Note that this event is being recorded. I'd like to turn the conference over to Ilze Roux. Please go ahead, ma'am.
Thank you, Judith. Good morning, good afternoon, everyone. My name is Ilze Roux. I'm the Corporate Affairs Executive for Bidvest, and I have the pleasure of welcoming you onto the call today. Thank you for your interest in Bidvest. These results reflect resilience in diversity, our focus on operational excellence regardless, good cash generation, our distinctive approach to creating social value for all, and executing our simple and clear strategy. As is customary, Pumi Madisa, our Group CEO, will make some high-level remarks before Mark Steyn, Group CFO, delves deeper into the numbers. Pumi will then follow with a detailed review of each division's performance and close out 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 Bonang Mohale, our Chairman, for some opening remarks. Bonang.
Thank you, Ilze. This is always a really interesting and engaging time of the year for us here at Bidvest as we get the chance to share and discuss our half-year results, future prospects, and the many and varied external factors currently at play globally. I'm continually amazed at how Nompumelelo and our leadership team continue to demonstrate the resilience and agility to continually reposition our business for success in response to the world around us, and at the same time advance Bidvest's attractive growth prospects, and thereby ensuring that Bidvest remains well-positioned to continue delivering value for many years to come.
We continue to have a resilient, diverse portfolio with substantial embedded optionality, a strong balance sheet, and a robust capital allocation framework that positions us well to unlock even greater value from our assets, always starting with our people, while allowing us to deliver great results for shareholders and to create social value for those around us. This is Nompumelelo.
Thank you very much, Chairman. Good morning, everybody, and thank you very much for joining us. In a tough trading environment, I'm confident that the Group delivered a decent half-year result. Our performance over the past six months is characterized by the following two occurrences. The first grouping of events is really exceptional performances from four of our six divisions, with Services South Africa up 16% on the trading profit line, followed by Automotive up 14%, then Branded Products up 10%, and our International Operations up 9%. The second grouping of occurrences is a contraction in three isolated areas, being zero export maize, which I indicated at the 2024 year-end results presentation. Continued decline in rental sales also signals at 2024 year-end an unexpected drop in volumes and margin in Adcock. The impact of these three isolated areas of contraction is roughly 7% on the trading profit line.
On corporate action, we concluded six transactions in the period, which strengthened our operations in the following manner. DEKRA, a vehicle inspection and roadworthiness testing business, and Serco, a truck bodybuilding business, diversified our automotive offering and reduced the cyclicality of our motor retail earnings. Spec Systems has expanded our print labeling and barcoding offering. WearCheck, a condition monitoring and water testing business, has added a new growth pillar and area of expansion for our Services South Africa portfolio. NexGen expanded our niche facilities management offering in the U.K. And lastly, Countrywide expanded our hygiene consumable offering to the healthcare sector in the U.K. We've executed well on our strategic decision to exit the banking industry, having signed a binding agreement for Access Bank PLC to acquire 100% of Bidvest Bank for ZAR 2.8 billion.
Mark has included a slide for discontinued operations, so I'll leave the balance for him to talk through. Lastly, in my opening, the financial results are coupled with a continuing strong focus on business sustainability and creating social value in all our operating territories. I'm pleased to report that for the first time ever, the Group achieved a Level 1 B-BBE rating, a really outstanding milestone for a Group our size. This reflects the focus across all our businesses on inclusive growth and reflects the strong socioeconomic commitment we have to broader society. I'll expand on our sustainability progress later in the presentation. Moving to the results highlights, Group revenue at ZAR 64.5 billion is up 5.7%, with a strong contribution from the acquisitions. Five divisions reported revenue growth. However, the contraction in maize export volumes, renewables, and adc ock sales eroded the overall organic growth to 1%.
Our gross margin was lower at 27.6% compared to 28.3%, mainly due to a change in mix across the divisions. Expense control was excellent, with expenses increasing 5.1% and impressively only 1.8% excluding acquisitions. Our expense margin remains relatively stable at 18% compared to 18.1% in the period. Our three isolated headwinds, being zero maize export volumes, lower renewable and adc ock sales, unfortunately neutralized the organic and acquisitive growth, resulting in a flat trading profit of ZAR 6.3 billion and a trading margin decline from 10.3% in the prior year to 9.7% in the period. As indicated earlier, four of the six divisions reported profit growth, and our offshore operations now account for 25% of profits compared to 22% in the prior year.
Cash generated by operations was excellent, increasing by 18.4% to ZAR 4.5 billion, and our balance sheet remains strong with our gearing levels unchanged at two times, notwithstanding the additional ZAR 4 billion capital deployed for acquisitions. Returns have tapered due to capital deployment on the back of flat earnings, and so we've delivered a 37.9% ROFI compared to 40.9% last year and a 14.4% ROIC, which compares to 15.5% in the prior year. We still remain comfortable that our ROIC remains ahead of the Group's weighted average cost of capital. In relation to overall earnings, Group headline earnings per share increased by 2.8%, with the associated Group normalized HEPS at 0.6%, and on a continuing basis, HEPS was down 1.1% and normalized HEPS down 0.4%.
Lastly, in line with our dividend policy of 2-2.5 times cover, the Group declared an interim dividend of ZAR 4.70 per share, which is up 0.6% on the prior year. I'd like to now hand over to Mark for the financial overview.
Thank you, Pumi. Good morning, good afternoon, everyone. Just some opening comments before we dive into the detail. While the first half opened with the anticipated promise of supporting tailwinds, the resulting trading environment was somewhat more constrained. Generally, the consumer is under pressure. The infrastructure revitalization remains frustratingly elusive. Despite this, we have strategically delivered on a number of our key objectives and maintained the growth mindset which Bidvest is known for. We saw good performances from four divisions, while two others saw volumes materially decline. Our M&A momentum from last year pleasingly continued. Cost control remained good, and further action is being taken to enhance our operating leverage. The cash performance was very solid, with good operating cash generation supplemented by a seasonally lower working capital outflow, and our investment in both CapEx and acquisitions continue. This half has been very active from a debt perspective.
