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Capital Markets Day – May 16 2018
Management update on general trading conditions
Bid Corporation Limited
(Incorporated in the Republic of South Africa)
Registration number: 1995/008615/06
Share code: BID ISIN ZAE 000216537
(“Bidcorp” or “Company” or “Group”)
Capital Markets Day – May 16 2018
Management update on general trading conditions
Shareholders are advised that the Bidcorp executive management are meeting
with members of the financial community (including shareholders, financial
analysts and the press), today May 16th 2018, for an update on current market
conditions and the trading environment across its international operations.
As announced in February 2018, Bidcorp took the decision to treat the UK
Logistics CD (“CD”) business segment as a discontinued operation. The
following update deals with the continuing and discontinued operations
separately.
Continuing operations:
Management comments as follows:
1. Current trading performance and overall market conditions
- Trading for the third quarter of the 2018 financial year has been positive
(measured in home currencies), largely maintaining the earnings
trajectory achieved in the first 6 months of the 2018 financial year.
Performance achieved by our European businesses remains excellent.
- Currency volatility continues to impact Bidcorp’s rand translated results,
with a negative constant currency impact of approximately 0,4% (to the
end of March 2018) against the basket of currencies in which the Group
trades.
- Trading conditions have seen increasing inflation in certain categories of
products, particularly dairy and some wage cost pressure is evident in a
few economies as unemployment levels fall.
- Fundamentals within the global foodservice industry remain positive and
continued organic growth and bolt-on opportunities remain in all our
operating geographical segments.
- Bidcorp remains focused on growth – organically in current markets, via
in-territory bolt-on acquisitions to expand geographic reach and product
ranges; and via strategic acquisitions as the Group enters new markets.
Australasia
- Bidfood Australia’s performance is in line with expectation as our
major metro expansion gathers pace. The splitting of the Melbourne,
Sydney and Brisbane / Gold Coast branches has created some cost
pain and disruption but the quarterly profitability run rate is now
positive in two of the 3 regions. Our focus with our recently acquired
liquor wholesaler has been to grow into the branches. Supply
Solutions (Imports) launched its cheese processing plant with
immediate success. The fresh and meat businesses are showing
improvement. A bolt-on foodservice business in regional Western
Australia was acquired with effect from March 2018.
- New Zealand continues to perform well despite experiencing volatile
pricing and availability of fresh produce, a tightening labour market
and the costs of increased capacity. All segments of the business
continue to develop profitably. Further capacity expansion is being
planned.
- Further acquisition opportunities remain under consideration in both
countries.
United Kingdom (“UK”)
- Bidfood UK continues to perform well despite a challenging 3rd
quarter with unseasonal weather conditions, increasing stress in the
business community and lower consumer confidence. Sales volumes
continue to improve particularly in the independent and undisciplined
multiple sectors. National account volumes have also grown. Internal
business improvements continue to be implemented, particularly in
the ecommerce arena. Further investment into increased capacity
remains a key focus to cater for anticipated growth. Opportunities in
relation to importing exclusive brands are being explored. Further
acquisitions of niche independent foodservice businesses are under
consideration. The 4th Quarter sales have rebounded strongly.
- Trading in Bidfresh has been a little disappointing in the 3 rd quarter
as a depot move, seafood price volatility and poor cost management
dampened profitability. The Fresh business has achieved a good
national footprint across each of the Meat, Produce and Seafood
segments however further focus is directed to building management
capability in each of the pillars.
Europe
- Overall results from our European businesses have been pleasing.
Strong like-for-like trading profit growth in constant FX, excluding
positive effects of acquisitions, has been achieved. In particular, the
performances of the Netherlands, Belgium, Czech & Slovakia,
Poland and Italy are good.
- Netherlands delivered an improved performance, albeit off a low
base. The business is making progress as the infrastructure
reconfiguration and distribution rationalization projects start to benefit
the overall cost base. Further benefits of range consolidation and IT
simplification are anticipated in the medium term. A small bolt-on
acquisition to complement the geographic footprint was completed in
the 3rd quarter.
- The Belgium performance is pleasing, delivering solid volume growth
in its freetrade and institutional sectors. Depot consolidation has
commenced between Bestfoods and Langens to achieve operational
efficiencies in the infrastructure footprint. Private label opportunities
in the freetrade segment are being explored. The myBidfood
ecommerce platform implementation is underway.
- Czech & Slovakia have continued to perform strongly across all
segments of their business. Robust economic growth is driving low
unemployment and higher wage costs. Higher consumer spending is
boosting demand in the horeca and retail segments. Production
facilities are operating at high capacities to meet demand. Further
infrastructure investment in depots and production facilities is
underway to bolster capacity.
