Bidvest Foodservice “Industry leadership depends on the ability of a business like Bidvest Foodservice to respond and achieve continual efficiencies and improvements.” Highlights “More of the same” – potential to deliver strong progress Profit impacts cushioned by operational efficiencies and savings High standards; a source of competitive advantage Local sourcing of fresh produce equals reduced “food miles”. Material issues and risks Price and margin issues impact operations, but a balanced business is able to respond well Credit risk has to be actively managed Regulation enforces constant investment, with positive impact on the competitive position of those committed to food safety, health and nutrition Reputation management remains a focus area Technology risk is rising but developments tend to favour big players.

Bernard Berson Chief executive, Bidvest Foodservice             Comprises market leading foodservice product distributors in the United Kingdom, Belgium, the Netherlands, Czech Republic, Slovakia, Poland, the Baltic States, Saudi Arabia, Turkey, the UAE, Australia, New Zealand, Singapore, Greater China, Hong Kong, Chile, Brazil and southern Africa. Bidvest leads the foodservice industry in its chosen geographies operating through strategically located independent business units servicing the catering, hospitality, leisure, bakery, poultry, meat and food processing industries.

Performance   Turnover (R’billion)   Trading profit (R’billion) People   People 2012   2013   2014   Total people 19 221   20 071   20 985   Training spend R’m (excluding bursaries and learnerships) 19,2   20,9   17,0   CSI spend R’m (including bursaries) 9,0   9,3   10,0   Planet   Carbon emissions 2012   2013   2014   Total Tonnes of CO2 269 719   266 151   319 539   Emissions per FTE 14,03   13,26   14,84   Asia Pacific 77 528   84 257   91 205   Europe 131 789   129 123   171 304   Southern Africa 60 401   52 772   57 030   “Good environmental practice is sound business practice. Reducing energy consumption, managing waste responsibly, recycling and reduced usage deliver cost savings and efficiencies.” Bernard Berson QUICK LINK: Comparative sustainability data http://www.bidvest.com/ar/bidvest_ar2014/sus-com-data.php QUICK LINK: Bidvest greenhouse gas inventory http://overendstudio.com/online_reports/bidvest_ar2014/pdf/greenhouse-carbon-footprint.pdf

Operational review

Turnover R62,2 billion Employees 11 892
		Bidvest 3663 Andrew Selley Managing director		Bidvest Logistics UK Shaun Foley Managing director		Bidvest Fresh UK Stephen Oswald Managing director
		QUICK LINK: Bidvest 3663		QUICK LINK: Bidvest Logistics UK		QUICK LINK: Bidvest Fresh UK
Bidvest Belgium Thierry Legat Managing director		Bidvest Czech Republic and Slovakia Bohumil Volf Managing director		Bidvest Deli XL Netherlands Dick Slootweg Managing director		Farutex Poland Paweł Swiechowicz Director
QUICK LINK: Bidvest Belgium		QUICK LINK: Bidvest Czech Republic and Slovakia		QUICK LINK: Bidvest Deli XL Netherlands		QUICK LINK: Farutex Poland
Bidvest Foodservice Middle East Hisham Al Jamil Managing director		Bidvest Baltics Ramunas Makutenas Managing director				Foodservice Europe Stephen Bender Chief financial officer
QUICK LINK: Bidvest Foodservice Middle East		QUICK LINK: Bidvest Baltics				QUICK LINK: Bidvest Baltics

Turnover R33,5 billion Employees 5 348 Bidvest Australia Rachel Ruggiero Chief executive   Bidvest New Zealand Nigel Boswell Managing director   Angliss Asia Johnny Kang Regional managing director: Asia   QUICK LINK: Foodservice Asia Pacific   QUICK LINK: Bidvest New Zealand   QUICK LINK: Angliss Asia             Bidvest Chile Gabriel Abramovicz Chief executive   Brazil Antonio Celso Dias Avelino Managing director   Foodservice Asia Pacific Barry Plit Chief financial officer             QUICK LINK: Foodservice Asia Pacific     Turnover R6,6 billion Employees 3 745         Food Southern Africa Klaas Havenga Chief executive   Food Southern Africa Ryan Licht Chief financial officer   Bidvest Food Ingredients John Morris Managing director     QUICK LINK: Foodservice Southern Africa   QUICK LINK: Foodservice Southern Africa   QUICK LINK: Foodservice Food ingredients       Bidvest Foodservice Brent Varcoe Managing director   Bidvest Food Exports Karel Meyer Managing director   Bidvest Bakery Solutions Nigel Phillips Managing director   Patleys John MacKay Managing director QUICK LINK: Foodservice   QUICK LINK: Foodservice Food Exports   QUICK LINK: Foodservice Bakery Solutions   QUICK LINK: Foodservice Patleys

