Bidcorp

Bidcorp performed in line with our expectations, delivering solid results for the year ended June 30 2018. Headline earnings per share (HEPS) increased by 9,1% to 1 286,3 cents per share (F2017: 1 179,2 cents), with basic earnings per share (EPS) increasing by 1,1% to 1 223,9 cents per share (F2017: 1 210,5 cents).

Trading across all the geographies in which the Group's foodservice businesses operate remained positive. Most businesses in the portfolio improved their performance in home currencies against a backdrop of low food inflation and moderate economic growth.

Europe delivered a standout performance. UK Foodservice did well, delivering its best result ever; however, Fresh disappointed somewhat. New capacity investments in Australia initially created some short-term underperformance but their full-year performance achieved a commendable record result. New Zealand once again delivered a great performance. In Asia, supplier dislocation and volatile currencies led to rampant price increases in dairy, impacting gross margins and efficiencies. South Africa performed well in tough economic conditions.

Our strategic focus of growing our exposure to the independent customer base in our respective markets has driven real organic growth. A few small acquisitions were concluded in the year to broaden our product range and geographic extension, the benefits of which have not yet been realised.

The outbreaks of listeria in numerous parts of the world heightened food safety risks. Food testing protocols, systems and recall procedures were all re-examined and strengthened to maintain the highest level of standards.

UK Contract Distribution (CD)

Performance was extremely poor and the business recorded significant losses, particularly in the second half of the year. The exit of KFC in February and the accompanying redundancies and restructuring, the downscaling of properties and vehicles, the subsequent onboarding of a part of the KFC contract, poor weather and reduced consumer confidence in the chain segment of the market all contributed, as did additional costs in relation to the exit of the business. We are in the process of finalising an agreement with the proposed purchaser of the business, a global business, and they are in the final stages of clearing their internal approval formalities. We are hopeful of being able to announce the details of this transaction in the next two weeks. Any transaction is still subject to regulatory competition authority approval, which is anticipated to take up to four months to complete.

During the year, the management irregularities identified during 2015 and 2016 were settled against the former business director and numerous other defendants. Significant legal costs were incurred in pursuing this matter, which has been resolved to our satisfaction. Certain recoveries have been made but further recoveries are still expected, including the finalisation of the insurance matter.

Bidcorp has declared a final cash dividend of 280,0 cents per share, bringing the total distribution to shareholders in F2018 to 560,0 cents.

Net revenue of R119,4 billion (F2017: R110,5 billion) grew by 8,0% (constant currency growth of 8,5%) reflecting real growth in activity levels despite relatively benign inflation in the core foodservice markets in all geographies.

Gross profit percentage was maintained at 24,0% despite our focus on freetrade growth which allowed some businesses to sacrifice margins to grow volumes and absorb some price increases in the face of rapid inflation in the dairy category.

Operating expenses remained well controlled despite ongoing wage pressure in many economies and generally higher fuel costs. The overall cost of doing business across the Group remained at 19,0% despite higher sales and distribution activity and additional invested capacity.

Group trading profit increased by 8,7% to R6,0 billion (F2017: R5,5 billion) and the trading margin was maintained at 5,0%.

Share-based payment costs increased to R99,2 million (F2017: R94,1 million) on the back of further long-term incentivisation of staff across the Group. Acquisition costs of R35,5 million (F2017: R46,1 million) were incurred reflecting slightly lower acquisitive activity compared to the previous year.

Net finance charges were 7,1% higher at R231,1 million (F2017: R215,7 million). Bidcorp remains well capitalised, with trading profit interest cover at 25,8 times (F2017: 25,4 times). We retain adequate headroom for further organic and acquisitive growth; however, remain conscious of the need to balance debt capacity and shareholder returns.

The Group's financial position remains strong, a positive attribute in volatile global markets. Total fixed assets have grown reflecting both replacement and expansionary capital expenditure. Net debt is R3,6 billion impacted by ongoing investment and bolt-on acquisitions.

