Distribution

The Bidcorp board has decided it's inappropriate to declare an interim dividend in light of the ongoing economic upheaval and uncertainty arising from the COVID pandemic, particularly prevalent in the northern hemisphere at this point in time. The board will reassess its position in August 2021 in line with its stated dividend policy based on the performance of Bidcorp for the full year ending June 2021.

Financial overview

Net revenue of R60,8 billion (H1F2020: R68,2 billion) fell by 10,9% (constant currency decline of 21,9%). The significant impact of the COVID pandemic on our hospitality market has been prevalent in all operating geographies to a greater or lesser extent throughout the reporting period. Group sales (in constant currency) reached 87% of the comparative period for the week of August 2, however, declined to a low of 68% versus the corresponding week of November 29. Particularly hard hit were sales in Europe and the UK in the second quarter which tracked at approximately 41% of the comparative F2020 level as the second wave took hold in the northern hemisphere.

Gross profit percentage declined marginally to 23,4% (H1F2020: 23,8%), a combination of some operations liquidating inventories as a consequence of the suddenness and severity of government-imposed lockdowns and a focus on some price discounting to gain market share.

The group achieved absolute cost savings of 17% in constant currency against a decline in constant currency revenues of 21,9%. However, the overall cost of doing business increased to 19,7%, (H1F2020: 18,5%) due to the lower revenues. No further significant COVID-related costs were incurred in the period.

Group trading profit declined by 37,4% to R2,2 billion (H1F2020: R3,6 billion) and the trading profit margin was 3,7% (H1F2020: 5,2%).

Net normal finance charges (excluding the impact of IFRS 16) were slightly higher at R172,8 million (H1F2020: R170,9 million) controlled by better asset management and strong free cash flows despite lower profitability. On a constant currency basis, normal finance charges were 9,8% lower than the previous period. 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 16,8 times (H1F2020: 24,0 times) despite the impacts of the COVID crisis.

Our problematic businesses in Spain, UK Fresh and Germany have all undergone restructuring to ensure their long-term sustainability. Although the financial numbers don't yet reflect the efforts undertaken, the businesses are all well on track to recovery. Spain remains the largest challenge, the business has been significantly downscaled and now needs sales to return. Fresh UK has also been streamlined and excess costs and capacity taken out, without diminishing its position as a specialist supplier of seafood, meat, and produce. Germany is operating effectively and once sales return, so too will profits.

Gross investments in property, plant and equipment and intangible assets of R953 million (H1F2020: R1,5 billion) reflects largely maintenance capex and some investment necessary for anticipated organic growth. Most of the expansion capital expenditure is a continuation of that already committed in F2020. Proceeds received on property, plant and equipment of R1,5 billion mainly relates to the sale and leaseback transactions concluded as part of our property maximisation strategy in terms of end-of-useful-life properties, where we are taking advantage of very low yields currently being achieved in many markets on industrial property. The pre-tax headline capital profit realised on the sale and leaseback transactions was R686 million.

BIDCORP SALES TREND

MARCH 2020 – FEBRUARY 2021

Non-IFRS 16 net debt at R2,6 billion (H1F2020: R4,9 billion) has declined significantly, benefiting from a much-improved working capital position and the proceeds arising out of the sale and leaseback transactions. In hard currencies, our net debt at £128 million is better than June 2020 of £261,5 million and December 2019 of £269 million. Free cash flow from continuing operations for the half year was excellent at R2,7 billion (H1F2020: R0,9 billion).

Cash generated by operations before working capital was R3,2 billion, reflecting the lower trading profitability. An ongoing focus on working capital ensured strong cash generation of R0,5 billion, an improvement on the R0,2 billion utilised in the comparative year. Receivables, inventories, and payables all declined in absolute values as we continued to work with our customers and suppliers alike. Monthly average net working capital days decreased significantly to six days (H1F2020: 14 days). Receivables provisioning levels were maintained as risks of further COVID waves heightens the potential for further economic fallout. Credit insurance availability in many markets is being reduced because of the hospitality industry impacts which places further pressure on our customer base.

