Good afternoon and good morning, everyone, and thank you for dialing into Bidvest's year-end results presentation. We appreciate you taking the time to listen to us unpacking FY 2023's results and provide feedback on the various activities that has kept us busy over the past financial year. Before we dive into the detail, I just wanted to point out an error in our new non-executive director announcement, which is part of the results announcement this morning. Khumo Shuenyane was the former Chair of Investec Bank, not Investec Group. So our apologies for that. In the room with me this morning, I've got the three Bidvest executive directors, Mpumi, Mark, and Gill. Unfortunately, Bonang Mohale, our Bidvest Chairman, could not join us today, but he did record a special message that we would like to play.
Good afternoon, colleagues. The past year's results are, in short, exemplary. While economies around the world are stumbling, Bidvest has again demonstrated its ability to participate meaningfully in its selected areas of operation, and where pockets of robust activity are evident. The results speak for themselves, but what is not always evident is the focus and commitment provided by the management teams and indeed, the over 120,000 people that make up the Bidvest family. I would like to take this opportunity to express my appreciation for the considerable and unselfish contributions made by all our employees. It is only because of them that we're able to deliver these excellent results. Before we continue with the results, I would like to announce the appointment of Khumo Shuenyane to the Bidvest board. Khumo recently serves on various boards, including Vodacom and an investment firm, Ninety One.
He recently retired as chairman of Investec Bank and is a member of the Institute of Chartered Accountants in England and Wales. We look forward to his contribution as well as his sound guidance and advice during our board deliberations. Thank you. I hand over.
All right. As is customary, Mpumi and Mark will take us through the presentation, after which we will open for Q&A. Mpumi, over to you.
Thank you very much, Ilze. Good morning, good afternoon. Sorry. Good afternoon, everyone, and thank you for taking the time to join us today. I'm really proud to deliver what is a truly exceptional set of results. In this financial year, our group scale, our focus on innovation, our focus on strategic geographic expansion, and our obsession with achieving real economic growth and increasing our market share, again demonstrated the robustness of the Bidvest Group. There are some achievements that I would like to highlight that I really believe are worth celebrating. First, we've scored a hat-trick. For three years in succession, the group has delivered growth in headline earnings per share in excess of 20%. Second, all seven divisions are up year on year. Not only are the divisions up, but they all reported double-digit increases in trading profit.
We are firing on all 7 cylinders. Thirdly, 6 of our 7 divisions generated returns from a ROFE perspective in excess of 30%. This demonstrates the group's focus on maximizing shareholder return. Four, our largest division, Services International, with operations across South Africa, UK, Ireland, Spain and Australia, reported a trading profit in excess of ZAR 3 billion. We are focused on building a big international business. Fifth, our second-largest division, Freight, reached the ZAR 2 billion profit mark for the first time. And just as a reminder, Freight delivered ZAR 1.1 billion profit in 2020. So this division has doubled profitability in 3 years. This performance is nothing short of remarkable. And lastly, we welcome the Services South Africa team to the Billionaires Club as they reach—as they breached the ZAR 1 billion profit mark for the first time this year.
I'm extremely proud of these achievements, and I must extend congratulations to all the teams across the group and around the world. Reflecting more broadly on the results, we capitalized on the exponential growth nodes in the mining, agriculture, renewables, and travel and tourism sectors. We also made a firm commitment to improve the financial services results, and we've delivered on that promise. The turnaround, particularly in Bidvest Bank, has materialized, and I'll cover that in more detail later in the presentation. We expanded our facilities management footprint into Australia, and this business is performing in line with expectations. We generated a phenomenal ZAR 10 billion in cash from operations in the second half of the year and improved returns both at a ROFE and ROIC level. Our M&A pipeline is full, and we have the capital to execute on these opportunities...
Moving to the next slide, just to highlight, some of the areas from a financial performance perspective. Trading profit at ZAR 11.4 billion is up 18%, with really extraordinary performances from all divisions. Our organic performance is a highlight and has been particularly strong, and this is reflected in a 13% increase in revenue and a 14% increase in trading profit if you strip out acquisitions. Our trading margin is now double digits at 10%. Expense management has been solid, with expenses increasing 8% on a like-for-like basis. This is a really good performance given the higher levels of inflation across all our geographies. Operational cash generated at ZAR 12 billion is solid, with 76% of the trading profits converted to cash.
Our balance sheet remains strong and net debt, EBITDA at 1.7 times has improved from 1.9 times at half year. As I said earlier, we're always focused on maximizing returns and are proud to report a solid increase in ROFE, that is now 38.3%, up from 37.6% in the prior year, and ROIC at 17.3% is up from 17.1%. Our ROIC is 480 basis points above the group WACC. Headline earnings per share increased by 24.5%, and normalized, HEPS is up 17.7%.
We declared a final dividend of ZAR 4.39 per share, up 20.6%, and this brings the total dividend for the year to ZAR 8.76 per share, up 17.7% on prior. I hope our shareholders will be happy with that. I'd like to hand over to Mark for the financial overview.
