BID CORPORATION LIMITED – Capital Markets Update: Four Months to October 2021 – SENS

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Capital Markets Trading Update: Four Months To October 2021

Bid Corporation Limited
(Incorporated in the Republic of South Africa)
Registration number: 1995/008615/06
Share code: BID
ISIN: ZAE000216537
(“Bidcorp” or “group” or the “company”)

CAPITAL MARKETS TRADING UPDATE: FOUR MONTHS TO OCTOBER 2021

Shareholders are advised that today, Wednesday December 1st 2021, Bidcorp wishes
to update the market on the trading environment across its operations. This is in
accordance with the group’s obligation for continuous disclosure in terms of the JSE
Listings Requirements.

Management comments as follows:

Overall market trends
The operating environment in most countries is challenging, created by the rapid
bounce back that we have experienced in many operations. Although our trading
results have achieved a record level in Q1 F2022, this is not across the board. On the
positive side, our UK, Europe, and the Emerging Markets businesses have had a good
start to the financial year as most segments of their markets have bounced to pre-
COVID levels or above, whilst the negative impact has been from the Australasian
businesses, which traditionally accounts for around one third of the group’s profits.
Australia saw approximately 60% of its population under strict lockdown for almost the
entire first quarter (NSW and VIC) whilst in New Zealand, there has been an even
stricter lockdown in the greater Auckland region since the middle of August.
Fortunately, the vaccination programs have been very successful in both countries,
and we are seeing Australia open again very quickly and New Zealand opening slowly.
Inflation, labour shortages, supply chain disruptions, wage pressures, and other
exogenous factors are now very real and present and are being dealt with by each of
our businesses in the most relevant and appropriate manner for their circumstances.
The consequence of these challenges is impacting our service levels as we match
demand to resource. Ensuring we operate with adequate inventory levels, balancing
supply disruption with demand uncertainty remains challenging. Our teams around the
world have come to expect unpredictability and continue to remain flexible, nimble, and
highly adaptive to the circumstances as they inevitably change, sometimes very
quickly.

In most geographies in which we operate, we have seen a swift recovery in demand in
the discretionary spend sectors. However, activities such as entertainment, sports
events, business travel, conventions and conferences, and the cruise line industry,
continue to be adversely affected. Non-discretionary demand from our institutional
customers, including education, hospitals, aged care, prisons, the military, and
government departments has remained stable subject to the usual seasonality where
applicable.

The work-from-home (WFH) requirement has in many cases been replaced to a
degree with hybrid work requirements, allowing flexibility to employees of major
institutions. Although this has improved activity in large inner capital cities, demand
currently is only tracking at 50% – 60% of pre-COVID levels, primarily impacting the
activity levels of our national customers.
We believe we have gained market share in the independent sector of the market
against competitors who may not have the flexibility, resilience, and financial strength
of Bidcorp. Our independent customer base has managed the reopening of their
markets relatively well through their flexibility and adaptability. We have gained many
new customers, the benefits of which haven’t fully been reflected in trading
performance.

Trading performance for the four months to end October 2021
Our F2022 trading has benefitted positively from a largely unrestricted Northern
Hemisphere summer and negatively from COVID related lockdowns in parts of Asia
and Australasia. Emerging Markets has performed well through the first four months
of the financial year. In terms of HEPS, Q1 F2022 delivered a record performance
compared to pre-COVID comparative periods reflecting an excellent recovery to the
start of the financial year.

Sales progression by division and for the group, from the start of July 2021 to the last
week of November 2021, as shown in the table below, reflects the sales trajectory of
our operations compared to both F2020 (pre-COVID period) and F2021. From March
2021 onwards, comparatives of group and divisional sales to F2021 become less
meaningful as they are COVID impacted.

TABLE: Constant currency sales by division and group per month from July 2021 to
the last week in November 2021 compared to F2020 and F2021:

F2021 – Constant currency revenue
July to November vs F2021 and F2020
EMERGING UNITED
MONTH AUSTRALASIA EUROPE GROUP
MARKETS KINGDOM
% OF F2020
JULY 98,9% 101,4% 99,4% 90,4% 97,8%
AUGUST 81,8% 104,5% 103,9% 99,7% 97,9%
SEPTEMBER 83,6% 102,7% 109,1% 97,9% 97,9%
OCTOBER 91,1% 101,4% 111,2% 96,8% 99,3%
NOVEMBER 98,0% 91,8% 114,4% 98,2% 99,0%
% OF F2021
JULY 108,6% 118,9% 132,9% 126,9% 119,8%
AUGUST 94,9% 117,7% 132,6% 130,0% 116,9%
SEPTEMBER 91,8% 120,6% 120,6% 135,7% 116,7%
OCTOBER 98,0% 151,8% 124,9% 146,1% 129,9%
NOVEMBER 103,9% 179,4% 122,0% 180,8% 142,1%

Please note that monthly percentages should be viewed as a sales trend rather than
absolute numbers.

• Australasia (AUS) – Demand has been negatively impacted by lockdowns at
varying times in Australia from early July 2021 and in New Zealand from mid-
August 2021.

