RCL Foods Limited · JSE:RCL
RCL Foods — FY2020 Earnings Presentation
61 slides from RCL Foods's earnings presentation, Aug 31, 2020
Slide 1: 2020 Investor Presentation - Results for the year ended June 2020
2020 INVESTOR PRESENTATION 31 AUGUST 2020 RESULTS FOR THE YEAR ENDED JUNE 2020
Slide 2: Miles Dally, Chief Executive Officer
MILES DALLY CHIEF EXECUTIVE OFFICER
Slide 3: Headlines – Results for the Year Ended June 2020
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables HEADLINES – RESULTS FOR THE YEAR ENDED JUNE 2020 SOLID UNDERLYING PERFORMANCE NOTWITHSTANDING A MATERIAL COVID-19 IMPACT Purpose of “More Food to More People, More Often” demonstrated in successful respon
Slide 4: Our Immediate Response to COVID-19 Focused on Three Core Priorities
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OUR IMMEDIATE RESPONSE TO COVID-19 FOCUSED ON THREE CORE PRIORITIES 1. Keeping our employees safe 2. Keeping South Africa fed 3. Managing cash and liquidity Immediate: Delivered new ways of Immediate: Suc
Slide 5: Headlines – Underlying Profitability Growth Driven by Sugar
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables HEADLINES – RESULTS FOR THE YEAR ENDED JUNE 2020 UNDERLYING PROFITABILITY GROWTH DRIVEN LARGELY BY AN IMPROVED SUGAR RESULT Revenue up 7.4% driven by good volume and pricing growth in Sugar and new busine
Slide 6: Underlying EBITDA Growth (%) per Business Unit
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables HEADLINES – RESULTS FOR THE YEAR ENDED JUNE 2020 UNDERLYING EBITDA GROWTH (%) PER BUSINESS UNIT Sustained growth driven by Volume and margin challenges Decline led by material Significant improvement in U
Slide 7: 1. Grow Through Strong Brands
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables 1. GROW THROUGH STRONG BRANDS KEY ACHIEVEMENTS Our Pet Food category achieved double digit volume growth with most brands achieving notable market share gains, driven by innovation, product extensions, an
Slide 8: 2. Partner with Strategic Customers
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables 2. PARTNER WITH STRATEGIC CUSTOMERS KEY ACHIEVEMENTS We delivered solid volume growth in the retail and wholesale channel enabled by strong customer relations, with Chicken, Sugar, Rusks, Bread, Maize Flo
Slide 9: 3. Extend Our Leading Value Chain
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables 3. EXTEND OUR LEADING VALUE CHAIN KEY ACHIEVEMENTS The resilience of our value chain ensured that we were able to continue operating uninterrupted throughout the COVID-19 lockdown We successfully executed
Slide 10: 4. Inspire Great People
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables 4. INSPIRE GREAT PEOPLE KEY ACHIEVEMENTS Delivered a new Food Division structure to create a more focused and internally aligned business, bringing us closer to a unified “ONE RCL FOODS” We progressed our
Slide 11: 5. Expand into the Rest of Africa
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables 5. EXPAND INTO THE REST OF AFRICA KEY ACHIEVEMENTS Exports into Africa generated double digit growth, despite restricted cross-border movement during the COVID-19 pandemic Our investment in Royal Eswatini
Slide 12: 6. Drive Sustainable Business
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables 6. DRIVE SUSTAINABLE BUSINESS KEY ACHIEVEMENTS We invested in future-proofing our portfolio by acquiring a dollar-based minority shareholding in the LIVEKINDLY co. • We positioned ourselves to launch into
Slide 13: Rob Field, Chief Financial Officer
ROB FIELD CHIEF FINANCIAL OFFICER
Slide 14: Operating Environment