Propects

Bidcorp's strategy remains focused on growth opportunities in the wholesaling of food and allied products to the eating-out-of-home market; organically through achieving the appropriate customer mix, by selling more products and gaining new customers; via in-territory bolt-on acquisitions to expand our geographic reach or to expand our product ranges; and via strategic acquisitions to enter new markets, as and when these arise.

Our current focus is to operate at the new normal that currently exists in many markets which are being dictated by government actions to contain and manage the respective COVID crises and to scale our activities accordingly. The future remains uncertain as the unpredictability of the return to economic activity in our hospitality markets, however, our operations in Australia, New Zealand and China have given us confidence that the markets will bounce back relatively quickly once lockdown restrictions are eased. Significant effort is being directed at staff retention and well-being to ensure that our operations are ready and able to accommodate the resumption of increased activity as and when it materialises.

We do not believe that there will be any major long-term fundamental shifts in consumer behaviour away from eating-out-of-home, however, aspects of the business model are continually being modified to meet changing requirements. Overall activity levels in January are around the 70% levels of F2020 with Australasia and Emerging Markets tracking very well, offset by the lower activity levels in UK and Europe.

We continue to manage discretionary spend in capex and other business expenses carefully yet investments in those businesses where activity levels have returned are being progressed.

No significant new country acquisition opportunities in the foodservice space have presented themselves, yet the number of potential leads is increasing. The ability to explore any opportunities remains hindered by the restrictions on international travel. We do expect more in-country bolt-on opportunities to present themselves in the months ahead as government business support schemes wane. Our local teams are ready to explore these as they arise. We are experiencing market share gains in many markets, driven by our actions, as well as competitors struggling or exiting the industry.

Our international footprint has facilitated excellent cooperation and collaboration internally through shared experiences and learnings. Our ecommerce platform remains a source of competitive advantage and we have modernised our global platform. Further investments are being driven into our data analytics capabilities. Our customers' appetite for digitalisation continues and we are scaling up our capabilities accordingly.

Bidcorp continues to retain faith in its resilient business model, its entrepreneurial teams, and its positioning in its markets which have enabled us to navigate the current COVID crisis and will enable us to take advantage of any market opportunities, whether organic or acquisitive. We remain optimistic about our market, its prospects, and the return to our longer-term growth trajectory.

Australasia

Revenue growth of 5,2% to R16,7 billion (H1F2020: R15,8 billion) and trading profit increase of 7,1% to R1,1 billion (H1F2020: R1,0 billion) were extremely pleasing. Market share gains and management's unwavering commitment to high service-levels delivered the benefit of this focused strategy.

The initial COVID impact on sales was at its lowest in Australasia last year April, however, sales have steadily recovered over the half year nearly matching the prior year's levels, albeit on a smaller market, with no international tourism or travel, nor any large-scale catering type events.

Australia's revenue for H1F2021 are approximately 86% of prior year levels, with trading margins much in line with prior year. Focused efforts were in place to keep margins steady, in a bid to support customers struggling to operate through the lockdown restrictions. Although results were impacted by the slowdown in the market, signs of a robust recovery are evident. While large portions of the market have reopened, significant sectors such as cruise lines, airlines, festivals, and sporting events remain shuttered.

A buoyant team responded positively as activity within the Australian restaurant and hospitality market increased. A fresh approach to managing National Accounts is starting to deliver results.

Foodservice delivered a good result in spite of the ongoing state border closures and localised lockdowns. The teams are agile and have equipped themselves to be able to adjust quickly, as the restrictions change. Festival, the liquor business, has now been fully integrated into the Foodservice network. Own brand products, in food and liquor, have grown and is a focus area for the period ahead.

With import challenges due to border closures, the Supply Solutions division was able to offer and promote own brand product range as a substitute. Customers responded favourably. Meat processing facilities have been consolidated into fewer sites, with product distribution integrated into the Foodservice channels.

