Bid Corporation Limited (BID.JO) Earnings Call Transcript & Summary

So good morning, good afternoon, good evening, everybody. Welcome to the Bidcorp trading update for the first 4 months of the FY '26 year. It's going to be another beautifully boring presentation. I don't think it will take all that long because we don't have all that much to update you with other than, I guess, to say that we remain on track, and we remain -- we continue to remain delivering on what we said we would. Conditions aren't particularly buoyant out there generally, and we'll talk about each jurisdiction separately, each broad jurisdiction. But generally, it's not wonderfully buoyant out there. So I think under the conditions that we face, our businesses have once again performed very well. And I thank my team out there, 31,000 people around the world who continue to do an absolutely amazing job and continue to deliver in times that aren't necessarily all that great. So we can only think about what's going to happen when much better days do come, and they will in many geographies. And we can already start seeing the green shoots of that in some countries in which we operate. So you've seen the numbers that we've given, and let's not get too caught up in the exact minutia of the numbers. It only has been 4, and I think it's more important to talk about the trends and what we're seeing in the absolute numbers, things do move around a little bit. Tax rates move around a bit, interest finance costs move around a little bit. Seasonality impacts numbers in various different ways. The rand is behaving in different ways. It has weakened, but now it's strengthening. So all of these things have an impact, and I don't think it's worth spending too much time talking about whether the trading profit growth of 8.6% in rand, which is 6.4% in constant currency should have been 7.2% or something else. I think let's just talk about the overall position that we're finding. And what we're seeing is relatively robust revenue growth in constant currency, over 6%, of which just over 1% relates to acquisitions made in the period, maybe 2% relates to food inflation, 2%, 2.5%. So we're still getting maybe 4% volume growth across the portfolio, which we think is a very strong performance in these 4 months when we look at the overall conditions that we faced in the various different jurisdictions. And this basically continues the trend that we saw last year and towards the end of last year, we spoke about it at the end of August, and it's continued. And I'm really proud of what the team have done, what the management team have done. There have been very few missteps. And we're progressing the way we want to progress. Our businesses are in good shape. We can see the potential. Everyone is being edged to perform a little bit more, but they are all performing exceptionally well. And I think our results are world-class. Our margins are ticking up ever so slightly in a tough market. And like I say, when conditions do turn, I think we're well poised for some significant growth, but we don't know when that's going to happen. We're not banking on that happening soon, and we'll continue to do what we do, and our teams execute on that exceptionally well and continue to refine their offering to the market in terms of our overall broad strategy and our continuum of where our businesses need to be. And each business is doing what they need to do to move along that continuum. And like I say, it's boring because it's a little bit of this, it's a little bit of that, it's a little bit of this, which then gives you this stability and this constant growth that we're seeing. So I think if I just quickly look on it on a jurisdictional basis, that's probably the best way to start. Australia, New Zealand, Australasia, which is our -- used to be our largest pillar, which I think is now the second largest after Europe, continues to do it relatively tough. New Zealand, the economy is not great. And in the first 4 months, we're slightly behind last year. What we are seeing very fortunately, in the last 6 weeks, we've seen an improvement. And we're now actually, for the first time in quite a while, we're above where we were a year ago or 2 years ago, both in revenue and in margin. So we're quietly confident that we're over the worst in the New Zealand market that either we're gaining a disproportionate market share or probably -- which is probably true, but more relevant, I think, is the economy is improving. They've had some pretty big interest rate cuts. I think the mood is improving. The consumer is probably feeling a little bit more confident than they were before. House prices have come off, which it's a double-edged sword. Some people argue it's good for the economy. Some people argue it's not so good, but it probably puts more disposable income in our type of customers' hands. So we're very satisfied with our New Zealand performance, still a very, very strong performance in a very average market. We can see many of our competitors are doing it tough. A few of them are closing down. Smaller ones doesn't really make a difference. But it is a tough market that our team have done very, very well to basically tread water. And we're cautiously optimistic that we've rung the bell at the bottom, and we're starting to see improvement. In Australia, which is a big business, we saw about 5% revenue growth. And most of that is real volume growth, very muted food inflation. And we've seen a little bit of profit growth, not to the same degree. And that was a conscious effort to maybe sacrifice some margins to maintain volumes and to grow volumes, which has been successful. But once again, it's a similar story to maybe New Zealand, we are seeing the consumer a little bit stronger. We're seeing demand a little bit stronger, and we're seeing our pricing moving up slightly, and we're talking very, very, very slightly. We're talking bps of a percentage point. But we are seeing the pendulum swing slightly there. So we also on the Australian side are cautiously optimistic of a continued upswing and a growth trajectory that maybe is more reminiscent of we were in previous years. The business once again is in very, very strong shape. Margins are at an all-time high, although only marginally ahead, but still operating at a very, very strong level. And that