Rainbow Chicken Limited (RCL)
Interim results
6 month period ended 31 December 2011
21 February 2012
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
2011 Statutory Highlights
RCL
(Note: current period to December, comparatives to September)
Revenue + 15.8%
HEBITDA + 13.3%
Rm
3917,5
3360,5
Rm
3384,4
394,8
3326,7
348.4
300,3
2008
2009
2010
2011
2008
305,5
2009
2010
Operating margin + 0.7%
Headline earnings + 25.0%
%
Rm
2011
7.7
202,1
7.4
169.8
7.0
125.8
5.3
2008
2009
2010
161,7
2011
2008
2009
2010
2011
3
RCL
Overview
Market Conditions
What has RCL done?
• Consumer demand still under pressure despite lower
interest rates
• Delivered a stable margin through difficult market
conditions which reinforces strategic focus as
appropriate
• 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
• 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
• 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
4
Interim Highlights
RCL
Statutory
Sept 2010
Dec 2011
%
Revenue
Rm
3 384,4
3 917,5
+15.8
Headline EBITDA
Rm
316,0
394,8
+24.9
Headline EBIT
Rm
236,3
303,9
+28.6
Effective tax rate
%
33,6
33,6
-
Headline earnings
Rm
161,7
202,1
+25.0
Headline earnings per share
cents
55,2
68,7
+24,5
Interim dividend per share
cents
28,0
28,0
-
Cash generated by operations
Rm
117,3
(88,9)
-175.7
Net cash
Rm
347,1
34,9
-89.9
Capex Spend
Rm
130,1
142,2
+9.3
cents
920,1
987,0
+7.3
%
13,1
13,3
+0.3
NAV per share
Return on equity
Operational (Pre IAS39 impact)
Headline EBITDA
Rm
313,5
388,6
+24.0
Headline EBIT
Rm
233,8
297,7
+27.3
Headline earnings
Rm
159,9
197,6
+23.6
5
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
Inter-segment
Rainbow Vector
sales
Group
Revenue
3582.0
653.0
Operating profit
220.7
80.8
301.5
Margin %
6.2%
12.4%
7.7%
(317.5)
3917.5
6
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 .
R/ton
2 750
+66%
2 500
2 250
2 000
+4%
1 750
1 500
-3%
1 250
1 000
-24%
750
500
•
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.
250
FY2009
FY2010
FY2011*
FY2012
0
* 15 month period, increase for this period represents simple average of 15 months vs.12
months in prior period.
7
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
US $ per ton
450,0
400,0
350,0
300,0
+1%
+1%
250,0
200,0
-2%
+15%
150,0
100,0
50,0
FY2009
FY2010
FY2011*
FY2012
0,0
* 15 month period, increase for this period represents simple average of 15 months vs.12
months in prior period.
8
RCL
Market Conditions - Exchange rate
• Although only 7% weaker on
average than the comparable
6 months, the Rand
weakened materially in this
interim period
R/US$ exchange rate
11
+ 1%
• 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
10
-12%
9
+7%
-9%
• 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
8
7
FY2009
• Given the current world
economic uncertainty, the
high volatility in the Rand is
expected to remain for some
time
FY2010
FY2011*
FY2012
6
* 15 month period, increase for this period represents simple average of 15 months vs.12 months
in prior period.
9
RCL
Market Conditions - Imports
Calendar Growth:
MDM 24%
Chicken 59%
124
78
22
Tons '000
94
100
34
75
MDM
Turkey
84
39
Chicken
93
51
25
25
27
24
30
226
182
146
103
112
2004
2005
123
142
98
2006
2007
2008
2009
2010
2011
Source: SAPA
10
RCL
Financial review
Revenue + 15.8%
• Revenue increased by 15.8% to
3917,5
653,0
R3.9 billion largely as a
consequence of the higher
Group
Vector
trading quarter included in the
3326,7
6 month period ended 31
3360,5
3384,4
3582,0
Rainbow
December 2011
• Comparative split not available
2871,4
• Intersegment revenue is the
reconciling difference to Group
total.
