RCL Foods Limited · JSE:RCL
RCL Foods — FY2017 Earnings Presentation
54 slides from RCL Foods's earnings presentation, September 2017
Slide 1: Results for the Year Ended June 2017
INVESTOR PRESENTATION RESULTS FOR THE YEAR ENDED JUNE 2017
Slide 2: Miles Dally, Chief Executive Officer
MILES DALLY CHIEF EXECUTIVE OFFICER 2
Slide 3: Headlines – Results for the Year Ended June 2017
Salient features | Strategic overview | Financial review | Operational reviews | Prospects HEADLINES – RESULTS FOR THE YEAR ENDED JUNE 2017 PERFORMANCE HEADLINES FINANCIAL HIGHLIGHTS 7.5% increase in normalised headline earnings per share Normalised Strong cash generation with an increase of 56.8% f
Slide 4: Our Business Model Is Simple
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OUR BUSINESS MODEL MAXIMISE PROFIT IN OUR CORE CATEGORIES IS SIMPLE… Chicken, Sugar, Grains (Milling) and Animal Feed • The main staples on which we build our added value portfolio • Provide us with a wide ran
Slide 5: F15-17: Our Journey So Far
Salient features | Strategic overview | Financial review | Operational reviews | Prospects F15-17: OUR JOURNEY SO FAR... Transformation of 4 separate businesses into ONE RCL FOODS ONE VISION ONE IDENTITY Our Passion Unique corporate Our Way brand identity Our Business Model Our Strategic Thrusts Nat
Slide 6: Moving Towards a More Balanced Portfolio
Salient features | Strategic overview | Financial review | Operational reviews | Prospects MOVING TOWARDS A MORE BALANCED PORTFOLIO Difficult trading conditions have reinforced the importance of our strategy to move towards a more balanced portfolio with a stronger emphasis on added value products a
Slide 7: F15-17: Our Portfolio Journey
Salient features | Strategic overview | Financial review | Operational reviews | Prospects F15-17: OUR PORTFOLIO JOURNEY As we move towards a more balanced portfolio, we have also stabilised each of our category clusters, creating a solid foundation for growth even while we continue to experience ch
Slide 8: F15-17: Our Portfolio Journey
Salient features | Strategic overview | Financial review | Operational reviews | Prospects F15-17: OUR PORTFOLIO JOURNEY As we move towards a more balanced portfolio, we have also stabilised each of our category clusters, creating a solid foundation for growth even while we continue to experience ch
Slide 9: 1. Grow Through Strong Brands
Salient features | Strategic overview | Financial review | Operational reviews | Prospects 1. GROW THROUGH STRONG BRANDS KEY ACHIEVEMENTS Our brand strategy and investment in brands have strengthened our market share with a number of our brands holding strong positions in their respective categories
Slide 10: 2. Partner with Strategic Customers
Salient features | Strategic overview | Financial review | Operational reviews | Prospects 2. PARTNER WITH STRATEGIC CUSTOMERS KEY ACHIEVEMENTS Providing key customers with a dedicated "ONE RCL FOODS" sales team enabled us to step change our customer relationships, strategies and availability We con
Slide 11: 3. Extend Our Leading Value Chain
Salient features | Strategic overview | Financial review | Operational reviews | Prospects 3. EXTEND OUR LEADING VALUE CHAIN KEY ACHIEVEMENTS The expansion of our Thekwini logistics hub was completed as part of an overall network investment plan of R325m over two years to align us with customers as
Slide 12: 4. Africa
