The Bidvest Group Limited (BVT) Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the Bidvest interim results presentation. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Ilze Roux. Please go ahead, ma'am.

Thank you, Irene. Good afternoon and good morning, ladies and gentlemen. I am Ilze Roux, the Corporate Affairs Executive, and it is my pleasure to welcome you to the presentation of our financial year results for the 6 months to December 2021. We appreciate the interest that you are showing in our group by committing some time to us today. With me in the room, I have Mpumi Madisa, Bidvest's CEO; Mark Steyn, Bidvest CFO; Gillian McMahon, Executive Director; and Bonang Mohale, our Chairman. [Operator Instructions] With such a lot of good news to share, let me hand over to Bonang for some introductory remarks. Bonang?

Thank you, Ilze. Good afternoon, everybody. And thank you for making time in your busy schedule to join us today in the midst and the wake of what we are facing these days with a war in Russia and Ukraine, where the entire globe is both affected and infected. This Bidvest Group's results is quite a stellar moment for all of us. Hence, why I'm so proud and honored to be introducing these results, which are quite spectacular. Despite subdued economic environment, 2 pandemic waves and social unrest in this half, the trading profit from 5 out of the 6 divisions exceeded pre-COVID levels and all 6 divisions have done embarrassingly well. The determination and commitment from our well-led, able and dedicated management team as well as the over 112,000 members of Bidvest family honestly, ought to be appropriately acknowledged as a key reason for these good results. This team perfectly describes that part of our vision that says, people create wealth, companies only report it. With that, I would like to hand over to the Bidvest Chief Executive Officer; and my boss, Nompumelelo Thembekile Madisa to take us through the salient features of these results. Thank you.

