvest Group Limited - Group CEO & Executive Director [3]

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Thanks, Ilze. Good morning, everybody, very warm welcome. As Ilze said, I'm sure you really enjoyed that video. We're going to talk quite a lot today about our capital allocation spend on the likes of infrastructure such as that, as well as a lot of the innovation issues that we've been busy with over the last 12 months.

Special welcome to my executive directors. They're all here today. And I think all 7 of my divisional CEOs are here and they're going to be obviously available to you to chat to you about individual divisions that I don't cover a bit later this afternoon. Also special welcome to some of our advisers. We even got our auditors to come out of the closet and come and visit us, a very warm welcome to you guys. I hope you'll enjoy our presentation today.

So once again, we are proud of our results. We really are pleased to announce this set of results to you. We really look to start with just exactly what Bidvest is all about, and you'll notice on this -- on our pie chart, the revenue ratio between the various divisions and the profit ratio.

It is quite interesting that, that ratio has changed and moved around quite a bit over the years, and we're getting more and more movement towards the annuity-based service part of our business.

If you look at the revenues slide on the left-hand side, 29% of the revenue services and 61 -- sorry, 61% is products. Interestingly that because it looks like we were more product-driven business as opposed to service-driven business.

If you look on the right-hand side, if you add it up and Ilze has got it in some of the slides, 68% of our operating profit and trading profit come out of Services and only 32% out of product. So revenue is not the biggest thing in our lives. Volumes is big in our lives, but revenue itself is not where we really pay a lot of focus really because we're so diversified, our strength is our diversification. But as you can see, revenue in Automotive is 30% of our business whereas it's only 8% of our profit and that really is just a reflection of the automotive industry being very highly very revenue driven as opposed to some of our service businesses that have much lower revenue.

And when I take you through it, you'll see how -- what we really do to measure our businesses. Oh, there's a fine coming for you, sir. How we really measure our businesses is on trading profit and returns on funds employed, and we'll touch on that as I get into each of the divisions.

Just looking at our strategic overview and just to start with our outlook. We've always had the intention of maximizing our diverse portfolio. So we've managed to achieve in this fairly difficult market a 3.5% trading profit increase. And as I said to you earlier, if you reflect specifically on Services, that's 6.5% up on a previous year.

Trading and distribution businesses did decline slightly in this particular period. There's a higher focus on technology, higher focus on innovation and that really is something that drives right throughout our group, not just in the drone business you saw or some of the new high-tech stuff that you saw in the tank terminals but right across our company, right down to basic industries like cleaning, printing, et cetera, et cetera. A great move towards innovation and disruption.

What we have seen in this particular year is much higher liquid and bulk commodity volumes that were handed in brand-new terminals that we've recently invested money in. So not the LPG ones, the ones we mentioned in the past, the fuel ones, the multipurpose tanks, et cetera. And in the bulk terminals, we had a -- we did have the unfortunate incident a couple of years back where there was a terrible storm that came through KZN and hit the Durban harbor. We have rebuilt that entire terminal and it's operating the terminal 30% to 40% more efficient than it was in the past.

Another area that we've concentrated on to maximize our portfolio is that we've now acquired 50.1% into Adcock. It is now a proudly South African company. We will consolidate it and will touch on those numbers just a little bit later and I'm sure Mark might as well.

I think it does probably require me to just explain why we changed our minds because everybody is going to ask that question. We own 38% of Adcock, it was an associate of ours. We equity accounted for it, and we received some dividends, nice dividends, but that's all we got from a cash flow perspective.

We had looked for a period of 3 years to try and find new black entrants to come into that industry. We've mentioned that. I think we stood up here on many occasions and on radio and TV interviews. Unfortunately, the value of that 38% was circa about ZAR 4 billion, ZAR 4 billion to ZAR 4.5 billion.

The PIC had a strategic 25% stake, 25.1% stake, and that always blocked anybody doing anything with Adcock because it was strategic to the country. And unfortunately, without the PIC funding, and they couldn't fund any more because they were already at 25%, there just isn't funding for new entrants into the South African market for that industry anyway, which I found was quite a bit of a pity. I thought it was a great opportunity, as we did with Comair in the airline industry to bring new entrants into those industries. There just wasn't funding for it. We work very close with some of our bankers and I see some of them here today, and we've had a whole lot of new initiatives that we tried, but we haven't succeeded.

Then without going into too much detail, the PIC have changed their view and they've put out SENS announcements or Adcock have had put out SENS announcements to the fact that they no longer see it in quite the same light and have been selling down and big parcels of shares came on the market.

We had a look at this and our exec teams said, "You know, guys, we probably will be a hell of a lot better off strategically owning 51.1% of this business, taking control of the Board and really then running and managing Adcock as if it's a Bidvest company as opposed to a fairly passive investment that we've had in the past." Myself and Mpumi said to the Board, we're quite active shareholders, but we didn't have real control.

I'm now the Chairman [for my sins] Mpumi's on the Board and the ex-CEO of Adcock, Kevin Wakeford, who you all know spent 3 years of his life fixing Adcock because it was quite a mess when he bought it, has also been appointed to the Board. We own 50.1%. We'll probably move that to around about 51%, 52%, and it will be a proper, true Bidvest subsidiary that we will run with for the foreseeable future.

So that's the new strategy. I think it makes a huge amount of sense. We obviously spoke a lot to our advisers and we were advised that this is a great opportunity to acquire control of the business. We didn't have to make offer to minorities because we have made that offer some years ago when we first bought it. And just for your information, I think it's somewhere in the slides here and price is about ZAR 64 this year, not ZAR 73 or ZAR 70 or ZAR 72 like a lot of the analysts have been saying when Adcock results came out.

You would have seen Adcock's results. They were very good. And I think from here on in, for the foreseeable future, we're going to make it a really Proudly Bidvest company.