Salient features | Strategic overview | Financial review | Operational reviews | Prospects 4. AFRICA KEY KEY ACHIEVEMENTS ACHIEVEMENTS We continue to pursue opportunities in Africa, however remain cautious in our approach Our investment in Zambia was disposed of, with Zambeef electing to settle our
Slide 13: 5. Inspire Great People
Salient features | Strategic overview | Financial review | Operational reviews | Prospects 5. INSPIRE GREAT PEOPLE KEY ACHIEVEMENTS Rolled out our leadership development program to almost 40% of our management over 3 years Invested over R40 million in training our people Strengthened relationships w
Slide 14: 6. Drive Sustainable Business
Salient features | Strategic overview | Financial review | Operational reviews | Prospects 6. DRIVE SUSTAINABLE BUSINESS KEY ACHIEVEMENTS Completed construction and commissioning of our first Waste to Value plant in Worcester (Western Cape) – with water quality better than expected and biogas produc
Slide 15: Progress Against Deliverables for 2017
Salient features | Strategic overview | Financial review | Operational reviews | Prospects PROGRESS AGAINST DELIVERABLES FOR 2017 Revised business model for Chicken Group route-to-market opportunities Millbake turnaround and future Sharper strategic customer focus per category Continuous investment
Slide 16: Key Deliverables for 2018
Salient features | Strategic overview | Financial review | Operational reviews | Prospects KEY DELIVERABLES FOR 2018 Continue to invest behind brands and systems Continue to sharpen customer relationships and strategic focus by category Continue with implementation of revised Chicken business model
Slide 17: Rob Field, Chief Financial Officer
ROB FIELD CHIEF FINANCIAL OFFICER 17
Slide 18: Financial Summary
Salient features | Strategic overview | Financial review | Operational reviews | Prospects FINANCIAL SUMMARY YEAR ENDED JUNE 2017 JUNE 2016 STATUTORY JUNE 2017 % VAR Restated Revenue Rm 24 950.7 25 025.2 (0.3) EBITDA Rm 1 747.6 1 762.4 (0.8) EBITDA margin % 7.0 7.0 - Effective tax rate (excl. JV’s,
Slide 19: Operating Environment
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATING ENVIRONMENT Drought impact continued into F17 with sustained high soft commodity prices for most of the year, though price relief is expected in F18 Despite a decline in inflation over the last quart
Slide 20: Material Financial Impacts F17
Salient features | Strategic overview | Financial review | Operational reviews | Prospects MATERIAL FINANCIAL IMPACTS F17 Downsizing of Chicken business unit resulted in the following financial impacts: • R172.0 million impairment of assets • R42.9 million provision for restructuring costs • R9.0 mi
Slide 21: Material Financial Impacts F16
Salient features | Strategic overview | Financial review | Operational reviews | Prospects MATERIAL FINANCIAL IMPACTS F16 An impairment loss of R642.8 million in the Milling operation resulting from a combination of a competitive trading environment and increases in the ten-year government bond yiel
Slide 22: Operating Results Summary (Rm)
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATING RESULTS SUMMARY (Rm) 2016 to 2017 Normalised result in line with prior year 80.6 67.7 138.1 27.9 158.1 32.4 1 762.4 YEAR ON YEAR MOVEMENT 1 747.6 -0.3% 57.1 1 617.2 90.1 57.5 79.9 42.9 1 612.8 2016 E
Slide 23: Headline Earnings Waterfall (Rm)
Salient features | Strategic overview | Financial review | Operational reviews | Prospects HEADLINE EARNINGS WATERFALL (Rm) 1 747.6 971.1 2017 Normalised result up 7.7% 332.7 128.5 87.7 37.4 39.3 7.9 548.5 27.9 20.7 593.1 125.6 158.1 EBITDA Depreciation, Net finance Taxation Share of Minority Headli
