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Rainbow Chicken Limited (RCL) Interim results 6 month period ended 31 December 2011 21 February 2012.

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Presentation on theme: "Rainbow Chicken Limited (RCL) Interim results 6 month period ended 31 December 2011 21 February 2012."— Presentation transcript:

1 Rainbow Chicken Limited (RCL) Interim results 6 month period ended 31 December February 2012

2 RCL Introduction During the prior year RCL changed its financial year-end to 30 June to align with its holding company, Remgro Limited This presentation covers the results for the 6 month period to December 2011 Results comparison is less meaningful as it is compared against previously published interims being 6 months to September 2010 which does not include peak December trading quarter A perspective is however provided of a like period comparison across key financial lines 2

3 RCL 2011 Statutory Highlights (Note: current period to December, comparatives to September) HEBITDA %Revenue % Headline earnings % Operating margin + 0.7% ,73326, ,53360, ,43384,4 394,8394, ,3300, ,5305, ,7161,7 202,1202, ,53917,5 Rm % 3

4 RCL Overview Market ConditionsWhat has RCL done? Consumer demand still under pressure despite lower interest rates Chicken imports up 67% for 6 months to December, now estimated at 15.7% of local market Rand depreciated from R6.96 at September 2010 to R8.07 at December 2011 Average spot maize price 66% higher than comparable period Nominal chicken price growth Customers in retail and foodservice markets are consolidating their supply chains either by investing and managing it themselves or by partnering third party logistics service providers. This trend is likely to extend to frozen categories as well Delivered a stable margin through difficult market conditions which reinforces strategic focus as appropriate Added value component of chicken business continues to grow Rainbow acquired Bush Valley processing facility in Tzaneen, 150k birds per week and scalable Vector took on PnP’s inland frozen distribution 4

5 RCL RevenueRm3 384,43 917, Headline EBITDARm316,0394, Headline EBITRm236,3303, Effective tax rate%33,6 - Headline earningsRm161,7202, Headline earnings per sharecents55,268,7+24,5 Interim dividend per sharecents28,0 - Cash generated by operationsRm117,3(88,9) Net cashRm347,134, Capex SpendRm130,1142,2+9.3 NAV per sharecents920,1987,0+7.3 Return on equity%13,113,3+0.3 Operational (Pre IAS39 impact) Headline EBITDARm313,5388, Headline EBITRm233,8297, Headline earningsRm159,9197, Interim Highlights 5 Dec 2011 Sept 2010 Statutory %

6 RCL Segmental Analysis First time reflection of Vector as a separate segment Market related charges across all services by Vector to Rainbow only implemented in July 2011 so comparatives are not meaningful 6

7 RCL Market Conditions - Yellow maize (SAFEX) Summary: – Average market price for yellow maize increased by 66% vs. the comparable 6 months to December Context: – Last year SA had high stock levels compared to previous years. – SA maize was cheap relative to the rest of the world, drawing interest from international buyers. – Large amounts of maize was sold to overseas destinations leading to depletion of local stocks. – The lower maize supplies, together with firm international maize prices and a weakening of the Rand caused local maize prices to increase significantly. – Then these higher local maize prices became uncompetitive against international maize and local and international wheat which replaced local maize in diets. Looking forward: – Indications are that local new crop maize prices will be softer going forward, but dependant on continued precipitation. – Increased plantings are expected to commence in the USA and the rest of the Northern Hemisphere which will lead to replenishment of stocks. Lower international prices are projected towards the end of calendar * 15 month period, increase for this period represents simple average of 15 months vs.12 months in prior period.

8 RCL Market Conditions - Soya (CBOT) Summary: – Average CBOT soya meal price decreased by 2% vs. the comparable 6 months to December Context: – More recently, and up until September 2011, prices had been firm trading in a range of $340 - $395 – The bullishness was on the back of a typical USA “weather” market, exaggerated by tight USA carry-out stocks – Poor bean sales by farmers in both USA and Argentina was also price supportive – The sharp sell-off from early September 2011 was as a result of weakening demand, world economic concerns, a firmer US$ and poor USA bean exports – Prices remained under pressure into December 2011 as a result of a further decline in meal demand due to substitution of maize with wheat in various parts of the world 8 * 15 month period, increase for this period represents simple average of 15 months vs.12 months in prior period.

9 RCL Market Conditions - Exchange rate Although only 7% weaker on average than the comparable 6 months, the Rand weakened materially in this interim period The Rand weakened to the R7.20:US$ resistance level in late September 2011 before weakening dramatically to trade the R7.75- R8.40:US$ range with considerable volatility This was a consequence of general risk aversion mainly due to Eurozone debt woes As the major feed ingredients in South Africa (maize, soy) track import/export parity, the foreign exchange exposure is significant Given the current world economic uncertainty, the high volatility in the Rand is expected to remain for some time 9 * 15 month period, increase for this period represents simple average of 15 months vs.12 months in prior period.