So that's the news on -- or that's the logic and the reason behind Adcock.

Another -- obviously, another key factor that we look at in our strategic overview was to maintain a strong balance sheet. I don't want to take away from Mark because he spends a lot of time on that, but our debt burden remains very low. We're 9x EBITDA, well within our ratios. We have very good cash generation, extremely good asset management, and again, Mark will tell you about our very successful bond raises that we did over the last year and some more to come. So that has been very successful.

Looking at where we need to invest our capital for future growth the way we have. You saw an element of it with the ZAR 1 billion LPG project. That project is on time and within budget, which is very key for these big massive projects that take place. We've had a few examples recently. In fact, it will probably be a touch in ahead of time. Ilze will [club] me for saying that, but anyway I don't think Anthony will because that's his target and his challenge.

International. We are currently exploring multitude of international opportunities, some small, some big. Alan Fainman, who runs our Service business, has, I think, last week signed a reasonable-sized acquisition in the U.K. It's a cleaning business. We do need to -- there are 2 of them that could -- basically one signed and the other one is being signed, I think, this week. It's around GBP 50 million, the 2 of them together. The one that's done is about GBP 33 million, if I'm not mistaken, the other one is about GBP 15 million. And that really is -- it's a quite a lot of rand when you look at that. Seems small and it is a bolt-on in U.K. terms. And it really is just a focus in the -- it really is aimed at growing our footprint in the U.K. When I get to the Services piece, I'll just explain that a little bit better.

In South Africa, we spent ZAR 3 billion on acquisitions in this last year. Quite a few of them at the end of the year, so they haven't really impacted a lot on our numbers or our results. But we acquired UDS, that drone business you saw. Ilze has mentioned Aquazania, which is the largest watercooler business in South Africa, which will merge with our Pureau business to make it a very significant player.

And then a whole lot of smaller businesses in Office & Print, in Commercial Products, Electrical. What we had -- we've also gone ahead and sold certain businesses and bought up the minorities in Namibia. So the fishing business now just about 100% gone and we've delisted that and taken out the minorities. And we sold another business called TMS, which was industrial service business, which really didn't fit into our objectives.

And the stewardship, very, very important in our lives. We do have a, I'm going to get into trouble again, I call it a full-time Executive Director. Are you full time dear? We do have someone -- we do have an Executive Director who's key and main focus and responsibility is transformation. We employ 125,000 people. We train those people. As you can see, we have spent ZAR 439 million on skills development. We spent ZAR 133 million on enterprise and supplier development. More than 50% of our businesses are level 1 and 2.

And if you go a little further, something like 80%, I think, are level 4 and above. So I think that's actually Gillian McMahon and she's done a brilliant job in that regard. And it really is very close to our hearts and very important in our lives, particularly when it comes to doing business out there in the marketplace.

Just looking at the highlights for the year. Obviously, we're very proud of the fact that our HEPS is up 9.8% for this year. I think in a tough economic climate like we've had, that's a very, very strong result. Mark will take you through the makeup of it. Our normalized HEPS, which is what we base our dividend on, is up 5.2%, which is also very, very commendable to -- our final dividend is up 5.6%. We've tweaked that a little bit above what we would normally do. Again, Mark Steyn will take you through it.

Trading profit up 3.5% to ZAR 6.7 billion. Very good performances from Service division and Office & Print, and then Freight and Properties performed very well.

Our Commercial Products and Electrical businesses, which are really exposed to [SA Inc,] and our manufacturing sector obviously did fall short of our expectations. They're obviously trading in their tough economic cycles everyone is going through.

Probably one of the highlights, in fact, a big highlight for us, is that we managed to increase our gross margins, and we managed to increase our net margins as well. And that is something that we spend every single day of our lives on margin management, particularly in these days where the exchange rate fluctuates wildly, like it has been doing, and our guys have done an exceptionally good job in that regard.

We've generated ZAR 7 billion in cash. We've got an exceptional balance sheet. Our expenses were only up about 4.5% in this market, which I think is great. And we've managed to improve our returns and I'll go into the returns by each division a little later. Our ROIC is also up as you'll see.

We've invested in South African infrastructure, and we've increased capacity and innovation in just about every one of our businesses. As you can see from the slides, very nice healthy slides on the right-hand side.

Just some reflections. Some of the things that really do please us more than anything else is that the product mix has shifted towards annuity income. I think I have already mentioned that. That has moved up to, I think, somewhere around 40-odd percent, which is great. In fact, it started at 40% -- sorry, apologies for that, started at 40% in FY '15 and has grown up to 47%, 48%, 55% and now, 64%. And that really is one of our real strengths, that annuity income business where you start the month, press the button and you've invoiced the cleaning contracts for Melrose Arch or the facility management contract for whatever or in Anthony's business where they've sold their terminals on a pay-as-you-go basis really has made a big difference to our business and it really does make us a lot more sufficient.

Looking at the trading margins and just -- you'll see that our normal margins are a lot higher than that. This is our purely our trading and distribution businesses, which is where the margin management is very, very critical. They have grown from 19.6% right up to 23% over a 5-year period, which -- or 4-year period -- 5-year period, which again we're very, very proud of.

If you look at what we've done over the 3 years since the unbundling, this is quite an important chart on the right-hand side. You can look at it a bit carefully -- a bit more carefully later. We've monetized ZAR 3 billion of noncore assets. We've generated about ZAR 16 billion in cash in that period. We did increase our debt margin in by ZAR 2.7 billion. That's mainly, I think, offshore. We've made ZAR 11 billion in acquisitions. We paid out ZAR 5.7 billion in dividends and ZAR 5.8 billion in CapEx. Quite a bit of that CapEx was income-generating CapEx. There's obviously replacement CapEx but a lot of that was income-generating.