• Europe (EUR) – Sales have held up very well through the Northern
Hemisphere summer both compared to F2020 and F2021 benefitting from both
local staycations and some international tourism.

• United Kingdom (UK) – Wholesale sales (approximately 90% of the total
division) have held up extremely well and are tracking slightly ahead of both
F2020 and F2021. Fresh, a business that was scaled back and restructured at
the commencement of the COVID pandemic, is tracking at approximately 72%
of those sales achieved in F2020.

• Emerging Markets (EM) – Our EM region has performed well, outstripping
sales in both F2020 and F2021. All businesses continue to report strong
growth, notably in Brazil, Chile, Middle East, and Turkey where our current
activity levels are significantly larger than they were pre-COVID.

Currency volatility has negatively impacted our rand-translated results; however this
impact is diminishing with the current rand weakness. Year-to-date currency
movements for the four months to the end of October 2021 are shown below:

F2022 F2021
% change
Average FX rate Average FX rate
AUD : ZAR 10,81 11,98 -9,8%
EUR : ZAR 17,24 19,66 -12,3%
GBP : ZAR 20,21 21,71 -6,9%

Group gross profit percentage for the period to October 2021 has held up well, slightly
above both F2020 and F2019. We are benefitting from our strategic mix of smaller
independent customers, as well as reasonably buoyant trading.

Most businesses are experiencing labour shortages, having gone from using furlough
schemes and a surplus workforce, to no government assistance schemes and a
shortage of suitably skilled personnel. Our decisions previously to access various
government wage assistance schemes in jurisdictions where we were eligible to do so,
in order to retain the ‘muscle’ in the respective business, has proven fortuitous in this
recovery phase.

Our operating costs as a percentage of net revenue (“cost of doing business”) through
to October 2021 has declined to 19,3%, lower than F2021; however elevated
compared to the F2020 level of 18,8%. Constant currency operating expenditure
(opex) increased by 18,4% compared to a constant currency revenue increase of
20,8% for the 4-month period to October 2021. We have achieved some operating
leverage however this is quickly being dissipated by cost-push inflation, driven by the
following trends:

• supply chain disruptions not only restricted to food products but across the supply
of many inputs such as refrigeration equipment, delivery vehicles, and forklifts.
New construction projects are inevitably being delayed and accordingly becoming
more expensive; delivery vehicles lead times have increased from a normal 6-9
months’ lead time to 12-15 months, also at higher costs;
• higher staff costs due to the lack of suitable employees (mainly warehouse workers
and drivers) and aggravated by restrictions on movement of people, as mostly
evident in the UK and Europe, but also in most other markets; and
• rapidly rising energy and fuel costs.
Fortunately for the group, there is relatively neutral pressure on margins as we are
generally able to pass cost increases through although the timing is not always
matched. Bidcorp is a reliable supplier with a broad range of products at competitive
prices in this stronger market.
For the period to October 2021, the group made a pleasing EBITDA (Earnings Before
Interest, Tax, Depreciation and Amortisation) equivalent to 5,7% of net revenue, higher
than for the period to October 2021 of 4,9%, and broadly comparable to EBITDA for
F2020 of 5,9%.

Constant currency non-IFRS 16 finance charges to October 2021 are 13,7% lower
than the period to October 2020, benefitting from lower comparative levels of gearing
and lower interest rates.

Average working capital days to October 2021 are 5 days versus 6 days in F2021. As
expected, there has been an absorption of working capital as markets have
“normalised”. Traditionally Bidcorp absorbs working capital in its first half of the
financial year and generates into the second half. The working capital % of net revenue
(WAR%) has increased from 3,5% in October 2020 to 4,4% in October 2021. Normal
levels of WAR% are between 4,0% and 5,0% of net revenue. Our inventories are in
good condition, customers are honouring their payment terms and our payables terms
are back to normal. We are heading into the traditionally higher trading Christmas
period, for which there is a required inventory buildup.

Free cash flow (excluding dividends but after operating cashflows, working capital and
capex) for the 4-month period to October 2021 amounted to an outflow of R1,7 billion,
the major portion being the absorption of working capital. A dividend payment to
shareholders of R1,3 billion was paid in October 2021.

Liquidity
Our priority over the past 18 months has been to ensure that our operations have had
sufficient liquidity for their respective requirements. Going forward, we believe the
group has sufficient liquidity for the ongoing recovery and are managing our headroom
to improve efficiency and preserve costs. A €300 million 3-year revolving credit facility
(RCF) was finalised in September 2021 to provide further capacity for growth. The
group and its subsidiaries have as at October 31 2021, total headroom available,
including uncommitted facilities and cash and cash equivalents, of R18,1 billion
(£869,5 million).

Debt covenants
The group’s debt covenants sit at 2,5x net debt to EBITDA, and interest cover ratio of
EBITDA to net consolidated finance costs (excluding the effects of IFRS 16) of not less
than 5x. As at October 2021, the group remains well within these ranges.

Update on under-performing businesses
Our businesses in Spain, Germany, and Fresh UK have all delivered profitable results
to October 2021. They are stable and although the financial numbers don’t yet show
their potential levels of profitability, they are well on track to recovery.