10 RCL Market Conditions - Imports 10 Source: SAPA Calendar Growth: MDM 24% Chicken 59% Calendar Growth: MDM 24% Chicken 59%

11 RCL Financial review Revenue increased by 15.8% to R3.9 billion largely as a consequence of the higher trading quarter included in the 6 month period ended 31 December 2011 Comparative split not available Intersegment revenue is the reconciling difference to Group total. Revenue % 11 Vector Rainbow Group , , , , ,0653,0 3582,03582,0 3917,5 (Note: current period to December, comparatives to September)

12 RCL Financial review Chicken prices have remained under pressure due to increased imports and consumers’ lower disposable income. Operational efficiencies implemented have limited the impact of significant feed and utility cost increases on margin Overall agriculture performance has demonstrated pleasing improvement for the six month period, after difficult weather conditions during the May to July period coupled with an eight week strike in Rainbow over the June year end IAS 39 impact in current and prior year not material HEBITDA (pre IAS39) +11.6% ,7388, Margin % Rm 300,3300, % 305,5305, % 348,4348, % 9.9% (Note: current period to December, comparatives to September)

13 RCL Financial review Increase in working capital funding requirements explained by the peak December trading period Higher December sales resulted in an increase in trade and other receivables Increase in inventory offset by increase in payables Cash flow 13 OB - opening balance WC - working capital Int - net interest Div - dividends OP - operating profit CB - closing balance

14 RCL Financial review Increased capex relates to the new plant based cold storage at Rustenburg Capex spend 14 90,9 142,2142, ,6139,6 72, ,3133,3 75, ,1130,1 79,9 Dep Rm Capex Rm (Note: current period to December, comparatives to September)

15 RCL Financial review 15 Profit and Margin contributed to by inclusion of peak trading quarter in current period results Headline EBIT margin (%) Post IAS39 Pre IAS39 Headline EBIT (Rm) 303,9303, ,7297,7 175,2175, ,1228, ,7243,7 228,9228, ,3236,3 233,8233, (Note: current period to December, comparatives to September)

16 RCL Financial review Growths are more moderate than September comparative. Growths still positive despite difficult trading conditions. 16 Comparison to 6 months to December Months 30 Dec31 Dec % var Revenue (Rm) Headline EBIT (Rm) Headline EBIT margin (%) Headline Earnings (Rm)

17 RCL Brand Highlights 17 Rainbow Mainstream Chicken The South African mainstream chicken category has had to contend with significant feed cost increases This on the back of record high sustained imports which have caused oversupply Consequentially during the lower demand winter months prices and margin were adversely affected, although in the higher demand last quarter the market was better balanced and prices improved A significant risk remains as imports remain high into January

18 RCL Brand Highlights 18 Added Value Performance Rainbow owned further processed brands Added value ranges have continued their good performance The chilled processed meats sector of this was underpinned by the existing Rainbow Simply Chicken market leading Polony and Viennas and Rainbow Family Polony, but was boosted by a further 30% volume through the launches of Rainbow Red Viennas, French Polony and IQF Russians The new Wolwehoek further processed facility has enabled the strong growth +

19 RCL Brand Highlights 19 Added Value Performance Woolworths Strong collaboration between Rainbow and Woolworths saw good volume growth for Woolworths in the W Cape Quick Service Restaurants have seen a return to better volume growths after a difficult 18 months Increased store openings as well as increasing transactions per store have facilitated this FoodSolutions Overall, the above three added value categories grew their contribution from 47% of Rainbow turnover in June to 53% in December 2011

20 RCLVector infrastructure 20  Employees – 2974  16 distribution sites  3 Plant based cold storage facilities  Primary fleet – 104 (86 Own)  Secondary fleet – 275 (262 Own)  Customer drop points – 7200  Cases delivered – /day  ISO accreditation at Hubs Key Figures Plant based cold storage facilities Distribution facilities Swaziland Windhoek Botswana North West Northern Province Mpumalanga Namibia Free State Lesotho Eastern Cape Port Elizabeth East London Western Cape Northern Cape KwaZulu Natal Worcester Pretoria Durban Pietermaritzburg Hammarsdale Gauteng Rustenburg Cape Town