New Zealand although benefiting from mild lockdown measures, increased domestic tourism and staycations, are feeling the impact of the lack of international tourists in certain businesses. Sales were near prior year levels and margins held up well, in spite of tougher market conditions.

Customers are placing increased pressure on pricing, as expense containment is a focus area for all. Unemployment and food inflation uncertainty has dampened an overall positive outlook. Staff levels are a challenge to predict as activity levels fluctuate, and has had an impact on expense management.

Foodservice continues to deliver good results, although the lack of international tourism is directly impacting the performance of some branches. Supply chain disruptions in both product availability as well as transport costs have put pressure on cost management. Good results were delivered in recently upgraded depots by taking advantage of better product management. Good results were achieved with new national account customers.

Fresh results are under pressure with a change in post-COVID spending patterns and aggressive pricing in the cost of fresh products. The market has become very competitive.

Prepared Produce is investing in sales to grow demand. Meat processing is trading well, with good growth in the sous vide channel.

Logistics has held up well, with a new site promising to deliver greater efficiencies. Capex in the period has been tightly controlled with investment relating only to property to meet organic growth requirements.

United Kingdom

The UK market suffered a particularly harsh blow with the COVID lockdown measures implemented by the government in the second quarter. Revenue reported a decline of 23,5% to R13,6 billion (H1F2020: R17,8 billion) pushing trading profit down to R295,7 million (H1F2020: R909,4 million), a decline of 67,5%.

Bidfood UK achieved sales levels of near 85% of prior year through a good summer but as the infection rate increased and increased lockdown measures took hold, sales activity dropped from October onwards to below 40% of prior year levels by December. The rapid response to the lighter UK Christmas lockdown measures that were introduced is a clear indication of how quickly the market and our operations are able to respond when lockdown restrictions are eased.

Bidfood UK operational performance was buoyed by the positive summer recovery and the governments "eat out to help out" scheme in the restaurant and hospitality sectors. However, the impact of the second wave, even with the government-implemented tiered lockdown approach, was significant, with a sharp decline in demand as people were encouraged to stay and work at home.

Some stock build-up was made in anticipation of the Brexit transition, however, working capital was closely managed. Participating in the government pilot for Lateral Flow Tests, testing for asymptomatic people within the workplace, has allowed our staff and depots to continue to operate. Government furlough programmes have contributed to job retentions. Staff motivation levels and commitment remains high, as indicated in recent internal survey results.

New business wins and strengthening of key account relationships has been positive, and substantial new business has been secured once lockdown measures have been eased. Contract extensions and growing existing accounts provides comfort that market share growth has been achieved.

Fresh UK, although helped by positive summer activity, was significantly impacted by the severity of the government lockdown. August activity levels showed the business operating profitably again, following the strategic restructuring efforts of the prior year. Being heavily reliant on the independent hospitality sector, Fresh UK operations are poised for success once markets are again open for trade.

Europe

Europe was equally severely impacted by the restrictive COVID lockdown measures implemented by the respective governments during the second quarter, with most businesses struggling to operate effectively within the stringent lockdown measures. Revenue was down 15,2% to R19,5 billion (H1F2020: R23,0 billion) and trading profit decreased 60,9% to R430 million (H1F2020: R1,1 billion).

Activity levels across Europe showed positive signs of recovery through the summer months but declined quickly as restrictions were reintroduced through October.

Netherlands delivered strong results through the summer. From mid-October, the country was put into a hard lockdown, reducing sales to 45% of prior year levels. Government wage support programmes assisted in staff retention and cost management efforts. Discretionary capex programmes have been postponed until demand increases. An end-of-useful-life property located in Ede was sold and is expected to complete in February.

Belgium was similarly impacted by the hard lockdown in mid-October, following the positive activity levels seen in the summer. The second wave lockdown has negatively impacted trading results, with all segments underperforming their potential. There remains no clear sign of when these lockdown measures might be relaxed. The Horeca depots of Langens and Bestfood were merged providing efficiency opportunities. Government wage support and ongoing rationalisation programmes are contributing to active expense management.

