RCL Foods Limited · JSE:RCL
RCL Foods — H1 2020 Earnings Presentation
52 slides from RCL Foods's earnings presentation, Mar 2, 2020
Slide 1: Investor Presentation: Results for the Six Months Ended December 2019
2020 INVESTOR PRESENTATION 2 MARCH 2020 RESULTS FOR THE SIX MONTHS ENDED DECEMBER 2019
Slide 2: Miles Dally, Chief Executive Officer
MILES DALLY CHIEF EXECUTIVE OFFICER
Slide 3: Headlines – Results for the Six Months Ended December 2019
Salient Features | Financial Review | Operational Reviews | Key Deliverables HEADLINES – RESULTS FOR THE SIX MONTHS ENDED DECEMBER 2019 IMPROVED PERFORMANCE NOTWITHSTANDING A WEAK OPERATING ENVIRONMENT Continued margin pressure amidst a weak operating environment ▪ Muted economic growth and subdued
Slide 4: Next Phase in Evolution to One Food Business
Salient Features | Financial Review | Operational Reviews | Key Deliverables HEADLINES – RESULTS FOR THE SIX MONTHS ENDED DECEMBER 2019 NEXT PHASE IN EVOLUTION TO ONE FOOD BUSINESS CONSUMER SUGAR & MILLING FOOD DIVISION DIVISION DIVISION CHICKEN MILLBAKE CHICKEN GROCERIES Chicken + Animal Feed (EPOL
Slide 5: Headlines – Revenue, EBITDA and Headline Earnings Growth
Salient Features | Financial Review | Operational Reviews | Key Deliverables HEADLINES – RESULTS FOR THE SIX MONTHS ENDED DECEMBER 2019 24.1% GROWTH IN UNDERLYING HEADLINE EARNINGS DRIVEN LARGELY BY AN IMPROVED SUGAR RESULT Revenue up 7.1% driven by good volume growth, particularly REVENUE R14.2bn 7
Slide 6: Underlying EBITDA & Growth per Business Unit
Salient Features | Financial Review | Operational Reviews | Key Deliverables HEADLINES – RESULTS FOR THE SIX MONTHS ENDED DECEMBER 2019 UNDERLYING EBITDA & GROWTH (%) PER BUSINESS UNIT Groceries continues good growth with strong Pet Chicken impacted by continued market oversupply and Vector Logistic
Slide 7: Underlying EBITDA Margin Summary
Salient Features | Financial Review | Operational Reviews | Key Deliverables HEADLINES – RESULTS FOR THE SIX MONTHS ENDED DECEMBER 2019 Groceries: Sustained growth driven by strong Pet Food UNDERLYING EBITDA MARGIN SUMMARY (DEC) performance. Culinary basket grew ahead of the market, albeit volumes c
Slide 8: Minority Shareholding in Foods United Incorporated
Salient Features | Financial Review | Operational Reviews | Key Deliverables HEADLINES – RESULTS FOR THE SIX MONTHS ENDED DECEMBER 2019 RCL FOODS SECURES A MINORITY SHAREHOLDING IN FOODS UNITED INCORPORATED RCL FOODS secures a minority shareholding in Foods United Incorporated - international entity
Slide 9: Rob Field, Chief Financial Officer
ROB FIELD CHIEF FINANCIAL OFFICER
Slide 10: Operating Environment
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATING ENVIRONMENT GDP growth remains muted, with low to negative growth reported over the period. Food basket growth constrained at 0.3%* for the industry for the 6 months to December 2019 Consumers benefitted from lowe
Slide 11: Financial Summary
Salient Features | Financial Review | Operational Reviews | Key Deliverables FINANCIAL SUMMARY SUGAR IMPROVEMENT DRIVES GAINS IN REVENUE, EBITDA & UNDERLYING HEADLINE EARNINGS INCOME STATEMENT DEC 2019 DEC 2018 % VAR Revenue Rm 14 210.2 13 265.4 7.1 EBITDA Rm 1 165.7 1 082.2 7.7 EBITDA margin % 8.2
Slide 12: Operating Results Summary (Rm)