Future

Continued growth is expected. Economic recovery will hopefully gain momentum in some European markets, while operations in Asia Pacific and the UK look forward to continued economic growth at current levels.

Further gains will be pursued without radical departure from our current strategy. “More of the same” may appear a modest mission, but it has the potential to deliver strong progress and continued gains. However, the base may broaden.

In 2014, we entered the Brazilian market and significantly increased the size of our Chilean business. It is now the number two player in its national market. Bidvest Spain also began operations in the second half of the 2014 year. The business operates in south eastern Spain and is also represented in the Canary Islands. Our presence has also grown in the Middle East. We are now represented in Bahrain, Lebanon, Oman, Saudi Arabia, Turkey and the UAE.

Many of these operations are relatively small players in the foodservice industry. This creates room for considerable growth.

We also see strong potential in the Italian market and (effective July 1 2014) acquired a leading foodservice distributor based near Milan. It is the second-largest operator in its market. However, there is scope for significant growth while the base in northern Italy creates a source for “Made in Italy” products with worldwide appeal.

Our position in the UK has also been strengthened.

The contributions of these new Bidvest Foodservice businesses will add to the momentum achieved in 2014.

In established Bidvest geographies, we will strive for further organic growth and plan to enter some new markets. Added weight will be given to our strategy of growing our Fresh offering and the focus on centre-of-the-plate categories. Our businesses in South Africa have shown their resilience in a tough market and are positioned for stronger performance. Opportunities for growth in some other African countries will be explored.

Our Australian, New Zealand and British operations have momentum and appetite for continued market share gains. European businesses are making significant progress, with more to come. In China, mainland expansion has produced good results. This encourages us to explore opportunities to open operations in more Chinese cities.

Though economic recovery may be helpful in some markets, trading conditions are likely to remain challenging. We expect management across Bidvest Foodservice to successfully meet this challenge. Where appropriate, further opportunities for acquisitive growth will be investigated.

International perspective

Economic recovery – though sometimes slow and hesitant – was apparent in most geographies in which we are active. The principal exception was South Africa where the economy threatened to return to outright recession for a time.

Asia Pacific jurisdictions continued to enjoy relatively good growth. The Chinese economy achieved the expected “soft landing”, with beneficial effects across the wider region. There were some mixed results within the Australian economy, but business conditions were generally positive. New Zealand is among the best performers in the OECD and indicators are expected to remain positive for the foreseeable future.

In Singapore, the economy remains robust, though growth rates have dipped recently.

The picture across Europe is far from uniform, but depressed conditions are beginning to improve almost everywhere.

In the UK, a sustained recovery gained traction throughout the year, with annual growth in GDP expected to top 3%. Unemployment is falling, confidence is rising and inflation is easing higher.

The Benelux countries in Western Europe are still under pressure, though not to the same extent as South Africa. In Holland, there has been a marked slowing in the steep declines in employment and consumer confidence. In Belgium, recovery is underway.

The five-year downward spiral in Spain appears to have been arrested and levels of economic activity are picking up.

In central Europe, recovery is muted, but improvement is discernible in both the Czech Republic and Slovakia. In Poland, growth of 2,4% is expected while unemployment is on the way down.

In the Baltics, the growth rate in Lithuania is among the most robust in Europe. Latvia is also doing well, though growth remains weak in Estonia.

In the Middle Eastern countries in which Bidvest Foodservice is represented, growth rates range from 3,8% to 5,5%, with one exception. Growth in Lebanon is just 1%. Indicators are mixed. Tourism is down in some areas, but strong project development is evident in a jurisdiction like the UAE.

