Bidcorp has delivered a very solid trading performance for the half year despite the lingering economic and social impacts and ongoing volatility of the COVID-19 pandemic (COVID) on our hospitality, tourism, and leisure industries globally. Bidcorp’s performance is particularly pleasing in the context of extremely challenging operating conditions and is attributable to our excellent global team, our entrepreneurial and decentralised operating model, and our loyal customer and supplier base.

Performance for the financial period started well, with most economies rebounding strongly in July through to September 2021. This resulted in a record financial performance in the first financial quarter, driven by Europe, UK, and Emerging Markets.

Australia and New Zealand, which had performed exceptionally well in F2021, were impacted by COVID restrictions for the better part of the half year. Our performance deteriorated somewhat into the second quarter as the rapid spread of the COVID Omicron variant in Europe and UK impacted their festive season trade. Fortunately, this disruption is easing and we are once again seeing a return to stronger and more normalised levels of trading in most jurisdictions.

Demand in the hospitality sector has been robust but has been impacted by pandemic-restrictive measures, however, most activity aligned to business travel and office catering remains depressed. Work-from-home requirements or a hybrid thereof remain in place in many markets which continues to have an impact on our national customers with exposure to major institutions located in large capital cities. Reduced international tourism has been offset to some extent by staycations and increased suburban and rural activity. Non-discretionary demand from hospitals, aged care, prisons, military and government departments is stable but at or below pre-COVID levels.

Operating conditions have been particularly difficult, not so much that demand has fluctuated through the ongoing governmental restrictions to control the pandemic but that staff shortages and churn, supply chain impacts, and rising operating costs have hampered efficiencies. Our primary focus has been to balance customer demand and operational capability to maintain service levels.

Investment activity, both into capacity expansion projects and bolt-on acquisitions gathered pace in the half year as customer demand returned and opportunities presented themselves.

Headline earnings per share (HEPS) increased by 75,3% to 668,0 cents per share (H1F2021 restated: 381,0 cents), with basic earnings per share (EPS) increasing by 49,6% to 656,3 cents per share (H1F2021 restated: 438,6 cents). Currency volatility has negatively impacted the rand-translated results by 10,8% with constant currency HEPS of 709,1 cents per share recorded.

Further to the fraud that was uncovered in the Miumi division of our Angliss Greater China business in June 2021, significant additional forensic work has been concluded by end December 2021 and no further issues have come to light which affect the group’s treatment thereof in F2021. Criminal and civil proceedings have begun against the perpetrators and other third parties and we remain confident of some future recoveries, none of which has been accounted for.

The board has declared an interim cash dividend of 300,0 cents per share for the half year ended December 31  2021, representing approximately 2,2 times HEPS cover in line with group policy.

Net revenue of R71,6 billion (H1F2021 restated: R60,6 billion) rose by 18,1% (constant currency increase of 26,1%). Notwithstanding the impact of the COVID pandemic on Australasia, revenue in constant currency across all divisions was higher than the comparative period and overall has almost recovered to pre-pandemic levels versus H1F2020.

Gross profit percentage at 23,9% (H1F2021 restated: 23,4%) has held up very well despite the impacts of some product inflation, isolated pockets of the requirement to liquidate inventories in volatile trading conditions, and some price discounting to gain market share. In constant currency terms, our gross margin percentages are ahead of pre-pandemic levels.

Although the group achieved cost efficiencies with a 22,2% increase in constant currency operating costs against an increase in constant currency revenues of 26,1%, many of the efficiencies gained through the pandemic are being dissipated by significant inflationary pressures in employee costs, energy and fuel prices, and increased costs arising from supply chain disruptions. The overall cost of doing business has increased to 19,2% measured against pre-pandemic levels of 18,6% but decreased against our H1F2021 comparative of 19,8%.

Group trading profit increased by 52,9% to R3,4 billion (H1F2021 restated: R2,2 billion) and the trading profit margin achieved was 4,7% (H1F2021 restated: 3,6%) which compares favourably with pre-pandemic levels.

Net finance charges (excluding IFRS 16 charges) were lower by 11,0% at R153,7 million (H1F2021: R172,8 million), a good result considering larger investments into capex, working capital, and the final F2021 dividend paid in October 2021. Non-IFRS 16 EBITDA interest cover remains healthy at 25,4 times (H1F2021: 16,6 times). Bidcorp remains well capitalised and retains adequate headroom for further organic and acquisitive growth.

Gross investments in property, plant and equipment of R1,1 billion (H1F2021: R0,9 billion) largely reflects new capacity necessary for organic growth in a number of businesses. No new country acquisitions in the foodservice industry have become evident in the period, however, R0,2 billion was spent on seven bolt-on acquisitions in Australasia, Emerging Markets, and Europe.

