Chief executive's report
A balance of
contribution ensuring no
single region dominance
Group revenue of
- Own brand Babicky, Bidfood Czech.
always at the forefront of
everything we do
Our business has delivered another good performance, with real organic growth in group trading profit of R6,7 billion, a 7,1% increase in constant currency.
The established businesses are trading well with a balance of contribution ensuring no single region remains dominant: Australasia contributed 32% of the profits, the United Kingdom delivered 25%, Europe provided 28% and 15% was derived from Emerging Markets.
Food inflation was minimal throughout the group, meaning that real trading profit growth was over 6%, which is commendable in these challenging economic times. Notable macro-challenges exist in several territories, but these are beyond our control and we tend to rather focus on our own priorities and strategic imperatives, and where we can influence our own future.
We have continued our exceptional growth trajectory, but we are not complacent. Over the past year, as a group we spent R718 million on acquisitions, using cash of R449 million, and we invested an additional R3 billion on property, plant and capital equipment expenditure. Our considered imperative to invest ahead of the growth curve remains a recurring theme throughout the group, with new capacity driving new business volumes in regions where we see potential.
Our strategy is firm and intact, but that does not mean we do not manage change and advance or adjust certain elements. Conditions change and we always remain alert to external circumstances, ready to adapt to a continued and collaborative customer-centric offering, such as the continued re-balancing of our customer portfolio and finding new and innovative solutions for our consumer base.
We are, for example, ensuring a fit-for-purpose solution through the application of different technological touchpoints. These include digitisation, ecommerce, data analytics, and modern facilities, deploying the latest and most efficient techniques and equipment. As our customer needs and purchasing habits become more complex, Bidcorp's key imperative will be to ensure the flexibility to deliver speedily across different temperatures, at differing quantities, and varying locations. We see this as a true partnership that is collaborative in nature and unified in common purpose.
Wage and salary inflation is a reality in the current global socio-economic climate and provides an impetus for Bidcorp to do things more productively. Similarly, our customers are experiencing the same pressures and challenges. Therefore, we have considered and introduced developments and advancements to improve the value-add offering that enables our customers to reduce their processing time while optimising sales and profitability.
The traditional foodservice focus is increasingly being complemented by own brand products and light in-house processing. We are actively pursuing various opportunities in key regions and good progress has been made.
Another exciting achievement is the new generation metro strategy we have adopted. In many regions around the world, it is clear that customers are finding skills replacement a challenge, while expensive and less suitable, cost effective, property options are impacting their businesses. This provides us with an opportunity to provide more conveniently located warehousing solutions, specifically, to enable a faster, better last-mile quick response execution of customer orders. These are more often than not being processed through our ecommerce systems. This strategy will also be introduced in other regions where relevant and appropriate.
Bidcorp operates on a truly diversified basis across many different geographies and we touch many lives every single day. But, ultimately, we are all about the food, all about the service, and we are all about the technology. It is the successful interface and equilibrium between those three that will determine our continued future success.
Sound and solid results
Despite volatile economic conditions in many of our operating geographies, we have delivered a solid performance for the year. Trading in most geographies remained positive despite the persistent low food inflation and moderate economic growth. Good revenue growth and better gross margins helped offset cost pressures, particularly labour, energy and fuel.
As a South African (JSE) listed entity for the last three years, but which has 30-years of maturity, the vast majority of Bidcorp's operations are outside South Africa. Bidcorp reports in rand, and it remains a core fundamental for us to transparently present our numbers in constant currency as well. Currently, 95% of revenues are external to South Africa and 92% of earnings are non-South African rand denominated.
Group revenue totalled R129,3 billion, up 9,8% from last year's R117,7 billion, while in constant currency there was revenue growth of 4,7%. The gross profit percentage increased to 23,9% from 23,3%, which reflects the freetrade growth. Freetrade provides a higher margin in the customer mix, rebalancing the customer portfolio which has enabled the group to trade through the higher cost base.
