Bidcorp

Bidcorp delivered very pleasing results for the year ended June 30 2017, albeit the true performance in home currencies was negatively impacted by rand strength across all major currencies. Headline earnings per share (HEPS) increased by 9,4% to 1 181,0 cents per share (PF2016: 1 080,0 cents) with basic earnings per share (EPS) increasing by 16,7% to 1 207,1 cents per share (PF2016: 1 034,0 cents). On a constant currency basis, excellent growth of 19,1% in HEPS was achieved, truly reflective of the strong performance of the businesses.

Our strategic focus of balancing the exposure between contract, national and independent customers in the respective markets has driven gross and trading margin improvements, despite generally very low inflation environments and stable but subdued economic growth. Every business in the portfolio improved its performance in home currencies with the exception of Aktaes Turkey and Logistics UK.

Our global rebranding exercise trading as “Bidfood” has been embraced by the businesses, reinforcing our credentials as “value-add food people” in our first full year as a separate entity.

In accordance with its dividend policy, Bidcorp has declared a final cash dividend of 250,0 cents per share.

Net revenue of R130,9 billion (PF2016: R140,5 billion) declined by 6,8% in part due to the currency impacts as well as the deliberate and planned exit of some low margin business in various geographies, which still reflect in the comparative base. Constant currency net revenue growth of 4,6% was achieved, reflecting our focus in the core foodservice markets in all geographies.

Gross profit percentage increased to 21,7% (PF2016: 20,8%) reflecting the benefit of trading with the correct mix of business. 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 reflecting 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 the various acquisitions to fruition. Although their contribution to the 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. 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, 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.

The acquisition of 90% of Guzmán Gastronomía and Cuttings (Guzmán), a leading national Spanish multi-temperature foodservice company supplying hotels, restaurants, industrial caterers and other institutions, was completed with effect from April 2017 for an enterprise value of €75 million (R1,1 billion).

The Group also concluded a number of smaller bolt-on acquisitions in Australia, Brazil, Belgium, Italy and UK totalling R590,4 million. Disposal of investments totalled R670,4 million.

Bidcorp concluded an agreement with Puratos Group NV (Puratos) which enabled Puratos to acquire joint control of our South African-based Bakery Supplies business. Strategically the transaction will enable the business to develop new products using international innovation for the baking industry. The transaction completed in April 2017.

Post-year-end, an 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. In addition, an acquisition of a niche Portuguese horeca business was also completed.

Our businesses worldwide will continue to focus on balancing their exposure between contract, national and independent customers in their respective markets. The sharing of best practice across the Group and inter-divisional cooperation spanning marketing and procurement ensures that speed of business development is greatly enhanced, often avoiding costly mistakes. Innovative digital interaction with our customers and global procurement opportunities continue to gain traction as part of our value-add service to grow market share.

Management remain focused on growth opportunities; organically in our current markets through attaining the appropriate business mix by selling more products to our existing customers and gaining new customers; via in territory bolt-on acquisitions to expand our geographic reach and expanding our product ranges; and via larger acquisitions to enter new markets. Despite our appetite for acquisitions, we remain disciplined in our approach to accessing the “right” opportunities. Fresh produce, meat categories, value-add processing and procurement initiatives are areas of unexploited potential in many regions.

Bidcorp’s entrepreneurial and decentralised business model, the depth and experience of our management teams and the strength of the Group’s culture has set up the Group for sustained growth in the future. Our financial position is strong and cash generation is expected to remain robust. Investment into capacity creation in many markets is growing. The timing of 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.

Currency volatility in the global environment is likely to continue. However, fundamental to management is our ability 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.

Despite persistent low inflation, pedestrian economic growth and low interest rates, we expect fundamentals in the global foodservice industry to remain positive. Bidcorp anticipates being able to leverage off these conditions in its respective markets and anticipates continued real growth in the year ahead.

Revenue fell following strategic exit of low-margin contracts by 2,9% to R29,4 billion (PF2016: R30,3 billion). Trading profit rose 9,8% to R2,0 billion (PF2016: R1,8 billion) – a 12,0% increase in constant currency terms. Results reflect successful strategic focus on freetrade and management determination to keep it “all about the food”.