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATING ENVIRONMENT COVID-19 pandemic and national lockdown during the last quarter of the financial year materially impacts results, most significantly in Chicken and Vector Logistics Weakening South A
Slide 15: Financial Summary
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables FINANCIAL SUMMARY SUGAR IMPROVEMENT DRIVES GAINS IN REVENUE, EBITDA & UNDERLYING HEADLINE EARNINGS INCOME STATEMENT JUNE 2020 JUNE 2019 % VAR Revenue Rm 27 803.6 25 887.5 7.4 EBITDA Rm 1 636.0 1 525.7 7.2
Slide 16: Operating Results Summary (Rm)
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATING RESULTS SUMMARY (Rm) UNDERLYING EBITDA UP 12.6% DRIVEN BY IMPROVEMENT IN SUGAR 7.2% 12.6% 237.7 266.8 167.5 1 636.0 311.2 105.3 1 525.7 32.4 38.3 1 510.7 13.1 47.0 105.0 9.8 14.9 99.6 1 341.3 Re
Slide 17: Headline Earnings Waterfall (Rm)
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables HEADLINE EARNINGS WATERFALL (Rm) JUNE 2020 1 636.0 935.6 Materially impacted by: • Non-deductible impairments (R167.4m) • Gain on bargain purchase 1 506.3 • Unrecognised deferred tax assets (R25.3m) 1 268
Slide 18: Operating Results Summary - Unadjusted
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATING RESULTS SUMMARY - UNADJUSTED SEGMENTAL ANALYSIS – REVENUE AND EBITDA REVENUE (Rm) JUNE 2020 JUNE 2019 % VAR Groceries 4 984.2 4 832.0 3.2 Baking 5 195.1 5 060.8 2.7 Chicken 8 813.6 8 632.5 2.1 S
Slide 19: Operating Results Summary – Underlying EBITDA
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATING RESULTS SUMMARY – UNDERLYING EBITDA EXCLUDING MATERIAL ONCE-OFFS AND ACCOUNTING ADJUSTMENTS, UNDERLYING EBITDA UP 12.6% AND MARGIN IMPROVES 0.2% UNDERLYING EBITDA (Rm) JUNE 2020 JUNE 2019 % VAR
Slide 20: Impairments
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables IMPAIRMENTS Non-cash impairment loss of R1,5bn recognised in the current year Impairments driven by deteriorating local economy, lower forecast growth into the future and lingering impact of COVID-19 thro
Slide 21: Cash Flow Summary
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables CASH FLOW SUMMARY FREE CASH FLOW UP R1.9BN TO R1.8BN, DRIVEN BY WORKING CAPITAL IMPROVEMENT AND LOWER CAPEX SPEND Rm JUNE 2020 JUNE 2019 % VAR OPENING BALANCE* (110.4) 1 263.4 (108.7) Operating profit adj
Slide 22: Working Capital
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables WORKING CAPITAL WORKING CAPITAL DOWN 24.6% JUNE JUNE % WORKING CAPITAL (Rm) NET WORKING CAPITAL AS A % OF REVENUE 2020 2019 VAR Trade and other receivables 5 965.3 4 602.1 (29.6) 21.5 17.8 TRADE RECEIVABL
Slide 23: Capital Expenditure
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables CAPITAL EXPENDITURE CAPITAL EXPENDITURE CONTROLLED CAPEX SPEND, DOWN R340m EXPANSION (Rm) REPLACEMENT (Rm) Capital expenditure (including intangibles) was R811.4m (2019: R1 151.4m) Major spend items in th
Slide 24: Return on Invested Capital (ROIC)
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables RETURN ON INVESTED CAPITAL (ROIC) AT JUNE CAPITAL EXPENDITURE GROUP ROIC DECLINES TO NEGATIVE 6.3% MAINLY DRIVEN BY IMPAIRMENTS AND IFRS 16 TAKE-ON GROUP GROCERIES BAKING 23.1% 17.1% 14.4% 17.3% 6.4% 4.0%
Slide 25: Debt Package
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables DEBT PACKAGE NET FINANCE COSTS IMPACTED BY IFRS 16 IMPLEMENTATION TERM VALUE (Rm) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 (DEC 19)* (DEC 20) (DEC 21) (DEC 22)** (DEC 23) 837.50 5 year RCF1: 837.50 281.25 4 yea
Slide 26: Debt Covenants
Salient Features | Strategic Review | 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 JUNE 2020 JUNE 2019 Senior
Slide 27: Impact of IFRS 16
Salient Features | Strategic Review | 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 JUNE 2019 INCOME STATEMENT RESULTS WERE NOT RESTA