While penetration varies across regions, freetrade remains important to our business and we continue to assess measures to enhance this element. We took a risk some years back as we became very aware of shifting customers dynamics and started a process of exiting lower-margin contracts. There was a significant, but important internal debate about this strategy, considering certain contracts were volume based and not mutually beneficial and disproportionate in the risk-reward profile. Others were smaller but operated at better margin. Over time, and as these dynamics change more regularly and rapidly, it is pleasing that our value-over-volume strategy has gained traction, and it is building a stronger, more resilient, more sustainable business. Our results absolutely reflect that across multiple geographies.
Because of the higher sales and distribution activity, a larger invested operational base and the greater focus on freetrade customers, our overall cost of doing business (operating costs) increased to 18,7% from 18,3%.
Group trading profit margin increased slightly to a very respectable 5,2%.
Growth through acquisition continues
In comparison to a normal (Bidcorp) acquisition year, the past year's activity was subdued. This was as a result of our ongoing financial discipline and the intention to focus on bolstering the platforms from recent acquisitions in Germany, Iberia and Australia. Despite this, investment activity amounted to R847,1 million from R1,2 billion last year. Certain bolt-on acquisitions were made, the most significant of which included the remaining minority of the D&D business in Italy, 100% of Igartza in Spain and Punjab Kitchen, rebranded Simply Food Solutions, in the United Kingdom.
Regional roundup and review
One of the important benefits of the diversified model is the significant synergy that is derived among group entities. While decentralised, management teams are still able to share tremendous amounts of data and information about what has, and what has not, worked in certain regions. Coupled with our competitive nature and being naturally supportive of each other, especially after having worked together to achieve a common purpose, it results in a group-enhancing sharing and further diversification of successful business process and talent. We share numerous benchmarks and many other aspects of the business, some of which include measures of excellence and innovation, the cost of technology, customer trends, cost and efficiency "secrets", and distribution dynamics.
Our rebranding to Bidfood for the global operating units is progressing exceptionally well. Most of our global operations are now identified as "Bidfood" in all livery and it is this moniker that will continue to be the driver and deliverer of the quality offering, and superior service provider, for which we have become well known.
While there is ever-increasing collaboration across the group, an absolute focus, of course, remains on the individual businesses.
The Australasia region is one of the areas where, overall, group leadership is benefiting from the focus and passion of its management team, pertaining largely to maintaining an appropriate customer base, as well as procurement and manufacturing opportunities, and technological innovations. Over recent years, we have made a larger than normal investment into Australia and New Zealand in infrastructure, specifically aimed at future growth.
In Australia, the business continues to perform satisfactorily, growing profitability (for the twenty-second consecutive year), notwithstanding a very sluggish economy. One of our large, low margin contracts was exited in September 2018, and the team has done a sterling job to reduce the cost base and focus more heavily on freetrade growth.
New Zealand continued to perform very well across almost all of its business segments, with a particularly strong performance from its value-add manufacturing and processing activities. A second depot is scheduled to open in Auckland in October, giving us significantly more capacity in the largest market. A large customer contract was terminated from July 1 2019, as renewal terms from the customer were unrealistic and uncommercial. The team is energised, and focused, to ensure lost volume is replaced over the next few months.
United Kingdom (UK)
Within the UK, our foodservice offering delivered fantastically well. However, there is no doubt Brexit had an impact, the average consumer is frustrated in this uncertain environment. Notwithstanding this, the team has done remarkably well, and they have adapted nicely to the Bidfood operating method. Bidfood UK is now the largest business in our portfolio as a result of a focused restructuring, repositioning and expansion plan implemented over the last few years. The Bidfresh business remains a bit challenging, Seafood is performing well, however, Meat and Produce are more difficult for us at this stage.
Good progress has been made in terms of the sale of the Logistics business, and the disposal is progressing well. This sale will result in the removal of certain operating distractions, and ensure an even greater strategic focus, strengthening the core business model in this region.
We are pleased with the overall result in Europe, although the slowdown in Germany had some impact, economically, on the rest of Europe.