Our South American markets continue to reflect growth, though the level of economic activity is well off its recent peaks in Brazil. In Chile, the economy is slowing, but 3% growth for 2014 is widely expected.

Material issues

Weather and pricing – Climatic factors and food inflation/deflation can be closely linked as weather patterns clearly impact crop yields and the global pricing of agricultural commodities. A measure of inflation is generally beneficial for trading activities, but price resistance sets in quickly in consumer markets hit by slow growth. Extensive supply arrangements are helpful in managing these risks and facilitate the search for alternatives when prices move significantly higher.

Product mix and margins – Food is a basic need, underpinning solid overall demand, but social and economic factors impact specific areas of demand. In difficult economic conditions, consumer demand falls for top-end products where margins are acceptable. Aspirational brand sales may suffer and commoditisation sets in. The product mix is affected and margin pressure increases. Strong representation across all food categories and both ends of the affordability spectrum ensure volumes are maintained, though average margins may contract for a time. Profit impacts can be cushioned by intense focus on operational efficiencies and savings.

Regulatory pressures – Food is a highly regulated industry. Considerable investment is needed to ensure all standards are met (or exceeded). Government agencies are not the only ones to set high standards. Some customer groups can be just as rigorous. The net result over time benefits well-resourced businesses that make the necessary commitment to optimum food quality and safety. Trust in your standards becomes a source of competitive advantage.

Credit exposure – Some customer groups are highly sensitive to economic factors. Consumers under pressure cut back on out-of-home eating. Down-trading quickly sets in. Restaurants and some speciality retailers face volume and cash flow pressures. The risk of business failure also affects suppliers. Foodservice businesses apply rigorous credit controls to manage these risks while ensuring a diverse range of supplier relationships to guard against disruption in the event of business failure at a supplier.

Supply chain scrutiny – International media focus on unsafe factories, child labour and other abuses have sharpened reputational risk. Reputable companies like us respond by scrutinising supply arrangements, making factory and site visits and ensuring credible accreditations are in place.

Environmental concerns – Good environmental practice is sound business practice. Reducing energy consumption, managing waste responsibly, recycling and reduced usage deliver cost savings and efficiencies. Consumers in all markets are increasingly concerned about the effect on the wider environment of greenhouse gas emissions, the discharge of effluent and other environmental impacts. Industry leadership depends on the ability of a business like Bidvest Foodservice to respond and achieve continual efficiencies and improvements. Investment in new systems, modern fleets and eco-friendly solutions must be constant. Strategically located infrastructure is also necessary to enable the local sourcing of fresh produce and other products, thereby reducing “food miles”, fuel usage and exhaust emissions. Consumers are sensitive to these issues. As commercial success is dependent on close alignment with customers and the end-consumer, growth-minded businesses are incentivised to take action to ensure good environmental management.

Trend anticipation – In some respects the food industry has become a branch of the fashion industry. Certain trends (for instance, healthy eating) are long-running and will continue indefinitely. Other trends are short duration. They have impact on volumes across specific lines, but quickly fade. To respond and draw benefit, businesses must remain flexible, develop capacity for product innovation and ensure comprehensive supply arrangements.

Technology – In the past, foodservice was a low-tech industry focused on timely delivery to customers. Distribution efficiency remains key to the business, but the tools are increasingly sophisticated. Track and trace and route optimisation are critically important. E-commerce and IT are focus areas, as is food technology in support of quality assurance and the creation of nutritional products. Developments like these indicate that technology risk is rising, but these trends tend to favour well-capitalised operations capable of making timely investment in appropriate technology.

Financial performance

Good results were achieved overall, underpinned by another strong performance by Asia Pacific while the UK made a much-improved contribution. Rand weakness had a material effect on the translation of offshore earnings.

Turnover moved 23,6% higher to R102,2 billion (2013: R82,7 billion). Trading profit rose 28,0% to R3,2 billion (2013: R2,5 billion).

Acquisitions were made in Australia, South America, the Middle East, the UK and Europe, but these were generally bolt-on acquisitions of limited scale. Sales and profit gains were largely the result of organic growth, market share improvements and entry into some new markets. Margins in many jurisdictions remained under pressure.

