RCL Foods Limited · JSE:RCL
RCL Foods — H1 2014 Earnings Presentation
66 slides from RCL Foods's earnings presentation, Feb 20, 2014
Slide 1: RCL Foods Limited Results for the Six Months Ended 31 December 2013
RCL FOODS LIMITED Results for the Six Months Ended 31 December 2013 Investor Presentation: 20 February 2014
Slide 2: Disclaimer
Disclaimer THIS PRESENTATION (WHICH SHALL BE DEEMED TO INCLUDE ANY INFORMATION WHICH HAS BEEN OR MAY BE PROVIDED IN WRITING OR ORALLY IN CONNECTION HEREWITH) ("PRESENTATION") CONTAINS INFORMATION PERTAINING TO RCL FOODS LIMITED ("COMPANY"). THE PRESENTATION MAY NOT BE VIEWED BY PERSONS WHERE TO DO S
Slide 3: Agenda
Agenda 31 December 2013 Salient features Financial Key Strategic overview and review financial issues results summary Operational Prospects Appendices reviews This presentation covers RCL Foods’ results for the six months ended 31 December 2013 These results include Foodcorp for the full six month p
Slide 4: Salient features: six months ended December 2013
Salient features: six months ended 31 December 2013 Group revenue increased 95% to R8.8bn Headline EBITDA up by 251% to R688.3m Statutory headline EBITDA margin increased to 7.8% from 4.4% Headline earnings from continuing operations down 48% to R27.4m Cash generated from operations increased 448% t
Slide 5: Agenda
Agenda 31 December 2013 Salient features Financial Key Strategic overview and review financial issues results summary Operational Prospects Appendices reviews RCL Foods’ ambition is to create a diversified food business of scale with compelling brands that deliver to consumer and customer needs in s
Slide 6: Strategic overview: RCL Foods in context
Strategic overview: RCL Foods in context Rupert Family Food, Liquor Media & Banking Healthcare Insurance Industrial Infrastructure & Home care Sport RCL Foods is Remgro’s chosen platform for its food strategy in sub-Saharan Africa INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 6
Slide 7: Strategic overview: history and evolution
Strategic overview: history and evolution Where did we come from? Apr 2013 May 2013 Jan 2014 Acquired 49% Acquired Acquired TSB interest in Zam Chick FoodCorp Sugar 22 500 The recent acquisitions of Foodcorp and TSB Sugar 20 000 have transformed RCL 17 500 Foods from a chicken business into a divers
Slide 8: Strategic overview: key brands
Strategic overview: key brands Where are we today? Category Category Division Category Brands Position (1) Share (1) Peanut Butter 1 50% Rusks 1 39% Portfolio of compelling Mayonnaise 2 45% Grocery brands that deliver to Sorghum 2 29% consumer and customer Dry Pet Food - Cat (2) 2 26% needs Integrat
Slide 9: Strategic overview: what differentiates us?
Strategic overview: what differentiates us? 1 • Leading market position in many categories Portfolio of leading • Best known brands that span staples to top-end, value-added offerings consumer brands • Emerging middle-class displays strong brand loyalty 2 • Own the route to market through integrated
Slide 10: Strategic overview: strategic priorities
Strategic overview: strategic priorities Where are we headed? RCL Foods’ ambition is to create a diversified food business of scale with compelling brands that deliver to consumer and customer needs in sub-Saharan Africa Innovating and investing Leveraging strategic Realising synergies in compelling
Slide 11: Agenda
Agenda 31 December 2013 Salient features Financial Key Strategic overview and review financial issues results summary Operational Prospects Appendices reviews INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 11
Slide 12: Financial review: six months ended 31 December 2013
Financial review: six months ended 31 December 2013 Statutory results 31 Dec 2013 31 Dec 2012* Revenue Rm 8 782.7 4 500.6 Headline EBITDA Rm 688.3 196.0 Headline EBITDA % 7.8 4.4 Headline EBIT Rm 443.1 90.1 Effective tax rate % 50.1 33.3 Headline earnings continuing operations Rm 27.4 52.5 Cash gene
Slide 13: Financial review summary
Financial review summary: six months ended 31 December 2013 Rm 688.3 • Finance cost includes R248.6m non cash flow 29.9 2.5 7.4 27.4 fair value adjustments to Foodcorp’s Euro debt (17.6) and related hedges (245.2) • The higher effective tax (437.8) rate is attributable to non- deductible costs. HEBI