Australia reported a great finish to the year, taking trading profit higher. Net revenue fell following continued exit of low-margin logistics business. Overall margins rose.

Freetrade sales rose a pleasing 5%, driven higher by hard-working sales teams and focused initiatives.

The exit of some logistics contracts led to the closure of two sites. Adelaide branch relocated to a new, purpose-built facility. The Perth Fresh business was consolidated into the Perth Logistics site. New branches opened in Yatala (Queensland), Port Melbourne and Truganina (Victoria). Sydney Support office moved to a new facility in Botany that will also operate as a foodservice branch.

Small, bolt-on foodservice acquisitions were made in Launceston (Tasmania), Cairns (Queensland) and in Port Macquarie (NSW).

The Foodservice division put in another strong performance, despite increasingly intense competition as new players enter this market.

We now have 36 foodservice operations. Perth put in a particularly strong performance. Further foodservice growth is projected, with the new branches positioned to contribute fully to continued momentum.

Imports division had a great year. The pace of new product development was maintained and the home-brand basket grew.

Fresh had a better year and returned a meaningful trading profit. Competition is intense, but a base on which to build has now been established.

Classic Meats showed pleasing trading profit growth, though some was attributable to the reallocation of meat sales from Brisbane Foodservice to Classic Meats Brisbane. Continued organic and acquisitive growth is planned.

Only one standalone logistics business remains (in Perth). Rebalancing of the customer portfolio is substantially complete.

Across the Australian business, significant progress was made with the strategy of creating a sustainable base that will foster continued freetrade growth.

New Zealand delivered a strong fourth quarter. Most business units secured double-digit profit growth. Margins were well protected, resulting in improved profitability in all divisions.

Gains were underpinned by a strong Foodservice performance. This division recorded 10% sales growth and benefited from improved buying and margin management. Imports had an outstanding year. Freetrade remained the key Foodservice focus area, though contract retention contributed to overall performance.

Fresh performed strongly, expenses were well controlled and margins were well protected.

The Logistics division was bolstered by a good result at Auckland and an excellent one at the Christchurch branch.

Processing put in a stellar performance.

Revenue fell 18,0% to R50,0 billion (PF2016: R61,0 billion). Excluding the effects of a strengthening rand, revenue grew 1,9%. Trading profit decreased by 9,6% to R1,3 billion (PF2016: R1,4 billion). Excluding the currency effects, profitability was up 12,4%.

Bidfood UK delivered pleasing trading performance underpinned by an excellent fourth quarter. Trading profit was up strongly and exceeded expectations, though overall sales growth was constrained by the strategic exit of a number of large, unprofitable contracts. Freetrade volume growth of 8% was achieved.

Margins were well managed and expenses contained. Cash flow remained robust and investment continued. Fleet vehicle renewal was a focus area. Rebranding to Bidfood was warmly received.

The freetrade sales mix showed continued improvement. National account margins were well managed while significant new contracts supported fourth quarter volumes.

Own-brand growth was strong.

IT infrastructure moved in-house and the transfer of data centre hosting to a new service provider was completed. Migration of eCommerce solutions was finalised early in the new period. All IT activity proceeded to plan without business disruption.

The specialist focus areas of wine and meat achieved pleasing volume and profit gains.

Across the wider business, ongoing growth is projected.

Fresh results saw good revenue growth with only a small growth in profit. Performance was assisted by the acquisition of R Noone & Son, a Manchester fresh produce supplier to the catering industry, and Wynne-Williams, a butchery business based in Flint, Wales. Both performed as expected post-acquisition.

Product cost inflation impacted margins while management consciously sacrificed some margin to maintain volumes. Significant increases in wages, insurance and IT costs were experienced.

The seafood businesses experienced pressure on revenue and margin, but recovered well in the final quarter. Produce businesses had stable results while meat businesses experienced mixed result.

Logistics performance continued to disappoint, with trading profit well down. A marginal improvement in sales was achieved. Margins remained under pressure as QSR deliveries fell below expectation and the business exited a major QSR account. In PCL247 Transport, sales and margins moved lower as the number of routes fell by 23%. As a consequence of lower activity, Trafford Park distribution centre will close. Associated costs have been accrued accordingly.

