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Edited Transcript of BID.J earnings conference call or presentation 28-Aug-19 10:00am GMT

Q4 2019 Bid Corporation Ltd Earnings Call

Aug 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Bid Corporation Ltd earnings conference call or presentation Wednesday, August 28, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bernard Larry Berson

Bid Corporation Limited - Chief Executive & Executive Director

* David Edward Cleasby

Bid Corporation Limited - CFO & Executive Director

* Stephen Koseff

Bid Corporation Limited - Independent Non-Executive Chairman

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Conference Call Participants

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* Dave Eliot;Integral Asset Management;CEO

* Ian Cruickshanks;SA Institute of Race Relations;Chief Economist

* Mark Ingham;The Investment Analysts Society of South Africa;Board Member

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Presentation

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [1]

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Good afternoon, ladies and gentlemen. If we could get the proceedings underway, thank you. My name is Mark Ingham. I'm a Board member of The Investment Analysts Society of South Africa, and a warm word of thanks on behalf of all of us here today, analysts, fund managers, auditors, I see. A big thanks to the Bidcorp team for hosting us today on the occasion of their results for the year ended June 2019. It's worth reflecting that this has been a milestone year for Bidcorp. It marks the 30 years since it was formed in 1989 with the acquisition of a small company called Chipkins. And it's 3 years since it was spun out of Bidvest and listed on the JSE as a focused foodservice group and aggregative value was released on that. With a market cap of over ZAR 100 billion, Bidcorp ranks as one of the leading industrial companies on the JSE, providing food services to many countries around the world.

Another milestone was in June when Bidcorp was acknowledged on the 34th IAS Excellence in Financial Reporting Awards as the best company on the JSE in its actuarial category, and well done to that. David received the Squirrel on behalf of the team.

There will be an opportunity for Q&A after the formal proceedings. The Chairman of the company will give some opening remarks now, followed by Bernard. For those here on the webcast, you will get the opportunity to either ask a question or to mail in a question that you may have for the team. And if I could please ask for the benefit of the company and for the sake of good order, if could you please cite your name and the organization that you come with. Stephen, over to you. Thank you.

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Stephen Koseff, Bid Corporation Limited - Independent Non-Executive Chairman [2]

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Thanks. Do I need all this? Okay. Constant and bank have a fixed mark. I have to talk to some. Thanks, Mark. Thanks for those kind words. I didn't realize I've been around that long in life because I was there, that was 30 years ago, helping Brian finance that first acquisition. In those days, we didn't need governance and all the stuff that you guys impose upon us. And I think we made that acquisition decision as Investec at a lunch meeting with Brian and my Chairman, and it was about 10 minutes. And it shows you what Brian has built. Such in life, it's not about what it is, it's often about who. Back the right people, and they take you down the right road.

Just to come to Bidcorp. I think these are very strong set of results. Bernard will give you color on all the details. I think you also got to bear in mind it was a year in which we transitioned to a new audit firm and a large diversified group. That was not an easy task, and I have to thank and congratulate a number of people in that process. I think, firstly, Bernard and Dave and Ashley, who play a great role in terms of making sure that everything in the organization works. Helen, as Chairman of our Audit Committee, spends an inordinate amount of time, again, making sure that there's proper discipline and governance around all the audit processes. And I've got Eben and his team here from Pricewaterhouse, who came in with a fresh pair of eyes and found that there was an organization, they had great governance, and actually, everything worked quite well even though I'm sure it was a bit frustrating for them at times and a bit frustrating for the Bidcorp colleagues around the world.

So again, special thank you to all the people who are involved. Also, Doug Band, who's been our Senior Independent Non-Exec, this will be the last results' period that he would be involved in. I hope he's on the webcast, on the phone, but just to thank Doug for the kind of effort that he's put into the governance process as a Senior Independent Director and making sure the shop is kept very tidy and that everything works. So again, thank you all. I mean we've got a lot of familiar faces. [Ruby Osmani] had merely walked in the door. I didn't bow to him when I said hello. He even came in and sat where the executives were sitting, and now I see you've moved to the backseat, Ruby. But welcome to all of you. And I now we've got 58 people on the webcast and 10 people on the phone. I can see [Mary Winkler] at the back. A lot of old faces, yes? I think this is a great company. I think these results reflect the diversification of the company operating in multiple jurisdictions around the world from those early days when Brian first bought the Chipkins bakery business in 1989.

So again, I'm not going to talk too long. I'm going to hand you straight over to Bernard. I think I've thanked all the people that I have to thank, and look forward to hearing what Bernard has to say. Again, thank you for attending.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [3]

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We've only got one mic. Welcome, everybody. You heard this all before, so we've delivered you HEPS increase of 12.5%. We have increased your dividend by 14.3% to 640 cents. And lunch is served outside. So thank you.

On a more serious note, unfortunately, we do have to go through this, and it's actually -- it's a pleasure to do so because it's a good story to tell. But I think it will be remiss of me not to start off with a thanks. Normally, I end up with a thanks. So if you can, just humor me for a few minutes. There are quite a few things that I want to go, which actually contextualizes what we do.

So firstly, I want to thank our many hundreds of thousands of customers around the world in 35 countries, 5 continents, because everything we do centers around the customer and their requirements. And without customers to start the process, we wouldn't be here. So we have many hundreds of thousands of them. We are indebted to them for choosing us as their service provider, for entrusting us with their needs, and it's important for us that we're as close as possible to those customers, and we can fulfill as many of their requirements as possible and grow accordingly.

Flying on from that, obviously, we've got tens of thousands of suppliers around the world who make the other side of that transaction possible because if we didn't have a product, we wouldn't be able to sell it to the customers. To our 28,000 staff members, employees, team members around the world, they really do a fantastic job in all the jurisdictions we operate. For me, one of the most rewarding things is when I do travel around the world, we go to a remote location in Cannes, in Lithuania, or in São Paulo in Brazil, and you see the passion, dedication, commitment that these people have to the Bidcorp Bidfood business, that's absolutely phenomenal.

To my senior management team, the MDs, the CEOs, who run the businesses around the world, we call ourselves the G20. They're slightly more than that in the team. They do an absolutely phenomenal job of running their businesses in their jurisdictions. Every country is different. Every country has challenges. Every country has opportunities. And they all are absolutely committed to what we're trying to achieve as a business. They're totally focused on our strategy, and they implement that absolutely brilliantly.

Financial results aren't necessarily the only measurement of success. Sometimes, it takes a little bit longer to see the financial result, but they truly are remarkable team. To my Chairman and Directors, Stephen, Helen, here. The rest of them are dialed in or couldn't make it, for their guidance, wisdom, insight, all the rest of that, and I suppose more importantly, their support in their tutoring through the process, then mentoring through the process. It's very lonely at the top. When you're making decisions that have possibly profound implications, it is difficult, it is lonely, and it's always good to have a sounding board that's alarmed and can give you objective and fair feedback, so thank you for that.

To our team who actually prepared the results, and you know, Stephen spoke about the increase in governance. In old days, it was quite easy to prepare a set of numbers, and it was debits on the left, there was credit on the right. Hopefully, the credits were more than the debits and net profits didn't take all that long. Nowadays, it's a process. It's a very tedious, thorough, difficult process. So I'd like to thank David, Charlie, Ashley, the team or -- the finance teams around the world, the guys in the U.K., I'll amend wherever they might be. We're a very complex organization, operating in 35 different geographies and lots of different currencies, where we have to comply with local statutory accounting regulations, we then have to comply with international and group, so it is quite a complicated exercise, and they do a phenomenal job.