So on the very right-hand side, just gives you some ideas of some of that, that include Brandcorp, it includes Noonan, USS, Eqstra which we're coming to, Aquazania, Adcock. We had to buy the difference between what we own and where we are today.

So I think just a reflection, it's been a very, very good 3 years since the unbundling. Most of the key critical areas that we look at, our trading profit, our returns, cash flow, balance sheet, et cetera, have done really nicely. But of course, we are not immune to[SA Inc] So a very tough -- it's tough times out there, there's absolutely no doubt about that. And our trading, particularly our industrial businesses, when we get to them a bit later, you'll see have struggled. Our Electrical business and our industrial businesses are down on last year, which I think one would expect.

That's me for the introduction. I hope that gives you a good overview of how Bidvest has done. And I'd love to call on Mark Steyn to come up and give you the detailed numbers. Thank you.

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Mark John Steyn, The Bidvest Group Limited - CFO & Executive Director [4]

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Thank you, Lindsay, and good afternoon, everyone. As per normal, I'd like to say a quick thank you to everyone for the production of these results. You can imagine the group is a very large group, it takes a quite a lot of effort to do this.

As some of you will know, we transitioned auditors this year to PwC, and that's never a simple process. But I'm happy to say that it was a very good transition. We've had feedback, both from the Audit Committees at the divisional level, at a group level and from our divisions themselves to say that the process was thorough. It -- and we had a healthy and interactive audit. So thank you, PwC. I know you're in the audience here today.

I'd also like to thank Deloitte obviously for the handover process and assisting us. And then finally, just a big thanks to all our staff. I think our financial staff outperformed themselves. The feedback we've got throughout is that the audit went very, very well and that the quality and -- the quality of the numbers was very, very clean. So thank you, and well done.

Then moving to the financial numbers and the review for the year. As expressed at our December results presentation, trading in South Africa at the moment is a -- it's a very challenging environment, and certainly, as you'll see from the numbers, our second half was certainly more challenging than the first. But with this as a backdrop, I think we're very pleased with the results we've managed to achieve. We've got growth in earnings. We've maintained a very strong balance sheet. And we've enhanced the majority of our key metrics.

Our highly diversified portfolio allows us to balance both the high and the low performers. And I think we've seen, particularly in the last 6 months, that our Services-related businesses have helped us overcome the exposures to the industrial sector and to the construction sectors, which both are battling a bit.

From an acquisitions point of view, Lindsay has covered a lot of those. No significant acquisitions in the last 6 months. We did acquire the balance of the minorities in Bidvest Namibia, and we subsequently delisted it and that will then form part of our divisions going forward.

At year-end, we have signed an SBA for the Eqstra fleet leasing business that will be a game change for next year. It's currently subject to the requisite regulatory control -- approvals. We hope to see that towards the middle of the year. And in addition, obviously, a number of nice bolt-ons that's Bidvest's bread-and-butter and these are performing at expectation and obviously will benefit next year.

Then moving through to our income statement. At a revenue line, revenue was flat at ZAR 70 billion, the same position where we were at in December. But really to understand revenue in the Bidvest Group, given its diverse nature, you actually need to understand the individual divisional performances, and we'll unpack that a little bit further in the presentation.

At a high level, we had a good increase in Services, Freight and Financial Services with a decline in Automotive and Electrical. From a revenue perspective, the big items to note, the disposal of Bidfish in Namibia had quite a big impact. That's now sitting in our corporate services sector.

Look, the contraction of both the construction and industrial sectors which impacted significantly Electrical and Commercial Products. And then lastly, the decline in luxury vehicle sales in Automotive and Mercedes-Benz changing their agency model.

From a gross income perspective, very pleased that we've managed to improve our margin by just under 1% up to 29.3% (sic) [29.8%]. And that's particularly pleasing because we've gotten increased contribution from our U.K. and Irish businesses, and they operate at margins much lower than what we do in South Africa. And most of the divisions in South Africa managed to improve margin.

From an expense perspective, I think this is a particular highlight. Expenses -- operating expenses up just 4.6%, which is an inflationary increase, if you like. I think our expense management across the businesses have been particularly good, particularly in tough times. And expense ratio, we've maintained at 22%.

So all this translates into a trading profit, which is up 3.5%. Within that mix, Services, Office & Print and our Properties division did particularly well. Freight and Automotive, both contributed to growth. And despite the Commercial Products and Electrical facing headwinds I've discussed already, they focused on growing their market share and rationalized the number of operations.

Within the Financial Services business, the bank performed reasonably well. But the insurance side of it was under pressure and it was impacted by the performance of the underlying equity portfolio, which reflects what's happened in the markets.

From Other cost perspective, not a lot to talk about. The other costs we do adjust for in our normalized HEPS calculation. The 2 acquisition costs are ZAR 23 million. Really, that's the bolt-ons, Aquazania, UDS, and to some extent, Eqstra. And then in terms of the amortization of customer contracts, that's up just because we've got Noonan in for the 12 months this year.

Our net capital items saw quite a big decrease and we've got a loss in there of over ZAR 700 million. ZAR 620 million of that relates to the mark-to-market adjustments on Adcock and for Comair for the share price moves. There was a cleanup of the portfolio across the businesses so that led -- that gave rise to a number of disposals in the group, which come through there. A little bit of insurance compensation has come in to offset, which is from claims within the Freight division.

Moving now to our finance charges, and again, I think it's something we're quite proud of. The finance costs up just 3.4%. The clicker not working. I can do it from here. Hold on a second. Let's try this one. No, we're back again. Okay.

Slight technical challenge. Just give me a moment.

Perfect. And we're back in order again. Okay. So on finance costs, up 3.4% and that's just really to reflect the additional funding that we've taken on board for acquisitions and working capital. Our capital programs continue. As you all know, interest rates have been relatively stable in South Africa for the last, last while, and so our average borrowing cost for the group at 6.7% has been consistent over both timeframes.