Cash generated by operations before working capital absorption was R6,9 billion, an increase of 10,6% over F2017. There has been greater utilisation of working capital in the year, reflecting higher activity levels, tighter supplier terms, some excess stocking due to the listeria crisis in South Africa and impacts from recent acquisitions. However, monthly average net working capital days remained flattish at 11 days (F2017: 10 days). Free cash flow (excluding dividends paid) was positive at R1,0 billion after investment activities absorbed R3,1 billion.

Bolt-on acquisitions were made in Australia, Netherlands, Spain, New Zealand, South Africa, Greater China and Turkey. Total investments were R965,6 million. New geography expansion included Pier 7, a small foodservice business based in Germany and a niche horeca business in Portugal which has been integrated under Bidfood Iberia. The benefits of these investments will be evident in the medium term as we bolster systems and infrastructure and extract synergies and efficiencies.

The Group comprises businesses concentrated on the wholesaling and distribution of food and aligned products to the eat-out-of-home market.

Our focus on customer satisfaction backed by high service levels, efficient infrastructure and fit-for-purpose product ranges should continue to deliver real volume growth. Our "last mile" delivery capability continues to improve as we roll out our decentralised infrastructure programme. Our mantra of "all about the food" guides our desire to achieve the correct customer mix.

Fresh produce, meat, value-add processing and supply chain initiatives all remain areas of unexploited potential, which assists in bolstering our value-add proposition. Our culture of sharing innovations across the Group ensures that speed of business development is greatly enhanced.

Our bespoke global ecommerce and CRM platform, continues to evolve and embrace our best worldwide IP, all leveraged for the greater benefit of the Group.

Bidcorp remains focused on growth opportunities; organically in our current markets through attaining the appropriate business and customer mix by selling more products and gaining new customers; via in-territory bolt-on acquisitions to expand our geographic reach and expanding our product ranges; and via strategic acquisitions to enter new markets.

We retain significant financial headroom giving the Group the ability to act decisively to capitalise on the "right" opportunities, either organic or acquisitive, always remaining "disciplined" in our approach.

Financially, the Group is strong and we expect cash generation to remain robust. Despite currency volatility in our global marketplace, our objective remains to generate above average returns in each of our businesses in their home markets.

Despite some short-term challenges, we remain optimistic that the fundamental drivers of our global foodservice markets remain positive. Bidcorp's strength lies in the depth and experience of its entrepreneurial management teams who thrive in a decentralised business model, a recipe that positions the Group well for continued real growth in the year ahead.

The region performed strongly. Despite growth tracking below trend, both Australia and New Zealand set new records. Revenue moved 2,0% higher to R30,0 billion (2017: R29,4 billion). Trading profit rose marginally by 0,8% to R2,0 billion (2017: R2,0 billion). Results reflect continued focus on the successful freetrade strategy and the management mission to remain “all about the food”. The future here continues to look bright.

Australia put in a strong performance. Trading profit lagged the prior year at the half-year mark, but by year-end was up 2,5%. This was an outstanding result in a year of transformation and some internal disruption.

Revenue rose 4,7%, though this included the sales contribution from recent small acquisitions. The sales effort was exceptional as three of the biggest branches went through major changes during the year.

Margins were maintained, despite pressures in Foodservice. As expected, expenses increased as new branches bedded in. Payroll costs were well contained.

Strong bases have now been established in Australia’s most densely populated cities – Melbourne, Sydney and Brisbane – creating platforms for long-term gains, and this is already showing benefits.

Foodservice performed reasonably well. The number of Foodservice branches rose to 39, all of which were profitable. Melbourne’s branches made outstanding gains in the throes of their restructure. The alcohol category was rolled out to Foodservice branches. Freetrade sales again grew.

Supply Solutions made big progress. New product development was the key feature of the year with over 100 new product lines introduced.

