Release Date: 28/11/2018 09:15
Code(s): BID
Wrap Text
Trading Update

Bid Corporation Limited
(Incorporated in the Republic of South Africa)
Registration number: 1995/008615/06
Share code: BID ISIN ZAE 000216537
(“Bidcorp” or “the company” or “group”)

Capital Markets Trading Update – November 28th 2018

Shareholders are advised that the Bidcorp executive management are meeting
with members of the financial community (including shareholders, financial
analysts and the press) today, November 28th 2018, to update the market on
the trading environment across its international operations.

Bidcorp’s UK CD business is still being classified as a discontinued operation.
The following update deals with the continuing and discontinued operations

Update on trading conditions

Continuing operations:

Management comments as follows:

Current trading performance and overall market conditions

   •   Trading for Q1 F2019 continues to be positive (measured in home
       currencies). Performance achieved by our large UK, European and
       Australasian foodservice businesses remains on expectation however
       Angliss China and South Africa in particular, are challenging.
   •   Organic sales have continued to grow, with the gross margin percentage
       increasing marginally. This has offset operating cost increases impacted
       by rising wage costs (due to full employment levels in numerous
       economies) and higher fuel and energy expenses. Overall trading
       margins are being maintained.
   •   Economic growth in the UK, Europe and Australasia remains supportive
       of the foodservice industry. Food inflation remains relatively benign
       across most markets.
   •   Currency volatility continues to impact Bidcorp’s rand translated results.
       The constant currency results are approximately 3,1% lower than the
       rand translated results to the end of October 2018.
   •   Fundamental conditions within our global foodservice markets continue
       to support organic growth and bolt-on opportunities remain in all our
       geographical segments.
   •   Bidcorp’s strategy remains focused on growth – organically in current
       markets, via in-territory bolt-on acquisitions to expand geographic reach
    and product ranges; and via strategic acquisitions as the group enters
    new markets.


•   Australia’s trading performance has returned to anticipated levels as our
    major metro expansion gathers momentum. The Melbourne, Sydney and
    Brisbane / Gold Coast branches are now generating much improved
    returns. Revenue growth has been dampened by the exiting of a residual
    low margin contract. Our focus on liquor has proved challenging but will
    be a key driver of growth in years to come as the range is extended into
    the foodservice network. The core foodservice businesses are doing
    well, and the fresh and meat businesses are slowly improving. Supply
    Solutions (Imports) continues to perform well off the back of the success
    of its cheese processing plant. Bolt-on acquisition opportunities remain,
    however the current focus is on the integration of recent investments.
•   New Zealand continues its solid performance however top line gains and
    margin improvements are being offset by higher costs, particularly labour
    (full employment and no migration) and the costs of recent increased
    capacity. All segments of the business continue to develop profitably with
    ongoing innovation and product development, particularly value add and
    processing. Further capacity expansion is being planned to
    accommodate organic growth.

United Kingdom (“UK”)

•   Bidfood UK continues to perform very well. Good summer weather
    assisted activity levels despite increasing stress in the casual dining
    space and lower consumer confidence, partly due to the Brexit
    uncertainty. Sales volumes continue to grow in the independent sector
    as our focus on service levels continues. National account volumes are
    being well controlled but margins have improved. Business improvement
    initiatives continue to deliver margin improvements. Ecommerce
    implementation continues to gather traction. Further investment into
    increased distribution capacity remains a key focus to cater for
    anticipated growth. Implementation of importing exclusive brands is
    underway. An acquisition of a niche independent foodservice businesses
    is in progress.
•   Trading in Bidfresh has been reasonable with the overhang from good
    trading in July and August being experienced in September. Market
    conditions have been challenging, with the customer base experiencing
    many ‘casual dining’ failures as well as several suppliers going bankrupt.
    Seafood has performed well, Produce is getting better, and the evolution
    of the Meat model still lagging. The Bidfresh business has a good
    national footprint across each of its Meat, Produce and Seafood
    segments. The focus is on strengthened management capability in each
    of the Produce and Meat pillars.
•   Trading in PCL (dairy distribution business for Arla) has been poor. Low
    revenue increases, higher distribution costs and a dispute on transport
    rates have impacted profitability. The future viability of the business is
    under serious consideration and our relationship with Arla is severely