Thank you, Mpumi, and good afternoon, everyone. As Mpumi has indicated, it's a very solid set of results. Strong organic growth with good quality of earnings, supported by a steady uptick in acquisitions and good cost control, have all contributed. The final ghost of COVID is now disappearing in the distance, with our Quarter Four results completely clear of the COVID impact. Supply chains have mostly normalized, and inventory availability has improved. The increase of inflation, especially wages, fuel and distribution costs, interest and exchange rate movements are impacting gross margins, which have fallen slightly. However, good expense control has resulted in positive operating leverage and an improved trading margin. Our second half working capital flow reflects a strong release, which is very positive given the level of absorption at half year.
Overall, we've increased our investment in working capital, especially in our trading businesses, with higher levels of inventory and debtors, and the growth in trade payables reflecting the additional inventory health. The growth in working capital is commensurate with the growth in the businesses. There's been significant offshore funding activity in the last few months, and in line with our M&A objectives, we've amended our Euroloan facility by expanding the funding capacity as well as extending the maturity timeframe. We have good debt capacity, both internationally and locally, which is sufficient for the potential M&A pipeline. Our debt mix continues to reduce the impact of interest rate hikes with an overall small increase in our average funding cost or growth... Although growth in the underlying net debt base is increasing interest costs.
The performance of our new acquisitions, BIC, which is our niche cleaning business in Australia, and A squared, our electric forklift and battery business in South Africa, has been good. This has been supplemented by a number of smaller bolt-ons. Our pipeline is looking very positive, with some bolt-ons in both Australia and South Africa in play. It's a very encouraging M&A environment. There've also been a few disposals concluded, with the largest being the non-core food distribution business, TNC in Namibia, which we talked about at half year, and we're currently in the process to sell our life assurance business. This has been reflected as a disposal group for sale, held for sale in the accounts. From an accounting perspective, we've completed our preparations for IFRS 17, which is applicable for our short-term insurance business in 2024. The impact for the group will be negligible.
Well, this is the backdrop. Let us turn to the more detailed results. From a revenue perspective, up 15% to ZAR 114.9 billion, and we can now properly say that we're over the ZAR 100 billion rand mark. Double-digit revenue growth was achieved in most divisions, with very strong performances in commercial products, Services SA, and Services International. Improved activity levels drove Services SA, Freight, and Commercial Products, while pricing drove the balance of the businesses. Our acquisitions have added, as Mpumi said, about 230 basis points in revenue growth, with an organic increase of 12.7%, which is very pleasing. And we'll unpack the divisional results in more detail later in the presentation. From a gross income perspective, our gross profit margin has fallen by 100 basis points to 29%.
This is still a very good result, given the significant increase in lower margin revenues, freight disbursements to travel and hospitality revenues, as well as the termination of COVID revenues in the prior year. Second half of the year continued to see higher input prices and Forex weakness, while load shedding is impacting factory efficiencies, and this has all impacted the gross margin. From an expense perspective, very happy with the expense performance. Overall, expenses are up 10.1% versus a revenue increase of 15%. And on an organic basis, expenses have grown 8.2%, driven by payroll inflation, selling and distribution costs, Forex movements, and fuel, energy, and utility costs continue to rise.
Our expense ratio has improved from 20.5% last year to 19.5%, and the key focus on cost containment right across the group remains a standout feature of these results. In terms of our trading profit, trading profit up 17.6% to ZAR 11.4 billion, and again, well beyond the ZAR 10 billion rand mark, with good underlying organic growth reflected at 14.1%. We're very happy that all the businesses came to the party. Freight, commercial products and services, SA were outstanding with strong mineral exports, the rebound of travel, hospitality, and catering sectors, as well as frenetic renewable sales, all driving growth. In branded products and automotive, they produced very good results off a very big base in the prior year, while both Services International and Adcock grew off extraordinary COVID-led 2022 comparatives.
Financial services, as we already indicated, produced a very pleasing turnaround ahead of expectation. The underlying core business was solid, supported by strong investment portfolio returns. Our HEPS is up 24.5%, and our normalized HEPS, which is after, acquisition costs and amortization of acquired customer contracts, is up 17.7%. The prior year for normalized HEPS included an adjustment for U.K. deferred tax, which has not recurred. From dividends perspective, the final dividend of ZAR 4.39 is up 20.6%. Our cover ratio is 2.06 times, which is within our policy range of 2-2.5 times normalized headline earnings. Moving now to our debt and funding. We continue to maintain a conservative and consistent approach to debt.
We hold about 65% of our debt offshore and 80% of our net debt. Importantly, 81% of our gross debt is of a long-term nature, and 56% of our gross debt is at fixed rates. Our gross debt is at ZAR 27.4 billion for the year, up ZAR 3.3 billion, driven by a ZAR 3.2 billion Forex translation impact. That's the weakness of the rand. Net debt after cash and cash equivalents is up ZAR 6.1 billion to ZAR 18.1 billion, and largely driven by the Forex impact of ZAR 3.2 billion and the acquisition of BIC earlier in the year for ZAR 1.8 billion. We're comfortably within our covenants, our net debt to EBITDA is at 1.7 times.