Update on Miumi fraud
As regards the fraud in the Miumi division of our Angliss Greater China business as
extensively detailed previously, we remain satisfied that we have fully accounted for
the total financial impact of this fraud as at June 30 2021. Forensic investigations are
ongoing into this complex fraud, and we continue to piece together the evidence that
proves the collusion between our former management, external service providers, and
third parties. Criminal and civil proceedings against various parties in both Hong Kong
and China are ongoing, to which we are bound by confidentiality undertakings and
cannot provide further detail at this stage. We remain hopeful of recoveries in the
future, none of which have been accounted for to date. The new management team in
the Miumi business has scaled back the activities and is now operating at anticipated
levels. We have appointed a new CFO for our Angliss Greater China business who
started in October 2021.

Employees
The health and well-being of our employees continues to be a top priority in the current
difficult operating environment. These conditions are proving very difficult and stressful
for our teams, particularly labour shortages in the context of strong sales demand. We
are very aware of this challenge and are ensuring our people are getting the
appropriate support through this. Our focus remains on making sure our businesses
are sustainable for the long term. We are extremely proud of our teams’ great
achievements in every jurisdiction we operate in, and how well they continue to adapt
to the ever-changing landscape.

Our customer base remains more affected than most, whereby any form of lockdown
and social restrictions inevitably results in hospitality closures. We continue to work
with our partners, including customers and suppliers, in navigating this ongoing crisis
in order to keep moving forward.

Strategic challenges and opportunities
Forecasting remains difficult as it is not possible to confidently predict sustained activity
levels while governments’ responses to current conditions remain unpredictable and
inconsistent. Bidcorp’s focus is to operate in accordance with activity levels anticipated
from country to country. We remain confident that the combination of our teams and
business model are well equipped to deal with each country’s ‘new normal’, whatever
that maybe.

We have not seen evidence of any long-term fundamental shift in consumer behavior
negatively impacting eating-away-from-home where activity levels have recovered and
where confidence has returned. The consumer appears to be in reasonable shape
worldwide and this is benefitting our target market, namely the small to mid-size
independent customer.

Our businesses in the UK and Europe are likely to see the impacts of the emerging
fourth-wave of the pandemic through the Northern Hemisphere winter, however the
impact thereof will be determined by effectiveness of immunisations and the extent of
restrictions imposed. Australasia is starting to emerge from its recent lockdowns, with
Australia on a much quicker recovery trajectory than New Zealand. Asia is performing
well and most Emerging Markets businesses should continue to perform well,
depending on potential further disruptions from new COVID-waves and variants.

Supply chain disruptions related to imported products are impacting those businesses
most reliant thereon, notably Angliss Greater China and the Middle East. For the rest
of our businesses, much of our product range is procured reasonably locally and
although there may be an element of disruption, this is having a relatively minor impact
on these businesses.

Our ecommerce and digital strategy remains a key enabler of competitive advantage,
as our bespoke technology solutions continues to lead innovation in the HORECA
sector. Our digital transformation journey has accelerated through this crisis, and we
are seeing great benefits in customer service, business efficiency, and insights through
data analytics, of which we have the benefit of a multi-jurisdictional view as well as
significant scale. We continue to make substantial progress in changing many aspects
of our business to be innovative and technology driven, which has seen an increase in
customer acquisition, retention, and basket expansion and maximisation metrics.
Disruption is something we embrace, and as such we are continually investing in and
developing our tech and data capability to drive this key component of our growth
strategy forward.
Bidcorp has committed to a target of a 25% reduction in carbon emissions by 2025.
We are a user of energy; we operate warehouses with refrigeration, and we operate
fleets of vehicles delivering our multi-temp product range to our customers. Our
initiatives and investments in low-emission, energy-efficient refrigeration, vehicles, and
particularly in warehousing is significant and ongoing.

No new country acquisitions in the foodservice industry have become evident yet but
we remain on the lookout for any suitable potential transactions. In the absence of
these opportunities, we are seeing more in-country opportunities and are in
discussions exploring tangible targets in Chile, Belgium, the Middle East, Netherlands,
and Argentina. We have concluded a few small in-country acquisitions in Australia,
New Zealand, South Africa, and Brazil. We have the financial firepower to make
acquisitions, even of significant scale, however we will be patient in finding the most
appropriate opportunities.

We are investing in those jurisdictions where activity levels have returned, as well as
reconsidering investments that were delayed by the onset of the pandemic. Capex will
return to pre-COVID levels in the medium-term, to sustain anticipated growth in future.
A significant portion of our committed capex is into new warehousing capacity, where
planning is important as the time delay between conceptualisation and conclusion can
be up to three years.

Comment
Bernard Berson, CEO, commented as follows:

“We are extremely proud of our teams’ great achievements in every
jurisdiction we operate in, and how well they continue to adapt to the
ever-changing landscape.”

The information contained in this announcement has not been reviewed or reported on
by the group’s external auditors.

_____________________________________________________________

Date: December 1st 2021
Johannesburg

Sponsor: The Standard Bank of South Africa Limited

Date: 01-12-2021 09:02:00
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