•   Overall results from our European businesses are pleasing. Solid like-
    for-like trading profit growth in constant FX, excluding recent
    acquisitions, has been achieved. The performances of the Netherlands,
    Belgium, Czech & Slovakia, Poland and Italy are good. Cost increases,
    particularly labour and fuel, are having an impact in many economies
    experiencing full employment.
•   Netherlands has delivered an improved performance. Economic activity
    is buoyant however the labour market has tightened. The business is
    making progress on its simplification journey with product range
    rationalisation and IT infrastructure costs reconfiguration starting to
    benefit the overall cost base.
•   The Belgium performance is pleasing, delivering incrementally higher
    profitability. Focus remains on volume growth in its freetrade and
    institutional sectors. Depot consolidation between Bestfoods and
    Langens to achieve operational efficiencies in its infrastructure have
    commenced. Our private label development in the freetrade segment is
    being pursued. The ‘myBidfood’ ecommerce platform is live and being
    progressively rolled out across the business.
•   Czech & Slovakia have continued to deliver strong performance across
    all segments of their business. Economic growth has moderated
    however staff availability is driving up wage costs. Our sales have
    continued to grow with margins being maintained. A new depot was
    opened in Chlumec late in the quarter and further infrastructure
    investment in depots is planned. Production facilities are operating at
    high capacities to meet demand but are benefitting from new technology
    around products and packaging.
•   Good organic growth in Poland has continued, driven by focus on the
    freetrade sector. New depots investments, positive economic conditions
    and a good summer have contributed to their positive performance.
    Development of the product range into both Asian cuisine and liquor has
    benefitted the business. Further margin enhancement continues to be
•   DAC Italy has continued to grow off the back of higher business and
    consumer confidence. D&D, a horeca specialist, acquired in January
    2018, has performed well. Global procurement benefits in Italian product
    (sourced/co-sourced from/with DAC) continues to grow.
•   Bidfood Iberia comprises our businesses in Spain and Portugal. Overall
    performance in Spain is below expectations. Internal focus in Guzman is
    on improving the business platform around infrastructure, ERP systems
    and people. The integration of our produce business in Portugal and
    meat business in Spain continues. A bolt-on acquisition of a multi
    category distributor in northern Spain was concluded. Management
    remain positive about the potential opportunity in the Iberian market.
•   Our German and Austrian acquisition, made in July 2017, has
    underperformed. Work on its business foundation including sales
    structures, IT platforms, human capital and infrastructure continues.
    Additional management support has been deployed to assist the local
    operators. Germany still represents a very large and developed
    foodservice opportunity.
•   The Baltics, with a focus on Lithuania, is now profitable. The new depot,
    under construction in Kaunas, is expected to be operational in Q3 F2019.
•   Further expansion, both in terms of in-country bolt-on acquisitions and
    strategic entry into new geographies in Europe, remains possible, as we
    are not represented or underrepresented in many countries.

Emerging markets

•   South Africa overall has underperformed in extremely trying economic
    conditions, characterised by stagnant GDP growth and ongoing weak
    consumer sentiment. Despite these conditions, Bidfood and the Chipkins
    Puratos (CP) JV have achieved satisfactory growth through good cost
    containment and improved profitability. However, the aftermath of the
    listeriosis crisis in chilled processed meats continues to impact the
    Crown Food Group (CFG) business. Food inflation trajectory is up
    following recent deflation which will assist Bidfood going forward. The
    CP JV is developing new product offerings with the benefit of the Puratos
    influence. A small ingredients distributor was acquired by CFG,
    broadening exposure to this segment of the market.
•   Greater China’s financial performance has been disappointing, but the
    business has reacted well in recovering from the effects of dairy market
    supply dislocation and accordant margin pressures and rising operating
    and logistics costs. There has been a slowdown arising out of the trade
    war with the US, mostly due to the effects of the currency devaluation.
    Hong Kong’s cost inefficiencies remain due to duplicate warehousing,
    but these will rectify themselves in the 2nd half of F2019 as surplus
    capacity is eliminated. In mainland China, our geographic expansion
    continues with the distribution network reasonably complete. Despite
    dairy remaining an important category, the diversification of the product
    range continues. Operations are expected to commence in the new meat
    (value add processing) factory in Q3 of F2019. The working capital cycle
    remains under scrutiny. As the geographic spread in mainland China
    grows, management structures are being bolstered.
•   Singapore has achieved steady growth as we develop our foodservice
    model. Good progress in being made in the core foodservice market with
    other areas such as exports, marine and commodities being scaled back
       significantly. Bidfood Malaysia, albeit small, is developing well. Our small
       joint venture in Vietnam has commenced activities.
   •   Further expansion into Asia always remains an opportunity.
   •   In South America, our focus remains on building a strong platform in a
       region with significant growth potential. Our Brazilian business has
       delivered an improved performance in a tough and competitive
       foodservice market. Refinement of the business model continues to
       enable sales growth and expansion of their broadline product range.
       Bolt-on opportunities continue to be explored however vendor
       expectations remain unrealistic. Chile is performing well and to
       expectation, a significant customer base and two additional depots were
       acquired in October, bolstering its geographic footprint.
   •   In the Middle East, our businesses have improved significantly,
       benefitting from less geopolitical challenges and the flow through effects
       of higher oil prices. The UAE has remains challenged by lower tourism
       and hotel occupancies however an improvement is foreseen. Our Saudi
       operation has performed very well, buoyed by structural reforms and less
       impacted by regional geopolitical issues. All businesses are profitable
       other than the recently commenced Jordan operation.
   •   Despite severe economic volatility in Turkey, our operations are
       performing well.

Acquisitive activity

   •   Bidcorp remains alert to all acquisition opportunities that present
       themselves both in current markets and in new territories.
   •   In the 4 months to October, activity has been relatively quiet as
       management focusses on integration of acquisitions made in prior
   •   We have however made the following bolt-on acquisitions costing
       (exclusive of acquisition costs) in aggregate R162 million:
          o Guzman acquired 100% of a broadline distributor in Spain.
          o CFG in SA acquired 100% of an ingredients distributor to bolster
            access to this market.
          o Chile acquired a customer base and two depots significantly
            broadening its geographic footprint.

Discontinued operation – UK CD business:

   •   Post the unsuccessful sale transaction, management remains of the
       view that the logistics business remains non-core to the foodservice
       activities of the group. Bidcorp is running a broader sales process
       designed to achieve a controlled exit of this business.
   •   Trading performance in the CD business is much improved compared to
       the same period in F2018, however is still slightly loss making. Bidcorp
       is continuing to implement initiatives, including better rate contributions
       and returning customers to improve the business, as well deliver
       superior service.

The full presentation is being webcast and recorded and a playback recording
is available on the group’s website:

The Capital Markets trading update has not been reviewed or reported on by
the company’s independent auditors.

November 28 2018

The Standard Bank of South Africa Limited

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