This time last year, we were at 1.5 times, with the Forex impact adding around 0.2 of a turn. Offshore, the net debt to EBITDA in hard currency is at 4.7 times post the BIC acquisition. This compares favorably to last year's 5 times. Our average cost of debt at 5.4% pre-tax is only up 70 basis points, which is a really good result given the movement in the base rates. EBITDA interest cover of 8.2 times has moved out a bit from the 9.8 times last year, as reflected in the adjacent graph, and has been impacted by the growth in the underlying net debt levels and increased interest rates. The ratio, though, is still very comfortably in excess of our covenant and is tracking well.
In fact, it reflects back to our pre-COVID levels. The debt maturity profile is good, with no sizable maturities in the near term, and the RCF term loan, which is reflected as maturing in 2026, has two further one-year extension options. There are no material domestic maturities. Moving now to our cash flow, and cash flow is always a highlight in a big presentation. This year, no different. The underlying cash generated by operations before working capital has been good at ZAR 14.8 billion, up 13.3% on last year. We've seen a very good seasonal release of working capital of ZAR 2.9 billion in the second half, which was better than expectation.
And overall, for the year, a net investment in working capital of ZAR 2.6 billion, which is commensurate with our business growth. Our inventory has grown ZAR 2.7 billion over the year, predominantly in consumer products and automotive. The growth in consumer products, or commercial products rather, largely reflects additional renewable stock to support a revenue base that's up 10 times in this sector. We previously flagged the normalization of the auto inventory at half year, and overall stock levels are back to pre-COVID levels, although certain of the OEMs are a bit higher. Overall, our stock days have moved out slightly, but we're comfortable that the quality and saleability of the stock remains good.
Debtors growth is well in line with the revenue performance, and the underlying book is in good shape and consistent, and we have consistent overall aging. Pleasingly, our bankers increased net advances by ZAR 650 million, which represents good, positive business growth. Creditors have increased in line with inventory levels. Our cash conversion at year-end was 76.4%, which is very nicely up on half year at 4%, although slightly down on last year's 88.3% due to the higher working capital absorption. The cash growth reflects the seasonal cash inflow, which is consistent with the group's normal working capital cycle, albeit obviously at an improved level, and our cash generation remains strong. Moving lastly now to our balance sheet.
CapEx has increased to ZAR 3.4 billion for the year, with increased capacity spend in our packaging lines and drones business, additional maintenance CapEx in fleets, and statutory liquid tank upgrades. We bought two new warehouses or DCs on stream in our commercial products business, while in freight, a further ZAR 910 million has been spent on expansion projects, mainly in Richards Bay. As mentioned earlier, we have reflected our life assurance business as a disposal group held for sale, as it's currently in a disposal process. Our mergers and acquisitions spend for the year of ZAR 2.1 billion represents BIC and a few smaller bolt-ons, and we have a nice pipeline which we're actively pursuing. We've seen some focused funding activity in the last six months, which has seen the increase or increased capacity from a Euroloan perspective.
We moved our Euroloan from GBP 400 million up to EUR 750 million, with a further 3-year term and 2 additional 1-year renewal options. This was achieved at a relatively small margin increase, which was very pleasing. We have good funding capability or facilities in play, with EUR 560 million in offshore funding available, and then locally, a further ZAR 17 billion. Finally, just some concluding thoughts. Our business model has demonstrated its resilience in the current year, with pressure from a number of the broader macros. The ability of our decentralized businesses to pivot and reprioritize growth opportunities have been key to this good result. We continue to focus on sectors showing structural growth to lessen the impact of the weak GDP environment.
Margin management and expense control will remain top of mind over the next six months. And lastly, we've expanded our M&A team and debt capacity, and are actively pursuing new acquisition opportunities. Thank you.
Thank you very much, Mark. I'm going to move to the operational review and start with Services International. You'll recall that, at half year, we reported that the hygiene and FM businesses were going through a COVID normalization period, after two years of really strong COVID-related revenue and profit. At half year, Services International was flat at the trading profit line, and in the second half of the year, this division has really presented a superb second half. Revenue at ZAR 33 billion is up 21%, with strong organic growth from Noonan Ireland, Bidvest FM, and PHS, and the inclusion of BIC, Mayflower, and the Consolidated acquisitions, also boosted our top line. Gross margin is slightly down due to the COVID normalization.
Expenses increased 16% due to high inflation, distribution costs and wage inflation, and the inclusion of the expenses of the acquisition. Whilst high, this expense increase is below the growth in revenue. Trading profit at ZAR 3.4 billion is up 10%, an excellent result for the division. If you exclude acquisitions and the impact of the COVID revenue, the division is up 14%, a reflection of the strong underlying performance of the businesses. The trading profit margin, at 10%, is 1% down on prior year for reasons explained earlier. Cash generation was outstanding in this division, and roughly at 133% is a more normalized return that we are very happy with.
Turning to the operations, trading profit between the facilities management and hygiene businesses is now almost equally split, with 30% of profits in the division generated offshore. The FM businesses delivered a solid set of results, and these results were boosted by good new business wins in Ireland, South Africa, and Australia, while the U.K. FM and S.A. cleaning operations came under pressure during the period. BIC's maiden contribution was very good and in line with expectation. The hygiene businesses delivered a good result, driven by continued strong core hygiene pool growth, both in South Africa and in the U.K.. Mayflower has improved our consumable sales capability in the U.K., making a very positive contribution to our hygiene offering. Our M&A pipeline is strong, and we look forward to some positive announcements soon. Congratulations to the Services International team for an excellent set of results.
