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BID CORPORATION LIMITED - COVID-19: Impact On Bidcorp

Release Date: 14/04/2020 09:00
Code(s): BID     PDF:  
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COVID-19: Impact On Bidcorp

Bid Corporation Limited
(Incorporated in the Republic of South Africa)
Registration number: 1995/008615/06
Share code: BID
ISIN: ZAE000216537
(‘Bidcorp’ or ‘the Company’ or ‘Group’)

COVID-19: IMPACT ON BIDCORP

Shareholders are advised Bidcorp today, Tuesday, April 14 2020, wishes to
update the market on the trading environment across its operations, with
particular emphasis on the impacts of the COVID-19 crisis. This is in terms of
the requirement of issuers to assess the impact, if any, that the outbreak may
have on business operations and an issuers disclosure obligation in terms of
the JSE Listings Requirements.

Bidcorp’s UK logistics activities (Bestfood Contract Distribution and PCL),
which were classified as Discontinued Operations, were exited fully at the
beginning of March 2020 as expected and within the terms and conditions as
previously outlined.

Management comments as follows on Bidcorp’s operations around the world:
   •   The safety of our employees is top of mind, securing their health, well-
       being and where possible, maintaining their incomes in order that they
       can emerge from this crisis employed and motivated.
   •   Furthermore, maintaining our relationships with our customers and
       suppliers is a priority as all parties navigate the significant and rapidly
       changing fallout from this crisis.

Current trading performance and overall market conditions

   •   Trading for the 9 months to March 31 2020 (on a like-for-like basis,
       excluding the impact of IFRS 16) has held up reasonably well and
       broadly in line with expectations (measured in home currencies),
       however the full effects of the COVID-19 crisis across many of our
       operations only appeared in the second half of March and the full impact
       will become evident from April onwards.
   •   Being part of the food distribution industry, all our businesses have been
       designated as essential services and have continued operating in all
       geographies. Demand for food products has substantially diminished in
       many discretionary spend sectors, particularly across hotels,
       restaurants, pubs, leisure and travel related segments. Our businesses
       are actively seeking solutions for each market and attempting to replace
       a small portion of this lost revenue in new channels, such as home
       delivery and supply to other retail related channels.
   •   Non-discretionary activities to institutional customers continues,
       including serving customers such as hospitals, aged care, prisons, the
       military and government departments in many of our businesses. We are
       experiencing an uptick in demand generally from these segments but
       expect this to normalise once the consumer panic and stockpiling eases.
       We are sharing the experiences of operations in geographies that are
       ahead of others in the crisis, to pre-empt some of the sales opportunities
       and cost saving measures where possible.
   •   We are very proud to be part of governmental programs in several
       countries to provide food and care packages to the most vulnerable
       members of society via home delivery, during the very difficult and strict
       lockdown period. Our staff who are involved with this are to be
       commended and thanked for their valued and selfless contribution.
   •   It is very difficult to quantify the exact amount of decline we are
       experiencing as different countries are at different stages of the crisis
       and have implemented various strategies to fight the virus, which have
       a differing impact on our end-customer base, and vary from week to
       week. In China, we are seeing a very encouraging and quick bounce
       back in demand, and our volumes are quickly approaching the levels of
       a year ago. In our other major geographies, we are currently
       experiencing a short-term decline of volumes of between 45% to 70%
       relative to weekly volumes achieved during the comparative period in
       2019.

Actions being undertaken by the businesses in the current environment

Workplaces:
   •   Cleanliness and food safety have always been a top priority in our
       businesses, however we have increased compliance throughout our
       work environments, as well as additional hygiene standards and
       requirements such as masks and sanitizers, as each environment and
       jurisdiction recommend and legislates.
   •   Social distancing is implemented in operations with teams working
       separate shifts and between shifts sanitizing and clean down to prevent
       any potential risk of cross contamination.
   •   Working remotely has been encouraged wherever possible.
   •   Discretionary travel and commuting have been discontinued.

Costs:
   •   All our businesses are experiencing reduced levels of activity and we
       must be innovative on how we protect our staff yet manage the cost
       base. In some areas we have reduced working hours to 60% - 80% of
       the normal shift and have requested staff to take annual / unpaid leave
       where possible to assist in managing these costs down and to protect
       jobs wherever possible. We have also unfortunately had to temporarily
       stand down and furlough some employees. There is quite a bit of fluidity
       regarding various government wage assistance schemes in respect of
       eligibility, timing and coverage. We are doing our best to access these in
       all countries where we qualify. The Group is cognisant of the need to
       retain as much human capital capacity as we are able to in order to
       scale-up as quickly as circumstances allow once normality returns in our
       various territories.
   •   The Board and executive management are taking a 30% reduction in
       fees / salary for the fourth quarter of F2020 (and beyond if need be) to
       help support the business. All businesses have also implemented salary
       reduction initiatives to align themselves with the impacts in the general
       workforces.
   •   Wherever possible other variable costs are being downscaled, and the
       lower level of activity assists in this, in areas such as fuel, electricity and
       waste. We own a substantial portion of our properties and fleet, and
       where we don’t, we are actively negotiating property rental reductions as
       well as fleet dehires.