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATING RESULTS SUMMARY (Rm) UNDERLYING EBITDA UP 11.1% DRIVEN BY SUGAR IMPROVEMENT 7.7% 11.1% 106.8 1 165.7 1 082.2 46.8 172.7 71.2 110.0 105.0 10.8 1 033.3 84.4 17.5 2.8 24.0 930.4 Refer slide 8 of the Appendices for de
Slide 13: Headline Earnings Waterfall (Rm)
Salient Features | Financial Review | Operational Reviews | Key Deliverables HEADLINE EARNINGS WATERFALL (Rm) DECEMBER 2019 IFRS 16 impact Materially impacted by Includes R79.2m gain on 1 165.7 445.2 Depreciation: +R89.7m unrecognised deferred tax bargain purchase Net finance costs: +R49.5m assets o
Slide 14: Operating Results Summary - Unadjusted
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATING RESULTS SUMMARY - UNADJUSTED SEGMENTAL ANALYSIS – REVENUE AND EBITDA REVENUE (Rm) DEC 2019 DEC 2018 % VAR Groceries 2 637.6 2 513.4 4.9 Baking 2 545.9 2 581.8 (1.4) Chicken 4 700.2 4 486.7 4.8 Sugar 3 778.1 3 366.
Slide 15: Operating Results Summary – Underlying EBITDA
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATING RESULTS SUMMARY – UNDERLYING EBITDA OPERATING RESULTS SUMMARY – UNDERLYING EBITDA EXCLUDING MATERIAL ONCE-OFFS AND ACCOUNTING ADJUSTMENTS, UNDERLYING EBITDA UP 11.1% AND MARGIN IMPROVES 0.3% UNDERLYING EBITDA (Rm)
Slide 16: Cash Flow Summary
Salient Features | Financial Review | Operational Reviews | Key Deliverables CASH FLOW SUMMARY FREE CASH FLOW UP 45.6% TO R414.0M, DRIVEN BY INCREASE IN PROFITS AND LOWER CAPEX SPEND Rm DEC 2019 DEC 2018 % VAR OPENING BALANCE* (110.4) 1 263.4 (108.7) Operating profit adjusted for non-cash flow items
Slide 17: Working Capital
Salient Features | Financial Review | Operational Reviews | Key Deliverables WORKING CAPITAL WORKING CAPITAL UP 26.0%, DRIVEN BY HIGHER RECEIVABLES DEC DEC % WORKING CAPITAL (Rm) NET WORKING CAPITAL AS A % OF REVENUE 2019 2018 VAR Trade and other receivables 5 985.6 4 834.1 23.8 22.3 19.4 TRADE RECE
Slide 18: Capital Expenditure
Salient Features | Financial Review | Operational Reviews | Key Deliverables CAPITAL EXPENDITURE CAPITAL EXPENDITURE CONTROLLED CAPEX SPEND, DOWN R96.9m EXPANSION (Rm) REPLACEMENT (Rm) Capital expenditure (including intangibles) was R437.1m (Dec 2018: R534.0m) Major spend items in the current period
Slide 19: Debt Package
Salient Features | Financial Review | Operational Reviews | Key Deliverables DEBT PACKAGE DEBT PACKAGE RESTRUCTURED IN DECEMBER 2018 AT LOWER INTEREST RATES INTEREST RATE OF 3M JIBAR + MARGIN OF 1.5% TO 1.55% OVER 5 YEAR TERM TERM VALUE (Rm) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 (DEC 19)* (DEC 20) (DEC
Slide 20: Debt Covenants
Salient Features | Financial Review | Operational Reviews | Key Deliverables DEBT COVENANTS RCL FOODS REMAINS WELL WITHIN COVENANT REQUIREMENTS Required covenant ratios were revised on restructuring of the debt package in December 2018 COVENANT REQUIRED DEC 2019 JUNE 2019 DEC 2018 Senior leverage ra
Slide 21: Impact of IFRS 16
Salient Features | Financial Review | Operational Reviews | Key Deliverables IMPACT OF IFRS 16 IMPACT OF IFRS 16 THE GROUP ADOPTED IFRS 16 ‘LEASES’ Rm INCREASE/(DECREASE) USING THE “SIMPLIFIED” RESTATEMENT APPROACH. AS A RESULT THE DECEMBER INCOME STATEMENT 2018 RESULTS WERE NOT RESTATED EBITDA 106.