On the domestic front, we've issued our largest bond to date at ZAR 2.9 billion over four tenors. We achieved our best spreads on this issuance and have also increased our debt maturity profile. Internationally, we successfully tendered $322 million of the Eurobond at a discount to par of 1.75% and unwound the related hedges. This reduced the overall Eurobond to $478 million and thereby reduces the placement risk of this bond later this year. We have good debt capacity both internationally and locally, which is sufficient for the potential M&A pipeline, and our net debt EBITDA has been maintained despite increased investment in M&A, CapEx, and working capital. As Pumi referenced, we have completed six transactions in the half, including two businesses in the U.K. and four businesses in South Africa.
The pipeline remains good, and we are awaiting feedback from the U.K. CMA on the potential acquisition of Citron, which is a hygiene services business in Canada, the U.S., and the U.K. The disposal of Bidvest Bank, FinGlobal, and Bidvest Life is progressing well. We have binding SBAs signed for Bidvest Bank and FinGlobal, and the principal CPs on these two related regulatory approvals, which are currently being engaged. These entities have been disclosed as discontinued operations. With this as a backdrop, let's have a look at the more detailed results. In terms of our income statement, revenue up 5.7% to ZAR 64.5 billion, supported by good acquisitive growth. We've seen growth in Services International, Services SA, automotive, and branded products. Good business wins and some volume growth have been partially diluted by increased price competition.
We've also seen within the commercial product space some revenue pressure with a slowdown in renewables, and similarly in Adcock with a destocking of the pharmaceutical wholesale supply chain. In terms of our acquisitions, the acquisitions have provided 480 basis points of growth. But we'll unpack the divisional results in more detail later in the presentation. From a gross income perspective, our gross profit is up 3.2%, while our gross profit margin was under pressure and has fallen 66 basis points to 27.6%. This was impacted by business mix as well as margin contraction on certain contract renewals. More contracts are going out on tender, and e-procurement systems create less opportunity to differentiate our product and service offering. The gross margin has also been impacted by higher wage inflation, which is prevalent in most jurisdictions, but most noticeably the U.K.
From an expense performance perspective, I think our expense performance was particularly pleasing. Operating expenses up 5.1% versus a revenue increase of 5.7%. At an organic level, though, expenses are up just 1.8%. Payroll inflation, as reflected in the gross margin above, as well as utility costs, are impacting operating expenses. These inflationary pressures were partially moderated by lower overtime costs. A number of the businesses are engaged in restructuring and rationalization processes to improve the operating leverage. Our expense ratio improved to 18%. There is a keen focus on cost containment right across the Group, which is again a feature of these results. From a trading profit perspective, overall trading profit is down 0.5% to ZAR 6.3 billion, and while underlying organic growth was negative, it was supported by good acquisitive growth.
In terms of the individual divisions, Services SA had a great first half with a good contribution from the security and aviation cluster, higher volumes through the lounges, and improved inbound travel. The allied cluster was similarly good with good water sales. The acquisition in this division, WearCheck, is performing very well. In branded products, office products, and office automation remained strong, supported by packaging and consumer products. Good M&A progress is being made with a number of opportunities still in process. Strong results were generated by Services International, supported by continued strategic M&A, creating enhanced geographic representation and a broader service offering. The benefits of the diversification strategy within the automotive division are clearly evident, with a soft franchise retail environment being supported by the growth in the used vehicle portfolio, the contribution from the allied acquisitions, and good performance of the insurance businesses.
While freight was materially down, this was largely expected due to high maize and mineral volumes in the prior year. The remainder of the division performed well, with increased volumes benefiting from greater handling capacity. Commercial Products results were down following lower renewable sales, which is a function of the reduced load shedding and stagnant overall industrial demand. We're not yet seeing the benefit of material infrastructure renewal programs. The Adcock result was disappointing, impacted by declining consumer spend, reduced inventory holdings in the pharmaceutical wholesale channel, and factory under-recoveries. Looking now at our debt and our long-dated funding, as I said earlier, it's been a very active half, but we continue to maintain the conservative and consistent approach with prior years.
In terms of our net debt, net debt after cash and cash equivalents is up ZAR 5.7 billion to ZAR 30.9 billion, and this is following investment in working capital of a further ZAR 3.6 billion and similarly a further ZAR 3.5 billion in M&A as we continue to build our base. We continue to proactively manage our debt mix. In SA, we have increased our domestic bonds at better spreads and with increased tenure. We've also issued preference shares for certain of the bolt-on acquisitions. Internationally, we've had a successful tender of ZAR 322 million via Eurobond, which was funded by the RCF. We have now substantially de-risked the Eurobond refinancing with only ZAR 478 million outstanding. It is still a big number, and we intend to renew this funding in the latter part of this calendar year.
We hold 61% of our gross debt offshore and 60% of our net debt, and 81% of our gross debt is of a long-term nature. Our debt mix, as we reported at year-end, remains overweight on variable interest rate debt, and we've benefited from the rate reductions, but we are closely watching pricing at the moment as increased geopolitical tensions have slowed the rate reduction momentum. The growth in the underlying net debt base, together with higher average interest rates, have increased our interest costs, and while the overall cost of debt is up just 5.4%, if the impact of IFRS 16 and the hedge value adjustments are excluded, finance costs are up 17%, reflecting the growth in the debt base. We are well within our covenants.