Slide 14: Financial review: operating results summary
Financial review: operating results summary Three operating segments: Foodcorp, Rainbow and Vector Revenue (Rm) 31 Dec 2013 31 Dec 2012 Foodcorp 3 976.1 n/a Rainbow 4 413.5 4 121.1 Vector 861.4 741.0 Sales between Segments – Foodcorp to Rainbow (19.2) n/a Sales between Segments – Rainbow to Foodcorp
Slide 15: Financial review: general operating environment
Financial review General operating environment • Consumer spending remains constrained • Above inflation cost increases continue (fuel/power) • Exchange rate (Rand:US$ as well as Rand:€) and commodity market volatility ongoing • Margin pressures continue INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 D
Slide 16: Financial review: cash flow summary
Financial review Cash flow summary Rm Opening balance – 1 July 2013 2 763.2 • Working capital levels continue to be well Operating profit adjusted for non-cash flow items 690.6 managed Working capital changes 166.9 • Cash generated by Net finance cost paid (201.8) operations increased Tax paid (30.4
Slide 17: Financial review: working capital movement
Financial review Working capital movement (Rm) • Despite the inclusion of 166.9 Foodcorp there is a 706.8 (230.2) continued focus on 2013 reducing working capital (309.7) requirements (491.3) 243.4 • Payables benefit was 2012 (182.1) contributed to by (552.6) favourable cut-off (488.3) 172.4 2011 (1
Slide 18: Financial review: capital expenditure
Financial review RCL Foods’ capital expenditure programme directed at Foodcorp expansions 31 December 31 December Rm 2013 2012 Total expenditure 184.0 274.1 • Foodcorp expenditure amounts to R107.1m • Capex within Rainbow remains limited to necessary replacement items • R150m has been contracted and
Slide 19: Agenda
Agenda 31 December 2013 Salient features Financial Key Strategic overview and review financial issues results summary Operational Prospects Appendices reviews INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 19
Slide 20: Key financial issues: assessment of impairment
Key financial issues Assessment of impairment • Rainbow and RCL Foods’ Boards have considered the need for an impairment of assets – In view of the difficult trading conditions for Rainbow (IAS 36 - Impairment of assets) • Boards decided it is inappropriate to impair poultry assets at this stage – P
Slide 21: Key financial issues: debt and hedging profile
Key financial issues Debt and Hedging profile: First Priority Senior Secured Notes • Foodcorp issued €390m Senior Secured Notes on 4 March 2011 • Coupon rate of 8.75% per annum and a maturity date of 1 March 2018 • Payments under the 2018 Notes consists of two components: – Principal due on 1 March
Slide 22: Equity capital raise
Equity capital raise • R790.1m raised through minority pro rata offer in February 2014 • The RCL Foods’ Board has decided to postpone the proposed placement of new shares to raise the balance of the R2.5bn approved by shareholders due to – anticipated timing of investment cash flows, – the Group’s c
Slide 23: Agenda
Agenda 31 December 2013 Salient features Financial Key Strategic overview and review financial issues results summary Operational Prospects Appendices reviews INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 23
Slide 24: Operational review - Foodcorp
Operational review - Foodcorp Compelling consumer brands • Foodcorp is a leading South African manufacturer of a diversified portfolio of quality branded food products from basic essentials to top-end desserts and convenience meals • The market leader in five product categories, and its range of pro
Slide 25: Operational review - Foodcorp
Operational review - Foodcorp • Foodcorp included for the first time: Contribution of R249m in operating profit (6.3% margin) • Earnings compromised due to R248.6m non cash flow adjustment on Senior Secured Notes and related hedges reflected on the interest line • RCL Foods acquired the remaining 35
Slide 26: Operational review - Foodcorp
Operational review – Foodcorp Foodcorp had a reasonable trading performance, amidst tough trading conditions and growing pressure on consumer spending • Net revenue from continuing operations, for the six month period ended 31 December 2013, amounted to R4.0bn and operating profit R249.4m • The incr
