Bid Corporation Limited (BID) Earnings Call Transcript & Summary

And Good morning, everybody from around the world. I'd just like to welcome you to the Bidcorp results for the half year ended 31 December 2021. And I think these results reflect a very strong organization with a very diversified geographic spread, and demonstrate the kind of resilience coming through a particularly difficult time over the past 2 years. I think that management have performed excellently in this period, and I think this goes through the strength of the leadership, the culture, the resilience and the flexibility of the Bidcorp team. I'd specifically like to thank Bernard Berson, Dave Cleasby, and the management team from all over the world who represent the Bidcorp culture and values, and enable Bidcorp to be what it is today. I'd also like to thank our Board, in particular, certain -- the Chairman of our Audit Committee, Helen Wiseman; our Senior Independent Director, Nigel Payne, all the other board members who play a magnificent role in terms of helping guide Bidcorp and ensure that it delivers to all its stakeholders. I'd also like to recognize our Founder, Brian Joffe. He's stepped down from organization number of years ago, but the culture that he created is still very prevalent, and the strength of the organization is arising from that culture. So I'm going to hand you over to Bernard Berson, who's going to give you a rundown on how the organization performed, and in his typical style, I'm sure you'll enjoy that. So Bernard, please take over.

Thank you, Stephen, and Good morning, good evening, good night, everybody, wherever you may be. Thanks for taking the time to come listen to our story for an hour. We're going to follow the same format that we have in the past. I'll run through some of the narrative. David Cleasby will then run through the financial detail, and then we'll have a Q&A session. As before, if you could send your questions through the provided forum on the webinar, and we will then get them and battle to answer them at the end. But please feel free to send the questions whenever you can so that we can collate them and answer as many as possible. So thank you, Stephen, for the kind words. Yes, I'd just like to reiterate my thanks to the fantastic team we have around the world. We operate in 35 countries, on 5 continents, and we have 25,000 people around the world who have performed, in our opinion, exceptionally well, in very, very difficult circumstances, and in very volatile and changing times. And we all know that the world we live in, is a very fluid, dynamic, interesting place, and probably will continue to be so. And I think going forward, the challenges aren't going to be covered all that much. It's going to be the legacy and the inflation issues, the supply chain issues, the geopolitical issues that might arise out of what we see going on now, which all creates uncertainty and difficulty, and opportunity for businesses. So we thrive on those opportunities that we identify. Even in tough times, we challenge ourselves, and we've got a really motivated, enthused, experienced team of people around the world who have gotten this business to where it is today, and I think it's in an exceptionally strong position. And whatever we see and reflected in the numbers, is absolutely testament to the hard work of the team we have around the world. So just -- without going through too many numbers, I'll let David do that, because I always get them wrong. I think the business has performed remarkably well in the 6 months, and what we saw is a bounce back to pre-pandemic levels, relatively quickly. So from July to bear the first week or 2 of November, we were tracking ahead of last year on a consolidated aggregated basis. We're traveling ahead of our peak at that point in time. And then the Omicron strain started appearing and COVID made a reappearance in Europe, and put a very quick dampener on that, and Omicron had an impact, and that dampened November and significantly then put in December, which is a very important trading month with the festive season of Christmas and then New Year celebrations et cetera. So we saw a far more subdued December than the momentum was suggesting. And just looking a little bit forward, we saw that continue through January, although it's progressively got better. And where we're sitting at the moment is, almost every geography is back to that higher level of operation. So almost -- I'm going to say, every operation has performed reasonably well in the 6 months, which is an amazing feat, considering the breadth and depth of our operations around the world. And I don't want to pick on too many, because the achievements are phenomenal. But in this 6-month period, bearing in mind we've had COVID through these full 6 months, so everything has been impacted, and things weren't back to normal, and the lens that we look with backwards, isn't the same lens we're looking at, in the 6 months, that actually happened. So they were a relatively changeable 6 months. There was lots of different moving parts. There was a lot of negativity, still. There was a lot of COVID impact still. But notwithstanding that, if I can just run through a list of countries where in the 6-month period -- I'm not talking in the 4-month period to November, but in the 6-month period to December, we operated at an all-time high in their local currency, an all-time high. And in no particular order, Chile was at an all-time high, Brazil was at an all-time high, South Africa operated at an all-time high, which is absolutely phenomenal, considering the riots that happened in July and the impact that, that had for many, many weeks. I think they're 14% ahead of their all-time high. The Middle East is at an all-time high, and every country in the Middle East is at an all-time high. Turkey is at an all-time high. Our Baltic operations are at an all-time high, notwithstanding the fact that Latvia was in a total lockdown from late October-early November. Singapore, Malaysia, Vietnam, Greater China, were all at all-time highs. Poland was at an all-time high. Italy and Czech Republic were, for all intents and purposes, at an all-time high. There were margins of a percentage point of all-time highs. So, yes, that's just -- and I hope I haven't left anybody out. If I have, forgive me. But that just reflects the strength that we're seeing in the global rebound. And the absences from that list are all very explainable. Australia and New Zealand have been in -- were in lockdown for a substantial portion of the 6-month period. And notwithstanding that, we still generated very healthy profits and returns out of Australia and New Zealand business. Holland, the Netherlands was in lockdown from -- I think it was the middle of November, very, very severe lockdown with all hospitality closed. Belgium felt the impact of that and had limited restrictions. In the U.K., they went to Plan B sometime in December, and [indiscernible] was in a lockdown, was a self-imposed lockdown. But notwithstanding that, we still performed admirably well. So, yes, I can only say that our teams around the world have delivered fantastically in tough times, with lots of challenges, not just COVID, and we'll talk about those a little bit -- but have continued to follow the path that we set ourselves, and continue to refine many years ago. And that, I think, is what's put us in good state. We rebalanced our customer portfolio, and there's no doubt that, that has put us in an exceptionally strong position. We have a broad portfolio of customers. We altered our cost of procurement, and determined how to maximize our procurement operations, through