Bidcorp

The Group delivered very pleasing results for the half year ended December 31 2016. Headline earnings per share (HEPS) increased by 20,3% to 600,3 cents per share (PF2015: 499,1 cents) with basic earnings per share (EPS) increasing by 20,7% to 600,3 cents per share (PF2015: 497,4 cents).

Bidcorp’s businesses continue to perform well across all geographies, driven by good organic growth in home currencies and benefiting from market share gains. Our strategic focus of balancing the exposure between contract, national and independent customers in the respective markets has driven margin improvement, despite generally very low inflation environments. Significant volatility across many major currencies, not only versus the rand, has not materially impacted our rand translated results in the period.

Bidcorp has commenced a global rebranding exercise trading as “Bidfood”, which will reinforce our image as “value-add food people” rather than logistics providers.

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

Overall net revenue of R67,8 billion (PF2015: R68,2 billion) was impacted by the ongoing deliberate and planned exit of some large contract business in various geographies, which still reflect to some extent in the comparative base. In the core foodservice businesses, solid revenue growth was achieved at improved margins in all geographies.

Gross profit percentage increased to 21,4% (PF2015: 20,2%) reflecting the benefit of focusing on the correct mix of business. Operating expenses remained well controlled, increasing 3,2% despite some wage pressure in a number of growing economies and higher sales and distribution costs reflecting higher activity levels.

Group trading profit increased by 15,7% to R2,8 billion (PF2015: R2,4 billion) and the trading margin improved to 4,2% (PF2015: 3,6%), a direct consequence of the operational focus to grow the independent trade and rebalance the customer portfolio.

Share-based payment costs of R46,5 million (PF2015: R51,8 million) reflect the costs of long-term incentivisation across the Group, which remains a key performance driver.

Acquisition costs of R14,1 million (PF2015: R0,3 million) reflect some small bolt-on acquisition activity, the benefits of which will manifest going forward.

Net finance charges are 24,4% lower at R118,5 million (PF2015: R156,8 million). Cash generation has been solid despite greater utilisation of working capital, typical of the normal absorption experienced in the first half of the financial year. Bidcorp remains well capitalised, with trading profit interest cover at 23,8 times (PF2015:15,6 times). Where appropriate, funding has been renegotiated to avail ourselves of the current low interest rate environment. We remain conservative in our approach to gearing but ongoing work is being undertaken to create adequate capacity for organic and acquisitive growth.

The Group’s financial position remains strong. Total assets have grown reflecting replacement and expansionary capital expenditure on fixed assets, and the higher trading activity in inventories and receivables. Net debt is R1,7 billion, the same level as June 30 2016 but significantly improved on the R4,3 billion at December 2015.

Cash generated by operations was robust, net working capital days increased to 3 days (June 2016: -1 day) and net investment activities consumed R608,8 million. Free cash flow was positive at R762,6 million.

There have been no material acquisitions in the period. However, a number of smaller bolt-onacquisitions were concluded in Australia, Brazil, Belgium, Italy and Fresh UK totalling R495,8 million.

Bidcorp has concluded an agreement which will enable Puratos Group NV to acquire joint control of our South African-based Bakery Supplies business. The transaction will enable the business to develop new products using international innovation for the baking industry. The transaction is estimated to complete in April 2017.

Our foodservice businesses worldwide are executing on the strategy of rebalancing the exposure between contract, national and independent customers in their respective markets. We see our future as a “foodservice” provider, as opposed to a “logistics” operator. Innovative technology-based solutions for customers and global procurement opportunities continue to gain traction as part of our value-add service to grow market share. Fresh produce, Meat categories and Value Add Processing continue to be areas of unexploited potential in many regions.

Our financial position is strong, cash generation is expected to remain robust, and we retain significant headroom to accommodate expansion opportunities, both acquisitive and organic.

Management remains alert to opportunities; organically through a focus on the appropriate business mix and bolt-on acquisitions in territory to expand geographic reach and product range extension; and via larger acquisitions to enter new markets. Despite our appetite for acquisitions, we remain disciplined in our approach to accessing the “right” opportunities.

Bidcorp’s decentralised business model, the depth and experience of our entrepreneurial management team and the strength of the Group’s culture enables us to continue to drive above-average returns for our shareholders.

