Bidcorp

The Group delivered very pleasing results for the year ended June 30  2016. Headline earnings per share (HEPS) has increased by 32,5% to
1 080,0 cents per share (F2015: 815,2 cents) with basic earnings per share (EPS) increasing by 26,1% to 1 034,0 cents per share (F2015: 819,8 cents). On a constant currency basis, HEPS increased by 14,2%.

As a result of the listing, Bidcorp has declared a dividend of 241,0 cents per share based on the pro forma results which pertains to the second half of the financial year, in accordance with its dividend policy.

Bidcorp’s businesses continue to perform well across the world, with solid organic growth in home currencies in very low inflation environments, benefiting from market share gains and margin improvement. Rand translated results were enhanced by the positive effects of a weakened rand against most major currencies in the second half of the financial year.

Revenue grew 20,8% to R140,5 billion (F2015: R116,3 billion). Major contributors to the increases were the UK and European operations, reflecting organic growth and assistance from currency effects on translation. Revenue growth was dampened by the deliberate and planned exit of large contract business in various geographies.

Gross profit percentage increased to 20,8% (F2015: 20,3%) reflecting the benefit of the strategy of focusing on the correct mix of business. Operating expenses remained well controlled, increasing by 6,2% on a constant currency basis. The benefits of lower fuel costs were negated by some wage pressure in a number of growing economies and higher sales and distribution costs reflecting activity levels.

Group trading profit increased by 26,1% to R5,2 billion (F2015: R4,1 billion) and the trading margin increased to 3,7% (F2015: 3,5%), principally reflecting the operational focus to grow the independent trade and rebalance the customer portfolio in many geographies.

Share-based payment costs declined from R89,9 million to R64,0 million impacted by the unbundling and the run off of previous option schemes. Long-term incentivisation remains a cornerstone of management motivation and new allocations have been made.

Acquisition costs of R8,9 million (F2015: R43,6 million) reflect minimal acquisition activity as compared to the prior year.

Net finance charges are 11,1% lower at R294,6 million (F2015: R331,3 million), reflecting good cash generation despite greater utilisation of working capital during the year. Bidcorp remains well capitalised, with trading profit interest cover at 17,5 times (F2015: 12,3 times). We remain conservative in our approach to gearing, however we are undertaking a review of current gearing levels across the Group in order to enhance returns.

Headline earnings increased by 32,7% to R3,6 billion (F2015: R2,7 billion). Net headline earnings adjustments in the year totalled R152,7 million, the majority of which relates to the impairment of the investment in Icelandic Water.

The Group’s financial position remains strong. Growth in total assets reflects normal levels of replacement and investment capital expenditure on fixed assets, and the higher trading activity in inventories and receivables. Net debt has declined to R1,7 billion as compared to R3,3 billion at June 30 2015.

Cash generated by operations was extremely robust as was working capital management, despite organic growth and the currency impacts on translation. Net working capital days remained in line with prior year (F2015: -1 day).

There have been no material acquisitions in the year. Smaller acquisitions include MPD (Czech – R162,0 million) and Caterfood and Cimandis (UK Foodservice – R464,0 million). Disposals include Patleys (Food Africa – R171,3 million) and our minority share in the associate VCN (Netherlands – R51,6 million).

Growth in out-of-home eating where customers quest for quality products, differentiation of service and innovative solutions, is expected to continue. Our philosophy remains on exploiting the “service” element by remaining close to our customers, evolving the product range and offering high levels of service

Our foodservice distribution segments remain focused on balancing the exposure between contract, national and independent customers in their respective markets. Traditionally more mature markets are being further segmented as a means of growing market share. Innovative technology-based solutions for customers continue to gain traction in many businesses as part of our value-add service. Fresh produce, Meat categories and Value Add Processing are areas of significant unexploited potential in most regions.

Our financial position remains strong, cash generation is robust and we retain significant headroom to accommodate expansion opportunities, both acquisitive and organic in a low interest rate environment. Currency volatility is likely to continue to impact Bidcorp’s translated results in the current global environment, however management remain focused on ensuring each business is managed in order to maximise returns in our businesses in their local currencies. Returns on funds employed remains the key driver of performance across all territories.