house brand, through importing, through manufacture, through value add, and all those other good components. On the selling side, we refine what we do, and all of this is welded together with technology, and we continue to invest in technology. We continue to utilize technology to leverage what we can in the business. And technology is not going to be revolutionary in what we do. It's absolutely evolutionary. And it's not about magically changing things. At the end of the day, what do we do? We take an order from a customer for product that's in a warehouse, that needs to get physically picked -- could be mechanically picked -- needs to be put on a track, and it needs to be delivered to a customer. So, at the end of the day, the technology is the overlay around that. And we've made huge strides in our digital interaction with customers, in our penetration, in our retention, in the basket size, but more importantly, in the ability that we've harnessed in terms of the analytics. We were a high transactional volume business. We deal with many customers, with many different products, with seasonality, with volatility, with variation. So there's a huge amount of data. And yes, we've harnessed -- we're harnessing the power of this data, using it smartly, using Big Data to enhance our decision-making, which no doubt has contributed to what we do, and this is happening across the world. Obviously, some countries have further advanced down the path than others, but it's a very important enabler, and will continue to be in our business. The other important thing about technology what we are recognizing is, it's not just about what the technology does for our business. It's how that technology integrates with others, and how you can maximize the outcome of what we have to offer by integrating technology with other providers, and those providers are across multiple different aspects of the business, and I don't want to go into too much detail about that. But a lot of the pushing technology now is, how to simplify the journey, how to simplify the customer journey, how to simplify the supplier journey, how to take the friction points out of it, how to become the easy alternative to a meat product in my restaurant. This is the way to do it. It ends up in the restaurant when I want it in the right form, and somehow it ends up in my backup house system, my backup house IT, so that the customer can use that data properly. And it also ends up on the supplier side in the way that then generates supply side efficiencies that pull through to our suppliers. The business has, I think, performed relatively well on every metric that we look at, and obviously, there's room for improvement, and obviously, there's things that can be done better. But when we look at what has been achieved, our working capital is in a very, very strong position. Our cash generation is strong. We're investing in capital expenditure for the future. We continue to take our environmental responsibility relatively very seriously. And a lot of the investment that we make, a lot of the CapEx we make, shouldn't actually be called expansion CapEx or maintenance CapEx anymore. We need to have sustainability CapEx. And we're talking about state-of-the-art refrigeration, and new technology type vehicles, and solar, and all those other things that not only are environmentally important, but are becoming more economically important. There's no doubt, there's a huge amount of cost pressure in the energy side. We've seen that in Europe, in the U.K., and now we're seeing fuel prices across the world escalating pretty rapidly. And we don't know where that's going to end up, but it's a problem that everybody has. But we are making those investments to minimize both the environmental impact, but also there is an economic rationale for doing what we're doing. We've continued to make small bolt-on acquisitions, which is what we think we do very well. There were 7 of them in the 6-month period. There are a few more on the drawing board in multiple geographies. And all of those aren't going to shift the needle in the short term. But when you aggregate them, and you look in the rear view mirror a few years later, you have an issue where suddenly you've got a business where you might not have had a business before. If you look at Chile, before it was a greenfield startup, we made 1 or 2 small acquisitions, and now suddenly, 6, 7, 8 years later, there is a proper business in Chile of size and of scale. So overall, we're relatively happy with the numbers. Like I say, we were tracking at an all-time high beginning of November. Unfortunately, Omicron came and [indiscernible] they say about COVID, it's a gift that keeps on giving. Hopefully, it's stopped giving as much. And we have seen an improvement. January wasn't exactly up to where it should be. It wasn't terrible, but it wasn't back, and February is definitely showing more positive signs. So, I think what I'll quickly do is, run through each of the geographies and just give a little bit of color on the geography. So Australasia up first. Bearing in mind that last year in the 6 months, Australia and New Zealand contributed 50% of the group profitability, this year, that's down to a more reasonable 29%, and that's probably where it should be. They didn't underperform. That's the wrong word to use. The numbers are down on the previous year. I don't think they underperformed at all. I think they had a superb performance in a tough lockdown environment. About 60% of Australia was in lockdown from July through to late October, and that was a tough lockdown with all hospitality closed. And in New Zealand, they went into a total lockdown, and I think it was in the middle of August. And then Auckland, which is about 40% of the population, was in lockdown until the middle of December, and some of the surrounding areas. So it hasn't been a great trading period in terms of availability of the customer base. But notwithstanding that, the businesses have done phenomenally well. To still produce a 6.1% trading margin under the COVID impacted period, I think, is phenomenal. And everything is in place in those businesses. They'll continue their good momentum. I have no doubt this is a blip which is absolutely COVID-based. And in Australia, for example, December, which wasn't COVID impacted, all the restrictions have been lifted, and Omicron only really started in Australia in late December. Our December blew everything out the water. It was just at a record level, which is obviously a great sign for the future. New Zealand is a little bit more subdued. They've had a little bit of a tougher time reopening orders. They're only very slowly opening up in March. It's an economy that is highly dependent on tourism. So they've had a little bit of a tougher time, but I have no doubt, in a few months' time, they'll be back to normal. The U.K. has been very interesting in that bounce back exceptionally strongly, bearing in mind that COVID restrictions only eased -- I think it was the 13th of July. So they missed out a little bit of the summer with some COVID restrictions, but it came back very strongly. But the cost pressures were most probably most acutely felt in the United Kingdom through energy costs, through fuel pricing. And it was probably the U.K., and to a degree, Belgium -- are the countries that we still have the highest level of this national contractor type business, where you don't have the same levers to pull in the same timeframe that you do on a more fragmented smaller customer base. And we will get the price increases, but they're far more rigid in the way that the price increase mechanism works, and you do only