Czech Republic and Slovakia were significantly impacted by the pandemic in Q2F2021, as far harsher lockdown restrictions were implemented relative to the first wave of COVID infections. Retail sales have delivered in line with prior year in both Czech and Slovakia markets. A fire in the fish production plant in November tested our disaster recovery processes, which were successfully able to resume operations within a few days. The new build is due to commence in February 2021.

IT development projects continue, improving routing, production efficiencies and internal training and communications. With an inability to predict changes from week-to-week, the team remains poised, ready to respond as and when their markets reopen.

Italy continues to be negatively impacted by the pandemic with sales and trading profit down on the prior year. Our focus remains on the independent freetrade customers, however, our diversified customer base has mitigated the impacts of the hospitality market decline. Government support programmes are in place, assisting with job retention and supporting cost management.

Poland recorded a very positive Q1F2021, with high volumes as the market embraced the good summer and open markets. The lockdown in Q2F2021 was hard and fast, with most of our hospitality markets shut down quickly. New markets and products have been embraced, with focus on the QSR and takeaway market. Some capex investment into maintenance of fleet and plant machinery has been made. Ongoing efforts to grow awareness of and use of the ecommerce platform is a key focus area.

Germany struggled through the harsh second wave lockdown, recording sales volumes 32% of the prior year, brought about by a complete shutdown of the restaurant and hospitality sector. Lack of international tourism and cancellation of annual festivals and markets has had a significant impact on the trading results recorded. The benefits of the prior year restructuring programme have started to materialise and efficiencies delivered by the new Munich warehouse has assisted in reducing costs.

Baltics sales activity was down for Q2F2021 as a result of a resurgence of the pandemic, markets were closed and lockdown measures implemented. Retail sales have delivered in line with prior year. Staff costs have been managed through furlough programmes, and distribution costs were down for the period.

Spain continues to navigate the pandemic impact. Regional lockdowns and changing restrictions made restaurant and hotel activity sporadic and difficult to navigate. Restructuring, cost containment, and streamlining actions have contributed to managing the cost base down. However, our performance is largely dependent on the market being open to tourism and the hospitality sectors. Igartza, our Basque based business struggled within the draconian lockdown measures, however, remained profitable.

Portugal, which is well positioned for good growth, is heavily dependent on the tourism industry, which to date has not yet recovered. Positive outlook for this business remains once the market reopens.

Emerging Markets

Emerging Markets continued to be challenged by economic uncertainty, as governments struggled to navigate the COVID impacts, weighing up the tough decisions between lives and livelihoods. Revenue was down 5,2% to R11,0 billion (H1F2020: R11,6 billion), with trading profit down 21,4% to R449,5 million (H1F2020: R571,8 million).

Emerging Markets experienced a gradual recovery in the sales activity levels as prior year sales volumes were surpassed by year end. This trajectory could be tempered by future COVID waves and resultant government lockdown restrictions.

Bidcorp Food Africa (BFA) results improved as government lockdown restrictions were relaxed over the first half of F2021. The impact of increased infection rates over December and the lockdown restrictions introduced by calendar year end will adversely impact the operations going into the third quarter.

Bidfood South Africa remains constrained by the slow recovery of the hotel, office catering, and aviation sectors. The independent segment started to show signs of recovery in the second quarter but at some margin cost. A number of initiatives were launched to support customers and suppliers, and to build consumer confidence in the eating-out-of-home market.

The Crown Food Group (CFG) has achieved excellent results following the investment in own manufactured facilities, brands, and skills. CFG enjoyed strong growth through the independent, franchise, and retail distributor channels. In spite of competitor pressures, CFG gained market share.

