Bidcorp’s results for the year through June 2021 released on Thursday showed a strong recovery from the ravages of the previous year when travel restrictions and restaurant closures around the world severely affected its operations and ability to generate revenue.
Overall earnings per share (Heps) increased by 22% to almost R8.70 and free cash flow improved from R2.7 billion to R4.7 billion. However, the group is still far from the figures it produced before the Covid-19 pandemic.
Bidcorp, which supplies a wide range of food to restaurants, airlines, hospitals, hotels and those who provide catering services in 35 different countries, was hit hard by closures and operational restrictions around the world during 2020.
Heps fell from R13.40 in fiscal 2019 to just R6.65 (updated) in 2020.
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So while the profit recovery in 2021 is remarkable, as operations in various countries continued to face restrictions from time to time, it is still below “normal”.
“Bidcorp has had a strong business performance over the last financial year,” says Bidcorp CEO Bernard Berson.
“This is impressive, considering the devastating economic and social impacts of the ongoing Covid-19 pandemic on the hospitality, tourism and leisure industries globally.”
It adds: “Excellent free cash flow has been driven by good asset management and some asset realizations, while exceptionally nimble trading has underpinned results that have still been affected by the pandemic.”
“Our primary focus has been to keep our businesses agile, ensuring their sustainability and readiness to recover when lockdown restrictions are eased.”
Berson says operating conditions in hotel markets have fluctuated depending on the scope and severity of government interventions to control the pandemic.
“Demand in the discretionary spending hospitality sectors has reflected restrictive measures of the pandemic, recovering strongly when conditions have allowed it. However, activity related to business travel and catering remains depressed. ”
Bidcorp CFO David Cleasby explained this in an interview with Moneyweb: “The food industry is a good industry to be in and last year showed that the industry recovered quickly when circumstances improved and whenever conditions eased. restrictions in the restaurant and hospitality industry ”.
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“We looked at what we do and had to make some tough decisions to match costs with the operating environment and the level of activity,” he adds.
Cleasby says that some of these cost savings could become permanent, but that better levels of activity require more inputs.
It is not known when these improvements will manifest.
“There is still a lot of volatility in the world. The return to normalcy depends on vaccination programs around the world. We remain optimistic. In terms of earnings, we expect to return to pre-Covid-19 levels this year, assuming the absence of major disruptions, ”Cleasby notes.
It goes without saying that Bidcorp’s demand for catering supplies for hotels and travel-related entities declined due to the reduction in international travel and tourism. However, most businesses have benefited from “holidays at home”, food at home, and increased rural and suburban activity.
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Bidcorp benefited from the tendency for people to ask restaurants to eat at home. “We continue to supply restaurants,” says Cleasby.
Management also revealed that nondiscretionary demand from its institutional clients, such as hospitals, elderly care, prisons, the military, and government departments, remained stable over the past year, although it was below pre-Covid levels in certain cases.
A look at the income statement shows that significant improvements in cost of sales and other operating expenses were behind the increase in earnings and cash flow.
Furthermore, the proceeds from the sale of assets resulted in a gain of R242 million, compared to a deterioration of almost R925 million in the previous year.
Cleasby says that the deterioration in 2020 was the result of the write-off of goodwill due to the effect of the pandemic.
Bidcorp’s management notes in their comment to the results that the commercial profit margin improved to 4.2% compared to 3.4% in the prior financial year and that basic earnings per share from continuing operations increased by more than 112% to almost R9 .25.
Bidcorp announced that it discovered fraud at one of its Hong Kong businesses that has been going on for years.
“In June 2021, Bidcorp discovered a significant and sophisticated fraud that was perpetuated in the Miumi division of the Angliss Greater China business. This fraud has been going on since approximately 2016 and has involved the manipulation of accounts receivable and prepayments and the misappropriation of inventories, the result of which these balances have been progressively exaggerated over the last six years, ”says Berson.
“Despite the ongoing forensic investigation, the group has taken a cautious view by undermining the overblown amounts, although we continue to rely on some future recoveries from insurance, perpetrators and other third parties involved,” he says.
The impairment amounts to R 694 million and losses attributable to FY2021 of about R 121 million.
“The tax deductibility of these impairments is uncertain, so no provision for tax relief has been recorded,” according to the management comment.
Berson and Cleasby say they remain optimistic that things will continue to improve.
“Most of our businesses have recovered strongly as demand quickly returned as economies opened, particularly in the Northern Hemisphere,” says Berson.
“Despite the volatility and uncertainty of the business environment arising from the current Covid pandemic, we remain extremely optimistic about the long-term prospects for both Bidcorp and the foodservice industry,” he adds.
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Cleasby says the new financial year got off to a strong start, with the first quarter showing continued improvement. However, uncertainty persists.
“Despite our best efforts, the hospitality industry is not immune to challenges such as staff shortages and supply chain disruptions, which are now evident in all of our markets,” says Berson, and Cleasby cites the current shortage of heavy truck drivers in the UK as an example.
It seems that the optimism of the management has rubbed off on Bidcorp’s shareholders.
The stock closed nearly 2% to R322.61 on earnings day.
This represents a great recovery from the low of less than R200 a year and a half ago and not far from its all-time high of R352.