Slide 22: Paul Cruickshank, Food Division Chief Operating Officer
PAUL CRUICKSHANK FOOD DIVISION CHIEF OPERATING OFFICER
Slide 23: Operational Review: Food Division
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION DEC DEC % REVENUE (Rm) 2019 2018 VAR Groceries 2 637.6 2 513.4 4.9 Baking 2 545.9 2 581.8 (1.4) Chicken 4 700.2 4 486.7 4.8 Sugar 3 778.1 3 366.1 12.2 FOOD DIVISION SUB TOTAL 13 661.8 12 9
Slide 24: Our Wins for the Period
Salient Features | Financial Review | Operational Reviews | Key Deliverables OUR WINS FOR THE PERIOD Organisational design and senior management restructure complete Overhead growth below inflation Load shedding and water supply challenges well managed Cost savings in Sugar delivered Innovation and
Slide 25: Groceries
GROCERIES
Slide 26: Operational Review: Food Division - Groceries
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - GROCERIES UNDERLYING EBITDA RESULT OF R320.5m, UP 5.8% ON LAST YEAR DRIVEN BY STRONG PET FOOD PERFORMANCE AND OPERATIONAL EXCELLENCE DEC DEC % GROCERIES HEADLINES 2019 2018 VAR REVENUE 2
Slide 27: Groceries: Culinary
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - GROCERIES GROCERY : CULINARY GROCERY: CULINARY MARKET SHARE 6mm 6mm (VOLUME) Dec 2018 Dec 2019 Our basket of leading brands came under pressure in 50.9% 41.6% the period under review due
Slide 28: Groceries: Pet Food
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL OPERATIONAL REVIEW: REVIEW : FOOD FOOD DIVISION DIVISION – GROCERIES - GROCERIES GROCERY : PET FOOD MARKET SHARE 6mm 6mm (VOLUME) Dec 2018 Dec 2019 Our innovative technology in the pet food sector has 33.4% 34.8
Slide 29: Groceries: Pies and Beverages
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - GROCERIES PIES Well controlled costs drove a good Pies result despite growing pressure on sales volumes which was further exacerbated by the inability to service baked pie demand in full
Slide 30: Baking
BAKING
Slide 31: Operational Review: Food Division - Baking
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL OPERATIONAL REVIEW: REVIEW : FOOD FOOD DIVISION DIVISION - BAKING – BAKING UNDERLYING EBITDA OF R180.8m, DOWN 1.5% ON LAST YEAR MAINLY DUE TO VOLUME AND MARGIN PRESSURE IN MOST CATEGORIES DEC DEC % BAKING HEADLI
Slide 32: Baking: Speciality and Milling
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - BAKING SPECIALITY SPECIALITY Having disposed of the prepared category lines in the previous financial year, our Speciality operation has been moved out of Groceries and into the Baking b
Slide 33: Baking: Milling continued, Bread, Buns and Rolls
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - BAKING MILLING continued SAFEX WHEAT PRICE (R/Ton) H1 F19 H1 F20 Flour mill production reliability has improved substantially 5,0% AVG Price although this remains a longer term focus are
Slide 34: Chicken
CHICKEN
Slide 35: Operational Review: Food Division - Chicken
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - CHICKEN PRICING PRESSURE STEMMING FROM SUSTAINED MARKET OVERSUPPLY, RISING FEED COSTS AND AGRICULTURAL CHALLENGES, DRIVES A 10.8% DECLINE IN UNDERLYING EBITDA DEC DEC % CHICKEN HEADLINES
Slide 36: Chicken: Imports and Maize Price
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - CHICKEN CHICKEN IMPORTS : BONE-IN PORTIONS - TONS PER MONTH 40 000 Volume reduction in recent years has negatively impacted 35 000 on cost absorption and efficiencies which prompted a rev
Slide 37: Chicken continued and Animal Feed
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - CHICKEN CHICKEN continued In our Added Value Retail category, the reintroduction of viennas and polony has prompted a strong recovery in market share and the new Simply Chicken ranges hav