We continue to benefit from lower funding rates in Europe. But just to give some clarity on it, we do match the funding to the revenue or currency-earning capability so there's not a mismatch there. We're not funding SA operations with U.K. debt. My interest cover remains conservative at 7.9x EBITDA.

From an associates income perspective, very proud of the increase there, up 37%. I think everyone's seen the Adcock numbers that came out last week. They were very good. And then as announced from a Comair perspective, they have recognized the ZAR 1.1 billion SAA claim, so that will be in their numbers and we've accounted for our share of that.

From a tax perspective, the core rate for the group remains 28%. Our effective tax rate is slightly lower at 27.1% and it's reduced because of the income from associates, our MIAL mark-to-market revaluation, which is not taxable, and we have no tax shield on our preference shares. And then as we continue to grow the U.K. and Irish businesses, they will obviously continue to lower that rate over time.

From a HEPS perspective and Lindsay has obviously touched on it, very proud of our headline earnings, up 10.3% to ZAR 4.6 billion. That translates into a HEPS number of ZAR 13.52, which is 9.8% up, and a normalized HEPS of 5.2%. One additional adjustment normalized this year, we have excluded or stripped out the noncash share, noncash element of the Comair SAA claim, and that's really about uncertainty of cash flows.

That said, Comair had received the first major installment on the claim and they are receiving the subsequent installments at the moment. That is looking positive.

From a dividends perspective, we hope the shareholders are going to be happy that the final dividend at ZAR 3.18 is nicely up, giving us a total dividend of ZAR 6 for the year, which is up 7.9x. And from a policy point of view, our cover ratio of 2.2x normalized is absolutely consistent.

Moving through to our balance sheet. The group has always been quite conservative in terms of how we approach and manage our debt and this is -- and this year is no different to the past. Net debt after cash and cash equivalents is up to ZAR 7.8 billion from ZAR 6.5 billion last year. EBITDA interest cover at 7.9x, 8x last year, so stable.

Net debt-to-EBITDA at 0.9x, it was 0.8x. So all those metrics, very happy with, nice and conservative and stable. In terms of our gross debt, we've moved up the split. Gross debt is now 49% of total -- I mean, sorry, long-term debt is now 49% of gross, and we're targeting 50-50 in the long term and there's plenty of headroom for further growth.

As Lindsay mentioned earlier, we've run 2 very successful bond programs this year. The November one I talked about at the half year. We ran another one in June for ZAR 1.3 billion in 3- and 5-year notes. It was 4.4x oversubscribed and the rates we've achieved were very favorable.

What isn't in the presentation but it's something which we're in process of doing now is renegotiating our term facility in the U.K., which was used for the acquisition of Noonan and subsequently USS. And what we're seeing is a significant appetite for Bidvest debt in that environment. Certainly, the rates that we're seeing are very aggressive to the tune of 45 basis points lower than our current borrowing. So lots of appetite for Bidvest debt, both locally and offshore.

From an interest cover perspective, and I always -- I like showing this graph because what it does is it shows the relative stability of our interest cover through the cycle. What it also does and I'll deal with it a little bit more is show the significant working capital flows between half year 1 and half year 2. So traditionally, absorb a lot of working capital in the first half, which gets released in the second half, absolutely consistent this year.

I have included at the bottom also the Moody's ratings. No particular change here. Still stable. Obviously, we're all watching November to see what Moody's are going to do with the sovereign rating.

And then moving to cash flow, which is always a particular focus of the group. Our cash generated by operations before working capital was at ZAR 8.2 billion for the year. Last year, it was ZAR 8.3 billion. The key issues to note, we have had quite a big absorption of working capital this year of ZAR 1.1 billion versus a release last year. And if you unpack it sitting in the cash flow statement, you'll see it's predominantly in the trade payables line, which I think, to some extent, is a reflection on where businesses are trading, particularly in the last quarter.

Our cash flows from the Financial Services have been flat this year. Last year, we had quite a big inflow of ZAR 0.8 billion. Inventory and debtors both remained flat, very comfortable with those. And the cash management, I think, across the group has been particularly good.

We obviously -- not obviously, but we made some investments in Adcock and Namibia right at the end of June, which obviously has pushed up our debt level slightly. From a CapEx point of view, we invested ZAR 2.6 billion versus ZAR 1.7 billion of depreciation. So we're continuing to invest in our operating assets and maybe -- and not to spite that, but we've managed to improve our ROFE to 23.3% or 22.9% last year. So very happy that the returns are coming in even though we continue to invest in the businesses. Our ROIC at 18.4% versus our approximate cost of capital of 11.7%, so outperforming cost of capital quite nicely.

The cash generation graph here. Again, just by half year illustrates the impact of our cash flow movements and particularly our working capital for each of the cycles. What we were quite pleased about is obviously you can see that there was quite a significant outflow of working capital in the first half year, which we reported on already. It's come back quite nicely, maybe not to the point we would've liked it to come but come back very nicely in the last quarter -- I mean in the last half year. What's interesting is that the last half year, HY 2, almost identically mirrors the last -- half year of last year, which was particularly strong. So very comfortable with that position.

And then lastly, just 2 subsequent events I wanted to touch on. The first and that will be a feature of, I guess, of a lot of presentations everyone is going to see, IFRS 16 is going to have a very material impact on the Bidvest numbers, particularly the income statement and the balance sheet.

We are adopting the modified retrospective approach so you won't be seeing it -- there won't be adjustments to the prior year numbers, but we will put out just the full year impact and obviously report that in the notes, et cetera.

