Astral Foods Limited · JSE:ARL
Astral Foods — H1 2016 Earnings Presentation
72 slides from Astral Foods's earnings presentation, April 2016
Slide 1: Interim Results Presentation
Interim Results Presentation for the six months ended 31 March 2016
Slide 2: Agenda
AGENDA Business Overview [# 03] Poultry Industry Trends [# 23] Financial Overview [# 30] Industry & Other Matters [# 41] Prospects [# 47] Additional Information [# 50] 2
Slide 3: Business Overview
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Slide 4: The Period in Perspective
THE PERIOD IN PERSPECTIVE The period under review reflects a weaker performance over the prior year, on the back of higher feed prices and the inability to recover input costs Revenue 1% Operating profit 22% Financial Indicators 22% Earnings per share Headline earnings per share 23% 4
Slide 5: Outlook as at November 2015
OUTLOOK AS AT NOVEMBER 2015 The slowing level of growth in the economy and higher unemployment levels will continue to hamper an increase in the per capita consumption of poultry. The strong El Niño and impact on planting conditions will negatively impact crop yields leading to higher feed prices in
Slide 6: The Period in Perspective
THE PERIOD IN PERSPECTIVE Decrease in poultry sales volumes and stock build-up Flat poultry selling prices due to supply and demand imbalance Severe drought as a result of the strongest El Niño on record Depreciation of the Rand impacting the cost of raw material imports Increase in the li
Slide 7: Poultry Division
POULTRY DIVISION 7
Slide 8: Poultry Division - Overview
POULTRY DIVISION - OVERVIEW Revenue - R million Operating profit - R million 5,000 400 4,503 4,436 351 4,000 300 3,000 200 194 2,000 100 1,000 - - 1H2015 1H2016 1H2015 1H2016 Revenue down 1% Operating profit down 45% • Broiler volumes down 4.4% • Net margin 4.4% 1H2015: 7.8% • Broiler selling pr
Slide 9: Poultry Division - Overview
POULTRY DIVISION - OVERVIEW Broiler sales volumes decreased leading to a build-up in poultry stock levels and subsequent broiler production cutbacks (# 10) Broiler selling prices increased marginally on the back of an imbalance of supply and demand Continued high level of poultry imports - avg
Slide 10: Poultry Division - Sales
POULTRY DIVISION - SALES Product Mix 21% 22% 4% 1H2015 4% 1H2016 239 534 Tons 53% 228 905 Tons 52% 6% 6% Volume decrease ≈ 4.4% 12% 13% 4% 3% 10
Slide 11: Broiler Production Performances
BROILER PRODUCTION PERFORMANCES 120% 115% 110% 105% 100% 95% 90% 85% 80% 75% Key indicators base-lined to 100% in 2010 70% F2010 F2011 F2012 F2013 F2014 F2015 1H2016 Mortality Feed conversion (FCR) Efficiency factor (PEF) 11
Slide 12: Broiler Production Performances
BROILER PRODUCTION PERFORMANCES 104% 102% 100% 98% 96% Key indicators base-lined to 100% in 2010 94% F2010 F2011 F2012 F2013 F2014 F2015 1H2016 Slaughter age Live weight Processing yield 12
Slide 13: Poultry Division - Prospects
POULTRY DIVISION - PROSPECTS Continued high feed costs at least until rainfall patterns normalise Higher poultry stock levels in general will exert pressure on selling prices Production cutbacks to balance stock levels and lower seasonal demand Broiler production efficiencies a key focus are
Slide 14: Feed Division
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Slide 15: Feed Division - Overview
FEED DIVISION - OVERVIEW Revenue - R million Operating profit - R million 250 3,461 233 3,000 2,961 200 186 150 2,000 100 1,000 50 - - 1H2015 1H2016 1H2015 1H2016 Revenue up 17% Operating profit up 26% • Sales volumes up 1% • Net margin at 6.7% 1H2015: 6.3% • Avg. selling prices up 16% • Good co