Slide 38: Sugar
SUGAR
Slide 39: Operational Review: Food Division - Sugar
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - SUGAR SUGAR IMPROVES ON THE BACK OF HIGHER MARKET PRICING AND COST CONTROL, UNDERLYING EBITDA UP 142.4% TO R294.0m DEC DEC % SUGAR HEADLINES 2019 2018 VAR REVENUE 3 778.1 3 366.1 12.2 ▪ S
Slide 40: Sugar: Industry Distress and Sugar Tax
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - SUGAR SUGAR The local sugar industry remains in severe distress due to long term structural supply-demand imbalances which were further exacerbated by the high level of imports in the pri
Slide 41: Sugar continued and Molatek
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL OPERATIONAL REVIEW: REVIEW : FOOD FOOD DIVISION DIVISION - SUGAR – SUGAR SUGAR continued NO.11 WORLD SUGAR PRICE (RAW SUGAR) H1 F19 H1 F20 Diversification into ethanol fuel and other cane-derived 3.4% products,
Slide 42: Food Division – Key Priorities
FOOD DIVISION – KEY PRIORITIES
Slide 43: Food Division Priorities for Second Half of F20
Salient Features | Financial Review | Operational Reviews | Key Deliverables FOOD DIVISION PRIORITIES FOR SECOND HALF OF F20 FINANCIAL YEAR STRATEGIC OPERATIONAL Bed down Food division structure Mitigate impact of electricity and water utility supply challenges Focused reduction of Agricultural base
Slide 44: Chris Creed, Vector Managing Director
CHRIS CREED VECTOR MANAGING DIRECTOR
Slide 45: Operational Review: Vector
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : VECTOR DEC DEC % REVENUE (Rm) 2019 2018 VAR Groceries 2 637.6 2 513.4 4.9 Baking 2 545.9 2 581.8 (1.4) Chicken 4 700.2 4 486.7 4.8 Sugar 3 778.1 3 366.1 12.2 Food Division Sub Total 13 661.8 12 948.0 5.
Slide 46: Operational Review: Vector Headlines
Salient Features | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : VECTOR WATERSHED YEAR SEES VECTOR WINNING SIGNIFICANT NEW BUSINESS, BUT IMPACTED IN THE SHORT TERM BY INVESTMENT COSTS DEC DEC % VECTOR HEADLINES 2019 2018 VAR REVENUE 1 273.9 1 076.5 18.3 ▪ Pleasing re
Slide 47: Pleasing New Business in Line with Customer Strategy
Salient Features | Financial Review | Operational Reviews | Key Deliverables PLEASING NEW BUSINESS IN LINE WITH CUSTOMER STRATEGY CUSTOMER ALIGNED STRATEGY The customer strategy, to offset the Chicken restructure, focused on winning new business and cost optimisation The initiative has gained moment
Slide 48: Significant Investment in Capacity
Salient Features | Financial Review | Operational Reviews | Key Deliverables SIGNIFICANT INVESTMENT IN CAPACITY Capacity enablement for the new business and the duplicated network costs have added costs to the network and will continue for the next 9-12 months The synergised network, once bedded dow
Slide 49: Vector Going Beyond
Salient Features | Financial Review | Operational Reviews | Key Deliverables VECTOR GOING BEYOND Growth in “other services” such as Primary Transport and Sales & Merchandising a focus area further improving our diversification and customer strategy Further leverage of digital platforms through the i
Slide 50: Key Deliverables
KEY DELIVERABLES
Slide 51: Key Deliverables: Sustainable Quality of Earnings
Salient Features | Financial Review | Operational Reviews | Key Deliverables KEY DELIVERABLES: SUSTAINABLE QUALITY OF EARNINGS Groceries: Deliver brand extensions, capacity and innovation capabilities in progress. Sustain growth potential into the future Baking: Deliver new category expansion plans
Slide 52: TEL +27 8600
e000 TEL +27 31 242 8600