Astral Foods Limited · JSE:ARL

Astral Foods — FY2017 Earnings Presentation

67 slides from Astral Foods's earnings presentation, November 2017

  1. Slide 1: Annual Results Presentation

    ANNUAL RESULTS PRESENTATION FOR THE 12 MONTHS ENDED 30 SEPTEMBER 2017

  2. Slide 2: Agenda

    AGENDA  Business Overview – Page 3  Industry Trends – Page 20  The Period in Perspective – Page 28  Financial Overview – Page 30  Industry Matters – Page 41  Outlook – Page 43  Additional Information – Page 46 2

  3. Slide 3: Business Overview

    SC ~ \ASTRAL A leading Southern African integrated poultry producer

  4. Slide 4: Business Overview: A year of two distinct halves

    BUSINESS OVERVIEW A year of two distinct halves impacted by both feed input costs and poultry selling prices The year under review includes a number of factors that distort year-on-year comparisons and trends Operational realignment and specialised focus has contributed positively to the group’s

  5. Slide 5: Key Financial Indicators

    BUSINESS OVERVIEW  Revenue 3%  Profit before interest and tax Key 97% Financial Indicators  Earnings per share 102%  Headline earnings per share 97% 5

  6. Slide 6: Business Overview: Poultry, Feed, Other Africa

    BUSINESS OVERVIEW Poultry Feed  Sales volumes down (brine)  Sales volumes down  Planned production cutbacks  General market contraction  Average sales realisations up  Lower internal feed required  Feeding cost decreased  Old / New season crop swing  Bird performance improvement  Maize pri

  7. Slide 7: Poultry Division

    FRY D

  8. Slide 8: Poultry Division - Overview

    POULTRY DIVISION - OVERVIEW Revenue - R million Operating profit - R million 10,000 700 9,850 9,000 9,129 600 630 8,000 7,000 500 6,000 400 5,000 300 4,000 3,000 200 2,000 100 1,000 59 - - F2016 F2017 F2016 F2017  Revenue up 7.9%  Operating profit up • Broiler sales volumes down 8.6% • Selling pri

  9. Slide 9: Poultry Division - Overview

    POULTRY DIVISION - OVERVIEW  Broiler sales volumes decreased by 8.6% (≈ 41 000 tons) mainly due to the new brine legislation and planned broiler production cutbacks of 3 million birds  Broiler sales realisations increase impacted by a shift in the product offering due to the brine impact and the r

  10. Slide 10: Poultry Division - Product Mix

    POULTRY DIVISION - OVERVIEW Product Mix 21% 22% F2016 F2017 5% 478 019Tons 53% 7% 436 694Tons 49% Volume decrease ≈ 8.6% 13% 14% 5% 3% 4% 4% 10

  11. Slide 11: Broiler Production Performance

    BROILER PRODUCTION PERFORMANCE 120.0% 115.0% 110.0% 105.0% 100.0% 95.0% 90.0% 85.0% 80.0% Key indicators base-lined to 100% in F2012 75.0% F2012 F2013 F2014 F2015 F2016 F2017 Mortality Feed conversion (FCR) Efficiency factor (PEF) 11

  12. Slide 12: Broiler Production Performance

    BROILER PRODUCTION PERFORMANCE 106% 104% 102% 100% 98% 96% Key indicators base-lined to 100% in F2012 94% F2012 F2013 F2014 F2015 F2016 F2017 Slaughter age Live weight Average daily gain 12

  13. Slide 13: Broiler Production Performance

    BROILER PRODUCTION PERFORMANCE 140% 135% 130% 125% 120% 115% 110% 105% 100% 95% Key indicators base-lined to 100% in F2012 90% F2012 F2013 F2014 F2015 F2016 F2017 Broiler feed price index Feed conversion efficiency index Feeding cost index Source: Own Data 13

  14. Slide 14: Feed Division

    FEED DIVISION Astral_is aleading Southern African integrated poultry producer

  15. Slide 15: Feed Division - Overview

    FEED DIVISION - OVERVIEW Revenue - R million Operating profit - R million 500 7,000 485 7,190 6,000 6,583 400 391 5,000 300 4,000 3,000 200 2,000 100 1,000 - - F2016 F2017 F2016 F2017  Revenue down 8.4%  Operating profit down 19.3% • Sales volumes down 4.8% • Net margin 5.9% F2016: 6.7% • Average

