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Capital Markets Trading Update Q4 F2020 And Trading Statement
Bid Corporation Limited
(Incorporated in the Republic of South Africa)
Registration number: 1995/008615/06
Share code: BID
ISIN: ZAE000216537
(‘Bidcorp’ or ‘Group’ or the ‘Company’)
CAPITAL MARKETS TRADING UPDATE Q4 F2020
AND TRADING STATEMENT
Shareholders are advised Bidcorp today, Monday June 15th 2020, wishes to
update the market on the trading environment across its operations, with
particular emphasis on the impacts of the COVID-19 (COVID) crisis. This is in
terms of Bidcorp’s requirement of continuous disclosure in terms of the JSE
Listings Requirements and needs to be read in conjunction with the update
provided on April 14th 2020.
Management comments as follows on:
Our employees have been our top priority, good progress has been made in
terms of securing their health, well-being and where possible, maintaining their
incomes. To date, most of our employees have managed to avoid any health
impact from the COVID pandemic with a limited number of cases having been
reported in South Africa and Chile.
Sadly, one employee has succumbed to the disease in South Africa. We have
extended our sincere condolences to the family and his colleagues within the
Group. Our heart goes out to all those affected by the pandemic and we remain
committed to play our role through various support initiatives across our
operations.
We continue to work with our customers and suppliers in navigating the fallout
from this crisis and plotting the way forward.
Current trading performance
As noted in the April update, the full impact of the economic crisis became
evident from April onwards. Group sales for the week ended April 5th reached
a low of 37% versus the corresponding week in F2019 but had recovered to
65% of the corresponding sales for the week ended May 31st. For the past week
ended June 14th, sales have improved to 67% compared to the same week in
the prior year.
All our businesses have continued operating in each geography; however each
country is at a different stage of the COVID crisis. Sales progression by division
and for the Group as a whole, as shown in the table over the page between the
period March 1st and June 14th reflects the different stages of the COVID impact
on our markets. Please note that weekly comparatives to last year should be
viewed as a trend; as the timing of public holidays, school holidays and other
events can have an impact on any one week in isolation.
TABLE: Sales progression by division for the 15-week period from the
week ended March 8th to June 14th:
Week
UK EUR AUS EM GROUP
ended:
08-Mar 91% 101% 100% 90% 96%
15-Mar 88% 87% 100% 89% 91%
22-Mar 64% 44% 95% 88% 68%
29-Mar 30% 32% 54% 65% 42%
05-Apr 30% 31% 43% 52% 37%
12-Apr 45% 36% 44% 52% 43%
19-Apr 47% 27% 35% 56% 38%
26-Apr 63% 39% 57% 54% 52%
03-May 47% 38% 53% 54% 46%
10-May 56% 39% 56% 62% 51%
17-May 55% 44% 70% 64% 56%
24-May 57% 49% 73% 63% 59%
31-May 66% 58% 76% 68% 66%
07-Jun 58% 56% 80% 72% 65%
14-Jun 56% 62% 83% 77% 67%
• Australasia (AUS) – Despite hitting a low of 35% of its F2019 demand
in the week of April 19th, sales have recovered to 83% of the F2019 level
in the week ended June 14th.
• United Kingdom (UK) – UK achieved a low of 30% of its F2019 sales
in the week of April 5th however sales have recovered to 56% of the
F2019 level in the week of June 14th. Most of this activity has arisen away
from our traditional markets.
• Europe (EUR) - Sales reached a low of 27% of the F2019 activity levels
in the week of April 19th however has recovered to 62% of the F2019
level in the week of June 14th. Eastern Europe appears to be further
along the economic recovery path than what we are experiencing in
western Europe. Activity levels in Italy (weekly sales low of 17% to a
current 43%), Spain (weekly sales low of 7% to a current 31%) and the
Netherlands (weekly sales low of 12% to a current 55%) are
experiencing a slower recovery.
• Emerging Markets (EM) – Sales in mainland China have recovered and
are now exceeding those of the comparative week in F2019. Weekly
sales in Hong Kong and Macau are tracking at about 20% behind the
comparative week in F2019, additionally subdued by the resurgence of
the political unrest. Activity levels in the other emerging market countries
in which the Group operates (South Africa, Brazil, Chile, Turkey and the
Middle East) remain subdued as the path out of the COVID crisis still
lags that of Australasia and Europe.