Slide 27: Operational review - Foodcorp: brand market positions
Operational review – Foodcorp Brand investment results in Foodcorp’s core brands enjoying leading market positions Category Category Foodcorp Market position share growth growth Food Brands 2013 2013 2013 2013 National focus Peanut butter 1 50% (2.6%) 7.4% Beverages 1 70% (1.0%)¹ (1.0%) Rusks 1 39%
Slide 28: Operational review - Foodcorp: significant events
Operational review – Foodcorp Significant events • Disposal of Fishing Division – Foodcorp entered into an agreement to dispose of the Fishing Division, which is subject to regulatory approval – Second Tribunal hearing in March 2014 • Notable capital investments in 2014 – Milling capacity expansion
Slide 29: Operational review - Rainbow
Operational review – Rainbow Integrated supply chain from “farm to fork” GP operation Agriculture Processing Grandparent Grandparent farms Parent farms Broiler • 4.7 million birds per week chicks farms Rearing Laying Hatching Rearing Laying Hatching Growing Processing 4 Broilers plants + 2 FP 21 wee
Slide 30: Operational review - Rainbow
Operational review – Rainbow The perfect storm in the chicken industry continues with three key factors driving pressure: 1. Imports are higher than ever and remain the key culprit; 2. Feed costs were up another 10% on top of record highs; and 3. Consumer demand in South Africa is under immense pres
Slide 31: Operational review - Rainbow: imports and feed costs
Operational review – Rainbow • Imports are higher than ever and remain the key culprit; • Feed costs were up another 10% on top of record highs; • Despite government’s implementation of increased tariffs, imports continue to increase with EU product “dumping” higher than ever during the period Impor
Slide 32: Operational review - Rainbow: per capita consumption
Operational review – Rainbow • Consumer demand in South Africa is under immense pressure, as seen in nearly all grocery company results, and Food Service is not excluded. Per Capita Consumption 40 37.44 35.76 36.41 34.10 35 31.45 32.15 30.72 31.03 30 27.98 25 22.94 23.58 21.69 22.00 21.04 20.85 20 1
Slide 33: Operational review - Rainbow
Operational review – Rainbow • Statutory operating profit of R97.7m (R63.6m Pre-IAS 39), but margin of 2.2% remains unacceptable • Agriculture and processing operations performing well • The second half of the previous financial year was a challenging six months • Rainbow is half way through its sec
Slide 34: Operational review - Rainbow
Operational review – Rainbow • Rainbow has been assisting key QSR customers through what has been an unusually tough 12 months • Recent QSR growth has ticked up compared to last year, although continued difficult consumer times are forecast by all Foodcorp | Rainbow | Vector | INTERIM RESULTS FOR TH
Slide 35: Operational review - Rainbow
Operational review – Rainbow • After a year of cost cutting and consequential quieter innovation, Rainbow is currently in trade with a raft of innovation, to resume the pressure on growing this reliable part of the business Foodcorp | Rainbow | Vector | INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DE
Slide 36: Operational review - Rainbow: market changing factors
Operational review – Rainbow Market changing factors update: Trade remedies • Dti implemented a tariff on bone-in portions last year, which affected non EU countries • Dti is due to make an announcement on Sapa’s anti-dumping application against key EU dumping countries in March or April 2014 Inject
Slide 37: Operational review - Vector
Operational review – Vector Optimisation of outbound supply chain Services Manufacturers Primary Primary Principal Customer Sales Credit & (PBCS) Warehousing Transport Secondary Secondary Solutions Information (VCS) (VPT) Distribution Distribution (VSS) Management What we do Plant Based Primary Prim
Slide 38: Operational review - Vector
Operational review – Vector • Vector’s revenue increased 16% and operating profit by 7% • Revenue growth attributable to increased bulk storage, primary transport as well as the take-on of new customers, namely Burger King and Captain Dorego’s • Profit growth lower attributable to above inflation fu
Slide 39: Operational review - Vector