  16. Slide 16: Feed Division - Overview

    FEED DIVISION - OVERVIEW  Feed volumes decreased due to lower internal feed requirements and lower external feed sales  Competitive intensity in the commercial feed market on surplus capacity available in the industry  Record high feed prices in first half of F2017 on back of raw material positio

  17. Slide 17: Feed Division - Sales

    FEED DIVISION - SALES Meadow Feeds - Sales Mix 14% 13% F2016 F2017 20% 21% 1 396 301Tons 1 329 771 Tons Volume decrease ≈ 4.8% 60% 60% 6% 6% 17

  18. Slide 18: Other Africa Division

    OTHER AFRICA DIVISION

  19. Slide 19: Other Africa Division - Overview

    OTHER AFRICA DIVISION - OVERVIEW Revenue - R million Operating profit - R million 550 500 25 27 515 450 400 427 20 350 300 15 250 200 10 150 100 5 5 50 - - F2016 F2017 F2016 F2017  Revenue down 17.2%  Operating profit up • Sales volumes down 12.7% • Net margin 6.3% F2016: 1% • Average selling pric

  20. Slide 20: Industry Trends

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  21. Slide 21: SAFEX Yellow Maize Price

    SAFEX YELLOW MAIZE PRICE Source: CJA Strategic Risk Brokers 21

  22. Slide 22: SAFEX Yellow Maize Price vs. CBOT in Rand Terms

    SAFEX YELLOW MAIZE PRICE vs. CBOT IN RAND TERMS Source: CJA Strategic Risk Brokers 22

  23. Slide 23: SAFEX Soya Beans Price

    SAFEX SOYA BEANS PRICE Source: CJA Strategic Risk Brokers 23

  24. Slide 24: 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 70,000 Source: SAPA Oct-11 Dec-11 Tons Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Total poultry imports Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 POULTRY

  25. Slide 25: Broiler Selling Prices

    BROILER SELLING PRICES Index (Rand per kg) IQF cost 170% recovery on 25 new legislated 24 160% 23 brine levels 22 150% 21 20 140% 19 18 130% 17 120% 16 15 110% 14 13 100% 12 11 90% 10 80% 9 Oct-11 Dec-11 Jun-12 Oct-12 Dec-12 Jun-13 Oct-13 Dec-13 Jun-14 Dec-14 Jun-15 Oct-15 Dec-15 Jun-16 Oct-16 Dec-1

  26. Slide 26: Broiler Price vs. Food Price Inflation

    BROILER PRICE vs. FOOD PRICE INFLATION IQF cost 170 170 recovery on 160 new legislated 160 brine levels 150 150 140 140 130 130 120 120 110 110 100 100 90 90 80 80 Oct-11 Oct-12 Oct-14 Oct-15 Oct-16 Oct-17 Oct-13 Jan-12 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jul

  27. Slide 27: Change in Broiler Price vs. Feed Price

    15% 35% -5% 25% -25% -15% 5% Oct-11 Dec-11 Source: Own Data Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 % Change in feed price Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 CHANGE IN BROILER PRICE vs. FEED PRICE Apr

  28. Slide 28: The Period in Perspective

    SC ~ \ASTRAL A leading Southern African integrated poultry producer

  29. Slide 29: The Period in Perspective: PBIT Reconciliation

    THE PERIOD IN PERSPECTIVE  PBIT reconciliation 1,600 (R million) *20.6% 1,400 31 199 -67 -54 1,200 -303 1,000 689 *9.7% 800 600 1,079 400 549 200 752 -718 *10.9% 0 -200 PBIT F2016 Poultry Price Sales Feeding External HPAI Profit on Other PBIT F2017 Sales Adjustment Realisations Cost Feed Sales Biol

  30. Slide 30: Financial Overview

    SC ~ \ASTRAL A leading Southern African integrated poultry producer

  31. Slide 31: Abridged Statement of Comprehensive Income

    ABRIDGED STATEMENT OF COMPREHENSIVE INCOME 2017 2016 Year ended 30 September % change R million R million Revenue 12 351 11 954 3% Operating profit 1 048 549 91% Operating profit margin 8.5% 4.6% Profit on sale of investment 31 - Profit before interest and tax 1 079 549 97% PBIT margin 8.7% 4.6% Net

  32. Slide 32: Group Annual Revenue

    GROUP ANNUAL REVENUE 16.000 (R billion) 14.000 12.4 12.0 12.000 11.3 10.000 9.6 6.6 7.2 8.5 6.2 8.2 8.000 7.4 7.2 6.9 7.0 5.5 6.3 4.3 4.9 6.000 5.2 4.0 3.5 4.8 3.6 3.5 5.1 9.9 3.9 4.1 9.1 4.000 3.7 2.7 8.7 2.5 2.8 7.0 2.7 5.8 6.0 2.7 5.1 5.0 5.3 2.000 2.7 4.4 4.6 2.0 3.3 3.6 2.2 2.3 1.3 1.7 0.000 20