From a balance sheet point of view, what you're going to see is a right-of-use asset coming in of between ZAR 5.3 billion and ZAR 5.8 billion, so really, really big number, and equivalent lease liability to mirror. There will be deferred tax, corresponding both to deferred tax assets and liability. And then from an income statement point of view, it's quite confusing. At a trading profit level, it's going to be enhancing as the depreciation you add is less than the rental cost that comes out.

So trading profit will go up somewhere between ZAR 230 million and ZAR 280 million. But then a big chunk of that -- what was in that rental number relocates into your interest line. And in fact, to the point where your actual trading profit before tax will drop between ZAR 150 million and ZAR 200 million and an attributable line between ZAR 100 million to ZAR 150 million. So really, really big impacts. Cash [for our lessor], I didn't talk too much about it. It's more of a reallocation between operating costs and financing costs.

And then the last one, which -- hold on a second, which I haven't got there but I'm going to talk to is obviously Adcock, which Lindsay has alluded to, with the unwind of the BEE scheme within Adcock, additional shares will return back to the [debt] which pushed us over the 50% level. And as Lindsay have said, we now have control of Adcock and will consolidate with the effect of from 1 August 2019. Thank you.

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Lindsay Peter Ralphs, The Bidvest Group Limited - Group CEO & Executive Director [5]

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Thank you, Mark. Very, very nice presentation, very nice set of results and a fantastic balance sheet. That to me is what is always the highlight of standing up here, is being able to be proud of our balance sheet.

I'm going to take you through the operational updates of the various divisions. To start with, we're going to go through Alan Fainman's division, which is our Services business.

Just again, all on the screen but just to have a look at some of the highlights. Obviously, a 10% increase in revenue. A 9.9% increase in revenue is exceptionally good. Trading profit up 12.5%, so clearly they have managed to improve margins and keep their cost structure under control.

If you look at the EBITDA number, ZAR 2.7 billion, this is a proper, proper business, if I may say so myself. The value of that company alone is very significant because we've been searching out for services businesses around the world and I think we're getting to get of good feel for what the value of these companies are.

And interestingly, as I mentioned to you earlier, we always look at our trading profit. Our funds employed, as you can see, this business makes EBITDA of ZAR 2.7 billion on funds employed of ZAR 2.5 billion. But the actual calculation is -- sorry, ZAR 2.2 billion on ZAR 2.5 billion is 86% return. And as you can see, that has gone up from the previous year. So very, very good and very, very healthy business.

It's an annuity-type business and they will perform strongly. We've got excellent results from Noonan, and I'll touch on that a bit more, Facility Management (sic) [Facilities Management], Protea Coin.

Good results from Steiner, BidAir, the Lounges, BidTrack and our Allied Services sector. If you look at Noonan on its own, it's 16% up in euros on both very good revenue growth and margin growth, so we're very proud of that. Going overseas is a big call. We went overseas, we looked at it and identified a really good management team, a good business that we understand and I think that's always vitally important, and we've done well with it. Hence, we are continuing to grow that business by acquisition and Alan has been given further capital allocation.

There's a couple of fairly decent-sized large businesses that will be coming to market shortly in the hygiene-type environment, other in the cleaning-type environment, which we're very comfortable with. And this specialized facility management, hygiene services are 2 of the focus areas that we will continue to look at.

Cash generation was excellent. We -- some of the acquisitions we've made, some of them are innovative, modern, technology-type businesses like ClickOn. It's an [axis] control business for estates, housing estates, but very high-tech and has a significant market share in South Africa. Aquazania, we mentioned, UDS and we're exploring several others. So great performance from our flagship division. Well done, Alan.

Just moving on to our second-biggest division, which is run by Anthony Dawe, that's our Freight operation. Again, you've seen some of the stuff that we're doing with the LPG. I think it's a very good result. Turnover is up 5.7%. Profits only up 3.8%. About every 8 to 10 years, the amount of maize that's required in the country is balanced, in perfect balance and no maize comes into to -- no maize goes out. We've got exactly the right amount, not too much, not too little and this is one of those years that there was no movement in maize. It will come back next year, that was probably a reflection of the year before's poorer rainfalls. The rainfalls have come. We have no doubt that come next year, we will have very good maize exports.

So the last quarter this year and even into July, maize was relatively quiet. In fact, very quiet in that particular terminal. And bear in mind, we moved virtually all of the grains that come in and out of this country. Almost 100% of the grains coming in and out go through our terminals. So we do get affected when you have this once in every 8 or 10 years. But notwithstanding that, I think the businesses did very well and that was benefited obviously from liquid bulk volume -- liquid volumes were up. Bulk volumes, which is really manganese, chrome and other specialized minerals, were up. And you've seen that reflected in the economy. I mean some of those miners have done particularly well. We move a lot of those -- that product.

Obviously, very -- in the basic logistics, warehousing and transportation business, I think you've seen it with some of the others guys out there, lower volumes and very stiff competition and we did feel that like everybody else did. And general activities of [SA Inc] bringing in containers in and out. There have been low input volumes. We've seen pockets of export volumes but nothing really spectacular. Annuity income, I've mentioned before, that keeps growing, it's up to 40%. And I've discussed the LPG project, another very good result from our Freight operation.

Our Office & Print business, probably one that one would expect to have go into subtle decline just because of technology and iPads and laptops and everything else that people currently use. But I think they really have done an outstanding job. In the previous year, we don't really like to throw these numbers out too much. But in the previous year, there was the Zonke contract that contributed about ZAR 50 million to last year's profit that isn't in this year. And notwithstanding that under the guidance of Kevin Wakeford, they have increased their profits by 5%. And as you can see, it's now ZAR 863 million EBITDA business. The returns that they make in that business is 33%, which is exceptionally good and that's again our measurement criteria. I'm just going to go back to Freight because I forgot to mention that. As you can see, the ROFE on the Freight operation, 41%. So 86% in Services, 41% in Freight and 33% in our Office & Print business.

