Business context and trading conditions

The trading environment was exceptionally competitive and replacement of world cup year volumes was a challenge. Food deflation for most of the year was negative for us. When price rises occurred, it became increasingly difficult to pass them on in full.

The retail sector came under pressure from price-sensitive shoppers, with severe knock-on effects for a food brands distributor like Speciality. Retailers reported an 8,4% drop in sales of food, beverages and tobacco.

Belt-tightening by consumers impacted Bidvest Foodservice in key areas such as the restaurant and industrial catering sectors. Even so, the business managed to grow its sales through market-share gains.

Lower tourist volumes contributed to falling hotel occupancy, another negative for our foodservice business.

Our businesses continued to invest in the future with capital expenditure of R60,7 million.

The food and foodservice industries are exposed to a wide range of risks. Environmental and climatic factors such as drought, floods and natural disasters in several parts of the world had knock-on effects on food production.

Food safety is a critical area for us. Risks are managed by sustained investment in modern systems and equipment.

Continually changing legislation is another challenge. The Consumer Protection Act creates new demands on us and our suppliers. We liaise closely with suppliers to ensure they are aware of new standards while stepping up our own resources. Labels are a focus area as claims and nutritional information are stringently regulated.

Our sector is highly dynamic, and we monitor all new developments. One trend is the growth of private label ranges in the retail sector. Some retailers have also begun to bring in their own imports. This has obvious impact on a food brand distributor such as Speciality.

This risk is managed by maintaining a quality profile in Speciality’s brand basket while ensuring that leaders with a strong consumer following are well represented. The business has also been successful in widening its customer base, thereby reducing any reliance on one channel to market.

Performance

Revenue eased 0,7% higher to R5,4 billion (2010: R5,4 billion), but trading profit fell 15,0% to R356,1 million (2010: R418,9 million).

Despite severe margin erosion, the business remained highly cash generative. Management of funds employed was a focus area. Strict credit control was maintained.

Market-share gains were achieved in a highly competitive environment while efficiency improvements were secured through technological innovation.

Acquisitive growth continued with the purchase of the A&S businesses by foodservice subject to regulatory approval.

By year-end the first signs of improvement in the restaurant channel suggested consumer pressures may be easing.

Branch consolidation and the transitioning of operations into multi-temperature businesses continued along with ERP system integration across a unified platform. Bidfood Ingredients grew sales, but margin pressure intensified and trading profit fell.

Sustainability

We are moving toward a more integrated approach to the management of our environmental impact. Bidvest Foodservice SA has drafted an environmental management policy to be approved in October 2011.

This policy proposes environmental targets for July 2013. These include reducing emissions of CO2 equivalent by 5%, and cutting energy use and water consumption by 5%. We aim to recycle 90% of all waste. Performance indicators will be included in our internal audits and reported quarterly.

Other initiatives address climate change concerns. All new refrigeration and freezer installations use a more environmentally friendly cooling agent. Only specific brand vehicles are purchased for our distribution fleet, owing to their lower emissions. All vehicles lighter than six tonnes are replaced after 350 000km and heavier vehicles after 600 000km. Diesel consumption remained constant, and petrol consumption fell by 10,5% at Bidvest Foodservice Southern Africa.

We recycle about 60% of our waste, though Johannesburg facilities come closer to 80%. As we only handle products just prior to distribution, we must engage with our suppliers to significantly reduce packaging waste.

Water use increased significantly with the addition of a new facility in Cape Town.

Last year we participated in the South African Sustainable Seafood Initiative (SASSI). We are considering an eco-label such as Marine Stewardship Council (MSC) certification, and educating customers about seafood sustainability. We also have a formal policy to procure and promote sustainable seafood.

Bidvest Speciality runs schemes to reduce fuel, electricity and water consumption and manage waste. All solid waste is sorted and recycled. Bidvest Ingredients continues to increase the number of efficiency indicators measured.

The increase in lost-time injury frequency rate is primarily the result of improved reporting.

This year we offered more bursaries and learnerships to employees, reflected in increased training spend.

Total corporate social investment spend rose significantly this year. Bidvest Speciality, for example, donates R1,2 million in stock to various NGOs as part of its social commitment. Foodservice SA also supports McCarthy’s Rally to Read and Reach for a Dream programmes and various orphanages and homes for the elderly and infirm.