Our net debt EBITDA is at two times versus two times a year ago, and the M&A added about 0.25 of a turn in this regard. From a purely offshore perspective, the net debt EBITDA in hard currency sits at five times post the NexGen and Countrywide acquisitions. What is important to remember, though, in this context, this is effectively a permanent feature of our capital structure as we remain overweight on our offshore capital allocation. Our overall average cost of debt at 6.9% pre-tax is up slightly from the close FY24, and that really reflects the growth in our gross debt as well as the more expensive RCF debt, which has replaced $322 million of the cheaper Eurobond, and this will impact the second half of the year. In terms of our EBITDA interest cover, it's at 6.4 times, well in excess of our covenant of 3.5 times.
In terms of M&A capacity, we have sufficient M&A capacity for our pipeline with EUR 102 million available offshore and ZAR 16 billion available domestically. Moving now to cash flow, the cash flow in the first half has been very good. The underlying cash generated by operations before working capital is up 8.1% to 8.1 billion. We have invested 3.6 billion in working capital in the first half, which is about 600 million lower than the seasonal outflow in the prior year. In terms of the various components, we've increased inventory, but relatively modestly with increases in branded products and Adcock, and we're actively destocking in commercial products, renewables, and in certain OEM lines in automotive. Our stock days in certain of the businesses remain under pressure, although we are comfortable with the quality and the saleability of the stock.
Our debtors have decreased by 1.7% since June, with a slight increase in the overall aging, but the underlying book remains in good shape with adequate provisions. The creditors have decreased in line with the normal first half seasonality. As per normal, I've included a cash generation graph reflecting the first half where you can see the seasonal cash outflow, which is consistent with the normal working capital cycle for the Group, and our operating cash generation remains strong. Then, from a discontinued operations perspective, the disposal process for Bidvest Bank, FinGlobal, and Bidvest Life continues to make progress. We have signed SBAs for both Bidvest Bank and FinGlobal and are in the process of working through the various regulatory approvals, which are the primary CPs. We hope to have these processes completed by June 25.
From an operational perspective, Bidvest Bank is performing satisfactorily with the deposit book and regulatory ratios healthy. Both FinGlobal and Bidvest Life reflect good growth. These three entities have been separately disclosed as discontinued operations in terms of IFRS 5. Just to note that in terms of the standard, the depreciation and amortization is suspended as part of this disclosure, and we have adjusted for this in the normalized headline earnings. The proceeds from these sales will be used to repay debt. Just some final concluding thoughts. In a trading environment that remains tight, good progress has been made on a number of our key strategic objectives. We continue to deliver on our M&A pipeline with a number of transactions still in process for the second half. We continue to actively manage our capital structure and debt profile and are closely monitoring funding costs.
Cash flow and cost management remain core to our day-to-day management. And finally, geographically, we're making steady progress, and our international revenues now represent more than a quarter of the Group, and this remains a key focus area. Thank you.
Thank you. That takes us to the operational overview. So just starting with Services International. The team delivered an excellent result with profits roughly split equally between hygiene and facilities management services. Revenue at ZAR 21.4 billion was up 11%, driven by new business wins and continued hygiene progress. Contract losses in certain territories and the strengthening of the rand moderated organic growth. The top line was also boosted by the acquisitions of Next Gen and Countrywide. The gross margin was slightly diluted due to the mix change as the facilities management businesses grew at a faster rate than the hygiene businesses.
The above inflation expense increase was driven primarily by the consolidation of costs from the acquisitions, and on an organic basis, expense management was excellent with growth of only 3%. Trading profit at ZAR 2 billion is up 9%, an excellent result from the team, and the trading margin at 9.5% was slightly down from 9.7% in the prior year due to the gross margin impact explained earlier. Roughly at 141.7%, it's significantly up on the prior year's 131%. Turning to the operations, 74% of the profits in the division are generated offshore. The FEM businesses delivered an excellent result driven by good new business wins, excellent cost control, and their contribution from NexGen. The BIC consolidated integration process is now materially complete. The hygiene businesses delivered a solid result driven by continued hygiene pool growth, excellent business wins, solid retention, and their contribution from the Countrywide acquisition.
We're also very happy with the performance and growth momentum of our newly acquired business in Singapore. The second half focus for our hygiene and facilities management businesses in the U.K. will be on wage recovery due to the increase in the U.K. National Insurance. And lastly, as previously reported, we completed the due diligence on Citron and announced this potential acquisition in July 2024. The U.K. decision is expected in about a week or so. Congratulations to the Services International team. I think this team has delivered a really excellent result. Moving to freight, the freight result is in line with expectation as signaled at the 2024 year-end results presentation. I indicated then that we expect to handle zero export maize in the first half, and this materialized.
Revenue at ZAR 4.8 billion is up 8%, driven by billings and sales in our clearing and forwarding operations in South Africa and Namibia. Volume increases in our bulk liquid operations and increased sales in our warehousing and marine services business. This growth was offset by declines in bulk grain volumes and bulk mineral volumes in South Africa and Mozambique. The gross margin decline was primarily due to the materially lower high margin maize and bulk mineral commodity export volumes. The increased disbursements and clearing and forwarding activities also moderated margins. Expense management was excellent, with the OpEx line increasing only 3.3%. Trading profit at ZAR 1.1 billion is down 12% due to the volume and margin impacts explained earlier. The resultant trading margin also declined to 23% from 28.4% in the prior year. Roughly off the back of an increased funds employed and a contraction in earnings, declined to 46%.