Thank you very much, Chairman. Good morning, everybody. Thank you for joining us this morning. Yes, another set of results that we are very proud to report to you today. Myself, Mark and Jill are in the room for questions later. But I echo all the words that have been said by my Chairman already. So just in terms of some introductory remarks, Bidvest has delivered a really excellent half year result with all divisions reporting double digit trading profit growth. If I had to just take a step back and single out maybe 4 reasons for the results and why they were as good as they are, I'd probably single out the following. Firstly, we had a number of businesses that were significantly down in the prior year as a result of COVID and we've seen significant recovery in some of those businesses. And I'll talk to those businesses later when I get to the divisions. Secondly, we are definitely seeing expanded market share. And so whilst we did see market share growth at the end of the previous financial year, those market share gains have continued and in particular, solid market share gains in branded products, in commercial products, our automotive division and, in particular, in relation to new vehicle sales and also in our Services division. Thirdly, at Bidvest, we've always been disciplined where expense and cost management is concerned, and this discipline has continued and it is evident in the improvement in our trading margin. Lastly, our focused approach in terms of our international expansion strategy. This is making a material contribution to the results. The 4 acquisitions that were concluded by Noonan in the fourth quarter of the 2021 financial year have not only delivered in line with expectation, but we've also seen further synergy benefits from these acquisitions. From a balance sheet perspective, we've seen a return to our historical working capital cycle. You'll recall in the previous financial year, we released working capital in both halves. We're now going back to our normalized cycle where we absorbed in the first half of the year. And in these 6 months, we've absorbed ZAR 2.6 billion in working capital, which is a positive sign, and it's a sign of increased demand and trading activity. Lastly, just from an introductory perspective, having raised $800 million on the international bond market, we have reduced debt, both locally and offshore, and we still remain with sufficient firepower for execution of our international growth strategy. If I move to the next slide, and I touch on the highlights of our performance. Revenue at ZAR 50 billion is up 13% on prior year, and this was boosted by good growth in Bidvest International Logistics, which is in our freight division. We've seen increased volumes in LPG revenue growth in freight, a remarkable contribution from new vehicle sales in the Automotive division, excellent volume growth in the OTC portfolio [ and ] Adcock. As you'll recall, in the prior year, we were challenged with the absence of a flu season and the OTC division had unfortunately been negatively impacted. We've seen a very nice turnaround in OTC. And lastly, the offshore acquisitions that were concluded in the Services division. Trading profits reflected a 25% improvement to ZAR 5.1 billion with growth supported by strong market share gains, acquisitions in the U.K. and Ireland, phenomenal cost management, gains on the investment portfolio as well, which was in the Financial Services division, that has seen our trading margin improve from 9.2% in the prior year to 10.1%. From a mix perspective, our business mix remained stable from the end of the 2021 financial year with 60% of our operations in services and 40% in trading and distribution. Equally, from a profit mix perspective, we haven't seen any change. We still have 20% of our profits coming from our international operations. We've realized a really strong step-up in our return on funds employed and roughly at 40% is significantly higher compared to 13.9% in the prior year. We obviously also watch the return -- overall return and our return on invested capital, ROIC is sitting at 15.5%, which is a big improvement from 12.9% in the prior year and our ROIC remains comfortably above our group weighted average cost of capital. We're happy to declare an interim dividend of ZAR 3.80, which is up 31% on the prior year dividend of ZAR 2.90, and I hope that as shareholders, you're very happy with the dividend. If I go to the next slide and just talk through our growth strategy. We've made good progress in increasing the scale of our international businesses, PHS remains the #1 washroom business in the U.K. We're in the top 3 in Ireland, and our presence in Spain presents further growth opportunities for PHS. From an FM perspective, Noonan remains the #1 facilities management business in the Republic of Ireland and is now in the top 10 in the U.K. Our recent acquisitions in the U.K. have increased Noonan scale, enabling us now to compete for larger national contracts. We have adequate financial resources to realize our growth ambitions with GBP 370 million of firepower available for acquisitions. And by the way, this is over and above the untapped capacity we have locally. In support of Bidvest International strategy, we will be restructuring our Services division. And this will enable us to provide greater focus and enhanced capacity for the continued successful execution of our offshore growth strategy. So in the slide, effective on the 1st of April 2022, the Services division will be split into 2, Services International and Services South Africa. The Services International division will be headed by Alan Fainman, as the Chief Executive, and this division will solely focus on the offshore growth of our facilities management and hygiene operations and will therefore comprise all FM and hygiene businesses in the group. And these will include from a hygiene perspective or a washroom perspective, PHS and Bidvest Steiner. And then from an FM perspective, the Bidvest Noonan, Bidvest Facilities Management and Bidvest Prestige. Alan and his CFO, Travis who've been in the group for more than 20 years, have been at the helm of the offshore expansion strategy since 2016 having successfully managed the acquisition of Noonan, PHS, [ Access, ] Codan and other smaller offshore businesses. This new division will enable Alan and Trevor to focus exclusively on growing our hygiene and facilities management footprint in other territories across the world. The second division being Services South Africa will be headed by Akona Matsau, as the Chief Executive. This division will focus on the continued growth of our Services operations in South Africa and will comprise the security and aviation cluster, the travel cluster, our airline services cluster and the catering and lounges businesses. Akona has been in Bidvest for 9 years, having joined the group in 2013 as Chief Operating Officer for Customized Solutions and Bidvest Facilities Management. She was later promoted to Chief Sales and Marketing Officer in Bidvest FM and then Akona joined me in 2018 as Group Commercial Executive and was later promoted to the Bidvest [ Expo ] in 2019. Alf Still will join as CFO of the division and Alf has been in the group for 26 years. And over his career in the group, Alf has held many senior roles from General Manager of Finance in Prestige, Divisional Director, Finance in Prestige to CFO of Bidvest Protea Coin and Alf is currently the CFO of the Security and Aviation cluster in the Services division. Given that the restructure is effective 1 April, the year-end results will be reported with Services International and Services SA as 2 separate divisions. And so at the year-end, we will report on 7 operating divisions. I'd like to wish Alan, Trevor, Akona and Alf all the best in their new roles. I'm going to hand over to Mark to take us through the financial highlights.