  33. Slide 33: Group Annual Operating Profit

    GROUP ANNUAL OPERATING PROFIT 0.16 1101 1079 1080 (R million) 14.8% 0.14 12.8% 880 12.3% 0.12 809 766 674 423 0.1 680 9.6%597 9.8% 391 581 585 9.3% 548 549 8.3% 8.4% 493 8.7% 272 333 477 0.08 480 7.3% 389 6.7% 214 6.6% 328 282 5.9% 5.8% 5.1% 0.06 261 281 262 280 203 220 151 4.6% 153 385 0.04 79 289

  34. Slide 34: Group Six Monthly Operating Profit

    GROUP SIX MONTHLY OPERATING PROFIT 1.9 (R million) 1280 1.7 1.5 1080 867 1.3 880 1.1 680 207 0.9 550 551 480 429 0.7 324 186 280 237 0.5 280 203 213 212 153 233 154 120 0.3 59 197 80 157 184 140 135 173 351 310 194 252 608 0.1 156 45 59 -3 -117 5 -135 22 -120 -0.1 1H12 2H12 1H13 2H13 1H14 2H14 1H15

  35. Slide 35: Abridged Balance Sheet

    ABRIDGED BALANCE SHEET September 2017 September 2016 % change R million R million Non-current assets 2 228 2 230 Assets held for sale - 25 Net working capital 862 1 003 14% Current assets (excl. cash) 2 461 2 588 5% Current liabilities (excl. borrowings) (1 599) (1 585) 1% Non-current liabilities (e

  36. Slide 36: Working Capital

    WORKING CAPITAL 2017 2016 Variance For the twelve months ended 30 September R million R million R million Current assets 2 461 2 588 (127) Biological assets 658 735 (77) Inventory - Poultry 316 314 2 - Feed 185 362 (177) - Other Africa 50 41 9 Trade receivables 1049 998 51 Receivables – investment s

  37. Slide 37: Abridged Statement of Cash Flow

    ABRIDGED STATEMENT OF CASH FLOW 2017 2016 For the twelve months ended 30 September R million R million Cash operating profit 1 428 546 Working capital movement (63) (46) 1 365 500 Tax paid (310) (122) Net interest paid (11) (22) Capital expenditure (180) (174) 864 182 Dividends paid (108) (373) Gove

  38. Slide 38: Capital Expenditure

    CAPITAL EXPENDITURE 2017 2016 Twelve months ended 30 September R million R million Depreciation 149 144 Total capex 180 174 Commitments 148 105 Total spend and committed 328 279 38

  39. Slide 39: Headline Earnings & Dividend per Share

    HEADLINE EARNINGS & DIVIDEND PER SHARE 2500 (cents per share) 2016 2000 1899 1500 1381 1286 1148 958 960 1150 965 1000 890 864 1055 840 787 631 810 760 700 700 700 487 656 500 585 434 326 490 272 440 380 230 222 90 108 168 0 F2001 F2002 F2003 F2004 F2005 F2006 F2007 F2008 F2009 F2010 F2011 F2012 F20

  40. Slide 40: In Summary

    IN SUMMARY  Recovery in Profits in 2H2017 with profit margin at 13.2% (1H2017: 3.7%)  Positive cash flow accelerates in 2H2017 (R703 million)  Net surplus cash at year-end (R553 million)  Final dividend of 875 cps within the Group’s liquidity capability  Full year dividend of 1 055 cps at 1.8 t

  41. Slide 41: Industry Matters

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  42. Slide 42: Industry Matters

    INDUSTRY MATTERS  Poultry imports – Page 63  Highly Pathogenic Avian Influenza (HPAI) – Page 64  Industry consolidation – Page 65 42

  43. Slide 43: Outlook

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  44. Slide 44: Outlook

    OUTLOOK  The negative political landscape and policy uncertainty has contributed to a weak economic environment that could lead to a further downgrade by the credit rating agencies. Record unemployment levels and lower levels of disposable income are unlikely to improve due to a poor economic outlo

  45. Slide 45: Astral's Strategy

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  46. Slide 46: Additional Information

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  47. Slide 47: What We Said in May 2017

