Good day, ladies and gentlemen, and welcome to the Bidvest Annual Results. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star then zero. Please note that this call is being recorded. I would now like to turn the conference over to Ilze Roux. Please go ahead, ma'am.
Thank you very much. Good morning, good afternoon, everyone. My name is Ilze Roux. I'm the corporate affairs executive, and I have the pleasure of welcoming you onto the call today. In the room with me, I've got Mpumi Madisa, Group CEO, Mark Steyn, Group CFO, and Gillian McMahon, one of our executive directors. Thank you for your interest in Bidvest. We are proud of these results that we are reporting today. They reflect the attributes that the group is best known and recognized for: consistent growth, high cash quality, and value-creating returns. It is also equally pleasing that we are able to continue creating social value and mutual benefit for all our societies and for those that rely on us and who support us. As is customary, Mpumi will make some high-level remarks before Mark delves deeper into the numbers.
Mpumi will then follow with detailed review of each division's performance and close with our value proposition and outlook. There will be an opportunity to ask questions at the end of the session. Without further delay, I hand over to Mpumi.
Thank you very much, Ilse. And good morning, everybody, and thank you very much for joining us. The group delivered a solid financial result, supported by a focus on innovation and technology, excellent M&A execution, and key long-term decisions that position the group for future growth. Some of the characteristics of this year's results are as follows: Five divisions delivered strong trading profit growth, with four reporting excellent double-digit profit increases.
On the M&A side, this time last year, in the prospect section of the SENS announcement, we said the following: "The group's acquisition pipeline is exciting and readily executable." And so we're very proud to report that we've executed as promised. We've concluded 11 transactions in the period, and the impact of these transactions is as follows: firstly, we've doubled our footprint in Australia through the acquisition of Consolidated Property Services.
Secondly, we've made our maiden entry in hygiene services in the Asia Pacific market with the acquisition of Rental Hygiene Services in Singapore. Thirdly, we've added scale to our offshore facilities management and hygiene operations through the acquisition of Robinson Services in Northern Ireland, OSS in Dublin, Principal Hygiene and Synergy Washrooms in the U.K., and Pure Hygiene in Australia. In South Africa, we've diversified our portfolio and expanded our service and product offering with the acquisitions of Interlock Freight Services, Green Home, Brandability, and Roan Systems. Staying on capital deployment for growth, we deployed almost ZAR 1 billion in growth CapEx, and this resulted in the commissioning of the butane spheres in the Port of Richards Bay in October 2023, and the multipurpose tanks, also in Richards Bay, were commissioned post-year end in July 2024.
Parallel to all the above, we also conducted a portfolio review, a process that is a norm in Bidvest. We reflected on the current makeup of the group, we mapped out scenarios on how we can sharpen our growth focus, both locally and offshore, and we assessed what the most optimal future capital allocation should be. The result of this process was a decision to exit the banking industry and therefore commence a sale for Bidvest Bank and FinGlobal. This decision wasn't taken lightly. If you look at the financial services result, you'll see that the team has executed the turnaround strategy well. So we are not making this decision in an operating down cycle.
In fact, the cadence in the business is on an upward trajectory, but we firmly believe that in order for Bidvest Bank to leapfrog in a fast-changing, highly competitive, technology-driven financial services industry, this business needs dedicated financial services ownership. And so we're solving for a better home for this business and a better streamlined and focused product and service offering in Bidvest. These financial results are coupled with a similar strong focus on creating social value, and this is reflected in the following areas: We created 5,841 new jobs in the period. We invested ZAR 740 million in various training and development programs for our staff. We spent ZAR 71 million on projects that contribute to community development. And on the sustainability side, we reduced group water intensity by 43% and emission intensity by 39%.
As I close out this reflection slide, I want to congratulate the Team South Africa athletes who've just returned from the 2024 Paris Olympics. As the main sponsor of Team SA, we are exceptionally proud of the team's performance and are keenly watching our Paralympic athletes and we wish them all the best. Moving to the results highlights. Group revenue at ZAR 122.6 billion is up 6.7%, with acquisitions contributing 2.9% to the top line. Gross margin declined to 28.4% from 29%, mainly due to higher distribution costs, higher wage inflation, and rand weakness. Expense control across the board was outstanding, with the OpEx line increasing only 2.4% and excluding acquisitions, the expense increases a mere 0.8%.
Our culture of controlling the controllables translated into excellent operating leverage, where a 6.7% revenue increase translated into an 8.5% trading profit growth at ZAR 12.4 billion. The trading margin also improved slightly to 10.1%. As indicated earlier, five of the seven divisions reported profit growth, and our offshore operations now account for 22% of profits, compared to 20% in the prior year. Cash generated by operations at ZAR 14 billion is strong and is up 15% year on year, and cash conversion at 83.4% is excellent and compares to 76.4% prior year. Our balance sheets remain strong, and we're very pleased to have kept our net debt EBITDA ratio unchanged at 1.7x , notwithstanding the additional capital deployments on acquisition and growth CapEx.
Returns remain well ahead of our weighted average cost of capital, with ROFE at 37.3% and ROIC at 16.1%, is 510 basis points above the group WACC. Headline earnings per share is up 6.6%, and we're pleased to declare a dividend, a final dividend of ZAR 4.47 per share. This brings the total dividend for the year to ZAR 9.14 per share, up 4.3%, in line with the increase in normalized HEPS. At this point, I'd like to hand over to Mark for the financial overview.
Thank you, Mpumi, and good afternoon, everyone. As per normal, just a quick thank you to everyone who prepared these results. We really appreciate the effort of all our employees and service providers who are responsible for the high quality of financial reporting across the group. Mpumi has indicated we're very happy with these, with this set of results, especially given the context in which they were achieved. The second half of the year was certainly more challenging, particularly in the renewables and automotive sectors. The remaining businesses, however, stepped up and helped produce a good balanced set of results across all spheres of trading, cash generation, and balance sheet strength. Organic growth was enhanced by M&A, and very pleasing cost control helped to achieve strong operating leverage. Our year-end working capital outflow is consistent with the prior year, but has reduced nicely.
Generally, the growth in inventory is in line with our revenue performance, with the exception of renewables in commercial products, following reduced load shedding and lower new vehicle volumes in automotive. Both are receiving specific attention. Trade payables have reduced, reflecting the additional inventory held beyond our normal credit terms. The cash performance was very pleasing, with good cash generation over the year. While there's been limited domestic funding activity this year, the two bond issues that were done both were achieved at improved spreads. In terms of, well, from an international perspective, we've extended the tenure of the syndicated euro loan by a further year, and there'll be no other changes in our international funding lines. We have good debt capacity, both internationally and locally, which is sufficient for the potential M&A pipeline.
Our net debt to EBITDA, as Mpumi referrenced , has been maintained despite the M&A and CapEx investments. As reported at half year, we've amended our debt mix to be overweight on variable interest rate debt in anticipation of rates starting to come off. This has started to materialize now for our offshore debt, and we're hopeful that in South Africa, this will commence with the rate reductions in September. The growth in the underlying net debt base, together with higher average interest rates and a weaker rand, have increased our interest costs, although this has certainly moderated since half year. This year has seen good M&A progress, with 11 new acquisitions now accounted for. This includes Consolidated in Australia and RHS in Singapore, and the balance of the acquisitions are a nice mix of smaller bolt-ons, both internationally and domestically.