Operational review – Vector PSD sales volumes remain under pressure • Depressed macro economic factors continue to curtail growth of our trading partners, particularly in the Secondary Distribution environment where almost all principals report sluggish or negative growth • This was partially offset
Slide 40: Operational efficiency - Vector (PSD)
Operational efficiency – Vector (PSD) Operational efficiency Volumes, Stocks and Service Level Trends (6 months) • Further benefits of the Adexa demand planning -7.4% tool have contributed to a -1.1% 0.9% 7.4% reduction in inventory levels in the secondary distribution business through improved fore
Slide 41: Operational review - Vector: network optimisation
Operational review – Vector Roodepoort Secondary distribution business Network Optimisation • Optimisation of facilities in Gauteng expected to improve efficiencies • As part of the on-going network optimisation, the secondary distribution business based at Roodepoort was moved Midrand Campus to the
Slide 42: Agenda
Agenda 31 December 2013 Salient features Financial Key Strategic overview and review financial issues results summary Operational Prospects Appendices reviews INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 42
Slide 43: Prospects
Prospects • A sustainable improvement in consumer spending is unlikely in the near future • This will impact all RCL Foods’ segments • The poultry industry is at crisis point and anti-dumping protection remains key to the survival of the industry • The acquisition of TSB provides a unique opportunit
Slide 44: Agenda
Agenda 31 December 2013 Salient features Financial Key Strategic priorities and review financial issues results summary Operational Prospects Appendices reviews INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 44
Slide 45: RCL Foods: transformation phase
RCL Foods: transformation phase 2004-2010 Transformation to consumer Rbn Revenue focused business 2004 – 2010 Transformation to 1999-2003 6.8 7.0 consumer focused Fixing the basics 6.0 1991-1998 business Business in trouble 4.7 3.7 3.8 4.0 4.1 • Acquired Vector (R455m) to 3.0 enable optimisation of
Slide 46: RCL Foods: growth phase
RCL Foods: growth phase Positioning for growth 2011 – 2013 Restructured Rbn Revenue • 2 focused operating companies with clear 10.0 strategies and opportunities 8.6 7.9 • Strategic focus CEO / CFO 6.0 6.8 7.0 Capacity enhanced 4.7 • Acquisition of 2nd further 3.7 3.8 4.0 4.1 processed plant (Wolweho
Slide 47: Foodcorp: Grocery Division
Foodcorp: Grocery Division The Grocery Division consists of a portfolio of well recognised brands with market leading positions Includes a wide range of grain and edible oil based products, sorghum, peanut butter, rusks, a range of pet foods, as well as salad dressings, dips and spreads Limpopo Bran
Slide 48: Foodcorp: Pie Division
Foodcorp: Pie Division The Pie Division produces a range of high quality, predominantly meat pies under the Piemans brand that are sold in these formats: frozen unbaked, frozen baked and chilled baked Brands Limpopo Province Botswana Mpumalanga Centurion Krugersdorp Gauteng North Swaziland West Free
Slide 49: Foodcorp: Beverage Division
Foodcorp: Beverage Division The Beverage Division produces a maize-based health drink under the Mageu No 1, Smooth, Phuzimpilo and Mnandi brands Brands Limpopo Province Botswana Mpumalanga Pretoria Gauteng Swaziland North West KwaZulu Natal Free State Lesotho Northern Cape Eastern Cape Western Cape
Slide 50: Foodcorp: Milling Division
Foodcorp: Milling Division The Milling Division operates the largest single site flour mill in Southern Africa and a maize mill, both based at the same site in Pretoria Brands Limpopo Province Botswana Mpumalanga Pretoria Gauteng Swaziland North West KwaZulu Natal Free State Lesotho Northern Cape Ea
Slide 51: Foodcorp: Baking Division
Foodcorp: Baking Division The Baking Division is the fourth largest bakery group in the country, operating nine bakeries and distributing its products in five of the country’s provinces. Brands Limpopo Province Botswana Tzaneen Polokwane Mpumalanga Bushbuckridge Rustenburg Pretoria Nelspruit Benoni
Slide 52: Foodcorp: Speciality Division