Management remain firmly of the view that over the medium term, overall returns on our internationally diversified businesses will far outstrip the negative effects of global volatility. Overall fundamentals in the global foodservice industry remain positive. Bidcorp will further leverage these conditions in its respective markets and anticipates continued real growth.

The region continues to make a substantial contribution as the biggest profit generator. Revenue moved 5,2% higher to R15,3 billion (PF2015: R14,6 billion). Trading profit rose 22,5% to R943,6 million (PF2015: R770,2 million). The successful strategy of bringing the “food” focus back into the businesses is reflected in these results.

Australia put in a strong first half. Total sales fell in line with the strategy of exiting logistics revenue while growing independent freetrade volumes through the Foodservice, Fresh and Meat divisions. Profit and margins rose, a commendable performance and an indication the long-term strategy is working.

Foodservice made an outstanding contribution. The number of branches rose to 33 following the acquisitions of Pye Providores (Port Macquarie) and Central Choice (Launceston). Branch network growth remains a focus area.

Imports division had a great six months, concentrating on new product development. Fresh is starting to fulfil its potential and delivered profit improvements. Meat made a small, opportunistic acquisition in Canberra.

New Zealand performance was buoyed by a positivemacro-economic environment and the success of several initiatives, including the growth of the Processing and Imports divisions. Revenue and trading profit rose significantly.

Gains were driven by increased freetrade focus at branch level and supply chain efficiencies. Cash flow remained strong and returns rose substantially. Work continues on four new distribution facilities.

Foodservice performed strongly. The division’s import capability became a source of competitive advantage. Fresh delivered excellent results, containing costs and protecting margins, and our Auckland business won a significant contract. Processing went from strength to strength.

The eastern European businesses delivered superior growth bolstering the results in this division. Revenue rose 12,5% to R16,3 billion (PF2015: R14,5 billion) while trading profit rose 27,0% to R589,0 million (PF2015: R463,6 million).

The Netherlands business achieved revenue gains despite second quarter pressure. Trading profit growth was slightly below expectation as institutional sales volumes declined and catering volumes disappointed. A strong hospitality performance helped offset institutional and catering setbacks. National account business also grew.

Belgium operations gained further traction. Revenue grew and trading profits rose. Catering remained under pressure, but Horeca, Institutional and Chain business exceeded expectation and the business remained strongly cash generative. The acquisition of Bestfood, a multi-temp Horeca wholesaler, was finalised. A significant institutional contract win was recorded late in the period.

DAC Italy registered strong trading profit and revenue growth that was substantially higher than prior year, notwithstanding the benefit of the acquisition of Quartiglia Food Service. Growth of the independent market continued and now represents about 75% of turnover. International revenue increased, boosted by sales to Bidcorp sister companies. Cash generation remains strong.

Czech and Slovakia secured pleasing growth despite the summer not being as favourable for ice cream sales as last year. Revenue and trading profit were well above last year and margins were well managed. In the Horeca space our main focus remains on growing our red meat, poultry and fish categories. Fresh vegetable distribution has begun. Retail activity centres on frozen products and ice cream. We launched pork, beef and game sales to butcheries. Slovakia made an improved contribution on strong retail and Horeca performance.

Poland continued the trend of strong revenue growth. Margins were maintained and overheads well controlled. Trading profit exceeded expectation. The freetrade share of the sales mix continues to expand. Working capital was well managed and investment in plant and vehicles continued, as we continue to see the benefits of this growing market.

Baltics revenue showed pleasing growth, underpinned by strong foodservice results. Strong ambient and chilled growth is evident. The business is at breakeven levels.

Spain made continued progress albeit a small loss was recorded, down on the loss recorded previously, and remains a very interesting market for us.

Aktaes Turkey was impacted by political uncertainty and terrorism, affecting tourism with major customer groups. Depreciation of the Turkish lira had a severe effect on margins. Aktaes achieved sales gains, but recorded a loss. An Aegean acquisition is being explored.

Trading profit decreased by 1,1% to R749,8 million (PF2015: R757,7 million); however, on a constant currency basis, trading profit grew 15,1%. Excluding the Logistics business, our UK Foodservice and Fresh business grew trading profit by 18,9% in sterling.