Our pipeline continues to look very positive, and post-year end, we've closed a further three bolt-ons. We also issued a SENS for the potential acquisition of Citron, which is a hygiene services business based in Canada, the U.S., and the U.K. This acquisition is subject, though, to U.K. CMA approval, which is currently underway. In terms of disposals, also post year-end, Mpumi referenced that we'd obtained approval from the board and the regulator to commence the sale of Bidvest Bank and FinGlobal, and there's been a lot of interest in this transaction. From an accounting perspective, not a lot to talk about. IFRS 17 didn't have a material impact on the group as a whole, as it pertains mainly to Bidvest Life, which is currently reflected as a disposal group.
With this as a backdrop, let's have a look now at the income statement and the more detailed results. Our revenue up 6.7% to ZAR 122.6 billion. Within that mix, we've had double-digit revenue growth in three divisions: Services International, Services SA, and Branded Products. We've had moderate growth out of Freight and Adcock. We have seen product mix and gross margin pressure in commercial products and automotive, with a slowdown in renewable and vehicle sales. Our acquisitions provided an extra 290 basis points in growth. But we'll unpack the more detailed division results later in this presentation. In terms of our gross income, our gross profit is up 4.6%.
However, our gross margin has fallen 60 basis points to 28.4%, and this is largely consistent with what we saw at half year. The gross margin impacted by higher raw material prices, as well as wage rate inflation, which is prevalent in all our jurisdictions, together with some rand weakness and higher distribution costs. We managed to bring this back, though, with some exceptional, I think, expense performance. It's very pleasing. Operating expense is up 2.4% versus a revenue increase of 6.7, and operating expense increase on an organic basis, just 0.8%.
The normal inflationary pressures were moderated by some business restructuring and rationalization, reduced overtime and reduced load-shedding related costs, particularly in the second half of the year, and then our ECL provisions were also lower off the back of a stronger debtors book. Our expense ratios improved to 18.7% versus 19.5% last year. There remains a keen focus on cost, cost containment right across the group, which is a key feature of these results. From a trading profit perspective, overall trading profit up 8.5% to ZAR 12.4 billion, with positive operating leverage generated by the expense control. Underlying organic growth of 4.6% was achieved. The second half of the year saw a slowdown, particularly in the lead up to the SA national elections, however, trading results have subsequently improved.
In terms of the division, divisions, branded products and services, SA were outstanding. In branded products, office products and office automation were particularly strong, supported by packaging and consumer products. From a travel perspective, we've seen a resurgence in travel that's also helped our lounges business. And we've seen security and the sale of consumables into the office environment being very strong. Services International also produced strong results, supported by continued strategic M&A, which has created an enhanced geographic representation and a broader service offering. Our freight business produced a good result off a very high prior year base. Volumes through the ports saw growth, particularly in liquids and the oil and gas logistics sector. Our maize volumes, especially in the second half, were significantly reduced relative to last year.
The turnaround, which commenced in our financial services division last year, continued with improved capital deployment, interest growth, and very good cost containment. While commercial products results were down, this is largely a function of the reduction in load shedding and the commensurate reduction in renewable sales. This was specifically noticeable in the second half of the year, but while the balance of the business produced double-digit growth. Automotive's profits contracted materially, as certain traditional OEMs came under pressure from growing Chinese and Indian brands, as well as a significant contraction in operating margins on both new and used vehicles. The Adcock business, and the results of those have already obviously been announced, was pleasingly up 5% on the year. Mpumi has already referenced our HEPS results being up 6.6%, and normalized HEPS up 4.3%.
It's given us a final dividend for the year of 447 cents, and a total dividend for the year of 914 cents, up 4.3%, in line with the growth in the normalized HEPS. Just in terms of our cover ratio, it gives a total cover ratio for the year of 2.15x , which is within the range of 2 to 2.5x normalized HEPS, and in line with what we did this time last year. Moving now to our funding. We continue to maintain a conservative and consistent approach to funding. We hold 63% of our gross debt offshore, and 64% of our net debt, and 81% of our gross debt is of a long-term nature.
Importantly, 54% of our gross debt is now at variable rates, obviously in anticipation of future interest rate cuts, and this compares to 44% in the prior year. Our gross debt is up to ZAR 31.8 billion, up ZAR 3.4 billion, driven by acquisitions of ZAR 3.3 billion, and the investment in working capital of ZAR 2.1 billion. Net debt, after cash and cash equivalents, is up ZAR 3.6 billion to ZAR 22.7 billion. We are well within our covenants. Our net debt to EBITDA, 1.7x , is equivalent to last year's 1.7x . Very happy with that result, given the amount of investment that has taken place, both from a CapEx and from an M&A perspective in the current year.
That ratio was impacted by an additional 0.1x just from the Forex impact. Offshore, the net debt to EBITDA in hard currency is at 4.8x after the CPS and RHS acquisitions. This compares to 4.7x last year, so largely unchanged. The reference point, I guess, at half year was 5.3x there, directly after those two acquisitions, and we've brought it back nicely in the second six months. Domestically, the net debt to EBITDA ratio is at 0.8x . Our average cost of debt is 6.5% pre-tax, which is up 110 basis points from last year, impacted by the growth in the underlying gross debt, the movement in the base rates, and some Forex weakness.
Our EBITDA interest cover is at 7x , compared to 8.2x last year, very comfortably in excess of our covenant of 3.5x , obviously impacted by higher underlying net debt levels and the higher interest rates. The debt maturity profile is good, and there are no sizable maturities in the near term. We continue to monitor the larger international maturities in the context of the interest rate cycle and our M&A pipeline. Moving to our capital structure. This is a new slide in the deck. I think what we wanted to do here is we wanted to demonstrate that there's an ongoing and a deliberate process to create and maintain funding capacity.
In the current year, we've extended the maturity of our offshore syndicated RCF term loan facility by a further year, and we have one further year, one further option extension, if you like, on that. We've upsized our domestic bonds with two issuances, both achieved at improved spreads. We've extended the maturity profile of the domestic bond program, and we have a very definite plan in place in terms of the Eurobond refinancing. In terms of M&A funding capacity, we have EUR 395 million in funding capacity available offshore. That's via the RCF, and a further ZAR 16 billion available domestically. There's more than sufficient funding capacity in play for the M&A pipeline. We've added in three additional graphs this year into the presentation.
The graph on the bottom left reflects just how we've been able to manage our base funding costs below the market move over the last three years. The second graph demonstrates just how we've expanded the overall debt mix and how we are now maintaining that. The last one, more importantly, demonstrates the higher cash conversion that we have in our international businesses. That's important because it's a big strategic focus from an investment perspective. So even though it's sitting at an elevated level relative to our domestic net debt to EBITDA, what we're able to do is once you do those investments and you push that ratio up, you're able to bring it down quite nicely.
