Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bid Corp Ltd (BPPPF, Financial) reported a 15.5% growth in HEPS and a 16% increase in dividends, showcasing strong financial performance.
- The company continues to benefit from its decentralized business model, which promotes entrepreneurial growth and bolt-on acquisitions.
- Revenue increased by 15.1% in rand terms, with a 7.6% growth in constant currency, indicating solid organic growth.
- The trading margin improved slightly from 5.3% to 5.4%, demonstrating effective cost management despite inflationary pressures.
- The company has made significant investments in infrastructure, including new warehouses and distribution centers, to support future growth.
Negative Points
- The economic environment remains challenging, with several geographies experiencing recessionary conditions or tepid growth.
- Food inflation has dropped dramatically, creating a minefield of challenges for the business.
- High wage costs and labor shortages in developed markets continue to pressure the cost base.
- The company faces difficulties in certain regions, such as Hong Kong and China, where consumer sentiment and demand are low.
- The effective tax rate has increased due to factors like Brexit and changes in the mix of contributions from different regions.
Q & A Highlights
Q: United Kingdom showed a strong turnaround with second half trading profit margins improving to 3.8%. Is this margin sustainable in FY25?
A: We certainly hope so. That's the way we're looking at it at the moment. We've been through some of the difficulties in the first six months. The second six months was a lot better. We've got the benefit of the acquisition that we've made in July which will certainly help a little bit. The acquisitions from '23 are starting to come through. So we're confident about the UK moving their margins up in the medium term up to that 5% level. I'm not saying 5% this year. But in the medium term, in one, two, three, four years, we certainly should see the UK at a 5% level.
Q: Can you provide a guide feel for where weighted food inflation will be in the year ahead across the group?
A: I don't have the foggiest clue. And if anybody can give me that answer, I'll send you $100. As we sit at the moment, there's zero inflation in food. It might trend negative or it might come back again. There are a whole lot of factors that will impact this, supply/demand, agricultural issues, shipping delays, shipping costs. We're not expecting food inflation to go back to the 10% and 15%. So we're hopeful that it bounces around the 0% to 3%. We are maybe expected to be a little bit deflationary for a while but not for too long.
Q: In terms of your financial guidance, you talked to stretching the balance sheet a little bit more in FY25. Can you unpack this further? Do you expect larger more acquisitions than usual?
A: We have spoken about the fact that we are seeing more acquisition opportunities out there. We're not really sure why. Maybe operators feel that the top of the market is now, they can get a good price based on historical results. I don't want to be cynical, but it's my nature. I'm not sure. But there are some acquisitions out there. And I think if they come off, and I'm not saying they will because we've got to go through due diligence and we have to do the right deals. We will stretch the balance sheet a little bit more and the quantum, the size of the acquisitions will be a little bit chunkier than we have done. But they might come to nothing as well. We'll let you know.
Q: Please comment on how Bidcorp manages in a high-inflation environment such as Argentina and Turkey. This always baffles me.
A: Yes, I think people adapt to reality. And your operators in those markets operate in those markets, and that's the reality that they deal with. So they're making decisions based on the reality of where they are, and it's amazing to see it. Yes, they just adapt to the circumstances, which is very different to how you run a business in Europe, for example, where a 2% movement creates a little bit of panic in. Turkey or Argentina, they say 2%, give us something to talk about.
Q: Congratulations to the team on a great set of results. Although there have always been M&A, the time seems to have turned somewhat more optimistic in terms of the number of opportunities out there. What has changed? Why are there so many more opportunities out there?
A: It's combination with declining food inflation, sticky cost base and competitors being subscale. I'm not really sure. Like I said, maybe people have just recovered from COVID. They realize that their businesses are performing relatively well after the COVID bounce back. Now is the time. Quite a few of the businesses we're seeing are generation change, where you've got older owner operators who are looking to sell. They're not -- it's not really institutional selling. It's more family-type businesses.
Q: Can you kindly provide guidance on the direction of EBITDA margin, short to medium term as well as long term?
A: We're aspirational to do better than we've done. We're at 6%, and we think we can move that up. Not only can we move it up by getting the lower performers like the U.K. up to the average, but we're constantly looking to move everybody up 0.01%, 0.02%, 0.05% So we don't want to give guidance other than we don't think that there's a magic number as to where you stop. You start becoming creative as to how you can squeeze a little bit more out of it.
Q: Can you double earnings in five years?
A: I can't answer that. I hope we can more than double earnings in five years, but I've got no clue. Yes, we sort of take each month in reality and we can do what we can do. We don't know what market conditions will be. But if you compound 10% a year, I think you double in seven years, if the Rule of 70 were to apply. So yes, with a little bit of luck and strong economies, who knows what could happen.
Q: What exactly happened to accounts payable? Was that a normalization from last year? Lump was cyclically in nature from a working capital perspective.
A: Yes, the reality is we're not talking about a lot here. I know it's a lot of rands or pounds, but you're talking about a change of one or two days in accounts payable. And some of that has to do with cutoff and some of that has to do with the fact that suppliers are getting tougher. In a high interest rate environment, you're getting suppliers who want to be paid a little bit quicker. And I think the corollary of that is if you look at our receivables book, our days have shortened as well. So we're applying the exact same logic on the other side. So it's certainly nothing to panic about. We talk about one or two days. It's really marginal on the side. And what you might actually find is if you pay your suppliers a little bit quicker, they might look after you a little bit more. And some of that might be reflected in margin. They rather sell to people who are going to pay them than people who aren't going to pay them.
Q: Good day. We at Risk Insights rank Bidcorp on ESG and have noted your strong reporting on environmental metrics over the years. Do you have plans on expanding your reporting into the water recycled metric as you have for waste recycled?
A: The answer to that is probably no because we can't. When you look at our water consumption, the bulk of our water consumption goes into refrigeration. And the refrigeration process, believe it or not, works on the principle of creating heat and putting gas under pressure by using heat and water is used to
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