Turning to the operations, the expected bulk grain volume impact materialized as we handled no export maize in the period. This resulted in a 45% decline in overall grain volumes. On the bulk mineral side, lower commodity prices put pressure on high margin commodity volumes, resulting in a decline of primarily coal volumes. Our bulk liquid operations delivered a stellar result off the back of customer rate escalations and improved capacity utilization. The butane spheres and 18 multipurpose tanks commissioned in October 2023 and August 2024, respectively, further increased the operational storage capacity, contributing to incremental revenue and profit. Our clearing and forwarding operations delivered excellent results, growing profits on the back of higher new and extension business and higher freight rates. Our warehousing and container business delivered a solid turnaround on the back of higher volumes due to increased rail support from Transnet.
Our Mozambique operations traded under very difficult conditions due to the loss of a key contract and the negative impact on port operations as a result of the post-election protests. Lastly, our Namibia operation continued to deliver a standout performance, benefiting from increased bulk volumes handled, specifically fertilizer, sulfur, and copper, as well as new business from the oil and gas drilling campaigns. I'm comfortable with the overall freight result. It's in line with expectation and ahead of budget, so I'd like to congratulate this team on a good set of results. Moving to Services South Africa, the team delivered an outstanding result with all clusters up on prior year. Revenue at ZAR 6.4 billion is up 9%, with all clusters showing good top line growth.
Strong organic growth was driven by new business, growth in our charter operations, improved inbound travel volumes, increased foot traffic in the lounges, and increased water sales on the back of a heat wave in the latter part of 2024. The WearCheck acquisition further boosted the top line. The gross margin improved due to an improvement in the sales mix and good cost of sales management in our catering and hospitality cluster. Expenses increased above inflation, primarily due to the costs of the WearCheck acquisition. Excluding acquisitions, expense management was excellent, with growth of only 3.8%. Trading profit at ZAR 721 million is up an impressive 16%, and the trading margin at 11% is up on last year's 10.5%. And roughly at 104.8% is up from 101% in the prior year.
Turning to the operations, the hospitality and catering cluster delivered exceptional growth due to a standout performance from the lounges business. The security and aviation cluster delivered excellent growth due to increased new business, contract extensions, improved air cargo volumes, and excellent cost control. The allied cluster delivered outstanding profit growth due to increased water sales, higher coffee and water cooler rentals, and increased sales in our indoor plants business. The travel cluster's excellent profit growth was driven by higher inbound travel volumes and improved margins across our various travel brands. Lastly, our newly formed testing and condition monitoring cluster comprising WearCheck delivered in line with budget and expectation, with growth driven by the successful onboarding and mobilization of new contracts. To the Services Team, congratulations on an outstanding set of results.
Moving to branded products, the division delivered an impressive result with all clusters up on prior year. Revenue at ZAR 7 billion is up 4.6%, driven by growth in furniture and office automation sales. This organic performance was countered by subdued consumer demand in the retail sector, where we're seeing consumers prioritizing purchasing of essential products. Spec Systems made its maiden contribution to the division, contributing to the top line. The gross margin improved due to changes in the sales mix. Expenses were exceptionally well managed, increasing only 3.4%, and excluding acquisitions, the expense growth was even lower at only 1.7%. Trading profit at ZAR 710 million is an excellent 10% ahead of prior year. Operating leverage was strong, resulting in a trading margin improvement from 9.7% in the prior year to 10.1% in the period. And the already impressive ROFI improved further from 37.8% to 39.7%.
Turning to the operations, the office products cluster delivered an outstanding profit result on the back of increased furniture orders, improved recoveries in the furniture factory, and higher pricing and gross margins from office automation sales. The data print and packaging cluster delivered a good profit result, countering revenue contraction with solid gross margin and expense control. The inclusion of Spec Systems boosted this cluster's result. And lastly, notwithstanding the lower than expected consumer demand, following Black Friday sales, the consumer products cluster delivered a good profit result due to excellent margin management, improved manufacturing efficiencies, and excellent cost control. Congratulations to the branded products team for an excellent performance. Moving to commercial products, the division reported a weak trading result impacted by the expected decline in renewable sales. Revenue at ZAR 8.4 billion is down 3.2%, primarily due to a decrease in renewable sales.
The renewables base is high, and over time, we will work through this historic sales boom. We continue to supply into the renewables market. However, sales have dropped materially from the peak of the 2023 financial year. The gross margin declined due to lower margin on renewables, negative sales mix, and pricing pressure across the balance of the portfolio. Expense management in the division was good and way below inflation at 2.6%. However, this was insufficient to counter the volume and margin contraction. As a result, trading profit at ZAR 542 million declined by 27%, and the trading margin also contracted from 8.6% to 6.5%. The lower earnings and higher funds employed resulted in a decline in returns, with ROFI at 8.6%, much lower than the 27% in the prior year. Turning to the operations, the electrical cluster declined materially due to the sales and margin impact of renewables.
There were some standout performances in the clusters, driven by good project work and increased demand for large power generation projects, where we continue to have a strong forward order book. Our supply of plumbing and related products went from strength to strength, with the business delivering an excellent profit result as product demand remained robust and four additional branches were opened. The packaging cluster delivered a superb result, driven by gross margin improvement, improved factory efficiencies, and good expense management. The DIY tools, workwear, and warehousing clusters struggled as trading conditions worsened. Growth in the DIY segment was more than neutralized by declines in demand in the industrial, construction, and mining sectors. Overall, subdued market demand also impacted trading. The catering cluster reduced profitability as export orders and local demand declined, while the general industrial cluster delivered a satisfactory result.