If I move to freight, revenue at ZAR 8.4 billion is up 13%, driven by annual rates escalation, improved capacity utilisation in our bulk liquid operations, new business, and increased bulk mineral commodity volumes. Grain volumes were down year-on-year, but this must be seen in light of a record maize export season in the prior year. Gross margins improved slightly, and expenses increased by 12% in line with the growth in revenue. The expense increase was also due to inflation, staff and property costs, and equipment hire costs as a result of the increased volumes. Trading profit at ZAR 2.2 billion is up 23%, and as I said earlier, this division has breached the ZAR 2 billion mark for the first time.
Trading margin is high, at 25.8%, improving from 23.7% in the prior year, and roughly at 56.2% is the highest return we've seen from this CapEx intensive business and is really just excellent. This compares to a roughly of 44.6% in the prior year. Turning to the operations, the bulk mineral terminal operations in South Africa, Mozambique and Namibia all outperformed. This outperformance was on the back of increased volumes of coal, chrome, manganese, copper concentrates, sized coal, and ship spares handled for the oil and gas industry. Our bulk grain terminal performed well, notwithstanding the year-over-year decline in grain volumes. Whilst volumes are down, at 4,000,000 tons, this is the highest volume of grain ever handled through the terminal.
The bulk liquid terminal produced a solid result, further supported by an improved LPG contribution. Our clearing and forwarding operations also produced a very strong result, as we always do in this division, we always take a forward-looking approach. We look at CapEx decisions that we can make to invest into future growth. And so we're also happy that we've got the following three investment projects that are underway. We're in the process of repurposing our butadiene spheres to store butane, and this CapEx investment is ZAR 172 million, and this should come on stream in the first half of the 2024 financial year. The board also approved ZAR 550 million CapEx to build multipurpose tanks, and we expect to commission these in the first half of the 2025 financial year.
And lastly, we've also approved an additional ZAR 185 million for fuel tanks in Richards Bay, and these should be commissioned in the 2026 financial year. And so to the freight team, congratulations on a phenomenal performance. Moving to commercial products. Revenue at ZAR 20 billion is up 32%, driven by inflation, and as Mark said, a tenfold increase in renewable energy sales. The growth in the electrical cluster has been exponential, and we've also seen good demand coming from the industrial, textile, automotive, and mining sectors. Pressure on consumer spend and redirection of spend away from the DIY market was very evident in the period. The growth margin declined year-on-year due to factory underrecoveries as a result of load shedding, the exchange rate impact, and large price increases, where in some instances we couldn't reprice in time.
Expenses are up 11%, but materially below the growth in revenue of 32%. This expense increase is attributable to the higher turnover, increase in fuel and distribution costs, and increased diesel costs for generators. Trading profit at ZAR 1.4 billion is up 21%, which is outstanding, and the trading margin at 7.2% is slightly below prior year. ROFI at 30.6%, it remains solid, and we're very happy with this return profile from our trading businesses. Turning to the operations, the trade cluster delivered an outstanding result, with the electrical business delivering record profits. We also saw a good performance coming from Plumblink.
The catering cluster was supported by a good performance from King Pie, and the DIY, packaging, and leisure clusters came under pressure as the reduction in consumer spend and demand in the DIY and leisure products sector declined. General Industrials cluster produced an excellent result, and the warehousing cluster showed a strong underlying performance and then doubled in size due to the addition of the A Squared forklift acquisition. Congratulations to the commercial products team for an outstanding set of results. Moving to Services South Africa. Revenue at ZAR 10.4 billion is up 27%, driven by recovery in occupancies, especially in universities, which are now materially back at probably 100%.
The rebound in travel and tourism volumes has been strong, and we believe that the industry is now back to pre-COVID levels, even though there's still some capacity constraints due to reduced airline fleets. There's also been good new contract wins in the division and market share gains in certain sectors. The growth margin is down in prior year due to increased billings in some lower margin businesses in the travel cluster. Expenses were up 20% due to the increase in turnover, increased fuel costs and input costs, mainly in our catering cluster. Trading profit at ZAR 1.1 billion is up 21%, which is excellent, and as I said earlier, this division has breached the billion rand mark for the first time.
The trading margin at 10.2% is slightly down on prior year, and ROFI at 106% remains a solid and more normalized return for this service business. Turning to the operations, the travel cluster delivered a super standout result, driven by increased volumes in the travel and tourism industry. These volumes also supported growth in our largest business, who also delivered an outstanding result. The allied cluster delivered an excellent trading result off the back of increased office and hotel occupancies, the resumption of conferencing and banqueting events, and increased water and coffee sales. The security and aviation cluster delivered a mixed result, with very strong performances for the security and related businesses, whilst the balance of the businesses came under pressure due to the non-repeat of significant project work in the prior year and the non-repeat of COVID-related revenue.
To the Services South Africa team, congratulations on an incredible set of results. Moving to Branded Products. Revenue at ZAR 11.7 billion is up 13%, driven by good price increases, a very strong back-to-school season, increased office, school, and university occupancies, robust demand from packaging products, and significant demand in the office automation space. The gross margin was slightly down on prior year as a result of a change in the sales mix and the impact of a weaker exchange rate. Expense growth at 9% was reflected in the increase in fuel and distribution costs, the impact of load shedding on factory recoveries, and reduced retail sales. This expense growth remains below the growth in revenue, which is good.
