Bidcorp’s results for the year to June 2021 released on Thursday showed a strong recovery from the havoc of the previous year when travel restrictions and the closure of restaurants worldwide impacted heavily on its operations and the ability to earn revenue.
Headline earnings per share (Heps) increased by some 22% to nearly R8.70 and free cash flow improved from R2.7 billion to R4.7 billion. However, the group is still far from the numbers it produced before the Covid-19 pandemic hit.
Bidcorp, supplying a large range of food to restaurants, airlines, hospitals, hotels and whoever renders catering services in 35 different countries, was hit hard by lockdowns and operating restrictions worldwide during 2020.
Heps dropped from R13.40 in the 2019 financial year to only R6.65 (as restated) in 2020.
Thus, while the recovery in earnings in 2021 is remarkable as operations in several countries continued to face restrictions from time to time, it is still below “normal”.
“Bidcorp has delivered a solid trading performance for the past financial year,” says Bidcorp CEO Bernard Berson.
“This is impressive, considering the devastating economic and social impacts of the continuing Covid-19 pandemic on the hospitality, tourism, and leisure industries globally.”
He adds: “The excellent free cash flow has been driven by good asset management and some asset realisations, while exceptionally nimble trading has underpinned the results that have still been affected by the pandemic.”
“Our primary focus has been on keeping our businesses agile, ensuring their sustainability and preparedness for the bounce back when lockdown restrictions are eased.”
Berson says operating conditions in hospitality markets have fluctuated depending on the extent and severity of government interventions to control the pandemic.
“Demand in the discretionary spend hospitality sectors has reflected pandemic-restrictive measures, recovering robustly when conditions have allowed. However, activity aligned to business travel and catering remain depressed.”
Bidcorp CFO David Cleasby elaborated on this in an interview with Moneyweb: “The food industry is a good industry to be in and the past year showed that the industry recovered quickly when circumstances improved and whenever restrictions on the restaurant and hospitality industry were eased.”
“We looked at what we do and had to take some tough decisions to match costs with the operating environment and the level of activity,” he adds.
Cleasby says some of these cost savings could well turn out to be permanent, but that better activity levels requires higher inputs.
When these improvements will manifest is uncertain.
“There is still a lot of volatility in the world. When normality will return depends on vaccination programmes around the world. We remain optimistic. In terms of earnings, we hope to return to the pre-Covid-19 levels this year, assuming the absence of large disruptions,” notes Cleasby.
It goes without saying that demand for Bidcorp’s catering supplies to hotels and travel-related entities reduced due to lower international travel and tourism. However, most businesses have seen some benefit from ‘staycations’, eat at home and increased suburban and rural activity.
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Bidcorp benefitted from the trend of people ordering from restaurants to eat at home. “We still supply the restaurants,” says Cleasby.
Management also disclosed that non-discretionary demand from its institutional customers – such as hospitals, aged care, prisons, the military and government departments – remained stable during the last year, although it was below pre-Covid levels in certain instances.
A look at the income statement shows that significant improvements in cost of sales and other operating expenses were behind the boost in earnings and cash flow.
In addition, proceeds from the sale of assets gave rise to a profit of R242 million, compared to an impairment of nearly R925 million in the previous financial year.
Cleasby says the impairment in 2020 was as a result of the write-down of goodwill due to the effect of the pandemic.
Bidcorp management notes in their commentary to the results that the trading profit margin improved to 4.2% compared to 3.4% in the previous financial year and that basic earnings per share from continuing operations increased by more than 112% to nearly R9.25.
Bidcorp announced that it uncovered fraud in one of its Hong Kong businesses that has been going on for years.
“In June 2021, Bidcorp uncovered a significant and sophisticated fraud that was being perpetuated in the Miumi division of the Angliss Greater China business. This fraud has been going on since about 2016 and has involved the manipulation of accounts receivables and prepayments and the misappropriation of inventories, the result of which these balances have been progressively overstated over the past six years,” says Berson.
“Notwithstanding the ongoing forensic investigation, the group has taken the prudent view by impairing the full overstated amounts, although we remain confident of some future recoveries from insurance, the perpetrators and other third parties involved,” he says.
The impairment comes to R694 million and losses attributable to the 2021 financial year of some R121 million.
“The tax deductibility of these impairments is uncertain so no provision for any tax relief has been accounted for,” according management’s commentary.
Berson and Cleasby both say they remain optimistic that things will continue to improve.
“Most of our businesses have bounced back strongly as demand rapidly returned when economies opened up, particularly in the Northern Hemisphere,” says Berson.
“Despite the volatility and uncertainty of the trading environment arising from the ongoing Covid pandemic, we remain extremely optimistic about the long-term prospects of both Bidcorp and the foodservice industry,” he adds.
Cleasby says the new financial year started stronger, with the first quarter showing continued improvement. However, uncertainty remains.
“Despite our best efforts, the hospitality industry is not immune to challenges such as staff shortages and supply chain disruptions, currently evident across all our markets,” says Berson, with Cleasby citing the current shortage of heavy-duty truck drivers in the UK as an example.
It seems management’s optimism has rubbed off on Bidcorp’s shareholders.
The share closed nearly 2% up at R322.61 on results day.
This represents a huge recovery from the low of below R200 a year and half ago and not too far off from its all-time high of R352.