Lastly, the leisure cluster delivered a significantly improved result, driven by good demand from the motor, marine, and music sectors. It's been a tough six months, and I know the commercial products team is doing their best under the circumstances, and they'll keep their heads up and aiming for a better second half year performance. Moving to automotive, the team delivered a superb result, reflecting successful implementation of the diversification strategy. Revenue at ZAR 13.8 billion is up 4.7%, driven by gradual recovery in certain OEM brands, increased after-sales, materially improved sales in the non-franchise motor retail operations, and new business and rate escalations in the insurance businesses. This revenue was partially moderated by the decline in new vehicle volumes. The DEKRA and Serco businesses also contributed for the first time to the division.
Gross margins improved slightly due to the addition of the higher margin DEKRA business and an enhanced margin from the non-franchise motor retail business. Expense control was excellent, with costs increasing 3.7%, and excluding acquisitions, expenses were exceptionally well managed, down 0.6%. Trading profit at ZAR 506 million increased by an impressive 14%, and the trading margins followed this trend, increasing strongly from 2.8% in the prior year to 3.7% in the period. The division's ROFI at 26.8%, while down on prior year's 29.7%, has improved from the June 2024 year-end ROFI of 21%. Turning to the operations, in the franchise motor retail cluster, new vehicle volumes were down 2.7% against a flat overall dealer market due primarily to a reduction in new truck sales in commodity-driven markets. As a result, the new vehicle contribution declined year-on-year, and this decline was partially offset by increased used vehicle and after-sales contributions.
In the period, we have positive contributions from six new OEMs, with further rationalization of our existing dealer footprint underway. Our non-franchise motor retail cluster delivered an improved performance from CABI and an exceptional result from our auction business, Burchmores. And lastly, in this division, the automotive allied cluster grew profits off the back of increased gross written premiums, new business, and reduced costs in the insurance businesses. In relation to the new acquisitions, Serco delivered a result in line with expectation, and DEKRA outperformed off the back of strong new business. The automotive team has made a number of changes and additions to position the division for strong growth, and these results reflect solid strategy execution from the team. Lastly, on Adcock, Adcock delivered an unexpected weak performance. We really didn't see this coming as volumes declined and margins contracted.
Andy has already released results, so I'll give a shortened commentary on the business. Revenue was broadly flat at ZAR 4.7 billion due to 6.5% reduction in organic volumes, primarily as a result of a slowdown in the pharmacy and independent wholesale channels. This volume decline was partially offset by an average 5.3% price increase and a mixed benefit of 0.6%. The combined volume and gross margin declines resulted in a 17% trading profit reduction to ZAR 516 million and HEPS declined 9%, and Adcock declared an interim dividend of ZAR 1.15 per share. Moving to strategy and outlook. With regards to strategy, there are no material changes to report. We're in the process of executing on the strategic decisions made in the 2024 financial year. And so the only aspects to highlight on this slide are in the following three areas.
Firstly, given our exit of the banking industry, the financial services division no longer exists, and now we report only on six divisions plus Adcock. Secondly, on creating social value, we are working on our business sustainability framework 2.0. Our current framework comes to an end at the end of this financial year, and so in the upcoming annual report, we will be publishing our updated sustainability strategy that will probably cover a 10-year period, with obviously new long-term targets that we would want to achieve. As you're aware, the group's short-term and long-term incentive scorecards have sustainability-linked KPIs. These will also be updated in line with the framework. Lastly, in terms of financial strength and discipline, we're preparing to go back to the bond market around September this year. Our Eurobond is our biggest debt instrument in the group, so this is a very important upcoming process.
Moving to our value proposition, on this slide, I'd like to draw your attention to the graphs on the right. In 2023, we started the rollout of a medical insurance program targeting employees where affording a full medical aid is financially very difficult. This benefit is partly funded by the group, and today I'm proud to report that we have about 7,500 Bidvest employees and 1,250 dependents and children who, through this benefit, can now access private medical care. We're extremely proud of this initiative and aim to have at least 20,000 Bidvest employees and their families less reliant on the public healthcare system in South Africa, where access to private healthcare for them becomes a norm.
As we continue to focus on improving the group's energy mix, 5% of the group's power is sourced from renewable sources, and a project is underway to accelerate installations across the Bidvest portfolio, and we aim to finalize this and further improve our energy mix by year-end. Lastly, on this slide, I'd like to talk to succession. Our CFO of the Services International division, our largest division in the group, Trevor Scruse, who's been in the group for 54 years, retires in December 2025. Divisional CFO positions are key positions in the group, and as always at Bidvest, we're ahead of the curve in relation to succession. I'm happy to announce the following changes. Craig Turnbull, who's the current divisional CFO for Commercial Products, has been promoted to divisional CFO Bidvest Services International, effective September 2025.
Anthea Mayat, CFO Security and Aviation Cluster in Bidvest Services South Africa, has been promoted to divisional CFO Bidvest Commercial Products, effective September 2025. These promotions are a natural progression for both Craig and Anthea, who've both been in the group for 14 years and nine years, respectively. I'd like to wish both Craig and Anthea all the best in their new roles and to also thank Trevor for his contribution to the group. Turning to the outlook slide, in general, we expect market conditions to remain largely unchanged in all our operating territories. At a global level, the world has undergone a number of political changes in 2024. These changes have amplified geoeconomic fragmentation and global policy uncertainty, particularly where trade relations are concerned. In the group, we've assessed this geopolitical risk and do not see any direct impact on our operations.
We will continuously assess this global risk and ensure our operations remain nimble and agile to enable a quick response to any material changes. In South Africa, the GNU is taking a collaborative approach. Disagreement on certain policy issues, in my view, is not a reflection of volatility or uncertainty. It's a reflection of democracy at work. When parties with differing ideologies have to find a middle ground, alignment is unlikely to take place without a bit of friction in the system. So let's give the GNU some space to figure out a new way of working. On transport and logistics in South Africa, in my last presentation, I commented on progress in relation to policy reforms, citing the finalization and implementation of the Transnet Recovery Plan, the country's freight logistics roadmap, and the work being done by the National Logistics Crisis Committee.
