Bid Corporation Limited (BID) Earnings Call Transcript & Summary

Good morning, good evening, everybody. Welcome to the Bidcorp Capital Market Trading Updates. This is an update. It's not a results announcement, so we'll keep it relatively brief. I'll give you an overview of where we see trading conditions and our look forward. We will give you a full results presentation on Wednesday, the 27th of August for our final results. The format will be exactly as we've done in the past. I'll talk a little bit. I'll hand it over to David to talk a little bit, and then we'll take your Q&A. [Operator Instructions]. So hopefully, you've all read the SENS announcement, which I think summarizes our position. Very pleasingly, we are trading at very similar levels to what we reported at the end of February. We're pleasantly surprised that trading has held up as well as it has held up, bearing in mind that January, February aren't great trading months for us anyway, bearing in mind you've got the Northern Hemisphere winter. And then March and April were a little bit confused because March was at the end of -- Easter was at the end of March last year and Easter was in the middle of April this year. So that messed up our trading comparatives a little bit. But as at the end of April, that all filters through, and it balances out. So overall, we're still tracking more or less a 10% up on a constant currency basis at a trading profit level. The strength of the rand, which I know has weakened and subsequently restrengthened, has taken about 4% off that for the 10 months under review. But we look at the business in constant currency. We assess our businesses in the currencies in which they operate and then convert the numbers to rands as they get converted. So when we talk about the business performance, we talk about it in its local currency, and that's how we measure and understand our businesses. So we're actually very satisfied with our performance to date for the 10 months. Economic conditions generally out there aren't great. There's way more headwind than tailwind. You don't have to look too far to see that there is a little bit of uncertainty in markets. Consumers are still very much under pressure. There's still a cost of living crisis going on in many geographies. You've got food inflation that's come down to 0, is bouncing back a little bit now, but it's only a little bit. You still got cost inflation, which is pushing higher than food inflation. And you've got a general lack of excitement, I guess, in most economies. So in those difficult circumstances, our businesses have continued to perform very, very well. And for that, we thank our management teams out there. And I think these results are testament to our strategic decisions that we took many years ago, which we continue to refine, adapt and adjust accordingly and our team's ability to navigate changing circumstances. The only thing we do know is circumstances in the next few months will be different to what they are now. I can't tell if they're going to get better or worse or by how much, but they will be different. And we can see that there's a lot of uncertainty coming about because of the tariff announcements that come out every day or two and change things and move things and change confidence and move things. But notwithstanding that, we get on with what we do. We manage our business. We've got a direction we're traveling in. And generally, we are very satisfied with where our businesses are tracking. From a top line point of view, we've seen overall sales in about the 6.5% increased level, 6.5% in constant currency. There is some acquisition in that, maybe about 2.5%. So 4%, real growth in our turnover, and we're very satisfied with that. Like I say, the economies generally around the world are not great and we'll unpack that a little bit more. So to get any type of growth, I think, is a good achievement. And certainly, when we look at our peers around the world, they seem to not be reporting generally similar types of growth. So one would have to think that we're doing okay under the circumstances. And we don't ponder what our competitors are doing for too much, we worry about our own business. But it is heartening to understand that we think we are probably doing very well in a market that's pretty ordinary and that will hopefully improve in time to come. At the margin level, we've managed to increase our margins ever so slightly, and that's notwithstanding conscious decisions taken to hold on to market share in some geographies where we're facing some -- making tougher than other trading issues. So gross margins have held up and improved a little bit, and that's also because of our strategy of how we control our margins, house brand, import, product substitution, mechanisms, manufacturing, light manufacturing opportunities. So we'll continue to do that. And I suppose another important factor also is our focus on the correct customer. We've said that for many, many years. We continue to refine the portfolio. That continues to be a work in progress, always will be a work in progress. There's no end date to it because, as I've explained before, good customers become maybe not so good customers, not so good customers can become good customers. And there's a lot of moving parts across the world. I was very humbled the other day to find out we employ over 30,000 people around the world now. So yes, the business certainly has grown, and we provide meaningful improvement to over 30,000 people. And I think we've got a fantastic team around the world that can continually deliver results of this caliber and do what they do so well. It really is easy for me to get up here and talk about this, but it's really them who do the work, who