CATERPLUS

Highlights		Brent Varcoe, managing director, Caterplus
Trading profit up 13,1% to R203 million with revenue 10,8% higher at R2,7 billion   Working capital focus ensures strong cash generation   Solution-based selling drives market-share growth in a shrinking market   Customers embrace our drive to improve efficiencies by ordering more per drop   Regional structures rationalised   Blue Marine Cape and First Foods move into purpose-built Cape Town premises

Strategic positioning

In a sometimes fragmented and localised market, we are differentiated by national reach, product quality, reliability, wide range and “grow-the-basket” opportunities that enable our customers to achieve efficiencies. Solutions such as this translate into enduring relationships.

Sustainable development

Caterplus is expanding their house brands to leverage competitive advantage from its high quality standards. Suppliers will be audited in a food safety and quality drive to establish industry leadership.

Advanced technologies pioneered at our Linbro Park centre have helped our new Cape Town distribution centre to reduce its carbon footprint. A specialist contractor now collects and processes Linbro Park’s solid waste to the latest waste-handling standards.

Our pilot biodiesel fuel programme continues and we plant trees in our effort to achieve carbon neutrality.

The company suffered strike action during wage negotiations. Reinforcing our commitment to good industrial relations, we retrained all operations management in HR and IR skills.

In partnership with the University of KwaZulu-Natal, a supervisor management training programme has been developed. The pilot programme began with 17 candidates.

Improved employee value systems (embodied in First for Service), tighter security and improved surveillance have cut the incidence of stock theft.

A black female national transformation manager now drives recruitment, training and development, and employment equity reporting. We have obtained our first separate Empowerdex rating. Additional sustainability information is available on the Bidvest website.

Performance

Good results were achieved. Trading profit rose 13,1% to R203 million (R179 million). Continuing food inflation helped to drive revenue 10,8% higher to R2,7 billion (R2,4 billion). The division remained strongly cash generative thanks to continued focus on working capital management. Volumes were under pressure as the market contracted over the year.

Benchmarks

All business units develop a business plan. Performance is tracked against budget and prior year in a transparent fashion so all branches can benchmark themselves against each other. Numerous yardsticks are applied.

Incentives are linked to target achievement, though the weightings in each area are periodically adjusted to reflect strategic priorities. Sales were a focus area.

We fell marginally below financial budgets as the worldwide economic crisis deepened, though some teams did extremely well in difficult conditions. Despite a worsening economic environment, reductions were achieved in both the level of stock losses and the incidence of bad debt. Stock control improved, but we were still below target.

Strategic dynamics

Contraction of the South African economy in our second, third and fourth quarters had an immediate effect as the foodservice and hospitality industry is sensitive to general economic conditions.

The weaker rand over the second and third quarters ensured continuing inflationary pressure on the imported element in some food categories while the benefit of the stronger rand in the last quarter was slow to come through.

Lower fuel prices were beneficial, though softer interest rates from December 2008 had little immediate effect.

The most significant macro-factor was the suddenness with which stricter bank lending criteria was applied.

Industry dynamics

Bank facilities were abruptly reined in and many businesses compensated by looking for extended terms from their suppliers or unilaterally delayed payments.

Restaurant failures continued to increase over the year. Restaurant visits and spend per head declined while food inflation reduced margins because of the difficulty in passing on increases to the consumer. Despite mounting casualties, the restaurant market still appears to be over-traded and restaurant closures continued into mid-2009.

The hotel market remained under pressure, despite increased sports tourism. Bed-night gains attributable to incoming cricket, soccer and rugby fans were more than cancelled out by cutbacks in business travel. Conference cancellations also impact volumes.

Consumers not only cut down on restaurant visits, they also curtailed canteen visits. For industrial caterers, the return of the lunchbox drove down foot-traffic and the spend per head.

Food inflation eased only gradually, though food deflation was evident in certain categories; for example, fats and oils.

Brand dynamics

We reacted to lower volumes by widening the range of house and exclusive brands such as Southern Seas, Pacific West and Simply Gourmet. The value offering of our house and exclusive brands contributed to high customer retention.

Plans to launch a new house brand – Cooking With – were nearing completion at year-end.

Our corporate brands such as Sea World, Chipkins, Blue Marine and First Food are long-established with a reputation for reliability, value and quality – key attributes as customers looked for savings in a tough market.

Operational dynamics

Volume pressures increased and margin pressure became intense, largely as a result of contraction within a highly competitive environment.

We offer the widest range in our industry. By focusing on a strategy of selling solutions to our customers, we were able to grow our market share and counteract falling volumes, despite a shrinking customer-base. The strategy was welcomed by many customers as they can achieve operational efficiencies through a relationship with a broadline supplier capable of meeting diverse needs on a single drop.

We increased the average value per delivery. Gross margin erosion could not be reversed, though the implementation of efficiencies enabled us to maintain our operating margin.

Credit management became key as industry insolvencies rose. Reductions to the customer-base caused by non-payment or business failure created distribution challenges as routes had to be constantly changed to ensure delivery efficiency. The vehicle fleet was reduced by 10%.

Sales teams were under pressure to sell more to customers in good standing as the customer list contracted with every passing month.

New initiatives

Cost control intensified and regional structures were rationalised. In the Eastern Cape, two operations were merged into one while in the Western Cape three units were merged into two consolidated operations.

The Blue Marine Cape and First Foods businesses moved into new purpose-built premises near Cape Town International Airport. Capacity at the new building has been greatly expanded.

Rationalisation and a freeze on new hiring led to a net loss of 40 jobs. However, retrenchment programmes were avoided.

Risks to the business

Credit risk remains the major risk and increased provision for bad debt had to be made. Crime, specifically theft, is another major risk. Mitigation efforts are constant.

Risk to margins posed by margin squeeze across the contracting industry is being managed by delivering efficiencies.

Organisational culture

The organisation is a decentralised, customer-focused business. The divisional office performs a support role to the business units and adds value through various centralised functional activities. Team spirit and communication are good. Our people take pride in pulling their weight and responding to challenging conditions.

Future

Lower interest rates have so far had little effect on consumer spending. But as job fears ease and the economy begins to recover, we look for some improvement; especially as the festive season approaches. The restaurant crisis should ease as the year progresses and the second half of the year should see improved trading running up to the World Cup.

We are cautiously optimistic that by half year we will have seen the worst of the economic crisis.