Slide 16: Feed Division - Overview
FEED DIVISION - OVERVIEW Feed volumes increased marginally by 1% due to higher external volumes (# 17) Rand per ton margin improvement on prior year despite subdued market SAFEX YM price – 1H16 avg. R3 406 per ton (1H15: R2 136) Increased raw material costs were successfully recovered from t
Slide 17: Feed Division - Sales
FEED DIVISION - SALES Meadow Feeds - Sales Mix 12% 13% 20% 1H2015 20% 1H2016 605 969 708 066 Tons Tons 712 962 Tons Volume increase ≈ 1% 60% 60% 8% 7% 17
Slide 18: Prospects
PROSPECTS Current maize crop estimate of 7,1 million tons – smallest crop since 2007 El Niño impact dissipating - may benefit 2017 crop planting conditions (# 56) High local maize prices set to continue with associated impact on feed prices Soya prices increasing and are no longer expected t
Slide 19: Other Africa Division
OTHER AFRICA DIVISION 19
Slide 20: Other Africa Division - Overview
OTHER AFRICA DIVISION - OVERVIEW Revenue - R million Operating profit - R million 300 14 14 250 258 256 12 200 10 8 150 6 100 4 50 2 2 - - 1H2015 1H2016 1H2015 1H2016 Revenue up 1% Operating profit down 90% • Feed volumes up 1% • Net margin 0.5% 1H2015: 5.3% • Hatchery volumes down • Exchange ra
Slide 21: Other Africa Division - Overview
OTHER AFRICA DIVISION - OVERVIEW Zambia Profitability at Tiger Animal Feeds improved for the period although negatively impacted by high diesel costs due to power outages Tiger Chicks sales decreased by 9% over comparative period impacted by new entrant / capacity and oversupply in the market Mo
Slide 22: Other Africa Division - Prospects
OTHER AFRICA DIVISION - PROSPECTS Zambia Maize procurement positions in local currency will reduce exposure to USD denominated raw material purchases Uncertainty in the outlook for the Zambian Kwacha due to continued low copper exports and approaching general elections Mozambique Severe econom
Slide 23: Industry Trends
INDUSTRY TRENDS 23
Slide 24: SAFEX Yellow Maize Price
SAFEX YELLOW MAIZE PRICE Source: CJA Strategic Risk Brokers 24
Slide 25: SAFEX Soya Beans Price
SAFEX SOYA BEANS PRICE Source: CJA Strategic Risk Brokers 25
Slide 26: Poultry Imports per Month
- 5,000 55,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 60,000 65,000 Source: SAPA Jan-10 Tons Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Total poultry imports Mar-12 May-12 Jul-12 Sep-12 POULTRY IMPORTS PER MONTH Nov-12 Jan-13 Mar-13 Ma
Slide 27: Industry Broiler Selling Prices
11.50 12.00 12.50 13.00 13.50 14.00 14.50 15.00 15.50 16.00 16.50 17.00 17.50 18.50 19.00 19.50 20.00 20.50 21.00 11.00 18.00 Source: SAPA Oct-10 12.33 12.83 Dec-10 13.51 13.34 Feb-11 13.42 13.20 Apr-11 13.38 13.46 Jun-11 13.18 12.79 Aug-11 12.86 Rand per kilogram 13.56 Oct-11 13.91 14.90 Dec-11 15.
Slide 28: Broiler Price vs. Food Price Inflation
BROILER PRICE VS. FOOD PRICE INFLATION 160 160 155 Median food price across all categories up 12.1% y-o-y 155 150 vs. 150 145 Average poultry selling price increase up 2% y-o-y 145 140 140 135 135 Index (October 2008 = 100) 130 130 125 125 120 120 115 115 110 110 105 105 100 100 95 95 90 90 85 85 80
Slide 29: Change in Broiler Selling Price vs Feed Price
0% 10% 20% 40% 30% -30% -20% -10% Oct-10 Dec-10 Feb-11 Source: SAPA & Own Data Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 % Change in feed price Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 CHANGE IN BROILER SELLING PRICE VS FEED PRICE Oct-1
Slide 30: Financial Overview
FINANCIAL OVERVIEW 30
Slide 31: Abridged Statement of Comprehensive Income