Cash generated by operations before working capital was R4,5 billion, some R1,3 billion ahead of that generated in H1F2021. Monthly average net working capital days was at five days (H1F2021: six days) with working capital percentage to revenue running at 3,4% compared to a normalised range of between 4,0% to 5,0%. Typically, Bidcorp absorbs working capital in the first half of the financial year and generates in the second half, and the absorption of R1,8 billion in the period compares favourably with that experienced in normal pre-pandemic times. Receivables days increased off higher revenue levels, inventory days increased off intentional stocking, and payables grew as credit terms normalised following the tightening experienced in H1F2021. Receivables provisioning levels were maintained as risks of further economic stress remain and credit insurance availability in many markets remains limited because of the hospitality industry exposure.

Non-IFRS 16 net debt at R2,4 billion (H1F2021: R2,6 billion) has increased from June 2021 primarily due to the intentional bumping-up of inventory levels to mitigate supply chain disruptions and product price inflation. Non-IFRS 16 net debt to EBITDA at 0,3 times remains well controlled and in line with the group philosophy of conservative liquidity management. Free cash flow for the period year was slightly negative at R0,4 billion but will improve significantly into the second half of the financial year as the working capital position unwinds.

Bidcorp’s strategy of focus on the wholesaling of food and allied products to the eating-out-of-home market through its decentralised and entrepreneurial business model remains fit for purpose despite the severe impacts on the global hospitality industry arising out of the COVID impact of the past two years. Growth will be achieved organically through focusing on the appropriate customer mix between independent and national and maintaining an appropriate range of products; via in-territory bolt-on acquisitions to expand our geographic reach and/or our product ranges; and via strategic acquisitions to enter new markets. There remains little evidence that there has been any shift in consumer behaviour away from the eating-away-from-home market.

Our teams around the world continue to perform exceptionally well, managing the rebounding strong demand despite significant challenges such as staff shortages and supply chain disruptions, currently evident across all our markets. Inflation, arising from wage and utility price increases, as well as food product price increases, presents a trading opportunity which our businesses are managing well. Many of our customers are facing similar challenges which is limiting their ability to grow and presents an opportunity for further investment into value-add product preparation. Further development of our product sourcing capabilities, both local and imported, is allowing the opportunity to further grow our Own Brand product range.

No new market acquisitions in the foodservice space have presented themselves, however, we remain alert to any potential opportunities should they become evident. Several in-country bolt-on opportunities have been concluded, more so in developing economies at this stage, however, several developed economy targets are under consideration. Organic market share gains are being achieved in all markets, evidenced by the achievement of pre-COVID revenues in most businesses despite large segments of the hospitality industry still operating well below pre-pandemic levels.

Our capex investments, principally into strategic distribution facilities employing new technologies in refrigeration, energy efficiency, and distribution optimisation, reflects our intention to invest ahead of the anticipated customer demand in an environmentally and cost-efficient way. We remain very confident in the long-term sustainability of the foodservice industry.

Our ecommerce platform remains an enabler for our businesses and source of competitive advantage designed to facilitate digital customer interaction in a low-cost but high-impact way. Across all our businesses, the uptake of ecommerce continues to accelerate, particularly in the new adopters. Continued development of functionality incorporating best-of-breed practices from within our foodservice footprint is ongoing.

Management remains cautiously optimistic about the trading environment through the evolving COVID pandemic, and are pleased that activity levels appear to be recovering strongly. Despite the inevitable short-term setbacks that are likely to arise, we are looking to the future with confidence about the long-term prospects of both Bidcorp and the foodservice industry.

Australasia was plagued by various COVID-related travel restrictions starting as early as July and continuing throughout the period. Although many of the restrictions had largely eased by December, the impact on the H1 results had already been felt with revenue down 3,9% to R16,0 billion (H1F2020: R16,7 billion). Trading profit of R1,0 billion (H1F2020: R1,1 billion) was down 12,4%. Australia is emerging from the lockdowns on a quicker trajectory than New Zealand.

In Australia, the lockdown of the south-eastern states for much of the second quarter dampened demand, however the other states performed strongly, and overall Australia performed well. Revenue in Q2F2022 was up on the prior year and in line with pre-COVID F2020 sales for the quarter.

Focused management of gross margin and overhead expenses, contributed to the half-year trading results achieved, testament to the teams’ hard work, navigating the supply chain and labour challenges throughout the harsh lockdowns. The challenges of labour shortages, high overtime costs, and wage inflation resulted in increased costs for the period.

