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Rainbow Chicken Limited (RCL)

Rainbow Chicken Limited (RCL). Interim results 6 month period ended 31 December 2011. 21 February 2012. Introduction. During the prior year RCL changed its financial year-end to 30 June to align with its holding company, Remgro Limited

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Rainbow Chicken Limited (RCL)

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

  2. 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

  3. 2011 Statutory Highlights(Note: current period to December, comparatives to September) HEBITDA + 13.3% Revenue + 15.8% Headline earnings +25.0% Operating margin + 0.7% Rm Rm 3917,5 3384,4 3360,5 394,8 3326,7 348.4 305,5 300,3 2008 2009 2010 2011 2008 2009 2010 2011 Rm % 7.7 202,1 7.4 169.8 161,7 7.0 125.8 5.3 2008 2009 2010 2011 2008 2009 2010 2011

  4. Overview Market Conditions What 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

  5. Interim Highlights Statutory Dec 2011 Sept 2010 %

  6. 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

  7. 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 2012. * 15 month period, increase for this period represents simple average of 15 months vs.12 months in prior period.

  8. 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 * 15 month period, increase for this period represents simple average of 15 months vs.12 months in prior period.

  9. 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 * 15 month period, increase for this period represents simple average of 15 months vs.12 months in prior period.

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

  11. Financial review Revenue + 15.8% • 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. 3917,5 653,0 3384,4 3360,5 3326,7 3582,0 2871,4 Group Vector Rainbow 2008 2009 2010 2011 2007 (Note: current period to December, comparatives to September)

  12. Financial review HEBITDA (pre IAS39) +11.6% • 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 9.9% 9.3% 9.1% 9.0% Margin % 388,7 348,4 305,5 Rm 300,3 2008 2009 2010 2011 (Note: current period to December, comparatives to September)

  13. Financial review Cash flow OB - opening balance WC - working capital Int - net interest Div - dividends OP - operating profit CB - closing balance • 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

  14. Financial review Capex spend • Increased capex relates to the new plant based cold storage at Rustenburg 90,9 79,9 75,2 Dep Rm 72,3 142,2 Capex Rm 139,6 133,3 130,1 2008 2009 2010 2011 (Note: current period to December, comparatives to September)

  15. Profit and Margin contributed to by inclusion of peak trading quarter in current period results Financial review 7.8 Headline EBIT margin (%) 7.0 7.3 6.9 7.6 303,9 6.9 5.3 6.8 297,7 243,7 Pre IAS39 236,3 233,8 228,9 228,1 Post IAS39 175,2 Headline EBIT (Rm) 2011 2008 2009 2010 (Note: current period to December, comparatives to September)

  16. Financial review Comparison to 6 months to December 2010 • Growths are more moderate than September comparative. • Growths still positive despite difficult trading conditions.

  17. Brand Highlights 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. Brand Highlights 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. Brand Highlights 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. Vector infrastructure • 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 – 162000/day • ISO 22000 accreditation at Hubs Key Figures NorthernProvince Windhoek Botswana Mpumalanga Pretoria Rustenburg Gauteng Swaziland Plant based cold storage facilities NorthWest Distribution facilities KwaZuluNatal FreeState Namibia Pietermaritzburg Hammarsdale Lesotho Durban NorthernCape EasternCape WesternCape Worcester EastLondon Cape Town PortElizabeth

  21. Primary Transport Introduction to the Vector business Manufacturers (PBCS) Primary Warehousing (VCS) Primary Transport (VPT) Principal Secondary Distribution (PSD) Customer Secondary Distribution (CSD) Sales Solutions (VSS) Credit & Information Management Secondary Warehousing & Transport Secondary Warehousing & Transport Primary Warehousing Sales & Merchandising Debtors Management Information Management Plant Based Cold Stores Call Centres • 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 2001 2001 2004 1966 2007 2002 Salient points 2008 Vector ONLY Frozen 3PL in SA that provides it’s clients with an integrated outbound supply chain solution

  22. Vector clients Customers Principals 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

  23. 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

  24. 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. A B D C

  25. 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 Demand Planning Supply Planning Inventory Customer Service Level

  26. 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

  27. Appendices

  28. Integrated supply chain from “farm to fork” DISTRIBUTION • Strategic acquisition mid F05 for R455m. Complex business chain GP OPERATION AGRICULTURE PROCESSING Parent farms Broiler farms Grandparent farms Parent chicks Broiler chicks Grandparent chicks Broilers Processing 3 plants + 2 FP plants Rearing Laying Hatching Growing Rearing Laying Hatching 21 wks 40 wks 3 wks 34 days 40 wks 3 wks 21 wks • World’s oldest pedigree broiler breed. • Located in Carolina and East London to ensure optimal bio-security. • 3 broad agricultural regions - Northern, KZN, W Cape. FEED SUPPLY • 5 feed mills producing 1,1m tons pa. • Around 80% of production to Rainbow. CONSUMERS BRANDS CUSTOMERS The consumer is at the heart of our business Grade A Quality,Grade A Taste They taste so good ‘cos they eat so good Foodservice Retail Wholesale The Chicken Experts

