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BID CORPORATION LIMITED - Capital Markets Trading Update

Release Date: 21/05/2019 09:00
Code(s): BID     PDF:  
 
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 ZAE 000216537
(“Bidcorp” or “the Company” or “Group”)


Capital Markets Trading Update – May 21st 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, May 21st 2019, to update the market on the
trading environment across its international operations.

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 to the end of April F2019 continues to be positive (measured in
       home currencies). The Easter holidays fell in mid-April versus late March
       in F2018. Performance achieved by the Group remains on trend. Our
       large UK, European and Australasian businesses continue to perform
       well. Angliss China and South Africa remain challenging geographies
       however monthly performance is starting to improve against last year.
   •   Sales have continued to show real growth, with the gross margin
       percentage increasing. This has offset higher operating costs 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 has positively impacted Bidcorp’s rand translated
       results. The rand translated results are approximately 4,5% higher than
       the constant currency results to the end of April 2019.
   •   Acquisition opportunities are being limited by unrealistic vendor
       valuation expectations at this stage of the cycle, a consequence of which
       is that fewer bolt-on acquisitions have been concluded. Focus remains
       on extracting the benefits from some of the more recent acquisitions,
       most notably in Australia, Iberia and Germany.
•   We continue to invest in organic growth through ongoing capex spend,
    with the focus on having more but smaller depots closer to the customer
    base.
•   Further evolution (not revolution) of our ecommerce and CRM platforms
    continue to provide competitive advantage across all businesses in the
    Group. Our global procurement initiatives are expanding both in Asia and
    Europe, the benefits of which reflect in each individual business.
•   Bidcorp’s strategy remains focused on growth – organically in current
    markets through real sales growth focussed on the correct customer
    base; via in-territory bolt-on acquisitions to expand geographic reach and
    product ranges; and via strategic acquisitions as the group enters new
    markets.
•   Management’s expectations for F2019 remain unchanged.


Australasia

    •   Australia’s trading performance remains at anticipated levels.
        Revenue growth has been dampened by the exiting of a residual low
        margin contract in the latter part of calendar 2018. The core
        foodservice businesses are doing well, and the meat business is
        slowly improving. Supply Solutions (Imports) continues to perform
        well off the back of further upstream integration, such as cheese
        processing. Our focus on liquor continues to prove challenging but
        will be a key driver of growth in years to come. Further capex is being
        spent on organic expansion in foodservice. Bolt-on acquisition
        opportunities remain, however the current focus remains on
        performance improvement at Festival Liquor.
    •   New Zealand continues its solid performance. Revenue 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 well. Consumer confidence is
        being dented due to ‘Brexit’ fatigue. Sales volumes continue to grow
        in the independent sector as our focus on service levels continues.
        National account volume growth is being carefully managed in favour
        of improved margins. 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. Growth
        in ‘own’ brands continues and importing of an exclusive range of
        brands is gaining traction. The acquisition of Punjab Kitchen (niche
        ready-meals business) in February will add to Bidfood’s
        manufacturing / value add products capability. An acquisition of an
      independent foodservice businesses is likely to conclude in Q1
      F2020.
  •   Trading in Bidfresh improved in Q3 however market conditions
      remain challenging. Our customer base has experienced the decline
      in the ‘casual dining’ segment as well as several suppliers going
      bankrupt. Seafood has performed well, Produce is getting better but
      the Meat division is taking longer than anticipated to reach scale.
      Management’s focus is on building the customer base in the Meat
      pillar.