Our Group gross profit percentage over the months of April and May have been
maintained at their pre-COVID levels despite the severity and suddenness of
the worldwide lockdowns.
Even though all our businesses have, and continue to experience reduced
levels of activity, the Group has been cognisant of the need to retain as much
human capital capacity as we are able, in order to scale-up as activity levels
return, as we are seeing in a number of businesses. We have accessed various
government wage assistance schemes in a number of businesses where we
are eligible to do so, in order to protect as many of our staff as possible,
unfortunately this hasn’t negated the need to temporarily stand down and
furlough some employees.
The board and executive management have taken a 30% reduction in fees and
salary respectively in Q4 F2020 and we are evaluating whether this should be
extended post June 2020. All businesses where salary reduction initiatives
were implemented will continue to align themselves with the impacts in their
respective workforces.
With lower levels of activity, variable costs have been taken out the businesses
as much as possible bearing in mind that all businesses have traded through
the past 3 months, each to varying degrees.
For the month of April, the Group made a positive EBITDAC (Earnings Before
Interest, Tax, Depreciation and Amortisation, and COVID adjustments)
equivalent to 2,2% of monthly revenue. For the month of May the Group made
a positive EBITDAC (Earnings Before Interest, Tax, Depreciation and
Amortisation and COVID adjustments) equivalent to 4,4% of monthly revenue.
The COVID adjustments relate to abnormal receivables provisioning and
restructuring costs arising out of the current crisis which amounted to
R317 million for April and R177 million for May.
Overall market conditions
Demand in the discretionary spend sectors, particularly across hotels,
restaurants, pubs, leisure and travel related segments remains weak but are
improving off a near zero base. Many customers are reopening and emerging
from their ‘hibernation’ at a pace quicker than we had anticipated, however
those businesses associated with ‘large crowds’, such as entertainment, sports
clubs and travel, remain shuttered. Our businesses have diversified into new
channels, such as home delivery and supply to other retail related channels,
however the overall contribution of these initiatives is small and remains non-
core.
Non-discretionary demand from our institutional customers , including serving
customers such as hospitals, aged care, prisons, the military and government
departments has stabilised.
Our governmental support programs in several countries to provide food and
care packages to the most vulnerable members of society via home delivery,
have continued. We are grateful to our staff who are involved with these for
their valued and selfless contribution.
Ongoing actions being undertaken by the businesses in the current
environment:
Workplaces
As activity levels have increased and more staff return to the work, so has the
need to increase compliance throughout our work environments. Our priority
remains ensuring a safe workplace for our staff through maintaining exceptional
hygiene standards in line with each environment and jurisdiction
recommendations and legislations.
Social distancing in the workplace remains an effective methodology to contain
the risk of infections with operations operating under strict sanitization protocols
to prevent any potential risk of cross-contamination.
Working remotely for those employees who can do so has been encouraged.
Discretionary travel and commuting have been discontinued.
Liquidity
Our priority has been to ensure that our operations have sufficient liquidity for
their respective requirements. Further headroom has been created and we
believe that the Group has sufficient liquidity for the foreseeable future. The
Group and its subsidiaries have available to it, as at June 10th 2020, headroom
facilities of R17,4 billion (£823 million) which is in addition to our existing net
debt. Our net debt at May 31st 2020 was R7,6 billion (£353 million, at the month
end exchange rate of R21,67:£1).
Free cash flow (excluding the interim dividend paid in March 2020 but after
operating cashflows, working capital and capex) for the period from
January 1st 2020 to May 31st 2020 amounted to an outflow of R470 million
(£24 million) highlighting a concerted effort by operational management to
aggressively manage their cashflows in these trying circumstances.
Debt covenants
The Group’s debt covenants sit at 2,5x net debt to EBITDA and interest cover
ratio of EBITDA to net consolidated finance costs (excluding the effects of
IFRS16) of not less than 5x. As at May 31st 2020, the Group was well within
these covenant ranges and does not believe there will be any breach thereof
for the year ended June 2020.
Dividends
As noted in the interim financial results commentary, the Group is conscious of
the need to balance gearing and shareholder returns (in light of the Group’s
stated dividend policy). Management anticipate that as the economic recovery
gains strength, gearing is likely to increase as our working capital investment
increases in the return of the businesses to growth. Accordingly, it is too early
to determine the status of the final dividend for the year ending June 2020 and
any changes to the Group’s dividend policy beyond that.