business, the Australian business continues to innovate in terms of its product offering, its manufacturing, its value add, it's import, it's house brand, as do many of our businesses, which are moving along that continuum very nicely. If we move to the U.K., we've seen about an 8% profit growth there in the first 4 months, which under the circumstances we think is absolutely phenomenal. There's very little positive news that anybody can show you coming out of the U.K. economy. It seems to be a pretty negative depressed scenario that probably isn't going to get better. Summer, the weather wasn't totally great. Maybe we say that every year, I'm not really sure. But the weather certainly didn't give us a huge boost. So whatever we've done, we've had to work very, very hard for. And the team have worked hard and they've worked very, very successfully to show growth and to continue that upward momentum that we saw last year, and it is heading in the right direction. Now I have no doubt that there's already questions there, when will the U.K. margins get to 5% and we can predict those questions that come through. But we'll get there when it gets there. All I can say is we are heading in the right direction, and we're very satisfied with what our team has done in the U.K. in a tough environment. It's really -- it's hard going. It's a slog. It's a week-by-week slog with way more negative news than positive news, which doesn't create for a great environment within which to work. So our team have done exceptionally well to deliver growth yet again in the U.K. business. We onboarded the large new customer at the end of September. So that hasn't really impacted the numbers. And in fact, this has probably negatively impacted the numbers because we've got some start-up costs, some mobilization costs in the numbers where you don't have the revenue in there yet. So we saw some of the benefit come through in October, and that will continue through the rest of the year. It's our second largest customer, our largest single mobilization ever, and it went off relatively smoothly. The customer was happy with the outcome and it seems to be adding value in the way that we thought. And so we're very satisfied with that and have no doubt that in the next few months, we should start to see some benefits of that coming through as well. We also had the cost of a brand-new greenfield depot in Worcester open up in -- I think it was in September that it actually went on a soft live launch and that costs money. We don't separate those out. We don't try to do any fancy accounting with one-off costs and recurring costs that some others do. And it's funny because those one-off recurring costs seem to be one-off and recurring every year. So we acknowledge that they are just a cost of doing business and there absolutely is some cost sitting in the U.K. for that to a degree, offset by an acquisition we made of a relatively small fish business in the seafood fresh business, which performed according to expectations. It's not going to shift the needle, but to contribute and does help us with our national rollout of that seafood offering, that very successful seafood offering. There was a geographic gap that was quite costly for us to service. And this acquisition fills that gap very nicely. Moving over to Europe. Europe remained our star performer in the first 4 months. We're not really sure why. The weather wasn't great. Consumer sentiment isn't great. So there's very little positive that came out of it. I think tourism numbers are strong, but they're not as strong as they were in prior years. But our businesses are all performing well. We saw growth in every jurisdiction, I think other than Spain, where we've invested in some additional capacity, quite significant additional capacity in Barcelona and San Sebastian to facilitate future growth. So that's just -- it's a very small decrease and absolutely part of the growth plan. So we're still seeing growth in every business. Our Italian business, in particular, has performed very well. And we spoke about that a year ago that we were going through some cost in exercise as we rolled out our Southern depot in Rome. That was over a year ago. We've worked through that. That business is now profitable. We've made 2 small acquisitions in Sardinia and down in the south of Italy, which have greatly helped our logistics of moving product around the country. So Italy was quite a big mover in the period and contributed quite significantly. The Polish business continues to outperform and grow ahead of expectation and trend. Some of the big businesses are growing very satisfactorily, but they are big businesses with a very large base like the Czech Slovakian business, Belgium, Holland. So Europe is in a reasonable place. They performed very strongly for a few years. We are heading into a more difficult trading environment now, winter, which then gets improved by Christmas and then you go back into winter. And we are seeing volumes maybe a little bit more challenging than they have been. And when I say that, don't panic. We just finished with summer and what we're seeing is they are all slowing down. It's a usual slowdown, but Europe does get into a more challenged environment for the next few months. The emerging markets cluster, once again, overall looks good. And most businesses are actually doing okay. A very strong performance once again out of South Africa. So that's a consistent story there of double-digit growth, which is phenomenal, mainly coming out of the Bidfood business this period, [indiscernible] coming off a reasonable period last year. There's a little bit of cyclicality in that. But South Africa has performed exceptionally well. In South America, we're definitely seeing some strong growth come out of Brazil and remain enthused about that. Chile is relatively flat. Argentina is small and very challenging, but it's profitable. And I think to have a profitable cash-generative business in a country like Argentina going through the trauma they're going through is actually an incredible achievement. And there's no doubt that if all the pieces fall into place correctly, economically there, we'll be in a very strong position at some point in time. But it is small, but it is interesting, and it's an excellent learning curve. The Middle East overall looks okay. Our UAE