As an example, this ratio was at 5.3x at half year after CPS and RHS, now back down to 4.8x . So a nice move in the right direction. In terms of our cash generation and cash flow, it's always a highlight, I think, of the Bidvest presentation. I think we're quite proud of it. Cash flow this year has been good, particularly in the second half of the year. Underlying cash generated by operations before working capital is up 8.9% to ZAR 16.1 billion. Over the year, we've invested ZAR 2.1 billion in working capital with a seasonal outflow of ZAR 4.6 billion in the first half, followed by a release of ZAR 2.5 billion in the second half.
How this is made up, our inventory growth was ZAR 0.7 billion, predominantly in consumer products, automotive and branded products. The growth in consumer products, commercial products rather, largely reflects additional renewable stock following lower levels of load shedding, particularly in the second half of the year. The automotive business remains under pressure, and we've seen a material slowdown in both the new and used sales volumes. This has caused a buildup in inventory, which has been further impacted by a strong volume push from various OEMs. Overall, while our stock days have moved out, we're comfortable with the quality and the salability of the stock. Debtors are up marginally at zero point.
By ZAR 0.1 billion, off the back of better trading in Q4, and then good collections in a number of the divisions, and the underlying book is in good shape with consistent overall aging. And then our creditors have decreased following the lower inventory procurement in Q4. Our cash conversion is up at 83.4% versus 76.4% last year. So that's a very nice improvement. And then our free cash flow at ZAR 8.9 billion is up 20.3% on last year. The cash generation graph reflected here just shows the seasonal cash inflow, which is consistent with the normal group's working capital cycle, and that our operating cash generation remains strong. Moving now to the balance sheet.
We've seen CapEx spend for the year increase to ZAR 3.5 billion, versus ZAR 3.4 billion last year. We've maintained our asset base and invested further in PPE, in freight, and rental assets in Bidvest South Africa and financial services. From a freight perspective, we have a number of capital projects underway to expand capacity, and the repurpose of the butane spheres in BTT has now been commissioned. Our mergers and acquisitions activity have heightened in the year, with 11 transactions now accounted for, and our spend of ZAR 3.3 billion largely represents Consolidated in Australia and RHS and Singapore, and a myriad of smaller bolt-ons. We have a nice pipeline which we are actively pursuing. As I probably mentioned earlier, post-year-end, we've made the decision to dispose of Bidvest Bank and FinGlobal.
This process has commenced with understandably significant interest. The process, though, will take some time, as there are a number of independent regulators involved. Just some final concluding thoughts. This year has been a period of very active management, and a number of key strategic calls have been made, especially in the automotive and financial services divisions. These decisions will position the group well going forward. The diversified nature of the group cannot be underestimated and has been a key enabler for these results. Again, our ability to be able to proactively manage and maintain margins and limit expense increases has stood us in good stead. And lastly, geographically, we're making steady progress, and our international revenues now represent almost a quarter of the group. This will remain a key focus area. Thank you.
Thank you very much, Mark. I'll move into the operational reviews, and we'll start with Services International. The team delivered an excellent result, with profits roughly split equally between hygiene and facilities management services. Revenue at ZAR 39.4 billion is up 18.8%. Organic growth of 10.6% was driven by strong new business and continued hygiene pool growth. The following acquisitions contributed to the top line. On the facilities management side, Consolidated Property Services, Robinson Services, and on the hygiene side, Rental Hygiene Services, Pure Hygiene, Principal Hygiene, and Synergy Washrooms. Gross margin is slightly down due to high wage increases across all territories, the restructured contracts in South Africa, and lower office occupancies in Australia. The above inflation expense increase was driven primarily by the consolidation of costs from the acquisition.
Trading profit at ZAR 3.8 billion is 12.4% up, an excellent result from the team. The trading margin at 9.6% is down from 10% in the prior year, and this is due to the growth margin reduction I referred to earlier. Cash conversion at 99.9% is outstanding, and ROFE at 133% is an excellent return. Turning to the operations, 73% of profits in the division are generated offshore. The FM businesses delivered a strong result, driven by good new business wins, and the acquisitions referenced earlier made their maiden contribution to the cluster. In Australia, the integration of BIC and Consolidated is underway. The hygiene businesses delivered an excellent result, driven by continued strong hygiene pool growth, new business wins, and the various hygiene acquisitions made their maiden contribution.
We now have a hygiene footprint in Asia and look forward to growing our Singapore operations. We've completed the due diligence on Citron. We announced this potential acquisition in July. Our CMA submission has been filed, and so now we await the regulatory process to conclude. The overall acquisition activity in this division has been outstanding, and this team, over and above running the operations meticulously, has been flying between South Africa, U.K., Ireland, Australia, Singapore, Canada, U.S., multiple times, and I really want to acknowledge the hard work that has gone into this division in this year. Congratulations to the Services International team for delivering an excellent result. Moving to Freight. The Freight team delivered a solid result off an exceptionally high base and softer grain volumes in the second half of the year.
Revenue at ZAR 8.8 billion is up 4.5%, driven by annual price increases, increased oil and gas activity in Namibia, good new business, business wins, and improved product mix in the terminal operation. On the other hand, maize export volumes were down year on year. Gross margins reduced slightly due to increased disbursements in oil and gas-related clearing and forwarding activities in Namibia. Expense management was excellent, with the OpEx line flat year on year. Trading profit at ZAR 2.3 billion is up 7.3%, a solid result, and the trading margin at 26.5% is up from 25.8% in the prior year. ROFE at 54.4% is an excellent return for this CapEx-intensive division.
Turning to the operations, we experienced volume pressure on the bulk grain side due to a decline in maize export volumes. Just to give you a sense of previous overall grain volumes, in the 2022 financial year, we handled 4.4 million tons, 2023, 4.1 million tons, and in the current year, 2.9 million tons. So you can very clearly see the volume reduction, and this is a return to previous seasonality I referred to at half year. On the upside, bulk minerals benefited from a favorable commodity mix that more than offset the decline in coal and manganese volumes. Annual increases, improved capacity utilization, and the commissioning of the butane spheres in Richards Bay supported our bulk liquid terminal. Our Namibia operation delivered a standout performance benefiting from increased oil and gas project activity and increased bulk volumes.
Our clearing and forwarding business grew profits on the back of higher air volumes and new business secured. And lastly, in terms of growth CapEx, the board approved ZAR 550 million to build multipurpose tanks, and these were commissioned in July 2024, and the board also approved another ZAR 185 million for fuel tanks that will be commissioned in the 2026 financial year. And to the freight team, a big congratulations on a really solid performance. Moving to commercial products, the team delivered a satisfactory result off a very high base and in a highly competitive trading environment. On the face of it, these results don't look that great, but when I unpack the numbers, you'll see that the only pressure point is really renewable, and the balance of the division performed exceptionally well.