Slide 28: Paul Cruickshank, Food Division COO
PAUL CRUICKSHANK FOOD DIVISION CHIEF OPERATING OFFICER
Slide 29: Operational Review: Food Division
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION JUN JUN REVENUE (Rm) % VAR 2020 2019 Groceries 4 984.2 4 832.0 3.2 Baking 5 195.1 5 060.8 2.7 Chicken 8 813.6 8 632.5 2.1 Sugar 7 621.8 6 612.7 15.3 FOOD DIVISION SUB TO
Slide 30: Our Wins for the Period
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OUR WINS FOR THE PERIOD Well executed COVID-19 controls across the Division Strong focus on cash management driving pleasing cash position Able to “feed the nation” over the lockdown period Volume growth
Slide 31: Groceries
GROCERIES
Slide 32: Operational Review: Food Division - Groceries
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - GROCERIES UNDERLYING EBITDA RESULT OF R535.6m, UP 1.9% ON LAST YEAR DRIVEN BY DOUBLE DIGIT GROCERY VOLUME GROWTH JUN JUN GROCERIES % VAR HEADLINES 2020 2019 REVENUE Re
Slide 33: Groceries: Pet Food and Culinary Market Share
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - GROCERIES GROCERY : PET FOOD GROCERY: CULINARY MARKET SHARE 12mm 12mm 3mm (VOLUME) June ‘19 June ‘20 June ‘20 Pet Food had a stellar year driven by improved margins 32
Slide 34: Groceries: Culinary Market Share
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL OPERATIONAL REVIEW: REVIEW : FOOD FOOD DIVISION DIVISION – GROCERIES - GROCERIES GROCERY : CULINARY MARKET 12mm 12mm 3mm SHARE June 2019 June 2020 June 2020 (VOLUME) Despite a challenging star
Slide 35: Groceries: Pies and Beverages
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - GROCERIES PIES The shutdown of retail trading in hot food during the lockdown had a negative impact on Pie volumes which were substantially down in H2 Despite trading
Slide 36: Baking
BAKING
Slide 37: Operational Review: Food Division - Baking
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL OPERATIONAL REVIEW: REVIEW : FOOD FOOD DIVISION DIVISION - BAKING – BAKING UNDERLYING EBITDA OF R379.7m, UP 4.1% ON LAST YEAR MAINLY DUE TO STRONG DEMAND JUN JUN BAKING % VAR HEADLINES 2020 20
Slide 38: Baking: Bread, Buns & Rolls
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - BAKING SPECIALITY BREAD, BUNS & ROLLS Although fierce price competition impacted volumes in H1, the category performed well in H2, especially in recent months, with re
Slide 39: Baking: Speciality and Milling
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : FOOD DIVISION - BAKING SPECIALITY SPECIALITY SAFEX WHEAT PRICE (R/Ton) Double-digit volume growth, sound cost control and operating efficiencies drove an improved Speciality result Re
Slide 40: Chicken
CHICKEN
Slide 41: Operational Review: Food Division - Chicken
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - CHICKEN THE COVID-19 LOCKDOWN HAD A SUBSTANTIAL IMPACT ON THE BUSINESS’S H2 RESULT JUN JUN CHICKEN % VAR HEADLINES 2020 2019 REVENUE Revenue excluding sundry sales 8 50
Slide 42: Chicken: Market Share and Lockdown Impact
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - CHICKEN CHICKEN MARKET 12mm 12mm 3mm SHARE June ‘19 June ‘20 June ‘20 (VOLUME) Chicken’s focus is on fixing agricultural operations, improving competitiveness, re-estab
Slide 43: Chicken: Imports and Poultry Industry Master Plan
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - CHICKEN CHICKEN continued IMPORTS : BONE-IN PORTIONS - TONS PER MONTH Although a good South African maize crop bodes well for input prices we don’t anticipate seeing an
Slide 44: Chicken: Animal Feed
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - CHICKEN ANIMAL FEED Volume growth coupled with a strong margin focus contributed to a significant EPOL EBIT improvement on prior year More recently, internal volumes we