business is performing very strongly. Our Saudi business is going through a little bit of pain. We exited a very large customer that was always going to happen. It was just a matter of time. They were always going to go to their own internal distribution. That's happened, and we're working through that and changing the model and adapting accordingly. That's a bit of short-term pain for long-term gain because we'll end up with a much more sustainable balanced business with the correct portfolio of both customers and suppliers. Turkey remains a start-up. It's a frustrating greenfield start-up, profitable at the trading level, but it is a very challenging environment, a high inflation environment, quite a volatile geopolitical environment. But if that -- once again, if that all goes well, we've got the national infrastructure, and I think that business has the potential to perform very well in future years. Moving over to the Asia cluster. Greater China remains very challenging, particularly Mainland China. What we've seen there, just to give some context is we were -- the business was primarily a distributor on an exclusive basis of Western brands. And when these Western brand owners out of Europe or America or Canada or Australia or New Zealand or wherever they might have been, weren't getting growth out of the market anymore on an exclusive basis, they've basically generally gone to a nonexclusive basis and opened the market up to multiple distributors, which is both good and bad. It's good because we have access to many other products and many other suppliers that we didn't have access to before. It's not so good because other people have access to the same product that we had before. But what we found is it's a race to the bottom. And these principles are flooding their new suppliers with inventory who then have to flog it. So our volumes are holding up reasonably okay, but the margins have been cut to shreds because there's a huge surface of product floating around in the market that wholesalers are now having to get rid of and move on and yes, turn into cash. Now hopefully, that's a short-term issue. Hopefully, that resolves itself in 6 months or in a year. But we are seeing a great deal of stress on the margin line in the Chinese business because of it. And we've got competitors who are selling at no margin or at negative margin, and it's a highly complicated, difficult market. The Hong Kong market has been badly hit by typhoons, quite a few of them, which impacts the tourism market. It impacts the eating-out market. And it's also impacted generally by the [ malaise ] in the Chinese economy, but we are holding our own in the Hong Kong business. So Greater China remains a challenge. Malaysia is doing very nicely. We made an acquisition in July. July or August of an ambient groceries distribution business, which is a very complementary range, synergistic to ours, put it together with our frozen and chilled primarily. We're building a large new distribution center in KL, and that will certainly add to the scale of that operation and performing nicely. And Singapore, we are absolutely cycling through the worst, and that business is heading in the right direction and performing according to trend and doing well and heading in the right direction, and we're very satisfied with the outcome of that. I don't think I've left anybody out. That's where we are at the moment. Our businesses are performing well. We've made 4 small acquisitions, one in South Africa, one in Italy, one in the U.K. and one in Malaysia. What we are seeing on the M&A front is probably the deal pipeline is shortening a little bit, is becoming less. And a few transactions we're looking at. Once we got into a little bit more detailed DD, we've decided to walk away from them at this point in time because they seem -- those businesses generally, and it's a trend, seem to have passed peak profitability. And they're trying to sell on historicals, but their current trading isn't reflective of what the historicals look like. So we need a little bit of stabilization there. I think what that's also doing is giving us comfort that we're doing okay in the market compared to others. And we're seeing that in the businesses we look at. There is some strain out there. It certainly doesn't seem to be an easy story, but every business we're looking at is showing this growth. They showed some growth in prior years, and that seems to have come off relatively quickly in many of these businesses and some of them going backward. So we remain patient and we'll carry on assessing them and paying the correct price and doing those deals that are strategic and add something to the overall basket of what we're doing. I guess we also took a strategic decision probably 6 months ago to pull back a little bit on the CapEx spend, and that's starting to come through. A lot of the CapEx that is going in now was committed 2 years ago. And we are seeing a little bit of a pullback, which will be a positive for the next year or two until we see the growth come back in the top line, and then we'll have to speed up the CapEx program again. We're also seeing that the fleet replacement is slowing down, and that was a post-COVID issue where we actually couldn't get the vehicles and they all came in 1 or 2 years, and it's a bit of an issue with MHE as well, with material handling equipment. But that's stabilized. So from a balance sheet point of view, our cash generation looks pretty attractive. Our working capital remains exceptionally well managed and tightly controlled. So we're very happy that all the metrics, all the controllables are being managed as best we can under this -- under the environment we operate in. So I don't want to sound negative because I'm not negative. I think these results are absolutely phenomenal in the context of the reality in which we operate. And it's tough out there. And in many jurisdictions, it's negative. And yet our teams have gone out and have once again delivered. So I'm going to hand over to David. I've spoken about a lot of the things he should be speaking about. If you've got any questions, please send them in through the Q&A process. I'll just go through those questions quickly so that we can answer them. So David, give me a few minutes to read through the questions, and I'll take you on again. Thank you.