It's also a year of transition from KPMG to PwC as auditors, so thank you to Eben and the team. I know we might have locked horns. It was done very quickly. There were only a point, I think, in January or February. So to have got to where we landed in such a short period of time, I think, is a fantastic outcome. There's a high level of mutual respect between PwC and ourselves, so thank you very much for that, and we look forward to the future accordingly.

So I think I'm finished with the thanks. If I've left anybody else out, thank you. Thank you to all of you for attending, everybody on the video, on the video conference, on the phone, thank you for taking an interest in what we do.

I just thought of something obscure, when I couldn't sleep this morning at 4:00 in the morning. You've got to be here for about 1.5 hours. In that 1.5 hours, as a Group, in 1.5 hours, as a Group, we would have taken orders, invoiced and delivered ZAR 13 million worth of product around the world. And that applies for every hour, 1.5 hours, 7 days a week, 52 weeks a year, all 365 days. So it's quite a phenomenal amount of activity that we undertake on a truly diversified basis across many, many different geographies, and we touch a lot of lives every single day.

I'm not going to stick to the knitting. And to this, you've got the booklets. You've seen a lot of it before. And as I've said before, it's a very boring story. And as long as it stays boring, and we continue to deliver on what we say, I think we have achieved what we wanted to achieve. We're not going to tell you that we're changing our strategy, that we're doing a 360 review, that we need to do things differently. We need to carry on doing what we're doing and continue to fine-tune what we do, change direction slightly. It's like a boat. You know where you're going from there to there, but you need to tack and change course slightly as conditions change, and waves change, and winds change, but you know where we're going, and you just have to be alert to the circumstances in which you operate.

What I do want to say is the world is a bit of a strange place, and it has been for the last year. It looks like it's still getting stranger. And we've got no control over that. We've got no clue of what the outcomes are going to be. We don't profess to know the answers. All we can say is we have to remain nimble, flexible and understanding of the environment in which we operate. We can't change the environment. We can only change the way we react to that environment.

Let's talk about Brexit, and I won't answer any questions about it afterwards, because we don't have the foggiest clue what's going to happen with Brexit. Nor do any of you. You might have an opinion, but you don't know. I'm not sure the politicians have a foggiest clue on what's going to happen. What will happen will happen, and we'll have to adjust our thinking accordingly. And I think it's very dangerous to buy in to a strategy that we think we can predict what's going to happen, and therefore, we're going to change our modus operandi, because we think that's going to be the outcome. We're not that clever. Whatever will be will be, and we'll have to change our situation, our circumstances as best as we can. When whatever happens, happens.

So like I said, it's a very boring story. We are very proud of the fact it's boring, and we continue to deliver on what we say we're going to do. You know who we are. You know what we do. We haven't changed. We haven't deviated from that. And it's more of the same.

So you've read through the numbers, and it's 12.5% increase in rands, which is a 7 -- close to 8% increase in constant currency, which is important to note. We're not always trying to take credit for a weakening rand and then hide behind a strengthening rand. Yes, try to use that as an excuse. We always present our numbers in constant currency because for us, it's a core fundamental. We run our businesses in their local currencies. In Poland, we run in zloty. And in Brazil, we run in reals. And in Argentina, we run in pesos? Pesos. And there's a lot of them, let me tell you. That's the way we run our business. Whatever the result adds up to in rands at the end of the day, it's what adds up to in rands. 92% of our earnings are non-rand denominated. 95% of our revenues are external to South Africa. So although we're reporting in rands, although we're a South African company, the vast majority of our operations are offshore. And therefore, it's important to understand that the makeup of our numbers is a lot of varied currencies that have different issues going on that aggregate up into a rand number. And you really have to delve into the detail in order to understand how those numbers are made up.

All of this is in the booklet. We've continued to do what we do. We've executed on the strategy. We're all about the food. We're all about the service. We're all about the technology. And it's the interface between those 3 that will determine continued future success. Over many, many years, we said we will rebalance the customer portfolio, and I've had many questions when will that end. And I've always answered that I don't know. And I'm sure it will never end because your customers change. The nature of your customers change over a period of time, and it's something you always need to be alert to. We've substantially gone through a large chunk of that, but there's little fine-tuning and there's little certain contracts that we do have to exit. And I might sound very, very proud of the fact that we took the decision many years ago, and it was a bold decision. A lot of people said we were crazy, and you can't walk away from volume. And I think our results speak to what we have achieved by walking away from business that isn't mutually beneficial. And I'm not going to say it's only big business, but generally, it was larger contracts that were disproportionate in their risk/reward profile. There's no point in doing something if you're not going to be adequately rewarded for your efforts and for the risk you take. And we'll continue to go down that path, and we're building a stronger, more resilient, more sustainable business as a result of it, and our numbers absolutely reflect that across multiple geographies.

If we move through to the segments because like I say, we don't make decisions at head office relating to the operational functioning of the business, we decentralized. That's a core focus of what we do. However, there is a huge synergy. It belonged to the group. The guys and girls of the group share a whole lot of information. They're highly competitive with each other, but they're highly supportive of each other as well. And it's fantastic having benchmarks where you can see what works or doesn't work, where you can measure excellence, where you can look at innovation, we can share the cost of technology, of innovation, et cetera. So that happens across the group, but you do need to focus down on the individual segments.

We'll start off with Australasia because I think we always do. And I think the most notable feature there is the trading margin up to 6.9%, up from 6.5%. So we have continued to see improvement there. As I have said before, I think, we are at the correct level. I'm not sure that there is a huge amount still to extract out of that. Australia exited a large contract customer in -- it was over September, October, November last year. It was approximately 4% of their sales, and their business has performed excellently since then. Took a little bit of time to pull a little bit of cost out, but once you can focus on your core market and not be distracted by the noise of very low-margin, difficult customers, your business grows accordingly.

In New Zealand, that same customer, we exited, commencing the 1st July. It's a similar proportion to New Zealand's revenue as it was in Australia. The month of July was slightly difficult. I don't want to be an alarmist. It was very slightly difficult, but we're over that. We've pulled the cost out. And the business is doing perfectly and growing fantastically. So to us, it gives us a lot of confidence that we are on the right path, and we are focusing on the correct customer, and we'll continue to focus on the correct customer.

And when I read the reports of our peers around the world, it's strange how a lot of the words that we spoke about 5 years ago are starting to make their way into their thinking, things like rebalancing customer portfolios and things like that. So they do say that imitation is a serious form of flattery. And we do it for our purposes, and we'll continue to go down that path and are succeeding.

We have put a lot of investment into Australia and New Zealand, investment into infrastructure, investment into growth. Because you can't grow in the longer term if you don't make those difficult decisions to invest upfront. And although you might not get the top level of return in year 1 or year 2 or year 3, if you don't do it, you're going to bleed those businesses, you're going to milk them dry. So we've continued to invest. We continued to grow. Yes, our returns have come down slightly as we grow into that new infrastructure, but you have to do it in order to ensure that growth.

In New Zealand, we have received -- we have achieved top line growth of 10% per annum compounded for many, many years. With that comes a requirement to invest in infrastructure, and we continue to do that. So they have done -- both done very well.