get that price increase in a 3-month or a 6-month or 9-month or an annual type of review process. So there is a bit of a lag effect there, and the cost pressures are relatively high in the U.K., compounded by the staff issues. And the staff issues are relevant across many jurisdictions where we're seeing very high wage pressure, wage inflationary pressure, and lack of availability of people willing to work in freezers, willing to work in driving trucks, willing to work as salespeople. That sort of goes across the board. But we're not special. The economy is generally feeling that, and it's like that in many, many economies. But the Bidfood business in the U.K. are definitely scoring some runs. They have got quite a long list of customer wins recently, which we'll see the benefit of coming through. The price increases are filtering through. We continue to invest in infrastructure. We continue to invest in our people. We continue to invest in technology. And yes, our U.K. business will bounce back in a period of time -- it's not going to be in the immediate short term -- to those very high levels. The fresh business is certainly out of ICU from our point of view. It was profitable in the 6 months, notwithstanding the fact that its customer base is far more hospitality driven, a formal restaurant, hotel, and the upper end of -- the mid to upper end of the market with not a lot of institutional base to rely on. So we're happy with what we've achieved there. The Seafood business, the legacy Seafood business in that is performing at record levels. So that's back to where it was. And we've got a little bit of work still to do on the Produce and Meat business, but we're very happy with the progress. This is well done through the team in the U.K.. I think we're tracking very well. Europe was a star performer coming off a horrible base in the previous year. I'm not really sure it's relevant to look at the previous year because it was heavily COVID impacted. But like I say, many geographies are at all-time highs. Our Spanish business is slightly profitable, which is a lot better than being loss-making, and we've established a platform from which we will grow. The Portuguese business is nicely profitable and trying to be much bigger than it is. There's a rollout strategy there. Holland -- the Netherlands was doing exceptionally well until November when they went into total lockdown, and we took the decision -- and it's the correct decision -- to retain all our staff on full pay because we knew that the restrictions would ease, and we need those staff to do the work, because if you don't have staff, you can't do any work, and a new workforce is expensive and inefficient. So we made substantial losses in Holland in November, December, January. There was some type of government support, but that government support covers a few of the costs, and certainly doesn't put you in a level of profitability. It's very welcome. Should not get me wrong, but by no means makes up for the 60% drop in revenue that you witnessed. Belgium has been a little bit slow in getting its HORECA business back at leisure and hospitality. And we've seen reasonably good sales growth, but it's come out of the QSR and log. That's maybe the QSR chain type of business, which is a very low profit contributor, and it's not the core of where we need to be, or a driver of profitability in the business. I've spoken about Czech and Slovakia being at all-time highs. We've started a greenfield operation in Hungary out of -- managed out of the Czech Republic, and that will be good in the future. Poland is performing admirably. We've spoken about that for years, how we were investing ahead of the curve. And guess what, we're full, we're bursting. It seems we maybe invest ahead of the curve again. Great problem to have. Italy operated in the 6-month period, almost at all-time highs. So that momentum is continued. They had a very good tourism season. All things are good. And Germany is a work in progress. It's not burning a hole in our budget, in our pocket. It remains a work in progress, and it remains one of those future opportunities. So you always need those. I don't think you can fire on every cylinder all the time. Emerging markets, fantastic performance. You can see the trading margin of 5.8%, notwithstanding the fact -- and I go back to it, there was still COVID, and there were still all the disruptions. So that's remarkable. South Africa. Full credit to the team being 14% -- I think it's 14% up overall across the 2 businesses, Bidfood and Crown, in a very tough environment. I think it's just phenomenal. And we're not talking out at part of the previous year, we're talking up at an all-time high, and that came off a hard base at an all-time high. So that business was performing, and has continued to perform well. So full credit to the South African team for managing a difficult environment. Those days in July were pretty -- I'm sure all of you in South Africa remember it well, and it certainly did cost us a lot of disruption, a lot of cost, a lot of damage, et cetera. Our Greater China business also has performed phenomenally well, notwithstanding the fact that orders have been 100% closed in Hong Kong and in the PRC. Our businesses have done extraordinarily well and have operated at all-time highs. I mean, their volumes are strong. They've found new channels. Local expenditure has been fine. People are going out. And so we had a very good 6 months. I will add a word of caution that, I think the next period is going to be very, very challenging for Hong Kong in particular, and maybe for China. Hong Kong has a stated policy of 0 COVID cases. They're currently running at 4,000 or 6,000 per day, and they're saying that they've got to get back to 0. So, I'm not sure how that happens other than an exceptionally draconian lockdown, which will be very disastrous for our Hong Kong business. But we know the drill. You're going through lockdown for 2 months, and you come out of it, and it's -- that's a spring that springs back into action again. So, I wouldn't panic too much about it. I am just putting a word of caution out about it, that we are going to have a rough time in Hong Kong, based on the COVID management plan. Greater China are following the 0 strategy, and that seems to be working in China, and our business is holding up fine. City is going through a lockdown for a week, 2 weeks, 3 weeks sort of time, cities of 15 million, 20 million people. And they seem to achieve what they want. And, yes, business deteriorates for a period of time and then bounces back. So we're happy with our presence and our infrastructure and our people, and now it's clearly just an environmental issue that we have to cope with. I spoke about Singapore, Malaysia, Vietnam. They all bounced back very, very well. Vietnam is very small for us. It's breakeven, which is an all-time high, but that is a greenfield startup for us. So, maybe we need to talk about startups and fundraising for startups. But for us to get to a 0 is a wonderful event. South America has done really good work, and I think Brazil is going to be exciting moving forward. We've made a few acquisitions. We're now getting a significant scale. Chile is on a very strong trajectory. Argentina is a little bit challenged. They've got hyperinflation. It's not an easy place, but it's a small investment for us, and we are still comfortable that, that one will work out okay. Middle East is doing very, very well. Expos helped in Dubai, but that's only one component of the business. You've got Saudi, Bahrain, Oman, Jordan. We're looking at a few other countries. So, the Middle East business is certainly scoring