Fresh sales fell, but margins were well managed. Meat continues to gain traction as we refine our route-to-market model. Overall both the Fresh and Meat divisions were profitable, but still not at desired levels. The new Festival acquisition performed below expectation and will improve in the future once fully integrated.

New Zealand did well to grow revenue and trading profit in a sluggish market. Spending on new distribution centres to handle continued growth added to the cost base and the business’s biggest branch – Auckland Foodservice – had a tough year.

Foodservice performed solidly and Imports put in another stellar performance. Hamilton moved to a new distribution centre, as did Nelson, Timaru and Invercargill.

Fresh had a challenging year as extreme weather conditions disrupted supply and impacted pricing. Processing results were mixed. Newly acquired Prepared Foods failed to meet initial expectations and additional investment was required.

The UK businesses did well, with the Foodservice business achieving excellent results. Revenue grew 6,4% to R31,4 billion (2017: R29,5 billion). Trading profit increased by 8,6% to R1,4 billion (2017: R1,3 billion). The core Foodservice and Fresh businesses are in good condition and well positioned for future growth.

Bidfood UK achieved growth in revenue and trading profit despite low consumer demand and restaurant closures. National Account margins strengthened and freetrade sales showed continued growth. Own brands and specialist pillar range sales gained further momentum – all indicators that strategic goals are being achieved.

Sales pressures sharpened in the third quarter as business and consumer sentiment hit a low ebb. Customer confidence returned in the fourth quarter and sales picked up. Margins overall were well managed. Overheads were higher than expected as labour costs rose and the national driver shortage persisted. Overtime became a significant item at some depots, driven by higher freetrade activity levels.

New trading depots bedded down in Royton and Penrith. Specialist operations performed well, except the Channel Islands business which is taking a little longer to restructure than anticipated.

Customer migration to the latest version of the online “Bidfood Direct” platform was completed.

Fresh performed below expectations. However, a platform for renewed growth has been laid.

Challenges related to the move of the Hensons meat business from the ageing site in King’s Cross, London, to a purpose-built facility in Woolwich. Some customers were lost and staff left. A new team and new processes are revitalising the business in the new facility.

At Seafood, timely succession planning resulted in the deployment of a new management team at Daily Fish. Average sales to independents rose and customer numbers increased.

Oliver Kay, the fresh fruit and vegetables business, opened a new depot in Birmingham designed to improve customer service and reduce cost inefficiencies. Scotland operations derived knock-on benefits and Campbells Produce staged an impressive turnaround.

In PCL, management has dedicated significant effort to improve service levels. However, profitability has been impacted. Discussions are underway with the client in order to match activity and service level expectations with profitable returns.

Europe was the standout performer this year, as the economies generally delivered continued growth. Revenue rose 21,8% to R39,2 billion (2017: R32,2 billion) while trading profit rose 37,7% to R1,6 billion (2017: R1,2 billion). Investment made in prior years established a strong foundation on which we capitalised in improved market conditions.

Netherlands optimised a strong finish to the year. Rising revenue and trading profits were assisted by the first contribution of the small bolt-on acquisition, Van de Mheen. The deal was finalised in March.

The National Accounts business grew and regional horeca sales rose strongly. As anticipated, Catering volumes were under pressure. Institutional sales fell on the prior year. However, within the hospitality sector, pleasing growth in independent volumes was secured. The ongoing simplification processes in the business continue to deliver the desired benefits.

Belgium delivered its best ever results. Revenue and trading profit exceeded expectations while margins were well protected and cash generation was strong.

The horeca and institutional channels did especially well. Contributions from Catering and Logistics were marginally below expectations.

The online “My BidOne” platform, implemented at Makady and Langens, had a positive impact on the wholesale horeca business. Initial work has begun on the planned merger of the Limburg-based businesses, Makady and Langens. Improvements continue at Bestfood (acquired in 2016).

DAC Italy achieved strong growth in revenue and trading profit, with a positive contribution from new acquisition, D&D. Pleasing momentum was evident in the core DAC business. Quartiglia Food Service, acquired in the previous year, met expectations. Trading profits still topped projections, even without the D&D contribution.