Our Iberia region includes Spain and Portugal. Portugal is doing well and has delivered an outstanding performance. In Spain, while there are some components of the business that are doing exceptionally well, Guzmán – acquired in 2017 – has been disappointing. We are in a process of integrating the businesses, and this will take some time to transform into a true Bidfood-type operation. We remain positive about the region and we are expecting a much improved performance this year.
Our German operation is relatively small and is still at an early stage of development. We are still building the base which if done properly will take some time. We are interacting very carefully and closely with the customer base to provide the longevity we always aim to achieve in all the regions we operate. Freetrade sales have improved and we see some scope for bolt-on acquisitions.
After the change in strategy a few years back, we continue to make good progress in the Netherlands, with a higher trading profit delivered. It is a country where exciting future potential exists, and we have started a process of simplification to align this business with group strategy. We are seeing good sales and margin growth.
Belgium had another solid year and delivered a good increase in profits in a stable but slow environment. In an economy that is mature and showing low growth, the ability to increase profits on a regular basis is remarkable.
The Czech and Slovak region delivered a fantastic performance. This region benefited from an investment in infrastructure a few years back, which has enabled continued growth despite the pressures of securing skilled labour as well as experiencing large increases in energy costs. The team continue to innovate and introduce value-add opportunities and, in fact, is the group leader in creating margin opportunities in the manufacturing of own products. These learnings are being shared among our leadership teams in other countries.
Lithuania and Latvia are now profitable, albeit small businesses and Poland delivered a good result. We invested ahead of the curve in this region and the subsequent growth has been exciting and rewarding. The management team is delivering record revenue in local currency and has certainly exceeded expectations.
Italy had an acceptable year, but in a tough economic and political environment. While the business has doubled sales over the last five years, we are introducing certain structures to integrate recent acquisitions, and ensure better continuity.
South Africa remains in a difficult economic environment, coupled with the ongoing impact that resulted from last year's listeriosis crisis. However, there was a trading profit improvement year-on-year, which is commendable under the circumstances.
In the Middle East, after a difficult 2018, this business has bounced back and delivered a record result. The United Arab Emirates remains a bit challenging, but we are making progress. Saudi Arabia continues to perform strongly.
In Chile, the team delivered a good profit and the business is well positioned for significant growth. We are starting to build scale and strength in this region, both in terms of a team of people and market position.
The Brazilian economy is tough, and the politics are disruptive. We still see Brazil as a large potential market and we have a solid base set up from which to scale a future business. We are assessing various opportunities that are available.
We made a small investment in Argentina in May 2019, which we see as a reasonable foodservice market and we will use this to consider growth opportunity going forward.
Profitability in the core Singapore and Malaysia business increased, but was eroded by start-up losses incurred in opening the new business in Vietnam.
Greater China has been challenging and ended the year substantially below the prior year. Pleasingly, however, the performance improved as the year progressed, and there is a visible recovery underway. The in-country team has entered new product ranges and is establishing a solid supplier base.
In Hong Kong we reduced the cost base, simplified and re-focused the business. There is a concern, however, following recent and ongoing political demonstrations and protests. Volumes have declined significantly with residents not frequenting restaurants, as well as tourism and hotel occupancy numbers substantially down.
The year has been good for Turkey as the business has transitioned into a local foodservice wholesaler, being less dependent on expensive, imported brands. Expansion plans are underway, and we remain confident of good growth, albeit off a low base.
Spirit of entrepreneurship
Bidcorp's diversified global offering requires a varied range of talents. We remain fully committed to developing, nurturing and the sharing of skills and experiences across the group. Supporting employee development is an integral part of our culture of entrepreneurship, and it remains the responsibility of leadership to set the right example in every aspect of our business.
For this reason, we have embarked on the "One Dream, One Team" journey within the group. This is a process of sharing, debating and arriving at a common framework of strategic purpose. It incorporates effective and efficient operations, driving and developing imperatives such as freetrade, the direct-to-customer model, category development and the growth in high-value specialist products, among other initiatives.