do the hard yards and have delivered this results. So a huge shout out to the teams around the world. They continue to do a great job. I think every single one of our businesses, when you look at it, is heading in the right direction. Some of them, the numbers might not reflected totally yet, but we're certainly doing those things that we need to do to ensure those businesses will be star performers of the future. And I guess, that's the benefit of a portfolio. We're in 33 countries, lots of businesses, different stages of development. Not all of them are going to fire on all cylinders at all times. And that's actually the strength of our business is we do have this diversified portfolio, and some of the work in progress will be the star performers in years to come. So we are very grateful to our teams around the world. And for all of those who are listening, thank you very much. I've always said, our people are our most important asset in the business. I continue to say that. We might invest lots of money in facilities, but without the correct people to ensure we run the business properly, those facilities are just beautiful warehouses. So our people, our team are really the heart of our business, and they are what makes it all work. So like I said, margins -- gross margins have ticked up slightly, but so to has our expense base. Our cost of doing business has gone up slightly. As we've pointed out and continue to point out, cost inflation is running ahead of food inflation. Wage inflation, in particular, is running pretty hot. In many countries, you've got minimum wage increases that need to be passed on. In the U.K., you've got the National Insurance. And generally, cost inflation is running relatively hot at the moment or a little bit hotter than food inflation. But overall, we've managed to increase our margins, our EBITDA margins, our EBIT margins slightly. And coming off a high base, we're exceptionally proud of that. And once again, I think our teams have done a fantastic job of getting us to that position. There's very little negative to talk about. Most our businesses are tracking exactly where we want them to track. You might not be happy with them in terms of where they're tracking on your spreadsheet, but in terms of where we think they are in terms of where they need to get to, we're exceptionally comfortable with almost all of our businesses. They are definitely on the trajectory that we need them to be. And things take a little bit of time. Yes, it's very easy to say snap your fingers and yes, it should be fixed within 3 months. Reality doesn't work that way. These things take as long as they take, and you need to build the base correctly. You need to build a sustainable foundation so that you can grow profitably, sustainably on top of that, and I think we've proven that, that even in tough times like we're facing at the moment or tougher times, the business continues to be resilient and grow and perform well. Just very quickly running around the world, around the pillars of our business. The U.K., we're seeing some very nice improvements in our business. There's two reasons for that. Yes, we made an acquisition that has gone according to expectations, and that's helped us. But there's no doubt that our strategic initiatives that we've spoken about before are starting to bear fruit. And it's a steady [indiscernible] progress. We don't want to make any knee-jerk type of reactions. It's a little bit here. It's a little bit there. Tweaking this, tweaking that. And we're absolutely getting the benefit of that, and we'll continue to get the benefit of that. We won't be hurried in that. We won't do anything quicker than we're comfortable to do it because, like I say, you want to make sure that you've got a long-term proposition, not just a one-off flash in the pan one day. So the U.K. business is under the circumstance of performing very well and is growing its profitability very admirably and was -- and has certainly been a contributor to the fact of us growing our overall profitability by that 10% number. So well done to the U.K. team. I know they've had a tough few years. We certainly aren't out of the woods yet in terms of the U.K. economy. We still don't know what the impact of the NI is going to be. It's way too soon. But notwithstanding the constant barrage of negativity that we hear about the U.K., our business is doing fine. And we'll continue to do fine. We've got some exciting things in the pipeline. There's some good business wins, which will certainly help us along our path. There's some strategic initiatives that we're undertaking. And we think we're on the uptake now -- on the uptick of where we want to get to in that business, but it will take time. I won't be rushing to say, when are you going to get the U.K. to 5% or 6%. We'll get there when we get there. But it's a little bit by a little bit as we go. And we are confident that to do that, to put the correct building blocks in place, the team will get us there in the correct amount of time. Moving over to Europe, it continues to perform very well for us. Probably confounded us a little bit. We don't really understand why there is a strength in Europe, but it seems to be across all our businesses. Sales are about 10% up overall in the European cluster, there is a little bit of acquisition in that. But if you strip that out, there's still some very good organic growth, and that's coming out of most of our markets. So it does seem like the European economy, notwithstanding the fact that many European countries aren't doing great, our European businesses seem to be doing relatively well under the circumstances and are growing nicely. And that goes across the Netherlands, Belgium, our Czech