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Group Financial Results for the 12 months ended 30 June 2014 and cash dividend declaration
RCL FOODS LIMITED ("RCL Foods" or "Group")
Registration number: 1966/004972/06
JSE share code: RCL
ISIN: ZAE000179438
Group Financial Results
for the 12 months ended 30 June 2014
and cash dividend declaration
Revenue Headline EBITDA Headline loss per share from Cash generated by operations
Up Up continuing operations Up
95,1% 146,6% 47,7 cents 75,4%
Introduction
RCL Foods reported a headline loss from continuing
operations of R332,6 million (2013: profit R18,8 million) for
the financial year ended 30 June 2014, which translated
into a headline earnings per share loss of 47,7 cents (2013:
profit 4,8 cents). The Board has declared a final dividend of
20 cents per share.
RCL Foods' ambition is to build a diversified African food
business of scale with compelling brands and a sustainable
value chain that delivers to consumer and customer needs.
The significant corporate activity undertaken during the
past financial year to progress this strategy, and a range
of non-recurring expenditures related to that, has had a
material impact on the results of the financial year under
review.
RCL FOODS CORPORATE ACTIVITY
RCL Foods concluded the following transactions during the
financial year:
The Group acquired the remaining 35,82% minority interest
in New Foodcorp Holdings Proprietary Limited ("Foodcorp")
in two transactions from Foodcorp management (1 July
2013) and Capitau Investment Advisers Proprietary Limited
(6 September 2013) for a total consideration of R520,7 million.
Key to maximising the value of RCL Foods is to maintain an
efficient capital structure. As part of the capital optimisation
process post the acquisitions, Foodcorp exercised its option
to redeem 10% (€39,0 million) of the Euro denominated
Senior Secured Notes ("SSN's") at 103% in November 2013,
with the remaining €351,0 million redeemed at 108,75%
in April 2014. The redemption was largely funded by a
R4,5 billion bridging loan facility from Rand Merchant Bank.
On 21 November 2013, RCL Foods announced that it
had entered into an agreement with TSB Sugar Holdings
Proprietary Limited ("TSB Holdings") to acquire 100% of
the issued ordinary shares in its two operating subsidiaries,
namely TSB Sugar RSA Proprietary Limited and TSB Sugar
International Proprietary Limited (collectively referred to
as "TSB") from TSB Holdings. The purchase consideration
of R4,0 billion was settled on 17 January 2014 via an issue
of shares at a price of R17,32 per RCL Foods share. TSB
Holdings is an indirect wholly owned subsidiary of Remgro
Limited ("Remgro"), RCL Foods' controlling shareholder.
RCL Foods further announced the intention to restructure
its existing BEE notional vendor financed shareholding, by
virtue of it being unlikely to deliver value to participants,
as well as implement TSB's BEE scheme at the RCL Foods
shareholding level. Shareholders approved the two BEE
transactions on 16 January 2014. The total value of the BEE
deals amounted to R1,2 billion.
RCL Foods also proposed a capital raising in the amount
of R2,5 billion through a combination of a pro rata offer
to existing minority shareholders (namely, all shareholders
excluding Remgro and its subsidiaries, and the existing BEE
parties) and a specific issue of new shares via a placement
to qualifying investors. Following the result of the pro
rata offer to existing minority shareholders announced on
5 February 2014, indicating that R790,2 million had been
raised, RCL Foods paused the process to raise the balance
of the R2,5 billion. Shareholders will be kept informed
regarding any resumption of this share placement process
which remains subject to market conditions, the Group's
cash/gearing situation as well as the anticipated timing of
investment cash flows.
The acquisition of a P65,5 million 49% shareholding in
Botswana's largest cold chain distributor Senn Foods
Logistics (Pty) Ltd ("Senn Foods") was completed in May
2014 by Vector Logistics Proprietary Limited ("Vector").