ABRIDGED STATEMENT OF COMPREHENSIVE INCOME 2016 2015 Six months ended 31 March % change R million R million Revenue 5 823 5 755 1% Operating profit 429 550 22% Operating profit margin 7.4% 9.6% Net finance costs (4) (10) Share of profit in associates - 2 Profit before tax 425 542 22% Tax (124) (154)
Slide 32: Group Six Monthly Revenue and Profitability
GROUP SIX MONTHLY REVENUE AND PROFITABILITY 6000 2000 5,823 (R million) 5,755 1800 5,511 5000 1600 4,902 4,700 1400 4000 4,219 4,290 4,039 4,122 1200 3,744 3,663 3,675 3,534 3,591 3,552 3,415 3000 3,319 1000 800 2000 600 550 551 400 1000 407 429 375 302 304 299 324 279 281 280 200 208 213 141 153 0
Slide 33: Poultry – Six Monthly Revenue
POULTRY – SIX MONTHLY REVENUE 6000 1.4 5500 (R million) 5000 1.2 4500 4,503 4,436 1.0 4000 4,237 0.8 3500 3,650 3,317 3000 0.6 3,049 2,878 2,956 2,952 2500 2,581 2,606 2,652 0.4 2,449 2000 0.2 1500 1000 0.0 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 Revenue Change in realisatio
Slide 34: Feed – Six Monthly Revenue
FEED – SIX MONTHLY REVENUE 4500 2 (R million) 4000 1 3500 1 3,461 3,275 3000 1 2,956 2,961 1 2500 2,519 2,550 2,397 1 2000 2,175 2,152 0 1,847 1,730 1,770 1,708 1500 0 1000 0 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 Revenue Change in feed price Change in volumes 34
Slide 35: Group Six Monthly Operating Profit
GROUP SIX MONTHLY OPERATING PROFIT 1.7 680 (R million) 1.5 580 550 551 1.3 480 429 1.1 380 186 324 0.9 304 375 299 237 281 280 280 0.7 133 213 203 233 180 153 151 130 154 0.5 149 80 59 157 197 0.3 173 134 128 229 124 140 135 156 45 59 351 310 194 5 -20 0.1 -3 -117 -120 -0.1 1H10 2H10 1H11 2H11 1H12
Slide 36: Abridged Statement of Financial Position
ABRIDGED STATEMENT OF FINANCIAL POSITION March 2016 September 2015 % change R million R million Non-current assets 2 235 2 234 Net working capital 1 036 776 33% Current assets (excl. cash) 2 673 2 261 18% Current liabilities (excl. borrowings) (1 637) (1 485) 10% Non-current liabilities (excl. borro
Slide 37: Working Capital
WORKING CAPITAL March 2016 September 2015 Change R million R million R million Current assets 2 673 2 261 412 Inventory 1 641 1 370 271 Trade receivables and other 1 032 891 141 Current liabilities (1 637) (1 485) (152) Trade payables and other (1 637) (1 485) (152) Net working capital 1 036 776 260
Slide 38: Abridged Statement of Cash Flow
ABRIDGED STATEMENT OF CASH FLOW 2016 2015 For the six months ended 31 March R million R million Cash operating profit 559 629 Working capital movement (353) 80 206 709 Tax paid (100) (142) Net interest paid (3) (11) Capital expenditure (73) (50) 30 506 Dividends paid (222) (93) Other cash flow items
Slide 39: Capital Expenditure
CAPITAL EXPENDITURE 2016 2015 Six months ended 31 March R million R million Depreciation 75 73 • Replacement capex 30 41 • Expansion capex 43 9 Total capex 73 50 Commitments 154 Total spent and committed 227 39
Slide 40: In Summary
IN SUMMARY Poultry division down on feed price increases not recovered in the market Feed division posted improved results on recovery of input costs Negligible contribution from other African operations Cash flow negative due to stock build-up in both poultry and feed divisions Net debt t
Slide 41: Industry & Other Matters
| ie) INDUSTRY & OTHER MATTERS
Slide 42: Brining Regulations
BRINING REGULATIONS Amended regulations regarding control over the sale of poultry meat were published in the Government Gazette on 22 April 2016 (6 month implementation) The new standards now include regulations governing the definitions of brine, brine based mixtures and formulated solutions
Slide 43: Poultry Imports (US & EU)