2007
2008
2009
2010
2011
(Note: current period to December, comparatives to September)
11
RCL
Financial review
• Chicken prices have remained
HEBITDA (pre IAS39) +11.6%
under pressure due to
increased imports and
consumers’ lower disposable
income. Operational
efficiencies implemented have
9.9%
9.3%
limited the impact of significant
feed and utility cost increases
on margin
Margin
%
9.0%
9.1%
388,7
• Overall agriculture performance
has demonstrated pleasing
improvement for the six
348,4
Rm
300,3
305,5
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
2008
2009
2010
2011
(Note: current period to December, comparatives to September)
12
RCL
Financial review
• Increase in working
capital funding
Cash flow
requirements explained
by the peak December
trading period
• Higher December sales
ACTUAL CASH FLOW - YTD
Rm
469,5
399,4
resulted in an increase in
trade and other
receivables
• Increase in inventory
offset by increase in
payables
OB
WC
Tax
Int
CAPEX
Other
OP
Div
CB
(48,1)
(142,4)
OB - opening balance
34,9
9,3
0,2
(164,7)
(488,3)
WC - working capital
Int - net interest
Div - dividends
OP - operating profit
CB - closing balance
13
RCL
Financial review
• Increased capex relates to the
Capex spend
new plant based cold storage at
Rustenburg
90,9
79,9
75,2
Dep
Rm
72,3
Capex
Rm
139,6
142,2
133,3
130,1
2008
2009
2010
2011
(Note: current period to December, comparatives to September)
14
RCL
Financial review
• Profit and Margin contributed to by inclusion of peak trading quarter in current period results
7.8
Headline
EBIT
margin
(%)
6.9
7.3
5.3
6.8
7.0
297,7
236,3
233,8
228,9
228,1
303,9
6.9
243,7
Pre IAS39
7.6
Post IAS39
175,2
Headline
EBIT
(Rm)
2008
2009
2010
2011
(Note: current period to December, comparatives to September)
15
RCL
Financial review
• Growths are more moderate
Comparison to 6 months to December 2010
than September comparative.
• Growths still positive despite
difficult trading conditions.
6
6
Months Months
30 Dec 31 Dec
Revenue (Rm)
Headline EBIT (Rm)
Headline EBIT margin (%)
Headline Earnings (Rm)
2010
2011
% var
3 586.3
3 917.5
9.2
257.5
303.9
18.0
7.2
7.8
0.6
174.9
202.1
15.6
16
Brand Highlights
RCL
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
17
RCL
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
+
18
Brand Highlights
RCL
Added Value Performance
Woolworths
• Strong collaboration between Rainbow and Woolworths saw good
volume growth for Woolworths in the W Cape
FoodSolutions
• 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
Overall, the above three added value categories grew their contribution
from 47% of Rainbow turnover in June to 53% in December 2011
19
Vector infrastructure
RCL
Key Figures
Northern
Province
Windhoek
Botswana
Mpumalanga
Pretoria
Rustenburg
Gauteng
North
West
Swaziland
KwaZulu
Natal
Pietermaritzburg
Free
State
Namibia
 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
Plant based cold storage facilities
Distribution facilities
Hammarsdale
Lesotho
Durban
Northern
Cape
Eastern
Cape
Western
Cape
Worcester
Cape Town
Port
Elizabeth
East
London
20
Introduction to the Vector business
Manufacturers
(PBCS)
Plant Based
Cold Stores
2008
Primary
Warehousing
(VCS)
Primary
Warehousing
Primary Transport
(VPT)
Primary Transport
2007
2002
Principal Secondary
Distribution
(PSD)
Customer Secondary
Distribution
(CSD)
Secondary
Warehousing &
Transport
Secondary
Warehousing &
Transport
1966
2001
RCL
Sales Solutions
(VSS)
Call
Centres
Sales &
Merchandising
2004
Credit & Information
Management
Debtors
Management
Information
Management
2001
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
Vector ONLY Frozen 3PL in SA that provides it’s clients with an
integrated outbound supply chain solution
21
Vector clients
Customers
RCL
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
22
Business Initiatives - Roodepoort
RCL
• The upgrade and reorganisation of the
Roodepoort facility was
completed in July 2011
• Inland stock shrinkage
has reduced through
improved business
processes and targeted
security measures
23
RCL
Business Initiatives - Midrand
• Food Service business was
consolidated into Midrand
A
B
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
C
D
Midrand D in July 2012
• Total network capacity will
be increased by 25% with
the take-on of Midrand D.
