BIDFOOD Ingredients

Highlights

Charles Singer, chief executive, Bidfood Ingredients   Satisfactory trading profit while cash flows remain strong    International partnerships widen   Chipkins and Crown National maintain growth   Momentum maintained after bakery ingredients turnaround

Strategic positioning

Bidfood Ingredients has specialist, in-depth focus in every food ingredients sector and niche that we serve, creating a detailed knowledge-base that enables us to anticipate demands and provide insightful product solutions. In this way, we operate as a strong reliable partner of our customers, helping them provide more value to their own customers.

Sustainable development

Our new Makrosafe trademark is backed by stringent food safety and quality standards. We have created a food safety department headed by a doctor of food science, establishing a reputation for food safety that bestows competitive advantage. Customer audits confirm continuing improvement and we are working towards ISO 22000, regarded as the world’s most stringent food safety accreditation.

To foster skills development we have set up a chef school at the University of Johannesburg at a cost of R250 000.

Employment equity is a focus area in our drive to take our empowerment status from level 5 to 4. A consultant has been called in to help us draft and implement a new employment equity plan. Local teams have been made responsible for their BEE targets.

An HIV/Aids awareness programme revealed a prevalence rate of about 18%.

We have improved fuel efficiency in our logistics operations and are engaging with regulators to reduce pollution risks. Recommended changes were implemented by our Durban yeast factory before annual renewal of our effluent permit. We are working on recycling opportunities for this effluent. Waste recycling is being managed by an external consultant. Additional sustainability information is available on the Bidvest website.

Performance

Though the business was affected by higher debt provisions, a satisfactory trading profit was achieved of R152,1 million (2008: R144,5 million). Revenue was up 14,9% at R1,7 billion (2008: R1,5 billion). Cash flows remained strong.

Benchmarks

Benchmarking is generally based on set objectives, with all teams incentivised to out-perform targets. Benchmarks are set in numerous performance areas, including profitability, working capital management and return on funds employed. Operations engage in sales and efficiency drives, while specific customer groups receive focused attention.

With the exception of NCP, teams performed to budget in the first half, but trading conditions worsened as the year wore on and the effects of the economic downturn impacted negatively on trading volumes and led to isolated cases of bad debt.

Strategic dynamics

Previously high food inflation was followed by lower inflation and deflation in some food groups. Another key change was the switch from persistent rand weakness to second-half rand strength. The rapid change in credit conditions had severe impact. As banks curtailed facilities we applied rigorous credit control and stopped supplying some customers.

Industry dynamics

De-stocking became a challenge. In the slowing economy, consumers became cost-conscious and traded down. The impacts are cushioned at Bidfood Ingredients as we supply customers that draw benefit from the focus on staples and affordable options, enabling us to offset any fall in demand at the other end of the spectrum. We maximise opportunities by developing new products while offering solutions to customers feeling the impact of market change. A knock-on effect that cannot be avoided is price sensitivity as it affects all customers. Margin pressure increased throughout the year.

International supplies compound the inventory management challenge as lead times can extend up to 16 weeks. Deflationary pressure increased our focus on stock control.

Brand dynamics

Our brand bouquet widens constantly. For us, brand management is a function of reputation management as major local and international food companies deal only with trusted, ethical and quality-driven suppliers.

Our international reputation assures growing access to world brand leaders and late in the year we became distributors of the Cargill range of speciality solutions to food manufacturers. We also became technology partners of AB Mauri (yeast and bakery ingredient leaders).

Operational dynamics

Our business has three main operational units: Crown National (suppliers to the meat and poultry sectors), Chipkins Bakery Supplies (suppliers to the baking industry) and NCP (a manufacturer and distributor of yeast products). Bidfood Technology (the technical division) supports all operations and was expanded to include an innovation unit to develop new products and add value to customer service. Another division, Bidfood Solutions, was created towards the end of the period with the task of increasing our penetration of the general foods sector.

NCP faced abnormal price increases as a result of the shortage and pricing of molasses (a key raw material in yeast manufacturing) and was impacted by substantial margin pressure.

Momentum following the turnaround in the bakery ingredients was maintained. Product innovation also supported Chipkins’ growth.

Crown National achieved continued growth in the meat and poultry segments and expanded its range, with greater focus on specialist areas such as the home replacement meal market.

New initiatives

Our growing niche focus has created competitive advantage as we have the resources to add in-depth value in specialist areas. Niche focus was supported by new product development. This effort extends across the whole business and includes ingredients for bakeries, new meat solutions, home meal replacements, seasonings flavours and ingredients for the general food sector.

To support the innovations strategy R&D spend was primarily focused on human capital. Food safety and the supply of quality product remain key focus areas. The food science team give added momentum to this customer-service effort.

Risks to the business

Credit risk became our key challenge and required heightened vigilance and strict controls.

The effect on NCP of raw material shortages was a reminder that prices can rise suddenly in areas over which we have little control. Extensive supplier relationships are helpful, but the risk cannot be completely avoided.

The new Consumer Protection Act highlights growing food safety and quality concerns. These risks can be addressed to some extent by ongoing investment in food safety and quality assurance. We continually step up our investment in people and systems. Our strength in this area has become a source of competitive advantage.

Organisational culture

Our teams are proud of their position as leaders in the food ingredients field. They work hard to maintain this position while staying approachable and informal.

Both product integrity and personal integrity are crucial in our business. Standards are high, and that’s how our people like it. Staff turnover is low.

A participative management style applies across the organisation.

Future

We plan on continued growth and will target a double digit increase in trading profit and revenue in the coming year.

We foresee profit growth at similar levels over the next three to five years. We will continually focus on improving efficiencies and innovation as we invest in quality people and processes. However, we foresee continuing returns as we look to expand our general foods capability and obtain further benefit from our niche focus.