- Good organic growth in Poland has continued driven by focus on the
freetrade sector. New depots in Gda?sk, Lublin and Pozna? have
come on stream, boosting productive capacity. The current product
range is being expanded to incorporate both Asian cuisine and liquor.
Further margin enhancement continues to be achieved.
- DAC Italy has delivered a solid performance in Q3 F2018 off the back
of high business and consumer confidence. D&D, a horeca specialist,
was acquired with effect from January 2018, broadening the
geographic footprint. Global procurement benefits in Italian product
(sourced/co-sourced from/with DAC Italy) are being achieved across
the Group.
- Bidfood Iberia comprises businesses in Spain and Portugal. Political
disturbances in Catalonia have had a dampening effect on Guzman,
particularly in Barcelona however consumer confidence is returning
quickly. The acquisitions of a produce business in Portugal and meat
business in Spain have settled in well and overall performance is in
line with expectations. Significant internal focus is being directed to
integrating our recent acquisitions and the new ERP implementation.
Management remain confident about the potential opportunity in the
Spanish market.
- Our German and Austrian acquisition, made in July 2017, is
strengthening its business foundation including sales structures, IT
platforms, human capital and infrastructure. Germany represents a
very large and developed foodservice opportunity.
- The Baltics, with a focus on Lithuania, is now profitable. A new depot
is under construction in Kaunas.
- Further expansion, both in terms of in-country bolt-on acquisitions
and strategic entry into new geographies in Europe, remains
possible, as we are not represented or underrepresented in many
countries.
Emerging markets
- South Africa has performed credibly in extremely tough operating
conditions. Recent positive political developments have yet to
translate into meaningful economic growth and improved consumer
sentiment. Food inflation had declined markedly since the double-
digit rate in 2017 resulting in a challenging trading environment in the
Bidfood business. The listeriosis outbreak in the 3rd quarter impacted
consumer confidence in chilled processed meats, impacting sales
growth in the Crown Ingredients business. The Chipkins Puratos JV
is performing well and developing new product offerings with the
benefit of the Puratos influence.
- Within Greater China overall, performance has held up well despite
the impacts of dairy market supply dislocation, margin pressures, the
effects of a strong euro and rising operating and logistics costs. Hong
Kong profitability remains hobbled by cost inefficiencies due to
duplicate warehousing costs but management have plans to reduce
this impact. In mainland China, our geographic expansion continues.
Operations faced challenges with dairy supply and pricing however
reliance as a category on lower margin dairy is diminishing overall as
the product range grows. Structural supply chain changes resulted in
some working capital absorption. A small foodservice acquisition has
been made to complement the footprint. As the overall business
grows, management structures are being reviewed.
- Singapore continues to make steady progress as we develop our
foodservice model. Growth has been positive. Bidfood Malaysia,
albeit small, is developing well.
- Further expansion into Asia always remains an opportunity. A joint
venture in Vietnam is being pursued.
- In South America, management continues to focus on building a
strong growth platform in a region with significant potential. Our
Brazilian business has delivered a solid performance in a tough
foodservice market. Investment continues to enable the development
of their broadline product range. Bolt-on opportunities continue to be
explored. Chile is performing to expectation, with a focus on product
range extension with further expansion of its geographic footprint
planned.
- In the Middle East, our business in the UAE has underperformed
affected by lower tourism impacted from the geopolitical challenges,
lower oil prices and new consumer taxes in the region. Our Saudi
operation has performed well, buoyed by structural reforms and less
impacted by regional geopolitical issues. Our investment in Jordan
has commenced.
2. Acquisitive activity
- In Q3 F2018, we have made the following bolt-on acquisitions costing
(exclusive of acquisition costs) in aggregate R318 million:
o We acquired 70% of D&D, a broadline distributor operating in
Italy.
o Bidfood SA acquired 70% of a fresh produce distributor.
o Angliss Greater China acquired 60% of a foodservice
distributor.
o In Australia, we acquired 100% of a broadline distributor in
regional Western Australia.
- YTD F2018, we have spent in aggregate (exclusive of acquisition
costs) R906 million on new territory and bolt-on acquisitions.
- Management remains highly motivated and alert to all acquisition
opportunities that present themselves both in current markets and in
new territories.
Discontinued operation:
Trading performance in CD has been poor as corrective action to downscale
our exposure is being undertaken. Significant restructuring was implemented
following the exit of the KFC contract on February 14th 2018. However, a portion
of the contract was awarded back to CD effective end March. Negotiations for
the sale of the business are progressing positively.
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The full presentation is being webcast and recorded and a playback recording
is available on the Group’s website www.bidcorpgroup.co.za .
The Capital Markets Day presentations and management update has not been
reviewed or reported on by the Company’s independent auditors.
______________________________________________________________
Johannesburg
May 16 2018
Sponsor
The Standard Bank of South Africa Limited
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