I think the other thing to mention is there might be a misperception that it's all beer and skittles in Australia and New Zealand, and everything is just hunky-dory, and economies are flying and everything's fantastic. It's tough. The Australian economy is tough. The reserve bank have lowered interest rates twice in the last few months by 0.25 point each. The housing market has slumped. Unemployment, although it hasn't changed, there is underemployment in the economy, and the reserved banks are really worried about that. The resources sector has picked up, but that's been offset by an exceptionally weak retail sector. I'm sure you're seeing it in some of the retailers who are invested in Australia over here. That's a pretty bleak retail consumer-facing environment. And our guys have done a fantastic job notwithstanding.

In New Zealand, it's a slightly better story. It's not as bleak, but it's certainly not beer and skittles and easy. They've got exceptional labor shortages. There's wage pressure. There's some structural change going on in the economy. It's not totally easy. And against that backdrop, all I'm trying to make a point is, against the backdrop that isn't fantastic, our guys have done a remarkably good job, and we have every confidence that they'll continue to do so.

Moving on to the U.K., I know I was told a year ago that I was being optimistic and maybe too glib about the U.K. and the impact of Brexit. There's no doubt Brexit has certain impact, absolutely. People are fatigued. They think it's a joke. The consumers are a little bit hammered and frustrated by it all. I think economic growth has been crimped. It's an uncertain environment, and uncertainty isn't a great recipe for growth within the economy. Notwithstanding that, our guys have done phenomenally again. They've done hugely -- the job they've done is absolutely remarkable over a number of years, operating now at 5.2% at almost comparable levels to their peers around the world. There are some slight structural differences in the market, which makes getting the same margin maybe a little bit more difficult. They've adapted to the Bidfood way over many years and are a great case study for what we do and how to achieve what we're looking to achieve. So that's a good news story. Yes, there is uncertainty over Brexit, but I don't know what the answer is. I've said that before.

Our fresh business has struggled a little bit. I want to put a little bit of that down to the economy and the place where they are operating the economy, which is far more in the discretionary spend than our foodservice businesses. The foodservice business has quite a high level of health care and aged care and industrial educational type business, which is a little bit flatter. Whereas the fresh business is very heavily exposed to the core consumer market, to the restaurant, purely to the restaurant channel. So I felt a little bit of pain in that. We've also gone through some of our own internal pain, which we have been for a few years as we restructure some of these businesses, which are essentially small owner-operator thought businesses as we restructure them and refocus in to operate within a corporate environment. We have achieved that in the seafood business, which has enjoyed continued profit growth. The meat business is showing very, very good signs of progress. We had a very difficult year the year before. Last year was easier. We're now going through a little bit of pain in the produce business, which was a single site operation before, and now it's a 3-site operation, so we've put cost in to make a 3-site investment in the future, that comes with some pain. So there's a little bit of external influence there, there's a little bit of internal influence, but we do have a GBP 250 million business that is capable of making very acceptable margins.

Europe did well again. Once again, I can talk about all the negatives of Europe, that the economies aren't great. And if you look at Italy and you believe what you read, there's big problems there. You've got the slowdown in Germany, which has the impact on the Rest of Europe. Notwithstanding that, we performed exceptionally well in every country in Europe other than our 2 newest arrivals, which is Spain and Germany. Germany is relatively small. We're still building the base. I wish I could tell you that we were good enough, and we were such clever whiz-kids as to fix these things in 6 months, doesn't happen that way. It's very easy to do that on a spreadsheet. Even I could manage to do that. But in reality, it's a much longer process when you're dealing with real people in a real environment. You don't want to mess up the business. You don't want to mess up your customer service. You don't want to mess up your position in the market. So Germany, we are very much at the early stages. It's not a big problem. It's a market we do want to get into. In our opinion, we've entered in the right way. There's a lot of acquisition opportunity there, but we need to get the base correct.

And the other one that's a slight disappointment, I'm going to call it, is Spain. We talked about Iberia. Iberia is made up of Portugal and Spain. Portugal is doing fantastically and exceeding our expectations. In Spain, the components of the business are doing exceptionally well, and there's one component of the business, which is the Guzmán acquisition we made 2 years ago, which had been very disappointing. It was a collection of businesses that were hobbled together by private equity and sold off. And we've, unfortunately, had to go through the pain of completing that process of integrating the businesses to be one coherent business across Spain, which brings us challenges. You've got -- it's a cultural issue. We had to change ERP systems, which caused a great deal of pain, grief and cost. That happened in March. It took us a few months to recover. Once again, these things are always easy to do on paper and far more difficult to achieve in reality. But we're over the worst of that in Spain, and we do have EUR 150 million turnover base, which has grown, by the way. Even through our difficulties, our sales line has grown. And so we've always said put whatever cost you have to, to protect the top line, and we'll fix the other stuff when we can get to it. It's far easier to fix the cost base than it is to grow revenue. So we've continued to do that, and we remain very, very positive about Spain. I think we'll see a lot better performance this year with one-bit optimal levels this year, and that's our future. That's our future upside. It's coming out of our markets like that.

Holland have done a fantastic job. I think they bought into the strategy a few years ago, and we've definitely seen an incremental growth in profitability in Holland, and there's a lot more to go. They really are a food business now. If you went to them, you'd be very, very surprised at how much of a dynamic street-trade foodservice foodie-type business they've become from the heritage of being a very stodgy caught-in-moving logistics-type operation.

Belgium has done well in a very stagnant-type environment. Nothing much happening there, other than when you get -- I think we grew by 8% in Belgium. In an economy that's not growing at all, that's a fantastic result. You've got an interest rate environment, they're almost nothing of 0.5% or so. To grow 8% off a solid base in a mature market, I think, is phenomenal.

Czech and Slovakia, absolutely shut the lights out again, another fantastic performance. Everything went right for them again. The sun shone, it was hot, people went out, they ate ice cream, which is a much smaller part of the business, but it still does have an impact. They invested in infrastructure a few years ago, which enabled them to continue growing. They have invested in further processing-type facilities, and they have done a great job of growing their top line, of growing their value-add in their margin. And I'm not going to say controlling their expenses, but they've controlled their expenses to the best of their abilities in a very, very tough labor market. Very difficult to find staff that's -- we are experiencing large increases in fuel, diesel cost. We are experiencing very large increases in energy costs, and you have to manage those as best as you can.

The Baltics, Lithuania and Latvia are now profitable. They're well underway, small business. The Poles have done fantastically. We've spoken about that for many years, how we invested ahead of the curve. While they've grown into their skin, they're doing exceptionally well. It's an amazing thing, they'll hit the PLN 1 billion turnover barrier this year. And they've exceeded their expectations, and now we've just bumped their expectations up a little bit more. And they can see what their peers do, which gradually motivates them.

So Poland is another fantastic story. Italy had a good year. It didn't have a knockout year, but it had a very good year in a tough environment. It was a little bit tough because we were integrating an acquisition. We are putting some cost into the business to corporatize it and to facilitate further growth. In the 5 years we've owned that business, that's gone from EUR 250 million sales to EUR 500 million sales in no inflation. That's an amazing achievement. But you do need to put some structures in place along the way to guide that process and ensure the continuity. I'm not sure I've left anybody out in Europe. David, anyone in there that I know about?

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David Edward Cleasby, Bid Corporation Limited - CFO & Executive Director [4]

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No, I think that's it.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [5]

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If I have left anybody out, I apologize.