Trading profit at ZAR 860 million is up 16% on prior year, an excellent result with all businesses in the division, bar one, increasing profits year-on-year. The trading margin also increased from 7.2% to 7.3%. Cash generated from operations was excellent, and ROFE at 33.5% is a very good return for this trading division. Turning to the operations, Waltons delivered a standout performance, driven by a very strong back-to-school season and increases in office, school, and university occupancies. The businesses in office automation, leisure, and office products delivered a phenomenal performance, with record results from Konica and Interbrand.
The Data, Print, and Packaging cluster delivered an excellent performance, driven by an increase in demand for print and packaging products, while the consumer business contracted on the back of constrained disposable income and profitability declines in certain product categories. To the branded products team, congratulations for a fantastic set of results. Moving to automotive, revenue at ZAR 24.9 billion is up 5%, driven by inflation and mix. New vehicle volumes increased by 2%, while used vehicle volumes declined by 10%, and I'll comment on that a little bit later. The teams prioritized the quality of the sale over volume and were thus able to protect margin, maintaining the overall margin at the same level as last year.
Expense management was exceptional, with expenses increasing only 3%, and this materially boosted the operating leverage and resulted in a 5% revenue increase, translating into a 12% profit increase. Trading profit at ZAR 915 million is a record result for this division. The trading margin at 3.7% is up from 3.5% in the prior year. ROFI at 40% is down from the 50% we had in the prior year, but this must be seen within the context of increased inventory levels as supply chains normalize. Our closing inventory at year-end is higher than expected, and this will be addressed going forward. New vehicle sales were up 2%, as I said earlier.
This is below the overall dealer market volumes that were up 10%, and this is due mainly to entry-level brands, where we either have no or very little representation, having the biggest market share growth. Used vehicle volumes declined by 10%, as used vehicle stock became more freely available and used vehicle prices softened. After-sales contributed positively as throughput in our service centers returned to pre-COVID levels, and parts supply also became more predictable and stable. Our new independent used vehicle business, Cubbi, was launched, and we look forward to the success of this new venture. To the automotive team, congratulations on a record profit result. In our last division, financial services, the team successfully executed an excellent turnaround.
Last year, this time, we communicated plans and strategies to improve performance, particularly in Bidvest Bank, and the team has not only delivered on those plans, but they've exceeded expectations. Revenue at ZAR 2.7 billion is up 12%, driven by increased capital deployment in Bidvest Bank and higher interest rates. The growth margin improved year-on-year, and expense management was outstanding, with costs only increasing 1.2%. Trading profit at ZAR 463 million is significantly up on prior, with core trading profit at ZAR 329 million, and investment income up ZAR 117 million. What is more pleasing is that the current level of profitability is 40% higher than the profits reported in the 2021 financial year, so the division is tracking well ahead of plan.
The trading margin in ROFI, while up, remain a focus area of improvement in the 2024 financial year. Bidvest Bank produced an incredible result. We are now a 100% digital bank, as all retail branches have been closed. The optimization of our credit processes is yielding results. The cost to income and credit loss ratios have improved materially, and the bank remains adequately capitalized. The bank team must really be commended for this turnaround. The short-term insurance business delivered an acceptable result, while FinGlobal and Compendium delivered excellent results. The life business improved profitability, but notwithstanding this, as Mark indicated, a decision has been taken to exit this business, and we have therefore made the required disclosures in the financials. Also note that there is no further update on the investigation into the life insurance industry by the Competition Commission.
To the financial services team, congratulations on a phenomenal turnaround and a pleasing result. I'm going to make one or two comments on Adcock. If you recall, we did announce at half year that Adcock will no longer be reported as part of branded products, but we'd report it separately as a subsidiary of the group. And so I will keep my commentary limited, because Adcock is separately listed, and Andy has already delivered the 2023 results. The Bidvest shareholding in Adcock now sits at 62.3%, and as previously communicated, we will increment the increase our equity in the business as and when the opportunity arises. Adcock delivered revenue of ZAR 9 billion and a trading profit of ZAR 1.2 billion.
The defensive nature of the product offering in this business remains appealing to us, and we continue to support their strategy of increasing the non-regulated parts of their portfolio. Kevin Wakeford retired from Bidvest and therefore from the Adcock board at the end of March 2023, and Mark has been appointed onto the Adcock board. This is a solid result by the Adcock team, and I'd like to congratulate them for this performance. That closes out the operational review, and I'm moving now to the next slide, which is basically just a summary on our value proposition. And just touching on the non-financial aspects of the business that are equally important and also drive the financial results.
You know, the wonderful thing about a growing organization is that you create jobs, and so we're proud to report that we created just over 6,000 jobs during the period under review. Diversity and inclusion remain a key focus, and our Exco team leads by example, and today the Exco is 58% Black, and yes, 58% female. We've got more women in our Exco team, and it's wonderful. We've reduced our emission and water intensity by 32% and 38%, respectively, and gradually increasing green energy sources across the group. Our focus on ESG is important. There's still a lot to be done in this space, and we remain committed to matching our financial result with an equally solid non-financial performance. Going to the outlook.