Thank you, Mpumi, and good afternoon, everyone. As per normal, I'd like to say a special thank you just to all of those involved in producing these results. They are a reflection of a lot of hard work, fortunately, this time around with minimal COVID-19 disruptions. But a big thank you to all the Bidvest teams and their tireless efforts. As Mpumi has already indicated, we're really pleased with these results, not just because of the improvement in earnings, but in the manner in which this growth was attained with all 6 divisions showing strong profit growth in the trading environment, which remains challenging. The new acquisitions overseas have performed well. And organically, the group has continued to grow and expand market share. COVID is now hopefully in the checkout lounge and as many economies beginning to fully open and trade and travel resumes, we're expecting to see improvements coming from that change. The unwind of the result in supply chain constraints over continues to impact and will be with us for a period to come. While there are certainly some things which won't be the same going forward, the adaptability of our businesses and management teams has ensured that we continue as before, despite the changes. To enable further international growth, we've issued the group's first international bond of $800 million, the proceeds of which were used to advance our debt profile and provide for increased M&A capacity. With travel now recommencing, we have reactivated our M&A pipeline. And the pipeline is looking very positive. And we've got a number of exciting opportunities in the U.K., EU, Australia and South Africa. The 4 bolt-ons we concluded in our Noonan FM cluster last year have now been fully integrated into the business and are trading well. They have significantly enhanced Noonan's scale in the U.K. with some national wins being made as a consequence. There are a few disposals in play, but there's nothing material to talk about. The split of the Services division into Services International and Services SA is an exciting development as it creates additional capacity to both drive our international growth ambitions, as well as providing further focus for our South African business. From an accounting perspective, this period, fortunately did not bring any new material IFRS changes. We did, however, account for the hedge accounting for the international bond, which adjustments have been reflected in these results. The bond has been hedged for the entire 5-year duration. This is a backdrop. Let's have a look at the detailed results on Page 8. From a revenue perspective, revenue up 12.9% to ZAR 50.2 billion. It's good to see strong top line growth almost across the division. We've seen double-digit growth which was achieved in Services, Freight and Automotive, while branded products benefited from strong pharmaceutical volumes and good growth across the balance of the division. Commercial Products reduced growth off a high base in the prior year despite some supply chain constraints. Financial Services was impacted by lower net interest income, as well as noninterest revenue. To properly understand the group revenue, though, we do need to unpack the individual divisional performances, which we will do later in the presentation. From a gross income perspective, our gross profit margin is down marginally to 29.6% with improved trading volumes at slightly lower margins. We've seen good margin growth in commercial products and financial services and branded products and automotive appeasingly maintained a stable margin. Margin in freight declined slightly due to the improved trading in BIL with increased contributions from the low-margin disbursement business. And in Services, we've seen a similar decline due to the addition of lower margin Noonan bolt-on acquisitions. In terms of expenses and expenses is always a highlight in a Bidvest presentation. On a gross basis, operating expenses are up 6.8% versus a revenue increase of 12.9%. As a consequence, we've seen an improvement in our expense ratio to 19.8% versus 20.9% last year. We've seen a continued strong focus on cost containment right across the group. This all translates into a trading profit, that's up 24.8% to ZAR 5.1 billion. We're very happy that it reflects double digit growth across all the divisions with good underlying organic growth. The Freight results were helped by strong maize export volumes, improved commodity demand and an LPG contribution, which is obviously annualized now for the full year. Commercial Products benefited from market share gains and good expense management. Branded products was boosted by Adcock's pharmaceutical performance with the balance of the division performing well. Services International delivered excellent results, with SA producing good results on the back of the recovery in travel and hospitality. Financial Services increased on the back of strong investment returns. We're very pleased with the Automotive result, which certainly exceeded expectations, reflecting both market share growth, good contribution from new vehicle sales and excellent margin management. In terms of our other costs, acquisition costs were higher due to the issuance of the bond and the amortization of our acquired customer contracts is broadly flat year-on-year but does include all the acquisitions to date. From a net capital items perspective, pleasing results with capital losses of just ZAR 5 million for the 6 months versus ZAR 134 million loss in the prior year. The prior year did include the disposal of the on-time automotive business in the U.K. From a finance charges perspective, finance charges up 7.7%, including IFRS 16, our fair value adjustments and hedge costs. On a pure borrowing cost basis, the finance costs are up 16.9%, excluding IFRS 16, on the back of higher gross debt levels due to the international bond and a slight step up in our