some big rounds. Turkey is a great story where we've now got a large food service business that deals primarily -- does have an element of imported product and liquor distribution, and a very large portion of domestic food service distribution to tourism, leisure, hospitality business type market, and it's done phenomenally well in the 6-month period. The trading margins we're seeing out of that are up there with the best of the rest of them. And that was a business that didn't look all that great a few years ago. Turkey is another one of those challenged countries with hyperinflation and uncertain political, economic landscape, but we'll manage that as best we can, and we're very comfortable and excited about what Turkey presents for us. I've spoken in brief terms about the outlook. We are very positive about the future, and we think it's going to bounce back -- continue to bounce back very strongly, and we're in a good position to take as best advantage of that as we can. But there are challenges, and it's not going to be a straight line, and it is going to be a bumpy road, and we don't know what issues are going to get thrown up with us, but we just have to adapt to those accordingly. We do have food inflation. We do have cost inflation. We have wage pressures. We have all of those issues, but so does everybody else. And we believe our greatest ability to manage our way through that as best we can is because of our strategic initiatives that we took many years ago in rebalancing our customer portfolio. I'd far rather have hundreds of thousands of customers of a mice size, of the correct size, rather than having 10 or 100 or 1,000 customers of a very, very large size. We know where the balance of power sits. And it's not a case of being exposed to or anything else, that's the case of being fair. And both sides, getting out of the relationship in a win-win type of way as opposed to a win-lose type of way, which is often what happens when you have a disproportionate relationship. We've got competitors around the world. We've got very good competitors who compete with us in our core sphere. They did exceptionally well, which is fantastic for us, because we make sure that we do it well, and it keeps us in check, and keeps us competitive, and keeps on raising the bar. So it's not like we've got open [indiscernible] to do what we like, we fight for our market share. But I think our guys do it fantastically well around the world. So full credit to them. The leisure market is going to come back again. The international business travel market is going to come back again. The cruise market is coming back. Sporting events are coming back. All these things are going to come back, and they'll be just like good old days, although they are not like it was. We've had a few months which are -- they're correct, but it won't be like it was. It was actually better. The amount of desire for people to spend money out of the home was phenomenal, and we're a beneficiary of that. So I'll let David carry on with the financial detail, and then we'll take Q&A afterwards. So thank you very much.

Thanks, Bernard, and morning to all. I think, firstly, just to cover some of the admin -- some may call it bureaucracy, but the results are prepared in terms of IFRS, and there have been no change to the accounting policies. Just to note that the comparatives have been restated and that really has to do with the Miumi fraud. The impact of that on the comparison is about $0.10. So, not material, but just to note that it has been done. Secondly, I think, the quality of the earnings is good. The -there are very little capital items. I will go through some of those. And there are no incremental COVID costs that we've accounted for in this particular period. Thirdly, just really to -- obviously, as Bernard did thank all the teams around the world, particularly the finance teams who put all this information together. And in the appendices in the presentation, you will see in the contract, a significant amount of additional information. I encourage you to look at that. So just really from a highlights perspective. As Bernard said, we had a record Q1 performance [indiscernible] Q2, as the impacts of Omicron spread. Revenue was up 18% to ZAR 71.6 billion. I think, encouragingly, if one looks at it in a constant currency basis, it was up 26.1%, and basically back at the pre-COVID levels. Gross margins were maintained at pre-COVID levels and certainly above the comparative period. The cost inflation is evident, and we'll talk a little bit about that. Cash flow from operations, positive at ZAR 4.5 billion, and significant above -- that's [indiscernible] working capital above the comparison period. Average working capital days of 5 days was better than the comparative period of 6 days, and better than the whole of F '21, worked out on an average basis, and that's despite the cyclical absorption we've seen in the period. Our receivables provisioning has largely been maintained, and we believe that's a conservative estimate. CapEx momentum. Well, CapEx has gained momentum, and that's obviously ahead of activity levels returning and in anticipation of future growth. Our debt is up at ZAR 2.4 billion, better than it was a year ago in the comparative period, but obviously has increased from June, and I'll talk a little bit about that. Headline earnings up at ZAR 2.2 billion, 75% up. Headline earnings per share, up 75% as well as $6.68. And the Board’s declared an interim dividend of [ ZAR 3 ] per share, which is 2.2x covered, which is in line with basically the group's policy. Then moving on just to the P&L. Revenues and gross margins have normalized, but there is some cost impact from inflation. I think if you look at the revenue -- and I'll refer you back to the table -- we've put it in the appendices. You can see the impact of Australasia in terms of their lockdowns almost through October mostly. I guess, as Bernard said, probably was July through October in Australia. And New Zealand has dealt up with the impacts from mid-August through, I guess, almost until today. Europe, you can see the impact in November and December on the sales from COVID. Emerging markets is well ahead of the pre-COVID levels. And overall, from a group perspective, we're absolutely back at the pre-COVID levels. And as said, the GPs have held up well even compared to the pre-COVID level. So we're above those and well above the comparative period. Operating expenses have been well managed in the circumstances. I think if we look through the expenses, they've increased 22% of a revenue increase of 26%. So they are all well managed, but there is significantly -- significant inflationary pressure. The cost of doing business has decreased to 19.2% in the period versus 19.8% in the comparative period, but is above the pre-COVID levels of 18.6%. And I guess the key drivers here, we have seen gains and efficiencies from actions taken through COVID the last 2 years. But those are being dissipated, I guess, by inflationary pressures, particularly in labor and energy. If one looks through -- and we look through, obviously, the cost -- in absolute cost increases, in absolute terms. Over the last 2 years, they aren't out of line with normal inflation. But I think with the mix of orders increasing and the efficiencies we've gained in other categories, is certainly changing. There's no -- as Bernard said, no material employment assistance other than in the Netherlands, and that largely, just to remind everyone, is not a benefit to the company. It's a flow-through, and in most cases, doesn't make up for the actions we've taken in terms of keeping people employed. So it