The macro factors that we contended with in the 2023 financial year remain broadly unchanged going into the 2024 financial year. Our businesses are geared to navigate these headwinds and will continue to find pockets of above-average demand and growth. We expect robust demand to continue in the renewable, mining, agriculture, and inbound travel industry. We accept that from a renewable and a travel industry perspective, the exponential growth is probably over, but we do expect the demand to remain robust. In the fourth quarter of the 2023 financial year, we saw a new green shoot, which was an increase in government spend, mainly in local government, and this was on basic infrastructure. It's still early days, but if the stimulus continues into the 2024 financial year, it will be good for our trading businesses.
The SA consumer is under immense pressure due to rising interest rates and high inflation, and we'll keep our eye on the impact of consumer buying patterns and ensure that our entry-level and affordable product offerings capture the shift in purchasing decisions. Innovation and technology continue to support our product and service offering, and margin and cost management, as Mark said, will remain top of mind. Our M&A pipeline is full, it's exciting, and it's executable. In closing, the 2023 financial year has been a remarkable year, and I would like to extend a huge thank you to the 250 businesses that produced these results. Outstanding leadership is at the heart of top performance, and so to the entire Bidvest management teams across South Africa, Swaziland, Namibia, Mozambique, the U.K., Ireland, Spain, and Australia, congratulations on another stellar performance.
These results demonstrate your ability as management teams to drive operational excellence. The results demonstrate your ability to mobilize teams to deliver beyond their own expectations. As I said before, I'm blessed to be part of this team and do not take this moment in time for granted. To our shareholders, thank you for backing us. We won't disappoint you. Thank you very much.
Thank you, Mphumi. We should have a moment of silence... Those, those strong closing comments. We will take questions via the phone line and via the Call Cam website. Operator, if you can just give the instructions again for the phone line questions, and then we'll start with those questions we've received on the website, on the website.
Of course. Of course, ma'am. For those on the conference call, if you would like to ask a question today, please press star and then one now. If you would like to remove yourself from the question queue, please press star and then two. Again, if you would like to ask a question, please press star and then one now. We'll pause a moment to see if we have any questions on the phone lines. At this stage, there seems to be no questions on the phone lines.
Okay. All right. Let's start with those questions that are via the website. Firstly, a question here around... The freight division has performed magnificently over the last two years, more. The question is: Is the margin sustainable at 26%? And what's the outlook for this division?
I'll take this one. I love talking about freight. Is the margin sustainable? I mean, the opportunities to improve margin in this scenario relate to improved infrastructure in South Africa, and specifically rail. I think everyone has seen the rail results that have come out recently. The TFR performance unfortunately has not been good, and we're seeing it in our underlying businesses. We're seeing the lowest level of rail volumes in the history, in our history. And really, what you need is to move high volumes of particularly the bulk products, both the minerals and the grains. You have to have an efficient rail system. So I think the opportunity for rail improvements could significantly improve margin.
There are other efficiencies that also flow from that, because what you would then take off is significant truck volumes off the road infrastructure, which is obviously impairing things as well. So I think that's a big opportunity to improve margin in that space. If I think across other opportunities in this business, this business has obviously benefited from poor performance within the Transnet environment. And, you know, so we've been building infrastructure around that. The customers and suppliers continue to try and move product. But the other thing that will happen if rail infrastructure starts to improve is you will see more volumes start to pass through the system, which is good for everyone.
I mean, I think one of the big frustrations of the larger exporters in the current year is that the pricing supported good product movement, and we just haven't seen that, those volumes flow. I think the volumes on the coal line to Richards Bay are probably indicative of the scenario. So I think those are good opportunities to potentially improve the volume through the business and improve margin into the next year.
Thank you. Thank you, Mark. And then, Mpumi, there's a few questions that sort of got the same undertone. Just an update on the Transnet project.
Mm-hmm.
that you previously spoken about, and opportunities there.
So maybe just to make a broader comment that before I go into anything specific to asset, we are very pleased by the progress that we see from Transnet in terms of public sector participation. And as I'm sure most of you are aware, the tender for the PSP for the Durban Container Terminal has been adjudicated, and that's now out of the way. There was another opportunity for Boegoebaai, and there is a consortium that is now leading, putting on the table a final proposal to Transnet, which is good. So those are, you know, those are two key decisions that have been made by Transnet that really bring in private sector participation materially into the space. We still await the adjudication of the NatCor line. So that tender was out beginning of this year.
We've participated in that process, but we don't have a result as yet, so that remains pending. And then in relation to our other conversations, we're making good progress. As I said previously, we are under, we're under NDA, so I'm unable to, to disclose anything further. Other than that, I think we're making good progress. Yeah, and so I think probably we need another 12 months in order for us to give a definitive view of, you know, what has been agreed.
Thanks, Mpumi. Mark, maybe this, this one is for you. We talk about the M&A pipeline that is looking healthy and good. Do you care to elaborate a little bit about the size and the content of that M&A pipeline as far as you can? And are you comfortable that the group would take on more debt with the current net debt EBITDA ratio sitting at 1.7 times?