average funding costs. Our funding costs this time last year were up 4.6% and then moved up to 4.7%. But we have maintained a constant EBITDA interest cover ratio, which remains conservative at 9.4x. From a tax perspective, our effective tax rate is 26.8% for the 6 months versus 31.3% from last year, and we benefited from the increased contribution of the international businesses. And while the core tax rate for the group remains, the SA corporate tax rate at 28%, this will drop as the group earnings are obviously impacted by the growth in the international component of the group, which sits in typically lower tax jurisdictions. We do note the recently announced corporate tax rate change for South Africa to 27% effective next year. No material change in noncontrolling interest, that's predominantly the minorities that sit in Adcock. From a HEPS perspective, HEPS continuing operations up 35.3% to ZAR 8.138 and normalized HEPS on which our dividend is base, up 30.9%. Maybe an important point to note here that there were no material COVID-19 costs in the current 6 months. From a dividend perspective, I am very happy to declare an interim dividend of ZAR 3.80, up 31% from ZAR 2.90 last year. This is on a cover ratio of 2.24x, which is in the middle of our policy range of 2 to 2.5x normalized HEPS. Moving now to Slide 10 and our debt and funding. We continue to maintain a very conservative and consistent approach to getting funding. Our net debt after cash and cash equivalents is up to ZAR 15.5 billion from ZAR 13.3 billion, and really, the increase there is a reflection of 2 things. One is obviously the impact of our new international bond and the second is the outflow of working capital, which we'll talk to a little bit later. Very comfortable with our ratios. We're comfortably within both our covenant ratios, EBITDA interest cover, as I mentioned before, at 9.4x, in line with where we were in June. Net debt-to-EBITDA at 1.8x, also in line with June, and this despite the increase in net debt. 83% of our gross debt is now of a long-term nature, and 55% of the debt is fixed -- is a fixed term base, which is really important if we consider the tightening interest cycle that we're now moving into. In July '21, we did report on the replacement of our old euro loan, which has now been replaced with the new offshore syndicated facility of GBP 400 million, and that comprises an RCF of GBP 240 million and a term loan of GBP 160 million. The RCF is fully available. And then in September '21, we successfully raised our maiden international bond of $800 million. It's for a 5-year term at very attractive fixed rates. The bond proceeds have been used to enhance our group's debt profile by creating more capacity, longer maturity and more fixed rate debt. We believe that we've got more than adequate funding facilities both offshore with capacity for M&A of GBP 372 million. And then locally, in SA in excess of ZAR 17 billion. In terms of our interest cover graph, the graph continues to demonstrate the stability of our interest cover over time, it's been consistent over the last few years. And the increase that you can see there in the net debt is a function of the international bond, which has obviously created additional M&A capacity. In terms of our maturity profile, the maturity profile has extended, and that's obviously benefiting now from the international bond, and there are no material maturities in the near term. The RCF term loan maturity that's reflected in 2025 has to further -- or has a further 2-year extension option, and we've got a relatively balanced domestic maturity profile. Lastly, moving to cash flow. And cash flow is always a -- it's a specific business focus that comes up at all our presentations. I think we're very happy with the revision back to pre-COVID cash flows, and this mirrors the improved trading environment. You'll see cash generated by operations before working capital up to ZAR 6.6 billion versus ZAR 5.9 billion in the prior year. We have seen some working capital absorption of ZAR 2.6 billion, which we did signal at the last results announcement. And that's versus a release in the prior year of ZAR 0.3 billion, driven mainly by an increase in inventory and an increase in our debtors book, very comfortable with both of those because the overall quality of our inventory and our debtors book has improved in both cases. Accounts payable has been impacted, and it's reduced a little bit by the COVID-19 supply chain delays. Our CapEx spend continues in South Africa back at pre-COVID levels. Our free cash flow at ZAR 2 billion versus ZAR 6.4 billion in the prior year reflects the working capital absorption of ZAR 2.6 billion and is ahead of the pre-COVID comparison of ZAR 1.8 billion. Growth of funding overall of ZAR 3.4 billion is largely reflective of the impact of the international bond. In terms of the cash generation graph, half year 1, again, reflects the resumption of our normal cash flow and working capital cycle for the group with a predicted absorption of working capital taking place. We've seen good working capital management across all the divisions. This translates into a cash conversion of 51%. And while this is off the prior year figure of 123%, is back in line with our pre-COVID position of 60%. So comfortable that the absorption of working capital reflects the normal trading position of the group. Just some final computing thoughts. It's very encouraging to see people starting to come back to work, especially in the financial services sector, and this will certainly present an opportunity for growth going forward. Travel and hospitality is starting to pick up again and our forward-looking international bookings are positive. Our financial position is strong with good capacity for growth, both locally and offshore. And we're actively engaged in seeking new acquisition opportunities. Thank you. Mpumi?