Revenue at ZAR 17.9 billion is down 10% due to a decrease in renewable sales. The current ZAR 880 million in renewable sales compares to ZAR 2.5 billion in the prior year. I mean, ZAR 880 million is close to a billion in sales. This is still a big number, but the base at ZAR 2.5 million is very high. ZAR 2.5 billion, sorry, is very high. On the gross margin side, the team must be commended for excellent margin management, improving the gross margin by 2%. Again, as this team always does, controlling the controllables, the expense management in the division was exceptional, with expense growth flat year on year.
While trading profit at ZAR 1.3 billion is down 9%, the benefit of gross margin and expense management came through as the trading margin held flat at 7.2%. Staying on the trading profit line, if one carves out the impact of renewables, the balance of the division delivered high double-digit profit growth. ROFE, at 22%, is down on last year's 30.6% as a result of the excess renewable stock on hand and lower trading profit. Turning to the operations, and again, I'd like to further demonstrate the performance of the division, excluding renewables, and highlight the following: Of the 18 companies in the division, 12 increased trading profit on prior year, with nine of the 12 delivering double-digit profit growth. Standout performances were delivered by niche electrical businesses, whose focus is on industrial projects where demand remains robust.
The packaging cluster followed with an exceptional profit performance, driven by increased supply into the automotive export market. The DIY tools and workwear cluster delivered a strong result, driven by market share growth in the protective equipment and workwear business, and our DIY business countered the declining consumer cycle and delivered an excellent result. The catering cluster delivered a very good result, driven primarily by the turnaround in the catering equipment business. And lastly, the general industrial cluster also delivered a satisfactory result. Congratulations to the commercial products team for a very credible performance. Moving to our services operations in South Africa, Services SA. The team here has delivered an outstanding result with all clusters up on prior year. Revenue at ZAR 11.7 billion is up 12.4%, with all clusters showing very strong top-line growth.
This organic growth performance was driven by strong new business wins in the security and aviation cluster, improved volumes in the travel and lounges businesses, increased bulk water and coffee sales, and a contribution from the Interlock acquisition. The gross margin improved slightly due to a change in the sales mix, and expenses increased above inflation, mainly due to increased trade, increased distribution costs, and the cost of the Interlock acquisition. Trading profit at ZAR 1.3 billion is up 18.7%, an excellent result, and the trading margin at 10.8% is up on last year's 10.2%. Cash conversion at 93.6% is excellent, and the ROFE at 103.9% remains a very good return.
Looking at the operations, the travel cluster delivered impressive profit growth off the back of increased inbound travel volumes, which were supported by a weaker rand. The catering and lounges cluster showed very strong growth, with the lounges business continuing to outperform and a solid turnaround from the catering business. Volumes in the lounges are now ahead of pre-COVID levels, and we are in the process of refurbishing and upgrading some of the lounges. The security and aviation cluster delivered excellent growth due to increased new business, improved air cargo volumes, and the Interlock acquisition. Lastly, the allied cluster showed good growth as demand for water and coffee increased, indoor plant sales improved, and hotel amenities volumes also increased. To the Services South Africa team, congratulations on an outstanding set of results.
Moving to Branded Products, the division delivered a stellar standout performance with all clusters up double digits on prior year, and we are also extremely proud to welcome this team to the Billionaires' Club. Revenue at ZAR 12.9 billion is at 10.2%, driven by strong organic growth, good retention, and the contribution of Roan, Green Home, and Brandability acquisitions. Excluding acquisitions, revenue is up 7%. The gross margin declined slightly due to pricing pressure, exchange rate volatility, higher input costs, and changes in sales mix. Expenses were well managed, increasing only 3%. Excluding acquisitions, expense growth was flat year on year. Trading profit at ZAR 1 billion is an impressive 21% ahead of prior year, and excluding acquisitions, profits were up an outstanding 18%.
Operating leverage was very strong, with a trading margin at 8.1%, up from 7.3% in the prior year. ROFE at 38.8% is significantly up on prior year's 33.6%, and to add about 5% on the return line in one year is really outstanding. Turning to the operations, 17 of the 22 businesses in this division delivered high double-digit profit growth, a really exceptional performance from these companies. The data print and packaging cluster delivered a good result, driven by demand for print and labeling products, improved demand for existing customers in the packaging space, and growth in the hardware and services categories in our barcoding solutions business. The inclusion of Roan Systems and Green Home acquisitions further boosted the result in this cluster.
The consumer products cluster delivered a very good result due to excellent margin management, cost control, increased sales in our luggage retail stores, and the restructures concluded in the prior year that positively contributed to profitability. And lastly, the office product cluster delivered an excellent result on the back of increased demand for office furniture and office automation. Efficiencies in the furniture factory also improved, and we realized a modest increase in commercial sales in our stationery business.
And of course, Brandability contributed to the cluster's profits for the first time. A big congratulations to the branded products team for a standout performance. And then moving to automotive. The automotive trading environment remained extremely challenging due to sticky inflation, higher interest rates, cost of living constraints on consumers, inventory oversupply, discounting in order to move stock, and market share declines in some of the OEMs we represent.
Revenue at ZAR 25.1 billion is up a marginal 0.6% due to new vehicle volume declines and a small volume increase on the used side. Gross margins contracted, with most of the impact from new vehicle margin reductions. Operating expense growth was flat year on year in an effort to claw back some of the lost margin. Negative operating leverage came through, and trading profit at ZAR 688 million decreased by 24.8%, and consequently, the trading margin also declined from 3.7% to 2.7%. ROFE at 21.4% is almost half the prior year's ROFE of 40%, and this is due to the increase in average funds employed, driven by higher inventory levels and a decrease in trading profit.
Turning to the operations, new vehicle volumes were down 7.8%, and this compares to an overall dealer market that is down 6.2%. This volume decline was also exacerbated by a gross margin decline. On the used vehicle side, volumes were marginally up, with an overall positive revenue performance. Our Namibia dealerships delivered an excellent performance of solid new vehicle sales and improved gross margin. Service and parts increased revenue year on year, and Cubbi was successfully launched and has gained the required market credibility. Trading was tough for Cubbi in the current environment, but plans are in place for an improved performance in the coming year. And to the automotive team, it's been a very, very tough 12 months. We've made a number of changes and additions that position the division for a very strong performance in the coming year.
So we just need to stay positive and go out there and get back our market share. Lastly, last division, financial services. The turnaround in this division continued in the 2024 financial year, and we're very pleased with this improved performance, and I must congratulate all the teams in the division for the hard work. Revenue at ZAR 2.5 billion decreased by 7.8%, mainly due to revenue declines in the short-term insurance business, which were impacted by the decline in vehicle insurance sales. Bidvest Life also struggled to grow revenue and was further impacted by IFRS 17, whilst interest income in Bidvest Bank increased. Gross margin increased due to fleet disposals, better margin on the loans and advances book, and higher margins on the deposit mix. Operating expenses decreased due to significant cost savings in Bidvest Bank and Bidvest Life.