Thanks, Elizabeth. I'm not gonna comment on the overall size of the portfolio other than to say it's the most healthy we have seen for quite a few years. So that's very, very encouraging across a broad spectrum of industries and geographies. So we're very active in lots of areas that we've indicated strategically that we want to target. Nice to see opportunities coming up into some of the newer geographies, like Australia, where we entered in this last financial year for the first time. So that's progressing well. Do we have appetite to increase debt in relation to this M&A? Yes, we do. We have comfortable headroom, not only in our covenants, but to our internal kind of targets from a net debt EBITDA perspective.
We've always said that we sort of, while the covenant is 3 times, internally, we target kind of a cap of 2.5 times, and sort of headroom from there down to 1.7, with obviously additional EBITDA with a rise post-transaction is sufficient for what we have in play. And we've got enough debt capacity to be able to handle that.
Thank you, Mark, for that. Mpumi, there is a few questions on this one. We reference a contract that was re-scoped within Services International. Maybe just a little bit of extra info there would be appreciated.
Yeah. So, there is quite a sizable contract that has been re-scoped. We managed to extend the tenure of that contract instead of going out to tender. And generally, when you kind of get yourself additional couple of years on the tender, you know, you have to reprice in order to be able to retain, we've repriced that contract, but also the client has also just significantly reduced their portfolio. So not so much the repricing, but the impact of the significant reduction in the size of the portfolio is what is reducing profitability for that business. It's material for that business. But yeah, look, for us, it was important to stay in the game for another couple of years. We'll do our best to just try and hold that profitability where that contract is concerned, and obviously focus on other new business, you know, to top up.
Thank you for that, Mpumi. Then, two questions relating to the automotive division. The first is a little bit on Kabi, the size of the business, the plans for that business. And then, a second question in that division is, there seems to be a bit of auto excess, auto stock floating around, not just here, but in the industry. What are we seeing? How do we think this plays out?
Thanks, Ilze. So Kabi, as Mpumi has already alluded to, has been launched. We are going in relatively slowly, and we are growing in quite small. We're very cognizant of pressure within the industry and specifically in the used car space. So we have in the current sort of twelve-month period, we're targeting, I think it's about five or six pods in total, principally in Gauteng region first, with a slowish rollout. What we are doing is we want to be able to trade profitably from quite early on.
We don't want to overly commit infrastructure or inventory into the model to impede it in a cycle which from a used car perspective is under some pressure. That said, the appeal for the sector for us remains. The opportunity to be able to trade vehicles outside of a pure OEM retail space is certainly appealing for us, the additional margin that you can acquire in that space. And so we'll go in slowly without massive capital commitments to the process, and we're still very encouraged by the opportunity. We think that the tech that sits behind this business is particularly appealing. From an excess stock perspective, yes, there is excess stock in the system. We did flag it during the presentation.
The reason being that you have seen the consumers under pressure at this point in time, and certain of the OEMs have taken a view on what they anticipated consumption levels to be, and it hasn't materialized. So the consequence is a lot more stock in the system than previously there. Are we uncomfortable with that level? No. We will actively work to move that stock through the system and have comfortably taken the necessary impairments, et cetera, to cover it. So very comfortable that we can handle the excess stock that we have in our system. It will just take a little bit of time to work through.
Maybe just to highlight that the excess stock is not sitting in Kabi. I mean, Mark has said it.
Correct.
but maybe just to voice it over.
Yes.
That it's sitting in our original McCarthy business.
Great.
Thanks for that, Mark. Mpumi, two questions relating to commercial products, maybe. The first one is, you spoke about the sales mix change in commercial products affecting the gross profit margin, but also flagged renewable sales at 10 times increase. Would this imply that the margins on renewable sales are lower than the division overall? Just one, and then the second one also, could you give a little bit more color on the green shoots around the public sector spend?
Okay. Yes. So if you look at the overall basket in commercial products, the margin that we're extracting out of the renewable space is lower. It's not at the same margin. It's still a good margin, but it is lower than the overall basket. Public sector, look, we can only assume that it's potentially driven by an election period that is coming in 2024. We're just seeing demand coming through specifically from a local government perspective, and I think it's because it's coming from a local government perspective that we're making an assumption that it could be stimulated by, you know, wanting to show service delivery prior to an election period. That generally happens. So yeah, and I mean, it's in basic infrastructure.
So I mean, the areas of our business, if that holds, that will obviously benefit, is where we're providing cable, strut, basic electrical products and consumable, even plumbing, really across the board. So yeah, we'll see.
Okay. Thank you for that, Mpumi. Let's take one more here, and then we'll go back to the lines to just see. First, Mark, maybe for you to sort of multiple questions. Firstly, your expectations around CapEx and working capital for 2024.
Okay. Well, CapEx perspective, I mean, we've been sitting around ZAR 2.5 billion-ZAR 3.5 billion for the last number of years. Very comfortable with that level, targeting for next year, probably around the same range around 3 billion, it would be, from a CapEx perspective. And then working capital, overall flows will mirror our normal working capital cycle. So anticipate an absorption of working capital in the first half. It won't, we don't think, be at the same level as the absorption that we saw this year. So this year we saw ZAR 5.5 billion in the first half. Not anticipating anything quite that big, and then a sizable release in the second half.
