Annual integrated report 2018

Net revenue from continuing operations rose 8,0% to R119,4 billion (2017: R110,5 billion) while gross profit percentage was maintained at 24,0% despite a freetrade growth strategy that allowed some businesses to sacrifice margin to grow volume. We also gave local teams the discretion to absorb some dairy price increases in those markets that are deeply affected by the world dairy crisis. Group trading profit rose 8,7% to R6,0 billion (2017: R5,5 billion). Bolt-on acquisitions were completed in Australia, Netherlands, Spain, New Zealand, South Africa, Greater China and Turkey. Total investments were R965,6 million. Pier 7 (a small foodservice business with operations in Germany and Austria) and a niche horeca business in Portugal (integrated into Bidfood Iberia) were springboards for expansion into new geographies. A world of opportunity It is possible to take a world view dominated by geo-political risk and financial exposure. Risks certainly have to be addressed and mitigated. But if you consider nothing but danger, you succumb to the biggest risk of all… doing nothing when there is work to be done and opportunities to pursue. At Bidcorp we take a positive view and see a world of opportunity. Dangers exist, but the group has the capacity to manage them, thanks to our broad geographical spread, closeness to individual markets and the experience of local teams. Difficulties may arise in the short term, but experience tells us that our teams have the knowledge and talent to successfully address these challenges. We adapt and can be extremely flexible in the application of our basic business model. In the long run, growth will be achieved if you work hard, stay close to customers and listen to what the market has to tell you. Of course, perceptions of enhanced risk affect not only sentiment but valuations. This creates potential for acquisitive growth at attractive prices and helps explain our record for superior results even in times of adversity. Positive perspective Bidcorp’s positive mindset was apparent in a year when we widened our exposure to China and several other countries. America and China may engage in acrimonious exchanges, but the Chinese population continues to grow and these families must eat. At the same time, income levels are rising in Asia, opening up greater menu choice. Opportunity for market-share growth is clearly apparent. For example, China imports 4,6 million metric tonnes of meat a year. Bidcorp currently accounts for 0,01% of this business by volume and value. Clearly, we have a lot of growing to do in this category and many others. We have a well-developed Chinese base with operations in 28 cities. Work is well advanced to widen the network by creating a presence in another two cities. In the past year, we acquired Hong Kong-based Linson Global Seafood Trading, strengthening our presence in an important food category, as well as Jilin Food Service in mainland China. In addition, we entered the Vietnam market in a joint venture with a local business, Dai Thuan. Vietnam is an interesting market. Economic growth has been rapid in recent years and looks set to continue. We prefer to investigate potential from the inside rather than stay on the outside looking in. Growth takes time This mindset explains numerous forays into supposedly risky markets. Some years ago, we entered South America via Chile and subsequently established a presence in Brazil. At the time, the political and economic conditions were challenging and have remained so, but these businesses have demonstrated their resilience and an appetite for solid growth. Bidcorp resilience in the face of uncertainty is also evident in the Middle East and Turkey. Again, we focus on the potential and witness continued progress. Build good businesses and assemble energetic teams. You then have the capacity to ride out temporary difficulties created by a turn in the economy or shifts in the political situation. We are gradually building scale in this region and can report encouraging progress by new initiatives in Bahrain and Jordan. Eastern Europe also provides compelling evidence that market engagement is often preferable to market avoidance. Many of these countries have sizeable populations that are eager to achieve higher living standards and aspire to a lifestyle that includes regular eating out with family and friends. For a foodservice business alert for new opportunities, this looked like a solid foundation on which to grow, and so it has proved. It has taken a little time – growth often does – but our businesses in the Czech Republic, Slovakia and Poland have become consistent contributors. We have also invested some time (and money) in the Baltics, where a solid base is now taking shape. We will continue to take a long view and look for opportunities rather than problems. Brexit Our philosophy of focusing on the things you can control applies in developed as well as developing markets. In the UK, the country’s planned exit from the European Union has dominated the headlines for more than two years. Initial predictions were that the economy would stall or go into reverse. Instead we have seen two years of steady growth; nothing spectacular but much better than many commentators expected. Now the media noise is all about a messy ‘divorce’ and the possibility that no deal will be struck by British and European negotiators. We prefer to focus on the certainties and they include the fact that the UK has a growing population of 65,6 million. Life expectancy is going up. Healthy eating is an established trend, as is out-of-home eating. From our perspective, the fundamentals look good. Our job is to continue to build a vibrant foodservice operation in the UK that will make the most of these opportunities – with or without a messy Brexit. Our British businesses are in good shape and I am confident they are resilient and resourceful enough to continue on the growth path. Food safety Risk not only attaches to specific geographies. Public health risks are even more fundamental for a business like ours. In the review period, the South African authorities reported that more than 200 people had died in what is believed to be the world’s worst listeria outbreak. Listeriosis is one of the most serious of foodborne diseases and in 2018 cases were reported as far afield as the UK, Europe and Australia. In view of heightened food safety risks, our food testing protocols, systems and recall procedures were re-examined and strengthened. Within the Crown Food Group (CFG) in South Africa, the listeriosis crisis had material effects as some ingredient sales fell sharply for a time. CFG’s sister company, Bidfood South Africa, was impacted to a lesser extent. Listeria is one of many diseases that poses a food safety risk. These risks have always existed and in all probability will never be totally eliminated. Bidcorp actively mitigates these risks by scrupulously applying rigorous quality and food safety controls while building food safety awareness into our organisational culture. 17 Bid Corporation Limited Annual integrated report 2018 This is Bidcorp Ifc – 13 Leadership review 14 – 23 Divisional reviews 24 – 47 ESG review 48 – 59 Financial statements 60 – ibc