I think there is a comment coming out that the headwinds, economic headwinds in Europe and that doesn't bode well for us, and maybe that's reflected in these results. Absolutely not. These results are an absolute phenomenal set of results from the European business, dragged down by poor performance in Spain. That's the summation of it. Had Spain performed at the same levels of last year, they would've been a few percentage point increase on the profitability, and they're doing fantastically well. And yes, there are economic headwinds in Europe, but they have been there for the last year or so. We don't see them as getting any worse, and we'll just navigate them accordingly.

Emerging markets was unfortunately the leg out of the group this time, and that's primarily led by Greater China, which we did flag at the half year, which was a result of the loss of the Fonterra agency the year before. We have cycled through that. The second 6 months was a lot better than the first 6 months. And the downturn in the emerging market segment is much less in the second 6 months than it was in the first 6 months. So there's absolutely an upward trend there. And the China business is well on its way to -- I'm not going to say recovery because it's not recovering, it had to be readjusted, when you lose 40% of your sales volume, you have to change the way you think and do, and they're well on their way to doing that and getting back to the levels that they should be at.

Hong Kong had a very reasonable year. Some of that came from cost savings. Some of it came from refocus. I am going to put a little bit of caution on Hong Kong because that is a concern. The unrest that's happening there at the moment, the protest movement is having an impact. It's a very noticeable and sudden impact. You've got tourism numbers down by, I think they talked about 40%. International arrivals are down 40%. You've got China who's restricting the movement of Chinese into Hong Kong. People are afraid to go out at night where it used to be a very safe place and people would go out at night, and there was a lot of activity on the street. That's changed because people are just -- they feel a little bit unsafe about getting caught in one of these protests. When you've got 0.5 million people protesting on the street, I imagine it must be a pretty frightening experience, so we are seeing some impact of that. I don't want to alarm you. Because in the scheme of things, Hong Kong isn't a huge component of the overall group, but it is a challenge. It's a challenge for the Hong Kong -- our Hong Kong team. They're very concerned and worried about it from a number of aspects. And we just hope that, that resolves itself relatively quickly, peacefully and amicably for everybody in Hong Kong to continue along its side in merry way.

In South Africa, we managed to get an improvement year-on-year, which I'm sure all of you will agree compared to the comparators in South Africa, those in the retail space and the food space, to get any type of increase is miraculous. So Klaas and the team, well done. That's a fantastic job. The foodservice business achieved growth of over 12%, I think it was in the South African environment. The Crown business, however, had a 15% decline primarily because of the listeriosis impact. So that cycled through by, I think, about March or April, and we're starting to see quite a big pickup. The factories are back in production, the processed meat factories, and we're seeing that turnaround and moving quite nicely. So I think our South African performance was particularly good in the context of the tough environment that they operate in.

Singapore did very well. Singapore and Malaysia, they were up about 20%. And we're essentially through the restructure of that business. However, some of that was offset, that kind was offset by start-up losses in Vietnam. We decided that Vietnam was a market that presented some opportunity, so we started a greenfield's operation there. As with all these things, they cost you more than you think they're going to cost. They're more difficult than you think they are going to be, and they take longer than you think they are going to be, and we managed to tick all 3 of those boxes. However, there's a market there. Had we made an acquisition, we most probably would have spent more money than that. So you do learn some very -- they're not overly expensive, but you learn -- you make some costly mistakes. But I think you build a stronger base as a result of it, because you do have to adjust your thinking and what you do. And Vietnam is a very rapidly growing economy. It's a very rapidly westernizing economy. The tourism industry there is absolutely phenomenal. If you do have a chance at some point in time, it's worth having a look at because you can actually see the explosion happening in front of you. You can actually see these resorts building up. And I'm not talking about 1 or 2 resorts. You go to some of these islands, and I'm not going to try and say their names, and there's just tens and hundreds of resorts, and they are all massive resorts. So there's no doubt that Vietnam is going to be an economic powerhouse in the region in time to come, so we do need to be there.

We made a small acquisition in Argentina in May, USD 3.5 million for about 40% of a fantastic local foodservices business there. And a lot of people say you're crazy. Why invest in Argentina? Well, you could say the same about a lot of places. When you're operating in those businesses and as long as you can fund your business, you can make a lot of money. And we're seeing that in Argentina, and we are seeing that in Turkey, where domestic interest rates are very, very high. So people who have to borrow money actually can't stay in business. But if you can get some type of equity in, and you can generate cash within your business, they're very, very good businesses. So we're -- yes, it's not a large amount of money. It's a reasonable foodservice market mass business. We're happy with that. Chile is going from strength to strength. We spoke about it many years ago, not all that many years, ago but we've established the base involved. That's what exactly we've done there, good story. Brazil, economically, Brazil is a mess. Politically, it's really difficult. I'm sure you read a lot about Bolsonaro and the things that are going on there. Notwithstanding that, our business is in great shape, profit growth of 15% in an economy that probably went backward. So a fantastic achievement from the guys in Brazil. A great base. We still are looking to bulk that business up, but we just haven't found the right acquisition at the right price yet, but we remain alert to that.

Middle East had a phenomenal year. They had very poor year the year before. This year was phenomenal and was at record level, so they really did well across all territories. The U.A.E. is still doing a little bit tough, but our guys have done a great job there and are growing relatively rapidly.

Turkey is profitable. We've got some legacy debt that we're carrying, which is quite expensive. But the core business, the trading business is profitable. Once again, it's a huge market. It's about 80 million people and about 40 million tourists a year. The resorts are absolutely phenomenal, if you got to Antalya or places like that. The scale of the tourism industry is phenomenal, so we absolutely need to play in those markets.

The one thing we haven't mentioned here are our discontinued operations in the U.K. There were 2 of them. There was the PCL business, which is the milk-distribution business, which, effectively, we got out of at the end of April this year, so we're finished with that. We're finished with loss-making activities, our relationship went south. We got divorced from the dudes who were the principles. We are very happy being very single, I must tell you. We are enjoying ourselves a lot. We're operating some small contracts in runout mode. There's no real exposure there. They're marginally profitable. And as we can get out of those, we are out of them, and we'll focus on what we do best. So that one's gone.

On the Bestfoods business, which is the CD operation, the logistics operations, the negotiations for the sale are progressing. They're at a very advanced stage. The vendor is doing an exhaustive due diligence. We have agreements. We're on the last stages of that. I don't want to get too optimistic, because we got optimistic the last time, and it fell over. But we remain very hopeful that we'll conclude that in the next month or 2, which will be subject to certain conditions being met in the future, but we'll be able to talk about that in 1 month or 2. Notwithstanding that the guys who run that business have done a phenomenal job. You all remember February last year, Valentine's Day 14th of February, KFC left us. Well, I'm pleased to say that in June, this year, we have 100% of KFC back. I'm also very pleased to say that KFC have 99.98% stock availability from their new supplier being us. So it's very nice to say you're going to save money by gaining a new supplier, but you actually lose a whole lot of money when you don't get any product to sell. And that's been a phenomenal story for our guys. They were pretty devastated about losing it, but they were pretty ecstatic about getting it back. And I think we're doing a fantastic job for our customers there. We have renegotiated all the customer contracts but one, who are holding out for hopefully a better deal, which, if they are listening, isn't going to happen. The business there is in good shape. It is actually operating on a profitable basis now, but still remains noncore to us. It still remains -- the sale process remains on track. And I'd just like to complement our management team there who've through very, very difficult times. There were dark, dark days. It's not easy when you see that rating flying at you faster than you can duck out of the way. It was horrible. But they kept their nerve. They kept their cool. They've done a fantastic job. They got us out of that mess in PCL. They've fixed up that logistics business. They've got a great customer service. They've got a great reputation. They've got customers knocking on their door for tenders and for quotes. I think they've done a phenomenal job. So well done to them.