business, Slovakia, Poland, the established businesses are doing well. Italy, our sales growth is strong. Our profitability is pretty flat year-on-year, and that's absolutely predictable and acceptable because, basically, we had to put a big investment into opening new capacity in Rome, which opened in July of last year. And you don't add 20% or 30% capacity to your infrastructure and do it at 0 cost. It comes at a cost. It takes a year or 2 to recoup the additional running costs of that amount of infrastructure and get the full -- not the full, but to start getting operational efficiencies from that investment. That was absolutely something that had to be done. We're very pleased we did it. We are through the worst of it, and we're now starting to cycle through that almost a year later. We're absolutely starting to see the benefit of it, but it has helped their performance back in the year. And we'll probably end the year in Italy relatively flat year-on-year at a profitability level, but the sales was probably in the low double-digit increase type of range. They've done really well on the top line, which we're very comfortable with because we will get the operational leverage out of that in the next year or 2. The Spanish business is tracking well and is according to plan. Still slow, we're still looking for opportunities. They will arise. There will be organic growth. But that business certainly is operating now in -- at acceptable levels, and we see upside. Portugal is an exciting market for us. I've said it before, small business that we do have to invest in. We're going through the investment phase. We're going through a little bit of a restructure in terms of our customer base and moving it away from some -- from its reliance on larger national business to more of a free trade business. We also made quite a sizable for them, relatively small in the overall picture, but for them quite a sizable acquisition in the Algarve area, which is very touristic and seasonal in, I think it was, March or April, which gives us about -- I think it's about a 40% increase in the size of our Portuguese business and it's the first step in us growing our presence there. So the European cluster has done well and performed -- probably exceeded our expectations. On emerging markets, there were a few different components to that. South Africa continues to do very well. Although we are seeing the growth taper off a little bit, but that's probably expected because our cycling through some exceptional performances. We're still getting double-digit growth out of that business at a bottom line. So the South African team continue to shine and perform admirably well in an economy. I think, that hasn't really kicked on and done anything special. So we're very satisfied with where our South African business is. Made a couple of acquisitions in South Africa. We continue to be optimistic about the future of the business in South Africa, and our team continue to deliver. South America, we're absolutely seeing some better prospects coming out of. And our businesses are all growing and doing better, I think through the worst of their economic problems. Middle East, doing nicely. Our UAE business is now at a mature stage, and our Saudi business will get there. Saudi is still far more developmental for us at this stage. There's far more investment that still has to go into it and development of that business. But we are -- yes, we're very satisfied with how we're tracking in the Middle East. Turkey, small business, but absolutely on track. Profitability is sequentially higher than it was last year. We still are in the start-up phase, but we're confident that in a few years' time, we will have a proper sizable business in Turkey. Moving over to Asia. China and Hong Kong remain very challenging. They're probably the only businesses along with Singapore to a degree that are impacted by the tariffs and the tariffs war. But once -- that doesn't really have too much impact on us. If tariffs are put on products from one country, all that happens is we'll switch the product and source it from another country. So if U.S. beef is too expensive in China, the market will move to Australian beef or Irish beef or something else. That's just the nature of our business. We're not beholden to any supply chains out of any countries and particularly not out of America. So Hong Kong, China, yes, we're fighting ferociously to stand still, and I think our teams have done a great job in achieving that. Sales are very hard to come by, very competitive market, probably deflationary. But at a profit level, we're running relatively flat compared to last year, which I think is admirable. Singapore, as we've mentioned before, we went through a management change about 18 months ago. We had to do some changes. We had to take a little bit of pain. We've gone through that. We're cycling through that. We're absolutely on the upside, and things are looking way more positive. The sales numbers that come through on a week-by-week basis are far more positive now. We've rebuilt. We've made the base much stronger. We've got a much more coherent supplier base, a much better structured business. So we are confident about the future there. Malaysia continues to grow very nicely. It's a small business, that I've said before, we've got hopes for, and we think we can build something of reasonable scale. Moving to the last segment, being Australasia, that's probably been the anchor in the results in a positive and a negative way. It's still the largest -- I think it's the largest segment. Europe might be larger now. But both Australia and New Zealand are very sizable businesses, which are holding their own. New Zealand, in particular, is pretty tough. The economy