Significant effort and costs were expended in resolving previously reported management irregularities. These irregularities remain the subject of ongoing legal processes. Management has impaired the goodwill associated with the PCL247 Transport business by £9 million (R155,1 million).

Logistics remains a non-core activity and management remains committed to finding a viable solution for the future of the business.

Revenue rose 4,0% to R32,2 billion (PF2016: R31,0 billion) while trading profit rose 11,5% to R1,2 billion (PF2016: R1,1 billion). In constant currency terms, trading profit rose 20,5%. Eastern European businesses continued to deliver good growth, bolstered by buoyant economic conditions.

Netherlands’ trading profit and revenue met expectation. Performance was driven by a strong hospitality sector showing. In the national accounts, institutional and catering channels, sales and margins were under pressure.

Freetrade within the hotel, restaurant and catering channels has become a significant driver of the business. Rebranding as Bidfood was successfully launched.

Belgium teams optimised sales opportunities. Trading profit was also above budget. Margin pressure persisted, but was generally well managed. Cash generated from operations was up significantly due to good working capital management.

Revenue growth was driven by a strong horeca performance, assisted by the contribution of Bestfood, whose acquisition was completed in September 2016.

The institutional wholesale business exceeded expectations, boosted from October by a new contract win. Logistics sales were also above expectation. Numerous contract renewals were achieved.

The Bidfood identity was successfully implemented.

Spain’s newly acquired Guzmán (April 2017) witnessed pleasing gains in the independent sector in both Madrid and Barcelona. Gross margins were impacted by product price increases caused by frosts during the early part of the calendar year. Bidfood Spain just failed to meet its objective of breaking even by year-end as mainland sales stalled in the last two months of the year. Integration of Bidfood Spain into Guzmán is a priority in the coming year

DAC Italy’s trading profit exceeded budget and sales growth occurred in all categories – ambient, frozen, chilled and non-food.

Strong growth was maintained in the independent/street channel, which now represents 81% of sales volumes. Own-brand growth continued, as did export sales.

Sales to Bidcorp group companies increased substantially. Cash from operations showed good improvement.

Newly acquired Quartiglia Food Service performed in line with expectations.

Czech Republic and Slovakia Bidfood teams put in another strong performance. Revenue and trading profit were well up. June was one of the best trading months on record, with pleasing growth in ice cream volumes and value-added products.

High productivity levels were achieved at our factories (ice cream, Sous-Vide meat, ready meals, red meat and vegetables). Frozen fish processing capacity was increased.

Sales into the retail channel were pleasing, particularly in the fresh produce, red meat and frozen bakery product segments. Export volumes – notably meat and game – also moved higher. Good demand was seen from both EU and non-EU countries.

Return on funds employed achieved pleasing improvement.

Farutex Poland recorded excellent increases in sales volumes. Trading profit also exceeded expectations.

Particularly pleasing growth was achieved in the freetrade market. Sales of fresh produce and meat were particularly strong. Volumes in the national accounts channel also rose.

Margins remained stable, cash generation from operations was strong and return on funds employed moved higher. Staff numbers rose to cater for higher growth. Cash generation was robust.

Relocation and expansion of the Lublin depot is complete.

Baltics revenue rose, though the business overall recorded a small loss. Restructure of Estonian operations is underway to stem losses. The Lithuanian business is profitable.

These businesses continue to deliver commendable results. Revenue rose 5,9% to R19,3 billion (PF2016: R18,2 billion), with trading profit up 18,1% at R1,1 billion (PF2016: R0,9 billion). Excluding currency effects, profitability is up 20,8%.

Bidcorp Food Africa (BFA) recorded excellent results. Net revenue growth of 10% was driven by strong penetration of the independent channel by Bidfood (BF) and Crown Food Group (CFG).

With effect from April 1 2017, 50% of Bakery Solutions was sold to Puratos, a global manufacturer of bakery and confectionery ingredients. The company, renamed Chipkins Puratos (CP), was equity accounted post the sale.

BFA’s focus on its own manufactured products yielded positive results. Cash from operations improved substantially. Investment continued into delivery vehicles, manufacturing facilities and new distribution centres. IT investment is ongoing.

