Bidcorp has delivered a solid trading performance for the financial year considering the devastating economic and social impacts of the continuing COVID-19 pandemic (COVID) on the hospitality, tourism, and leisure industries globally. Excellent free cash flows driven by good asset management, some asset realisations, and exceptionally nimble trading underpinned the pandemic-affected results. Bidcorp’s performance is attributable to the unwavering commitment of our management and staff, our entrepreneurial and decentralised operating model, and our loyal customer and supplier base.

Operating conditions in our hospitality markets have fluctuated depending on the extent and severity of government interventions to control the pandemic. Our primary focus has been on keeping our businesses agile, ensuring their sustainability and preparedness for the bounce back when lockdown restrictions are eased. This has encompassed the protection of our employees in respect of their health, wellbeing and where possible, maintaining their livelihoods through accessing job retention schemes, and other innovative interventions.

Demand in the discretionary spend hospitality sectors has reflected pandemic-restrictive measures, recovering robustly when conditions have allowed, however, activity aligned to business travel and catering remain depressed. Our national customers with exposure to major institutions located in large inner capital cities, continue to experience reduced activity levels as work-from-home requirements remain. With reduced international travel and tourism, most businesses have seen some benefit from staycations and increased suburban and rural activity. Non-discretionary demand from our institutional customers including hospitals, aged care, prisons, military, and government departments has remained stable but at or below pre-COVID levels.

Performance for the financial year started relatively well, with most economies emerging from the worst of the COVID first wave in July and August 2020. This resulted in a good financial performance in the first financial quarter, particularly in Europe and UK.

Our performance deteriorated progressively into the second and third quarters as the harsh second wave took hold in Europe and UK. Fortunately, Australia, New Zealand, and Asia have performed exceptionally well throughout the year with our other Emerging Market constituents contributing more into the second half of the year. Performance improved significantly as the fourth quarter progressed.

Headline earnings per share (HEPS) from continuing operations increased by 21,8% to 868,4 cents per share (F2020 restated: 712,7 cents), with basic earnings per share (EPS) from continuing operations increasing by 112,6% to 924,6 cents per share (F2020 restated: 434,9 cents). Currency volatility has positively impacted the rand-translated HEPS by 8,2%.

In June 2021, we uncovered a significant and sophisticated fraud that was being perpetuated in the Miumi division of our Angliss Greater China business. This fraud has been going on since about 2016 and has involved the manipulation of accounts receivables and prepayments, the misappropriation of inventories and unrecorded liabilities, the result of which these balances have been progressively misstated over the past six (6) years. Notwithstanding the ongoing forensic investigation, the group has taken the prudent view by reversing the full overstated amounts, although we remain confident of some future recoveries from insurance, the perpetrators and other third parties involved, none of which has been accounted for. The quantum of the loss effected as a result of this six-year fraud is HK$374 million (R694 million), with losses attributable to the 2021 financial year of HK$60,9 million (R121 million), in relation to the 2020 financial year HK$47,5 million (R95 million), and the balance to the financial years prior to this. Accordingly, the 2020 financial results have been restated. The tax deductibility of these reversals is uncertain so no provision for any tax relief has been accounted for.

The board has declared a final cash dividend of 400,0 cents per share, a 21,2% increase on the F2020 dividends for the year ended June 30  2021, representing approximately 2,2 times HEPS cover. This final dividend is paid in respect of Bidcorp’s full year’s earnings.

Net revenue of R114,8 billion (F2020 restated: R120,6 billion) fell by 4,8% (constant currency decline of 9,2%). The impact of the COVID pandemic on our hospitality markets has been prevalent to a greater or lesser extent throughout the financial year. Group sales (in constant currency) declined to a low of 65% versus the corresponding week of February 21  2020, reflecting the harsh second wave in Europe and the UK, however, into the fourth financial quarter, started to improve as the European and UK markets opened up. Sales for July 2021 were at 98% of July 2019 levels, and 120% of July  2020 sales. This trend continued in August to 98% (versus August 2019), and in September to 98% (versus September 2019), notwithstanding some restricted activity in Australia, New Zealand, and parts of Asia due to further COVID lockdowns, as well as subdued activity in South Africa following the recent civil unrest.

