RCL Foods Limited · JSE:RCL
RCL Foods — FY2013 Earnings Presentation
58 slides from RCL Foods's earnings presentation, Aug 28, 2013
Slide 1: RCL Foods Limited Audited Results for the Year Ended 30 June 2013
RCL FOODS LIMITED (formerly Rainbow Chicken Limited) Audited Results for the Year Ended 30 June 2013 Investor Presentation: 28 August 2013
Slide 2: Agenda
Agenda 2013 Ambition Salient features Financial Key and strategic and review financial issues priorities results summary Operational Dividends Prospects Appendices review This presentation covers the results for the 12 month period to June 2013 Name changed to RCL Foods Limited from Rainbow Chicken
Slide 3: 2013 salient features
2013 salient features Group revenue increased 28.7% to R10.1bn Headline EBITDA lower by 27.4% to R446.2m Headline EBITDA margin decreased to 4.4% from 7.8% Headline earnings from continuing operations down 93.2% to R18.1m Cash generated from operations increased 32.2% to R669.3m Fully underwritten R
Slide 4: 2013 results summary
2013 results summary Revenues: 28.7% Headline EBITDA: 27.4% ZARm ZARm 8.9% Margin % 9.6% 7.8% 4.4% 6 953 8 621 7 855 10 109 671.5 769.5 614.9 446.2 2010 2011* 2012 2013 2010 2011* 2012 2013 Headline earnings : 93.2% Cash generated from operations: 32.2% ZARm ZARm 351.5 388.8 267.1 18.1 526 6
Slide 5: Agenda: Ambition
Agenda 2013 Ambition Salient features Financial Key and strategic and review financial issues priorities results summary Operational Dividends Prospects Appendices review AMBITION: RCL Foods seeks to be a diversified food business with compelling consumer brands in sub-Saharan Africa AUDITED RESULTS
Slide 6: Group's current operations
Group’s current operations RCL FOODS LIMITED Market capitalisation: +R10bn 100% 100% 64.2% 49%/51% • South Africa’s largest • Specialised 3rd party • Leading South African • Acquired 49% of processor and marketer of logistics and sales service manufacturer of a Zambeef’s interest in Zam chicken prov
Slide 7: Strategic priorities
Strategic priorities Why Foodcorp? How does RCL Foods create value? • Food business of scale • Accelerating growth in South Africa and broader sub-Saharan African region – R8bn annualised turnover • Leveraging Vector’s logistics and sales • Strong brands expertise • Innovative • Leveraging scale and
Slide 8: Strategic priorities: Zambeef partnership
Strategic priorities Strategic partnership formed with Zambeef • Zambeef is a major ‘player’ in the Zambian agri-business (listed in London and Lusaka) • Established track record in Zambia, operations in Ghana and Nigeria as well • RCL acquired 49% of Zam Chick from Zambeef for R129m (US$14.25m) • Z
Slide 9: Agenda
Agenda 2013 Ambition Salient features Financial Key and strategic and review financial issues priorities results summary Operational Dividends Prospects Appendices review AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2013 9
Slide 10: Financial review
Financial review 2013 2012 Revenue Rm 10 108.8 7 855.1 Headline EBITDA Rm 446.2 614.9 Headline EBIT Rm 167.9 414.7 Effective tax rate % 113.5 35.0 Headline earnings continuing operations Rm 18.1 267.1 Cash generated by operations Rm 669.3 506.4 Net cash and investment in money market Rm 2 763.2 305.