Foodservice stood out with a strong festive season delivering an impressive result, however not without its challenges as management had to face severe labour shortages and supply chain challenges, whilst keeping the team motivated. Craven, the Western Australia acquisition concluded in late F2021, has delivered profits, with more potential to come.

Supply Solutions has performed above expectation, with further growth potential as the product offering expands. Cheese processing is performing well with further expansion planned and the new Queensland repacking plant has been established and is ready to deliver in the second half.

A small acquisition of a wet sauces and condiments manufacturer was completed. Niche manufacturing opportunities are actively being pursued, as well as other value-add services, all designed to make our customers’ lives easier.

New Zealand (NZ) had a tough first half with harsh restrictions and lengthy border closures. The half-year results are down on prior year but is by no means indicative of the excellent efforts put in by a strong team.

Labour pressures are acute with staff turnover, labour shortages, and wage inflation driving staff costs up, unemployment levels at an all-time low and showing no signs of respite. Supply chain disruptions and high levels of inflation add to the challenges faced. Managing the cost exposure has been a key management focus, by balancing service levels and pricing. However, through proactive customer engagement, these efforts have delivered good results and gained favour in the market.

Manufacturing businesses increased trading profits, despite reduced volumes, as a result of improved procurement initiatives and efficiency gains following recent capex investments into new equipment. Imports similarly delivered improved profits on reduced volumes through active margin management.

Good results have been delivered in foodservice branches such as Christchurch where recent capex investment has improved operational efficiencies and increased volumes. Prepared Produce continues to focus efforts on right sizing the customers and margins, following the successful strategy implemented in the Meat business.

Continued investment into IT, specifically software development and security maintenance and improvements, remains a key strategic differentiator.

A small repack operation was acquired in Q2F2022, as part of the group’s value-add strategy of being a simple manufacturer and supplier primarily in higher-margin Own Brand products. Customer-engaged service level reviews, investing in people development, and manufacturing and processing efficiencies are strategic imperatives to continued operational improvements.

Pleasingly revenue was up 37,3% to R18,7 billion (H1F2021: R13,6 billion) with trading profit up 97,2% to R583,1 million (H1F2021: R295,7 million). These results were largely driven by a very buoyant first quarter, but self-imposed pre-December restrictions dampened the usual busy festive season.

Significant labour-related challenges drove high staff turnover, increased wages and led to a higher-than-normal reliance on expensive agency staff. Customers, faced with similar challenges, were forced to limit operating hours and reduce service levels, further dampening activity levels. Energy costs have risen to an all-time high, with little sign of easing in the short- to medium-term.

Management is maintaining open communication channels with customers as these challenges are faced together. Maintaining reasonable service levels is key, and a market differentiator, which in turn is creating pressure on operations.

Foodservice achieved sales in excess of pre-COVID levels, and the national accounts team secured significant new business in Q2, including new contracts with national customers. Overall, costs have been well managed, however efficiencies achieved through the past two years of COVID have been offset by the rising labour and energy costs noted above.

Speciality business Caterfood’s results were up on prior year, as well as South Lincs and Cimandis. Elite was slightly behind. Manufacturing delivered pleasing results with Simply Food Solutions down on the prior year, but Yarde Farm achieving great H1 results.

Working capital days are down, distorted by reduced COVID trading and a change in customer mix during pandemic trading. Supply chain challenges and the sudden December lockdowns impacted the inventory levels on hand.

IT investment continues with a number of projects finalised in the period. Improvements are expected to deliver operational efficiencies and amongst other benefits, facilitate “Natasha’s Law” compliance across all operations.

Good progress has been made in the monitoring of greenhouse gas reductions, and Bidfood is now a named supporter of the industry-wide stewardship of water in foodservice operations and supply chain. A three-year health and wellbeing programme has commenced, and a nationwide employee survey has been launched.

Fresh UK, although buoyed by a positive start to F2022, was significantly impacted by the restrictions into the festive season. Despite this, Fresh delivered a reasonable profit in the period, illustrating the resilience of the new business model.

Dedication to high service levels in spite of the challenging environment is evidenced in the Seafood growth. Restaurants and pubs continue to produce reasonable demand, with Contract Catering dampened as the work-from-home directive continued. Overall independent sales are slightly down in the quarter but is set to improve once activity levels fully resume.

Meat is capitalising on the UK-wide buying power opportunity available to minimise costs, while increasing focus on sustainable and ethical sourcing takes hold, removing plastic from packaging and introducing recyclable vacuum bags. Produce continues to improve slowly as the fundamentals of the business are rebuilt.

Closer engagement, facilitated through the administration and support functions now fully migrated to Bidfood, has enabled the Fresh team to benefit in other best practices shared, such as procurement and service delivery.