BF recorded excellent results, achieving the target of double-digit independent channel growth. BF’s online ordering platform, BFS247, continues to grow. Channel growth was assisted by increased private label product sales. National accounts growth was also achieved, but challenges persisted in the industrial caterers’ channel.

CFG’s sales dipped marginally, though trading margin improved. Procurement savings were secured and a change in the customer mix proved beneficial.

At year-end, a joint venture agreement was finalised between CFG and Griffith Foods, a US-based supplier of ingredients solutions.

CP put in a strong performance, driven by innovation and successful initiatives with own-manufactured products.

Greater China delivered a strong finish to the year. Substantial mainland contributions underpinned a highly satisfactory performance, with trading profit well up. Double-digit revenue growth was broadly in line with expectation. Expenses remained high in an increasingly competitive market. Working capital was impacted by tighter supplier terms on imported products, longer lead times and revenue growth.

Hong Kong revenue was well up, but trading profits failed to meet expectation.

Results were impacted by rising costs and the need for further warehouse investment. The Him Kee dry goods business delivered solid growth. Sales at the PastryGlobal bakery and confectionary business were constrained by delayed shipments from European suppliers, but the strong profit-line was maintained.

Trading profit also exceeded budget at Gourmet Cuisine. Miumi, the Japanese foods business, witnessed continued growth of its Shabu Shabu line and frozen meat, frozen sashimi, meat and seafood. Natural and Organic Global gained further momentum.

Good sales of Ready-To-Eat processed products drove continued growth in Macau.

Mainland China achieved good volume growth in Shanghai driven by robust demand from hotels and restaurants, particularly for dairy products. Beijing’s pastry volumes showed good growth on strong demand for President products. Guangzhou put in another strong performance, bolstered by buoyant bakery and retail demand. Shenzhen enjoyed continued growth on the back of firm demand in the restaurant and foodservice channels.

Singapore’s trading profit and revenue growth continued as the company gained further traction following transition to a core foodservice focus. Foodservice achieved good growth in key customer categories such as restaurants, hotels, clubs, pubs and cafes. Pleasing growth was seen across beef, poultry and butchery lines.

Post-year-end, further investment was made into Malaysia through the acquisition of a majority stake in Aeroshield, a distributor of chocolate, pastry and bakery products.

Brazil achieved excellent revenue and trading profit growth, assisted by the acquisition of Mariusso, a foodservice distributor based in greater São Paulo.

The core business, Irmãos Avelino, achieved strong sales momentum.

Chilean business registered pleasing trading profit and revenue growth. Overall margins were well managed. Santiago foodservice branch sales were especially strong. Puerto Montt branch volumes rose, but were below expectation.

Concepción branch volumes doubled from a low base, following the launch of a local branch and acquisition of a small foodservice distributor.

Middle East division performed well, improving both revenue and trading profit significantly. Sales were up, gross margins improved and expense control was good.

Revenue ticked higher at Horeca UAE, but failed to reach anticipated levels. In Saudi Arabia, Al Difaya’s revenue was below expectation, but up on prior year. Margins were well managed and trading profit improved. Horeca Oman recorded excellent sales. Performance was driven by a new brand introduction and growth of the customer base. Horeca Bahrain grew on the back of aggressive promotional activity. Beverage marketing benefited from collaboration with Al Difaya.

Aktaes Turkey grew revenue, but trading losses persisted. Operating expenses rose, but were broadly in line with forecasts. A distribution agreement was signed with Campari. Acquisition of an Izmir-based foodservice distribution company is nearing completion.

Bidfood Procurement Community (BPC) results were satisfactory. UK and European purchasing opportunities are now pursued by a dedicated BPC staff member. The supplier and product ranges continue to broaden.

Dividend declaration At the annual general meeting (AGM), Mrs CWL Phalatse retired from the board. The board thanked Mrs Phalatse for her contribution. Mrs DD Mokgatle was appointed as an independent non-executive director with effect from October 4 2016.

Mr S Koseff was appointed as an independent non-executive director with effect from August 16 2017.

The board welcomes Dolly and Stephen to Bidcorp.

BL Berson

Chief executive

DE Cleasby

Chief financial officer