contributes, but it doesn't cover all the costs. And as I said, no real additional COVID related costs in the period. Interest is down, and that's despite our investment in working capital and higher CapEx. There were a little bit of capital losses of ZAR 42 million pre-tax, and those really relate to mostly impairments of PPE in terms of closures of 2 depots. Our tax rate has normalized at around 25%, as we've guided over many years. That has been an indicated -- the contribution from Australasia last year at 50%, a bit higher to 29% in the comparator. In terms of cash flows, we're seeing a normalization of our cash flow cycle. The big thing here, I guess, is really just to talk about the working capital. It looks a big number in isolation at ZAR 1.8 billion. But I think one needs to look at it in the context of the activity levels of the group. If we look at it from an average working capital days, it's at 5 days versus 6 previously, and 7 in F2021. And looking at it from another perspective in terms of the working capital invested in relation to sales, it's sitting at 3.4% versus 3.1% previously. Last year was at 2.5%, which we recognized as being pretty exceptional, but activity levels haven't returned to what we've seen in the first 6 months. So, all in all, I think working capital, although it seems a large number, it is what we do. We do absorb working capital in the first half and generally generate in the second half, and we don't believe that in this period, it's going to be any different. So it's not bad. Receivables are well managed [indiscernible] days are up slightly versus a year ago. And as I said, our provisioning at 7.9% of the book, we still think it's relatively conservative, and bearing in mind that the world is not necessarily out of the woods as yet, and COVID and the economic impacts thereof may well still manifest in our industry. Payables, we guess, they largely normalized. In some cases, we have taken advantage of securing product because of supply chain issues. And then in terms of paying those a little bit early, we've been able to also access some of the benefits of the discount. Inventory days are up and then in absolute terms of about ZAR 1.1 billion. But that's really, to a certain extent, a conscious decision to stock up, to try and mitigate any supply chain issues in terms of accessing product. And obviously, in an inflationary environment, it gives us some benefit on pricing and when we sell that product. The investing activities is ZAR 1.4 billion in cash outflow versus an inflow last year. Just to remind everyone that we had some, I guess, one-off proceeds of certain leaseback transactions included in the comparative period. So we really are starting to reinvest into expansion in this period, particularly in Australia, the U.K. and Czech Republic, and there's more to come, and that's absolutely in terms of anticipated growth. As I said, net debt was up a little bit to ZAR 2.4 billion, and that, as I explained, it really is driven by the working capital position, which we will unwind going into the second half as the normal CapEx. And just to remind you on what -- we did pay a final dividend in respect of F '21, of ZAR 1.3 billion in October. So cash and cash equivalents of ZAR 7.5 billion, still very healthy. In terms of the financial position, really, just to remind everyone that the balance sheet has grown. Some of that is FX, and the FX rates against sterling and euro are up above 9% and 6%, respectively, compared to June of 2021. So one would expect the overall balance sheet to look a little bit larger. In terms of liquidity management, we do have quite a lot of short term debt. A number of refinancing from a group perspective are underway. Those were long-term facilities, and obviously, I'll write them off, and we are engaged in a number of initiatives to roll those over in the next few months. We did raise a EUR 300 million RCF in September. That's to create headroom for anticipated opportunities as well as obviously to try and improve the efficiency of the overall group funding. We have ample liquidity available from a group perspective at ZAR 18.6 billion. There's no change to risk management. And all the ratios from a solvency and liquidity perspective are very healthy. Net debt to EBITDA of 0.31x, notwithstanding the absorption of working capital that we've seen. And that's versus a very good position of almost 0 debt as of June 2021 of 0.1x. In terms of interest cover, 25.4x. And if you look at that in relation to our covenants, which is anything greater than 5x, we're significantly healthy. And the net debt-to-EBITDA covenant of 2.5x is -- versus the 0.3x, is very healthy as well. I think just going forward, the balance sheet, and certainly the state of the group is in a good position to support the businesses, as we believe normalization is going to come through. I spoke a little bit about the generation of working capital into half 2, and that is our anticipation, will happen. We have a liquidity focus. As I've said, we're running over some short term facilities. I guess, just from our perspective, I mean, funding market conditions are volatile at the moment, not only because of, I guess, overall interest rates are rising worldwide -- and there's a lot of talk about when and how and how many times it will happen -- I mean that's obviously the one driver, but the other driver is obviously political issues in the world that are particularly prevalent at the moment. The labor market, there's an anticipation, will ease, not sure exactly when, but inflation, I think, is here for some time. We're not really sure of the long-term impacts, whether it's transitory or structural. I think some of it is one or the other, but that will have an impact. And as Bernard said, I think the business is well positioned as it can be, to deal with the changes in the cost base, and making sure that we can -- as best as we can, pass those on to the market. Strength of our group position, financial position, we do believe is good, and we'll provide that cushion, and as we've seen over the last 2 years, for whatever unpredictability lies ahead. There will be more CapEx. Some of it is just a continuation of what we're spending. But we certainly believe that through this cycle, our group guidelines of 1.5% to 2% of revenue is what we need to continue to invest to growing the business and take it forward. There's no change to our risk management in terms of naturally hedging our assets and liabilities. Forecasting is difficult as one can anticipate, but we do believe that the markets are getting progressively better, and we are conservatively provisioned, I guess, for a worst-case scenario that potentially could arise. Currency volatility, absolutely, will continue to be something that we're going to have to contend with. But hopefully, we provide enough information in terms of constant currency as to how the group is performing. And we obviously manage our businesses in their home currencies. So what we get in rands is what we get in rands, and there's no control over that. But more importantly, it's how the business are performing in their home currencies. International shareholder base is stable, and then there's obviously some churn in and out from people, but that has been relatively stable for some time. And we're not providing growth projections, but obviously, from the management's perspective, our desire in the near to medium term is obviously to return to pre-COVID earnings levels. And as Bernard outlined, that's notwithstanding the many challenges that we're seeing at the moment. So, from my perspective, it's -- thank you, and back to Bernard for Q&A.