Slide 11: Financial review summary
Financial review summary Rm 446.2 • Funding costs impacted 53.9 by Foodcorp acquisition 25.1 18.1 • Effective tax rate of 113.5% due to non- (75.1) deductible transaction (153.7) costs, non-allowance of (278.3) certain costs and foreign exchange losses HEBITDA Depreciation and Finance cost Finance i
Slide 12: Financial review: 2013 operating results summary
Financial review: 2013 operating results summary Three operating segments: Rainbow, Vector and Foodcorp Revenue (Rm) 2013 2012 Rainbow 8 144 7 197 Vector 1 477 1 340 Foodcorp (two months) 1 218 n/a Sales between Segments – Vector to Rainbow (726) (682) Sales between Segments – Vector to Foodcorp (4)
Slide 13: Financial review: general operating environment
Financial review General operating environment • Global economic slowdown continues to impact negatively • Weak consumer demand • Labour unrest • Above inflation cost increases (power/fuel) • Volatile exchange rate and commodity markets AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2013 13
Slide 14: Financial review
Financial review Rainbow results affected by high import volumes, ‘dumping’ and record feed input costs • Value added products delivered acceptable performance • Individual Quick Frozen products sold at below cost for most of the year Vector contribution lower due to investment in additional capacit
Slide 15: Financial review: cash flow summary
Financial review Cash flow summary Rm Opening balance 305.8 • Working capital levels continue to be well Operating profit adjusted for non-cash flow items 516.8 managed Working capital changes 152.5 • Cash generated by Net finance income 43.4 operations increased by Tax paid (61.0) R163m to R669.3m
Slide 16: Financial review: working capital movement
Financial review Working capital movement • The Foodcorp acquisition 600 has had a significant impact on the Group’s statement of financial 500 position 214.9 400 • IFRS 3 (Business combinations) requires recognition of net assets 300 95.4 160.7 acquired at fair value: resulted in assets and 200 (24
Slide 17: Capital expenditure programme
Financial review RCL Foods’ capital expenditure programme maintained at 2012 level Rm 2013 2012 Expansion 187.8 175.5 Maintenance 298.1 305.5 Total expenditure 485.9 481.0 Main on-going projects during 2013 • Rustenburg and Bushvalley expansions R137.0m • Additional freezing and chilling capacity in
Slide 18: Agenda
Agenda 2013 Ambition Salient features Financial Key and strategic and review financial issues priorities results summary Operational Dividends Prospects Appendices review AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2013 18
Slide 19: Key financial issues
Key financial issues Assessment of impairment • Rainbow and RCL Foods’ Boards have considered the need for an impairment of assets – In view of losses being incurred in Rainbow (IAS 36 - Impairment of assets) • Boards decided it is inappropriate to impair poultry assets at this stage – Outcome of th
Slide 20: 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 21: Agenda
Agenda 2013 Vision Salient features Financial Key and strategic and review financial issues priorities results summary Operational Dividends Prospects Appendices review AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2013 21
Slide 22: Operational review – Rainbow
Operational review – Rainbow Results remain under strong pressure due to 1. Continued record high imports causing over-supply and price suppression 2. Another 20% feed cost growth year, which couldn’t be fully recovered 3. …and this on top of consumer demand for all groceries, but also chicken comin
Slide 23: Rainbow: record high chicken imports
Operational review – Rainbow 1. Continued record high imports causing over-supply and price suppression Imports Import permits issued Total Chicken (Excl MDM) – Tons per month 2010 to 2013 – monthly comparison 3000 35 000 …and import permit The news is no better 2500 applications looking 30 000 for
Slide 24: Rainbow: feed cost growth
Operational review – Rainbow 2. Another 20% feed cost growth year, which couldn’t be fully recovered 2 600 5 000 FY11 FY12 FY13 2 400 4 500 -19.9% 2 200 Feed 4 000 -19.1% cost 2 000 growth +15.6% 3 500 not 1 800 recovered 3 000 1 600 2 500 1 400 1 200 2 000 1 000 1 500 Mar-11 Mar-12 Mar-13 Jul-10 Oc
Slide 25: Rainbow: exchange rate
Operational review – Rainbow Exchange rate R/US$ Exchange Rate 11 • Exchange rate volatility continued during the year 10 • R/US$ exchange rate increased from R8.38 at +15% the beginning of the year to 9 -12% R9.95 at the end of June +9% 2013: an 18.7% increase • Average year-on-year 8 -9% increase
Slide 26: Rainbow market conditions - maize