Management remains alert to opportunities and is confident of delivering further growth in the year ahead across all segments of the market; organically through a focus on the independent trade and appropriate business mix, supplemented by investment in fit-for-purpose infrastructure; through bolt-on acquisitions in territory to expand geographic reach and product range extension; and via larger acquisitions to enter new markets.

The Bidcorp entrepreneurial and decentralised business model, the depth and experience of our management team, and the strength of the Group’s culture breeds accountability and confidence which allows us to deliver above-average returns to our shareholders.

The positive global fundamentals in the foodservice industry will enable Bidcorp to further exploit this opportunity in its respective markets. All businesses are budgeting for real growth in their home currencies.

The region continues to make a substantial contribution and remains the biggest profit generator. Revenue moved 7,6% higher to R30,3 billion (F2015: R28,2 billion). Trading profit rose 21,8% to R1,8 billion (F2015: R1,5 billion).

Australia
The business recorded solid trading profit growth of 8,8%, a pleasing result as sales fell 7,0%. Sales decline is in line with the strategy of exiting low-margin logistics contracts while concentrating on higher margin independent business.

The economy sent mixed signals, though GDP growth remained stable. The continuing mining sector downturn hurt Western Australia and parts of Queensland, but tourism growth gave a boost to holiday destinations.

Gross contribution was up, driven higher by the changing mix of business.

Margins were well managed. Expenses moved higher as higher margin segments like Fresh and Meat typically involve higher costs and wages. Cash generation remained strong.

Foodservice profits were up 10,5%. The Foodservice result comes off flat overall sales but real sales growth of around 5,0% in the core target market (as low margin contract business was exited) and a zero food inflation environment. Strong growth was achieved in the free trade segment.

Imports division continued to grow and maintained rigorous expense control. The potential for value add manufacture or repack of own brand products is being explored, as are synergies with BPC and DAC Italy.

Fresh results were disappointing, this remains a segment with upside potential, and the national footprint was grown.

Meat division achieved profit growth, but results were somewhat below expectation, with meat prices being very high and availability more scarce. Some larger city Meat branches have adopted the direct-to-customers business model. Closer collaboration with Foodservice will be a focus area going forward.

Logistics continued to scale back as the strategy of exiting low-margin business continued, and this division will continue to be downsized even further.

In 2017, the Australia strategy of developing the higher margin market segments is expected to gain further momentum. The vision is to become a focused “food” business whereby we add value to our customers, rather than a low-cost carton-mover.

Further infrastructural development will continue, primarily in the large cities, and along with house brand development, range extension, customer focus and select acquisition opportunities, continued growth is expected.

New Zealand
Food deflation set in following a drop in dairy prices, though strong growth in retail spending and tourism were beneficial to the country. All divisions performed strongly. Revenue grew 12,8%, with impressive trading profit growth, topping 21,0%.

Results were driven by the strategic focus of developing key centre of the plate and produce categories while timely infrastructure investment created the capacity to maximise market potential.

Margins and working capital were well managed. The dollar value of inventories rose on the growth of higher value categories such as meat.

We disposed of our retail operations and acquired two small businesses. Land purchases created capacity for expansion in Hamilton, Timaru, Invercargill and Auckland. A new purpose-built distribution centre was built in Queenstown and another is planned in Nelson.

Foodservice put in a highly pleasing performance with strong results at all branches. The use of ecommerce technologies grew strongly further increasing the business’ competitive advantage.

Fresh also performed strongly. Despite market volatility, margins were generally steady. Expense management was rigorous and exports achieved good sales growth.

The Logistics performance was driven by good ice cream sales, focus on the route trade and exceptional growth by a key QSR customer.

The Processing division more than doubled its profit and Christchurch Butchery improved substantially.

In the year ahead, New Zealand will strive to maintain this strong momentum. The free-trade focus will intensify. Steps will be taken to further improve the processing business. Development of our sous vide products and our repack product range are envisaged.

Revenue rose 27,8% to R61,0 billion (F2015: R47,7 billion) while trading profit increased by 27,3% to R1,4 billion (F2015: R1,1 billion).