    WHAT WE SAID IN MAY 2017  The weakened state of consumer spending is unlikely to improve due to poor economic growth and higher unemployment.    The current safeguard duty recommended by ITAC against the EU is not expected to significantly curb poultry import levels (March 2017 USA spike).  The

  48. Slide 48: Key Financial Ratios

    KEY FINANCIAL RATIOS 70 30.0 65 60 25.0 55 48 51 50 49 48 46 20.0 45 16.5 41 40 39 37 39 36 36 14.5 36 13.9 34 15.0 31 33 14.8 31 31 29 28 30 11.4 30 11.1 26 26 12.8 25 11.0 10.0 12.3 9.9 9.9 9.3 8.9 9.3 23 20 10.0 21 19 20 7.5 9.6 9.3 9.8 19 8.3 8.0 8.4 7.4 6.5 16 8.7 5.9 7.8 7.3 4.5 13 5.8 6.1 5.8

  49. Slide 49: Key Financial Indicators

    KEY FINANCIAL INDICATORS 78.00 80 70 61.05 60 61.07 50 49.95 40 44.16 41.36 41.65 34 37.43 29 35.38 30 26 33.47 34.24 24 24 22 21 28.28 21 21 19 20 23 17 23.83 18 15 16 20 14 17.36 11 10 14.34 9 15 10 12 14 10.79 12 2 10 8.53 9 9 7 0 0 3 Sep-16 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08

  50. Slide 50: World Corn Ending Stocks vs. STU

    WORLD CORN ENDING STOCKS vs. STU Million Tons 250 24% 233 234 23% 225 21.50% 21.50% 22% 200 196 200 21% 175 168 169 20% 150 142 19% 18% 125 119 17.07% 16.30% 17% 16.10% 100 15.60% 16% 14.80% 75 15% 14% 50 13% 25 11.9% 12% 0 11% 2018E 2019F 2012 2013 2014 2015 2016 2017 End stock STU Source: CJA Stra

  51. Slide 51: South Africa – Total Maize Supply & Demand

    SOUTH AFRICA – TOTAL MAIZE SUPPLY & DEMAND Marketing year (May to April) 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18E 2018/19F '000 tons Actual Actual Actual Actual Actual Estimate Forecast Carry In (1 May) 991 1,414 589 2,074 2,471 1,093 3,446 Crop Estimate 12,121 11,811 14,250 9,955 7,779 16,7

  52. Slide 52: RSA Maize Carry Out & Stock to Use Ratio

    RSA MAIZE CARRY OUT & STOCK TO USE RATIO ‘000 Tons 25.42% 3,500 26% 21.75% 3,000 20.16% 21% 16.62% 2,500 16% 12.23% 2,000 11% 1,500 9.87% 6% 1,000 4.96% 1% 500 0 -4% 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18E 2018/19F Carry out Maize stock to use ratio Source: CJA Strategic Risk Brokers 52

  53. Slide 53: El Niño Southern Oscillation - Forecast

    EL NIÑO SOUTHERN OSCILLATION - FORECAST Source: International Research Institute for Climate and Society (IRI) – Columbia University 53

  54. Slide 54: Southern Africa – Vegetation Health Index

    SOUTHERN AFRICA – VEGETATION HEALTH INDEX VHI of previous year VHI of current year Source: NOAA - National Environmental Satellite, Data, and Information Service (VHI) 54

  55. Slide 55: Broiler Feed – Ingredient Inclusion & Cost Contribution

    BROILER FEED – INGREDIENT INCLUSION & COST CONTRIBUTION 100% 6.2 6.1 6.4 6.7 7.3 7.8 0.3 0.4 0.3 0.3 0.4 0.5 90% 4.3 4.8 14.9 7.5 14.9 7.3 14.0 6.6 0.3 15.6 0.4 9.9 0.4 17.2 18.8 7.5 7.4 0.2 4.7 5.0 0.5 4.2 6.2 6.4 80% 9.1 6.9 4.7 0.4 6.8 6.2 5.4 7.1 10.3 10.3 0.9 9.1 70% 1.3 0.9 1.2 16.5 7.4 14.7 1

  56. Slide 56: Brazil, EU & USA Product Cost Benchmark

    BRAZIL, EU & USA PRODUCT COST BENCHMARK Ex BRAZIL – November 2017 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 1 150.00 1 150.00 1 150.00 SA COST R/$ exchange rate R$ 13.80 14.00 14.30 Rand per ton TON 15 870.00 16 100.00 16 445.00 22 640.00 Rand per kg KG 15.87 16.10 16.45 22.64 Duty per

  57. Slide 57: Brazil, EU & USA Product Cost Benchmark

    BRAZIL, EU & USA PRODUCT COST BENCHMARK EUROPE Ex Belgium, Denmark with Safeguard Duty @ 0% – November 2017 (Safeguard Duty expired on 3 July 2017) FROZEN LEG QUARTERS BULK PACKED CIF DBN € per ton TON 1 400.00 1 400.00 1 400.00 SA COST R/€ exchange rate R$ 16.30 16.50 16.80 Rand per ton TON 22 820.