Pro forma results
Due to the material impact of the corporate transactions
listed above, RCL Foods has concurrently published pro
forma results on SENS on 27 August 2014 that aims to
provide shareholders with a better understanding of the
underlying operational performance of the Group. The
pro forma results, which are supported by a reporting
accountants report, assume that all corporate activity was
effectively concluded on 30 June 2013 which allows:
- 100% of Foodcorp's results to be included;
- 12 months of TSB's results to be included;
- the accelerated and once off charges relating to the BEE
shareholding restructure to be excluded;
- a normalised funding cost line by assuming rand based
debt which removes the impact of foreign currency losses
and the bond redemption premium;
- new shares to be in issue for a full 12 months; and
- transaction costs associated with the corporate activity
to be excluded.
Shareholders are advised to review the published results in
conjunction with the pro forma results in order to obtain a
better understanding of the underlying performance. It is
the intention of the Board to publish the pro forma's as an
additional comparative in the 2015 financial year.
By eliminating the impact of the corporate transactions, the Group’s
attributable profit to equity holders of the company improves
from the published loss of R289,0 million to a pro-forma profit
of R428,4 million with an earnings per share of 50,2 cents.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Restated Restated
30 June 30 June 30 June
2014 2013 2012
R'000 R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 5 132 889 3 647 206 1 824 072
Intangible assets 2 740 218 2 794 150 317 318
Biological assets 498 803
Deferred income tax asset 8 678 4 327
Investment in associate 356 013
Investment in joint ventures 347 819 128 955
Long-term loans 1 555
Goodwill 3 035 823 3 022 493
12 121 798 9 597 131 2 141 390
Current assets
Inventories 2 157 236 1 182 507 713 357
Biological assets 538 881 537 059 476 427
Trade and other receivables 3 041 277 2 251 397 1 507 354
Derivative financial instruments 2 841 361 505 20 811
Preference shares receivable 130 275
Cash and cash equivalents 1 047 710 2 313 191 305 792
Investment in money market fund 446 000 450 000
Tax receivable 13 907 32 325 31 160
Assets of disposal Group classified
as held for sale 541 110 536 605
7 788 962 7 794 864 3 054 901
Total assets 19 910 760 17 391 995 5 196 291
EQUITY
Capital and reserves 9 436 286 7 045 420 2 896 117
LIABILITIES
Non-current liabilities
Deferred income 5 153
Interest-bearing liabilities 367 556 5 588 248 65 642
Trade and other payables 35 260 24 398
Deferred income tax liabilities 1 362 670 1 281 318 428 673
Retirement benefit obligations 225 776 170 335 122 811
1 996 415 7 064 299 617 126
Current liabilities
Trade and other payables 3 604 363 2 794 193 1 648 147
Interest-bearing liabilities 4 627 716 302 318 33 243
Deferred income 3 059
Derivative financial instruments 10 389 5 766 3
Bank overdraft 20 993
Current income tax liabilities 25 388 1 343 1 655
Liabilities of disposal Group classified
as held for sale 186 151 178 656
8 478 059 3 282 276 1 683 048
Total liabilities 10 474 474 10 346 575 2 300 174
Total equity and liabilities 19 910 760 17 391 995 5 196 291
CONSOLIDATED INCOME STATEMENT
Restated
Year ended Year ended
30 June 30 June
2014 2013
Continuing operations R'000 R'000
Revenue 19 719 965 10 108 812
Operating profit before depreciation, amortisation
and impairment 1 122 220 445 347
Depreciation, amortisation and impairment (588 177) (278 294)
Operating profit 534 043 167 053
Finance costs (1 043 458) (153 675)
Finance income 148 283 53 874
Share of profits of joint ventures 16 854
Share of loss of associate (6 520)
(Loss)/profit before tax (350 798) 67 252
Income tax expense 44 061 (75 435)
Loss after tax from continuing operations (306 737) (8 183)