Investment in infrastructure and technology was maintained. Capital expenditure totalled R1,7 billion (2013: R1,2 billion), up 44,2%.

Investment focused on modernisation and expansion of infrastructure, enhanced systems to add value for our customers and initiatives to improve internal controls and efficiencies. Cost containment and working capital management remain focus areas.

Though economic conditions are improving, business failure remained a material risk. Significant attention was paid to debtors’ management and collections. Bad debt was generally well controlled.

Cash generation remained strong.

Operational factors and strategy

The decentralised Bidvest model continues to drive growth and operational efficiency. Teams in each national market identify local opportunities and pursue them as they see fit. Certain developments are common across borders.

Suppliers, foodservice companies and customers have become partners in a joint quest for efficiencies and savings. Bidvest Foodservice no longer simply delivers products. We deliver solutions that cut meal preparation times, reduce waste, foster menu development at better margins and help our customers secure a reasonable profit.

Multi-temperature facilities and consolidated deliveries are now the norm in all major markets. Cost and time-efficient consolidation is expected across most product lines. However, very personal, knowledgeable support is demanded with high-value speciality products.

A twin track is apparent: high-tech, system-led efficiencies with all products, especially general product lines; “high-touch” from highly trained personnel steeped in their category when high-end products are supplied.

In recent years, down-trading by pressured consumers has sharpened the challenge of achieving acceptable margins. Our response has been to provide affordable ranges backed by service efficiencies while simultaneously looking to grow our sales of centre-of-the-plate categories such as fresh produce, meat and fish where quality is critical and margin can be defended.

At the same time, focused attention is given to the growth of free trade, where our operations can add significant value for individual local operators. The intention is to bring greater balance to the business without undue reliance on one customer or group of customers. In the free-trade environment, our value-add and the backing we give customers as a well-resourced supplier enable a degree of margin protection.

In instances where our margins came under attack from certain customers, we were not afraid to walk away from the business. Food inflation remains low in major markets, but many other cost inputs – including labour – rose significantly. A level of cost recovery is clearly justified in these circumstances.

These strategies contributed to a strong result in 2014.

Leveraging the strength of the Bidvest brand has become a strategic imperative. The Bidvest name is now associated with our businesses in Australia, the UK, New Zealand, South Africa, the Netherlands, Belgium, Czech Republic, the Baltics, Spain and Chile. The Bidvest identity will be extended to operations in Poland, Hong Kong, China and Singapore in due course.

The Bidvest name is a form of reassurance for customers. This bestows responsibility as well as commercial advantage. Supplier selection is rigorous. We insist on credible third-party certification to confirm compliance with health, safety and environmental legislation. In addition, our executives make site and factory visits to satisfy themselves about working conditions.

We consistently add to supplier relationships and source products from a growing number of territories. Continued vigilance is necessary to confirm the quality and compliance levels that we, and our customers, demand. We are grateful to our suppliers for their continued cooperation.

Innovation

Product and system innovations are constant. Product development and packaging changes are largely attributable to the drive to win new business and grow market share. However, regulatory issues play a part. For example, there is strong focus on cutting the salt and sugar content of some foods. Product formulations are changed accordingly.

Low fat content has been a focus area for many years, but the counter-trend to low-carb living attracts growing attention, with demands that carbohydrate levels be highlighted in packaging along with fat, sugar and salt content.

Businesses in many geographies innovated strongly in the Fresh category. Public awareness of healthy eating helped to strengthen the demand for fresh fruit, vegetables, meat and fish from trusted suppliers, enabling our operations to make sustained gains.

In some categories, product innovation is also supported by fine dining trends and the popularity of reality TV programming based on cooking competitions. Today, a strong convenience food line-up has to be complemented by quality ingredients and fresh foods for the growing number of hobbyist cooks and home chefs.

Effective utilisation of these trends contributes to improved margin management.

Technology investment

Technology investment continues to rise, but cost impacts and implementation time-frames are better managed as our businesses gain experience with new technology and share experience.

