Bid Corporation Limited (BID) Earnings Call Transcript & Summary

I think we've got everyone online that said they were going to be here. Welcome, everybody. The purpose of this meeting is to engage prior to the AGM on any issues that you have around remuneration. Any other questions we will attempt to answer even though we may not have the chairs of the various committees here. But I'm going to hand over to Nigel Payne, the Chairman of the Remuneration Committee. And you can start -- we can -- Nigel will take over and then each and every one of you will be able to answer the questions that you require answered. So again, thank you very much for attending, and I'm handing over now to Nigel Payne. Nigel?

Thanks, Stephen, and thanks, shareholders, for joining us. You'll see from our REM report that we have been able to take on board some input from shareholders over the last 2 or 3 years. So we really do appreciate the opportunity to engage. And I mean, some of the things in our REM report that you see, we've put in place a policy for minimum shareholdings by executives as requested by shareholders. We had that in place, and we're tracking it, but hadn't ever included it in our policy. So it's there now. Shareholders -- quite a number of shareholders asked us to change the weightings between HEPS and return on capital. So yes, we made that change. There have been a couple of others and the granularity of some of our disclosures. Obviously, some of the things we -- for strategic reasons, we don't want to disclose in advance. So some of it is retrospective reporting. But we really do appreciate the opportunity to engage because it's an opportunity for us to improve and to meet shareholders' needs whilst obviously, at our Board in Remco also focusing on the very specific nature of what Bidcorp is.

Maybe I can start, Pertunia, thanks. You sent a couple of questions. And if I can start on those. Interestingly, this is -- yours is only the second time that a shareholder in the last 3 years or so has asked about ROIC instead of our return on capital metric. And yes, we do understand why shareholders like ROIC, easy for you to calculate, confirm our numbers. So maybe I can just talk through your questions a bit. And then if you've got follow-up questions, yes, please will you pose them. So ROFE is deeply ingrained in Bidcorp's DNA. In fact, all the way back to the days when it was -- when before Bidcorp was spun out of Bidvest and separately listed, there was a phrase across the Bidvest Group, ROFE for Joffe, Brian Joffe, our founder. And one of the advantages of ROFE, the way we calculate ROFE, so it's trading profit before interest and tax and before IFRS 16 lease adjustments. So operating profit divided by the funds employed in that entity, so fixed assets, working capital and intangibles like IT intangible assets. So your direct profit divided by your direct assets. And the advantage of using that model, we've got about 1,700 warehouses around the world. We can apply that model at a warehouse level. We can apply that model at a regional level. We can apply that model at a country level, and then it rolls all the way up to the Bidcorp listed level. So it's deeply ingrained in our DNA. Our RemCo gets PwC, our external auditors to audit the calculations for us. So we're very comfortable about its accuracy. In terms of the capital that we use, we use an annual average, so it rolls by every single month. The reason for the funds employed, the way we do it as opposed to just shareholder capital is shareholder capital is a mix across the whole group, whereas funds employed at a particular warehouse or in a particular country operation, we're agnostic as to whether that's debt or equity or how much debt there is. We're agnostic as to the tax rate in a particular country. We really focus on the direct performance metrics because we can then measure them against best-in-class within our group, best-in-class compared to our competitors. We can identify those that are underperforming and help them improve their performance. And in some cases, we can identify those who appear to be overperforming. And what is overperforming tell us, we need to invest more in this particular warehouse or maybe country operation. One of the realities of Bidcorp is the amount of -- and of course, you know it, you've seen it in our financials. The amount that we keep reinvesting into our facilities for two reasons. One, the ESG reason that we reduce our emissions every time we're able to upgrade the quality of our warehouses or the quality of our distribution fleet. But the other reality is every time we invest in CapEx, it costs us in that operation for the first -- definitely in the first year significantly. And for about the next 2 or 3 years, it's a cost. And then it pays back for 25 to 30 years after that. So underinvesting, we've, in fact, seen it with some of our competitors around the world where we've really taken profitable market share from them. It's because they underinvested. We invested ahead of the curve and customers moved from them to us. So yes, trading profit before interest, tax and IFRS 16 divided by the capital employed there, so fixed assets, working capital and their direct intangibles, and that's why we use it. Yes, I do understand that for shareholder needs, again, ROIC is easier to calculate. If Yes. Then the other reality, and we -- I've had a chat with Dave Cleasby, our Finance Director. We will take the ROIC calculation because you've asked us to. We'll take the conversation to both our Audit Committee and our RemCo in the next round and at least discuss it there as to how can we perhaps provide more information in our REM report that would help shareholders do the comparison between what we use and the ROIC metric. The other reality, yes, we keep investing, and we're -- at Board level and at Audit Committee and RemCo level, one of our big focuses is keep investing for the future. The other reality at shareholder level in terms of our percentage dividend payout, well, we're very consistent dividend payers. So whether we measure ROFE or ROIC or any other capital measure, it's unlikely to change our dividend payout. So I think that was your one question. Your other question was if we did introduce ROIC, how would we weight it? Well, it would be the return on capital metric. So we would -- if we used ROIC perhaps at the level of our two most senior executives, we would then reduce the ROFE weighting a little bit and allocate a bit to ROIC. This isn't the conversation we've yet had at Remco, but we do note your point, and we'll have some discussion about it.