24
Business Initiatives - Advanced Planning System
• An advanced planning
system, Adexa, is being
Demand Planning
RCL
Supply Planning
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
improved customer
service levels
Inventory
implementation include
reduced inventory and
Customer Service
Level
• The benefits from the
25
Conclusion
RCL
•
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
Appendices
27
RCL
Complex business chain
• Integrated supply chain from “farm to fork”
GP OPERATION
AGRICULTURE
Grandparent farms
Grandparent
chicks
Parent farms
Parent
chicks
Rearing
Laying
Hatching
21 wks
40 wks
3 wks
PROCESSING
BroilerBroiler farms
Broilers
chicks
Rearing
Laying
Hatching
Growing
21 wks
40 wks
3 wks
34 days
• World’s oldest pedigree broiler breed.
• Located in Carolina and East London to ensure
optimal bio-security.
Processing
3 plants + 2 FP
plants
• 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
The consumer is at
the heart of our
business
BRANDS
CUSTOMERS
Grade A Quality,
Grade A Taste
They taste so good
‘cos they eat so
good
DISTRIBUTION
• Strategic acquisition
mid F05 for R455m.
Foodservice Retail
Wholesale
The Chicken
Experts
28
RCL
RCL National Footprint
•
South Africa’s largest processor and marketer of chicken
•
8,008 employees (excluding seasonal casual workers)
Limpopo
Province
Botswana
Mpumalanga
Gauteng
Swaziland
North
West
Namibia
KwaZulu
Natal
Free
State
Lesotho
Northern
Cape
Eastern
Cape
Western
Cape
29
RCL
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
Limpopo
Province
Botswana
Mpumalanga
Rustenburg
Gauteng
North
West
Namibia
Swaziland
Carolina
KwaZulu
Natal
Free
State
Hammarsdale
Lesotho
Northern
Cape
Eastern
Cape
Western
Cape
Worcester
East
London
RCL
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)
Limpopo
Province
Botswana
Mpumalanga
Rustenburg
Pretoria
Gauteng
North
West
Namibia
Swaziland
Carolina
KwaZulu
Natal
Free
State
Pietermaritzburg
Hammarsdale
Lesotho
Northern
Cape
Eastern
Cape
Western
Cape
Worcester
East
London
RCL
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
•
•
•
Limpopo
Province
20,600 tons per week
(1,1m tons per year)
Botswana
3 primary processing plants
• 4,7m birds per week
(nearly 250m birds per year)
Mpumalanga
2 further processed plants
• 520 tons per week
(27,000 tons per year)
Rustenburg
Pretoria
Gauteng
North
West
Namibia
Wolwehoek
Free
State
Swaziland
Carolina
KwaZulu
Natal
Pietermaritzburg
Hammarsdale
Lesotho
Northern
Cape
Eastern
Cape
Western
Cape
Worcester
East
London
RCL
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
Limpopo
Province
Windhoek
Botswana
•
•
5 feed mills
• 20,600 tons per week
(1,1m tons per year)
Polokwane
Mpumalanga
3 primary processing plants
• 4,7m birds per week
(nearly 250m birds per year)
Rustenburg
North
West
Namibia
•
Wolwehoek
2 further processed plants
• 520 tons per week
(27,000 tons per year)
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
KwaZulu
Natal
Hammarsdale
Lesotho
Durban
Eastern
Cape
Western
Cape
East
London
Worcester
George
Swaziland
Carolina
Pietermaritzburg
Northern
Cape
Cape Town
Nelspruit
Newcastle
Free
State
Bloemfontein
•
•
Pretoria
RoodepoortGauteng
Port
Elizabeth
RCL's past
RCL
1991 - 1998
1999 - 2003
1991 - 1998
Business in trouble
• Revenue was growing, but so were losses.
Revenue
3,7
(Rbn)
1,5
3,0
1,5
1,6
1,9
1,7
2,1
2,2
2,2
2,3
2,5
1999 - 2003
0,5
91
• The business had lost its way, and required
recapitalisation (Remgro injected R750m).