Thanks, Mark. We're going to move to the operational updates, and I'm going to start with the Services division, and that's on Slide 13. So Services revenue at ZAR 17.6 billion is up 26%. Trading profit of ZAR 2 billion, up 19%. Trading margins slightly down from 12% in the prior year to 11.4% and an excellent ROFE performance at 228% compared to a prior year of 210%. The Services teams really delivered an excellent performance for the 6 months. The offshore operations delivered an outstanding result with Noonan's performance boosted by strong organic growth in Ireland, successful integration of acquisitions in both Ireland and the U.K. and the portfolios in Noonan in the U.K. that were negatively impacted by the closure of cinemas and the partially open HORECA sector in the prior year are gaining momentum. PHS realized good top line growth and hygiene pool growth continues unabated. Over and above this good growth in the washroom business, the Clinical, Floorcare and Offensive businesses are also showing good growth. From a South African perspective, our businesses delivered a strong result. The security cluster was boosted by good performances from Bidvest Protea Coin, [indiscernible], GPT and ClickOn. The facilities management cluster delivered a solid result. And it was also hardening to see the travel cluster's strong recovery from residual COVID restrictions. And I think I must just contextualize that the strong recovery is really based on domestic demand. That's come back nicely. And we are still wanting a better return from an international volume perspective. The Allied cluster delivered an excellent result off the back of improved office and hotel occupancies. 52% of the division's profits are offshore. We have a healthy pipeline of acquisitions, both locally and internationally, and these opportunities are being actively pursued. Investor Services division, if I move to branded products. Revenue at ZAR 9.6 billion is up 8%. Trading profit at ZAR 1 billion is up 24%. The trading margin up from 9.1% in the prior year to 10.4% and an excellent ROFE performance at 31.4% compared to a prior year of 26.7%. The Branded Products team really delivered a superb set of results. The excellent performance by Adcock Ingram was driven by improved demand for over-the-counter and consumer health products, good turnover, coupled with improvements in the exchange rate, manufacturing efficiencies, and this is specifically good recoveries in our Clayville factory, cost control, all of this resulted in an exceptional increase in trading profit and excellent cash conversion. On a like-for-like basis, all business units in Adcock produced double digit revenue growth. Our strategy of growing the nonregulated portfolio in the business is working and the consumer business, which 3 years ago, was the smallest business unit is now the largest profit contributor in Adcock. The data, print and packaging cluster delivered an excellent performance, driven by good demand for e-commerce, food packaging, printing, mobile computing and barcoding solutions. Growth in the office product cluster was boosted by a normalized back to school season. You'll recall that for the last 2 years, back-to-school has been disrupted with calendars for schools being changed consistently. Hopefully, we're now back to a more normalized cycle, and we've seen this benefit come through our stationary businesses. We've also seen an acceleration in sales in our office automation business. Whilst the Consumer Products cluster also performed well, we are very cognizant of the pressure on disposable income, and this is evident from consumer buydowns. Overall, we're seeing good market share gains across various parts of this division, and we expect these to continue. If I go to the next division, and that's Freight. Revenue at ZAR 3.9 billion is up 16%. Trading profit at ZAR 834 million is up 29%. The trading margin has improved from 19% in the prior year to 21.2% and another fantastic ROFE performance at 43.6% versus 31.2% in the prior year. The Freight team delivered an outstanding result driven by increased organic growth, six months contribution from the LPG terminal, a good maize crop, mineral cargoes handled and a turnaround in Bidvest International logistics. If I start with BIL, growth was due to improved trading and continued volume supply through the Chinese New Year. Maize exports of 1.3 million tons in SABT increased by a whooping 117% compared to the same period in the prior year. Over and above, the LPG terminal contribution, Bidvest tank terminals also benefited from annual rate increases, while revenue from excess handling and nitrogen was lower due to reduced chemical and vegetable oil volumes. Bidvest port operations delivered good growth, benefiting from bulk volumes in Durban, manganese and fruit volumes in Port Elizabeth and unexpected cargoes in Richards Bay Port. Revenue pressures were evident though at bulk connections, and these are primarily driven by the softening of commodity prices. The global container shortage and high freight rates continue to impact volumes in Bidvest SACD and Manica, our operation in Namibia, and these supply chain disruptions are anticipated to continue for the next 12 months. Naval's excellent performance was boosted by volumes of increased size coal in the Maputo port. Constructive engagements with Transnet continue and the ZAR 500 million investment in the LPG terminal in Isando has been approved. I must though emphasize that relevant availability and