21 RCLIntroduction to the Vector business Plant Based Cold Stores Manufacturers (PBCS) Manufacturers (PBCS) Call Centres Debtors Management 1966 Secondary Warehousing & Transport Principal Secondary Distribution (PSD) Principal Secondary Distribution (PSD) 2001 Secondary Warehousing & Transport Customer Secondary Distribution (CSD) Customer Secondary Distribution (CSD) Sales & Merchandising 2004 Sales Solutions (VSS) Sales Solutions (VSS) Information Management 2001 Credit & Information Management Primary Transport (VPT) Primary Transport (VPT) 2007 Primary Warehousing Primary Warehousing (VCS) Primary Warehousing (VCS) 2002 Vector ONLY Frozen 3PL in SA that provides it’s clients with an integrated outbound supply chain solution Salient points In 2004 Rainbow acquired the Vector business which comprised 94% Principal Secondary Distribution. Since then :  Vector manages the entire Rainbow Outbound Supply Chain  Vector service offering also now includes PBCS and VPT business (contributing 6% and 25% respectively)  CSD has grown significantly  Vector now offers a fully integrated and cost effective outbound supply chain to customers and principals

22 RCLVector clients 22 In Customer Secondary Distribution Vector is contracted by the customer ( eg. CLC, Nandos, Spur) to deliver their full basket of products directly to the outlets In Principal Secondary Distribution Vector is contracted by the principal e.g. Mc Cains to deliver to all retailers and wholesalers Principals Customers

23 RCL Business Initiatives - Roodepoort The upgrade and re- organisation of the Roodepoort facility was completed in July 2011 Inland stock shrinkage has reduced through improved business processes and targeted security measures 23

24 RCL Business Initiatives - Midrand Food Service business was consolidated into Midrand A in August 2010 Bulk storage facilities were provided to McCain from June 2011 at Site B Pick n Pay frozen business will be consolidated at Midrand D in July 2012 Total network capacity will be increased by 25% with the take-on of Midrand D. 24 A B D C

25 RCL Business Initiatives - Advanced Planning System An advanced planning system, Adexa, is being implemented across the business The Demand Planning module has been implemented and the Supply Planning module will be implemented during the latter half of the year The benefits from the implementation include reduced inventory and improved customer service levels 25 Customer Service Level Inventory Supply PlanningDemand Planning

26 RCL Conclusion Overall outlook still looks challenged, especially considering unemployment crisis and volatility in commodity and currency markets Some relief expected on imports with interim anti dumping tariff on Brazil although limited to whole birds and fillets categories (not leg quarters) Rainbow and Vector businesses well positioned for growth following extensive organisational redesign process 26

27 Appendices 27

28 RCL Wholesale Retail Foodservice The consumer is at the heart of our business Grade A Quality, Grade A Taste They taste so good ‘cos they eat so good The Chicken Experts CUSTOMERSBRANDSCONSUMERS PROCESSING Broilers Processing 3 plants + 2 FP plants 21 wks40 wks3 wks34 days 3 broad agricultural regions - Northern, KZN, W Cape. AGRICULTURE Parent farmsBroiler farms Broiler chicks RearingLayingHatchingGrowing Parent chicks Strategic acquisition mid F05 for R455m. DISTRIBUTION World’s oldest pedigree broiler breed. Located in Carolina and East London to ensure optimal bio-security. GP OPERATION 21 wks 40 wks3 wks Grandparent farms Grandparent chicks RearingLayingHatching 5 feed mills producing 1,1m tons pa. Around 80% of production to Rainbow. FEED SUPPLY Complex business chain Integrated supply chain from “farm to fork” 28

29 RCL RCL National Footprint 29 South Africa’s largest processor and marketer of chicken 8,008 employees (excluding seasonal casual workers ) Swaziland Botswana North West Limpopo Province Mpumalanga Namibia Free State Lesotho Eastern Cape Western Cape Northern Cape KwaZulu Natal Gauteng

30 RCL Swaziland Botswana North West Limpopo Province Mpumalanga Namibia Free State Lesotho Eastern Cape Western Cape Northern Cape KwaZulu Natal Gauteng Worcester Hammarsdale Rustenburg Carolina East London South Africa’s largest processor and marketer of chicken 8,008 employees (excluding seasonal casual workers) 209 rearing, laying and broiler farms and hatcheries 34m birds on the ground RCL National Footprint

31 RCL Swaziland Botswana North West Limpopo Province Mpumalanga Namibia Free State Lesotho Eastern Cape Western Cape Northern Cape KwaZulu Natal Gauteng Worcester Rustenburg East London Pretoria Pietermaritzburg Carolina Hammarsdale South Africa’s largest processor and marketer of chicken 8,008 employees (excluding seasonal casual workers) 5 feed mills 20,600 tons per week (1,1m tons per year) 209 rearing, laying and broiler farms and hatcheries 34m birds on the ground RCL National Footprint