Another positive development is the publishing of the rail network statement by the Minister of Transport in December 2024. Progress with respect to policy reforms is undoubtedly positive. Our recent engagements with Transnet have also been positive, and the progress Transnet is making with respect to accelerating implementation of their various port master plans is pleasing. The rail piece and private sector participation is the aspect that is high on the country's agenda, and our hope is that the recently appointed Chief Executive for Transnet Engineering and the Transnet Rail Infrastructure Manager Chief Executive, also recently appointed, will accelerate the pace of execution in this area of the country's supply chain. Moving away from the macros and focusing on the operations, we expect the headwinds related to maize export volumes and the elevated renewable base to continue to be a challenge in the second half of the year.
On maize, the maize export season that traditionally commences in May is still uncertain. It's unfortunately too early for us to give you a view on timing and crop size. On renewables, the base remains high in the second half. On the positive side, we anticipate that by June, we would have fully cycled through this base, but we'll have a firmer view once we see trading in July and August. On the upside, we see the following positives. Inbound travel volumes remain robust, and our inbound order book is also solid. Several of our lounges underwent refurbishment in the first half and are now ready for full occupancy in the second half. Added to this, South Africa hosts the G20 Summit in November 2025, and various G20 and B20 engagements are scheduled during the year in the lead-up to the summit.
We expect higher corporate travel volumes into South Africa as a result, and this will bode well for all our businesses supplying products and services to the travel and hospitality sector. I referred to various restructure exercises as I went through the divisional commentary, most of which will be completed in the third quarter, and there will be better revenue and cost alignment in these respective businesses from the fourth quarter of the financial year. From an M&A perspective, we'll have a full six-month contribution from the six acquisitions completed, and in our pipeline, we have a few more that may come up on stream prior to year-end, with the only sensitivity being timing for regulatory approval. Lastly, on growth CapEx, I'd like to highlight the following projects that have been approved. I must reiterate that the timing of these projects falls outside of the current financial year.
Firstly, ZAR 185 million was approved for fuel tanks in Richards Bay, and these are on track for commissioning in the first quarter of the 2026 financial year. Secondly, ZAR 120 million has been approved for the construction of a multi-purpose container depot and an import warehouse facility in Walvis Bay, Namibia. Both these projects are expected to be commissioned in the third quarter of the 2026 financial year. Lastly, ZAR 30 million has been approved for factory expansion in our water business. This will increase our water purification and bottling capability for the 2026 financial year by about 60%. In closing, I'd like to thank our management teams across South Africa, Swaziland, Namibia, Mozambique, the U.K., Ireland, Spain, Australia, and Singapore for their hard work and commitment to excellence in the period. As a team, we consistently give our best, and looking forward, that won't change.
We're focused on delivering a better second half result and believe that the strength of our diversified portfolio will again stand us in good stead. Thank you very much.
Thanks, Pumi and Mark, for those comments and a detailed conversation around these results. Judith, I am going to hand over to you to just explain the process of loading questions, and then we can get started on the Q&A.
Thank you. Ladies and gentlemen, if you'd like to ask a question, please press Star then One on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press Star Two to exit the question queue. Just a reminder, if you'd like to ask a question, you're welcome to press Star and then One.
For the benefit of the participants who have joined via the webcast, you can pose your written questions in the question box provided on your screen. Our first question from the lines comes from James Twyman of Prescient Securities. Please go ahead.
Yes, thank you very much, and thank you for the detailed presentation. I've got three questions, if I may. The first one is just trying to understand this increase in interest costs. So I've got interest costs up about 5%, and you mentioned that it was up 17%, excluding hedging. Could you just talk us around that? Secondly, regarding renewables, my understanding was that renewable sales fell off pretty sharply in the second half of last year, so I assumed that there would be an easier comparison in the second half. That doesn't seem to be the case. Could you talk us around the numbers on that?
And then just finally, you've talked quite a bit in the past about buying plumbing businesses internationally. I haven't heard anything about the results, so I just wondered whether that is still a core part of your international growth plans. Thank you.
Thank you, James. Maybe Mark can answer the interest cost explanation.
No problem, James. Thank you. So if you strip out, so the total cost is up 5.4%. If you strip out two pieces, one is the FR16 element of it, and two is the unwind of the hedges, what you do is you get kind of a more normalized or true interest cost increase, which is up about 17%, which mirrors the growth in the underlying gross debt.
The hedges piece, the fair value adjustment there, James, was quite positive for us because that was the unwind of the three hedges that related to the $322 million that we tendered through that offer, and that gain was about 100 million that's come into the system. In terms of the balance of the interest costs, what you've got in the system there is, for two months, a higher interest cost on the RCF because what happened is you settled the $322 million, which was at a fixed rate off the Eurobond at 3.625% in pounds, and you replaced that with, call it, circa 7% just over on the RCF. So that hurt the last two months of the year.
It will obviously impact the second half, and maybe just in terms of quantifying that impact on the second half. I mean, effectively, you've got, call it, 350 basis points on that $322 million for six months. That's broadly ZAR 100 million in extra interest. What will mitigate that to some extent is two things. One, the 75 basis point reduction in the local variable rates in South Africa, and also, call it, circa 50 basis points reduction across the U.K. and European rates. So I'm hoping to, of that sort of ZAR 100 million impact of the swap from Eurobond to RCF, to claw back about 70% of that in the second half. Thank you.
Thank you, Mark. That also answers another question that we had on the call line on interest. So that's fine. Pumi, maybe you can deal with James's two questions, the renewable sales base and the plumbing offshore. Okay.