Trading profit of ZAR 643 million is up 38.6%, with the investment portfolio contributing gains of ZAR 109.6 million. It's taken longer than what we had planned, but at ZAR 643 million, the division is back to its pre-COVID levels of profitability. The bank's balance sheet reflects a strong and liquid position and remains adequately capitalized and well above regulatory requirements. As mentioned earlier, a process has started to find a suitable home for Bidvest Bank and FinGlobal, and Bidvest Life is also included in the sale process. Our strong view is that the ambitions and next phase of achieving scale, sustainable growth, and competitive advantage will be better realized when these businesses are supported by teams and business infrastructure that is solely focused on financial services.
To the Bidvest Bank, FinGlobal, and Bidvest Life employees, I want to assure you of our continued support through this process. Change is uncomfortable at times and can create uncertainty. However, our priority will always remain well. We'll do our best to ensure a smooth transition and achieve the best possible outcome. The remaining short-term insurance businesses that focus primarily on vehicle insurance cover and related value-added products. These businesses, being Bidvest Insurance and Compendium, have been transferred to the automotive division, effective one July 2024 . This aligns to the automotive division strategy of diversifying into allied automotive services. I want to take this opportunity to express my sincere gratitude to all employees in the financial services division for their contribution and commitment. Lastly, on Adcock, Andy has already presented the results, so I'll keep my commentary short.
The Bidvest shareholding in Adcock has increased and now sits at 64.8% from 63% last year. And as I've said many times before, and I will repeat it again, we will incrementally increase our equity in the business as and when the opportunity arises. Adcock delivered revenue of ZAR 9.6 billion, which is up 5.6%, in trading profit of ZAR 1.2 billion, up 5%. The share buyback program supported HEPS, resulting in a HEPS increase of 10%, and Adcock delivered a final dividend of ZAR 1.50 per share. Well done to the Adcock team for delivering a strong result. Moving to the strategy and value proposition slides. I'm gonna talk to these 2 Slides collectively.
I think I just wanna highlight, you know, organizations go through shifts periodically, and our last major shift was the listing of Bidcorp in 2016, and eight years later, the streamlining of the portfolio is our next shift. From the 2025 financial year onward, we no longer have a financial services division. The group is now six divisions, plus a majority shareholding in Adcock. We still hold the principle that more than 50% of capital allocation will be offshore. We're very mindful of the overall quantum of debt as we continue to acquire more businesses, and that's why it's important for us to think about how we recycle capital. Clearly, the proceeds for the sale will go towards paying off debt, and the treasury function will also be enhanced with our new treasurer, who joins the group in a month's time.
The 2025 financial year is the last year of implementation of our ESG framework, so we'll be spending this year reviewing performance against targets and thinking about what the new targets could be. We're in the process of piloting an AI-driven tool that will be at the heart of the ESG data collection process across the group. This digital tool is running in the commercial products division as we speak and will be rolled out to the rest of our businesses. In 2026, we will publish the new ESG framework, and we'll ensure that we continue to positively impact the environment and the communities we operate in. Safety in the workplace continues to receive attention, and I'm pleased to report that our lost time injury frequency rate has reduced by 28% year on year.
As I close, turning to the outlook Slide, although market conditions are expected to remain largely unchanged in our operating territory, there is a definite undertone of positive sentiment. At a macro level, I see three positives: firstly, one of the aspects of the last three months that has been taken for granted is that not only did we have a free and fair national election, but we had an incident-free national election in South Africa. A ruling party that was at the helm for decades lost its national majority vote for the first time, and multiple parties sat around one table and mapped a multiparty framework for the country, and while they were trying to figure this out, we had peace and calm. Our businesses were operating, our children were in school, our restaurants and malls were open. It was business as usual.
Power transitions of this nature don't normally take place peacefully. This aspect of the maturity of our democracy is taken for granted. If we were athletes competing at the Olympics, the whole of South Africa would be on the podium, receiving a gold medal for its performance over the last three months. I raise this because political certainty and policy certainty is important for investment. So we have a stable political start to the next five years. That's a definite first tick. Secondly, reforms in the electricity and logistics sectors are critical to unlock higher, inclusive economic growth. Again, let's recognize that the recent performance of South Africa's national energy provider, Eskom, has exceeded all forecasts and is restoring confidence in business, in society, and South Africa in general. We are more confidently thinking about local production and expanding factory capacity.
From a Bidvest perspective, as an example, we're now confidently planning to increase capacity of our water purification plant. We are comfortably increasing local sources, sourcing, and we're also increasing our retail footprint by opening up more stores and branches, and the list goes on. I'm positive my colleagues in other industries are also thinking about further investment in South Africa in a more positive light. The big spend in renewables over the past two years is accelerating the country's transition towards a better energy mix. All of this is very positive for the country. This is the second big tick. And lastly, on the macros, on transport and logistics, we accept that there is still a lot that needs to be done. The Transnet new executive management is in place.
We have had multiple meetings with them, and I can assure you that they are committed to delivering better infrastructure for the country. Transnet is making progress in implementing its recovery plan, which is closely aligned to the country's freight logistics roadmap. The National Logistics Crisis Committee is in place, and business is part of the NLC, so we are tag teaming on this infrastructure piece. This is a multi-year fix, and while we're not seeing major shifts in the short term, the required work to deliver a long-term sustainable solution is underway. Looking offshore, in the U.K. and Europe, there are early signs of a more positive macro environment, and really all we need offshore is lower inflation and lower interest rates. The sooner we can get here, the better.
Looking inwardly, operationally, we expect to face headwinds as we are forecasting no maize export volumes in the first half of the 2025 financial year. This is indicative of the return to pre-COVID seasonality in bulk grain volume. The second headwind is the elevated renewables base. Whilst we're not certain as to what normalized levels of renewable sales will be, we do believe that the current base remains slightly elevated. On the positive side, we do have one or two tailwinds. We continue to see good volumes from the travel and tourism industry, especially inbound travel. Two months into the 2025 financial year, the forward book is looking strong, and this is a good data point.
We believe that financial year 2024 was a trough of declining new vehicle volumes in automotive, and added to this, our franchise motor retail business now has a materially different mix of OEM representation, which sets the business up well for 2025. Our increased brand representation now includes four Mahindra dealer points, three Jetour dealer points, one FAW truck, one GAC Motors, and one LDV South Africa dealer point. This mix will certainly support improved trade. Organic growth will be supported by store rollout. The businesses that have stopped their rollouts in the 2024 year will be opening more stores in the coming year. And lastly, on the M&A side, we've received Competition Commission approval and closed the following transactions: DEKRA, which is a vehicle condition monitoring and inspections business, and that goes into automotive.
WearCheck, which does testing of lubricants, including water testing, and that goes into Services South Africa, and NexGen, which is a bolt-on acquisition for Noonan in the U.K. We have more acquisitions on the pipeline at various stages, with the larger one being Citron, where we await U.K. regulatory approval. In closing, I would like to thank the 125,476. Bidvest employees who produced these results. It was a tougher year, but we did it, and we delivered. Our management teams across South Africa, Swaziland, Namibia, Mozambique, the U.K., Ireland, Spain, Australia, and yes, now Singapore, congratulations to all of you, and thank you for your leadership and commitment to excellence. We are now ready in the throes of the new year and are ready to put the Bidvest machine into the next gear. Thank you very much.