POULTRY IMPORTS (US & EU) A deadline was set by the US of 15 March 2016 to allow poultry imports in terms of the AGOA renewal or face the removal of SA’s agricultural AGOA benefits The first US poultry imports as part of the AGOA deal arrived before the deadline, and by end March 2016 around 10
Slide 44: B-BBEE Scorecard (Current Charter)
B-BBEE SCORECARD (CURRENT CHARTER) 75 Level 4 69.77 70 65 62.72 60.84 60 55.57 Score 55 51.83 50 45.62 45 40 35 32.03 32.03 30 2009 2010 2011 2012 2013 2014 2015 2016 44
Slide 45: Skills Development
SKILLS DEVELOPMENT Specialised management training programme with leading SA business school Three levels – Fundamental, Middle and Advanced Management 84 employees have completed the management training programmes Supervisory training through Astral’s workplace improvement programme 71 em
Slide 46: Contract Grower Development
CONTRACT GROWER DEVELOPMENT In line with B-BBEE (Enterprise Development) Astral promotes the development of black contract growers and broiler farm ownership Astral currently contracts 10 black contract growers (12 farms) supplying broilers to the Goldi and Festive operations A pilot project i
Slide 47: Prospects
PROSPECTS
Slide 48: Prospects
PROSPECTS It is expected that the demand for poultry will continue to be constrained due to limited consumer discretionary spend and weaker seasonal poultry consumption patterns. High maize and feed prices will continue until at least rainfall patterns normalise, with some mid-size industry prod
Slide 49: Astral's Strategy
, «i \ASTRAL “Astral’s strategy is to be the best cost integrated poultry producer in selected African countries” 7 April 2016
Slide 50: Additional Information
ADDITIONAL INFORMATION 50
Slide 51: Ethiopia Update
ETHIOPIA UPDATE A business has been registered in Ethiopia and a General Manager appointed and based in that country from early 2015 Extensive market research was completed prior to the investment motivation being presented to the Astral board for consideration A detailed due diligence exercis
Slide 52: SAFEX Yellow Maize vs CBOT Corn in Rand Terms
SAFEX YELLOW MAIZE VS CBOT CORN IN RAND TERMS Source: CJA Strategic Risk Brokers 52
Slide 53: South Africa – Total Maize Supply & Demand
SOUTH AFRICA – TOTAL MAIZE SUPPLY & DEMAND Marketing year (May to April) 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16E 2016/17F '000 tons Actual Actual Actual Actual Actual Estimate Forecast Carry In (1 May) 2,131 2,336 991 1,414 589 2,077 2,241 Crop Estimate 12,815 10,360 12,121 11,811 14,250 9,
Slide 54: RSA Maize Carry Out and Stock to Use Ratio
RSA MAIZE CARRY OUT AND STOCK TO USE RATIO „000 Tons 2,500 25% 19.7% 19.7% 2,000 19.1% 20% 16.6% 1,500 15% 12.2% 10.4% 8.2% 1,000 10% 5.0% 500 5% 0 0% 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16E 2016/17F Carry out Maize stock to use ratio Source: CJA Strategic Risk Brokers 54
Slide 55: World Corn Ending Stocks vs STU
WORLD CORN ENDING STOCKS VS STU Million Tons 250 24% 225 217 23% 22% 200 189 22.3% 21% 175 168 19.3% 20% 150 137 140 19% 129 17.7% 125 116 18% 16.7% 17% 100 16.2% 16% 75 15.2% 15% 50 13.1% 14% 25 13% 0 12% 2016E 2010 2011 2012 2013 2014 2015 End stock STU Source: CJA Strategic Risk Brokers 55
Slide 56: El Niño Southern Oscillation (ENSO) – Forecast
EL NIÑO SOUTHERN OSCILLATION (ENSO) – FORECAST Source: International Research Institute for Climate and Society (IRI) – Columbia University 56
Slide 57: South Africa – Vegetation Health Index
SOUTH AFRICA – VEGETATION HEALTH INDEX Source: NOAA - National Environmental Satellite, Data, and Information Service (VHI) 57
Slide 58: Ingredient Inclusion and Cost Contribution