Foodcorp: Speciality Division The Speciality Division produces a range of superior ready to eat products, including speciality breads, mainly for Woolworths The product range includes sandwiches, muffins, desserts, snack foods, scones, rye breads, cake products, pastries and croissants Limpopo 1 sit
Slide 53: Rainbow: complex business chain
Rainbow: complex business chain Integrated supply chain from “farm to fork” GP operation Agriculture Processing Grandparent Broiler chicks Grandparent farms Parent farms farms Rearing Laying Hatching Rearing Laying Hatching Growing Processing 4 broilers plants + 2 FP 21 weeks 40 weeks 3 weeks 21 wee
Slide 54: Rainbow: infrastructure
Rainbow: infrastructure 209 rearing, laying and broiler farms and hatcheries 30m birds on the ground 5 feed mills 1.1m tons per year Limpopo Province 4 primary processing plants nearly 250m birds per year Tzaneen 2 further processed plants 27,000 tons per year Polokwane Botswana Mpumalanga Windhoek
Slide 55: Chicken industry perspective
Chicken industry perspective Average broiler production per week (in millions) excluding imports Million 20.1 18.6 18.8 19.1 17.7 17.9 16.6 15.9 14.7 13.8 13.4 13.1 12.4 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Oct-13 Source: SAPA Foodcorp | Rainbow | Vector | INTERIM RESULTS FOR
Slide 56: Operational review Vector: infrastructure
Operational review Vector: infrastructure plant-based cold stores distribution sites Limpopo Province Vector infrastructure Tzaneen Polokwane • National footprint including Windhoek Botswana Mpumalanga Windhoek Rustenburg – 4 plant-based cold stores North Nelspruit Roodepoort West Midrand – 14 distr
Slide 57: Operational review - Vector
Operational review – Vector Manufacturers Primary Primary Principal Customer Sales Credit & (PBCS) Warehousing Transport Secondary Secondary Solutions Information (VCS) (VPT) Distribution Distribution (VSS) Management (PSD) (CSD) 2008 2002 2007 1966 2001 2004 2001 Plant Based Primary Primary Seconda
Slide 58: TSB: Leading South African sugar producer
TSB: Leading South African sugar producer • Engages in sugar cane agriculture, sugar manufacturing, marketing, sales and distribution • Operates three mills in South Africa, in close proximity to Mozambique with capacity to produce c.700 000 tonnes of sugar p.a. • The lowest-cost sugar producer in t
Slide 59: TSB Cane Supply Area
TSB Cane Supply Area TSB’s three mills in South Africa are in Malelane, Komati and Pongola INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 59
Slide 60: TSB Mills
TSB Mills Mills Established Tons sugar produced Notes Nkomazi: 1968 189 000 TSB produces 28% of all sugar produced in Malalane South Africa Nkomazi: 1993 250 000 Komati Pongola 1954 140 000 (refined) 23 000 (brown) Malalane Mill 60
Slide 61: Molatek, Animal Feeds Products
Molatek, Animal Feeds Products • Molatek sells ± 294 000 tons of manufactured product • Product range: - Energy feeds - Fattening & dairy concentrates - Lick supplements - Molasses • Products are sold in bulk bags: 40 & 50 kg bags INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 61
Slide 62: Booker Tate (TSB subsidiary) in a nutshell
Booker Tate (TSB subsidiary) in a nutshell • Booker Tate provides development, management and technical services to sugar and agribusiness industries throughout the world • Founded in 1988 from the amalgamation of Booker Agriculture International (BAI) and Tate & Lyle Agribusiness (TLA) with a sugar
Slide 63: Royal Swaziland Sugar Corporation
Royal Swaziland Sugar Corporation 1975 - Feasibility study and finance raising for Simunye 1977 - Project Manager for the development of Simunye followed by Corporate management 2002 - Merger with Mhlume and now producing 450 000 tons sugar TSB investment in RSSC in 2005 27.42% shareholding RSSC Key
Slide 64: Mananga Sugar Packers Swaziland
Mananga Sugar Packers Swaziland • Sugar packing operation in Swaziland • RSSC/TSB partners • 96 000 tons • Marketing by Quality Sugars INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 64
Slide 65: Quality Sugars, Sugar Marketing
Quality Sugars, Sugar Marketing White Sugar Brown Sugar INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 65
Slide 66: Quality Sugars, Sugar Specialities
Quality Sugars, Sugar Specialities Castor & Icing Sticks Specialty Brown Sweetener INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013 66