Working capital
The working capital cycle has been well-managed by our operations across the
Group in the context of having experienced a significant shutdown of a large
part of the customer base. Collections from customers through April and May
have exceeded our expectations under the circumstances and where required,
payment plans have been agreed to. We expect further stress in some of the
customer base and our businesses continue to work alongside those affected
customers to proactively manage this. All businesses have and continue to
evaluate their credit loss exposure which will result in additional provisioning,
the exact quantum of which is unquantifiable at this stage. We insure a
proportion of our current credit book however the ability of many customers to
obtain insurance is becoming increasingly difficult.
Our businesses through April and May have actively managed their inventory
exposure, particularly their short-dated stock. All inventory obsolescence has
been expensed as incurred and we do not believe our current broad range of
ambient and frozen products, all of which have longer shelf-lives, presents a
significant further exposure. All stock continues to be carefully monitored and
remains fit for our customer base.
Through March and April, payables were aggressively managed in conjunction
with our suppliers however supplier payment cycles were largely regularised by
the end of May.
Our expectation is that we will see the working capital cycle normalise in the
months ahead even though some working capital pressures may manifest as
markets open and we experience a return to a more normalised customers
credit cycle, however some counter to this is we will be selling our inventory
that has largely been paid for.
Strategic future
Bidcorp’s current focus is to predict the likely ‘new normal’ that will exist post
the short-term effects of the COVID crisis. Our initial assessment was that
activity levels would return to levels of 75% – 85% of pre-COVID levels in the
next 12 to 18 months but we now believe this number will be higher and
hopefully sooner. Our businesses are preparing to ride out the next phase of
the economic recovery with these activity levels in mind. We believe that there
will not be any fundamental shift in consumer behavior of eating-away-from-
home and early anecdotal evidence suggests that human muscle memory in
respect of socialisation remains an important component of the consumers
existence.
Unfortunately, not all of our operations entered this crisis in as strong a market
position as we would have liked and in order to ensure their long-term survival,
will require restructuring to achieve simplification and focus on their core
competencies and markets. In this respect, management are evaluating our
Spanish operations to focus on their independent customer base in their core
markets. Depending on the extent of the restructuring required, this may
necessitate some impairment of the goodwill associated with this operation.
Our recovery in China has been hampered by supply chain disruptions of
products sourced in Europe, USA and South America. Whilst this has assisted
with ensuring that we trade our current inventory judiciously, we are unable to
establish whether this is a short-term aberration only in relation to our Greater
China operation or is likely to become a long-term supply chain issue. In most
of our businesses, the majority of product is procured locally so this is unlikely
to have any material impact across the Group.
No significant acquisition opportunities in the foodservice space have become
evident and we believe is premature to be exploring these in the current
environment. There is the possibility of market share gains should competitors,
without the financial strength of Bidcorp, exit the industry. We are finalising the
acquisition of a distressed business in northern Italy and expect more of these
in-country type of opportunities to present themselves in the months ahead.
We continue to scale back any discretionary spend in capex and other business
expenses. We are also not committing to any large investments for future years
until we have greater clarity on the outlook.
Our ecommerce platform remains a source of competitive advantage and has
been adapted to cater for retail customers, who can either collect or elect home-
delivery. There has been good take-up of home deliveries in many countries,
but this remains a fringe activity catering to the current environment.
Trading statement
Bidcorp believes that the worst of the COVID crisis is behind the Group however
significant uncertainty persists as to the speed and depth of the economic
recovery in the jurisdictions in which the Group operates.
Bidcorp’s financial results in April, May and as anticipated in June as well, have
been adversely affected by crisis and accordingly shareholders are advised, in
terms of the JSE Listings Requirements, that both headline earnings per share
and basic earnings per share for the year to June 2020 is expected to be more
than 20% lower than the comparative year to June 2019.
The Company will issue a further trading statement with more specific guidance
ranges once there is reasonable certainty regarding the extent of the decline
relative to the comparable period.
The information contained in this announcement has not been reviewed or
reported on by the Group’s external auditors.
______________________________________________________________
Date: June 15 2020
Johannesburg
Sponsor: The Standard Bank of South Africa Limited
Date: 15-06-2020 10:00:00
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