is recessionary. We do have reasonable market share there. So obviously, as things get tougher, we're going to find it pretty tough. But when you look at what that business has achieved over 25 years and the fact that we're only marginally down this year, I think, speaks volumes to the capability of our team there. And we do see it as starting to improve. We do think the worst is over. So from a New Zealand point of view, revenue is relatively flat. Profitability is slightly down. In Australia, I think the market is improving. We are starting to see some green shoots of positivity come through. There was an election a few weeks ago. I think that might have slowed things down a little bit. The economy is pretty lackluster. And we're getting low single-digit growth in our sales, and we're getting a little bit of profitability growth, which is coming off the base that they have come off, I think, is a phenomenal result. So overall, I think the business is in good shape. The performance has probably exceeded our optimistic expectations. So we are very satisfied with where we are. We still have two big months to get through, being May and June. June, in particular, is a very big trading month. You've got the beginning of the year of the Northern European, the Northern Hemisphere summer, which is very important to us. We remain optimistic that the trends should continue. Our sales trends that we see on a weekly basis are actually quite positive. So there's nothing of great consequence that's concerning us at this point in time. Roughly, the weather holds up. What we are finding in some of our businesses is that the weather does play a big role. Those businesses that have a larger restaurant, hotel, leisure type of exposure have a much greater exposure to the weather, which is -- it's a little bit crazy, but that's just the reality of what it is. Nice weather, people got out and spend money. But that is always counterbalanced by the fact that a fair amount of our portfolio is in the nondiscretionary spend, in health care, aged care, education, military, government, et cetera. So that's where we are at the moment. We are busy going through our budgeting process for next year. And like I say, our businesses are in good shape. Our team are very motivated and positive about where the future lies. We can't control the future. We do say that. We don't know what hurdles we're going to have to face. But all we do know is we've got a great team. We are nimble, effective, understand their business and have continued to perform exceptionally well in difficult circumstances. So I know it's a very boring, repetitive update that I give, and I think that's awesome. I think if I can be really boring and offer a 10% increase every time we talk, that's a pretty awesome outcome. And I think that's because of the way we set this business up and the stability we have in our management team and the coherence of our strategy and the execution of that. I'm going to hand over to David, who can take you through some of the financial issues, and then we'll come back and answer the Q&A. So thank you very much.

Thanks, Bernard. I won't cover off the stuff that you've done. So revenues, you've covered off. And as you said, it's continuing into May. So we're happy with that. The gross profit and the costs, I mean, gross profits are up and cost of doing business is up a bit, but we're seeing some improvement at the EBITDA level as well as the trading profit level in terms of percentage. I think as you noted, Q4 is a big period. And certainly, our EBITDA percentage run rate should improve, and it typically does. So I wouldn't take the 5.8% that we've got to the end of April as the run rate for the full year. The tax rate, we anticipate will remain between the 26% and 27%, maybe at the slightly upper level of part of that range. The weighing capital, I think, is being reasonably well managed. We've got some pockets of investment into inventories that we're obviously looking at. And hopefully, we'll manage down certainly into the last few months of the year. Debtors, there is heightened credit risk out there. It comes, obviously, with the economic -- broader economic environment. But as we manage it on a very decentralized basis, on a localized basis, I think the teams are very focused on it. And we haven't seen any real issues, and we are conservatively provided. So I don't anticipate any issues from that perspective. Yes. I think CapEx obviously is a relatively big number. It will be a big number in this period. We're probably tracking around 2.9% of revenue, which is, I guess, a little bit higher than what our -- we think through the cycle run rate is, which is somewhere between 1.5% to 2%. But we do anticipate that, that should moderate going forward. Bernard had spoken about the investments. There have been a few done post December into this new -- or this past 4 months, and those have cost us about ZAR 580-odd million. And if you look at the year-to-date, we've -- other than the 2, Turner Price and the VDS, which are the 2 larger ones, we've done about 10 acquisitions to date at a cost of about ZAR 1.1 billion. I think nothing really other to add. I think the -- our business, the balance sheet is in good shape. We did refinance some debt, which rolled over in March, bilateral loan. And once again, we tapped the USPP market, which has been a good source of capital for us. And the rates both in the 5- and 7-year space, the tenures were somewhere between 3.8% and 4%. So we're still managing to get relatively good rates, obviously, in the current environment where base rates are significantly higher than they have been in the past. Other than that, I don't really have too much to add. So I'll hand back to Bernard.