The Foodservice and Fresh businesses collectively grew trading profit by 44,9% off a 26,5% increase in revenue. The division was however negatively impacted by a 55,5% reduction in the trading profit of the Logistics business.

Foodservice
The business posted strong results in an economy that maintained modest but consistent growth. Sales and trading profit were up while expenses were well controlled.

National accounts showed growth as several major customers renewed contracts. The strategy of re-tendering very low-margin accounts at more commercially acceptable rates resulted in a small number of customers moving to providers who are willing to take on very low-cost contracts.

Free-trade volumes, excluding acquisitions, eased lower, but customer margin improved slightly. Focus for 2017 is to grow the customer-base while maintaining margins. The Vivas wine joint venture achieved pleasing profit and sales growth. Cimandis, an independent wholesaler in the Channel Islands was acquired in August 2015, and Caterfood, an independent wholesaler in South West England, was acquired late in the financial year. Management are excited about the synergies the association with Foodservice can bring.

The continued focus on food credentials was maintained with the re-launch of the entire own brand range, which also won several food awards.

Working capital management improved and cash generation remained robust.

Investment in infrastructure continued, including a new site in Slough (west of London), which became operational in June.

The upgrading, modernisation and simplification of IT infrastructure was completed and included the virtualisation of the server network, and the implementation of a new ecommerce platform for product management and online trading. In addition voice picking functionality was rolled out to 19 depots.

Among the specialist businesses, Southlincs Foodservice reported good trading profit growth. Catering Equipment results exceeded expectations.

Fresh
Sales were ahead of budget, but profit was slightly below expectation. Independent channel growth continued. National account business also grew, though margins came under pressure. We are making good progress in building a national specialist Fresh distributor, with capability in Seafood, Meat, Produce, Cheese and Speciality products.

Underperformance at two Seafood depots contributed to the disappointing trading result. A sudden rise in salmon prices put pressure on margins.

Oliver Kay Produce had a good year, growing its national sector exposure. The Campbell’s meat business moved from loss to a small profit.

Another meat specialist, Knights, was acquired in May. The acquisition of R Noone & Son (a Manchester fresh produce distributor) was finalised in July 2016.

Logistics
Logistics overall benefited from higher revenue however, trading profit performance disappointed as margins were squeezed. Labour shortages pushed expenses up significantly, as did higher vehicle accident costs as a result of more agency labour requirements. In addition, costs of implementing new contracts, surplus depot capacity and abnormal expenses eroded profitability.

A review of the commercial scope of contracts and service levels is underway, combined with an aggressive review of management structures and overhead costs.

Management irregularities were identified and investigated during the year, some of which relate to a recent acquisition and others to operational activities, all of which significantly impacted the division. These irregularities are subject to ongoing legal processes.

Any impact on non-current assets is continually being monitored by management. In respect of the net operating assets, management have provided for the worst case scenario notwithstanding recoveries from legal action and insurance claims.

Most businesses performed strongly, particularly the eastern Europe jurisdictions. Revenue rose 24,9% to R31,0 billion (F2015: R24,8 billion) while trading profit rose 22,4% to R1,1 billion (F2015: R0,9 billion).

Deli XL Netherlands
Revenue showed the first growth since 2013, buoyed by good hospitality performance that offset continued institutional sector decline. Good progress has been made in redefining the business model to cater to the independent trade. Institutional business decline appears to have bottomed but remained under pressure. Catering sales moved higher, driven by new contract gains and growing demand from existing customers.

National account volumes rose as a result of an uptick in out-of-home eating, with margins improving as marginal customers were exited. The hospitality business made market share gains while maintaining margins.

Belgium
The economy slowed in the second half and tourism came under pressure following terror attacks. Horeca sales into Brussels were hard hit as consumer confidence was shaken. However, teams put in a robust performance and revenue and trading profit were ahead of forecasts. Margins were largely maintained as teams focused on the development of high-value categories.

Catering showed good growth, supported by the renewal of a significant contract with a large catering group. Horeca volumes were slightly down, though trading profit growth was achieved. Good growth was seen in the institutional channel and within the logistics business.