Yeah, thanks, James. So on renewables, and maybe just to refresh minds around context will be important. So in our peak in 2023, and we had to flow some of these numbers, we were averaging about ZAR 300 million a month on renewable sales. FY24, that dropped to about ZAR 100 million a month. In the first half of the year, what we're seeing is an average of about ZAR 30 million a month. So I mean, that just gives you a contrast in terms of volumes. And so, I mean, our focus for the second half of the year is still that that base is still high relative to where we're at today and what the volumes look like today. And I hope that context is helpful. And then on the plumbing side, yes, so we just haven't found.
There was a business in the UK that we were in a process with. We walked away towards the end of that process. There was another one in Europe. Unfortunately, we weren't successful, and it was just priced. So we've been actively looking. We just haven't found.
Thank you very much.
Judith, let me go to the lines here while people queue on your side. Let's just have a—so Mark, a few treasury questions. It's around the gearing, the debt that looks a little bit heavier offshore versus the EBITDA. And what will you look at, and will you consider normalizing that a little bit between South Africa and internationally?
Okay, thanks. Thanks, Ilze. So we always disclose the differential between the offshore and the local.
That doesn't impact in terms of the overall covenants because we borrow at a group level, and from a group perspective, we're well within those covenants. The reason we want to show it is because there's an obvious difference between the level of debt versus the offshore earnings, and it's disproportionate. What will happen is, as we continue to invest disproportionately more offshore, that ratio will remain high. And what tends to happen is, in years when you do offshore acquisitions, the ratio goes up, like has happened in this year. We've gone from 4.8 up to five times. And then when you don't do acquisitions, what happens is the EBITDA benefits starts to come through, and the ratio goes down. It's going to fluctuate, as it has done for the last five or six years, on exactly that basis. We're not uncomfortable with it.
It is effectively part of the permanent capital structure that we have in play, but I mean, we do manage it, and we very actively do watch it. Thanks, Mark. And while sort of on that treasury, there was also a question on the line around the flexibility. How much flexibility do we have in terms of the offshore debt curing? Okay. So there's two key elements to our offshore debt. There's an RCF term loan facility for €750 million, and then there's the Eurobond. In terms of the Eurobond, I think we've been quite explicit over the last couple of calls in terms of where we land. Firstly, we had to de-risk the overall quantum, the $800 million, which we have done now through this last tender, down to $478 million.
We are going to go back to market in about September this year and look for a similar size number, depending on what the M&A pipeline internationally is looking like at that point in time. Given that we've now been in the market for at least, at that point in time, four and a half years, and the market now knows bit by bit, so it's not a vanilla offering like it was the last time, we will be able to look at longer tenors. And so we'll hopefully be able to look beyond just the standard of the stock down at five years and maybe look at either eight or 10 years, something like that, depending on what the pricing has looked like. So one is the Eurobond process and extending that, and that will then take it out to 2031 and beyond.
And then the RCF term, you'll record it with three years plus one plus one. So we had the option to extend up to five years. Last year, we had it exercised. The first plus one, we're in the process now of exercising the second plus one, and we've got broad support from the underlying lenders. So that will take that facility out to FY2028. So we've got appropriate maturity on both those big pieces of international debt.
Thank you, Mark. Let me take one more one here on my side before we move over. A simple one on the income statement, then I can move to Pumi. What is in the other income line on the income statement, Mark?
I think other is the clue. Okay. But the biggest single line in that is our investment income on the investment portfolios that sit in the insurance space.
That makes up just under half of it, that number, and then there's a whole lot of other things that go into that. But as you can see, I mean, it's a very small line in our income statement.
Thank you. Let's kick off now. Pumi, there's sort of three questions, and I'm combining them. It all relates broadly to services. So the first question is around, can you comment on wages and salary inflation and your ability to pass them on? Secondly, how long are the average length of customer contracts? And then thirdly, there's mention of key contract loss in facilities management. Could you share a little bit of color on that? So those three things of services.
Okay. Thanks, Ilze. So on our ability to recover wage increases, it's easier in our facilities management businesses and maybe a little bit harder on the hygiene side.
Our FM contracts are people-intensive, so the wage cost is the biggest cost. And so the conversation generally with our clients is, wages are legislated. This is what the legislated wage increase is, and that's what we need to recover. And generally, if we find that there's a short under-recovery, what we would do with the clients is talk through how we restructure that contract so that we're not reducing margin in order to absorb the additional kind of wage increase. So generally, legislated, you have a conversation with your clients. If you're unable to, then you would look at a restructure. The point that we raised specifically here around the national insurance in the UK is that that's a big number, right? So that's a big legislation that's come through the UK. It's not only in our industry, though. So this is something that is UK-wide across industry.
So as we go to market to have these conversations with our clients, our clients are also having to do exactly the same adjustment on their side. Average length of contract from an FM perspective, we've got many one-year contracts, but on average, two to three years. And the more diversified your contract is, so the more services you have in it, once you've got kind of cleaning, security, technical, hard services, etc., the more bundled it is. Generally, the longer it is there, you're talking about five years and plus. And then a key contract lost in the FM space was in Australi a.
Thanks, Pumi. Judith, shall we go to you, and then I can finish up the questions here on my side?
Thank you. Next question comes from Roy Campbell of Morgan Stanley. Please come ahead.
Thank you. Good afternoon. Two questions, please.
Firstly, just on the Citron Hygiene acquisition. Are there any other? Roy, we're losing you. Roy, we're losing you. Roy? Yeah, can you hear me? Yes. Okay, sorry. So diversification of autos, right, is part of the strategy. I mean, there's two ways to look at it. One is diversification away from new vehicle sales. Alternatively, it's within those new vehicle sales is diversification away from your traditional sales. Where is the growth coming from in that respect? And has the diversification away from traditional sales taken effect yet, or is that only an H2 scenario?