Very good margin management. Exceptionally good rightsizing of the business. I think that's what we do very well in this division. We do recognize and realize that continuous stationary envelopes and traditional print that we used to do is in decline. We found alternative products, lots of innovation, Bidvest Data, which is really our digital print business, and Konica Minolta, our 2 largest businesses in that division. It was some years ago, the traditional Lithotech business was by far the biggest part of it. That whole ratio has changed and has been very well planned and very well executed over a number of years.

The office products business continues to contract. But we have, as I said, lots of product innovation. We have done a number of bolt-ons such as UFC, which is a tinfoil printing facility down in Manenberg. Make It Mobile (sic) [Make Me Mobile] is a scanning and bar-coding top print business that we've invested in and it's again to diversify away from traditional print into new technology and digital-type print. Logo Print was also added in this year.

Konica Minolta did renew the national treasury contract, albeit on different terms and conditions. It will put pressure on this next year's numbers. We had to, as part of the treasury contract, outsource 30% of that business to third-party new entrants, which we've successfully done. And we are seeing the progress of that as we go forward. It only really commenced in about February or March of this year.

Unfortunately, we do have a couple of divisions that have had a bit of a tough time. One of them is our Commercial Products division. What was quite interesting in this division this year is that our consumer business actually with suppliers Shoprite, Massmart, Pick n Pay, you name it, actually did quite well. For the first 6 months, their profits were quite nicely up and then they leveled off a bit in the second half, but they did well, and I think it's a reflection of the really good brands that we have such as Cellini, such as Russell Hobbs, Salton, et cetera, et cetera.

We've done -- we did very nicely in home and living brands during most of the year. Did slow down a bit towards the end and may have -- obviously have some concern about the retailers' and the consumers' ability to buy products. But I think with the traditional core, really good brands that we have, I think we'll continue to do okay.

The industrial side of that business did take some strain. But we are pleased to tell you that some of the niche businesses that we have like Burncrete, which really mainly supplies the mining industry and the niche mining industry did well. Plumblink, which is one of our gems supplying plumbing supplies, as you know, plumbing wholesaler, did really well. Moto Quip did well. The disappointing results were really the industrial pieces such as Renttech, Afcom and Matus.

What that did very well in this division was improve their margins and I touched on that earlier and the cash generation was significant. So in tough times, our guys go out there and do what's necessary for the business.

The product range, price points were actually managed, and we have -- we are reviewing the business model. So if the business model no longer fits, such as in Renttech or Afcom or Matus, we will change it. And I think Howard Greenstein, who runs that company, is in the process of doing so. We've changed the business model in Yamaha to some extent and we have opened 3 retail stores for Yamaha.

Moving on to Automotive, obviously, managed by Steve Keys. It was a tough year for the automotive industry. Mark did touch on it. Revenue is down by 5%. The Mercedes-Benz model of no longer -- or the agency model where we no longer invoice ourselves Mercedes-Benz [invoice you] when you buy a Mercedes-Benz from one of our dealerships. That had quite a big impact there. But generally, luxury brands were down and we did sell 5% fewer vehicles in this particular year and that was mainly in the luxury segment.

Aftermarket produced a lower contribution and the pleasing part of this year's result for the Automotive division was a much improved car rental result. It really has come back to where it should have been. We did have one hiccup here last year, which we did report on, and I'm pleased to tell you that, that business is back in line to where we expect it.

Looking forward at the automotive industry, I think times are still tough. The consumers are under pressure and we don't really see ourselves selling too many fancy Jaguars and Land Rovers and so on. Steve Keys and his team who run that division have cut back quite significantly on nonperforming dealerships and have made 1 or 2 bolt-on acquisitions where necessary into Nissan, Ford and the more volume-based dealerships, which we could get.

Our Financial Services is run by Japie, bit of a mixed bag. The bank itself is 3% up, which is not too bad. They really are focusing going forward as a fleet leasing business and a FX business with a little bit of business banking [running] and we do, do that. We have to do that. We do make -- we do lend money to people and we do take advances. But their core features of where they really make their money is fleet leasing and FX and you'll see that come through in the bank going forward.

Mark touched on Eqstra. There's no doubt it's going to be a game-changer. We've signed the deal subject to competition board and the reserve bank, ZAR 3 billion deal effective, hopefully, 1 January. We don't expect any changes. It's going to be, as I think Mark kind of indicated, bit of a game-changer for the bank. It's very significant.

Eqstra has been through some torrid times in its life. I think it's much better suited in a bank. The cost of funding, as an example, is a significant advantage to us of a normal company who doesn't have access to the banking-type of funding. We own McCarthy, who will do a huge amount of supply of the vehicles, maintenance of the vehicles, et cetera, et cetera. They have a tracking company, and there, we have a tracking company. The synergies between ourselves and the bank and our Automotive division and tracking, et cetera, is very significant, so we're quite excited about this acquisition. And I think Japie is looking forward to when he can be set loose and the Competition Commission that gives us permission, which we're not expecting any real issues with it.

Our insurance businesses, to be quite honest, had a bit of a disappointing year. We have got out of sort of industrial short-term businesses. We did try it, didn't work for us. We got out of it and that, I think, is really commendable from the bank's -- from the insurance company's point of view so we still continue with the short-term license, mainly in the vehicle insurance markets.

And then our long-term license in a company called FMI is continuing to grow strongly but it is suffering from business pains. So the embedded value of that business continues to grow and grow and grow. But that did operate at a -- operating loss in this particular period, we do expect it to turn to profit in 2020.