Profit for the year from discontinued operation 29 755 15 311
(Loss)/profit for the year (276 982) 7 128
Attributable to:
Equity holders of the company (289 039) 27 246
Non-controlling interests 12 057 (20 118)
HEADLINE EARNINGS
Continuing operations
(Loss)/profit for the year attributable to equity holders
of the company (318 794) 17 425
(Profit)/loss on disposal of property,
plant and equipment (9 192) 1 373
Impairment loss reversed (4 639)
Headline earnings from continuing operations (332 625) 18 798
Discontinued operation
Profit for the year attributable to equity holders
of the company 29 755 9 821
Headline earnings from discontinued operation 29 755 9 821
Cents Cents
Earnings per share from continuing and discontinued
operations attributable to equity holders of the company
Continuing operations
Basic earnings per share (45,7) 4,5
Basic earnings per share – diluted (45,7) 4,4
Headline earnings per share (47,7) 4,8
Headline earnings per share – diluted (47,7) 4,8
Discontinued operation
Basic earnings per share 4,3 2,5
Basic earnings per share – diluted 4,3 2,5
Headline earnings per share 4,3 2,5
Headline earnings per share – diluted 4,3 2,5
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Restated
Year ended Year ended
30 June 30 June
2014 2013
R'000 R'000
(Loss)/profit for the year (276 982) 7 128
Other comprehensive income
Items that will not be reclassified to profit and loss
Remeasurment of retirement medical obligations – net of tax 15 451 (1 286)
Items that may be reclassified subsequently to profit and loss
Cash flow hedges (1 874) 1 019
Currency translation differences 3 295 22
Other comprehensive income for the year net of tax 16 872 (245)
Total comprehensive income for the year (260 110) 6 883
Total comprehensive income for the year attributable to:
Equity holders of the company (272 167) 27 001
Non-controlling interests 12 057 (20 118)
(260 110) 6 883
CONSOLIDATED CASH FLOW INFORMATION
Operating profit 534 043 167 053
Non-cash items 566 739 349 759
Operating profit before working capital requirements 1 100 782 516 812
Working capital requirements 73 221 152 467
Cash generated by operations 1 174 003 669 279
Net finance (cost)/income (530 549) 43 381
Net cashflows from operating activities
– discontinued operation 43 918 53 293
Tax paid (48 921) (60 938)
Cash available from operating activities 638 451 705 015
Dividend received/(paid) 27 673 (94 409)
Cash outflows from investing activities
– continuing operations (487 506) (1 767 975)
Cash outflows from investing activities
– discontinued operation (6 556) (759)
Cash inflows from financing activities
– continuing operations (1 455 017) 3 165 636
Cash inflows from financing activities
– discontinued operation (3 519) (109)
Net movement in cash and cash equivalents (1 286 474) 2 007 399
Cash and cash equivalents at the beginning of the year 2 313 191 305 792
Cash and cash equivalents at the end of the year 1 026 717 2 313 191
SUPPLEMENTARY INFORMATION
Capital expenditure contracted and committed 172 985 110 702
Capital expenditure approved but not contracted 200 158 184 529
Contingencies 75 000 14 737
STATISTICS
Statutory ordinary shares in issue
(includes BEE shares) (000's) 929 569 625 434
Ordinary shares in issue for accounting purposes (000's) 858 810 574 256
Weighted average ordinary shares in issue (000's) 697 988 391 076
Diluted weighted average ordinary shares in issue (000's) 697 988 392 189
Net asset value per share (cents) 1 098,8 1 226,9
Ordinary dividends per share:
Interim dividend paid (cents)
Final dividend declared/paid (cents) 20,0
Total dividends (cents) 20,0
SEGMENTAL ANALYSIS
R'000 R'000
Revenue 19 719 965 10 108 812
Foodcorp 7 768 001 1 217 505
Rainbow 8 732 933 8 143 587
TSB 2 482 052
Vector 1 699 903 1 476 888
Sales between segments:
Foodcorp to Rainbow (61 981)
Rainbow to Foodcorp (51 736)
TSB to Foodcorp (13 552)
Vector to Foodcorp (21 495) (3 378)