So in terms of the outlook, once again, boring, same old, same old. We remain confident. Yes, there are headwinds. Yes, there's Brexit. Yes, there's the Hong Kong protest. Yes, the South African economy is looking great, not great. Yes, there's fires in the Amazon in Brazil. Yes, there's some chaos going on in Chile in the political environment. Yes, the Australian market -- housing market has slumped, and I could go on and on and on. Notwithstanding all of that, we are very confident. Our business is well structured, well poised to continue the growth trajectory, and we remain positive in our outlook for the year ahead.

So thank you for that. I'm going to hand over to David, and then we'll do some Q&As.

I get very concerned when I see Mark looking at his watch.

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David Edward Cleasby, Bid Corporation Limited - CFO & Executive Director [6]

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Good afternoon, ladies and gentlemen. Anyone knows what an endoscopy. It's an internal examination. And what would be entering the last while, I felt that Bidcorp has been through one of these from all angles. We had new auditors. They've had to get used to us, we've had get used to them. We've been through proactive monitoring exercise from the JSE, all I'd like to tell you I think Bidcorp is in great health.

As I would tell you at start of these presentations, our accounts are prepared in accordance with IFRS. There have been some changes in terms of standards, the revenue standard IFRS 15, IFRS 9, the financial instrument standard. And obviously, going into 2020, we've got the IFRS 16 standard which I'll talk about a little bit at the end. We do have a restatement to the comparators, but don't panic. It only impact sales and cost of sales. No impact on earnings, on balance sheet or cash flows, and that impact is about ZAR 500 million, and you'll see that in the accounts. As I said, I really just want to echo the sentiments certainly, of Bernard once to -- to the auditors; and firstly, to -- and secondly, to our finance teams and our audit and risk committee chairman, Eben puts a lot of effort into us and hopefully we get a great result at the end of it.

So just starting on the results. Trade profit, the trajectory, we saw in FX or constant FX certainly for the first half continued into the second half. Our revenue was up 9.8%. Gross margins up to 23.9% from 23.3% so very happy about that. EBITDA trading margin, up a bit at 6.2%. Trading margin at 5.2% so we're seeing that incrementally grow as we've indicated. The translational FX did accelerate, I guess, into the second half as the rand weakened against most currencies. And that impact was about 4.8% positive. HEPS of 12.5% up and constant FX on HEPS is 7.7%. We've declared a dividend of ZAR 3.30 or 330 cents. Tough time with the 3 years of listing and 30 years Bidcorp being in but that had nothing to do with it. The key thing there was to maintain cover. I think over the last while we said we've progressively lowered the cover, and that's in line with the first half and by coincidence came out at ZAR 3.30.

Turning to cash flow, has been very solid. There have been some working capital absorptions in the period. And as Bernard alluded to, we've had reasonably heavy period of ongoing CapEx into, principally, property. Our returns have come down a little bit, but I will allude to those a little bit later.

In terms of constant revenue growth, 4.7%. We estimate our global inflation to be around about 1.5%, but that is really an estimate just to indicate that we are seeing absolutely real growth in the top line. We're seeing an improvement in margins of that -- as it went up to 23.9% mostly as a result of us pursuing the independent free-trade business as well as exiting some of the low-margin contracts. But commensurate with that, we have seen labor pressures through the periods. We've highlighted that over some period of time. That had some impact on the cost of doing business. And an overall 7% constant FX growth in operating expenses isn't out of line, and certainly, we've captured that in the higher GP percentage.

The trading margins, as Bernard indicated, Australasia has the highest at 6.9%. Europe has increased by 10 basis points to 4.3% despite Iberia and, well, I should say, Spain more than Iberia, and Germany detracting from that. U.K. margin is up at 5.2%, Bidfood UK, the food service business did particularly well, and there was some decline in the fresh business and the emerging markets at 4.9%, which principally relates to Greater China.

Acquisitions in the period had really very little impact on the results so we certainly see those as being principally an organic results, and we're obviously very happy about that.

We just go to the further down the income statement. I guess one of the areas that we saw some out of whack, I guess, increases was in the interest paid line. Asset management across the group is principally good, but they are always in the portfolio you got to get some pockets that are not as good. The cut off this year, in terms of Sunday, the 30th was particularly challenging, and that had some impact on collections day 1 cash. And certainly payments where in order to capture some of the discounts, we had to pay a little bit early so it was difficult. It did impact, principally the U.K. being the biggest contributor to that which was about 60% of the working capital absorption. And I think generally through the period, working capital was up a little bit, I'll talk about that a little bit later. One of the big detractors also was base rates. We've seen significant increase from '18 to '19 in things like HIBOR and SIBOR. But from an average of 1% to 2.5%, that certainly added a significant part of that increase in interest paid.

The tax rate is down a little bit. We still guide to somewhere between 24% and 25%, and that really is mix dependent. There are some potential tax rates that are coming down like in the U.K., but we still think in the mix, that's going to be in that range.

Associates are up a little bit, nothing really to report on that. Minority interests are small in the scheme of things. The capital items are not big in the continuing space. Some profits on asset sales and then some impairments on PPE, principally.

On the discontinued operations, obviously, the size of the number is quite large. But I think when you exit these businesses, you have to exit them. A large part of the PCL cost was the impairment of the intangible, of about GBP 25 million. But as Bernard said, we're out of it, and there should be no impacts certainly going into 2020.

On the cash flows, as I said, generally very solid. All the cash flows as a percentage of EBITDA and trading margins -- and trading profits have been maintained. There is some impact on noncash items, but they're not big. On the working capital, just to remind everyone, that the cycle is absorption in the first half and generation in the second. Other than in this period, the generation wasn't great. Why? I guess -- so there are some structural impacts. Over time, as we move forward, the businesses are doing -- importing that lengthens the supply chain, and we're going to see some of that impact as we grow that part of the value-add product.

Activity levels are up. And whether you like it or not, you have to invest into working capital to do -- to maintain those growth rates. As I said, the year-end was particularly difficult particularly in the U.K., and that accounts for a significant part of that working capital absorption. It's not structural. We believe we will get a lot of that back.

And as you've seen over a number of years, we continue to invest in infrastructure. We need to stock up that infrastructure, and that has had some impact on stocking levels.

Investing activities is high. I think if you look at the metrics, there is -- gross CapEx over revenue is about 2.3%. You track it over the last 2 or 3 years, it's been around about 2%. So it is high in this period. I don't believe that it's going to be sustainable -- sustained at those levels as we go forward, but we've had some reasonably large investments into Australasia. But we've put money into South Africa, into Czech, into the U.K., and we'll see that continue maybe not at the same, as I said, at the same levels.

Cash and cash equivalents at ZAR 5.8 billion. The net debt is up a little, ZAR 4.7 billion. But as a percentage of the EBITDA, it's only up 10 basis points from 0.5 to 0.6, and still from our perspective significant headroom within the group to take advantage of the opportunities.