Gross profit percentage held up well at 24,0% (F2020 restated: 24,2%), a combination of the necessity to liquidate inventories in volatile trading conditions as well as some price discounting to gain market share.

The group achieved cost efficiencies as there was a 13,4% decline in constant currency operating costs against a decline in constant currency revenues of 9,2%. The overall cost of doing business decreased to 19,8% (F2020 restated: 20,8%). No further significant COVID-related costs were incurred in the year, and losses in respect of the Miumi fraud were absorbed.

Group trading profit increased by 17,7% to R4,8 billion (F2020 restated: R4,1 billion) and the trading profit margin was 4,2% (F2020 restated: 3,4%).

Net finance charges (excluding IFRS 16 charges) were lower by 10,3% at R305,8 million (F2020: R340,8 million), positively benefiting from better asset management, lower capex, and end-of-life property realisations. Bidcorp remains
well-capitalised and retains adequate headroom for further organic and acquisitive growth. Non-IFRS 16 EBITDA interest cover is still at a healthy 19,3 times (F2020: 15,5 times), reflecting the positive free cash flow generated in the year.

Our problematic businesses in Spain, UK Fresh, and Germany have stabilised following restructuring and, although the financial numbers don’t yet reflect the efforts undertaken, the businesses are all well on track to recovery. All generated small profits in July and August 2021.

Net investments in property, plant and equipment and intangible assets of R72,9 million (F2020: R2,5 billion) reflects maintenance capex and some new investment necessary for organic growth of R2,0 billion, offset by proceeds of R1,9 billion in relation to sale and leaseback transactions. These were undertaken as part of our property maximisation strategy in terms of end-of-useful-life properties. The pre-tax non-headline capital profit realised on the sale and leaseback transactions was R740,5 million.

Non-IFRS 16 net debt at R0,5 billion (F2020: R5,6 billion) has declined significantly, benefiting from good operating cash flows, a much-improved working capital position, slightly lower than normal capex, and the proceeds arising out of the sale and leaseback transactions. Free cash flow from continuing operations for the year was excellent at R4,7 billion (F2020: R2,7 billion).

Cash generated by operations before working capital was R7,0 billion, similar to that generated in F2020. Monthly average net working capital days decreased significantly to seven days (F2020: 14 days) with a further working capital generation of R0,6 billion, off the back of R1,3 billion achieved in F2020. Receivables increased off higher revenue levels and payables grew as credit terms normalised following the tightening experienced in late F2020. Receivables provisioning levels were largely maintained as risks of further economic stress haven’t yet abated. Credit insurance availability in most markets remains limited because of the hospitality industry exposure which requires heightened vigilance in our customer base.

Bidcorp’s strategy of focus on growth opportunities in the wholesaling of food and allied products to the eating-out-of-home market remains fit for purpose despite the severe impacts on the global hospitality industry arising out of the COVID impact of the past 18 months. Growth continues organically through focusing on the appropriate customer mix between independent and national; via in-territory bolt-on acquisitions to expand our geographic reach and our product ranges; and via strategic acquisitions to enter new markets. There has not been any fundamental shift of consumer behaviour in eating-away-from-home, and the increased incidence of home delivery represents growth in our addressable market. Socialisation remains an important component of the consumer’s experience.

Most businesses have bounced back strongly as demand has rapidly returned when economies have opened up, particularly in the Northern Hemisphere. Despite our best efforts, the hospitality industry is not immune to challenges such as staff shortages and supply chain disruptions, currently evident across all our markets. The likely ‘new normal’ is that there will be a return of inflation, both through the cost push of wage and utility cost increases, as well as food price inflation caused by supply chain dislocations. Our customers are facing these same staff shortages, which is deskilling their kitchens and constraining their ability to grow, presenting an opportunity for further investment into vertical integration of our services into value-add product preparation. Customers are seeking further cost-conscious solutions presenting further opportunity to grow our Own Brand products.