Okay. And Roy, what was your question on Citron? We didn't hear that at all.
Sorry. With Citron, are there any other regulatory conditions that need to be met after the 6th of March? And then what is the anticipated impact on the debt covenants given the timing?
Okay.
So I'll lift Mark onto Citron. Let me talk to auto diversification. So within the traditional franchise motor retail space, we're looking at diversification there in terms of mix, right? And so I indicated that we've got a contribution from six new OEMs, so we're looking at that from a mix perspective. So we are doing that. And then the second one around away from traditional OEMs, it's not so much away. I guess it's mix again, but we're wanting to play in the second-hand space in a way that we haven't played before. I mean, if you think about the car park, you actually have more vehicles in the age kind of five years and plus, and we haven't played in that space previously. And that's what CABI is going to do for us. In terms of a contribution from CABI don't worry about them in this financial year.
Their major contribution where they really start to have scale is going to come through 2026, 2027. Okay? So right now, they're building a footprint. They're building a brand. They're building a name. But what we're seeing is that in line with their business plan, they are tracking the business plan, so we're comfortable with that.
Just on Citron, so the two pieces. The first is the regulatory approvals. Yes, the CMA is the principal one that we are waiting for. We hope to have some indication week after next in terms of where they're going to land. In terms of impact on ratios, so rough numbers, minus ZAR 5 billion in terms of cost. We've got ZAR 3 billion coming in from sale of the bank, which timing would be probably quite similar. So you're left with a net ZAR 2 billion. We can do that off current cash generation.
So I'm not too concerned where that will take us from a covenant perspective. I think we're okay.
Wonderful. Thank you. Thanks very much.
Judith, is there another question on your side?
No, at this stage, we don't have any questions on the lines.
Okay. All right. So on this side, they've moved to freight. So there was a question around what does the business model transition in Mozambique entail that we referenced? If you could talk about that, Pumi. And then a question around, do we think the H2 freight outlook and prospect is a little bit more normal, I suppose? So the question is, let's see the narrative on the stuff outside. So if you could do that, please.
Yeah. Okay. So just on Mozambique, we have to restructure that business significantly.
Essentially, where we're at is that, and this is more in Maputo than it is in Beira, volumes have reduced by about 70%. It is significant. And so the transitioning of the business model is really just a very deep restructure that we have to do given the significant decline in volumes in that space. Secondly, on the freight side, more normal. Yes, I guess we're going back to previous seasonality that we used to see at pre-COVID level. And maybe also just to touch on, I mean, I also kind of referenced the fact that we think we may have a better second half of the year. And if I think about freight quite specifically, one of the things that we also just need to keep in mind is the base.
The freight base is where the challenge is because in the base, you've got maize and so on. So yes, seasonality. We're hoping for a better freight half year to half year, but there's a base that has got a significant volume that at the moment, I mean, we can't even tell you what's coming on the maize side.
Thank you. There's quite a few questions on what does better H2 mean for the group. So maybe while you're on that sort of theme.
Yeah. So better H2 for the group, we do think that we'll be able to deliver better results, H2 versus H1. But again, you have to think about the base, right?
So the base in the two areas that we've signaled as continuing headwinds is maize in the base, and we can't even signal to you what's going to happen at the moment with maize volumes. And they generally start around May, so they also start late in the year. And if we miss that, if the volumes don't start moving by May, then they're going to move later, which means that they're not going to be in this year at all, and they'll only start moving in the 2026 financial year. So that's a big sensitivity, and we can't tell you that. And the renewables base I've even given the numbers, so you've got a sense. 300 million average versus 100 versus 30, I mean, the base remains high.
Those two sensitivities, and you've seen the extent of the contraction of those two sensitivities and the numbers in the first half of the year. You've seen the impact.
Thank you for that, Pumi. Maybe another question that's sort of related to this, a bit forward-looking. What do you think is sustainable margin in commercial products and branded products on a two, three-year view? These are both trading distribution-type businesses.
Yeah. So I mean, our trading and distribution-type trade margins are generally kind of higher single digit. That's generally where those are. So if you want to think about a normalized margin for that division, that's probably where you need to pick it.
All right. Thank you for that. Mark, a working capital question. Does working capital benefit or hurt by this period's cut-off relative to the prior period? Is there anything out of the ordinary to flag?
No, exactly.
What we saw in the prior year and what we saw this year at the half-year point was exactly the same. There's no cut-off issue here at all. It's like for like.
Okay. Thank you for that, Mark. And then, Pumi, maybe sort of a high-level again, just in terms of scorecards, there's a ROIC metric. And I mean, this is asking, does that not conflict with the premium EV/EBITDA multiples that we pay for in M&A?
Okay. No, it doesn't because our ROIC is anchored on our ROIC and also anchored on what we believe is an acceptable spread over the ROIC and our WACC. So that ROIC number, I mean, we keep it because it's a measure, it's a return measure that our businesses understand. It's something that they manage on a daily basis.
But the rough target that you see coming through our scorecards is underpinned by ROIC and WACC. So we don't have a disconnect. And so even when we're looking at rough of businesses that we're acquiring, etc., we are in that underlying thinking process, taking into account the ROIC return.
Thank you. Pumi, I think that's very clear. Judith, I think I've dealt with all of the questions on my side. Any last ones on your side, or?
No, nothing at this stage. Thank you.
Okay. All right. Thank you very much, everyone, for your interest and the time you took to listen to us today. We appreciate it.
Thank you very much. Cheers.
Thank you. Bye-bye. Bye.
Thank you. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.