Slide 24: Operating Results Summary – Segmental Revenue
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATING RESULTS SUMMARY SEGMENTAL ANALYSIS - REVENUE REVENUE (Rm) JUNE 2017 JUNE 2016 % VAR Consumer 13 474.0 13 301.3 1.3 Sugar & Milling 14 467.4 14 914.8 (3.0) Logistics 2 033.1 1 986.9 2.3 Sales between
Slide 25: Operating Results Summary – Segmental EBITDA
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATING RESULTS SUMMARY SEGMENTAL ANALYSIS - EBITDA JUNE 2016 EBITDA (Rm) – pre-IAS 39 JUNE 2017 % VAR Restated Consumer 520.8 701.7 (25.8) Sugar & Milling 1 054.1 826.0 27.6 Logistics 203.1 260.7 (22.1) Una
Slide 26: Operating Results Summary – Normalised EBITDA
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATING RESULTS SUMMARY SEGMENTAL ANALYSIS – NORMALISED EBITDA JUNE 2016 EBITDA (Rm) – pre-IAS 39 JUNE 2017 % VAR Restated Consumer (excl Chicken) 463.7 543.6 (14.7) Sugar & Milling 916.1 826.0 10.9 Logistic
Slide 27: Cash Flow Summary
Salient features | Strategic overview | Financial review | Operational reviews | Prospects CASH FLOW SUMMARY JUNE 2016 Rm JUNE 2017 % VAR Restated Opening balance* 363.2 870.5 (58.3) Operating profit adjusted for non-cash flow items 1 466.2 1 343.8 9.1 Working capital changes 827.5 118.6 597.7 Net f
Slide 28: Working Capital
Salient features | Strategic overview | Financial review | Operational reviews | Prospects WORKING CAPITAL WORKING CAPITAL (Rm) JUNE 2017 JUNE 2016 (Restated) % VAR Trade receivables* 3 452.3 3 610.0 (4.4) Inventories 2 666.6 2 940.3 (9.3) Biological assets 791.5 968.2 (18.3) Trade payables (4 398.5
Slide 29: Capital Expenditure
Salient features | Strategic overview | Financial review | Operational reviews | Prospects CAPITAL EXPENDITURE Capital expenditure was R834.5m (2016: R1 049.3m) Major spend in the period included further spend on projects that commenced in the prior year relating to the upgrade to the pet food plant
Slide 30: Debt Package
Salient features | Strategic overview | Financial review | Operational reviews | Prospects DEBT PACKAGE TERM VALUE (Rm) YEAR 1 YEAR 2 YEAR 3 (FEB 18) YEAR 4 (FEB 19) 1 355 5 year 400 847 4 year 250 3 year – RCF 498 Total 3 350 Hedged % 77% 77% 53% 53% Hedged (fixed rate) NET FINANCE COSTS (Rm) Unhed
Slide 31: Debt Covenants
Salient features | Strategic overview | Financial review | Operational reviews | Prospects DEBT COVENANTS COVENANT REQUIRED JUNE 2017 DEC 2016 JUNE 2016 Senior leverage ratio (Net senior debt*/pre-IAS 39 HEBITDA) <3.0 1.4 2.2 1.8 Repricing (a step-up margin of 0.25% is triggered if the senior <2.7 1
Slide 32: Scott Pitman, Managing Director Consumer Division
SCOTT PITMAN MANAGING DIRECTOR Consumer Division 32
Slide 33: Operational Review: Consumer
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: CONSUMER JUNE 2016* REVENUE (Rm) JUNE 2017* % VAR Restated Consumer 13 474.0 13 301.3 1.3 HEADLINES Sugar & Milling 14 467.4 14 914.8 (3.0) • F17 was a challenging year with Logistics 2 033
Slide 34: Operational Review: Consumer
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: CONSUMER JUNE 2016* REVENUE (Rm) JUNE 2017* % VAR Restated HEADLINES Chicken 7 675.9 7 905.0 (2.9) • Despite continued external market Groceries 4 955.3 4 512.9 9.8 pressures, Chicken is st
Slide 35: Operational Review: Chicken
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: CHICKEN CHICKEN MAINSTREAM CHICKEN - EBITDA PERFORMANCE (Normalised) Whilst the industry remains in crisis, the Chicken business unit had a much stronger second half as a result of the R94.