Czech Republic and Slovakia
The Czech Republic’s economy returned to growth and the foodservice industry benefited from an influx of holiday visitors. Operations maximised these opportunities and achieved excellent revenue and trading profit growth.

Sales were lifted by a fantastic ice cream season as the past summer has been one of the hottest in 10 years, this being an uncontrollable driver of ice cream consumption.

The Czech division achieved a sales increase of 11,5%, with strong contributions from both Foodservice and Retail. The export department achieved a 30% sales gain. Overall costs were well managed, other than wages which are under pressure as improved economic activity increased demand for warehousing and distribution staff.

Meat production from the Kralupy (Prague) operation contributed to the strong overall result while trading profit from Opava production (ice cream, frozen vegetable, ready meals and potato products) was maintained.

Newly acquired MPD (providing temperature controlled storage, as well as warehousing capacity in Pilzen) made a positive start, and enabled us to open another distribution centre there, greatly adding to our available capacity, which was much needed to accommodate the growth achieved.

Slovakia’s sales were up by more than 21,0%. Foodservice and Retail both contributed to this.

DAC Italy
Pleasing results were achieved, with revenue and trading profit above budget and prior year. Expenses were impacted by the cost of opening the new Rome warehouse in July 2015, but overall were well managed.

Sales of ambient and frozen products continue to grow as a result of strong penetration of the “street market”. This element of the mix now accounts for about 60% of sales. The growth drive in the “single customer” channel will be maintained. In March we exited a large, low-margin caterer and this opened up much needed capacity in time for the summer season.

Cash generated by operations remained healthy.

Going forward, to accelerate our growth, DAC will pursue acquisition opportunities, with strong focus on central Italy and the south. In July 2016 we acquired a distributor on the Adriatic coast.

Poland
The business recorded strong sales growth, with a particularly impressive performance in the “street market” segment due to good volume increases. No significant contracts were lost while some key national accounts were extended.

Trading profit was ahead of prior year. Overheads were well controlled. Cash flow remained robust despite investment into working capital for growth.

Construction on the new central warehouse was completed. It went into full operation in October, and has added greatly to our national infrastructure blueprint.

Baltics
Overall sales in Lithuania, Latvia and Estonia achieved solid growth. Main driver was the foodservice segment. Retail exposure declined. Although operating at a slight loss, the transition out of retail will yield a sustainable profitable foodservice business in time.

Spain
Annual sales rose, but failed to meet budget and a small loss was recorded. Expense management remains a challenge. Growth potential has been identified in fresh produce and the hotel channel. We believe the Spanish foodservice market to be highly attractive and will continue to pursue suitable acquisitions.

Aktaes Turkey
Total sales moved higher, supported by strong growth in the foodservice segment. However, terror attacks and the failed coup impacted tourism and out-of-home eating, particularly in Istanbul, where our operations are mainly centred, and creates a great deal of uncertainty for our future prospects.

These businesses achieved a commendable result in spite of many economic challenges. Revenue moved 16,7% higher to R18,2 billion (F2015: R15,6 billion), with trading profit up 32,8% at R934,4 million (F2015: R703,6 million).

Food Africa (BFA)
BFA returned excellent results. Sales exceeded budget, as did trading profits. However, margin pressure intensified in highly competitive trading conditions and cost pressures were evident due to high inflation and exchange rate fluctuations. Debtors management remained stringent. Investment in distribution facilities and vehicles continued.

Net sales growth exceeded food inflation, driven by pleasing gains at Food Ingredients (BFI) across independent channels and Foodservice (BFS) in the independent and national account channels.

Bakery Solutions (BBS) continued its penetration of the retail and franchise sector. Food Exports (BFE) achieved substantial growth in Zambia.

BFS’ excellent growth was all organic. The independent and national account segments both achieved double-digit growth. Growth was enhanced by a focus on developing our ecommerce platform and sales of private label products. A new KwaZulu-Natal depot opened.

BFI drove growth by focusing on its own manufactured lines and product brands. Strong growth was realised in almost all product categories through the trading operations.

BBS had an excellent year, with focus on innovation and product development across its own manufactured products. Almost all trading branches performed well and the factory achieved efficiency improvements. All trading branches built momentum in the last quarter.