Europe

  •   Overall results from our European businesses remains solid. Good
      like-for-like trading profit growth in constant FX has been achieved
      by the Netherlands, Belgium, Czech & Slovakia, Poland and Italy.
      Large cost increases, particularly labour and fuel, remain however do
      appear to be moderating. Our businesses are compensating for
      these by driving higher revenues and improved gross margins.
      Performance at Iberia and Germany remains below expectation
      although business improvement initiatives are starting to deliver
      improvements in both operations.
  •   Netherlands has maintained its good momentum despite a
      tightening labour market. Its business simplification journey with
      product range rationalisation and IT infrastructure reconfiguration is
      starting to benefit the overall cost base, improving net margins.
  •   Belgium’s performance is positive, delivering higher profitability.
      Volume growth in its freetrade and institutional sectors is ongoing.
      Depot consolidation between Bestfoods and Langens to achieve
      operational efficiencies in its infrastructure continue. Private label
      development in the freetrade segment is being pursued. The roll out
      of the ‘myBidfood’ ecommerce platform is ongoing.
  •   Czech & Slovakia continues to deliver a strong performance across
      all segments of the business. Economic growth is slowing however
      sales and gross margins have continued to grow. These have
      mitigated higher labour costs. Timely depot investments in F2018
      have positioned the business well in terms of market share gains.
      Further infrastructure investment in depots is planned. Production
      facilities are operating at high capacities ahead of anticipated
      summer demand.
  •   Solid organic growth in Poland has continued, driven by focus on the
      freetrade sector. Development of the product range into both Asian
      cuisine and liquor is driving sales growth. Increased investment into
      customer focused IT initiatives are expected to grow market share.
      Further net margin improvement continues to be achieved.
  •   DAC Italy continues to grow with good penetration of the
      independent sector. Business and consumer confidence is holding
      up. D&D’s integration into DAC is ongoing. Procurement benefits in
      Italian product (sourced/ co-sourced from/ with DAC) continues to
      grow.
  •   Iberia comprises our businesses in Spain and Portugal. Overall
      performance in Spain is well below expectations. Improvements to
      the business platform through efficiencies in the infrastructure, a new
      ERP system and skilled people, are starting to show improvements
      however financial performance remains poor. Our business in
      Portugal goes from strength to strength. The bolt-on acquisition
      Igartza (July 2018), a multi-category distributor in northern Spain, is
      performing in line with expectations. Management remain positive
      about the growth opportunity in the Iberian market.
  •   Germany has underperformed however trading losses are
      narrowing. Work continues in building its business foundation
      including sales structures, IT platforms, human capital and
      infrastructure. Additional management, deployed to assist the local
      operators, is starting to make a difference. Germany still represents
      a very large foodservice opportunity.
  •   The Baltics, with a focus on Lithuania, is profitable. The new depot
      in Kaunas became operational in Q3.
  •   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 improvement despite weak
      economic conditions. Bidfood and the Chipkins Puratos (CP) JV have
      achieved pleasing growth through good cost containment and
      improved margins. The aftermath of the listeriosis crisis in processed
      meats continues to impact the Crown Food Group (CFG) business
      however, from April, is largely in the comparative base. The food
      inflation trajectory is up which will start to assist Bidfood. The CP JV
      is investing in new product offerings with the benefit of the Puratos
      influence. The small ingredients distributor acquired by CFG in H1
      F2019 is meeting expectations. Overall results in the month of April
      were much improved on the comparative month in F2018.
  •   Greater China’s year to date financial performance remains
      significantly below F2018 however month on month is starting to
      recover as expected. In mainland China, our geographic distribution
      network is reasonably complete. Dairy remains an important
      category however diversification of the product range continues.
      Operations are expected to commence at the new meat (value add
      processing) factory in Q4. Mainland China has reacted well in
      recovering from the effects of dairy market supply dislocation,
      accordant margin pressures and rising operating and logistics costs.
      Hong Kong’s cost inefficiencies remain due to duplicate
      warehousing, but these will rectify themselves from the beginning of
      Q4. Some further supplier dislocation in dairy is anticipated in Hong
      Kong in Q4 however management are well prepared to deal with the
          challenge. The working capital cycle remains under scrutiny. The
          focus on bolstering the overall management structures continues.
      •   Singapore continues to deliver steady growth as we develop our
          foodservice model. Good traction is being achieved in the core
          foodservice market with other areas such as exports, marine and
          commodities being scaled back significantly. Our investment into
          Malaysia is rolling out nationwide. Our small joint venture in Vietnam
          is progressing, albeit a little later than planned.
      •   Further expansion in Asia depends on finding the correct
          opportunities.
      •   In South America, our focus remains on building a strong platform
          in a region with significant growth potential. Brazil has delivered an
          improved organic performance. Recent political change has not yet
          manifested itself in higher economic growth, yet business confidence
          is up. Refinement of the business model continues to enable sales
          growth and expansion of their broadline product range. Further capex
          is being spent to cater for growth. Bolt-on opportunities are being
          pursued however vendor expectations remain unrealistic. Chile is
          performing well and has a true national presence off the back of the
          significant customer base and two additional depots which were
          acquired in October. Integration continues.
      •   In the Middle East, our businesses have rebounded strongly
          benefitting from improved geopolitical stability and the flow through
          effects of higher oil prices. The UAE is starting to show some
          improvement as tourism and hotel occupancies improve. A
          significant agency was won in Q3 which should assist going forward.
          Our Saudi operation has performed very well, buoyed by structural
          reforms which are translating in higher economic activity. All
          businesses are profitable other than the small Jordan operation.
      •   Turkey continues to improve as the local operations grow. Further
          bolt-on opportunities are being sought.


Acquisitive activity

      •   Bidcorp remains alert to all acquisition opportunities that present
          themselves both in current markets and in new territories.
      •   In the 3 months to March 2019, we made the following bolt-on
          acquisition costing (inclusive of acquisition costs) R291 million:
             o Bidfood UK acquired Punjab Kitchen, a niche ready meals
                 business.


Discontinued operations – UK Logistics activities:

          •   CD business

              o We are in advanced negotiations for the disposal of the CD
                business (Bestfood Logistics), to a reputable international
                buyer. At this stage we cannot provide any further details and
              will update the market in due course. We are reasonably
              confident at this stage of the sale progressing, but it is still
              subject to clearing several hurdles which are considered
              normal and usual for a transaction of this nature. We anticipate
              closure in Q1 F2020.
            o Trading performance in Bestfood Logistics continues to
              improve off the back of better service levels and a more
              sustainable revenue platform. The rest of the re-awarded KFC
              contract is being onboarded and will be complete by June.
      •   PCL
            o The exit of the highly unprofitable transport contracts were
              completed at the end of April. The residual fleet is in the
              process of being disposed of, which should be complete by
              June. The remaining warehousing activities are small and
              management are working on an exit plan for these. All costs
              of closure will be expensed by year-end.

The full presentation is being webcast and recorded and a playback recording
is available on the group’s website:
http://www.bidcorpgroup.com/presentations.php

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


Johannesburg
May 21 2019

Sponsor
The Standard Bank of South Africa Limited

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