Liquidity:
   •   Our priority is to make sure that in our decentralised environment, our
       operations have sufficient liquidity for their requirements. We believe the
       Group has sufficient liquidity for the foreseeable future in terms of
       headroom and we are working with our banking partners to further
       increase liquidity. The Group has available to it, as at March 31 2020,
       headroom and facilities of R9,6 billion (£425 million) which is in addition
       to our existing net debt. For reference, our total net debt at
       December 31 2019 was R4,9 billion.

Debt covenants:
   •   The Group’s debt covenants sit at 2,5x net debt to EBITDA and interest
       cover ratio of EBITDA to net consolidated finance costs (excluding the
       effects of IFRS16) of not less than 5x. As at December 2019, the Group
       was well within its covenants with its net debt to EBITDA ratio at 0,6x
       and the interest cover ratio at 27x.

Working capital:
   •   To date the working capital cycle has been well-managed by our
       operations across the Group. However, we do expect there to be stress
       in our customer base and detailed work is being undertaken to
       understand the impact of this. In many businesses, we insure a
       proportion of the credit book. We do understand that there will be an
       element of our customer base that may struggle to pay us in agreed
       terms, and we are proactively managing this on a customer by customer
       basis. It must be emphasised that a number of our customers are still
       open and trading, although some at much-reduced rates than before.
   •   Furthermore, work is being undertaken to understand the impact of
       obsolescence on our inventory. Our businesses have already
       undertaken initiatives to reduce exposure to short dated stock. We
       generally carry a broad range of ambient and frozen products all of which
       have longer shelf lives, but all stock is being carefully monitored. There
       is not a major financial loss anticipated at this stage, as inventory usage
       was very actively monitored and actioned on short life product.
   •   We do expect working capital pressures to become more evident once
       the market reopens in particular with regard to customers credit cycle.

Strategic initiatives

   •   Bidcorp’s current strategy is to ensure the sustainability of the
       businesses in the current environment. As jurisdictions around the world
       are being subject to quarantine and lockdown regulations from
       governments, new sales opportunities are being sought such as the
       supply of food into retail environments, direct to retail customer sales via
       ecommerce platforms, growth in restaurant and hotel kitchens where
       they are being used to prepare pre-cooked meals for collection, home
       delivery and many different government feeding initiatives (quarantine
       centers, temporary hospitals and frontline healthcare worker
       accommodation).
   •   Acquisition opportunities in the foodservice space will become evident
       but it is premature to be exploring these in the current environment.
       There is the possibility of market share gains should competitors, without
       the financial strength of Bidcorp, exit the industry.
   •   We have cut back on any discretionary spend in capex and other
       business expenses. We are also scaling back any large capex plans for
       future years until we have greater clarity on the outlook.
   •   Our ecommerce platform has been adapted to cater for retail customers,
       who can either collect or want home delivery. There has been good take-
       up of home deliveries in many countries, but this remains a fringe activity.
       Our ecommerce platform has seen good growth during this period, and
       our development team have implemented some great features and
       enhancements to our offering, which will greatly benefit our digital
       platforms in the future.

Prospects

Management’s expectations for F2020 remain unquantifiable under the current
uncertain and unpredictable environment.
Commenting on today's announcement Bernard Berson, Chief Executive
Officer of Bidcorp, said:
   •   "Bidcorp’s strength lies in its strong and decentralised management
       teams who are best placed to navigate the crisis at the coalface in each
       of its operating jurisdictions. Bidcorp is financially strong and enters this
       period of uncertainty with relatively low levels of gearing and a robust
       business model. Our businesses are designated essential services
       which means we are playing a critical role in servicing those most
       affected by the crisis.”
   •   "I am very proud of the dedication and courage of our people around the
       world during these challenging times as we contemplate the new normal
       future. Tough conditions don’t last forever but tough teams do.”
   •   “We strongly believe in our business model and that our customers and
       demand will bounce back over time. There will be opportunities for us to
       explore in our operating geographies and beyond in the months to come,
       and we have an amazing team of people around the world who are up
       to the challenge and will ensure our market leading position and great
       operational excellence continue as the world recovers from this dark
       chapter.”

Shareholders will be kept informed on an ongoing basis as further information
comes to light.

The information contained in this announcement has not been reviewed or
reported on by the Group’s external auditors.

______________________________________________________________


Date:    April 14 2020
Johannesburg

Sponsor:     The Standard Bank of South Africa Limited

Date: 14-04-2020 09:00:00
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