Thank you, Mpumi. I can see some questions on my side. Danae, maybe you can just remind the audience how they can load and queue questions before we start.
Of course. Ladies and gentlemen, for those on the conference call, if you would like to ask a question today, please press star and then one now. If you decide to withdraw your question, please press star and then two. Again, if you would like to ask a question, please press star and then one now. Ma'am, would you like to take questions from the webcast first?
Yes, let me do that, so Mpumi, I suppose this one is for you. The question is, could you please provide some color on how the public-private partnership landscape has changed during the past six months, and how confident and willing Bidvest is about participating in the opportunities, relative to further international ambitions?
Okay. Thanks, Olga. And as for the question, I suppose in my closing, I touched on this, and maybe just to highlight it again, so we've had various engagements with the new management team in Transnet. Yes, they've got a new way of work, and they are executing differently, but we're all aligned. We know exactly what they're doing and how the PSP framework, which is a framework around private sector participation. That has been finalized. And so I guess we now are very clear around what the operating environment looks like. Business specifically is contributing through the NLC, so we've got a joint government and business team looking at transport and logistics collectively.
So there's a lot of work that's taking place, and I think that's why I wanted to say, unfortunately, fixing the supply chain of the country is a multi-year process. It's really not something where we're gonna see big shifts very quickly or in the short term. But I think just be assured that all the work that needs to be done is happening in the background, that there is collaboration between business and government. We're very clear about what needs to be done. There are opportunities for us, from a Bidvest perspective, that we are pursuing. There are more tenders that are going to be issued. So we are relatively bullish, you know, about where we're at and all the work that's gone in since the new management is in place.
Thank you for that, Mpumi. It largely also speaks to another question: Where is the tangible changes that we've seen post the Government of National Unity? You've dealt with that, and in your closing slide, you also spoke about the opportunities that exists in deploying capital in South Africa, but that 50% of the capital is still going offshore. So it's really a dual process for Bidvest. Mark, maybe one for you. An investor is asking: There's a focus on reducing debt levels. What is the targeted gearing, and what are the levers that can be pulled with regards to funding?
Okay. Thank you, Ilze. So from a leverage perspective, and if we think net debt, EBITDA, so let's bracket it. So our covenant says we can't exceed three times. We've got an internal limit that we manage to, at 2.5x . You can see our current level is at 1.7x . There is a range, and that range depends on where we are in our M&A cycle. As we are more successful with the transactions, with the larger transactions, you'll see that level will move up north of two, and obviously we're managing then to the upper end of two and a half internally. And then as those transactions start to mature and you bring the EBITDA through the process, et cetera, et cetera, you'll see that level go down.
So you've seen that range ebb and flow, and that'll continue to be the case. The levers we can pull, other than obviously extracting more synergies out of the new acquisitions, which is obviously a key focus, and in fact, it's something that's very specific to our M&A process. You identify the targets, you identify the reasons it's a good fit for the business, and then you itemize specifically the synergies and the growth opportunities, and then you work through those. So as you then grow the business, that new business coming into the system, you can then enhance the EBITDA and returns that come from it. That's the one element of it.
Obviously, in terms of looking at the funding mix, there's a lot of work that goes into managing the overall pool. And we also specifically in the presentation call out the offshore piece versus the local piece, because locally, I mean, we're sitting at 0.8x , so we've got a lot of capacity here, and offshore, we're sitting at 4.8 . Again, comfortable with that, because what we're doing is we're managing a higher level of investment into that space. It will remain that way for some time as the increased level of investment goes offshore. So kind of those are various pieces that we manage. We obviously manage the underlying different pieces of debt that are in the mix. We look at opportunities to, for example, raise debt in different jurisdictions where the costing is different.
We're looking at opportunities to push out the maturity profile of our debt. You've seen that in the current year. You will see more of that in the forthcoming year. Those are all elements of the pieces that we manage in terms of maintaining that leverage where we want it to be.
Thank you. Thank you, Mark. There was a few questions around the debt.
Yeah.
But I think you've largely dealt with that. Can you maybe just, as we touch, finish up on the debt? Are there specific debt financing plans for FY 2025 ? And maybe it's just around the multicurrency.
Yeah. So there absolutely are specific plans around FY 2025. Not obviously, but we have a further one-year extension option on the RCF term loan. That's a ZAR 750 million RCF term loan facility. And so we'll go back to the syndicate in April of next year, looking to extend again for another further year. And then obviously, we've got the Eurobond, which was due in September 2027, and there are specific plans that we're looking at with respect to the renewal or the extension of that bond.
Thank you for that, Mark. Mpumi, there is a question around the U.K. services business and the lag between wage inflation and contract adjustments. Can you comment on how you see that going forward, please?
So look, we've always spoken about the fact that you take on wage increases at a particular point in time, and then your recovery from an annual price escalation perspective takes place at contract anniversary, and that is different across the contract pool. So that lag is embedded in the operating model, but we're very comfortable with the extent of the recovery in this financial year in the U.K., and really have got no concerns where that is concerned. We're okay with that.
Thank you very much for that. Then maybe there's two questions relating to automotive. The first is that, you know, we've seen the Chinese brands taking the Korean brands head-on in terms of pricing. How do you see the automotive division recovering in this market? And then while we're on automotive, there's also a specific question about what is the rationale for buying DEKRA?
The automotive space, and I think how we're thinking around that division has taken a lot of thought. The one thing that we are, and Mpumi did highlight it in her presentation, is we think that the market volumes reached their kind of low point or trough in this last 2024 year. With interest rates looking like they're gonna start, at least domestically, reducing from September, and hopefully we'll see a number of cuts through that cycle. You will see greater confidence, I think, coming back into the SA economy. We can already see that post the GNU. You can see, hopefully, a better ability of consumers to be able to spend.
It's gonna be interesting to see what the two-pot system does and how much income it releases into the market. Not that you should be spending that money on cars, but people might. But so we believe that the underlying, call it the straight OEM automotive business, will start to improve, albeit it might be slowly. We have increased our exposure to some of the newer OEMs into the mix, with a number of new dealerships opened across a broad range of these OEMs, both Chinese and Indian, et cetera, and in fact, one Japanese. So there's a broader spread that we have there.
We have obviously introduced Cubbi, so that gives us an access to the kind of the used or secondhand part of the market, and that is building. And then lastly, we built up a third pillar now within that division, which includes DEKRA, which is motor vehicle condition testing and licensing. And that's a nice fit because it's a value-added service, just like an insurance product is to a vehicle sale. So I guess it's completely aligned with having. I guess I'm talking two things here, having the short-term insurance business back in that automotive stable, because you're selling automotive products directly allied to the sale of a vehicle.
And similarly here, you're selling now a licensing or an assessment product in relation to the sale of the vehicle. So those two sit quite nicely. There's a second acquisition which is almost in play now, which will further extend that pillar, and hopefully we'll be able to announce that in a week or so's time. And then obviously, we've got the two insurance businesses in that mix. So when we broadly then look at that, at that overall portfolio for the FY 2025 , it's gonna be a proper division in the broadest sense.