Vector to Rainbow (814 160) (725 790)
Operating profit before depreciation,
amortisation and impairment 1 122 220 445 347
Foodcorp 720 960 139 415
Rainbow 203 650 193 570
TSB 147 483
Vector 199 132 184 968
Unallocated Group costs (149 005) (72 606)
Depreciation, amortisation and impairment (588 177) (278 294)
Operating profit/(loss)
Foodcorp 455 172 99 765
Rainbow 622 (3 050)
TSB 79 541
Vector 149 119 142 944
Unallocated Group costs (150 411) (72 606)
Operating profit 534 043 167 053
Finance costs (1 043 458) (153 675)
Finance income 148 283 53 874
Share of profits of joint ventures
TSB 9 327
Zambian operations 7 527
Share of profits of joint ventures 16 854
Share of loss of associate
TSB (6 520)
Share of loss of associate (6 520)
(Loss)/profit before tax (350 798) 67 252
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Common Share- Controlling Non-
Stated Other control based Retained interest controlling
R'000 capital reserves reserve payments earnings total interest Total
Balance at 1 July 2012 – restated 1 198 253 160 724 1 537 140 2 896 117 2 896 117
Total comprehensive income for the year 1 041 25 960 27 001 (20 118) 6 883
Ordinary dividend paid (94 409) (94 409) (94 409)
Acquisition of a subsidiary 331 424 331 424
BEE share-based payments charge 3 336 3 336 3 336
Rights issue 3 857 469 3 857 469 3 857 469
Employee share option scheme:
Proceeds from shares issued 23 472 23 472 23 472
Value of employee services 21 128 21 128 21 128
Balance at 1 July 2013 – restated 5 079 194 1 041 185 188 1 468 691 6 734 114 311 306 7 045 420
Total comprehensive income for the year 1 421 (273 588) (272 167) 12 057 (260 110)
Acquisition of minority interest in subsidiary (493 269) (493 269)
Transfer to retained earnings (189 182) (189 182) 189 182
Acquisition of entity under common control 4 000 000 (1 919 832) 2 080 168 42 421 2 122 589
BEE share-based payments charge 112 486 112 486 112 486
Pro rata issue of shares 790 184 790 184 790 184
Employee share option scheme:
Proceeds from shares issued 86 322 86 322 86 322
Value of employee services 32 664 32 664 32 664
Balance at 30 June 2014 9 955 700 2 462 (1 919 832) 330 338 1 005 921 9 374 589 61 697 9 436 286
KEY FEATURES
- Material financing costs resulting from foreign
exchange losses on the early redemption of
Foodcorp's Euro denominated debt
- Material IFRS 2 costs relating to the restructuring
of the BEE shareholding
- Material transaction costs associated with the
significant corporate activity
- Strong cash generation
- Results include 12 months of Foodcorp (only two
months in the comparative period) and
six months of TSB
- Rainbow's results have improved but remain
depressed
- TSB's six months results have been compromised
by the high level of imports, the three-month
off crop season from January to March, and the
impact of the sugar industry strike
RCL FOODS FINANCIAL REVIEW
Income statement
RCL Foods' revenue for the 12 months to June 2014 increased by 95,1% to
R19,7 billion, largely due to the inclusion of Foodcorp and TSB. RCL
Foods' headline EBITDA increased by 146,6% from R447,2 million to
R1 103,0 million with the associated margin increasing from 4,4% to
5,6%.
The table below depicts headline EBITDA from a statutory
perspective and adjusted for unrealised gains and losses on financial
instruments (pre-IAS 39) used in Rainbow Farms Proprietary Limited's
("Rainbow") feed raw material procurement strategy. Reporting (in
terms of IAS 39) the financial effects of certain financial instruments
used in the feed procurement strategy introduces volatility to
the Group's financial results. For the period under review, the
pre-taxation impact on the Group's results of these unrealised
positions is a negative impact of R98,8 million (2013: positive
R9,4 million), being largely related to the decrease in maize and soya
prices off historical highs and the recent strengthening in the USD
exchange rate.