Thanks, Bernard. You have covered off quite a lot of stuff. Just really, I guess, to fill in some of the gaps. Bernard spoke about a bit of softness in the gross margins, but just to give everyone comfort that we actually have seen some retraction or decline in the cost of doing business. So trading margins and EBITDA margins are up slightly. So that's all holding pace. There was a question about the tax rate. I mean it's early on. A lot of these tax rates are a little bit of estimates. And we're just saying, well, our belief is that we will still be within the 26% to 27% broad range, but it's a little bit early to give you a forecast to the end of the year. We spoke about the working capital. From my perspective, it is in line with what it was a year ago in terms of days. It's below where we were if we look at our weighted average working capital as a percentage of revenue. So that's good. And as you said, Bernard, it is being well managed. Yes. And I think just the last thing is the free cash flow is significantly -- free cash outflow at this point in time, bearing in mind, we do have quite a big swing in the creditors post year-end. But the investments into capital investments are down a little bit. Obviously, acquisitions are down a little bit. Working capital is -- the outflows are significantly lower than what they were a year ago. So the free cash flow is significantly better than where we were a year ago. And we see that in the daily cash, it's basically tracking almost at the same levels as it was a year ago despite obviously dividends, investments over the last year. So we think that the balance sheet is in particularly good shape and getting stronger. That's all, I guess, to add, Bernard, back to you.

Thanks, David. Okay. I'm going to just go through the Q&A quickly, of which we've answered some of them. Let's just go back to the beginning. Can you give some color on trading margin in Europe and emerging markets? Both of them have trended up very slightly from prior year. And it's not unexpected that they are where they are. I mean there's no monumental change, but there is a slight improvement, and hopefully, that carries on. Would you expect the tax rate to be at the high end of the 26%, 27% range for the full year? As David said, we actually have no idea, and that depends on the mix. So if Australian economy -- Australia and New Zealand's economy start booming again, and they contribute a huge amount to the profitability. And hopefully, that happens, our tax rate is going to be higher because those are 30% jurisdictions. If we see a miracle in Hong Kong and they boom, that's -- I think it's a 16% jurisdiction. So it all goes into the mix. So we really don't know. We can't actually comment on that. There's a question on inflation. Do we see it increasing from 2% in the first 4 months? We really don't know. And once again, it's a basket calculation in our product range across our geographies. And in the U.K., for example, they may be seeing 4% at the moment in our basket. But in other jurisdictions, we're only seeing 1%. So it's a little bit all over the place. We don't really know. Europe food inflation is maybe at 2% or 3%, but our basket is actually lower than that. So it's a little bit confusing. We've always said we're comfortable with the 2%, 3% food inflation. And we think it's going to be in that range, but we actually just don't know. In the short term, group returns have been negatively impacted by heightened investment. Is it correct to think that over the next few years, one should expect to see returns improving as you bed down this new capacity and focus on driving organic growth? The answer to that is yes. And I'll let David answer the next question. Is 20% ROE a fair assumption over the next 3 years?

I think the reality is I'm not sure we've hit 20% over our history. We probably have tracked at sort of 18% to 19%. So my estimations would be that's where we can get back to. But 20%, I'm not sure.