Work to integrate D&D into the DAC systems will begin early in the new period.

Sales into the street or independent channel now account for more than 80% of volumes. Product sales to DAC’s international trading markets (including other Bidfood companies) gained momentum, with own-brands accounting for a significant part of the total mix.

Iberia developed momentum as the Guzmán business created a platform for strategic growth. Revenue and trading profits were bolstered by contributions from new acquisitions, Frustock (our operation in Portugal) and Sáenz Horeca (a meat and hospitality specialist). Continued political uncertainty in and around Barcelona affected sales in this important region. Costs increased as systems, sales force and infrastructure were strengthened. Though overall results were below expectations, the base is now set for future growth.

Growth of independent business was an important feature of the year. The Barcelona warehouse was expanded and the sales force beefed up. Frustock performed in line with expectations.

Czech Republic and Slovakia performed excellently, securing good profit and volume growth on the back of a buoyant consumer market.

Horeca Gastro benefited from positive consumer sentiment and the middle-class trend to increased out-of-home eating. Quality service underpinned continued growth. Good spring and summer weather drove strong ice cream sales, contributing to the excellent results.

Retail was buoyed by rising consumer incomes and growing focus on quality and reputable brands. Growth was achieved in many value-add products as market demand rose and shopping at upmarket malls became part of the lifestyle. Sales of fresh fish and meat exceeded expectations.

Output at the factories was consistently high. Highest production was achieved in Sous-Vide lines, ready meals, red meat and ice cream.

Germany recorded a small loss. Sales at the recently acquired business failed to meet expectations. Margins were impacted by high levels of operational expenses at the branches and the poor quality of some National Account businesses.

Hamburg depot moved into a new warehouse in April and Munich will move to a new warehouse in the new period. Vienna maintained solid margin management and performed well. We are setting up a solid foundation in Germany to facilitate further expansion in due course.

Poland delivered substantial revenue growth. Market share improved and profit forecasts were exceeded.

Freetrade growth continued at a high rate, now accounting for more than 70% of all volumes. We have become one of the major players in this market. Margins were well managed as terms were revised on some National Accounts.

Expansion of the Gdansk and Poznan operations were completed.

Innovation continues. Asian cuisine is a growth area and Farutex has begun to serve this sector. Early results are encouraging. Online capability has the potential to drive further sales gains while investment in warehousing creates the capacity to pursue ongoing growth.

Pressure on the wage bill persists as a result of low unemployment levels.

Baltics showed continued improvement. Revenue at the now-profitable Lithuanian operations continues to rise. Latvia did well off the back of sales growth and improved expense control. Performance improvements across the Baltic markets are driven by growing foodservice volumes. Work to implement ecommerce solutions has begun.

Emerging Markets delivered a mixed bag of results in uncertain economic environments. On a like-for-like basis (50% of South Africa’s bakery business was sold in April 2017) these businesses continue to deliver commendable results. Revenue dropped 3,1% to R18,7 billion (2017: R19,3 billion); and trading profit fell 6,7% to R1,0 billion (2017: R1,1 billion).

Bidcorp Food Africa (BFA) delivered good results in tough economic conditions. Margin and expense management was excellent, with overall expenses growth well below inflation. Trading profit rose despite deflation in Bidfood (BF) and some parts of Chipkins Puratos (CP).

South Africa’s listeriosis crisis had material effects on Crown Food Group (CFG). BF was impacted to a lesser extent.

BF delivered excellent results. First contribution of newly acquired fruit and veg distributor, Famous Fresh, was recorded from February. Sales into the independent channel continued to grow. National Accounts business declined marginally while business with industrial caterers ticked higher. Online orders via the “myBidfood” platform account for more than 60% of revenue.