Thank you. Thank you, Mark. Denae, could we check on the line before I carry on, on this side?
We currently have two questions on the conference call. The first question comes from Roy Campbell of RMB Morgan Stanley. Please go ahead.
Thank you. Good afternoon, and congratulations on your results. Two questions, please. The first one is just the reference in the results to the ZAR 5 billion acquisitions and the 11 transactions that have occurred. Is that an all-inclusive number? Mark, you referred to three post-year-end, as well as maybe the Citron Hygiene, which is still to be approved. That's the first question. And the second one is just on the back of the automotive question. How does the dealership franchise footprint look now post-acquisition and post the closure of those loss-making dealerships, perhaps in terms of number of dealerships, regional exposure that you've got over there? And do you still feel like you are either over or under exposed to any particular brand? And so this strategy will continue to evolve. Thank you.
Thanks, Roy. If I think of that, if we talk firstly to the ZAR 5 billion that was referenced in the announcement, it's a combination of our M&A, which was ZAR 3.3 billion. You'll see it in the notes at the back of the announcement. And then, broadly about ZAR 1 billion-plus from expansionary CapEx that we've done. That's how you get roughly to the ZAR 5 billion number. From an auto dealership perspective, and if we have a look at across the pool, so I think we closed across this year about five dealerships in the mix, in terms of just restructuring what that dealership spread would look like.
That was in one or two specific OEMs, where I think our representation was high. They were traditional OEMs where they've taken a lot of pressure in the current year, so and those were loss-making dealerships, so it was the right decision to close those. We have replaced them, though, with more than five dealerships across a spread of other non-traditional OEMs, so newer Chinese, Indian OEMs coming into South Africa, so it's giving us access to that product line, separate from the traditional OEMs that we have. You've seen quite a lot of shift in certain of the OEMs where they took a particular view on the market.
One in particular took a view around what the impact would be around electric vehicles, PEV, HEV, et cetera, would be in South Africa. And so they aligned their inventory to be very heavily towards electric and not ICE vehicles. And unfortunately, that's just not the commercial model in South Africa at this point in time. And so what happened is it left them with a product shortfall from an inventory perspective that was then taken up by other competitors. So it's those dynamics that we're managing. Do I think we're significantly overall underexposed at the moment? No, I think the actions we've taken are appropriate.
But we certainly, as we see the shift specifically around the Chinese OEMs coming to South Africa, we will certainly move with that shift.
Thanks, Mark. Maybe just a quick follow-on. Just those Chinese brands then, I mean, are the OEMs quite forthcoming in wanting to partner with, let's just call it big SA autos over here to grow their brands, or are they still quite individual?
It's a mix. There are some that are quite willing and open, and there are some that are definitely not willing and open. And so where we have the opportunity to call it co-brand on dealerships, we have done that in a number of different places, because what it does is, it works nicely for maybe an existing brand who hasn't quite got the volume, and so they have an opportunity to kind of get their cost base down. It also works really nicely for the new OEM coming in, because the entry point from a cost perspective is a lot lower, so we've tried to co-brand, and you'll see it across our portfolio in a number of different spaces. But there are some. There are certainly some traditional OEMs that do not want to do that.
Thank you. Thank you, sir.
Thank you. The next question we have comes from James Twyman of Prescient. Please go ahead.
Yes, thank you very much, and thank you for the presentation. I've got three questions, if I may. The first one is just on the Australian businesses. You've bought two. You've got two now. In terms of putting them together, I just wondered what, if you could talk around what the actual overlap is there. Do you have two very separate businesses now, or are you looking to really get a lot of synergies out of those two initially? It'd be good to understand what you're actually expecting to do there in terms of location and product, et cetera.
Secondly, on the freight business, you're obviously calling out some sort of weakness in the first half, due to some you know, some seasonality that we had in the first half of last year. Could you just give us some sort of idea of how significant that is? And then thirdly, on the Cubbi business, and it's probably very small, but could you just give us some idea of how big it is, and does it make any money? And more importantly, what your ambition is there, because obviously, you're a big company, and it's, it's obviously very small in the whole scheme of things at the moment.
Okay, thanks, James. So on Australia, the two businesses geographically sit in in two very different spaces. So the BIC that we acquired first is predominantly in Sydney, and consolidated operations are in Melbourne. So essentially what these two acquisitions have done for us is given us the scale that we've needed. There isn't. We don't have contract overlaps. We don't even have significant people overlaps or anything like that. It's really around taking the best of the two and putting it together. The big work that we are doing now in terms of the consolidation is making sure that we now have one sales team that's hunting in a cohesive manner. Operationally, the operations teams are already intact.
It's just making sure that they're reporting into one operations head, then we're able to have consistency in service levels across the board, et cetera. The one fantastic thing that it does give us is now the ability to be able to bid for large contracts across Melbourne and Sydney, where you've got clients who've got multiple sites, where previously with BIC on their own, would have been a little bit difficult because we wouldn't have had the operations infrastructure in Melbourne to be able to support that. And so essentially, we're now positioned from a new business perspective, to kind of ramp up our pipeline and be more confident in in bidding for bigger national bids, in Australia.
On the freight side, I'm not sure what more I can give you, other than to say that we don't expect to have any maize in the first half of the year. I can't give you any quantities. I tried to give a bit of color by giving previous volume, and the best color I can give you is that this financial year, we're ready for a reduction at 2.9 million tons. I don't know what the tonnage for the next financial year is going to be, but we're certainly not seeing anything from a maize export perspective in the first six months. And then Cubbi is still small. So in terms of contribution to the division, still very small.
We've built a really good base though, and one of the things that we saw in the business, which is great, and I think that we saw it coming through July, I think it was July and August, is just the number of cars that they're now selling, which is similar to a process that took WeBuyCars, I think, about six years when we looked at the data, and they've been able to get there in 12 months' time, right? So we're seeing a nice kind of increase coming through from July onwards. You know, the unfortunate thing is that you wish you could get the timing right, but we launched the business during a time where there was a significant contraction in vehicle volumes across the board.
And so they had to contend with that while setting up a new brand and getting credibility in the market on the new brand and getting volumes up. So 2024 was really hard for them, but the business model is sound. We back it, and 2025, they're going to be expanding into Western Cape, and potentially KZN. We'll see what the numbers look like half year, but we are definitely expecting a better result from them. I think that they'll really start moving the needle for the division 2026 onwards.
Thank you very much. If I could just follow up, in terms of Australia, in terms of your strategy, are you sort of looking to expand nationally? So you've done Melbourne, is it now looking to expand into other states, or is it about getting larger in the states that you're in now?
Yes, we would definitely look at expanding into other states, but what we do want to do is just settle the integration piece first before we do that. So there actually was an opportunity for us to look at a business in Perth, and we decided not to participate in that process, because we do wanna settle the integration between the two pieces. Once that's done, we'll definitely look at more outside of Sydney and Melbourne.
Okay. Thank you so much.
Thank you.
Thank you, Mpumi. Let me take a few on this side. Mark, some specific question about: Do you expect any inventory write-downs?
Mm.