Yes, Bernard, I mean, Nigel, I think it's important to note that ROFE has been a measure that we've used consistently for decades in the organization. And it is the measure that both the Board and executives believe is the appropriate measure for this type of business. And as Nigel said, it can be taken to 1,700 different parts of the organization. We operate multiple facilities in 35 countries. So we believe it is the right measure, and it doesn't distort the ability to work out what is appropriate for leadership all the way through the organization and it is an important measure, and they have quite a high benchmark to actually achieve. It's like 45% before anything kicks in, and it goes -- it's -- you'll know from the REM report exactly what the formula is, but it is a high benchmark. So we do -- we can look at other metrics, but we do believe it is an appropriate metric for our organization. Okay. Nigel?

Yes. Thanks, Stephen. Maybe to emphasize that every divisional Audit Committee meeting or other meeting with management, ROFE is just part of the conversation. Everybody knows exactly what we're talking about and how it applies to them. So yes, Betina, hopefully, you find that explanation useful.

Yes, Nigel. Thank you so much for the breakdown of everything. We really acknowledge the allocation of ROFE on both STI and LTI. I just want to ask, is there any chance where Bidcorp will consider the increase of ROFE weighting like in the future?

So Pertunia, what we did based on shareholder requests over the last couple of years. So post-COVID, we set some very aggressive bounce back profit growth metrics. And we had -- particularly on the LTI, we had profit weighted as 40% and return on capital weighted as 30%. From here forward, we are now matching those as both as 35% each, which we think puts an appropriate emphasis on we want this year's returns, but we also want to make sure that we're using our shareholder capital most appropriately. And that will probably be our metric for some time. And that was a request from a number of our shareholders to go to the 35-35 allocation.

Okay. Maybe we can move on to the fourth question in terms of the nonexecutive director annual fees.

Yes. I'll start on that. But Stephen, as Board Chair, you might want to weigh in as well. So the reality is we've got a very, very high attendance level across our Board and all of our Board committees. The next reality, and I'm just going to use RemCo, which I Chair as an example. We reflect that we have 2 or 3 Remco meetings a year, but the reality is that we engage our RemCo every couple of weeks, the size and diversity and complexity of Bidcorp. So it's not only about meetings. Once you're a member of RemCo or a member of the Board, you're engaged on an ongoing basis and to count it as I mean, certainly on RemCo, I'm going to say well over half of the input of RemCo members doesn't happen in something that we formally call a RemCo meeting. And we have said that if the -- occasionally, people can't attend because perhaps they have a bereavement in the family or they're ill. But we have said if attendance isn't good, well, the consequences are probably going to be you won't be on the Board, let alone, Stephen, as Chair does have the right to say, well, we're going to tweak your REM. So actually, not a lot hinges on it because our attendance is so high. Stephen, I don't know if you want to add to that.

Yes. I think we also do -- we do performance of directors, formal and informal. We have many meetings that are not scheduled meetings to discuss specific issues. And the directors always attend as many as they can. So we would prefer not to sort of say if you don't attend, we cutting your REM because there are many times where they attend and they don't get extra REM for any other kind of meetings. We haven't -- even though we have ability to pay per meeting extra meeting called, we have never done that. And I think what we do, we do demand performance from directors, and we don't think it's culturally right for us to say, well, I'm going to watch every single moment that you spend at Bidcorp in formal meetings, but then I forget about what happens informally. So we would rather be flexible. People do try and attend. As Nigel says, the only time they won't attend is if there is a particular issue that stops them from attending, but they attend many, many informal meetings as well during the year. So I think we get good contribution from our directors, and we really don't believe that we should formula drive directors' remuneration. We do expect a lot from them.

Stephen, if I can add, I scrolled back through our last 3 governance reports and the majority of our Board has a 100% attendance record at Board and committee level. So yes, the model is working, I think, Pertunia.

Okay. One more question from me.

Yes, the financial disclosure, can I take that one as well?

Right.

So yes, Bidcorp being in 35-plus countries, the way the group is structured company or 2 or 3 -- like in South Africa, we've got three different company operations. So financial assistance is to Bidcorp entities. I have noted from your question and when I went back and looked at our governance report and our AGM notice, maybe the point isn't to expand on who we are providing financial assistance to. It's to clarify who we aren't. There's no financial assistance to directors or executive management or related parties or the entities that our shareholders own ultimately cascading down from the listed Bidcorp. I hope that makes sense. There's nothing untoward in here.

So it means this financial assistance is related to the company partners or subsidiaries or...

Any subsidiaries or associates that we...

It's the companies we own.

No individuals or anything of that nature.

But perhaps and we've got...

I think...

Yes. Perhaps we can just put one extra sentence in next year to say -- to clarify your question. Early to say there's nothing to directors or anything funny like that. I can definitely give you that assurance.

Yes, it was much more about the disclosure, how you disclose the resolution. It was much not into detail. So I think we need some sort of like improvement on that area.

Okay. We'll do that. Thanks for that.

You got a question.

It kind of relates to Pertunia's question on the financial assistance. And I think it might be useful if you just have two resolutions, one for S44 and one for S45 because that makes it clear if it's to Bidcorp entities or if it's to individuals. Certainly, our policy is that if you don't have those two resolutions separately, we'll vote against it because of this ambiguity of not understanding if it is actually to individuals or is it to corporate entities.

Okay. Well, we'll take... Thanks. Good advice.

But Theo just to clarify, it's quite clear in the resolution. There is no financial assistance to individuals. So it only relates to related entities, as Stephen indicated.

So I haven't read it yet. So I'm not aware of the exact wording. But I see many of these resolutions and not all of them are clear. And in those instances, if it's one resolution and it isn't clear, then we vote against it. But if it's clear and you can make the distinction that it isn't two individuals, we -- then obviously, we'll vote in favor. But it's easier if you just unbundle the two and many companies do it that way now, and it makes it easier.

Yes, we take your point. Thanks.