It was part of the Bidvest group until the unbundling in 2016. Since then it has been operating as an independent food service company in 37 countries across the developed and emerging markets with the more significant part of their profits coming from the developed markets. Last week the company delivered a solid set of results. This is a quality business with a highly experienced management team who follows a robust strategic approach.
Australia and New Zealand
This segment provides for 33percent of the group’s trading profit with the highest trading margin (6.6percent). Although the net sales increased by 4.8percent in Australia, the trading profit increased by only 2.5percent due to some once-off costs which incurred because of metro expansion. The expansion into areas like Melbourne positions Bidcorp for some scope to introduce value-added services in this region. In New Zealand, sales growth of 9.1percent was seen with profit picking up a healthy 9.6percent.
Strategic initiatives create capacity for growth and better productivity which might even out some of the cost pressure Bidcorp is facing in this region.
The UK contributes 23.9percent of the group’s profit. Despite some factors like cost of sales pressure, Brexit and Pound weakness, the UK food service segment still managed to deliver sales growth of 8.1percent and providing a trading profit increase of 15percent.
It is uncommon for our local companies to perform well in the UK, but in Bidcorp’s case it did not come without any pain. They did pay some school fees in the logistics segment, which might be sold later this year (pending regulatory approval). In the fresh food segment, Bidcorp experienced a 30percent decline in profits - although the fresh foods might be relatively unstable, it remains a vital part of the total offering.
The European segment is the more niche part of the group. Europe contributed 27percent towards the group’s profit, up from 21percent previously. This was backed by 17percent growth in revenue and 30percent higher trading profit.
Most of the segments are contributing a solid performance, with just Spain lagging a bit. This was mainly due to some political challenges, despite these challenges the Spaniards remain an “eating out” nation and improvements are expected in Spain.
Emerging markets experienced the most headwinds, from currency volatility and trade wars, all the way to a delay in dairy supply in China, and a three-week truck strike in Brazil. The emerging market segment contributes 17percent towards the group’s profit, only 9percent being in rand. Looking at the balance sheet, there is much headroom for expansion.
Bidcorp’s cash flow remains healthy, with consistent investment in fixed assets and working capital to create the necessary capacity for future growth. It grew from a small South African food service company to the biggest food service provider outside of the US. This is a great success story to tell and provide local investors with the opportunity to invest in a well-managed company that continues to deliver solid returns for shareholders. And that is more than 90percent of Bidcorp’s earnings are hedged against our local currency.
Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. Bidcorp shares are held in her own capacity and on behalf of clients.