The opening paragraph of the presentation accompanying Bidcorp’s interim results for the six months to December is just about word for word the same as the first paragraph of its results when the diversified food supply and catering group announced its annual numbers some six months ago.
In each instance, management told shareholders that their company had performed relatively well in difficult circumstances. “Bidcorp has delivered a commendable result for the half year against a backdrop of the catastrophic economic and social consequences of the ongoing Covid-19 pandemic on the hospitality, tourism and leisure industries globally,” management reported on Tuesday morning.
When Bidcorp announced its annual results for the year to June 2020, it said: “Bidcorp has delivered a resilient performance for the year which has been significantly impacted by the catastrophic economic and social consequences of the Covid-19 pandemic which took hold across every operating geography from late January 2020 onwards.”
However, the figures tell a different story.
The standard format of announcing interim results – comparing the latest figures with the first half of the previous financial year and adding the results of the latest full year for information – allude to the fact that Bidcorp performed actually quite well in the period under review.
Shareholders seemed to have missed this, considering that the share slumped after the results were announced.
In essence, it looks like Bidcorp adapted well to what is increasingly being referred to as the new normal.
Earnings actually rebounded quite nicely compared to the disaster of the six months immediately preceding the latest set of results.
This can be seen clearly when looking at the headline earnings per share (EPS) figures for every six months since Bidcorp listed on the JSE in 2016, when Bidvest formed Bidcorp to house its international operations.
Bidcorp headline EPS per half year since 2016
That earnings “recovered” from the loss of 18 cents in the six months to end June 2020 to a profit of 319 cents in the latest six months bears out management’s contention that Bidcorp performed well, despite the fact that headline EPS was 45% lower than in the period usually used for comparison.
Talking about earnings per share hides the severity of the effect of the global health crisis on Bidcorp.
According to the newest figures, revenues fell by more than R7 billion in the six months to December 2020 compared to the revenue earned in the first six months of the previous year, before operations were hit by the pandemic.
Add to this the loss of revenue in the first six months of the pandemic (from January to end June 2020). The decline in revenue can be calculated from looking at the annual results and the older interim results: Revenue slumped to R52.9 billion – a massive R16 billion below “normal”.
Thus the pandemic arguably cost Bidcorp some R23 billion worth in lost sales to the end of December, and this is increasing every day.
The latest set of results show that revenues fell nearly 11% to R60.8 billion compared to R68.2 billion in the first half of the previous financial year, or by a massive 22% when stripping out the effect of exchange rate changes.
Management provided figures which illustrate the significant impact of the Covid pandemic on hospitality markets. “Particularly hard hit were sales in Europe and the UK in the second quarter, which tracked at approximately 41% of the comparative 2020 level as the second wave took hold in the northern hemisphere,” according to the interim report.
The group could maintain gross profit margins as a result of cost savings of 17% in constant currency terms against the decline in revenue of 22% (in constant currency).
In addition, Bidcorp has also decided to forego its usual interim dividend “in light of the ongoing economic upheaval and uncertainty” arising from the pandemic.
Management reported that Bidcorp started the new financial year relatively well at the beginning of July, saying that most geographies it trades in, particularly those in Europe and UK, emerged from the worst of the pandemic and posted positive results for a few months.
“This, however, started deteriorating into September in the northern hemisphere and worsened into the second quarter with Europe and UK firmly in the grip of the harsh second wave and its consequential government lockdowns.
“Fortunately, Australia, New Zealand and Asia have performed very well, and other emerging markets continued to improve on a month-to-month basis as the period progressed,” says Bidcorp CEO Bernard Berson.
He notes in his commentary to the interim results that the recovery in some of the group’s markets has given management confidence that activity will “bounce back relatively quickly once lockdown restrictions are eased”.
“We do not believe that there will be any major long-term fundamental shifts in consumer behaviour away from eating-out-of-home. However, aspects of the business model are continually being modified to meet changing requirements,” says Berson.
He says overall activity levels for the group recovered to reach around 70% in January, with only the UK and Europe lagging.
“Bidcorp continues to retain faith in its resilient business model, its entrepreneurial teams and its positioning in its markets which have enabled us to navigate the current Covid crisis and will enable us to take advantage of any market opportunities, whether organic or acquisitive,” management says in a statement signed by Berson and CFO David Cleasby. “We remain optimistic about our markets, its prospects and the return to our longer-term growth trajectory.”
Looking at Bidcorp’s profit history, this translates into growth in earnings of around 10% per annum, but all bets are off for the current year.
The share price is currently some 10% off its 12-month high and has been stuck between R240 and R290 for most of the past year, with investors probably waiting for definitive recovery in the business environment before taking a chance.