Sorry, it's gone a little bit broad check because I had to put some lights on [indiscernible] So we've got some questions which I'll just run through. Some of them are repetitive. So, don't be offended if I don't answer your question because it might have been in the previous one. And I'll just take these as that came in. Please remind us what percentage of revenue is coming from hospitality at present, and what levels of pre-COVID revenue this sector is running at? I can't give you the -- I don't know what the definition of hospitality is. But our business primarily is a HORECA focused business, not too much QSR, and institutional business left in it. But a lot of it is running at higher than -- is running at higher levels than it was historically. Now some of that also there's inflation. So we haven't unpacked that in terms of volume as opposed to the value, and that's quite a difficult exercise to do. But we've certainly seen that rebound in the leisure market, the hospitality, the travel, the tourism, bounce back exceptionally strongly. And the laggards are certainly the inner city, CBD, office catering environment. Large governmental bodies of bankers and financial institutions need to come back into the city, fill it up for that to happen. A little bit of business travel hasn't really got back to where it should be. Some shipping, some cruise line activity hasn't got back to where it should be. Sporting events haven't got back to where it should be. But many segments are running at 100% and plus. Please talk through gross margin improvement in H1 and the drivers. Is performance sustainable for the full year? That becomes more challenging, obviously, as you go on, because it does become a little bit of weariness from the customer point of view in terms of passing on this inflation. I think the reason that margins have improved slightly is a mix issue, firstly. But it also is the ability to trade in an inflationary environment. I've often said, if you've got inventory, you can sell it. So it's not just about the logistics in the middle of how you move the product, it's actually what you're buying in order to sell so that you can buy more to sell more. And the dynamic of all of that, if you know how you can trade, will result in higher margins. But like I said, it's going to get tougher going forward, because this inflation is a relatively large beast. And it's not particular to us by no means. It's not -- panic about it. But to everybody, there's going to be some inflation fatigue at some point in time. Please can you highlight your key cost pressures and trends at present. Can you keep operating cost growth below revenue growth in the second half? I think I've touched upon that. It becomes more of a challenge. Every cost is a problem, not a problem, but is a challenge. We're seeing cost increases almost everywhere. In the U.K. alone, in the 6 months, just in the food business, in the Fresh business, there was a GBP 5.5 million increase in our energy and fuel cost, and the bulk of that was actually in energy. It's not because we're using more energy, but could need to do with the supply crisis of energy in the U.K. So GBP 5.5 million is a big number in the cost base to pass on, and that's going to carry on for a while. But like I said, I think we are very well positioned to pass those increases on. But the increases are in wages, which is our biggest component. That's in fuel, it's in electricity, it's in equipment supplies, focus -- are more expensive than they used to be. Rentals are going up. Although, when you own your own property portfolio, that's great. But building costs are going up, which means future occupancy costs are going up. So this inflation is a beast that we're all going to have to come to terms with them, and manage as best we can. But I think the structure of our customer base, of our business, puts us in a reasonably -- in a very strong position to manage that as best you can. What growth did you see in house brand revenue in half 1? And what percentage of revenue is currently -- is it a gross margin driver for you? Yes, it is a gross margin driver. We obviously would go down that path. We do go down that path because it is beneficial for us and for our customers, by the way. They're getting a value product and probably at a cheaper price, and for us, it's margin accretive. I don't know what the number is of percentage of house brand. Like I said, it's different penetration levels in different countries. There is a sweet spot as well. You can't push it too high, and the sweet spot differs by country and the product offering. I think David can maybe endeavor to find that number, but I'm not sure what it is. But we have seen growth in House brand. Would you still be comfortable in aiming to be pre-COVID earnings for the full year as a first quarter call, as you mentioned in the last results presentation? Let me just go back. And I did caveat that, and I said the first 4 months were fantastic, and then Omicron came along. And we have lost that momentum in half of November, half of December -- all of December, January. February is trending back. So if you can guarantee me that there won't be any more COVID issues and that things will remain relatively stable, we'd be relatively happy to make that call, but naturally we can't. The Dutch lockdown, for example -- I think that the net cost of that to us was about EUR 5 million. Totally out of the blue. One day people are in restaurants, the next day all of them are closed. So these impacts are big. So all things being equal, we're very comfortable with where the business is and how strong the bounce back is. Could you please elaborate on the U.K. margin? Constant currency revenue was only 5% lower than pre-COVID levels, but margin reduced from 5% to 3%, but now good comment on the cost pressure space in the region. Is this lower margin just a timing effect and that price increases will get the margin close to pre-COVID levels again? Or are there other reasons as well for the lower margin? How confident are you getting back to the 5% level under normal trading conditions? Under normal trading conditions, we're totally confident about getting back to those levels. We had a great few months start in the U.K., and then November, December got very difficult. And once again, the cost base was fixed, because you don't have the ability to pull cost out, because you know that's going to be required going forward again. January in the U.K. was a very good month again -- for January. We did have some price increases that took effect in January, and we certainly saw the benefit of that. Having said that, there are cost pressures, and we can only manage them as well as we care. But all things being equal, in a normal environment, I think we can get to that 5% relatively soon, not this year, hopefully next year. But yes, that's still 5, 6 months away, and who knows what's going to happen when. Cost inflation of Q1 update was indicated to be plateauing. Has the cost pressure at least stopped growing at a rapid pace? You have mentioned a lag in terms of recovering cost inflation and special accounts expected in pricing, on inflation over the second half. But corporate previously indicated, FY '20 as the earnings and profit base that you wanted to target FY '22. With Omicron impact and cost inflation, is there still a possibility to achieve the base of FY '20? I'll answer the last question first. That's actually in FY '19 that we base it on, because FY '20 was a high watermark at December in the 6 months, and then we had COVID starting in January in Wuhan in China, in January of '20. So the FY '20 numbers aren't the base. We have to go back to FY '19 