Wherever possible, we provide opportunities for our employees to reach their full career potential and achieve their respective aspirations. Various programmes are in place to develop skills and diversity at our companies in all the countries where we operate, and we encourage initiatives in these areas.
Through all of this, we are collectively designing the future Bidcorp. It has become very clear that entrepreneurship extends beyond sound business operations and processes, but also includes the successful implementation of our core values and beliefs, which include a sustainable way of operating. Ultimately, it is all about the food and our long-term success depends on our unwavering commitment to the care and prevention of environmental impact, modern fleet utilisation and energy preservation, while delivering sound corporate citizenship practices.
We work closely, and form active partnerships with cooperating supplier businesses, local authorities, industry bodies and associations, which ultimately strengthen our stakeholder relationships that will drive a better and appropriately sustained business.
Sustainable food safety
The listeriosis crisis in South Africa in 2018 heightened global concern about food safety. We continue to advance our testing protocols, systems and recall procedures and we are pleased with the progress made in driving a quality and control culture through the organisation. Where there is crisis, opportunity is normally discovered. The listeriosis matter has driven an even closer interaction with our supplier and customer base, to reduce the threat of food contamination and ensure the highest quality of product and safety standard.
These processes have all become well entrenched through the group. Our advancing developments into food production will also naturally force a heightened and more intense focus on precautions.
Outlook: cautious but optimistic
Our strategic future is well defined, it is now the responsibility of the leadership to ensure it becomes reality.
We have a carefully planned journey, and while deviations and other risks, such as political, social and economic upheaval will naturally occur, we remain focused on delivering a safe, successful and meaningful contribution to society, while ensuring reward for all stakeholders.
We are not expecting significant or major changes in the year ahead, which means operations will continue along much the same trajectory. The customer will always remain at the forefront of everything we do, and our service capability will continually improve. To achieve these key aspects of our business, focus areas will include further enabling innovation and technological advancement, freetrade enhancement, improving our quality offerings and developing distribution and delivery dynamics, among other initiatives.
We remain true to our promise of ensuring a strong and robust balance sheet, which ultimately enables us to confidently pursue internal and external growth prospects. These are continually assessed in the regions where we are currently active, and are advanced where we see that they can add value, return and other future benefits.
Another imperative for this year is to ensure improved delivery and performance from the underperforming regions, which have been receiving focused attention. Our tried and tested operating capability means we are confident of successful turnaround.
The fundamental demographics and industry drivers of our global foodservice markets remain positive, positioning Bidcorp to continue delivering real earnings growth in the year ahead.
Thanks, and appreciation
Everything we do centres around our customer, their requirements and our ability to provide them with their respective needs. Thank you for entrusting us to be a part of the successful, ongoing delivery of your livelihood and achievement.
We have thousands of suppliers around the world that make our customer interaction possible and I wish to express my appreciation to these key partners. Without them, we would not be in a position to be meaningful on such a continuous basis.
Our nearly 26 000 employees deserve a tremendous accolade. We find ourselves operating in difficult times with numerous challenging aspects within our business. Our team has really done a fantastic job in all jurisdictions to continue the delivery for all stakeholders. My gratitude is expressed to each and every one of you. Our management teams around the world do an amazing job, and I am grateful to them for their continued commitment and dedication. I know that each country has challenges, but every country also has opportunity. We are well aware of these possibilities and, together, we are aligned and committed to achieve them.
My gratitude also to our group chairman and the directors of the board for allowing us the opportunity to continue doing what we do best. You provide the platform for us to successfully operate within the parameters of a listed entity in this challenging world. Your continued guidance, wisdom, insight, and more importantly, support is valued.
In the three short years since our stock exchange listing, there has been significant and very pleasing progress in positioning the group as a strong, independent and successful foodservice entity. Ultimately, it is the entrepreneurial and decentralised business model, the depth and experience of our management teams and the strength of the group's culture that will deliver a sustained future of growth.
Our core principle, "it's all about the food, the service and the technology" will continue to ensure that we remain a global leader in foodservice.