Okay. And, sort of last technical question before I just go to the line.
Yeah.
Can you explain why the Adcock number in Bidvest is different to the one?
Oh, the-
Closed by those?
This question was always coming.
Yes.
Okay. There are certain consolidation adjustments that take place at a group level, which don't exist within the Adcock space, but exist at our space. I'll give you a very simple example of one. Certain of the properties within Adcock are owned by Bid Prop, which sits within Bidvest. And then certain IFRS 16 adjustments happen with respect to those within Adcock, which we then unwind at a group level. So there's always gonna be adjustments that will take place. Our results will mirror theirs, but will never be quite the same as.
Okay, good. Thank you, Mark. Then maybe I can just check whether there's anyone on the line with some questions. Otherwise, we'll take the-
At this stage, there are no questions on the conference.
Thank you very much. Then, let's just go back to Services International. Question here is, and I think you might have said that, Mpumi, but, BIC, how is that doing relative to expectations?
I think I did indicate-
Yeah
... that BIC is performing in line with the expectations. They've done well in relation to the budget that they set themselves prior to acquisition. New business has been strong. Very happy with that team, hey. Yeah, very happy.
All right. Mark, then maybe one for you. Can you provide some color on the percentage of cash flows coming from South Africa? And does management intend to restructure the debt to be mostly local and not offshore debt?
I'm not gonna comment on the cash flows from S.A. From a debt perspective, so it's something that we're looking at. Obviously, in the movement in the rand in the last year has been quite significant. You can see the impact of it coming through the balance sheet, and particularly on the debt line, on gross debt. So it's something we will monitor, and should the opportunity be there... I mean, obviously, in doing that, what you do is you take a margin penalty because our rates here are more expensive than they are offshore. But it's something that we continue to monitor. And depending on what the rand does, we will look to do something or not.
All right. Thank you, Mark. Let me just... There's a few bits and pieces on Adcock, and let me repeat what the team has said, that we will incrementally increase our stake in Adcock as and when the opportunities present themselves. There is no intention to take Adcock off by 100% at this point in time. Opportunistic as we go, as you've seen us do the last few periods. That's what we'll say on Adcock, for the moment. Mpumi, then a few questions. When the private sector is working with government, how is Bidvest involved in these initiatives? And does it present any specific opportunities, for the group?
Yeah. So I mean, you know, the work with government is obviously very encouraging. We've got key areas that we've identified for collaboration, and they're around the problems of the country that are our Achilles heel, right? They're around energy, they're around transport and logistics, with obviously a big focus on rail, and they're around law and order and corruption. I mean, those are the three probably key areas that if we could sort out for the country, we could just move ourselves forward in a big way. From a Bidvest perspective, you know, we're always involved. We're close to this. Our involvement is obviously through BLSA. Our involvement is also through BUSA. And the implementing private sector arm, if I could call it that, is B4SA, which was formed during COVID.
That's when B4SA was formed, during COVID. And that, that was probably the biggest triple P, not only in South Africa, but I think globally. And if you saw what we were able to do during that COVID period in terms of distribution of vaccines, et cetera, what we've done is we've taken exactly that blueprint structurally and said to government: How do we replicate what was a fantastic success over a 12-24 month period, and do that now to move the economy forward in these three key areas? So I mean, we're involved, we're part of those discussions.
We understand what is happening, and I, and I think what's important is for us, from a private sector perspective, to really just put as much on the table as we can to support government resources, as much as we can, to just move all of those work streams forward.
Thank you for that Mp umi. And maybe as a final question, the Fed has reported significant trading profit growth from the 2019 base. Are there any areas that you see as particularly elevated or hard to defend?
So I mean, I wouldn't use the word hard to defend, but I would certainly say that the growth rate has to normalize, right? Because if you think about coming out of 2020, we had this massive growth rate, but because we were coming from a significantly down position, right, in the 2020 financial year. So you saw this big surge going into 2021, and then into 2022, there were a couple of material sectors that were still not there. And, and obviously we saw another recovery coming through. And then less so in this financial year. I mean, this financial year, I'd probably say the rebase in recovery has been in travel and tourism, because renewables is new. That, that had nothing to do with COVID. That was just new opportunities, coming on stream.
So, I mean, the comment that I would make is not so much hard to defend, but that there has to be an expectation that the growth rate is not going to be at those levels. Will we still grow? Absolutely. I mean, we are intent on ensuring that we deliver a result that beats the macros and beats our competition. So, you know, so that commitment doesn't go away. But certainly, the 30%+, et cetera, that's massive, and we accept that that tailwind that we had isn't there. But we'll continue doing what we do well, finding pockets of opportunity, finding pockets where the growth is exponential and not worrying ourselves around this 0.2% GDP growth in South Africa. Our pipeline of M&A is strong, and we'll, we're focused on executing on that pipeline Yeah, I think, I think that's probably. I should leave it at that.
That is, that is crystal clear and a good way to close off this call. Thank you everyone for participating, taking the time to work through these results. We appreciate it, and we'll be in contact and in conversations with most of you guys over the next few weeks. Thank you very much.
Thank you very much.
Thank you.
Cheers. Bye.