Just some of the names. Our broker business, Compendium, did very well. FinGlobal, which is part of our FX business, and Tradeflow, which is effective, also really part of our lending but FX side of our -- also delivered good results. The biggest disappointment, as you could probably imagine, is, which we mentioned quite often, is our investment -- equity investment portfolio, which either shoots the lights out or is dismal in the stock market to June. I don't need to tell you guys, was not exactly outstanding and that was the biggest contributor to the profit decline in this total division. So pleasing that the bank was up, and we will -- and pleasing that we have Eqstra on the horizon.

The final division is Electrical. It is, by far, our smallest division. It makes EBITDA of about ZAR 300 million and a trading profit of ZAR 258 million with a return, as you can see, of 12.5%, which barely pays its way. But they are exposed to the construction industry, quite exposed to Eskom's infrastructure spend and that has been particularly weak. They haven't performed worse, I don't think, than any of their competitors. It is a business that -- it is the largest electrical wholesaler in the country.

We will keep it. It is well-run. We've got some quite exciting products. We've got a big order book in certain areas but not -- no delivery coming through. And I think it's just one of those businesses we do need to have patience with. We have moved quite aggressively to renewables, solar, wind stuff, et cetera, et cetera, prepaid meters, selling prepaid electricity. But we do need some patience with this business to turn and electric can only turn, I think, when the South African economy turns a bit.

Our corporate business is mainly made up of our property portfolio. I did mention it earlier. It's about an ZAR 8 billion portfolio, which is up 14% on last year. It is 90-odd percent occupied. The actual real estate and probably about 97%, 96%, is Bidvest occupied. So it's a really nice portfolio. It's worth a lot of money to us and it's a backbone for our business.

When you get old, you can't read unless you [hold] these papers to you. I think we've mentioned the buyout of the Bidvest minorities. The Mansfield Group, which is the third truck business in the U.K., to be quite honest, we've had it for some time and we have now made a concrete business decision to dispose of it. It doesn't suit us and we will be exiting. We're in the process to sell it. And to the extent we can't sell it, it will be closed. I can assure you.

The MIAL business, we've covered. We do expect the transaction to come to fruition by the end of this calendar year. And finally, I think we mentioned it before but we did sell our Bidcorp shares much right at the beginning of the financial year.

Just looking at that really brings me to the end of the divisional results. I think overall a good set -- a good mix and I guess the results are to be expected. The industrial and construction and infrastructure businesses did battle and the rest of the businesses, particularly the annuity ones, did particularly well.

Just looking at the strategic overview and the outlook. We do -- we remain very committed to South Africa. As you've seen, a lot of our acquisitions have been South African. We spent ZAR 3 billion last year, as I've said, on South African acquisitions. But I think what we do need for this country obviously is for the public sector and the private sector to invest and to achieve GDP growth. We continue to do so whether it's by way of acquisition, whether it's the fuel terminals, some (inaudible) terminals, as LPG terminals. And then right throughout to other businesses, we have invested heavily into new innovation and new facilities, new products line, new service lines, et cetera, et cetera. Obviously, it will be good when the government or the public sector has the ability to start investing as well, that would help us enormously. I think Bidvest is a reflection of SA Inc , and we will benefit from that.

We do notice a variety of pockets of opportunity, and we really do push hard when we see those opportunities. Wind farms, as an example, like coming back in the whole issue about them being connected to the rivers have been sorted. And we would touch wind farms in so many different ways and I'll just touch for a minute on that. I mean, through our freight operations, all of those massive turbines and props and draft, we handle them when they land down in Port Elizabeth I think it is, and we would handle them, take them off the ships, move them and get them up to Sutherland or wherever they have been erected. Our electrical guys would lay a lot of the cables, et cetera, et cetera, and then put in very big transformers that move the power from a solar -- from a wind farm power supply onto the grid. They are huge contracts. Plus, we'll sell tools and equipment and various other industrial products into massive projects like that. So we get to the heart of that project. They're normally owned and run by a lot of these particularly investment-type vehicles and we -- I think Mpumi is quite busy with it as well, busy with a number of those particular opportunities.

Just looking at maintaining our strong financial performance. That is actually key to us. I'm actually sometimes actually amazed at how clean our debtor's book is. We have -- we do insure quite a big portion of the book through CDIC. And there have been some issues there where some of the other suppliers of insurance -- business insurance cover have pulled out. But even notwithstanding that, I think our debtor's book is remarkably at a low level. Our debt is low, and I can assure you that Ilze will conclude the meal deal before the end of this year, right, Ilze? Yes.

Just maximizing our diverse portfolio. We will -- I think it's been mentioned we will incorporate Namibia straight into our normal operations, so that is in the process of taking place. Some of them are -- or Namibia's going through quite tough times, as I think most of you guys would know, but there are some very nice businesses up there.

We continue to generate cash to help pay for acquisitions. We have a kind of rule within our group that bolt-ons have to be self-funded within the division. Major acquisitions, they can come and ask Mark Steyn for some capital allocation. So they know where -- all the divisions know where they have -- they really do need to generate cash. We'll continue to broaden our product and service offering. We will consolidate Adcock. That's about ZAR 7 billion in turnover and about ZAR 1 billion in trading profits. Our income statement is going to -- other than IFRS 16, which no one understands. But if you ignore that, you can add on about ZAR 7 billion in turnover and about ZAR 1 billion in operating profit for next year. It will be 11 months as it won't be quite that but virtually that. Plus hopefully we will have Eqstra in there, plus we'll have the international acquisitions that I've already mentioned in there.

Just allocating of capital. Local acquisitions continue. Bolt-ons will -- are very attractive to us. I mean, in the U.K., we're getting slightly bigger bolt-ons at around about a 7 EBITDA, but the smaller bolt-ons, the real bolt-on ones that really get sucked in and integrated at about 4 EBITDA multiple.

