Chief executive’s report

A tribute to our Bidcorp heroes

When we reported our interim results in the third week of February, it was impossible to imagine what difficulties awaited us in the coming months. Our annual result is a tale of two halves, but the realities of the COVID pandemic have no respect for financial year ends as we manage with the impacts every day.

My remarks for the annual report will therefore be briefer than in previous years, acknowledging that we are in a rapidly evolving landscape and that the financial performance of the last few months isn’t reflective of what lies ahead for Bidcorp.

At the half year, the one thing I did know without a shadow of a doubt was that we had the right team of people to take on whatever challenges arose, something that has proven itself throughout the pandemic.

Bidcorp has produced a commendable and solid annual result and we have done this while keeping close to our customers and suppliers to ensure we were aligned with them to get through this unprecedented and dreadful experience together.

Without each person we have no business. From the onset of COVID in each jurisdiction, it was important to keep our service-delivery capability intact, not only as an essential service but also as part of governmental programmes in several countries to provide food and care packages to the most vulnerable members of society via home delivery. Each of you have made sacrifices for a better tomorrow.

The health and welfare of our people are our highest priority irrespective, and always will be. Sadly, I pay respects to our three South African colleagues Tembi Twala, Tshepo Tshepe, and Collins Khosa who were victims of the pandemic and its consequences. Other staff members have suffered as a result of the virus, but I am relieved to say have recovered.

The year in perspective

Bidcorp maintains focus on delivering high-quality, service-intensive, and technologically up-to-date solutions.

The group had committed capital expenditure plans to expand, modernise where necessary, and invest for organic growth. While we shall curtail capital expenditure in the short term, our goal to be at the forefront of our industry is undiminished and we remain committed to embracing further growth and expansion opportunities.

In striving for foodservice excellence, we complement our supplier food and accessory ranges with Own Brand products and in-house food processing to offer an end-to-end value-add solution to our customers. We continue to explore and develop innovative ways in which to add further value and are constantly sharing these ideas within the group.

Keeping close to our markets enables us to be responsive to changing dynamics and adapt quickly. It is for this reason that we have exited non-core volume-based activities where it makes economic sense to do so, as was the situation this past year in the exit of our logistics operations in the UK concluded in March 2020.

No acquisitions of significance were undertaken during the year and previous acquisitions are reflected in the base. Our strategy on growth is unchanged, being to pursue growth organically and through acquisitive-organic bolt-ons and larger self-standing acquisitions, either within an existing territory or as travel restrictions are eased in new territories.

While the rolling COVID lockdowns have severe economic repercussions for our territories and our businesses, serving predominantly the horeca sector, the pandemic has afforded us the opportunity to relook at how we have been doing business in several areas and to reengineer for better times. On the whole, our strategy is fit-for-purpose, however, we remain alert to making minor tweaks as and when circumstances require.

The Bidcorp mindset is one of opportunity. We are typically confronted by political, economic, and competitive challenges every day. Despite those challenges we have expanded into new countries in the past two years such as Argentina, Germany, Vietnam, and Malaysia while making excellent progress in the Middle East, Turkey, and the second-tier cities of mainland China. Furthermore, we have taken market share in territories where we were already present.

COVID has dominated the headlines but Bidcorp has had its fair share of other external difficulties to contend with this year, be those bushfires and drought in Australia, political protests and the loss of a significant dairy-brand contract in Hong Kong, the pending exit of the UK from the European Union, operational difficulties in Spain and Germany, political unrest in Chile, a stagnant economy in both Brazil and South Africa, and globally, rising labour and energy costs coupled with very low food inflation.

Bidcorp reported a pleasing first six months with constant currency growth of 3% in revenue and 9% in trading profit with trading margin at 5%. All regions contributed positively to this good result which was achieved despite several external challenges. Revenue growth was predominantly organic as the customer mix evolved, with an emphasis on freetrade. We were well positioned for another year of solid growth.

Our greater China business was the first to be impacted by COVID in January, which subsequently rapidly migrated westwards to the rest of the world significantly impacting each of our businesses. The second half result was negatively impacted, and consequently annual revenue decreased by 12% in constant currency with trading profit down by 40% on the same basis, reducing the trading margin to 3,2% from 5,2%. The COVID impact was especially pronounced in our fourth quarter.

Horeca sectors dependent on discretionary spending were worst affected and will remain dependent on both the degree of relaxation of restrictive pandemic measures, willingness to spend and the economic consequences of the lockdowns. While we have exploited niches in ancillary sectors such as retail and consumer home delivery, this is not core to our strategy and unlikely to gain sizeable scale in the future. Non-discretionary sectors such as healthcare, aged care, and public sector have proved to be relatively resilient.