efficiency is a key dependency for this terminal. That covers the freight division. Moving to Commercial Products. Revenue at ZAR 7.2 billion is up 3%. Trading profit at ZAR 619 million is up 25%. The trading margin has improved from 7.1% in the prior year to 8.6%. And again, another fantastic ROFE performance at 33.2%, up from 26.7% in the prior year. The Commercial Products team delivered an exceptional result for the 6 months. This division continues to focus on margin and expense management, which are key to their overall success. The 3% revenue increase must be contextualized because it does look softer when you compare it with the other divisions. And this must be seen in the context of the first quarter of the 2021 financial year when market demand was very strong, coming out of a hard lockdown and customers were rebalancing their inventory levels. This resulted in significant revenue generated in the prior year, not repeated in the current period. Excellent operating leverage improved gross margin and trading profit by 2% and 25%, respectively. Solid results were delivered by the trade, DIY tools and workwear, leisure and warehousing clusters. These results were driven by the opening of 9 new Plumblink stores, excellent margin and expense management in the electrical cluster, large CapEx sales and cutting machine orders, a strong agricultural and online activity across the rest of the businesses. Excellent profit growth was reported by Plumblink, Electrical, Matus, G Fox, Yamaha, Motoquip, Afcom and Bidvest Materials Handling and delivered a standout trading profit performance. Stock on hand continues to be a key differentiator for this division. And given the continued supply chain constraints, a significant investment in inventory resulted in higher funds employed. Notwithstanding this increase in funds employed, ROFE continues to improve at an impressive 33%. I'm going to move to the Automotive division. Revenue in the Automotive division at ZAR 11.7 billion is up 10%. Trading profit of ZAR 372 million is up 15%, trading margin up from 3% in the prior year to 3.2%. And again, another excellent ROFE performance at 45.3% compared to a prior year of 54.4%. The Automotive team reported a remarkable result. This is really an extraordinary performance, considering the global supply chain disruptions and insufficient availability of new and used vehicles. In addition to these disruptions, we've also had other several domestic shocks that this team had to contend with, which also included a 3-week strike in the steel and engineering sector, record fuel prices and the first interest rate increase in 3 years. New vehicle sales increased despite the regular supply of new vehicle stock, resulting in market share gains. McCarthy outperformed the new vehicle dealer markets, year-on-year volume increase of 4.7% with a fantastic growth of 9.9%. Used vehicle units. Our unit sales were down year-on-year. The shortage of new vehicle stock placed enormous pressure on the used vehicle market with fewer used vehicle trade-ins and car hire businesses and able to rotate their aging fleet as per normal. Gross profit margins on both new and used vehicle sales improved. After sales activity was marginally up with a good result from the panel business. ROFE improved significantly to record levels of 45% on the back of a decline in funds employed attributable to the severe stock shortages. Lastly, I'll move to the Financial Services division. Revenue at ZAR 1.2 billion is down 6%. Trading profit of ZAR 200 million is up 20%, trading margin up from 12.7% to 16.2% and ROFE at 11.5% is up from 9.2%. The Financial Services team continues to face a really challenging path to recovery. Subdued demand is really the major obstacle facing Bidvest Bank, in particular. The exceptional divisional trading profit growth was owed to a fantastic equity portfolio performance. The main contributor to the bank's weak result is the decline in the loan book due to a runoff on personal and business banking lending, increased impairments and the defleeting of large contracts. Noninterest income was negatively impacted by lower leasing income, reduced foreign exchange fees due to continued lockdown restrictions and lower wholesale notes. On a positive note, the bank's balance sheet remains strong and liquid, and the bank remains adequately capitalized. Deposits remained broadly in line year-on-year, but investment securities are significantly up due to additional investments in treasury bills. Loans and advances continue to decline with the runoff of the book exceeding new business, and this is really [indiscernible] the bank. Bidvest insurance's top line growth is reflected mainly in the FMI business due to strong new business sales Compendium reported good organic growth, and this was enhanced by the CIB acquisition, which is effective November 2020. The improvement in ROFE to 11.5% whilst positive remains significantly below expected return levels. That takes me to the next slide, which is Corporate & Properties. And on Slide 19. The property industry has been under severe pressure from both an earnings and a capital value perspective. Notwithstanding this, we are pleased with the performance of the portfolio, maintaining trading profit in line with prior year at ZAR 275 million. At the end of December, the property portfolio comprised 130 properties valued at approximately ZAR 8 billion, well below the net book value of ZAR 3.8 billion. In terms of corporate office expenses, these remain well