Wrap Text
Capital Markets Trading Update
Bid Corporation Limited
(Incorporated in the Republic of South Africa)
Registration number: 1995/008615/06
Share code: BID
ISIN: ZAE000216537
(‘Bidcorp’ or ‘the Company’ or ‘Group’)
Capital Markets Trading Update – November 18th 2019
Shareholders are advised that the Bidcorp executive management are meeting
with members of the financial community (including shareholders, financial
analysts and the press) today, Monday November 18th 2019, to update the
market on the trading environment across its international operations.
The impact of the new IFRS 16 accounting standard is in line with guidance as
provided to stakeholders in August 2019. Bidcorp’s UK logistics activities
remain classified as discontinued operations. The following update deals with
the continuing and discontinued operations separately.
Continuing operations:
Management comments as follows:
Current trading performance and overall market conditions
• Trading for the 4 months to October in F2020 (on a like-for-like basis,
excluding the impact of IFRS 16) continues to be positive (measured in
home currencies). Performance achieved by the Group remains on trend,
broadly in line with that achieved in constant currencies for F2019.
• Underlying sales have continued to show real growth in the independent
segment with some further rebalancing of the customer mix evident in New
Zealand and the United Kingdom. Gross margin percentage has increased.
Operating costs (on a like-for-like basis excluding the impact of IFRS 16)
have been reasonably well managed despite being impacted by increasing
wage costs (due to full employment levels in numerous economies) and
higher fuel and energy expenses. Overall trading margins (on a like-for-like
basis, excluding the impact of IFRS 16) have improved slightly. Food
inflation remains relatively benign across most markets.
• Generally, all our businesses have shown growth, albeit some at an
anticipated slower rate. The problem businesses, namely Guzman in Spain,
Pier7 in Germany & Bidfresh UK are making slow but steady progress.
• Political and social unrest in several geographies is having an impact on
some of our businesses. In Hong Kong, ongoing protests have significantly
decreased hotel occupancies, tourist arrivals and eating out-of-home
activities. In Chile, major outbreaks of civil unrest have recently arisen. In
Barcelona, the separatist movement and anti-independence groups have
clashed resulting in civil unrest. In the UK, the Brexit debacle drags on and
economic growth is stuttering; although the imminent general election has
signaled some potential positive news. Despite all the negatives, our
management teams remain positive and motivated by opportunities.
• Currency volatility has negatively impacted Bidcorp’s rand translated results
to October in F2020. The rand translated results are approximately 1,0%
lower than the constant currency results.
Strategic initiatives
• Bidcorp’s strategy remains focused on growth – organically in current
markets through real sales growth in the correct customer segment; via
in-territory bolt-on acquisitions to expand geographic reach and product
ranges; and via opportunistic strategic acquisitions as the Group enters
new markets.
• Foodservice fundamentals across all our operating geographies remain
positive.
• Acquisition opportunities in the foodservice space remain limited, either
due to unrealistic vendor expectations or vendor uncertainty at this stage
of the economic cycle, a consequence of which is only one bolt-on
acquisition has been concluded so far this year. Our focus has been on
creating a sustainable platform from which to build on in Iberia and
Germany, while extracting the benefits from the more recent acquisition in
Australia.
• We continue to invest in organic growth through ongoing capex spend,
with the focus on having smaller, modern and environmentally efficient
depots closer to the customer base.
• Our ecommerce, CRM and data analytics platform deployment continues
to provide competitive advantage to Group businesses. Our global
procurement initiatives are expanding both in Asia and Europe, the
benefits of which reflect in each individual business.
Prospects
• Management’s expectations for F2020 remain cautious but largely
unchanged; however, political uncertainty, slowing global growth and
recent socio-economic unrest heightens risk.
Australasia
• Australia’s trading performance remains solid, despite weak consumer
confidence and low inflation. Overall revenue growth has been dampened
by the prior year exit of a low-margin contract which still reflects in the
comparative base (exited September 2018); however, free trade growth
is good. Competitive pressures are being felt in the national account
segment which is impacting pricing. The core foodservice businesses are
doing well, with the focus on growing the penetration of the meat and
liquor product lines through the network. Supply Solutions (Imports)
continues to perform well off the back of further upstream integration. The
Fresh business was exited in September 2019. Further capex has been
invested in finalising the infrastructure upgrade programme. Bolt-on
acquisition and greenfield opportunities remain.