CFG’s results were impacted by the listeria outbreak, with ingredients for processed meat products hard hit. The lost sales impact was material while stock on hand rose, impacting working capital. CFG entered the wholesale channel to support its brands and own manufactured products. The “Crown 247” ecommerce platform was implemented.

CP made excellent progress. Introductions of its unique brands began in January. Changes to manufacturing processes are under way. Upskilling continues and the Puratos influence is starting to manifest itself in terms of quality and innovation.

Greater China saw profits dip, impacted by a tough second half. Sales were up on prior year, but lagged expectations.

Hong Kong failed to meet budget, hit by a slowdown in the foodservice market and the global dairy crisis. Fierce competition at the upper end of the market created added pressure.

Him Kee dry goods did relatively well. A good performance at Miumi, the Japanese foods specialist, was underpinned by increasing sales of frozen fish products.

Our new seafood business, Linson Global Seafood Trading, did well. Macau was impacted by price cutting by market entrants. Hong Kong plans a series of new brand introductions in the new period.

Mainland China recorded a fall in sales and experienced strong margin pressure. Competition in the dairy category was intense. Work continued on the development of the product mix and brand portfolio. To reduce dependence on dairy, major subsidiaries in Beijing, Shanghai and Guangzhou redoubled efforts to build sales across a broader product range.

Renewed growth will be sought through strong focus on hotels and restaurants, meat imports and the provision of chilled and processed meats to the foodservice channel. A strong sales push is planned in second-tier cities such as Shandong, Qingdao, Nanjing, Yunnan, Xiamen, Nanning and Jilin.

Singapore secured continued improvements in revenue and trading profit. Foodservice again grew sales and margins were well managed. Sales at the Miumi division grew strongly. The marine, international trading and consumer operations were under pressure, though a consumer turnaround was evident following new brand introductions. Gourmet Partner sales rose and Food Pride surpassed expectation. Bidfood Malaysia (formerly Aeroshield) performed in line with budget.

Brazil secured revenue growth on the prior year, but volumes fell short of plan. Margins were under pressure in challenging socio-political conditions. However, profits were maintained. Fourth quarter results were impacted by World Cup soccer (which kept patrons out of restaurants) and a nationwide truck strike.

Work has begun to standardise systems used by the core Irmãos Avelino business and Mariusso, the distribution business acquired in the previous period.

Chile performed strongly. Revenue growth was highly satisfactory. Launch of the Viña del Mar branch boosted volumes. The processed meat and particularly the seafood category showed good growth, though at lower margins. Internal controls and debtor collections improved. Late in the year, the “myBidfood” ecommerce platform was launched. Continued sales growth is projected.

Middle East achieved second-half gains following the implementation of a recovery plan, with sales approaching the levels of the prior year. Margin improved and steps to contain expenses proved successful. Horeca UAE faced sales challenges as several poor performing brands were discontinued. Al Diyafa, Saudi Arabia, delivered good revenue and trading profit growth. Horeca, Oman, recorded consistent growth and Bahrain’s results were outstanding. Early progress by Horeca Jordan was encouraging.

Aktaes Turkey registered further sales gains and the level of loss was contained. Distribution costs rose on the back of the weak Turkish lira. The purchase of the Efe distribution firm in Izmir and its nine-month contribution helped Aktaes maintain momentum. Despite economic and political uncertainty, management remain optimistic about local market prospects.

Bidfood Procurement Community (BPC) sales rose and ever closer collaboration with Group operations led to new buying opportunities. Seafood category development continued.

Mr S Koseff, an independent non-executive director, assumed the role of chairman of the board on March 31 2018. Mr B Joffe remains on the board as a non-executive director. The board expresses its sincere appreciation to Mr Joffe for his services as chairman, particularly in leading the formation of Bidcorp, as well as its JSE listing on May 30 2016, which were critical development phases for the Group.

The board welcomes Mr Koseff to the role of chairman and looks forward to the benefits of his extensive business experience and acknowledged leadership record.

BL Berson

Chief executive

DE Cleasby

Chief financial officer