Operational review – Rainbow Rainbow market conditions - maize R/Ton Maize 3 000 +59% • Price of yellow maize +5% peaked at R2 830/ ton in 2 500 August 2012 declining to R2 220/ton at end June 2 000 2013 +4% • Average price for maize 1 500 was R2 368/ton, compared to average 1 000 -24% market price
Slide 27: Rainbow market conditions - Soya
Operational review – Rainbow Rainbow market conditions - Soya (CBOT) US$/ton Soya prices Soya 600 • Price in July 2012 was $427/short ton, rising to a 500 record high of $548/short +30% ton in August 2012, and +7% decreasing to $480/short 400 +1% +1% ton at end June 2013 • Average market price was 3
Slide 28: Consumer demand under pressure
Operational review – Rainbow 3. ..…and this on top of consumer demand for all groceries, but also chicken coming under pressure Category Growth Sugar -4.5% Margarine 0.5% Cooking oil 2.0% Maize meal -1.3% Eggs -4.2% Mayonnaise/salad cream 3.7% Frozen meat products -0.1% Chicken -3.3%
Slide 29: Rainbow: added value portfolio
Operational review – Rainbow The added value portfolio obviously slows in growth during tough consumer times, but FoodSolutions still saw 4% volume growth FoodSolutions Retail • KFC, and Chicken Licken saw steady • The key feature of Retail was the strongly growth, with Nandos showing strong suppres
Slide 30: Rainbow: tight cost environment
Operational review – Rainbow Rainbow has driven a tight cost environment in these tough times, despite the Rustenburg strike costing R33m Cost saving initiatives Operating expenses growth • Gas heating of chicken houses to coal conversion • Company re-design of processes and structures • Freezing ca
Slide 31: Trade remedy measures
Operational review – Rainbow Trade remedy measures Tariff and anti-dumping applications have been submitted to government, but clearly both need to succeed to resolve a normalised environment Total Chicken imports Bone in chicken imports 2010 2012 EU Argentina 5% 10% Brazil USA 17% 2% Canada Argenti
Slide 32: Injection cap legislation
Operational review – Rainbow Injection ‘cap’ legislation • Rainbow welcomes and continues to play a key role to adopt a responsible approach to injection of poultry meat • Government announced its intention to cap, however at 8% it is too low to deliver a quality, succulent product • Rainbow, throug
Slide 33: Operational review – Vector
Operational review – Vector Vector’s operating profit declined 15% from R169m in 2012 to R143m in 2013 mainly due to subdued revenue growth across all principals and investment in new capacity not fully utilised Revenue (Rm) 2013 2012 Rainbow 8 144 7 197 Vector 1 477 1 340 Foodcorp (two months) 1 21
Slide 34: Vector: retail sector under pressure
Operational review – Vector Retail sector under pressure • Particularly evident in Principal Secondary Distribution business where almost all principals report sluggish or negative growth • Offset to some degree by take on of new customers; Namib Poultry, Mello Pies, an enlarged inland Pick and Pay
Slide 35: Vector: revenue, operating cost, operating profit
Operational review – Vector Revenue, Operating Cost, Operating Profit : F13 vs. F12 (Rm) • 10.3% growth in revenue 10.3% driven by the increase in 13.4% bulk storage, which grew 28.6% following new capacity introduced at Midrand; this was partially -15.1% offset by subdued growth across most princip
Slide 36: Operational efficiency – Vector
Operational efficiency – Vector Volumes, Stock and Service Level Trends 0.7% Operational efficiency 4.9% • Year on year stock levels decreased by 13.9% -13.9% despite 4.9% volume growth in the secondary distribution network. Volume Inventory Service Level Service levels improved FY12 FY13 by 0.7% •
Slide 37: Vector: customers and principals
Operational review – Vector Customers Principals Customer Secondary Distribution (CSD) Principal Secondary Distribution (PSD) • Vector is contracted by the customer to deliver • Vector contracted by the principal to deliver to all their full basket of products directly to the outlets retailers, whol
Slide 38: Vector: network optimisation
Operational review – Vector Network optimisation Network Optimisation • The completed Midrand Midrand capacity investment expansion has added approx 20% additional warehousing capacity to total network and has enabled the full consolidation of PnP Inland volumes, as well as creating capacity for fut
Slide 39: Operational review - Foodcorp
Operational review - Foodcorp Revenue (Rm) 2013 2012 Rainbow 8 144 7 197 Vector 1 477 1 340 Foodcorp (two months) 1 218 n/a Sales between Segments – Vector to Rainbow (726) (682) Sales between Segments – Vector to Foodcorp (4) n/a Total 10 109 7 855 Operating profit (R’000) 2013 2012 Rainbow (3 680)
Slide 40: Foodcorp: leading SA food manufacturer