And maybe, I suppose, 'cause I'm going to link it to another question.
Mm.
And it says, "Which specific commercial products experienced the most significant decline in sales?
I think that one is asked and answered.
Yeah.
Okay.
All right.
Look, specifically, it's obviously sitting in the renewables space. Are we concerned about the valuation of the underlying stock? No, we're not, and the reason being is because we've done a lot of work, and you can imagine this takes a lot of auditor time at year end. A lot of work at looking at the cost base of that inventory, the ability to realize that what we're actually selling it for in the market, are you selling in excess of cost, et cetera. We have taken sufficient provisions in relation to the stock that we're currently holding, so not anticipating a significant writedown in the renewables space.
And similarly, I mean, this is an ongoing process that we always manage within the automotive space. Obviously, we've had volume build up in that space as well, and we've had a proper look at that inventory base and at the underlying costs of those assets and taken the necessary impairments that we need to take. So there's nothing material that we need to flag in that respect.
Thank you, Mark, and maybe while you've got the mic.
Yeah
Some guidance around CapEx, and interest rates.
Okay, so a little bit of forecasting. So CapEx probably is around the levels that we're at at the moment, so ZAR 3 billion-ZAR 3.5 billion is kind of what we're seeing at the moment. So you're always gonna see an underlying base, which is, call it, roughly ZAR 2 billion in terms of maintenance CapEx, and then you'll invest over and above that, so that investment line will be ZAR 1 billion-ZAR 1.5 billion. So if you, if we target CapEx levels around there. What was the other one?
Interest rates.
In-
What do you expect the cost of funding for the group?
So this is casting the die. So, my expectation is twenty-five basis points, certainly at the next cycle, and maybe 25 basis points thereafter, and then we see. I know there's been some discussion around potentially seeing 50 basis points in September. I, unless something changes, I don't think that the ANC government will be that gung ho. I think that they'll be quite conservative. That's what they've shown so far. So I think 25 basis points then. And then internationally, we'll have to see what happens. Obviously, we've had two decreases already, one from the ECB and one from the Bank of England. Hopefully, those will continue as well, because they obviously benefit our offshore debt.
Thank you, Mark. Maybe, Mpumi, there's a few questions relating to the bank and financial services, so I'm going to take liberty here and sort of consolidate them as I go. The request is for some color on the process, where we stand today, where and how would we think we deploy the proceeds, and I suppose from a discontinued and disclosure, we will show as a discontinued operation, so.
Okay. So, the bank process has been an interesting one with a lot of demand for the assets. And in fact, initially, we had more than 60 interested parties who wanted to put in a bid. We've run a process where we've asked for an expression of interest with very clear criteria, I suppose, just to make sure that when we move forward, we move forward with interested parties who can execute and who've got unencumbered funds to do the transaction. We've now reduced that to about the teens in terms of parties that are in the room that we're very confident any one of them can execute on this transaction. We are working very closely with the regulator. We don't wanna move too quickly with parties without getting the regulator's view.
And we're also still working on the IM, which we will finalize this week. So over the next couple of weeks, process-wise, some input from regulator, and then we can open the doors for our due diligence processes to start. Where do we deploy the proceeds? As I said, we're going to pay off debt, and bond.
Yep.
Is the place where we would deploy the capital. We'll reduce the bond, and then we will account for Bank and FinGlobal as a discontinued operation.
Thank you for that, Mpumi. Maybe, question here is, in your view, what is driving inbound traveling for South Africa?
It's an interesting one. I mean, the rand weakness is an obvious one. So, you know, we're a cheaper destination, and so that is certainly driving traffic. But also, if I think about where people are going in South Africa, it's in two areas. People are going to the bush, so, and they love coming here. And our travel agencies, where we make bookings in that space, that's where we're seeing quite a lot of volume. And the Western Cape is a buzz, hey? You see it with the number of flights that are flying directly into Cape Town International Airport, both domestically and international flights. There's more capacity in the air going directly into the Western Cape, and the Western Cape has positioned themselves as a key destination internationally from an inbound perspective, and a leisure perspective.
So, I mean, that's really where we're seeing the volumes coming through. But the forward book is looking good, which is great.
Thank you for that. I mean, we've spoken extensively about the opportunities in the freight division around Transnet and Namibia, all those types of things. The question is, what do you expect when Transnet is performing as it should be, what do you think the impact on the businesses would be within the freight division?
Yeah. So I mean, the freight has delivered over many years an outstanding result, operating in a very inefficient operating environment, right? I mean, just to give you a stat, and we'll always give you the stats around rail that we've received specifically into our bulk connections terminal. This year, we received zero. And so the teams are finding ways around the inefficiencies in order to still handle the volumes, handle the thousands of trucks that are coming through. So I mean, you can imagine if we didn't have to line up thousands of trucks and all the cargo could just come on rail, clearly there would be far more cargo that we'd be able to handle on rail than what's coming through various trucks. So, supply chain more efficient means that volumes through our terminal spike.
We've got fixed infrastructure, okay, so the more we can handle, the more money we can make, essentially.
Mm-hmm.
And so, I mean, we've got the capacity. We've got the capacity, we've got the infrastructure, we can turn it. And so if the volumes increase, certainly you're looking at higher levels of profitability for the freight division.
It'll open up an investment opportunity set as well, that if you get more volumes, then you can invest in faster and better infrastructure. And we would certainly do that.
Thank you for that, and then there is a question about: what do you think about the rand? Now, you know, that's even more of a crystal ball. But what would the impact of that be on the group if the currency continues to appreciate the rand?
I like a strong rand. I always like a strong rand. Obviously, I mean, from an accounting sense, it then obviously lowers the international revenue base, but it does. It gives us an opportunity here to invest further because the rand goes further. We would continue to invest more, I think, with a stronger rand. So I, my broad view is a strong rand is good for Bidvest. I mean, 80%+ of our revenue base and our earnings base is in rands. So I think it stands to reason that a strong rand would be good for us.
Thanks, Mark. Then there's a question about PE multiples for M&A, and whether we would be prepared to pay premium M&A multiples for compelling opportunities in the future.
I think we always assess each acquisition on its merits. We look at the ranges that are appropriate for the type of industry. So, for example, if it's a hygiene industry, you know, you're gonna be paying a higher multiple than if it's, for example, an FM type. And so if we just look at the latest acquisitions that we've done, both for Consolidated and for RHS, RHS being in the hygiene space, albeit a small business, you ended up paying a higher multiple in that space within the range of what you would expect to pay for hygiene businesses. And similarly, from an FM perspective, when we bought CPS, and prior to that, BIC, we were paying within the range as appropriate for an FM business.
We benchmark every business on its sector and what is the appropriate multiple in that space.
Thank you, for that, Mark. That provides good clarity. Denay, any questions on the line? 'Cause, I've now exhausted the webcast questions.
There are currently no questions on the conference call.
Great. Then we say thank you very much for everyone's participation this afternoon. We appreciate your interest, and have a fantastic afternoon.
Thank you very much. Cheers.
Thanks, everyone.
Bye.
Bye-bye.
Bye.
Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.