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SIMON BROWN: I’m chatting now with Bidcorp CFO, David Cleasby, on results for the six months ending December. Revenue up 24%. Headline earnings per share up 18.6% and the dividend up 19.3% at R5.25. That of course is an interim dividend.
David, I appreciate the early morning. A really strong set of numbers, especially strong in Europe. How much of the business is Europe – and I suppose we would put the UK into that bucket as well.
DAVID CLEASBY: Yes, good morning. Europe’s about 35% of the business, the UK around about 25%. So that region is a key region for us. And yes, generally Europe has done fantastically and the UK has had a few issues.
SIMON BROWN: It’s challenging in the UK. South Africa did fairly well as well considering the challenges in South Africa – logistical issues, power issues, consumers under pressure. South Africa’s holding its own in what must be really trying trading conditions.
DAVID CLEASBY: We’ve delivered fantastic results. As you said, it’s a very, very challenging environment. But I think it goes to the resilience of the management and the teams that are out there in terms of being able to work around some of these issues. Some of them you can’t work around, like logistics, because there’s obviously a monopoly and whatever goes through the port is controlled by the state.
SIMON BROWN: I take your point. When we chat there is always that going back to the teams, and how it’s sort of the teams on the ground who really make it work.
China was struggling – and this is a common theme we’ve seen from companies operating in China and expecting a post-lockdown boom – which hasn’t materialised really at all in China.
DAVID CLEASBY: Yes. We didn’t see the bounce that we’d seen in almost every other business around the world. So I think there is a lack of confidence among consumers there. I suppose it goes to the overall macro. It is much tougher. They’ve obviously got a big business in Hong Kong, as well, and that suffered from a big exodus of people – firstly, tourism not really coming in, then a big exodus of people who, when having the ability to take holidays and get out, took advantage of that.
SIMON BROWN: A fair point on that. Operationally, how is inflation? Certainly around the world inflation is coming down. There seems to be a bit of a lag in the food space. But are you seeing the decrease in inflation and finding an easier environment in this period?
DAVID CLEASBY: Well, it’s getting easier. The rate of inflation – certainly as we measure it – is around about 5.5%. But that’s against a year ago when it was around 15.5%. So it is getting a more normalised environment, I guess. It is still tracking higher than what we would call general inflation around the world. So yes, I don’t think it’s going to get down to the noughts, and I don’t think there is going to be deflation because there’s still quite a lot of cost push in many aspects of prospects – not only ours, but just broadly around the world.
And labour, obviously, from our perspective, is a big component and labour costs aren’t going backwards.
SIMON BROWN: I take your point on that, your talk around cost pressures.
Red Sea disruptions – are those impacting your operations at all? Certainly supply chains over the pandemic period were extreme challenges. Is the Red Sea a challenge for your operations?
DAVID CLEASBY: Well, I think it’s a temporary challenge. I think people work around it, and it’s not as if it’s the only route around, but it does add to the cost – and you’ve seen that in the cost of container rates, in terms of product moving through there and often having to go around the Cape. So it does add to the cost base, but I think there’s an alternative, people work it out, and I think the efficiency over time comes back into the system. So it’s a temporary challenge but we have to work around it and it’s not as if there’s no alternative; there is an alternative and it’s just going to cost a little bit more for a period of time.
SIMON BROWN: And, to your point, it’ll work its way through the system in time.
Margins? When we chatted six months ago, which would’ve been on full-year results, you were talking about taking some margin compression – not significant numbers, but a little bit of margin compression to secure new contracts and the like. Is that still an experience you’re seeing in Bidcorp?
DAVID CLEASBY: Well, it’s a trading business. The people at the coalface are making day-to-day decisions – whether they need to maintain volumes with a particular customer and trade away a bit of margin, or hold the margin. So we are getting a little bit of movement, let me say, at our margin. It’s a trading business so we already work with the environment that we are in. And now, with food still being quite expensive, people are having to make decisions as to trade maybe a little bit away and maintain volumes. It’s a day-to-day decision and you can’t have a fixed view on it. Every day we trade and we have to make the best of what we see in front of us.
SIMON BROWN: And this comes back to, in a sense, part of the Bidcorp DNA. You mentioned the people on the ground a moment ago. This really is the way that Bidcorp manages; you’ve got those entrepreneurs on the ground and they’re making the decisions, which are the best decisions [for] their operation, and you leave them to manage it. To your point it’s trading – they know what’s happening on the ground.
DAVID CLEASBY: Yes. It goes to the core of how we operate. We decentralise and we encourage an entrepreneurial spirit in the management teams. If you look back over the last many, many years, going into Covid they traded well – and yes, the market’s become very tough. They traded as best they could, and coming out we’ve seen the best of that, I suppose, skill and experience bouncing back – and we see that in the Bidcorp results.
SIMON BROWN: We’ll leave it there. Bidcorp CFO, David Cleasby, I appreciate the early morning.
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