Operational review – Foodcorp Foodcorp is a leading SA manufacturer of quality branded and private label food products • Product range includes – Peanut butter, pet food, mayonnaise, edible oils, breads and bakery products and wheat flour – Certain traditional SA products such as rusks, sorghum meal
Slide 41: Foodcorp trading performance
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 two month period ended 30 June 2013, amounted to R1.2bn and operating profit R99.0m • The increase
Slide 42: Foodcorp brand market positions
Operational review – Foodcorp Brand investment results in Foodcorp’s core brands enjoying leading market positions Market Position Market share Food Brands 2012 2013 2012 2013 Division National focus Dog food 1 1 47% 50% Grocery Peanut butter 2 1 46% 50% Grocery Beverages 1 1 71% 70% Beverage Rusks
Slide 43: Foodcorp has grown faster than the market
Operational review – Foodcorp Foodcorp has grown faster than the market Foodcorp versus market volume growth for the ten months June 2013 versus ten months June 2012 11.7% 8.5% 4.0% 5.0% 3.0% 2.1% 2.0% 1.0% 1.3% 0.1% -1.0% -1.1% -1.6% -2.0% -2.8% -4.8% -4.7% -5.0% -7.1% -5.2% -8.7% -17.0% Foodcorp M
Slide 44: Foodcorp: significant events
Operational review – Foodcorp Significant events • Disposal of Fishing Division – Foodcorp entered into a sale agreement to dispose of the Fishing Division and the anticipated effective date is 31 October 2013 • Notable capital investments in 2013 – Milling capacity expansion – Rusk factory expansio
Slide 45: Agenda
Agenda 2013 Ambition Salient features Financial Key and strategic and review financial issues priorities results summary Operational Dividends Prospects Appendices review AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2013 45
Slide 46: Dividend
Dividend In view of Rainbow’s poor trading results and the uncertainty relating to the poultry industry, the Board has resolved not to declare a dividend AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2013 46
Slide 47: Agenda
Agenda 2013 Ambition Salient features Financial Key and strategic and review financial issues priorities results summary Operational Dividends Prospects Appendices review AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2013 47
Slide 48: Prospects
Prospects • Improvement in consumer sentiment and spending unlikely in the near future: affecting Rainbow and Foodcorp directly • ZAR:US$ and ZAR:Euro exchange rates will continue to have an effect on earnings • Government decision on poultry anti-dumping protection is key to restoration of acceptab
Slide 49: Agenda
Agenda 2013 Ambition Salient features Financial Key and strategic and review financial issues priorities result summary Operational Dividends Prospects Appendices review AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2013 49
Slide 50: RCL Foods: transformation phase
RCL Foods: transformation phase Rbn Revenue Well positioned for growth 2004 – 2010 10.0 Transformation to 1991-1998 8.6 consumer focused 1999-2003 7.9 Business in trouble Fixing the basics 6.8 7.0 business 6.0 3.7 3.8 4.0 4.1 4.7 • Acquired Vector (R455m) to 2.1 2.2 2.2 2.3 2.5 3.0 enable optimisati
Slide 51: RCL Foods: growth phase
RCL Foods: growth phase Rbn Revenue Growth phase 2011 – 2015 10.0 Restructured 8.6 • 2 focused operating 7.9 companies with clear 6.8 7.0 6.0 strategies and opportunities 4.7 • Strategic focus CEO / CFO 3.7 3.8 4.0 4.1 3.0 Capacity enhanced 2.1 2.2 2.2 2.3 2.5 1.5 1.5 1.6 1.7 1.9 • Acquisition of 2n
Slide 52: 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 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: Chicken industry perspective
Chicken industry perspective Average broiler production per week (in millions) excluding imports Million 19.1 19.7 18.6 18.8 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 Apr-13 Source: SAPA Rainbow | Vector | Foodcorp AUDITED RESULTS FOR TH
Slide 55: Chicken industry perspective: per capita consumption
Chicken industry perspective Estimated per capita consumption of broiler meat in Kilograms per capita Kg 39.1 40.0 37.9 36.6 33.9 34.8 32.9 29.6 26.2 25.9 26.8 24.3 23.6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: SAPA Rainbow | Vector | Foodcorp AUDITED RESULTS FOR THE
Slide 56: 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: Vector: service offerings
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: Foodcorp - market conditions - wheat
Foodcorp - market conditions - wheat R/ton Wheat prices 4 000 +22% Wheat 3 500 +21% • Local wheat prices have been at high levels +3% throughout the period 3 000 • The average market price for local wheat for this period was R3 488/ton compared to the average 2 500 market price of R2 849/ton over th