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Chief financial officer’s report
Operating expenses remained well
controlled, decreasing 4,9% in absolute
terms, despite wage pressure in a number
of growing economies and higher sales and
distribution costs as a result of higher activity
levels.
Group trading profit increased by
6,9% to R5,5 billion (PF2016: R5,1
billion) and the trading margin improved
to 4,2% (PF2016: 3,7%). Share-based
payment costs increased to R97,6 million
(PF2016: R64,0 million), the annual costs of
long-term employee incentivisation across
the group.
Acquisition costs of R46,1 million (PF2016:
R8,9 million) were incurred in bringing
various acquisitions to fruition. Although their
contribution to overall group profitability has
been limited to date, these businesses will
assist in building our global presence going
forward.
Net finance charges are 25,6% lower at
R219,2 million (PF2016: R294,6 million)
assisted by some deleveraging and lower
interest rates. Cash generation has been
solid, despite greater utilisation of working
capital, impacted by higher activity levels,
some strategic stocking, tighter supplier
terms and impacts from a Logistics UK
contract unwind.
Capital items mainly comprise net
impairments in relation to goodwill for
PCL 247 Limited, which was acquired in
July 2014, closure of excess distribution
capacity in UK Logistics as a first stage
in the rightsizing of the business and the
write-down of over-invested ERP software
at Bidfood Netherlands. Net profit on the
sale of businesses relates principally to the
investment made by Puratos Group NV
(Puratos) into the bakery business in South
Africa and the IFRS fair value adjustment on
the residual 50% investment.
Bidcorp remains well capitalised, with trading
profit interest cover at 25,1 times (PF2016:
17,5 times). We remain conservative in our
approach to gearing and retain adequate
headroom for further organic and acquisitive
growth.
The group’s financial position remains
strong. Total fixed assets have grown in
home currencies, reflecting replacement
and expansionary capital expenditure. Net
debt is R1,7 billion, which is at the same
level as June 30 2016 despite significant
ongoing investment and acquisitions. Cash
generated by operations before working
capital absorption was robust at R6,2 billion,
average net working capital days was seven
days and investment activities consumed
R2,2 billion. Free cash flow (excluding
dividends paid) was positive at R1,7 billion.
Despite more than adequate ‘headroom’ for
further growth, we remain judicious in our
approach to finding the right opportunities.
Distribution
Bidcorp declared a final dividend of
250,0 cents per share in accordance with
our dividend policy. Combined with the
interim dividend of 250,0 cents per share,
we have paid 500,0 cents per share for our
first full year as a separate listed group.
Interest rates
A rising interest rate trend is apparent in
many international markets. Specifically, rates
ticked higher during the year in the UK and
Eurozone, largely driven by rising inflation.
Despite the firmer rates, the funding we
raised for acquisitions and refinancing was
undertaken at rates competitive in the
underlying markets.
We maintained our longstanding risk
management practice of matching assets
and liabilities in the home currencies of the
relevant operations.
Inflation in the UK, Europe and South Africa
included a measure of food inflation. As long
as food inflation does not reach runaway
levels, it is traditionally beneficial for a
business such as ours and our local teams
took advantage of the positive effect on
trading margins.
Acquisitions and disposals
The acquisition of 90% of Guzmán
Gastronomía and Cuttings (Guzmán), a
leading national Spanish multi-temperature
foodservice company, was completed with
effect from April 2017 for an enterprise value
of €75 million (R1,1 billion). Guzmán has
national reach and supplies restaurants,
hotels, industrial caterers and institutions. It
has a strong presence in the independent
market and generates attractive cash flows.
The group also concluded a number of
smaller bolt-on acquisitions in Australia,
Brazil, Belgium, Italy and the UK totalling
R590,4 million.
Investment disposals totalled R670,4 million.
Bidcorp concluded an agreement with
Puratos, which enabled Puratos to acquire
joint control of our South Africa-based
Bakery Supplies business. The Puratos
group is headquartered in Belgium and is the
world’s largest bakery ingredients business.
This disposal does not represent a retreat
from South Africa, but strategically will enable
the business to develop new products
using international innovation for the baking
industry. The transaction was completed in
April 2017 and is equity accounted in our
results from that date.
Post year-end, the acquisition was
completed of 70% of Pier 7 Foods, a small
foodservice business based in Munich,
Germany, incorporating five locations within
Germany and one in Austria. An acquisition
of a niche Portuguese horeca business was
also completed.
Capital allocation, gearing and
returns
Investment into capacity creation and
innovation is a priority. Bidcorp has
traditionally been well invested as this is a
key ingredient of sustained organic growth.
Furthermore, bolt-on acquisitions in existing
markets enable geographic extension and
product diversification, whichever is required.
Management are encouraged to grow their
distribution platforms via bolt-ons and these
occur on a regular basis.
The timing of material acquisitions is difficult
to predict. However, we retain significant
financial headroom and the ability to
act quickly to accommodate expansion
opportunities, both acquisitive and organic.
Our gearing is low in comparison to peers.
However, our journey as a separately
listed business is short. We see this as a
competitive advantage in an environment
where opportunities abound. We have
committed to a 2,5 times headline earnings
cover for dividends in the medium term.
Depending on free cash-flow generation
from year to year, this may well be reduced
over time.
In the event the anticipated opportunities do
not materialise as expected, management
will look to enhance shareholder returns via
higher dividend pay-outs or share buy-backs,
whichever is most appropriate at the time.
Fundamental to Bidcorp is our ability to
continue to generate above average returns
in each of our businesses in their home
markets. Returns on funds employed
remains the key measure of performance
across all businesses.
LEADERSHIP REVIEW
Annual integrated report 2017
Bid Corporation Limited
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