• New Zealand continues its solid operational performance. Excellent
progress has been achieved in replacing a large low-margin contract
which exited with effect from July 2019. Overall revenue gains were
limited; however, gross margin improvements are evident from the better
customer mix. Higher costs are being driven by labour pressures (full
employment and no migration) as well as increased capacity demands
with the opening of our new, second depot in Auckland in October 2019.
All segments of the business continue to develop profitably with ongoing
innovation and value-add product development.
United Kingdom (‘UK’)
• Bidfood UK continues to perform well with the rate of growth in line with
expectation. Brexit-fatigue is having a demonstrable impact on consumer
confidence and consequently economic growth. Sales volumes continue
to grow in the independent sector as our focus on customer mix and high-
service levels continues. National account volumes and margins are
under competitive pressure as customer volumes decline. New volumes
are being carefully managed in favour of sustainable margins. Additional
distribution capacity came on-stream with the new Liverpool depot going
live late in Q1. Ongoing investment in infrastructure remains an imperative
to cater for anticipated growth. Strategic initiatives in own brand
development, value-add opportunities and ecommerce implementation
continue to gain traction. An acquisition of a small niche independent
wholesaler, Elite Fine Foods, was concluded in the first quarter.
• Trading in Bidfresh has been disappointing in Q1 driven principally by the
performance in the Produce business. Seafood continues to perform well,
and Meat continues to build scale against the backdrop of a weak casual
dining sector and general low consumer confidence. In Produce, the
infrastructure expansion into the new additional depot and upgrade of the
ERP system have hampered operational progress and profitability.
Management’s focus is on correcting these operational challenges and
rebuilding profitability.
Europe
• Overall results from our European businesses remains solid, despite
challenges in both Spain and Germany. Improved like-for-like trading
profit growth in constant FX has been achieved by the Netherlands,
Belgium, Czech & Slovakia, Poland, Baltics and Italy. Cost pressures
remain, particularly labour and fuel; however, they do appear to be
moderating. Business improvement initiatives in Guzman (Spain) and
Pier7 (Germany) are starting to deliver improved operational benefits in
both operations, although profitability has been negatively impacted.
• Netherlands has continued to make good progress despite a tight labour
market. The horeca segment is showing good growth, while the decline in
healthcare has stopped. The business simplification journey continues as
management focus on developing the high-service customer offering.
Product range rationalisation and IT infrastructure realignment projects
are ongoing. Depot reconfiguration and investment into new distribution
infrastructure is underway to accommodate future growth.
• Belgium’s performance is positive, delivering incrementally higher
profitability. A number of catering customers have renewed their
contracts. Volume growth in the freetrade and institutional sectors is
ongoing. Depot consolidation to achieve operational efficiencies continue.
The implementation of the ‘myBidfood’ ecommerce platform is
progressing well.
• Czech & Slovakia continues to deliver good trading results although the
rate of growth has moderated as overall economic growth slows. Sales
have continued to grow, gross margins have been maintained and overall
overhead costs are being well managed. However, cost pressures remain
in labour, energy and fuel. Recent infrastructure investment in production
facilities is yet to deliver anticipated returns. Opportunities in neighbouring
territories offer expansion potential.
• Further strong organic growth in Poland has continued, delivering an
excellent trading performance. Focus remains on the freetrade sector.
Gross margin improvements have delivered an improved trading margin.
Anticipated future organic growth will require additional infrastructural
investment.
• Italy has delivered an improved trading performance despite the weakest
summer season experienced in Italy for several years. Good penetration
of the independent sector continues. Integration of recent bolt-on
acquisitions, being D&D and Quartiglia, into DAC Italy is ongoing. Despite
the political turmoil in Italy, business and consumer confidence are holding
up. Regional expansion opportunities continue to be explored.
• Iberia comprises our businesses in Spain and Portugal. Overall
performance in Spain is well below expectation, attributed mostly to the
Guzman activities. Political unrest in Barcelona had a significant impact
on Guzman’s performance in October; however, internal focus remains on
margin improvement and overhead cost reduction. The new ERP system
has settled down and operational improvements are evident; however,
financial performance remains poor. Igartza (acquired July 2018), a multi-
category distributor in northern Spain, is performing well. Our business in
Portugal continues to perform well. Investment into infrastructure will be
required to alleviate capacity constraints in Portugal. Management remain
positive about the medium-term growth prospects in the Iberian market.