Post-year end there were encouraging signs of a bounce-back in hospitality-linked demand from the lockdown-induced depressed levels. Developed markets have tended to recover quicker relative to our emerging markets, but there is no clear pattern.

Each of our territories has been affected slightly differently by COVID. Government policy responses, too, vary by country. This is a situation for which there is no textbook response and only with the benefit of hindsight will the appropriate approach be understood.

Our diligent housekeeping and conservative nature enabled Bidcorp to end the year in a strong financial position and to continue to remain so. As we recover, this strong financial base is supportive and enables the group to capitalise on opportunities that may arise as the world emerges from this seismic event.

Divisional overview

Bidfood Australasia was the strongest performer in the group and did well to attain a combined trading margin of 6,6% compared with 6,9% in the prior year. The strategy in Australia of exiting lower margin accounts will be beneficial for trading margin once sales normalise. In New Zealand overall trading margin was assisted by the growth within the successful Fresh and Processing value-add offering.

Proactive government responses in both Australia and New Zealand to COVID have had inevitable financial consequences for our businesses, but we anticipate these to be temporary. There may be further isolated lockdowns depending on the local infection rate.

In Australia, our metro-depot strategy, together with the diversification of the customer base paid dividends during the restrictive lockdown phase, and proved to be a competitive advantage. This focus is well suited to a post-COVID world. With borders shut, the staycation trend has contributed.

Both Australia and New Zealand are strong economies exploiting their natural advantages and we are optimistic that there is further opportunity and growth to come.

In Bidfood United Kingdom, the Foodservice team maintained clear executional focus during the year and approached the pandemic proactively, both from a financial and a customer relationship point of view. The UK has had one of the stricter lockdown regimes and this had a substantial impact on the result for the full year, with trading margin more than halving to 2,1%. The Fresh business was hard hit by the highly perishable nature of the offering and its independent hospitality customer base, but the crisis has resulted in us rejigging the Fresh business model for the future.

The degree to which the UK government-sponsored furlough scheme will preserve jobs and thus purchasing power longer term remains to be seen.

While the UK has left the European Union (EU), the transition phase which concludes at the end of December 2020 is uncertain and seemingly acrimonious with respect to the future EU relationship. Nevertheless, Bidcorp has built a strong business in the UK and we see further potential whatever the outcome of the short-term disruption.

Bidfood Europe as a segment is a grouping of nine businesses each with their own characteristics, challenges, and opportunities. After a pleasing first half overall, no single country was unscathed by the impact of COVID. Italy as a country was particularly hard hit but we have a sound business with a clear focus.

Our stars in recent years, Czech Republic, Slovakia and Poland were also significantly impacted but have weathered the pandemic well. Strategic interventions and restructuring have placed Spain and Germany on a firmer footing.

Netherlands has been transitioning the business model more towards servicing the horeca market for several years now and has seen the benefits thereof, while our Belgium team have a good balance across multiple sales channels.

The Bidfood Emerging Markets businesses were impacted heavily during the second half of the year following what was an already challenging first half.

Mainland China, which was the first to experience COVID and consequences of the economic lockdown, has shown encouraging recovery in sales subsequently.

In the South African operations, the dramatic impact in Foodservice was offset by the manufacturing businesses, Crown and Chipkins Puratos, predominately supplying the retail and eat-at-home channels.

Our activities in Brazil, Chile, Turkey, and the Middle East have continued to struggle post-year end as emerging market impacts lag those of the developed world. Our Argentina business was able to operate, although at reduced capacity.

Appreciation

Business is about successful partnerships with common purpose. In the case of Bidcorp, it is with our customers, our suppliers and our people focused on the food, the service and the technology. Bidcorp believes in living up to its responsibilities as a good corporate citizen and standing by our partners in hard times is part of that – we share the pain as we are all equally affected.

I am indebted to a strong board of directors who provide clarity of thought in their oversight role and are supportive of management.

Outlook

The situation is variable and unpredictable and like none we have experienced for the simple reason that COVID, by its very nature, is far-reaching and impacting every corner of the group.

I am confident that, having weathered the “first wave” of COVID, we have the flexibility and agility to adapt and change with its secondary impacts, a characteristic we have been getting right for over three decades.

While Bidcorp generates a large revenue in aggregate, the group in reality is made up of many small businesses each with an owner-manager way of thinking. When the crisis hit, our financial conservatism meant we were well prepared, and we will continue to keep a tight rein on expenditure, working capital, capex, and cash generation.

There may be behavioural shifts following the pandemic, but we also think that most human traits will endure and Bidcorp is well positioned to continue on its clear and focused strategic path. Appetite for digitisation by customers is accelerating, and our platforms are capable and well prepared. Most importantly, our fantastic team remains motivated and enthused about our prospects.

WELL POSITIONED TO
CONTINUE ON OUR CLEAR AND
FOCUSED STRATEGIC PATH

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