BFE made market share gains in sub-Saharan Africa. Strong performance by the Zambian operation is expected to continue.

Greater China
Sales were 4,2% higher, while expenses were well controlled. Trading profit rose an impressive 20,8%.

Hong Kong
Sales were slightly below expectation mirroring the general sluggishness of the Hong Kong economy, but pleasing annual profit growth was achieved. In Macau, solid sales were seen across the meat, dairy and seafood categories despite a large drop in casino-related activity and hotel occupancy.

In the coming year, sales growth is expected from newly launched operations (Wine and Master Butchery value-added product range). Continued growth of the natural foods catalogue is planned.

China
Mainland operations put in another pleasing performance, with sales volumes and profits well ahead of projections.

Dairy and meat volumes to hotel and restaurant customers in Shanghai show continued growth. Strong supermarket demand underpinned gains in Beijing while bakery, retail and foodservice lines did well in Guangzhou. Sales in the Shenzhen foodservice and restaurant channels showed strong improvement.

Business growth continued in second-tier cities such as Changsha, Xian, Sanya and Wuhan. Continued growth is projected for 2017.

Singapore
The business has begun its anticipated turnaround, with profit in line with expectation while expenses were rigorously managed. Sales volumes fell in line with the ongoing transition to a fully-fledged foodservice operation.

Low-margin operations were either closed or scaled back. Rightsizing initiatives continued to deliver inventory management gains and strong cash generation.

Foodservice continued to grow, supported by strong penetration of the restaurant industry. Gourmet lines performed strongly, aided by the successful launch of several key European brands.

Brazil
Trading challenges mounted in a year of political and economic crisis. Foodservices were not hit as severely as some sectors of the economy, but out-of-home eating declined by an estimated 30%. In this environment, the business did well to maintain sales volumes while minimising the impact on trading profit. Cash generation remains very high, which is important in this environment of high interest rates.

Implementation of new IT systems contributed to routing and distribution efficiencies. Further improvements were evident following the opening of our new warehouse. We are optimistic and committed to this market and are actively seeking acquisition targets.

Chile
Despite marketplace pressures, year-on-year sales and trading profit growth were achieved.

Performance was underpinned by new-business gains, robust cross-selling and the introduction of meat to the product mix. Contract terms were renegotiated in some instances and the Foodservice teams performed well.

We opened a new branch and acquired a small business in Concepción. We disposed of our Santiago fresh bakery operation in May 2016, this business was not part of our strategic focus to be the leading Foodservice wholesaler in Chile.

The Santiago branch opened new sales channels and the Puerto Montt operation expanded its customer-base.

Middle East
Pleasing sales and trading profit growth was delivered, with strong contributions from UAE and Saudi Arabia. Cash generation remained strong. Improved supply chain management drove substantial inventory management improvements.

Horeca UAE reported solid year-on-year growth in sales and trading profit, and moved into a purpose built, state of the art multi-temperature facility in Dubai in May 2016, which should greatly enhance our regional capabilities.

Al Diyafa (Saudi Arabia) enjoyed pleasing sales and trading profit growth. Retail achieved good momentum following additions to the range and increased promotional activity. Meat was added to the category mix.

Our activities in Lebanon were not profitable and we exited from this market in July 2016.

BPC
Improved foreign exchange management and significant demand from other Bidcorp businesses helped BPC grow its business, which is of benefit to all Bidcorp operations. The product mix was further widened and the number of supplier countries grew. New procurement regions such as Latin America and southern Africa are being explored.

In line with the Group dividend policy, the directors have declared a final gross cash dividend of 241,0 cents (204,85 cents net of dividend withholding tax, where applicable) per ordinary share for the year ended June 30 2016 to those members registered on the record date, being Friday, September 16 2016.

The dividend has been declared from income reserves. A dividend withholding tax of 15% will be applicable to all shareholders who are not exempt.

Share certificates may not be dematerialised or rematerialised between Wednesday, September 14 2016 and Friday, September 16 2016, both days inclusive.

For and on behalf of the board

AK Biggs
Company secretary

Johannesburg
August 24 2016