• Germany continues to underperform with progress slow. Completion of
the new depot in Munich is imminent. Further management changes have
been made and additional Group resource has been deployed to guide
improvements. Germany still represents a very large foodservice
opportunity; however, further acquisitive expansion remains on hold until
the current base has been stabilised.
• The Baltics, being Bidfood in Lithuania and Latvia, is now sustainably
profitable. Focus is on leveraging the benefits of the new depot in Kaunas
to achieve higher returns.
• 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 is showing solid results despite a persistently weak
economic environment. Bidfood has continued its growth trajectory and
the Crown Food business has recovered post the Listeriosis crisis and is
achieving growth in many areas of the business. Results from the Chipkins
Puratos JV are flat as end-user customer preferences have shifted away
from yeast products in plant bakeries to cheaper maize alternatives.
Focus remains on shifting the product mix to further value-add products.
• Greater China’s year-to-date financial performance is flat against F2019
with the anticipated improvements gained in mainland China offsetting the
unexpected declines in Hong Kong, directly attributable to the fallout from
the social crisis that has unfolded. In mainland China, trading continues
to improve following the dairy crisis of the past. Dairy remains an important
category; however, continuing product range diversification continues.
Operations commenced at the new meat (value-add processing) factory
in Q4 F2019; however, the production ramp-up has been slowed by
outstanding regulatory approvals. Our geographic distribution network is
now reasonably complete. Hong Kong continues to be significantly
impacted by the fallout from the unrest of the past few months.
Management and staff have embarked upon flexible working hours, have
all agreed to unpaid leave and are working with suppliers and landlords to
minimize operating costs. Safety measures to protect staff and assets
have been introduced. Further supplier dislocation in dairy arose in July
2019; however, alternative suppliers have been sourced. The greater
China working capital cycle remains under close scrutiny.
• Singapore has seen a positive uptick in activity levels and continues to
deliver steady growth. Good traction is being achieved in the core
foodservice market. Malaysia has performed well, and further nationwide
growth opportunities are being explored. Our small joint venture in
Vietnam is progressing, albeit slower than originally planned.
• In South America, our focus remains on building a strong platform in a
region with significant growth potential. In Brazil, the economy continues
to be challenged; in spite of this our business has maintained its
performance. Refinement of the business model continues to enable sales
volume growth and expansion of the broadline product range. Bolt-on
opportunities continue to be pursued; however, vendor expectations
remain unrealistic. Chile was performing very well to October; however,
violent and unexpected political unrest has negatively impacted this
trajectory. Local management have reacted quickly to the crisis but how
long this unrest will continue for remains unknown. Integration and
benefits of the acquisition made in October 2018 continue to be achieved.
Our investment in the foodservice business Blancaluna, Argentina is
performing in line with expectation.
• In the Middle East, our businesses have performed very well, particularly
in Saudi Arabia. The UAE is showing some improvement; but tourism and
hotel occupancies are still struggling. Our Saudi operation has again
performed very well, buoyed by structural social and economic reforms
which are translating into higher economic activity. All other businesses,
albeit they are small, are profitable. New opportunities in adjacent
geographies are being explored.
• Turkey continues to improve as the mix is shifted to local products
supplying local customers. A new greenfield branch was opened in
Antalya in October 2019.
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 2019, the following bolt-on acquisition was
made:
o Bidfood UK acquired Elite Fine Foods, a niche independent
wholesaler.
Discontinued operations – UK logistics activities:
CD business
• As announced on October 2nd 2019, a contract was entered into for the
disposal of Best Food Logistics to the Booker Group, a wholly owned
subsidiary of Tesco Plc. Several conditions precedent have been met and
good progress has been made on the remaining few. We anticipate
closure between late January and early March 2020.
• Trading performance in Best Food Logistics continues to improve off the
back of better service levels and a more sustainable revenue platform.
PCL
• Post the sale and exit of the distribution activities earlier this year,
management are working on an exit plan for the residual warehousing
activities, which are small and now marginally profitable. No further
material exit costs are expected.
The full presentation is being webcast, recorded and a playback recording will
be available on the Group’s website:
http://www.bidcorpgroup.com/presentations.php
This Capital Markets Trading Update has not been reviewed or reported on by
the Company’s independent auditors.
______________________________________________________________
Date: November 18 2019
Johannesburg
Sponsor: The Standard Bank of South Africa Limited
Date: 18/11/2019 09:00:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