  58. Slide 58: Local Broiler Production & Market Share

    LOCAL BROILER PRODUCTION & MARKET SHARE 27% 29% 7% 22% 7% 8% Astral RCL Country Bird Daybreak Sovereign Other Local broiler production ≈ 18.5 million birds per week Source: Own Estimates 58

  59. Slide 59: Local Broiler Production & Market Share

    LOCAL BROILER PRODUCTION & MARKET SHARE 19% 31% 15% 20% 6% 5% 4% Astral RCL Country Bird Daybreak Sovereign Other Imports Avg. poultry imports ≈ 8,2 million birds per week (12 months ending September 2017) Source: Own Estimates 59

  60. Slide 60: Total Poultry Imports (Chicken, Turkey, MDM)

    TOTAL POULTRY IMPORTS (CHICKEN, TURKEY, MDM) Tons 600,000 500,000 400,000 300,000 200,000 100,000 F2014 F2015 F2016 F2017 0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep F2014 28,250 66,647 99,050 124,194 148,092 179,811 216,947 253,490 294,102 320,603 346,582 383,710 F2015 42,363 81,170 108,674 1

  61. Slide 61: Total Poultry Imports – Country of Origin

    TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN Country of origin for poultry Country of origin for poultry imports - 2016 imports - September 2017 YTD US 4.7% Other 2.1% Other 4.3% Argentina 3.3% US 15.9% Brazil 41.7% Argentina 5.3% Brazil 58.8% EU 15.7% EU 48.1% 560 155 tons 416 055 tons Source: SAPA 61

  62. Slide 62: Total Poultry Imports – Country of Origin

    TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN Country Imports (tons) 2014 2015 2016 2017 YTD Brazil 168 666 241 180 233 787 244 564 Netherlands 73 987 61 995 110 344 112 United Kingdom 43 009 15 985 45 647 1 319 Spain 10 356 27 090 39 620 11 138 United States 5 022 331 26 573 66 188 Belgium 11 994 35 61

  63. Slide 63: Poultry Imports

    POULTRY IMPORTS  Provisional safeguard duties against the EU of 13.9% that were implemented during December 2016 at 13,9% expired on 3 July 2017  A decision on a permanent safeguard duty against the EU is awaited following efforts made by an industry, DTI and DAFF work group to secure better trade

  64. Slide 64: Highly Pathogenic Avian Influenza

    HIGHLY PATHOGENIC AVIAN INFLUENZA  South Africa reported its first case of H5N8 infection in domestic poultry in June 2017 in Mpumalanga  From that date H5N8 has caused wide spread damage to the local poultry industry and in particular significantly affected broiler breeders and commercial laying

  65. Slide 65: Industry Consolidation

    INDUSTRY CONSOLIDATION  Intentional short term cutbacks during 1H2017 due to an imbalance in supply and demand  RCL introduced permanent cutbacks from March 2017 which saw the company shedding approximately 1 500 jobs and reducing production by some 700 000 bpw in their Hammarsdale operation (KZN)

  66. Slide 66: South African Protein Price Comparison

    SOUTH AFRICAN PROTEIN PRICE COMPARISON Cents per kg 9000 8000 7000 6000 5000 4000 3000 2000 1000 Chicken Pork Beef Mutton Feed Conversion Rate 1.6 2.2 5.5 5.0 Per Capita Consumption 39.1 kg 4.7 kg 19.5 kg 3.4 kg Source: FNB, Red Meat Industry Forum 66

  67. Slide 67: Contact Details

    CONTACT DETAILS Chris Schutte Chief Executive Officer Tel : +27 (0) 12 667 5468 Fax : +27 (0) 86 504 2002 email: Chris.Schutte@astralfoods.com www.astralfoods.com Daan Ferreira Chief Financial Officer Tel : +27 (0) 12 667 5468 Fax : +27 (0) 86 504 1602 email: Daan.Ferreira@astralfoods.com

Astral Foods — FY2017 Earnings Presentation on 6ix