The balance sheet, the financial position continues to be strong. I think if you look at the mix of debt short term versus cash in long term, principally, we are invested long term or have long-term debt. We have been through a period of refinancing. In the current year, we refinanced most of the euro exposure that we had. We've got some SIBOR and HIBOR rates or exposure coming up in the next 6 months, which we will roll over again. So I think as we go to the next 6 months, we certainly will have a lot of that long-term debt re-termed into the long term.

Risk management, as we said over many period -- many years, the debt is matched to the underlying assets. So we have a natural hedge across the group, and that's how we run it, and we're very hard on making sure that we continue with that principle. When we go to bed at night, whatever time it is, whenever it is, in whatever part of the world it is, you know that you're not going to wake up with a currency exposure in the morning.

In terms of the solvency, we believe the group is strong. Debt to equity of 16% versus 13% last year. I spoke about the net debt to annualized EBITDA and trading profit cover at 23.3x is significant and gives us a lot of headroom.

On returns, they have diluted a little bit. As Bernard indicated, you have to invest. You can't necessarily control these things as and when you do. But I think the key thing is to make sure over time that we continue to get the returns out of this new investment that we've made.

Just going forward, we know the group has got a strong financial base, and that will give us the ability to continue to generate, hopefully, good growth going forward. We are going to see some absorption into H1 of 2020 so I'm just giving you some warning there. We will be rolling over further debt in H1 2020. And as I said, the core philosophies of hedging as to liabilities remains as we are. We are managing these businesses in their local currencies, and that's obviously a core fundamental of the group. And that's how we manage the -- or measure these businesses and obviously, returns is a key driver of how we're performing.

IFRS 16 impacts, there's a slide on the back of the book. It gives you a lot more on the technical side, but in reality, we will be putting lease liabilities of about ZAR 5.1 billion on to the balance sheet. Right-of-use assets of about ZAR 4.2 billion. Impact on earnings is principally negligible, somewhere between maybe ZAR 10 million or ZAR 20 million pretax. So that isn't going to materially impact our growth next year. And I think pleasing for me, the net debt to EBITDA even on the current basis only gets to 1.1x, which is way below any of our covenants, certainly in terms of our banking relationships. And still, notwithstanding that, even though those are excluded from our current covenants, gives us adequate headroom to fund our growth via acquisitive or organic.

I think the other thing to note is if you bring those right-of-use assets onto the balance sheet, we own approximately 70% of our properties. So they are strategic, those that we own and 82% of our vehicles. So we have over many years invested into the assets of the business. And I think if you look at some of the numbers certain -- certainly, in terms of IFRS impacts coming out of other businesses around the world and in South Africa, I think that's been a real advantage and will be a strength of the group going forward.

Currency volatility will remain as you can rightly guess. Our international shareholder base is down slightly at 49%. This is obviously measured as of June. But I think there has been risk off in emerging markets generally, and we have, I guess, seen some of that slide. And all I can say is, really, from our perspective, we're certainly budgeting for real growth in earnings in 2020. So I'll ask Bernard to take questions.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [7]

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Okay. We'll take questions from the floor first, and then we'll take them from the webcast or call-ins. [Ruby], it would be remiss of us not to give Ruby the first.

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Questions and Answers

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Unidentified Analyst, [1]

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May I congratulate you, first of all, you and your management on a set of sporting results. However, I still have some questions.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [2]

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Positive. Good to be true.

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Unidentified Analyst, [3]

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Yes. I noticed on the current assets that the item assets classified as held for sale have increased by ZAR 350 million. Whereas the same item, I believe, under current liabilities has increased by ZAR 504 million. That suggests at first glance that you've sold none of the assets from the previous year, and in fact, the liable differential has gone up. I don't wish to be facetious about this, but if you were to give the businesses away for ZAR 0.01, you would improve the balance sheet by a considerable number of hundreds of millions. What is the story about those assets and those liabilities?

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David Edward Cleasby, Bid Corporation Limited - CFO & Executive Director [4]

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Well, they relate to the CD business, as we've spoken about, and they were there last year and they have -- and they are still there this year. Not all those assets and -- or most of the assets, but all those liabilities will be sold in that activity. So net liability, which I think that the net is about ZAR 170 million, isn't necessarily going to crystallize in the sale. Those will stay with the group. It's a function of working capital. These are very working capital-intensive businesses. As I said, the cutoff was very difficult in this particular year. So I mean, there nothing really to worry other than it's a cutoff and working capital-related issue.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [5]

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And the differential between the 2 years between the liabilities less the assets has remained constant.

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Unidentified Analyst, [6]

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Then I looked at the borrowings, there has been a major shifts from long term into short term. The long-term portion has decreased by approximately ZAR 1.3 billion, but the short-term portion has gone up by ZAR 2.4 billion. Does this suggest that the short-term portion is to be paid within the next 12 months? And why is there a move, such a masked -- marked move from long term to short term?

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David Edward Cleasby, Bid Corporation Limited - CFO & Executive Director [7]

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Well. The move is principally as a result of 2 things. Last year, we had some euro funding that was in short term, which we've turned now for 3 years, so that's moved to long term. We've got some SIBOR and HIBOR, Hong Kong and Sing dollar funding that was 2 years out, and needs to be refinanced. It will happen in half 1 of this year, and we'll push that into long term as we go forward into half 2. So you'll see that shift, as I said earlier, that shifts more into long term than short term.

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Dave Eliot;Integral Asset Management;CEO, [8]

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Dave Eliot, Integral Asset Management. How has the use of technology changed the way you run your business now as compared to, say, 3, 4 years ago?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [9]

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Well. Look, for us, technology is not a -- we don't see it as a revolutionary shift change in what we do. We've -- I guess, we were early adopters of technology. If you go back to 2001, I think we've introduced our first e-commerce trading platform. But technology is absolutely part of what we do. It's part of reality. And it's a continual path of how you adapt -- adopt technology into your business, how you adapt your business to accept technology as well. At the end of the day, that we still -- and I was speaking to somebody yesterday about it, we're still a real business. We have real products in real warehouses that need go on real trucks to real customers. And technology can maybe make that process more efficient or can maybe make that process less costly or it can reduce time. But we still have to do a lot of real stuff in the business.

It's very difficult to say how it's changed the business because it's a continual path that you're on. And it's integral into what we do, and it's an integral strength of our business and that technology that is developed or used in one jurisdiction will then get rolled out to the rest of the business. But on average, we're conducting about 60% of our business with our customers is transacted electronically on the order side, on the transactional basis. We still believe we're a relationship business so we don't want to take sales reps out of the field. We absolutely want to keep them in the field but use them for more value add activity than taking an order. There's a lot of technology that's happening behind the scenes. I don't want to talk too much about it because I think it's a competitive advantage. In terms of artificial intelligence, data analytics, we've got a huge amount of data. Like I said, we're doing ZAR 15 million of sales every hour to hundreds of thousands of customers across millions of products. There's a lot of data there that we can utilize and make some sense out of and make marginal changes, et cetera.

From a warehousing point of view, the technology, we haven't gone to automated warehousing because we don't believe the investment yet justifies the return that you'll get out of it. We don't want to be at the bleeding edge, but we're looking at that relatively carefully. So I know it's a long-winded answer. I actually can't give you an accurate answer, but technology is a very, very important part of that business, but we don't want to pretend we're a technology business either. We're a real business, that technology will be a key differentiator and a key competitive advantage in our environment. In the front here.