Those international acquisitions will continue to be valued at an ongoing basis, and we look forward to one or 2 very significant opportunities that are raising their head. Mark didn't really mention it but he has put in place our ability to borrow internationally quite significantly. Can I mention the number or not, Mark? It's somewhere around $1 billion or $800 -- $850-odd billion. The banks have come to -- well, haven't come to Mark, Mark's gone to them and they have agreed to the basics and the principal behind it at very, very attractive interest rates as well.

Finally, guys, our philosophy in Bidvest is to have unwavering disciplined approach to the way we run our business, whether it's rightsizing, whether it's expenses, whether it's asset management, whether it's being very careful about due diligence and acquisitions, whether we're cautious about international expansion. That is really the way we live our lives and I think this result hopefully proves it once again.

So thank you all very much. Maybe Mark can join me and we'll just take some questions from anybody in the audience and then later on from the -- I think Julian does have a mic. If anybody would like to ask and Sue, anybody. We get...

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Questions and Answers

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Unidentified Analyst, [1]

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Nicholas [Firkin] from (inaudible). What drove the margin expansion in the Services division given the price-sensitive environment? And this kind of sort of -- as good as it's going to get there, or is there potential for that to go even further?

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Lindsay Peter Ralphs, The Bidvest Group Limited - Group CEO & Executive Director [2]

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It is a very tight and price-sensitive industry. Productivity is absolutely key and focus to everything that we do in that industry and that has to be done, and I know I'm overemphasizing this. But innovation and better technology can help drive up margins in that industry. The margins in that drone business, as an example, are astronomical, to be quite honest. So as we move more and more towards technology-driven solutions and that could be the use of artificial intelligence in certain parts of that business, robotic, use of robots to clean as opposed to cleaners cleaning, we've imported a container full, is that right, Mr. Fainman? Two containers of robots, robotic cleaning as opposed to people driving around, say, at Melrose Arch and the underground. And the margins there are just so much better. So yes, it's improved productivity on an ongoing basis. We'll push the margin up slowly. Because every time we got a tender, we have to bring the price down invariably and premium teamwork on that all day long, but we have to improve the productivity. So we have to do it a lot better with less, lot better with less, yes.

I don't think we can really grow dramatically going forward. I think -- I mean there would be continual innovation. We learned a lot from the Noonan guys actually. Their technology was probably advanced to ours in certain areas and ours was more advanced to theirs. They've taught us a lot about how you secure a contract at a relatively low, low -- what appears to be a low margin. And then as the contract moves ahead, you start to fine-tune, fine-tune and manipulate it to get it to where you want it to be. And I think the Noonan guys, if I'm not mistaken, did a very good job with it.

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Unidentified Analyst, [3]

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Mr. Ralphs, the balance sheet and the noncurrent assets, the item investment shows a reduction of just over ZAR 1 billion. But that similar amount appears now under current assets under a new heading short-term portion of investments. What is the reason for splitting this now? And does this have anything to do with the acquisition subsequent to end year of the Eqstra company? One, is it related to that in any way it?

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Mark John Steyn, The Bidvest Group Limited - CFO & Executive Director [4]

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So no, it's not related to Eqstra in any way. Eqstra, we haven't booked or done anything other than obviously the acquisition cost. What that is, is our Mumbai investment, the MIAL investment in the Mumbai Airport, and what we've done, we're just recognizing the fact that we are in the process to sell. So we've got 2 signed agreements and one of them is going to take place. It's going to take place within the next 2 months. It's a current asset which we are going to be selling. So that's -- we're just taking it out long term and put it into current.

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Unidentified Analyst, [5]

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Now going onto the ZAR 3.1 billion enterprise value of Eqstra, what is the purchase price and how is it to be financed?

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Mark John Steyn, The Bidvest Group Limited - CFO & Executive Director [6]

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So ZAR 1.3 billion was the equity value of it, and obviously, debt being the difference. It's been funded a combination. And in fact, if I recall a question from you last year, we have sitting on our balance sheet within the bank, call it, surplus or additional capital, which we've been raising for the very purpose of fleet businesses. And obviously -- not obviously, but some of these fleet businesses, particularly the Transnet one, we signed it. It is taking longer to roll out so that capital hasn't been fully utilized yet and obviously part of that is going to be utilized for Eqstra as well. The intention is that between the 2 of them, the rollout of the Transnet one and with Eqstra, it was utilize all the excess or lazy capital, if you like, within the bank and then the balance will be funded by the group itself.

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Unidentified Analyst, [7]

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Finally, is that 100% purchase of Eqstra?

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Mark John Steyn, The Bidvest Group Limited - CFO & Executive Director [8]

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Yes.

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Unidentified Analyst, [9]

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I'm [Swana] from Bank of America Merrill Lynch. What is the net debt-to-EBITDA post consolidation of Adcock? Do you have any guidance on that?

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Mark John Steyn, The Bidvest Group Limited - CFO & Executive Director [10]

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Yes. From the top of my head, Adcock's balance sheet doesn't have any debt on it. It's very, very light. So obviously, the numbers are going to look a whole lot better. But to look at it in isolation, given that you've got Eqstra coming in and a whole lot of other things, the balance sheet is going to look really different. You've also got the fleet leasing of ZAR 5 billion from IFRS 16 coming onboard (inaudible) leasing coming on board. So to be honest, where we sit from an overall perspective at the end of next year, I'm not exactly sure yet, but the -- bringing Adcock in is only enhancing for the ratio.

Any questions from the line -- on the call?

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Operator [11]

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There are no questions on the line.

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Unidentified Company Representative, [12]

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And there's no questions on the webcast.

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Lindsay Peter Ralphs, The Bidvest Group Limited - Group CEO & Executive Director [13]

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All right. Since there are no more questions, thank you all again very much for coming. Refreshments will be served upstairs. And as I said, all of our divisional CEOs and CFOs are all here if you would like to corner them if you got any further questions. Thank you.