Restated
12 months 12 months
30 June 30 June %
2014 2013 Var
Headline EBITDA (Rm)
– Statutory 1 103,0 447,2 146,6
– Pre-IAS 39 1 201,8 437,8 174,5
Headline EBITDA margin (%)
– Statutory 5,6 4,4 1,2
– Pre-IAS 39 6,1 4,3 1,8
Rainbow has experienced a modest recovery in difficult trading
conditions which included high import volumes and record feed
input costs to record a pre-IAS 39 operating profit of R99,4 million.
Vector's operating profit increased by 4,3% to R149,1 million due to
the utilisation of additional capacity added in the prior year and the
addition of two new principals. Foodcorp's operating profit for the
twelve months was R455,1 million, inclusive of R95,6 million additional
depreciation and amortisation relating to the purchase price
allocation (PPA) required in terms of IFRS 3 (Business combinations).
TSB's operating profit of R79,5 million is included from 1 January 2014
and reflects the impact of higher imports of sugar, the January to
March off crop season in which major maintenance work is performed
during the mills shutdown as well as the impact of the two-week
sugar industry strike.
Included in the unallocated Group cost is R136,4 million of IFRS 2
costs and corporate activity transaction costs. The IFRS 2 costs
relate to the restructuring of the Group's BEE shareholding.
Group headline earnings from continuing operations decreased from
a profit of R18,8 million to a loss of R332,6 million largely due to the
impact of the corporate transactions referred to above.
Statement of financial position
The acquisition of TSB effective 1 January 2014 has had a significant
impact on the Group's statement of financial position. The acquisition
of TSB is considered to be a business combination between entities
under common control and thus is excluded from IFRS 3 (Business
combinations). Acquisitions by the Group, of entities which are under
common control, are accounted for using predecessor accounting
in terms of the Group's accounting policies. Certain key items are
highlighted below.
The increase in property, plant and equipment, biological assets,
investments in associate and joint ventures, inventories, trade
receivables and trade payables is largely due to the inclusion of TSB.
The preference shares receivable of R130,3 million was settled in July
2013 as part of the Foodcorp management shareholding purchase.
The sale agreement that has been entered into to dispose of the
fishing division of Foodcorp has resulted in R541,1 million of assets
and R186,2 million of liabilities classified as held for sale.
Total long-term and short-term interest bearing liabilities have
decreased from R5 890,6 million in 2013 to R4 995,3 million in 2014
largely due to the redemption of Foodcorp's SSN's. The redemption
was funded through a R4,5 billion bridging loan facility from Rand
Merchant Bank, the realisation of value from the related derivative
financial instruments used to hedge the Euro exposure and Group
cash resources. The bridging facility has been classified as a current
liability as it is repayable within the next 12 months. It is anticipated
that the bridging facility will be replaced by a long-term debt
structure before 31 December 2014.
Cash flow and working capital
Cash generated by operations improved to R1 174,0 million (increase
of 75,4%), mainly as a result of the inclusion of Foodcorp and TSB,
but also contributed to by strict working capital management.
Net interest paid was R530,5 million while net interest expense per
the income statement was R895,2 million with the difference mainly
due to the foreign exchange losses relating to the SSN's.
The cash outflow from investing activities is largely attributable to
the capital expenditure of R672,4 million, R123,3 million investments
in joint ventures, offset by the R130,3 million redemption of the
preference share receivable and R152,8 million included as part of the
common control acquisition of TSB.
The cash outflow from financing activities mainly relates to the
redemption of the SSN's offset by the R4,5 billion bridging loan,
TSB's repayment of a R604,0 million loan from Remgro and the
R520,7 million purchase of the remaining Foodcorp minorities.
Capital expenditure
Capital expenditure (excluding intangibles) for the year was
R654,0 million (2013: R477,0 million) with Foodcorp and TSB
accounting for R307,2 million and R148,2 million of this spend
respectively. Capital expenditure within Rainbow remains limited
to necessary replacement expenditure. An amount of R173,0 million
(2013: R110,7 million) has been contracted and committed, but not
spent, whilst a further R200,1 million (2013: R184,5 million) has been
approved, but not contracted.