Slide 45: Sugar
SUGAR
Slide 46: Operational Review: Food Division - Sugar
Salient Features | Strategic Review | 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 909.3% TO R345.4m JUN JUN SUGAR % VAR HEADLINES 2020 2019 REVENUE 7 621
Slide 47: Sugar: Health Promotion Levy and Demand
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW: FOOD DIVISION - SUGAR SUGAR Whilst the implementation of the Health Promotion Levy brought about substantial and permanent reduction in industrial sales, retail demand improved signifi
Slide 48: Sugar: World Sugar Price and Industry Master Plan
Salient Features | Strategic Review | 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) Lastly, a weak exchange rate has been instrumental in F19 F20 18.00
Slide 49: Sugar: Molatek
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL OPERATIONAL REVIEW: REVIEW : FOOD FOOD DIVISION DIVISION – ANIMAL – SUGAR FEED MOLATEK Despite a strong first half, Molatek’s volumes have come under pressure more recently as farmers switch f
Slide 50: Food Division
FOOD DIVISION
Slide 51: Business Unit Longer Term Strategy
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables BUSINESS UNIT LONGER TERM STRATEGY GROCERIES Drive Growth Aggressively build brand equity and drive category growth Simplify the Drive Bread, Buns & Rolls growth agenda & forward integrate BAKING basket &
Slide 52: Food Division Priorities for F21 Financial Year
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables FOOD DIVISION PRIORITIES FOR F21 FINANCIAL YEAR STRATEGIC OPERATIONAL Accelerate Chicken’s turnaround strategy Manage ongoing implications of COVID-19 particularly in Chicken Fix COBB Breed challenges Sup
Slide 53: Chris Creed, Vector Managing Director
CHRIS CREED VECTOR MANAGING DIRECTOR
Slide 54: Operational Review: Vector
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables OPERATIONAL REVIEW : VECTOR JUN JUN % REVENUE (Rm) 2020 2019 VAR Groceries 4 984.2 4 832.0 3.2 Baking 5 195.1 5 060.8 2.7 Chicken 8 813.6 8 632.5 2.1 Sugar 7 621.8 6 612.7 15.3 Food Division Sub Total 26
Slide 55: Operational Review: Vector - Watershed Year
Salient Features | Strategic Review | 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 JUN JUN VECTOR % VAR HEADLINES 2020 2019 REVENUE 2 589.4 2 182.8
Slide 56: Pleasing New Business in Line with Customer Strategy
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables PLEASING NEW BUSINESS IN LINE WITH CUSTOMER STRATEGY The initiative has gained momentum with bolstered CUSTOMER ALIGNED STRATEGY revenue performance as a result of Siqalo new business as well as having be
Slide 57: Significant Investment in Capacity
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables SIGNIFICANT INVESTMENT IN CAPACITY Capacity enablement for the new business and the duplicated network have increased the cost base and will continue for the next 9-12 months The final synergised network,
Slide 58: Vector Going Beyond
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables VECTOR GOING BEYOND The realisation of our customer aligned strategy and the implementation of the final synergised network will deliver positive earnings The acquisition of “Empty Trips”, a smart online
Slide 59: Key Deliverables
KEY DELIVERABLES
Slide 60: Key Deliverables: Emerge from COVID-19 Stronger
Salient Features | Strategic Review | Financial Review | Operational Reviews | Key Deliverables KEY DELIVERABLES: EMERGE FROM COVID-19 STRONGER ACCELERATE OUR PORTFOLIO AND ACCELERATE CHICKEN’S REFRESHED 1 BRAND STRATEGY REVIEW 4 STRATEGY Simplify and future proof the shape of our Fix Breed challeng
Slide 61: RCL Foods contact details