to have a reasonable comparable base. I know it's confusing, but that's what it is. And all things being equal, we think we can get pretty close to it. But like I said, there are so many factors out there that are -- that can derail this. Who knows what's going to happen with this Eastern European issue. Yes, there's just too many unknowns. Is COVID going to make a comeback? Is Hong Kong, China going to go into some type of crisis? We just don't know. But all things being equal, we're still very, very comfortable, which I guess gives us a lot of [indiscernible] assets that things -- our business is operating at above FY '19 levels. That's just these exogenous factors that are out there, that we have very little control over, and we have to manage the impact as best we can. Is the cost -- I'm not sure the cost base -- the cost pressures are moderating. It did look like they were for a period of time. But obviously, you've got the player up now, which is going to push energy and fuel prices up again. And I don't know -- I really don't know what that cycle is going to do. And like I said, all we can do is -- it's the old story. You can't change the hand of cards that you've been dealt. All you can change is the way you play those cards. And I think we're in a reasonably good position to play a decent hand of poker. And in terms of the lag in cost recovery, it's going to be -- I think, it's a constant chase your tail story until inflation moderates, because you do have the 3-month, 6-month, annual review windows. So you're always going to be chasing your tail until you catch it. And then we do catch them, I'm not sure you know what to do with it. But it's not something that just fixes itself once. Is it fair to assume that the misstated market share, given the record high levels, achieved by various geographical locations? If so, who has to be taken this market share from? I actually can't answer that question. There isn't enough data for us to form that opinion. It's a lot of subjectivity with it. We could all beat our chests and so -- we've done a phenomenal job at the expense of our competitors. I actually don't know that. But I think it is fair to say we have taken market share from a multiple steel of competitors. We were in a fortunate position that we could retain our staff to a large degree, that we could continue to invest in the business, that we could invest in inventory to sell through the supply chain disruption. So we are a very reliable supplier in the industry, and I think that's put us in good state. And the here say is, I think, against our peers, we're doing better. To us, we don't really measure against our peers. We measure ourselves against our own set targets. But what we hear from some of our competitors, particularly in the U.K., Europe space is, we're probably doing a whole lot better than they might have done over the last 2 years. And let's just reiterate. We've been profitable throughout. We might not have been at the high levels of anticipated profitability, but we've been profitable. So we're very confident that we have grown market share, but we don't know -- we can't answer that scientifically. Staff numbers are 13% lower versus pre-COVID levels. Is this sustainable given your revenue is close to pre-COVID levels high? Are these efficiencies permanent? I'm not really sure where that 13% has come from. And I'm actually going to just put a question mark on that because I don't know if it's totally correct. And what we are seeing is that the efficiencies that we got out of COVID, we've given away pretty quickly as a result of the cost pressures and the lack of availability of staff in most jurisdictions. So I'm just going to -- I don't know where that number comes from, and I'm not sure it's correct. I don't think we're operating with 13% people. There might be a change in the definition of a full-time employee, and we're not measuring apples with apples, or there's been a shift to a contractor type of model in certain geographies. Do you expect general inflation to have a negative impact on consumer spend eating out habits? Are there any signs of this yet? There's no signs of it yet, because I think people are so fed up. I was going to use a [indiscernible] word, but I thought I'd better not, are so fed up with being stuck at home and not being able to do what they want to do, that it's this wound up spring that people are spending a lot of money. And we're not the -- any beneficiary. You look through the market and hotels and restaurant chains and things like that. There's a lot of money being spent. And in fact, there's capacity constraints that -- I think our sales growth would have actually been better, but a lot of our customers are facing the same pressure, if not worse than we are, that they can't get kitchen staff, they can't get chefs, they can't get cooks, they can't get waiters and waitresses in night duties. So they're not operating at full capacity. Hotels are operating at less than full capacity because they aren't finding cleaners. So there's an element of inefficiency on our customer side for the same reasons, for the same factors that we face. And once that starts unwinding, I think we'll continue to see strong demand. How are your customers doing as government support is withdrawn and reopening taking place? Are they passing on inflation? What percentage of OpEx is fixed? And then there's a question for David. What rates are you currently seeing with respect to the new refinancing near term debt? Well, I wouldn't answer David's question. Customers have been fine, and I think that's reflected in our debtors book, that we're not seeing, by and large, too much stress in our debtors book. Having said that, we're not through this Omicron phase yet, and we don't know what the impact of that is going to be, and we'll know that in the next few months as restrictions ease and things get back to normal. But at this point in time, we're not seeing a great year of stress in the debtors book, which indicates that customers are doing fine, which indicates that they are coping without government assistance and are bouncing back. But like I say, in many geographies, the customers are struggling not with our -- look, they're struggling, not for a lack of government support, but for a lack of staffing, in order to operate at slightly efficient levels and recoup some of the costs of the previous year. So once that labor market reestablishes some type of the equilibrium -- and I don't know when that's going to be. Yes, I think that will be very good for our customer base. But generally, there was lots of talk that this is the end of the restaurant industry, and you're going to see huge amounts of bankruptcies and closures. And there has been a slight uptick. That's right. But that's created a whole lot of opportunity as well for new players. So on average, it's pretty average. It's pretty stable, and the customer base looks good out there, and the opportunities look good. So I'll let David answer the question on the rates.

In reality, we haven't concluded any financing as yet. But I mean, if you look at the 3-year swap rates in euros, they're up about 40 to 50 basis points compared to where they were pre December-ish. So it's an anticipation that the rates will be a little bit higher. Obviously, credit strength of the business played some part, and obviously demand from the marketplace some part, in determining what your final rates are. But I think if one is to predict, I think the [indiscernible] are up, and some of the short term money or long term money -- at very low rates. It's obviously going to be stuck at the system in the medium term and even maybe in the long term.

