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Chief executive’s report
We live in a fast-changing world where risk profiles do not remain static
for long. Safe “bets” are few and far between. If you wait for absolute
safety you fail to enter the game.
France and Belgium were terror-free a couple of years ago. Not any
more. Recent events indicate the risk of bombings and violent attacks
has risen substantially in both countries.
Bidcorp’s philosophy is simple… be aware of risks that might affect a
country or region, but focus primarily on business considerations.
South America
Recent developments illustrate how this philosophy plays out in
practice.
A few years ago we identified South America as an area of substantial
long-term opportunity and took a stake in a Chilean foodservice
business. Subsequently, we expanded into Brazil.
More recently, Brazil and South America generally have faced
considerable challenges. Brazil has been in the grip of a political
and economic crisis for more than a year. But we do not view these
difficulties as justification for market exit.
Our Brazilian and Chilean businesses have demonstrated an admirable
capacity to deal with national challenges and achieve profitable growth.
We are happy to invest in teams with the resilience to grow at a time of
market contraction. If further investment is necessary, we will be happy
to make it.
Middle East
Different considerations apply in Lebanon, a market we recently exited.
The Middle East can be a highly volatile region and Lebanon’s near-
neighbour Syria is in the grip of a long-running civil war with the
potential to spill over into neighbouring states.
However, these geo-political considerations were not the primary
reason for our Lebanese exit. We entered the market to explore
long-term potential. We invested and sought to achieve growth. Initial
losses were accepted as the price of entry, but it soon became clear
that foodservice operations on the Bidcorp model had little chance of
success in the near or mid term.
In any Bidcorp market, a significant portion of our revenue is derived
from the hotel and restaurant trade. The taste for western-style menu
items and the trend to out-of-home eating help to support healthy
volumes. Those positives were absent in Lebanon and real-life
experience indicated that giving a market lead meant accepting a
recurring loss. So we closed down and moved on.
This does not mean we are sceptical about the chance of growth in
the rest of the Middle East. Our businesses in the UAE and Saudi
Arabia are profitable and show good growth. We are happy with our
investment and look forward to continued expansion in these centres.
We must acknowledge that another neighbour of Syria – Turkey –
faces a growing challenge.
Core addressable market
This is our core addressable market and this is where we focused as
never before in 2016.
The strategy entails some tough decisions around the exit of some
large volume, slim-margin contracts. These decisions have to be
taken if we are to achieve the correct balance. There may be some
short-term pain. Sales volumes may stall, but the strategic benefits are
sizeable.
Completion of this process is imminent at our Australian business.
In the year under review its revenue fell while profit levels rose – solid
indication that substantial benefits accrue when appropriate balance is
achieved.
On a smaller, but perhaps more dramatic scale, we have carried out a
similar rebalancing process in Singapore. This business – once a major
trading operation – has been transformed. Foodservice is today the
principal activity and profit levels are responding accordingly.
In Singapore, this change of strategy took a year longer than originally
planned. Clearly, staff buy-in is essential, this required ongoing
communication and encouragement. Old habits had to change and
new ideas had to be embraced. Our people can now see the benefits
and the Singapore transformation is substantially complete.
Other operations in other national markets have undertaken a similar
journey. All report substantial progress. The strategy is bedding in well,
providing a platform for future growth.
New horizons
Ever tighter focus on our core addressable market is expected to
deliver organic growth at acceptable margins across Bidcorp. Smaller
bolt-on acquisitions were completed in several markets in 2016.
Incremental acquisitive growth on this pattern will continue.
No major acquisitions took place in 2016. However, we have explored
several opportunities; some sizeable, some in new markets. We feel no
compulsion to conclude new transactions. When the right deal at the
right time presents itself, we will be happy to proceed.
We set no artificial boundaries when examining the potential for
geographic expansion. We are not currently represented in the North
American markets of Canada and the USA. This means the canvas is
broad and opportunities are unrestricted, but, as always, we have to
identify areas in which we can add value and contribute to the growth
of the acquisition target.
Risk and return
Geographic diversification is one of the keys to effective risk
management at Bidcorp.
However, there is always a danger that investment will be made into
countries where mounting risks could destroy value and undermine the
business case for continued involvement.
What is the Bidcorp attitude in situations like this?
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| Bidcorp Limited Annual integrated report 2016