32 RCL Swaziland Botswana North West Limpopo Province Mpumalanga Namibia Free State Lesotho Eastern Cape Western Cape Northern Cape KwaZulu Natal Gauteng Worcester Rustenburg Wolwehoek East London Pretoria Pietermaritzburg Carolina Hammarsdale South Africa’s largest processor and marketer of chicken 8,008 employees (excluding seasonal casual workers) 3 primary processing plants 4,7m birds per week (nearly 250m birds per year) 2 further processed plants 520 tons per week (27,000 tons per year) 5 feed mills 20,600 tons per week (1,1m tons per year) 209 rearing, laying and broiler farms and hatcheries 34m birds on the ground RCL National Footprint

33 RCL Swaziland Botswana North West Limpopo Province Mpumalanga Namibia Free State Lesotho Eastern Cape Western Cape Northern Cape KwaZulu Natal Gauteng Worcester Hammarsdale Rustenburg Wolwehoek East London Pretoria Pietermaritzburg Port Elizabeth Durban Cape Town George Roodepoort Bloemfontein Nelspruit Newcastle Carolina Polokwane South Africa’s largest processor and marketer of chicken 8,008 employees (excluding seasonal casual workers) 209 rearing, laying and broiler farms and hatcheries 34m birds on the ground Windhoek 4 plant-based cold stores and 16 distribution facilities Capacity 80,100 pallets 162,000 cases delivered daily (59m cases per year) Fleet of 389 vehicles 3 primary processing plants 4,7m birds per week (nearly 250m birds per year) 2 further processed plants 520 tons per week (27,000 tons per year) 5 feed mills 20,600 tons per week (1,1m tons per year) RCL National Footprint

34 RCL Statutory HEBIT (Rm) 0,5 Revenue (Rbn) ,2 1,9 2,1 1,5 1,6 1, (41) (83) (115) (147) (173) (229) (268) Attributable Profit (Rm) Revenue was growing, but so were losses. The business had lost its way, and required recapitalisation (Remgro injected R750m) Business in trouble 6, ,7 3,0 2,5 2,3 2, ,05,6 2,0 HEBITMargin (%) Fixing the basics This ensured a return to profitability, but earnings remained variable. Stock levels drove sales – chicken was often sold at a loss to manage stock levels Regional structure inhibited the realisation of supply chain integration benefits There was still a degree of under- investment Focused on: Resolving agricultural performance and bio-security Cutting costs Withholding investment Plant closures RCL's past 34

35 RCL Statutory HEBIT (Rm) 0,5 Revenue (Rbn) ,2 1,9 2,1 1,5 1,6 1, (41) (83) (115) (147) (173) (229) (268) Attributable Profit (Rm) 7,9 Focused on:  Clarifying our strategic framework  Restructuring the company and board (regional to functional)  Vector acquisition enables optimisation of outbound supply chain  Consumer insight driving brand strategies - emphasis on Added Value  Strategic customer approach to eliminate volume volatility and create higher margin business  Significant capex investment of R1,6bn  Agreed IT strategy roadmap and implemented profitability tools  Strengthening leadership talent pool and alignment of leadership through Good To Great journey Group well positioned for growth Transformation to consumer focused business 6, ,7 3,0 2,5 2,3 2, ,05,6 2, ,9 14,1 7,2 4, ,1 4,0 3, , ,8 6,2 6, HEBITMargin (%) 7,4 7, RCL’s transformation 35

36 RCL Statutory HEBIT (Rm) 0,5 Revenue (Rbn) ,2 1,9 2,1 1,5 1,6 1, (41) (83) (115) (147) (173) (229) (268) Attributable Profit (Rm) 7,9  Further processed capacity enhanced through Wolwehoek acquisition  2015 strategy to utilise strategic brands, services and thrusts to grow 6, ,7 3,0 2,5 2,3 2, ,05,6 2, ,9 14,1 7,2 4, ,1 4,0 3, , ,8 6,2 6, HEBITMargin (%) 7,4 7, Growth phase  Key enabler a further restructure to create 2 focused operating companies, each with their own clear vision and strategy  * 15 month period RCL’s future focus * 559 6,5

37 RCLGroup strategy 37

38 RCL Estimated per capita consumption of broiler meat in Kilograms per capita Chicken industry perspective 38 Source: SAPA

39 RCL Average broiler production per week (in millions) excluding imports Chicken industry perspective 39 Source: SAPA

40 RCL Chicken industry perspective 40 Source: Management estimate 4,5 4,0 1,3 0,9 0,8 1,0 5.0 RainbowAstralCountry Bird TydstroomFouriesDaybreakRocklandsOthers m broilers produced per week 1,5m tons per annum Astral = Earlybird Farms + County Fair Tydstroom acquisition of Tonko has placed them as 4 th largest producer. Others = Numerous smaller producers producing less than 200k broilers per week

41 RCL Chicken industry perspective 41 Source: Red Meat Abbatoir Association 2011


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