controlled. If I go to the strategy and outlook and just touch on the group growth strategy, our portfolio selection criteria remains unchanged. We will continue to invest in the blend of defensive cyclical and growth assets, both -- in South Africa. Our return metrics are predetermined by business and monitor it on a continuous basis. At a group level, ROFE remains a key operating metric for us. This is a performance metric all the way from myself as the Chief Executive, all the way down to a branch manager in the region, it remains a core operating metric for us and it works. And at the same time, we continue to consider the spread between the group's ROIC and our WACC. Acquisitive growth remains top of mind, and South Africa will continue to invest in complementary assets that add value to our existing product and service offering, and we'll also continue to deploy capital in long-dated infrastructure projects in our Freight division. Our offshore acquisition strategy remains focused on only 3 business models. We've got no intention of duplicating Bidvest as it is in -- South Africa and other territories were only growing 3 focused areas, facilities management, hygiene services and plumbing and related wholesaling. We've made progress and have acquisitions in the FM and hygiene space. We continue to look for targets in the plumbing space. We're not going to rush it. We are looking for a very bespoke model from a planning perspective and will take our time. Organic growth continues to be the engine that drives the business, and we're targeting organic growth ahead of the market. Our focus on creating long-term value for all stakeholders remains a key priority. In closing out, just on the outlook. Notwithstanding the geopolitics that we're all looking at and watching at the moment, we remain bullish about the second half of the financial year, and we've identified the following green sheets and opportunities. Increased infrastructure spend, mainly in the private sector, we are seeing building plans for major projects being approved and our teams are prepared and ready to take full advantage of this infrastructure growth. We expect the uptick we already seen in renewable and alternative energy projects to continue and not only just over the next 6 months but for the remainder of the calendar year. Mining expansion and upgrades have and will continue to provide a myriad of opportunities for us. In the industrial sector, we are waiting for client upgrades with some of our key clients. In the agricultural sector, the sector continues to grow. And similar to mining, the sector will create several new business opportunities. COVID has and continues to accelerate activity in the online and e-commerce space and our businesses are well positioned to benefit from this growth. We are seeing increased volumes and office occupancies as clients implement mandatory vaccination policies. We've been waiting for this for the last 2 years. It's now happening. It's great to see, and our businesses will benefit from this increased occupancy levels. And then, of course, we're [indiscernible] in the middle of a record export maize season, and this is expected to continue into the second half of the year. Just to outline some of the key dependencies and sensitivities that we will be managing over the next 6 months. Firstly, inflation. We are operating now in a high inflation environment both in South Africa and in our offshore operations, and this is something that we're actively managing. The impact of COVID variants and in particular the impact of the variants on international travel volumes. So we're not worried about the impact of COVID in general. Our businesses have a handle. We are operating with COVID. It's not even a conversation. It's just the variants that are creating a sensitivity that we can't control. We would have seen the overreaction to Omicron in December. And so the variants are really what we're looking out for and the impact of that on international travel volumes. From an import and an export perspective, the overall supply chain remains disrupted. What is good to see, though, is that in the first half of the year, the supply chain has not deteriorated. But certainly, we don't expect any material change in the supply chain over the next 12 months. And then government infrastructure. We desperately, desperately need this. In the budget speech, the Minister of Finance, you referred to ZAR 17.5 billion that had been allocated over the MTF for infrastructure projects. We need to see the spend coming through. The minister also alluded to a center of excellence for PPPs. We are ready for public private partnerships. We want to coinvest. We just need these processes to be efficient. And of course, I mean, the global geopolitics, we must expect a spike in fuel prices. This will feed into inflation even further. And so this is an area that we're also looking at. Overall, our businesses are lean. We're structured for growth, and we should comfortably be able to take on more new business without significantly increasing costs. I'd like to thank the Exco team and their extended management teams for delivering a truly spectacular half year result. It's really amazing to see what we can achieve when our management teams through more than 100,000 people are focused, aligned and cohesive. The energy levels in the businesses are up, prospect up right, and we look forward to another solid second 6 months. This is what we mean when we say proudly, but best. Thank you very much.