Slide 36: Operational Review: Chicken
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: CHICKEN CHICKEN ADDED VALUE FREEZER TO FRYER VOLUME SHARE RETAIL Excellent performance in the Freezer to Fryer category has translated into market leadership status for RCL FOODS for the 6
Slide 37: Operational Review: Groceries
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: GROCERIES GROCERY RCL have grown share to dominate the peanut butter and mayonnaise categories with Yum Yum and Nola respectively assuming market leadership in most months RCL’s pet food ra
Slide 38: Operational Review: Groceries – Pies
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: GROCERIES PIES The work on Piemans is paying off with our brand seeing volume growth in F17 despite nearly all grocery categories being in decline during the period Improving the quality of
Slide 39: Operational Review: Groceries – Beverage
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: GROCERIES BEVERAGE All beverage categories in South Africa had a tough year due to cooler average temperatures RCL withdrew its Number1 Smooth UHT product from the market in November due to
Slide 40: Operational Review: Groceries – Speciality
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: GROCERIES SPECIALITY The Speciality business unit experienced volume declines in line with grocery markets in South Africa Speciality has undergone a full revamp to align systems and contro
Slide 41: John du Plessis, Managing Director Sugar & Milling Division
JOHN DU PLESSIS MANAGING DIRECTOR Sugar & Milling Division 41
Slide 42: Operational Review: Sugar & Milling
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: SUGAR & MILLING JUNE 2016* REVENUE (Rm) JUNE 2017* % VAR Restated Consumer 13 474.0 13 301.3 1.3 Sugar & Milling 14 467.4 14 914.8 (3.0) Logistics 2 033.1 1 986.9 2.3 Sales between segments
Slide 43: Operational Review: Sugar & Milling
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: SUGAR & MILLING JUNE 2016* REVENUE (Rm) JUNE 2017* % VAR Restated Animal Feed 5 667.9 5 996.9 (5.5) HEADLINES Millbake 3 799.4 3 765.3 0.9 • Good performances from Sugar and Sugar 5 098.7 5
Slide 44: Operational Review: Animal Feed
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: ANIMAL FEED EBITDA decreased by R54.1m (-16.8%) to R268.3m due to pressure YELLOW MAIZE PRICE (R/ton) on both volume and margin F16 F17 AVG Price 14.4% AVG Price A constrained market, still
Slide 45: Operational Review: Millbake
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: MILLBAKE SAFEX WHEAT PRICE (R/ton) EBITDA increased by R6.6m (2.4%) to R278.9m, largely off strong performances in Baking A long position on wheat put margin under pressure in a declining m
Slide 46: Operational Review: Sugar
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: SUGAR MANUFACTURERS SHARE Normalised EBITDA increased by R137.6m (59.5%) to R368.9m, primarily due to price increases that went through in July and in February The drought and an intentiona
Slide 47: Operational Review: Sugar Imports
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: SUGAR IMPORTS GLOBAL SUPPLY / DEMAND BALANCE The global sugar market is currently in oversupply with the result that sugar prices are trading well below historic average prices A key driver
Slide 48: Chris Creed, Managing Director Logistics Division
CHRIS CREED MANAGING DIRECTOR Logistics Division 48
Slide 49: Operational Review: Logistics
Salient features | Strategic overview | Financial review | Operational reviews | Prospects OPERATIONAL REVIEW: LOGISTICS JUNE 2016* REVENUE (Rm) JUNE 2017* % VAR Restated HEADLINES Consumer 13 474.0 13 301.3 1.3 • Significant impact of Chicken Sugar & Milling 14 467.4 14 914.8 (3.0) restructure; foc
Slide 50: Chicken Crisis Impacts Logistics, Mitigation Plan Being Implemented
Salient features | Strategic overview | Financial review | Operational reviews | Prospects CHICKEN CRISIS IMPACTS LOGISTICS, MITIGATION PLAN BEING IMPLEMENTED Excluding the impact of the Chicken business unit downsizing, underlying EBITDA would be R246.9m (-5.3% compared to 2016) New business target
Slide 51: Weak Economy Impacts Retail, Food Service Shows Signs of Pressure
Salient features | Strategic overview | Financial review | Operational reviews | Prospects WEAK ECONOMY IMPACTS RETAIL, FOOD SERVICE SHOWS SIGNS OF PRESSURE Retail volumes reflected the generally muted economic environment and resulting subdued consumer spending Food Service sector volumes under str
Slide 52: Winning New Business
Salient features | Strategic overview | Financial review | Operational reviews | Prospects WINNING NEW BUSINESS Focus on targeted opportunities to win new business Vector has been awarded a long-term contract for Pick ‘n Pay’s frozen distribution Nandos continues its partnership with Vector by renew
Slide 53: Prospects
PROSPECTS 53
Slide 54: Prospects
Salient features | Strategic overview | Financial review | Operational reviews | Prospects PROSPECTS Economic growth will continue to be lacklustre in the coming year, which implies that demand will remain constrained, with flat to declining volumes Improved supply of crops is expected to bring pric