Okay. There's been limited leverage below the trading profit line given increased finance costs. Does the group aim to reduce debt and finance charges to drive faster bottom line growth? I think that 2 independent issues. I mean, for us, the primary driver is trading profit. That's the business. And if we look after the working capital and we look after the capital investments and the acquisitions, the interest is going to look after itself. The funding is in place. There's no new funding. We manage the treasury function very well. So it's not something we actively drive in order to drive the HEPS. The HEPS is just a function of trading profit, less tax and less interest and tax. So hopefully, that answers that. Bidcorp is derated to trade at a relatively low multiple. This history doesn't make sense to think about share buybacks given the strong balance sheet. Absolutely. And if there is share price weakness, it is something that's on the agenda to contemplate. At this point in time, at this share price, it's not necessarily an accretive exercise. But if the share price weakens, it certainly is something that is getting some detailed attention. Given that the deal pipeline is small and given the weak share price, is it not perhaps time to start buying back shares? Done, answered. Sorry, let me just see where I am. One second. Why do you still need to be in China? Do you really believe in the longer-term opportunity and why? Thanks, Nick. That's a very nice question. You could ask that about a lot of countries that we maybe had challenges at various points in time. Somebody might have asked us why we want to be in Poland in 2010 or 2011 when we were making losses. So it is a market we've operated in. China, I'm talking about. We have made money. We continue to be profitable despite lots of other people not being profitable. But at the same time, we need to assess whether every business fits in our portfolio in the long term. And they're not simple questions. It's a much more complicated question and clearly just putting some numbers on a spreadsheet. There are 1.5 billion people in China. So even if we find an addressable market of 100 million, that's still a pretty big market. But you're right, at this point in time, it's not overly attractive. The margins we're getting out of it are tough. The structure of the market is tough, and it is getting a whole lot of attention, but it's a complicated question that there isn't a simple answer to. Are your clients saying anything about the impact of weight loss drugs on their customers? Any changes in trends that you're seeing around? Yes, they're saying they're seeing a lot less fat people coming into their restaurants. They work well. No, realistically not. There was a lot of talk about it a few years ago that was going to put PepsiCo out of business and others. It's probably going to have more of an impact on the fast food industry on the QSR industry and maybe they are really starting to see that there is quite a lot of strain in the fast food industry, which is probably going to get hit a little bit harder than ours. Please also remember that maybe 40% of our business is nondiscretionary in education, health care, government, defense, et cetera, which won't be impacted to the same degree. So no, we're not really seeing any impact from that. Can you comment and elaborate more on the recent trend in Australia where you see margins starting to improve in October? What has changed? Like I said, I think the sentiment has improved a little bit. There were some interest rate cuts in Australia. I think there were 325 bp cuts -- there have been 325 bp cuts, and that's starting to filter through. There was an election in May, and we've got a government for the next 3 years. So people have settled down with that. The cost of living prices has, to some degree, settled and it's probably more focused on energy prices than food prices now. So food is not seen as the major enemy. And what we've always said is we're generally a leading indicator. Our business is a leading indicator because what do people do when they feel a little bit confident, they're going to go out for a meal before they go buy a new TV or before they buy a new car or before they buy a new house or do something big. So we see these trends come up relatively quickly. And we talked central bankers, reserve banks, et cetera, talk to us because we do see lots of customers, and we do see lots of these trends coming forward. And both in Australia and New Zealand, there's no doubt that the last 6 weeks, we've seen a more optimistic customer out there. And it would be nice to say it's us who's doing it and it's market share, et cetera, but that's not realistic in a 6-week period because it's every customer is just a little bit more. So I just think it's getting better, and we're pretty confident about that. Okay. Here's one for you, David. David, how do you see net finance costs for the full year, given your comments on higher funding costs against lower CapEx and improving FCF? Good luck, David.

Thank you, Bernard. Listen, I think we would expect the month-on-month run rate to start improving. My best guess is we're probably going to be flattish, I guess, year-on-year. We do have a lot of fixed debt, which are at market rates. So it's not a case of extra cash generation is going to take out all the debt that we've got in the group. But our expectation is that the run rate should start improving. So best guess is probably a flattish type interest charge for this year.

Okay. We've got no more questions. So like I said, we'll keep it beautifully boring and brief. A big thank you to our teams out there who continue to perform, perform exceptionally well. I think if you look against peers where we can see peers and they report, it's a bit of a paradoxical story. We seem to be in a different universe to many of them. And it's going fine. It's tough. There's no doubt that economies are tough. There's no doubt markets are tough, but our people are tougher, and we remain confident and enthusiastic and there's still levers to pull. And yes, we're hopeful that the trend continues. So hopefully, we can give you a similar update in February when we do our 6-month results. But in the meantime, it's like Christmas is a good Christmas for everybody. The trading is strong and that the world is a little bit of a nicer, happier, stable, more peaceful place. So thank you, everybody, and have a good day. Thank you.