Thank you, Mpumi. Thanks for those comments. With passion delivered by the team. Irene maybe you can explain and remind the participants on how to ask questions. I do have some questions already loaded via [indiscernible] but maybe let me hand it over to you before we start with Q&A.

[Operator Instructions] We have a question from Roy Campbell of RMB Morgan Stanley.

Can you hear me?

Yes, we can. If you just speak up a little bit, that would be helpful.

Yes. Okay. Sorry, I was just disconnected, something. All right. So just a couple of questions on the cash flow, please. Number one, the acquisition through the cash flow, does that relate just to the prior year acquisitions made? And then secondly, just on -- your thoughts on working capital and CapEx into the second half. So the thing Mark said that your working capital now reflects normality. Does that mean that there shouldn't be any more absorption in the second half?

Roy, no problem. So no, that the acquisitions that are reflected here were just bolt-ons that were done in the current 6-month period. The ones that we've done last year were reflected in the last year period. And then just in terms of working capital, so I mean our typical cycle is absorption in the first 6 months and release in the second has been that way for a very, very long period, [indiscernible] pre-COVID. And so we're expecting a release of working capital in the second 6 months of this year. And CapEx is back to our normal level. I mean we expect roughly ZAR 1 billion to ZAR 1.5 billion a year. We're at ZAR 1 billion now with a little bit of catch-up from pre-COVID, I'm very happy with that level [ is lying ].

Okay. Sorry, just one more question. Just inflation in the labor market in the U.K. Are you able to pass that on to your clients?

Yes. So Roy, I mean if you think about the way that our contracts are structured, so from a facilities management perspective, we recover from our plants inflation plus wages. I mean, that's really the main aspects of recovery. And so we're very comfortable. We've always had those types of conversations, and that's exactly what the teams will be focusing on in the U.K.

Well, some participants queue the questions. If we go to the website for some questions from Paul Steegers. We have the -- please, can you quantify the revenue from noncontractual COVID work? And is this a much higher margin and how quickly will it taper off. [indiscernible] clearly sits within where everything is free and open nowadays.

I mean the exact COVID number is quite difficult, Paul, as you can imagine, to pull out. Is it a higher margin? Yes, it is. And will it terminate quite quickly? Yes, it will. And I think we've had some indications, particularly in the U.K. environment where I think the -- you're going to see an absolute stop with the stop free testing. I think it's from 1 March -- was it April 1? April 1. So I think you're going to see a very hard line in the U.K. South Africa, I think, is a to-be confirmed point. I think we're all hoping that middle of March is going to be kind of the end date, and then we'll see that ease off very fast thereafter. So the expectation is certainly for Q4 of this year that we will see very little COVID work. Obviously, we're optimistic that there's lots of other new work that's coming through the system that will be replacing that, albeit at lower margin, and we'll have to manage the increase of new work versus the drop off of COVID.

Thank you, Mark. Maybe while we're on the topic of PHS and some of that work, there's also a question of how is the business progressing and introducing more services in the bathrooms. So owning that barroom as we've previously spoken about and the bulk buying initiatives together with Steiner in PHS environment. Mpumi?

So from a bulk buying perspective, the teams have identified, I think, it's probably their first 2 or 3 product lines in terms of bulk buying, and they've started with that. Obviously, putting that kind of project on steroids really just requires us to be able to move and travel freely, but that exercise has definitely started. And then in terms of owning the bathroom, the team is looking at that. In fact, they've got a new Sales Director who's come on, they have reviewed their sales strategy. They are definitely focused on cost buying and also upselling within the washroom. So that is what progress.

Thank you, Mpumi. And maybe, well, let's sort of elevate this a little bit. The question is, can you please update the audience on the Durbin port, I suppose other master plans and your discussions with Tansnet. These are -- you just spoke about PPPs, how does business play in this space and assist the country?

Yes. So I mean, our discussions with Transnet continue, and I must say that the discussions have been very positive. Transnet is very accessible, and we're able to have the kind of hard on these conversations around there may be ambitions from a Durban Port Master Plan perspective, but we also need to balance that out with the requirement of the country. One of the good progress that we have made is that initially on the first draft of the master plan, essentially our tank terminal operations and our grain terminals were going to be displaced based on draft one that's been reviewed and the deepening of the berth will no longer take place. So that's great for us. We no longer have that risk from a BTT and SAPT perspective. We are having discussions -- other discussions with Tansnet at the moment, potentially around a reallocation of our footprint. It is still quite confidential, so I'm not able to disclose any further details. But so far as to say that we're having good conversations, and we think we're making good progress so far.

Thank you, Mpumi. Maybe let's go to the lines. I think Kgosi from Citi, you had a question.

Kgosi, you can go ahead with your questions.