Fixing the basics
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
139 153
30
76
45
76
38
47
This ensured a return to profitability, but
earnings remained variable.
• Stock levels drove sales – chicken was
(41)
often sold at a loss to manage stock levels
(83)
(115)
(147)
Attributable (173)
(229)
Profit
(268)
(Rm)
HEBITMargin
(%)
5,6
2,0 2,0
5,0 6,9
• Regional structure inhibited the realisation
of supply chain integration benefits
• There was still a degree of under-
investment
34
RCL’s transformation
1991 - 1998
RCL
1999 - 2003
2004 - 2010
6,8
2004 - 2010
7,0
Transformation to consumer
focused business
6,0
Revenue
3,7
(Rbn)
3,8
4,0
4,1
Focused on:
4,7

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
3,0
1,5
1,5
92
93
1,6
1,9
1,7
2,1
2,2
2,2
2,3
2,5
0,5
91
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)
260
303 290
139 153
30
76
45
(41)
76
38
(83)
(115)
(147)
Attributable (173)
(229)
Profit
(268)
(Rm)
47
HEBITMargin
(%)
5,6
2,0 2,0
5,0 6,9
14,1 13,9
7,9
7,2
12,8
6,2
7,4
Group well positioned for
growth
35
RCL’s future focus
RCL
8.6
1991 - 1998
1999 - 2003
2004 - 2010
6,8
2011 - 2015
7,0
6,0
Revenue
(Rbn)
3,7
3,8
4,0
03
04
05
4,1
06
2011 - 2015
4,7
Growth phase
3,0
1,5
1,5
1,6
1,7
1,9
92
93
94
95
96
2,1
2,2
2,2
2,3
2,5
97
98
99
00
01
0,5
91
02
07
08
09
10
11*
 Further processed
765
657
514
578
425
Statutory HEBIT
(Rm)
260
 2015 strategy to utilise
303 290
139 153
30
76
45
(41)
76
38
(83)
(115)
(147)
Attributable (173)
(229)
Profit
(268)
(Rm)
47
HEBITMargin
(%)
5,6
5,0 6,9
14,1 13,9
7,9
7,2
12,8
6,2
capacity enhanced
through Wolwehoek
acquisition
559
7,4
6,5
strategic brands,
services and thrusts to
grow
 Key enabler a further
restructure to create 2
focused operating
companies, each with
their own clear vision
and strategy

* 15 month period
2,0 2,0
36
Group strategy
RCL
Vision
Rainbow Chicken will be
Vector will be Africa’s chosen
at the heart of every meal.
multi-temperature route to market solution.
We will achieve this by creating
innovative solutions and strong brands.
Key to our success is consistent, profitable,
sustainable demand.
Vector delivers supply chain excellence
through innovative customised solutions.
Key to our success is our frozen expertise,
integrated network and information systems.
2015 strategy
5 brands
5 thrusts
4 services
4 thrusts
Strategy into action - current year
Strategy into action - current year
Detailed strategic goals set for
each operating company
Detailed strategic goals set for
each operating company
We believe..
The single
reason we
exist
Our partners in
reaching our
consumers
Excellence
gives us fuel
for growth
Investing
responsibly
for growth
The right
team
37
RCL
Chicken industry perspective
• Estimated per capita consumption of broiler meat in Kilograms per capita
32,9
33,9
34,8
07
08
36,6
37,9
39,1
29,6
24,3
23,6
00
01
26,2
25,9
26,8
02
03
04
05
06
09
10
11
Source: SAPA
38
RCL
Chicken industry perspective
•Average broiler production per week (in millions) excluding imports
18,5
18,7
10
11
17,8
16,8
14,6
10,5
9,8
9,8
97
98
11,0
11,0
00
1
11,8
11,8
11,9
2
3
4
12,9
12,8
5
6
9,2
8,0
94
8,5
95
96
99
7
8
9
Source: SAPA
39
RCL
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
Rainbow
Astral
Country
Bird
0,9
Tydstroom Daybreak Rocklands
0,8
Fouries
Others
Source: Management estimate
40
RCL
Chicken industry perspective
2011
Source: Red Meat Abbatoir Association
41