A quality business with a robust approach
BIDCORP’S main slogan states that it is all about the food, but it is much more than just food. The operating model is based on an entrepreneurial objective to focus on selling a bigger mixture of products to existing customers and attracting new customers. Bidcorp is a food service company whose DNA in the food industry dates back to 1989.
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 33 percent of the group’s trading profit with the highest trading margin (6.6 percent). Although the net sales increased by 4.8 percent in Australia, the trading profit increased by only 2.5 percent 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 9.1 percent was seen with profit picking up a healthy 9.6 percent.
Strategic initiatives create capacity for growth and better productivity which might even out some of the cost pressure Bidcorp is facing in this region.
United Kingdom
The UK contributes 23.9 percent 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 8.1 percent and providing a trading profit increase of 15 percent.
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 30 percent decline in profits – although the fresh foods might be relatively unstable, it remains a vital part of the total offering.
Europe
The European segment is the more niche part of the group. Europe contributed 27 percent towards the group’s profit, up from 21 percent previously. This was backed by 17 percent growth in revenue and 30 percent 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
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 17 percent towards the group’s profit, only 9 percent 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 90 percent 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.