We've got our last question then which -- first 6 months ago -- how confident are you on getting Spain to its normal margin levels? Apart from COVID restrictions, are there other issues that still need to be sorted out? When will you be in a position to grow these markets through M&A? I'm sure Nigel and Grant are listening to this, and I'll answer on their behalf, and I'll say I'm totally optimistic that look at the --- right now it's healthy. Yes, we just need to get the right pieces in the right place. It's a bit of a jigsaw puzzle. You need the right -- a few things to fall your way. And we are looking at some opportunities, some M&A opportunities. We're going to hasten a little bit slowly on them just to make sure we can put it together right. But there's nothing fundamentally different on the Spanish market compared to the Baltic market or the German market compared to the Italian market. Obviously, there are differences. They're -- fundamentally they're the same. We've got lots of customers out there. We need lots of product. The product is all very similar. The middle distribution component is all very similar with the same challenges. So we believe we can -- we will, at some point in time, build a reasonable business in both of those. But if these thing take time -- I can't put a time on it. It's frustrating, but we'll get there. Revenues at pre-COVID levels in constant -- where are volumes -- There's clearly -- some pricing increases are included in revenue. I said at the beginning, I should not know the answer to that, because we don't have a one-off measurement of what volume actually is. Because sometimes it's measured in kilograms, and sometimes it's measured in cubic meters, and sometimes it's measured in things, and sometimes measured in cartons, and sometimes that's measured in pieces. So you can move the -- I'm not trying to be smart, but you can move the measurement. Our gut feel is that volumes are pretty consistent to where they were before. And there hasn't been huge inflation through the system yet. But that volumes are also -- the volumes have kept sort of in place. That's kept the sales number where it is in constant numbers, bearing in mind those parts of the economy that aren't back yet. So we're still missing a portion of our revenue base. But on the revenue base that we got back, the volumes look strong. In some instances, they're stronger. So I know that wasn't a really great answer. But we do feel that the volumes are at the levels they were before. And we're seeing that through the procurement side. I suppose -- is the right answer to that, that most of our suppliers on a global basis seem to be pretty happy with us that we do seem to be outperforming the market, and are an attractive supplier. I think there might be one more question here, which came through. Okay. So there was a question about employees that it [ plays it ] down 13% from 2019. Thank you, Charlie, for getting me the numbers. They are. But in 2019, we had that discontinued operation, which was the logistics operation in the U.K. that did the PCL milk distribution and some of the KFC and Burger King stuff. So we'll eliminate that and answer the question. But my gut feel is that on, a like-for-like apples-to-apples basis, they're going to be pretty similar. There's -- questions are coming in fast and furious. Your balance sheet is strong. World is recovering. No major M&A. Would you reconsider the dividend policy. David?

It's not our decision. And I think my personal answer is no. I think there's a balance between return to shareholders. There's obviously growth. And so, it's a balance. And we've run the business conservatively for many years, and that's the way we're going to continue to do so.

I guess we're also facing the environment now of increased interest rates, and at some point in time, interest rates aren't going to be nothing. And those businesses that are highly, highly leveraged, are going to be in a world of pain. So I don't think it's the smartest thing in the world to gear up a business at this stage on the anticipation that interest rates are going to remain at 0 forever. Having said that, you're totally correct. We have a very conservative balance sheet, and that has served us well, and has managed -- put us in a position to navigate prices and take advantage of opportunity. And you said there's no M&A. We don't know how long that's going to be for. And that rather has some powder dry that we can do some significant M&A when the opportunity arrives, and that opportunity will arrive at some point in time. There's just no doubt there's lots of moving parts, and there's lots of change happening. So we're comfortable with our overall position. Last question, and then we're calling it a day. What proportion of the revenue base is still missing due to COVID? Is 10%, 20%? Now, once again, that's a country-by-country question. But if you look at the U.K., they're missing quite a big component of the -- city of London is missing, because these -- Canary Wharf is empty, and that goes through the whole city. So obviously, there's a benefit elsewhere in the regional places, but the cities are missing. And you've got these other avenues that are missing as well. Like I've spoken about -- and David has spoken about the cruise ships, sporting stadiums, conventions, conferences, business travel. Yes, we -- if I had to put a number on it, I'd probably say it's about 10%. But there is no science to that whatsoever. I'm just giving you a gut feel based on what we see in various different geographies. But there's still big chunks that are yet to come back to normal. And when they do come back to normal, it will impact some of the others as well. So there's been a benefit to other places. Regional areas have boomed, and -- at the expense of CBDs. And when the CBDs, the cities start coming back to life, maybe that will be at the expense of the region and there'll be a bit of a rebalance. But there definitely is a little bit of a customer spend that's missing. And more importantly, like I've harped on, is the capacity that is missing out of our customers with hotels running at less than 4 occupancy, because they don't have staffing, not because they don't have the demand. So we live in interesting times. Thank you, everybody. I do appreciate your attendance and your interest in us and our story. Like I say, we're very enthused about our positioning where we are. 2 years ago, I was in Capetown up at the Investec offices, and we did this presentation. And we are talking about this thing that was happening in China. This thing called COVID that nobody really knew about. And it was impacting China. And I made the comment that, well, we don't know what's going to happen, but clearly, this thing is going to have some more repercussions for the rest of the world. So a lot happened in 2 years. It hasn't been a great 2 years for everybody. But we think that, as far as we see it, we're through the worst of it. Our business is in great shape. We've got a great team of people who have guided us through this and steered us through this. I haven't seen the team around the world for 2 years, and maybe that's why they've done great. So maybe we should continue that. But it does create challenges. So they've really performed well. I can't stress enough what a good position we are in because of the people we have. We've lost nobody in terms of senior management through this. We've got the same team in place, doing what they do, and doing it exceptionally well. So full credit to them. My gratitude to the team around the world. They do a phenomenal job and certainly make my life a whole lot easier. And so, thank you, everybody. And maybe I'll even see you all in South Africa in August. So thank you.