E-commerce solutions have ceased to be novel and are now central to the way a well-resourced foodservice company does business. Online ordering is also a significant factor in volume growth. To give one example, e-commerce sales growth in Australia was more than twice as high as the overall uptick in sales. E-selling tools contributed to volume growth in jurisdictions as far afield as Poland and New Zealand.

Technology investment is often driven by the desire to foster strong relationships with customers. For example, track and trace for trucks not only helps Bidvest Foodservice optimise routes, it also enables customers to monitor progress with their deliveries. It also creates peace of mind about compliance with temperature guidelines.

Similarly, warehouse management systems improve customer order accuracy ahead of despatch.

Social media utilisation continues to grow as more and more customers download our iPhone and Android ordering apps in a market like Australia.

Technology utilisation has to be matched by talent application. Well-trained and well-motivated people are more important than ever. Training investment continues to rise. Growth within Fresh categories such as meat and fish is talent led and multi-temp based. Sustained gains depend on knowledgeable people who know their categories well.

Regions

Bidvest Australia maintained strong momentum, despite generally low food inflation. State-of-the-art CRM software, developed in-house, was leveraged to build volumes and create customer-friendly solutions. Focus fell on the further development of the national network of Fresh businesses. Investment was maintained in new purpose-built facilities, notably in New South Wales.

New Zealand continued its strong performance. Foodservice and Fresh made pleasing contributions and Auckland Foodservice moved into new premises. E-commerce gains continued. Further growth is projected, with free trade a point of focus.

Angliss Greater China performed strongly. Hong Kong was below expectation but results were lifted by a strong showing by mainland operations. Continued gains are projected on the back of new brand introductions. Singapore’s focus on better margin business resulted in higher beef, lamb and seafood volumes.

Bidvest Chile secured strong growth on the acquisition of a business considerably larger than the initial Chilean operation. Bidvest Brazil achieved promising sales in its first six months.

In Britain, 3663 Wholesale performed well, with continued roll-out of new infrastructure. Case volumes were at record levels at Bidvest Logistics. Acquisitions were made in the chilled, fish and meat sectors.

In western Europe, the Netherlands business showed signs of recovery while catering and Horeca sales held up well in Belgium. Bidvest Spain recorded a small trading loss in its first six months.

In central and eastern Europe, Czech Republic and Slovakia entrenched their position as Horeca market leaders. Strong growth was seen with chilled products. The businesses now run the largest ice-cream factory in these two countries. At Farutex Poland wholesale volumes rose while food and wine sales contributed to improved performance. Bidvest Baltics achieved sales gains, driven by foodservice growth.

Bidvest Middle East began the expansion into Bahrain, Lebanon and Oman. Horeca Trade in the UAE grew profit and sales. The Saudi Arabia business increased volumes and Turkish operations continued to expand.

Southern African businesses achieved sales in line with expectations, with good contributions from Bidvest Foodservice SA and Bidvest Food Ingredients. The roll-out of Foodservice’s multi-temp strategy contributed to ongoing efficiencies. Bidvest Food Ingredients further diversified its product offering. Exports grew and Africa expansion gained traction. Though the quest for efficiencies and savings was rigorous, the overall head-count remained stable.

Bidvest Procurement Company, based in Hong Kong and Shanghai, increased sales, widened its product range and continued to add to its list of certified suppliers.

Societal issues

In 2014, there were no major alerts relating to food safety or product tampering, but in all markets there was growing awareness of good nutrition and healthy eating. Obesity has emerged as a major issue in developed markets, with childhood obesity a particular concern.

We continue to maintain close contact with the authorities, NGOs and environmental groups and address concerns through continual adjustments to our product offering and investment in advanced systems.

Close cooperation with major customers is also beneficial. Our customer-base includes schools, hospitals, the military, prison services, government departments and major corporates. The highest health and nutritional standards are demanded – and delivered.

Environmental sensitivity is built into the way we conduct ourselves. When new infrastructure is built, we insist on environmentally sensitive design. It is standard operating procedure to invest in electricity saving methods, including the installation of solar and energy-efficient lighting.

Environmentally friendly investment tends to be a cost-efficient investment. One example is Bidvest Australia’s investment in a modern ammonia-based plant to reduce its carbon footprint.