Thanks, David. Yes, just a couple of further points very quickly. And I notice we don't have too many questions, which is awesome. Obviously, we gave you a lot of information in the announcement that you're happy with. So let's keep it that way. The acquisition pipeline looks relatively robust, particularly on the smaller acquisitions, the in-country bolt-on acquisitions, which really is where I think our DNA and our strength is. We've done -- I think there were about 10 this year, which is higher than normal. The look forward is pretty full, so that will certainly help us going forward. And those acquisitions generally add to the scale of what we do, and we get some reasonable synergy and uptake from them relatively quickly. In terms of larger acquisitions, we continue to look, but they continue to remain elusive. That doesn't mean we won't continue to look, but they're only going to happen when they're going to happen. And we'll only do the deal if it's the right deal for us to do. So we are disciplined. It's not a case of we need M&A to support these numbers. We're very happy with our organic growth and our organic acquisition growth that we can still get out of these businesses across the world. In almost every geography, there's still a lot of opportunity for us to extend the scope of our operations. So we really aren't under any pressure to do anything large. And it will have to be the right deal in order for us to consider that.

Just in terms of the questions, how successful have you been at passing through the increased cost of doing business in the U.K., specifically the NI contributions? Look, so far, it's been okay, but it's only been a month. And yes, we don't want to declare victory yet. And we've got to wait for this to filter through and to see what the competitive landscape looks like, what happens in the market generally. So it's not a -- it's certainly not a train smash. It does seem relatively well balanced. And hence, we are relatively comfortable with where our U.K. business is tracking at the moment. But we're keeping a very close watching eye on that. Given the good weather we made through large parts of Europe and the U.K., is it fair to assume the positive momentum seen in April has continued? Absolutely. Like I said, the sales -- our sales growth has probably accelerated a little bit in the last 6 to 8 weeks. Maybe it's weather dependent, maybe not. But certainly, where we sit today, we're relatively comfortable with where we're at on sales growth. You mentioned that you've done about 10 small bolt-ons that have been completed at a cost of ZAR 1.1 billion. How much of annual sales that can be expected from these acquisitions? And I think the answer to that is, in total, it's about 2% of our total revenue comes from those on an annualized basis. Now the acquisitions don't all happen at the same time, so you've got different periods of time. The large one was Turner Price in the U.K., which I think happened right at the beginning of the year, and that's about GBP 100 million worth of revenue. The other large one is VDS in Belgium, which happened, I think, in September. And they are about GBP 60 million of annualized revenue. So for this year, it will be about 2%, 2.5% of our revenue growth will come out of those acquisitions. From next year, they're in the base. So it becomes far more difficult to cycle through that. Looks like we don't have too many other questions, which is awesome. Thank you very, very much. Let's keep it boring. No, there's no more questions. I think that's excellent. Clearly, we've answered all your questions in our SENS update or in our actual -- in what's actually happening in the business. There is very little to talk about because we're just doing what we do, and our teams around the world have done it awesomely. So well done to everybody. Thank you all. Thanks for your participation. We'll update you on the 27th of August with the full year results, and see you all there. David, is that all okay?

We've got one last question, Bernard.

Okay. Apparently, we've got a last question. Could you elaborate on which initiatives are gaining traction in the U.K. that will boost in profitability? Particularly, are you seeing a change in the free trade mix? Yes, we are seeing a change. It's not monumental, but there absolutely is a change. There's a cost saving initiatives. We have simplified some of our head office structures. We have simplified our approach to the market, in how we approach the market. And we are seeing some slight improvement in the balance towards free trade. It's not huge, and it's very difficult in an environment like that because when you do get success with a national customer, it outweighs from a -- particularly from a revenue point of view. It outweighs what happens on the free trade side and tips the balance back again. So we're also looking at a number of productivity initiatives, technology-led productivity initiatives, cost initiatives. And I think the team in the U.K. are doing a lot and achieving a lot, and that's fantastic. And they certainly are on the right path, and we look forward to that continuing. Okay. That's it. Thank you, everybody. Have a lovely day, and we'll see you all in a few months' time. Thanks, and thanks to my team. Thank you, everybody. Bye.

Thanks. Thanks, everyone.