Contingencies
The increase in contingencies is due to the inclusion of TSB's
joint venture Akwandze Agricultural Finance Proprietary Limited
("Akwandze"). TSB has guaranteed long-term loans from the Land
Bank on behalf of Akwandze. No losses are expected as the risk of
default is extremely low due to the fact that some debtors are joint
ventures to the Group with no history of default.
Return on equity decreased to a negative 3,5% (2013: positive 0,5%)
largely due to the redemption of Foodcorp's SSN's and related foreign
exchange losses, IFRS 2 costs relating to the BEE restructuring and
the additional equity issued following the TSB acquisition and minority
rights offer.
FOODCORP REVIEW OF OPERATIONS
Foodcorp traded below expectations for the year ended 30 June
2014, amidst tough trading conditions and constrained consumer
spending. The South African economy has experienced a continuation
of pedestrian growth with the latest reported annual GDP growth
rate at 1,6%. Growth in consumer spending slowed to its lowest level
of 0,5% in five years during this reporting period.
Revenue from continuing operations for the year ended 30 June
2014 was R7,8 billion, an increase of 6,0% compared to the prior year.
Although every effort was made to limit selling price increases, they
were necessary in certain categories due to the increase in prices of
commodity raw materials, higher cost of packaging materials, as well
as higher energy and distribution costs. The above costs have been
impacted by the depreciation of the rand over the period, translating
into margin pressure.
Operating profit from continuing operations for the year ended
30 June 2014 was below expectation at R455,2 million, a margin of
5,9%. The Grocery, Beverage and Speciality divisions performed well
whereas the Baking and Pie division's performance was lower than
the prior period. Focused management attention has been brought
to the Baking and Pie divisions which are showing early prospects of
recovery.
Disposal of Fishing Division
On 4 June 2013, RCL Foods announced that it had concluded a
Heads of Agreement with Oceana Group Limited ("Oceana") for
the disposal of Foodcorp's Fishing division in a transaction worth
approximately R445,0 million, and has subsequently finalised a sale
agreement.
The Department of Agriculture, Forestry and Fishing approved the
transaction, except for quotas relating to lobster and long line hake
that were reallocated.
The Competition Commission approved the proposed acquisition
by Oceana of the fishing interests of Foodcorp, subject to certain
divestiture conditions. One of these conditions is not acceptable to
the parties. Accordingly, the parties filed a Request for Consideration
with the Competition Tribunal challenging the condition in question.
The Competition Tribunal upheld the initial Competition Commission
finding. The merging parties referred the matter for Appeal, which
will be heard on 8 September 2014.
The parties have extended the sale of business agreement to
30 September 2014.
RAINBOW REVIEW OF OPERATIONS
Whilst pre-IAS 39 operating profit has improved from the loss
experienced in 2013, Rainbow and the poultry industry remain in crisis.
Overall profitability and margin is still challenged and continues to be
negatively affected by high import volumes, constrained consumer
spending and record feed costs.
Management has spent a significant portion of the 2014 financial
year re-assessing Rainbow's strategy and to drive and ensure a more
sustainable profit delivery, even in difficult market cycles. The first
steps in implementation of this strategy began in the second half of
the financial year and has already resulted in a profit improvement.
The essence of Rainbow's future strategy is as follows:
- Alignment of bird volumes and profitable demand;
- Substantially reduce production of IndividualIy Quick Frozen
(IQF) and other loss making products;
- Reduce the cost base;
- Rapid growth in added value products through innovation; and
- Align strategically with key customers to create win-win
partnerships.
Rainbow posted a pre-IAS 39 operating profit of R99,4 million (2013:
R12,5 million loss) and a R0,6 million statutory operating profit (2013:
R3,1 million loss) for the year. Rainbow's pre-IAS 39 operating margin
of 1,1% however remains unacceptable.