BROILER FEED INGREDIENT INCLUSION AND COST CONTRIBUTION 100% 8.4 9.9 7.9 10.5 10.9 13.9 0.3 0.4 0.3 0.3 0.4 90% 0.5 0.4 0.9 14.7 0.3 16.6 6.0 0.4 0.3 18.5 7.0 7.5 8.5 5.5 7.4 0.2 4.1 22.4 21.9 80% 3.8 1.1 2.4 9.1 1.2 25.5 4.2 6.2 6.8 5.7 0.9 8.0 4.7 70% 14.0 17.0 18.9 14.7 1.3 0.9 16.5 7.4 7.5 11.4
Slide 59: Brazil, EU & USA Product Cost Benchmark
BRAZIL, EU & USA PRODUCT COST BENCHMARK Ex BRAZIL – May 2016 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 875.00 875.00 875.00 SA COST R/$ exchange rate R$ 14.60 14.80 15.00 Rand per ton TON 12 775.00 12 950.00 13 125.00 24 130.00 Rand per kg KG 12.78 12.95 13.13 24.13 Duty per kg KG 37%
Slide 60: Brazil, EU & USA Product Cost Benchmark
BRAZIL, EU & USA PRODUCT COST BENCHMARK Ex EUROPE NON-TARIFF COUNTRIES – May 2016 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 1 240.00 1 240.00 1 240.00 SA COST R/$ exchange rate R$ 14.60 14.80 15.00 Rand per ton TON 18 104.00 18 352.00 18 600.00 24 130.00 Rand per kg KG 18.10 18.35 18.6
Slide 61: Local Broiler Production and Market Share
LOCAL BROILER PRODUCTION AND MARKET SHARE 27% 27% 7% 7% 24% 8% Astral RCL Country Bird Daybreak Sovereign Other Local broiler production ≈ 18.5 million birds per week Source: Own Estimates 61
Slide 62: Total Poultry Market Participation
TOTAL POULTRY MARKET PARTICIPATION 29% 19% 17% 19% 6% 5% 5% Astral RCL Country Bird Daybreak Sovereign Other Imports Avg. poultry imports ≈ 7,7 million birds per week (avg. past 6 months) Source: Own Estimates & SAPA (Imports) 62
Slide 63: Total Poultry Imports (Chicken, Turkey, MDM)
TOTAL POULTRY IMPORTS (CHICKEN, TURKEY, MDM) Tons 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 F2013 F2014 F2015 F2016 0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep F2013 47,942 89,095 117,712 145,426 172,727 207,148 243,623 282,790 316,047 343,913 371,741 409,1
Slide 64: Total Poultry Imports – Country of Origin
TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN Country of origin for poultry Country of origin for poultry imports - 2015 imports - 2016 YTD Other 2.1% Other 2.9% Argentina 5.8% US 7.4% Argentina 3.4% Brazil 50.4% Brazil 45.4% EU 41.7% EU 40.9% 478 267 tons 131 268 tons Source: SAPA 64
Slide 65: Total Poultry Imports – Country of Origin
TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN Poultry imports according to main country of origin for 2013 to 2015 and 2016 YTD Source: SAPA 65
Slide 66: Local Broiler Production, Imports & Per Capita Consumption
LOCAL BROILER PRODUCTION, IMPORTS & PER CAPITA CONSUMPTION Million birds per week / Rand per kg kilogram 30.0 40 35 25.0 30 20.0 25 20 15.0 15 10 10.0 5 5.0 0 Dec-11 Feb-10 Jun-10 Feb-11 Jun-11 Feb-12 Jun-12 Feb-13 Jun-13 Feb-14 Jun-14 Feb-15 Jun-15 Feb-16 Dec-09 Aug-10 Dec-10 Aug-11 Aug-12 Dec-12 A
Slide 67: South African Protein Price Comparison
SOUTH AFRICAN PROTEIN PRICE COMPARISON Cents per kg 6000 5000 4000 3000 2000 1000 Oct-10 Oct-12 Oct-13 Oct-14 Oct-15 Oct-11 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Chicken Pork Beef Mutton Feed Conver
Slide 68: US Poultry ("AGOA" Imports)
US POULTRY (“AGOA” IMPORTS) 68
Slide 69: Competitor Activity (Stock Clearance)
COMPETITOR ACTIVITY (STOCK CLEARANCE) 69
Slide 70: Competitor Activity (February / March 2016)
COMPETITOR ACTIVITY (FEBRUARY / MARCH 2016) 70
Slide 71: Competitor Activity (5 kg Price Comparison)
COMPETITOR ACTIVITY (5 KG PRICE COMPARISON) 71
Slide 72: www.astralfoods.com
Chris Schutte Chief Executive Officer Tel : +27 (0) 12 667 5468 Fax : +27 (0) 86 504 2002 email: [email protected] www.astralfoods.com Daan Ferreira Group Financial Director Tel : +27 (0) 12 667 5468 Fax : +27 (0) 86 504 1602 email: [email protected] 72