South Africa's Bidvest has stopped buying companies and started generating cash instead

Bidvest spent five years buying companies. It has now stopped, and the results published on Monday show what that changes.

The Johannesburg conglomerate Brian Joffe founded in 1988 reported revenue of R130.3 billion for the year to June 30, up 2.9%. The number that matters more is cash. Bidvest generated R17.2 billion from operations, a 17% increase, and R12.5 billion in free cash flow, up 27%.

Trading profit rose 8.4% to R13.1 billion, with the margin up 50 basis points to 10%. Headline earnings per share from continuing operations climbed 6% to 1,864.2 cents. Return on funds employed improved 170 basis points to 38.6%. Every division delivered trading profit growth.

Group earnings per share tell a different story, rising just 1.3%, held back by impairments at Bidvest Bank and in associate investments.

Chief executive Mpumi Madisa called cash the most important feature of the result. The company described the year in its presentation as a stronger operating result rather than a low-base rebound, a pointed distinction after a prior year in which continuing headline earnings fell 3.2% and trading profit grew 0.7%.

The acquisitions that did happen were small and pointed in one direction.

Bidvest paid R1.5 billion for Aquatico, a Pretoria water and environmental testing laboratory, which contributed for nine months of the year. It bought Cleanbio Hygiene in Singapore for R23 million and the Spanish pest control business Arepla for R15 million. Those follow the integration of Citron UK into PHS and a full-year contribution from Citron North America.

The pattern is deliberate. Bidvest has been assembling a testing, inspection and certification business alongside an international hygiene operation, both of which generate recurring revenue and carry better margins than its traditional South African services divisions. Hygiene now contributes 55% of trading profit at Services International.

Madisa signalled the change in March, telling investors the group would pause merger and acquisition activity after five years of deals to build the sustainability of returns across the expanded group and finish exiting its financial services businesses. The company describes its pipeline as largely depleted, and told the earnings call that acquisition costs fell significantly on lower deal activity, with what remained relating mainly to the Adcock delisting and Aquatico.

It sold as well as bought. Autosure went for R13.5 million, half of Autohaus Centurion for R60 million and 75% of WearCheck Ghana for R9 million, all described as non-core positions where the expected synergies had not appeared.

The disposal that has not happened is the one investors are watching.

Bidvest agreed to sell its banking arm to Access Bank, the Lagos-based lender that is one of Africa's largest financial institutions. The transaction lapsed at the end of January because the required approvals were not obtained before the deadlines. Madisa attributed the failure to dealing with regulators across two banking jurisdictions, and said in March that there had been a flurry of interest since, that the process had been relaunched, and that she expected to finalise the sale and receive the cash by the end of the calendar year.

Both Bidvest Bank and Bidvest Life remain classified as discontinued operations. The Bidvest Life sale agreement is signed and awaiting regulatory approval.

The balance sheet did the rest of the work. Net borrowings fell R3.95 billion to R28.94 billion, and total interest-bearing debt dropped from R39.09 billion to R35.20 billion. Net debt to EBITDA stands at 1.9 times against a covenant of three, and interest cover at 6.4 times against a minimum of 3.5.

Freight was the standout division, growing trading profit by 10.3% on agricultural and mineral export volumes. Bidvest told the earnings call it plans a R2.5 billion capital programme there in the coming year, led by a second liquefied petroleum gas terminal at Richards Bay.

A final dividend of 483 cents was declared, up 7%.

Bidvest now runs about 250 businesses across 14 countries from 750 locations. Joffe built the first of them in 1988 and left the board in 2014. Madisa, who took over from Lindsay Ralphs in 2020, has spent the year proving the group can generate cash without a deal to announce.