Bidfood UK delivered an excellent result bolstered by a positive second quarter. Trading profit was comfortably above budget and the prior period, even though there is one less trading week in the current period. Overall revenue declined off the back of the intentional exiting of low margin contracts. Customer margins were well managed. In line with our long-term strategy, the freetrade volume mix showed good improvement. Like-for-like own brand volumes grew. National account business retention levels were pleasing.

Fresh profit rose, but was below expectation in view of the weaker sterling causing significant product cost inflation within potatoes, salmon and butter product categories. Some margin has been sacrificed in order to maintain volumes. Hardest hit was Seafood however margins have begun to stabilise. Oliver Kay (fresh produce) achieved encouraging sales gains. Recently acquired R Noone (fresh produce) performed well. Meat sales were strong in December, supported by solid contributions from Campbell’s and Henson’s.

Logistics results remain disappointing, weaker than the comparative period trading profit. Volumes rose though margin per case was under pressure. Distribution, storage and handling costs were poorly managed and increased beyond expectation.

Ongoing review of the commercial scope of contracts, service levels and costs is underway by the new management team. The management irregularities that were reported on during the previous financial year remain the subject of ongoing legal processes. Abnormal costs in respect of these matters have been provided for at the corporate level. Any impact on non-current assets is continually being monitored by management however no adjustments have been made to the financial position to date. The future strategic options for this business are under consideration.

These businesses continue to deliver commendable results in light of the many economic challenges faced in these regions. Revenue moved 14,8% higher to R10,0 billion (PF2015: R8,8 billion), with trading profit up 25,3% at R584,8 million (PF2015: R463,6 million).

Food Africa returned excellent results. Sales growth was underpinned by continued independent channel gains. Strong trading profit improvements were registered across all businesses. Cash flow remained strong while investment in vehicles and facilities was maintained. Developments to the IT and business collaboration systems continue to add value. Within Foodservice the online ordering platform and private label sales were enablers of growth. Crown Food Group grew its own manufactured lines and products. At Bakery Solutions the focus on innovation and product development yielded positive results. Within the export business, despite challenges in a number of geographies, excellent results were achieved by the Zambian operations.

Hong Kong topped budgetary expectations for trading profit and sales in a challenging market. Margins came under renewed pressure impacted by sluggish tourism, notably Macau. Across the wider business, sales of dairy and dry products were especially strong. Natural and Organic Global grew beef and poultry volumes. In the mainland China business, second-tier cities were growth points. Hotel and restaurant customers supported Shanghai gains. Beijing saw good demand from supermarket and bakery customers. Guangzhou was buoyed by a strong second quarter. Shenzhen drove improvements in the restaurant and foodservice channels. Late in the period we bought out our 40% partner in this business.

Singapore operations were challenged by declines across the food and beverage sector yet registered a significantly improved result. Foodservice secured continued growth with beef, poultry and butchery categories all strong contributors. Gourmet sales were strong but changes to the product mix affected margins.

Brazil secured pleasing growth in revenue and trading profit despite customer liquidity constraints. Economic and political conditions remained challenging. A new acquisition, Mariusso, based in the São Paulo area, is being integrated in order to extract synergies. Our disciplined approach to credit extension inhibits the potential growth of the customer-base; however, caution is deemed prudent at this stage.

Chile achieved pleasing gains in a stagnant economy. Sales volumes outperformed budget. The new Concepción branch moved into profit following the acquisition of a small distribution company. Santiago Foodservice did well, freezer capacity expansion has begun and debtors’ collections showed improvement.

Middle East businesses registered revenue growth while trading profit was in line with expectation, underpinned by good contributions from Saudi Arabia and the smaller regional markets. UAE put in another strong showing, and we are benefiting from our previous investment into our operational capacity.

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 a non-executive director with effect from October 4 2016.

B Joffe
Executive chairman

BL Berson
Chief executive

DE Cleasby
Chief financial officer

In line with the Group dividend policy, the directors have declared an interim cash dividend of 250,0 cents (212,5 cents net of dividend withholding tax, where applicable) per ordinary share for the six months ended December 31 2016 to those members registered on the record date, being Friday, March 24 2017.

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

Share certificates may not be dematerialised or rematerialised between Wednesday, March 22 2017 and Friday, March 24 2017, both days inclusive.

For and on behalf of the board

AK Biggs
Company secretary

Johannesburg
February 23 2017