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Ian Cruickshanks;SA Institute of Race Relations;Chief Economist, [10]

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Ian Cruickshanks, SA Institute of Race Relations. In this slide, on underlying financial performance solid, you mentioned gross margin up at 23.9% for June from 23.3% translates to EBITDA of 6.2 and trading margin 5.2. By global standards, these are terrific margins. Is this -- is there a risk that we're seeing those are going to attract a lot more competition? And do you actually see that developing and that would put a cap on further improvements from your side?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [11]

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Look, I think generally, our margins are very good. And I have said before that you can't push the margins too far because you will become uncompetitive. However, the margins don't only come from the sales side. Because on the sales side, you're operating in a competitive market wherever we are. And we don't have dominant market positions. We have 15% market shares -- 10% market shares. We're operating in highly, highly competitive markets in highly competitive commodities. The margin also comes on the procurement side, and that's one of our advantages. It's coming on our integration on manufacturing, on value add. A lot of our customers are exceptionally challenged at the moment in terms of space. It's very expensive for them. They can't afford to hold a whole lot of product. They're also exceptionally challenged on skills. They can't get skills into the kitchen to do menial work. Therefore, they're looking to people like us to give them a solution that enables them to cut cost out of their kitchen, and we see a great opportunity in that, and that's the vertical integration we're talking. If we can give them something that's precooked, that's presliced, pre diced, pre marinated, pre seasoned, pre mixed, whatever, that just takes some tedious part out of the process, they can then take this product and work their magic and play to that and make it look beautiful and charge the customer the correct price. So the margin, we operate in a very competitive sales environment, and we have to -- any improvement really comes out of cost-efficiency, which is very difficult and out of procurement opportunities. Have we got anyone online? Or I don't know how we handle this, Mark?

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Operator [12]

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There are no questions from the lines.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [13]

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Bernard, David, we've got a few questions here online. The first one comes from Dua Sharat from Fiera Capital, and the question is why have you exited the fresh business in Australia?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [14]

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Because we could. Look, just because you're in something doesn't mean you should stay in something. And there's no harm in being in things, seeing if it works for you if it's not really correct for you then you need to make a decision. Does that mean that strategically, we're going to get out of fresh elsewhere? No, it doesn't. One of the great strengths of our business is that we run a decentralized business, and we recognize that every jurisdiction is different, every country is different, the dynamics are different and the market structures are different. In Australia, we've been in the fresh business maybe for about 10 years, 12 years now. We were marginally successful. We determined that we'd never be hugely successful because on the competitive side, the barriers to entry were very low. There wasn't necessarily compliance with the same sets of rules and regulations that we had. As long as you had a van and could get access to the produce markets, you could adequately compete against us. There wasn't a whole lot of differentiation between the lettuce we sold and the lettuce somebody else sold or the tomatoes or the pumpkins because essentially, we couldn't really differentiate that we're selling a commodity like it. So an opportunity came where a more suitable owner approached us with a deal that made a whole lot of sense for us to do, and we looked at that transaction in the Australian context, made sense to do that, and they took the decision which we supported to exit that component of the business. It's fair to say in other jurisdictions, it works very well. And in certain jurisdictions, it hasn't worked well. In the Czech Republic where they've got a phenomenal business, and have a peak performance in their business, they are struggling with a fresh business as well for the exact same reasons I mentioned. That's market structural. And what's the point of flogging a dead horse? If it's not working for us, let's put our efforts and energies elsewhere and see where we can enhance our business elsewhere.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [15]

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We've got 2 questions from Warren Riley, Bateleur Capital. The first one is European trading profit growth slowed in 2H to plus 2% from plus 16% in the first half. Was this slowdown largely due to Spain and Germany? Or did you see slowdown across all regions? Do you expect growth run rate to improve from the second half?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [16]

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I can't give you an absolute accurate answer to that, but I would say the majority of the slowdown would be attributable to Spain and Germany. The other businesses continued to perform on the same trajectory that they were performing at before. I can't give you the absolute exact numbers because I haven't looked at it in that context. But certainly, Spain, after the ERP implementation, we identified a few things, and there were some disruptions to the business in that period. Germany is a much smaller, a much smaller impact. But the rest of the businesses, I believe, continue to perform very well. Having said that, there might be something in the cycling through the previous year that were coming off a very high base in places like Czech and maybe the growth rates have slowed slightly. If you take out the Spanish issue, looking forward, we don't see that the growth rates are as subdued as the 2%. We're very confident of continued growth that previous types or previous levels, but at acceptable levels in that jurisdiction.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [17]

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Thanks, Bernard. Follow-up question from Warren Riley at Bateleur. Discontinued operations cash outflow was ZAR 582 million in the current year. Do you foresee any further cash requirements in these businesses?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [18]

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Nothing material. The cash outflow was the disposal of -- primarily the disposal of the fleet in PCL. And also, the operating losses that had to be funded in PCL, to a large degree, until we got out of that contract in May. Like I said, those businesses are operating profitably in the current year, which is kicking out some cash. So we firmly believe and hope that those dark days are behind us.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [19]

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Great. Question from Damon Buss of Electus. What concerns you most about the threat from the likes of Amazon foodservice and the structural shifts that food delivery is having on out-of-home eating?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [20]

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Amazon have been in business in the U.S. for a long time. They've been in business in the U.K. for a long time. And we haven't really seen a significant shift in our customer segment towards them as of yet. What concerns us is we don't know what we don't know, and sometimes the playing field isn't level. And their expectation on us -- and we're in one business, we're very focused on what we do is to be highly profitable, cash-generative, good dividends, et cetera. When you're competing with people whose metrics are slightly different, it makes it very -- that's very difficult. You don't know what the playing field is so that's my concern. We're not -- we really aren't playing on a level playing field here so you don't know what's going to happen with that.

All I do know is we do -- we do what we do relatively well, and we continue to strive to do it better, to be an important part of the customers' operation. So that when there is a disruption from an Amazon, and let's take that one first or anybody else, by the way, you have to say why would the customer want to leave? Why aren't we satisfying the customers' requirements? Is it only about price? There are some customers who are only about price. Absolutely. And they shop around anyway they have multiple suppliers, they pick the hours out of it, there's lot of the contractual business that we walk away from because it is only price focused.

But when you look at the service element, which is important for a restaurateur, they need to know that what they order they're going to get when they need it in the time window that they need it. And that's across fresh, frozen, chilled, dry, short life, longer life, fragile, alcohol, et cetera. They don't necessarily want 15 different deliveries coming from 15 different couriers at 15 different times at different temperatures, et cetera. And us and our competitors do that relatively well. Our competitors do the same as us, and we do it relatively well and offer a very reasonable service with very quick turnaround. And our strategy over the last few years is talking about the last mile and getting closer to the customer is absolutely integral to that strategy. We want to make sure that our customers can order from us, when they finish service tonight, they're going to get it tomorrow morning, they can order from us in the morning, they're going to get it that afternoon. And that's what we do across multiple temperature zones, lots of different products.

