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Simon Brown: I'm currently discussing the results for the six months to December with Bidcorp CFO David Cleasby. Revenue increased by his 24%. Major his earnings per share increased by 18.6% and dividends increased by his 19.3% to R5.25. Of course it's an interim dividend.
David, thank you for your early morning. It's a really strong number, especially in Europe. How much of your business is in Europe? I think the UK would also be in that bucket.
David Clearsby: Yes, good morning. Around 35% of our business is in Europe and around 25% in the UK. So that area is an important area for us. And yes, Europe in general did a great job, but Britain had some problems.
Simon Brown: In the UK it's challenging. Considering South Africa's challenges, including logistics issues, power issues and consumers under pressure, South Africa has fared fairly well. South Africa is holding up well in a really tough trade environment.
David Clearsby: We had great results. As you said, it's a very difficult environment. But I think whether we can avoid some of these issues will depend on the resilience of our management and teams. Some things, like logistics, cannot be avoided. Because there is clearly a monopoly and everything that passes through the ports is controlled by the state.
Simon Brown: I understand your opinion. When we chat, we always go back to the team and how it's the team on the ground that actually makes it work.
China is struggling, a common theme from companies operating there and hoping for a post-lockdown boom, but that's just not happening here.
David Clearsby: yes. We didn't see the kind of recovery we've seen in almost every other business in the world. So I think there's a lack of consumer trust there. I think it extends to macros as a whole. It's much tougher. They obviously have a big business in Hong Kong as well, but it's suffering from a mass exodus of people — first of all, tourists aren't really coming in, and secondly, they're taking vacations and going on vacation. There was a mass exodus of people even though they had the ability to do so. I took advantage of that.
Simon Brown: That's a fair point in that regard. Operationally, what about inflation? It is true that inflation is declining around the world. There seems to be a bit of a lag in the dining area. But is inflation falling and finding easier conditions during this period?
David Clearsby: Well, it's getting easier. Indeed, the inflation rate we measure is about 5.5%. However, this is low compared to a year ago, when it was around 15.5%. So I think it's becoming a more normalized environment. It remains at a higher level than the so-called general inflation rate around the world. Yes, I don't think it will go to zero, and I don't think it will be deflationary. Because there are still significant cost increases in many aspects of the outlook – not just in ours, but broadly around the world.
And obviously, from our perspective, labor is a big factor and labor costs are not going backwards.
Simon Brown: As for what you're saying about cost pressures, I understand that.
Disruption in the Red Sea – Will your operations be affected? Supply chains have certainly been extremely challenging during the pandemic. Is the Red Sea a challenge for your business?
David Clearsby: Well, I think it's a temporary challenge. I think people are trying to avoid it, but it's not the only route to avoid it, but it does increase costs. You can see that in the cost of container fees and the cost of the product that goes through there, but often it goes around the cape. So the cost base increases, but I think there are alternatives. I think people will figure it out and efficiency will come back into the system over time. Therefore, this is a temporary challenge, but one that must be avoided and is not without alternatives. There are alternatives, but they're just a little more expensive for a period of time.
Simon Brown: And you're right, it will pass through the system in time.
margin? Six months ago, when we talked about full-year results, you talked about margin compression. It's not a huge number, but we were talking about compressing margins a little bit to secure new contracts and things like that. Is that something you still experience at Bidcorp?
David Clearsby: Well, it's a trading business. The people at Callface make daily decisions about whether they need to maintain volume with a particular customer and trade a little margin or maintain margin. So you could say we're starting to move a little bit at the breaking point. This is a trading business, so we are already working on the environment we are in. And right now, because food is still so expensive, people are probably having to trade a little further away and make decisions about whether or not to maintain volume. It's a daily decision and you can't have a fixed view of it. We trade every day and need to make the most of what is in front of us.
Simon Brown: And this, in a way, goes back to part of Bidcorp's DNA. You mentioned earlier about the people on the ground. This is actually how he is managed by Bidcorp.Entrepreneurs are on the ground, they are making decisions, and those are the best decisions. [for] You manage their operations and you let them manage it. You're right, it's a deal. They know what's happening on the ground.
David Clearsby: yes. It goes to the core of how we operate. We decentralize and encourage entrepreneurialism in our management team. If you look back over the years, they traded well during COVID-19, but certainly the market became very tough. I think they traded the best they could and saw their skill and experience come back as the best as a result. And that's reflected in Bidcorp's results.
Simon Brown: Leave it as is. Thank you to David Cleasby, Bidcorp CFO, for this early morning.
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