No significant acquisition opportunities in the foodservice space have become evident and exploring these in the current environment remains difficult with international travel restrictions. Several in-country bolt-on opportunities are being pursued, more so in developing economies at the moment. Organic market share gains are being made in all markets despite large segments of the hospitality industry still operating well below pre-pandemic levels.

We have started to ramp up our investment in capex, principally into strategic distribution facilities, as a sign of our confidence in the long-term sustainability of the foodservice industry. Our near-term objective is to meet anticipated future demand as well as the necessity to continually reduce our environmental impact. New technologies in refrigeration, energy efficiency, and distribution optimisation are at the forefront of our planned investments.

Our ecommerce platform remains a source of competitive advantage and further low-cost but high-impact investment continues in meeting customer requirements. Harnessing the power of data analytics enables our businesses to further improve our customer relationships while also driving further efficiencies across all areas of the group. With the heightened risk of information security globally, continuous and increased vigilance is at the heart of our risk management programme.

Despite the volatility and uncertainty of the trading environment arising from the ongoing COVID pandemic, we remain extremely optimistic about the long-term prospects of both Bidcorp and the foodservice industry.

Revenue growth of 13,9% to R33,0 billion (F2020: R29,0 billion) and trading profit increase of 29,4% to R2,5 billion (F2020: R1,9 billion) were extremely pleasing. Both businesses were able to trade through most of F2021, with COVID restrictions mostly impacting international travel and intermittent regional shutdowns. Management’s commitment to supporting customers and ensuring ongoing high service levels were rewarded with market share gains.

Australia has performed well despite the numerous regional lockdowns. Revenue for F2021 is approximately 102% of prior year levels and 90% of F2019 levels, with trading margins much in line with the prior year. Focused management of gross margin and overhead expenses, contributed to a great F2021 finish. July has seen Australia plunged into strict lockdowns in many regions and a bumpy time is expected into the start of F2022.

Significant capex investment has positioned the business well once markets are fully reopened, with circa 12 properties under substantial development in the next few years, will ensure that the business is adequately equipped to meet its current growth forecast.

Foodservice achieved a great result, navigating the sporadic lockdowns throughout the year with a strong, resilient team, remaining positive and focused on growth despite the disruptions. An acquisition in Bunbury, Western Australia was concluded in a region where previously there was no presence. Focus remains on growing the liquor category, although timelines for national distribution have been delayed. All branches delivered positive EBIT growth.

Supply Solutions has outperformed expectations, with still excellent growth opportunities as our product offering is expanded. New light manufacturing opportunities are being pursued, such as our Brisbane-based nut packaging facility. Our Meat processing facilities have been consolidated and profits are now being delivered.

Efforts to support the COVID vaccination rollout nationally are a priority, and an internal rewards programme has been established, incentivising our teams to get vaccinated.

New Zealand (NZ) recorded excellent results with full year sales near F2019 levels, despite regional lockdowns impacting activity levels. Trading margins surpassed those of F2019, which resulted in a great result.

Expense management has been challenging with utility cost and food inflation increases and global supply chain disruptions restricting key commodity imports. Difficulties in staff resourcing, especially in warehouse and driver roles, have significantly driven up our wage bill. Customers are placing increased pressure on product pricing with food input cost containment a focus area across all areas of the business.

The brief opening of the trans-Tasman bubble evidenced the speed and significance of the potential activity levels to come. Core market growth is evident in all areas including our centre-of-plate-protein offering, where consistent supply and product quality at minimal price variability, has been very well received by our customers. Light manufacturing of value-add product is being actively pursued across the region.