Chipkins Puratos (CP) has benefited from its focus on own manufactured products, as well as a recovery in the yeast segment. In spite of COVID-based delays, capex programmes for growth are ongoing. The Bakery School celebrated the success of 25 new graduates from the programme, with exciting employment opportunities offered to these young people.

Further property investments are planned for new distribution centres in Port Elizabeth and Pretoria.

Greater China results showed an improvement on the prior year, despite the ongoing challenges presented by the tiered and fluctuating COVID restrictions applied to cities across the region. Cross-border travel has been limited, but in-country travel is allowed which has identified new potential growth opportunities in China.

Hong Kong continues to feel the impact of the severe lockdown measures, however the outlook is positive as vaccine rollout takes effect and some stability is achieved in the political environment. Tourism will remain subdued as long as border restrictions remain in place. The focus remains on the local retail and online business activities. Macau will start to recover once mainland China border restrictions are relaxed.

Mainland China delivered good growth in the food and beverage sectors. Real growth was recorded in the supermarket segment as household demand for our products increased. Focus remains on retail, bakery and confectionery, Chinese cuisine, and own brand products to enhance our foodservice offering. Fixed asset investment into warehouse freezer capacity will cater for future growth.

Singapore foodservice market struggled as the borders and the economy remained closed, however, optimism is renewed with an anticipated economic recovery on the back of the vaccine rollout. Malaysia and Vietnam have both experienced market contraction with lockdowns restricting tourism. Operations in this region have focused efforts on the retail sector, which has delivered good results.

Brazil foodservice market remained open for most of the period, however, in December, an unexpected COVID outbreak resulted in a severe government lockdown. New customers were added in the independent restaurant sector and assisted in filling the hole left by the reduced hotel and catering trade accounts. Management remains alert to acquisition opportunities as competitors struggle to keep their doors open.

Chilean government stimulus efforts buoyed the market in the short term, increasing household food retail consumption during the period. Political uncertainty remains, aggravated by an election planned for later in the 2021 calendar year. Growth is anticipated from expansion of the imported frozen range, as branches are being equipped with freezer capacity. Growing the branch network is expected to significantly reduce distribution costs, as we expand into the catering and retail markets. Acquisition of a new depot in La Serena will broaden the business' operating footprint.

Argentina recorded a strong performance to mid-December, however, lockdowns have now reduced activity levels. Growing the product range, specifically in proteins, and establishment of a national account strategy is management's focus going into the new year.

Middle East region is showing good signs of recovery as the vaccine rollout progresses and renewed investment into global conventions and significant regional growth projects resume. New retail and QSR accounts showed good growth, and UAE government encouragement of local tourism brought positive Christmas and New Year festivities results. A new fish production plant was acquired in the UAE. Focused efforts to grow the market beyond the hotel sector in Saudi started to gain some traction. Cash management remains a key area of focus.

Turkey continued its recovery through Q1F2021, only to be subject to full lockdown in the second quarter as the infection rates increased. Retail and spirits exposure delivered good results. Hospitality and restaurants responded well as markets opened, but activity was quickly doused as restrictions were reimposed. Growth remains in development of a local and an own brand product range.

Corporate

BidOne continues to develop and position the group's proprietary ecommerce offering as a market leader and key differentiator for our businesses. New projects to meet the demands of home delivery and retail sales were rolled out. New implementations into Argentina, Middle East, and Turkey are all underway.

Bidfood Procurement Community (BPC), despite supply chain constraints and COVID-related border restrictions, has delivered stable results. Growth in product range and quality control offering to our business continues.

Directorate

Sadly, the board reports the untimely passing of Mrs Dolly Mokgatle, on Saturday, January 9  2021.

Dolly joined the Bidcorp board as an independent non-executive director on October 4  2016 and was a member of the social and ethics committee and nominations committee. The board notes the value Dolly's dignified manner, wise counsel, and insightful contribution made, which will be sorely missed.

We express our deepest sympathies and condolences to Dolly's family, friends, and colleagues.

BL Berson
Chief executive

DE Cleasby
Chief financial officer