The second one was the delivery segment and what worries me about it. Yes, at this point in time, what worries me about it is I think that the delivery segment is going to have a major impact on the restaurant segment that a lot of restaurateurs are now becoming unprofitable because a big chunk of their business is delivered by these delivery companies, and they're paying a 35%, 30%, 35% commission. And when it was marginal, that was fine. But now it's becoming a big part of their business, they are making no money on it, and a lot of restaurateurs are saying that it's the partner they never wanted. They're struggling to get out of that. They're not getting -- it's just not working for them anymore. So my concern is more from the restaurant side. Yes, I think that needs to find its equilibrium as well. I've said it before, do people only want to eat at home? Do you want every one of your meals delivered? Or do you actually want to go out and have a social occasion as well? And I think there's an equilibrium in that.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [21]

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[Jared Houston of Akenson] How much of the CapEx is maintenance?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [22]

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My learned colleague right here tells me that it's approximately ZAR 1.5 billion, ZAR 1.3 billion, which is similar to the depreciation. There's a very fine line between what you call maintenance and what you call expansion because a lot of our expansion is actually maintenance as well. When you take an old facility and you're investing in new facility, but you're moving that capacity that business from the old facility into the new facility. So a portion of that is maintenance and a portion of it is investment. So that's quite a difficult question to answer. But the bulk of the CapEx, when you look at the construction of it, it's land and buildings, which are warehouses and it's trucks, and then there's a little bit spent on computers, et cetera.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [23]

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Peter from Mergence. He asked a question, please confirm the group constant currency revenue growth rate was 4.7% in 2019 versus 6.8% in the first half, which implies that second half growth was below 3%. Is this a true reflection of operational trends? Or are there any other technical reasons?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [24]

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If those are the numbers, I'm not sure what they are, but I assume that's correct. That 4.7% for the year is correct. We have continued to exit some low-margin business in Australia primarily. In the U.K., we exited. In Holland, we've exited. So there's a combination of that. We haven't seen the slowdown in turnover or profitability in the second 6 months -- from the first 6 months in the core business that we measure. So I guess we have moved away from some larger contract type of customers, and that's reflected in the revenue line. But I haven't noticed the trend in our focused market.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [25]

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Nick Webster from HSBC asked the following. Firstly, you talked about growing Australia more around profits and top line, but should we not expect an improving top line from the new footprint around the major metros? And secondly, how should we think about the margin recovery in the emerging market segment in financial year 2020 in the context of the improvements you're now seeing in China? He says thank you.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [26]

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So the first question was Australian top line growth, should we see that?

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [27]

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Yes. The new metro strategy.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [28]

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Yes. On the new metro strategy, we're absolutely seeing the benefits. I can tell you in the Melbourne one which has been going the longest, which has probably been going about 2.5 years, we saw growth of 20% in revenue in the core market that we want to measure. Now obviously, in there you've got some contract business that we walked away from so I'm not sure what the net comes down to but it's 20% growth in the sweet spot where we want to operate. Australia, we'll see revenue growth this year. Although there are still some, like I said, there's a continuum of low-margin customers, customers who are only price conscious and we'll walk away from those. But the metro strategy has absolutely proved its worth. The Brisbane one is the next largest. It's not as large as 20%. And Sydney is trailing a little bit, but that's more execution than it is the principle. What was the second question?

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [29]

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How should we think about the margin recovery in the emerging market segment? This is in the coming fiscal.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [30]

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Yes. Look at this, there's 2 components there. There's South Africa and there's China. Because South Africa did only achieve, I think, it was about 2% growth so their margins were down year-on-year. And we should see that recover although that's a tough environment. We will see the China part or Greater China recover, but I'm putting some caution on to Hong Kong. And at this stage, Hong Kong and China are 50-50. We're coming out of a bad period in China. I don't know what the impact on Hong Kong is going to be. So I'm not saying we're going to get back to where we were a year ago. We might be in for quite a tough year in Hong Kong, which might offset the gains we see in China. That might not be bad, I don't really know.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [31]

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Question for Michael Jacks at Merrill Lynch. He's got 2 questions. I'll read the first one out. Bernard and David, can you please give us an indication of Mainland China revenues as a percentage of the group and for Hong Kong and an idea of margin evolution in Mainland China?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [32]

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I think David will have to get back to you with exact numbers because I actually don't have them on hand. And I'm not sure we want to give the granular detail down to that level. So maybe David will take that offline.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [33]

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Secondly, with reference to David's guidance for a working capital drawdown in H1 fiscal 2020, please, can you give a bit more clarity, given the high absorption in the U.K. 60% of group absorption? And given the Sunday year-end, I would've expected lower absorption in the first half of 2020?

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David Edward Cleasby, Bid Corporation Limited - CFO & Executive Director [34]

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Well, I think it's relative to what happened in the first half of '19 so kind of the year-end. I think there was ZAR 1.8 billion of absorption, and I would expect that amount to be similar. It's a cycle in the first half.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [35]

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And the 31st of December is always a bad cattle. Because it always is the day before public holiday after Christmas. Whereas the Sunday, the 30th of June was a one-off bad because it happened to fall on a Sunday.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [36]

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[Stuart Acostadinof of Orinack Finance]. Could you please explain again the reasons of the underperformance in Spain except the integration of Guzmán?

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [37]

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It's a new acquisition. It's only 2 years old. We've put in a new -- we had -- they were disparate businesses that were sold as part of the private equity deal when we bought the Guzmán business across the geographies, and we had to go through the process of integrating them and making it into one business. So we had multiple head offices in multiple functionality, which we had to put into one. We had to put in a single ERP system across the business, and these things are painful. Like I say, we put a lot of effort into making sure we didn't lose any top line. And no, we didn't lose any top line. The ERP implementation caused disruption. People don't like change. Things never go smoothly as you plan. There were some disruption. There were some cost. We saw that happen from March onwards. We think we're through the worst of it. The business is now on reasonable shape. Like I said, we're not going to be at optimal levels for 1 year or 2. But we certainly think we're out of the worst of it, and we're seeing a much improved performance out of Spain.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [38]

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[Simi Kee] of JPMorgan Asset Management. Can you please provide more details on your Spain business? It was only bought 2 years ago, if I remember correctly. With a hindsight, is there anything you could have done better? Thank you.

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [39]

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Hindsight is a wonderful thing. Like I said, if my grandmother had will, she would've been a motorbike. We're very happy with the acquisition. We're absolutely happy with the acquisition. Now our philosophy is a decentralized, entrepreneurial business. We've got a great -- we put a great deal of faith and confidence in our management teams. And we're not miracle workers. Sometimes, these things go exceptionally well. Sometimes they take a little bit longer. In hindsight, will we do the deal again? Yes, we would. We had some of our global competitors who were very, very eager to do the deal. I told you that story before. Yes, these things just take a little bit of time. We've got every confidence. It's a great market. I think Spain is the fastest-growing economy in Europe or in Western Europe. We've got a great business. Like I say, we haven't lost top line. We've got a great business in Portugal. We've got a great business in [Nigasa] in Basque country. Our meat business is relatively satisfactory. And it's purely the core legacy Guzmán business that we got a bit of work to do. So we're very happy with where we at obviously, we'd be ecstatic if it was operating at the levels that would make us happy.

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Mark Ingham;The Investment Analysts Society of South Africa;Board Member, [40]

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David there seems to be...

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Bernard Larry Berson, Bid Corporation Limited - Chief Executive & Executive Director [41]

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Okay. Thank you. They're dropping like flies out here. I guess we better wrap it up. Obviously, they want food, most of them came for the food not for the questions. So thank you, everybody. I really do appreciate your attendance and look forward to seeing you all again. Thank you.