The exceptional growth of the business has driven the need for many of the branches to exit older sites and reinvest into new purpose-built environmentally friendly Bidfood-owned distribution centres. In addition, investment into electric vehicles, large-scale recycling initiatives, and expansion of the solar panel energy projects across branches is evidence of management’s commitment to limiting the impact of Bidfood NZ on climate change.

Foodservice finished the year ahead of F2019 results, a fantastic achievement benefiting from converting customers to our imported Own Brand range. Significant service and labour efficiencies were implemented to offset the increased employment costs. Inter-branch management of sales was a key cost management technique that delivered good results across the business. Navigating the staff shortages remain top of mind.

Fresh results were down in the year as customers were cautious in the purchase of perishable product, with menu simplifications also reducing demand for high-end produce. Some green shoots have started to appear as a more focused approach is adopted by branches.

Prepared Produce had a very tough year, with the lack of international tourism resulting in the loss of its biggest customer. Meat processing has shown positive results in the sous-vide channel.

Logistics has delivered a solid, but unspectacular result. New routes and additional QSR business are being sought to grow this offering.

The UK hospitality market suffered with the COVID lockdown implemented by the government in our second financial quarter which lasted well into the third quarter. Recovery was immediate as restrictions were eased in the UK springtime and activity levels into schools and some dining resumed. By the onset of summer (largely post the financial year), most market segments were back at pre-COVID levels of activity, other than tourist and business travel activities and large-scale catering, mostly allied to inner-city activity. Revenue declined 20,7% to R25,0 billion (F2020: R31,5 billion) pushing trading profit down to R394,3 million (F2020: R666,8 million), a decline of 40,9%.

Foodservice achieved sales of near F2019 levels, an impressive achievement after a very difficult year that presented unique and significantly different challenges in each quarter.

In June, net sales were just 1% below F2019 levels, with most sectors trading above at least 70% of F2019 levels, the exceptions being workplace catering and travel industry. The speed of the recovery has challenged our operations as well as those of our customers and suppliers. National resource scarcity in the market remains the largest short-term risk, especially in roles of drivers and warehouse pickers. Significant effort is being directed to ensure these resource challenges are overcome.

Slightly higher inventory levels were retained in order to maintain service levels to our customers, as we navigate supply chain disruptions and reduced delivery runs. Working capital was a key area of focus and was overall very well managed throughout the year.

Specialist businesses Caterfood and Cimandis both finished well ahead of expectations, and South Lincs and Elite both bettered their prior year performance.

Adhering to strict COVID workplace protocols, including using lateral flow tests for detecting asymptomatic staff within the workplace, allowed our staff and depots to operate throughout the year. The government furlough programme contributed to job retention. Staff motivation levels and commitment remains high, as reflected in internal survey results.

Sustainability initiatives continue to be a key area of focus, with carbon reduction plans, living wage foundation alignment, social value, and visibility of upstream supplier sustainability credentials all growing in prominence.

New business wins and strengthening of key account relationships have been positive, and substantial new business has been secured in the municipal, education, and health sectors. Contract extensions and growing existing accounts indicate that market share growth has been achieved.

Fresh UK, although buoyed by the positive summer activity, was drastically impacted by the severity of the government lockdown through quarters 2 and 3. Timeous restructuring and scaling back in late F2020 proved fortuitous. About 18% of the Fresh customer base have not made it through the pandemic. An aggressive programme has been put in place to win new customers. Our regional business is beginning to perform well, however, the inner cities have been slower to recover. This is especially evident in hotels where the cities are missing tourists, but the regional towns are benefiting from the staycation boom.

Fresh has invested in training of butchers and filleters in the meat and seafood divisions to overcome the acute staff shortages of these skillsets. The admin and back-office functions have now been fully integrated into the Bidfood UK environment, presenting significant cost reductions and efficiency gains. Management’s focus is now on profitable growth as the Fresh UK recovery takes hold.