  29. LimpopoProvince Botswana Mpumalanga Swaziland Gauteng NorthWest Namibia KwaZuluNatal FreeState Lesotho NorthernCape EasternCape WesternCape RCL National Footprint • South Africa’s largest processor and marketer of chicken • 8,008 employees (excluding seasonal casual workers)

  30. LimpopoProvince Botswana Mpumalanga Swaziland Gauteng NorthWest Namibia KwaZuluNatal FreeState Lesotho NorthernCape EasternCape WesternCape RCL National Footprint • 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 Rustenburg Carolina Hammarsdale EastLondon Worcester

  31. LimpopoProvince Botswana Mpumalanga Swaziland Gauteng NorthWest Namibia KwaZuluNatal FreeState Lesotho NorthernCape EasternCape WesternCape RCL National Footprint • 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 • 5 feed mills • 20,600 tons per week(1,1m tons per year) Rustenburg Pretoria Carolina Pietermaritzburg Hammarsdale EastLondon Worcester

  32. LimpopoProvince Botswana Mpumalanga Swaziland Gauteng NorthWest Namibia KwaZuluNatal FreeState Lesotho NorthernCape EasternCape WesternCape RCL National Footprint • 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 • 5 feed mills • 20,600 tons per week(1,1m tons per year) • 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) Rustenburg Pretoria Carolina Wolwehoek Pietermaritzburg Hammarsdale EastLondon Worcester

  33. LimpopoProvince Botswana Mpumalanga Swaziland Gauteng NorthWest Namibia KwaZuluNatal FreeState Lesotho NorthernCape EasternCape WesternCape RCL National Footprint • 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 • 5 feed mills • 20,600 tons per week(1,1m tons per year) Polokwane • 3 primary processing plants • 4,7m birds per week(nearly 250m birds per year) Rustenburg Pretoria Nelspruit Roodepoort Carolina Wolwehoek • 2 further processed plants • 520 tons per week(27,000 tons per year) Newcastle Pietermaritzburg Hammarsdale Bloemfontein • 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 Durban EastLondon Worcester Cape Town PortElizabeth George

  34. RCL's past 1991 - 1998 Business in trouble 1991 - 1998 1999 - 2003 • Revenue was growing, but so were losses. • The business had lost its way, and required recapitalisation (Remgro injected R750m). Revenue (Rbn) 3,7 3,0 2,5 2,3 2,2 2,2 2,1 1,9 1,7 1,6 1,5 1,5 1999 - 2003 Fixing the basics 0,5 91 92 93 94 95 96 97 98 99 00 01 02 03 • Focused on: • Resolving agricultural performance and bio-security • Cutting costs • Withholding investment • Plant closures Statutory HEBIT (Rm) 260 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 153 139 76 76 47 45 30 38 (41) (83) HEBITMargin (%) (115) (147) (173) Attributable Profit (Rm) 6,9 (229) 5,6 5,0 (268) 2,0 2,0

  35. RCL’s transformation 1991 - 1998 2004 - 2010 Transformation to consumer focused business 1999 - 2003 2004 - 2010 7,0 6,8 6,0 • 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 Revenue (Rbn) 4,7 4,1 4,0 3,8 3,7 3,0 2,2 2,1 1,9 2,5 1,7 1,6 1,5 2,3 1,5 2,2 0,5 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 765 657 514 578 425 Statutory HEBIT (Rm) 303 290 260 76 76 153 45 139 30 47 38 (41) (83) (115) 14,1 (147) 13,9 HEBITMargin (%) (173) Attributable Profit (Rm) 12,8 (229) 7,4 7,9 7,2 6,2 (268) 6,9 5,6 5,0 2,0 2,0 Group well positioned for growth

  36. RCL’s future focus 8.6 1991 - 1998 1999 - 2003 2004 - 2010 2011 - 2015 7,0 6,8 6,0 2011 - 2015 Growth phase 4,7 4,1 4,0 3,8 Revenue (Rbn) 3,7 3,0 2,5 2,3 2,2 2,2 2,1 1,9 1,7 1,6 1,5 1,5 0,5 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11* • Further processed capacity enhanced through Wolwehoek acquisition • 2015 strategy to utilise strategic brands, services and thrusts to grow 765 657 559 514 578 425 Statutory HEBIT (Rm) 303 290 260 • Key enabler a further restructure to create 2 focused operating companies, each with their own clear vision and strategy • * 15 month period 153 139 76 76 47 45 30 38 (41) 14,1 13,9 (83) HEBITMargin (%) 12,8 (115) 6,5 (147) 7,4 (173) 7,9 7,2 Attributable Profit (Rm) 6,2 6,9 (229) 5,6 5,0 (268) 2,0 2,0

  37. Group strategy

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

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

  40. Chicken industry perspective • 18.7m broilers produced per week • 1,5m tons per annum • Astral = Earlybird Farms + County Fair • Tydstroom acquisition of Tonko has placed them as 4th largest producer. • Others = Numerous smaller producers producing less than 200k broilers per week 5.0 4,5 4,0 1,3 1.2 1,0 0,9 0,8 Rainbow Astral Country Bird Tydstroom Daybreak Rocklands Fouries Others Source: Management estimate

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

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