The operating profit improvement is despite a 9,8% (rand per ton)
feed cost increase driven largely by maize prices and currency
fluctuations. Key operational highlights were a production volume
decrease in tons per day of 1,9%, average realisation increase of 8,0%,
agricultural and processing operations limiting c/kg increases to only
1,9%, and a central overheads increase of 3,8%.
Whilst the annual volume reduction in tons per day was 1,9%, the
second six month volume reduction was 5,3%. Rainbow will continue
to align its bird volume requirement to profitable demand until such
time as the supply/demand balance has returned to the industry.
Tariff and duty protection against unfair imports remains a critical
enabler to this outcome.
After a weak start to the financial year, the retail added value and
Quick Service Restaurant (QSR) volumes improved in the second
half. Simply Chicken added value has now grown to a record market
share within the chilled processed meats and freezer to fryer ranges
in retail.
Poultry industry
The local industry continues to be impacted by three major issues,
namely:
- Imports at record levels with dumping of leg quarters;
- High feed raw material costs; and
- Injection cap proposed by government.
Imports maintaining their record levels
Despite government assistance through an increased general tariff
(which did not affect the European Union) implemented in August
2013, imports of chicken (excluding Mechanically Deboned Meat) for
the 12 months ending June 2014 was 218 782 tons (Source: South
African Poultry Association). Whilst imports are down from the 2013
financial year tonnage of 242 128 tons, they remain near record high
levels.
In addition, interim anti-dumping duties ranging from +/-22% to
+/-70% were implemented in July 2014 on companies from the
Netherlands, United Kingdom and Germany. The interim duties
expire on 1 January 2015. International Trade and Administration
Commission of South Africa (ITAC) are continuing their investigations
and once complete will make a final decision. The short-term risk is
that imports/dumping remains high through companies not affected
by the interim duties and that the local market remains imbalanced.
High feed raw material costs
The 2014 financial year has again been impacted by high volatility in
feed raw material prices, especially maize and a weaker exchange
rate.
Local maize exports in excess of 2 million tons resulted in a tight
supply situation and without import accreditation from South America, local
stock levels reached critically low levels. SAFEX pricing responded
by reaching levels of nearly R3 850 per ton during the February to
April months. Fortunately, Rainbow's longer positions meant that the
impact on feed cost was limited.
The weakening of the rand from R9,87 to R10,57 to the US dollar
(a 17,3% depreciation in the average spot rate year-on-year) has
impacted rand based soya meal pricing.
Injection cap proposed by government
The poultry industry, through the South African Poultry Association
(SAPA), continues to discuss with the Department of Agriculture,
Forestry and Fisheries (DAFF), the proposed regulations to cap
injection at 15% from March 2015. In February 2014, Rainbow resigned
from SAPA as a result of a dispute with the remainder of the industry
over the government's proposed injection cap and SAPA's stance of
challenging the government on any potential cap and the proposed
level. Once the injection cap issue has been resolved and legislated,
Rainbow will reconsider its position and future role within SAPA.
Rainbow has always supported the principle of an injection cap and
welcomes the new legislation to ensure a level playing field and that
consumer's best interests are looked after. Rainbow's injection levels
are one of the lowest in the local industry and will as a consequence
be least impacted by the injection cap.
Impairment assessment
A restoration of normal trading conditions is required for the
poultry industry in South Africa to survive. The Rainbow and RCL
Foods Boards continue to assess the need for an impairment of
assets. A return to adequate profitability is dependent on the local
industry returning to relative supply/demand balance, of which the
successful implementation of permanent anti-dumping duties from
1 January 2015 is one part.
An impairment will need to be raised should the supply/demand equilibrium
not be restored or, despite the management interventions, there is no
meaningful improvement in Rainbow's profitability.
TSB REVIEW OF OPERATIONS
TSB's results are included for the period 1 January 2014 to 30 June
2014. This being the first inclusion of TSB's results, no comparative
figures are provided.
TSB's operating profit for the six months was R79,5 million, with an
operating margin of 3,2%. The results were negatively impacted by
unprecedented levels of imported sugar resulting in lower margins
and by the industry wide strike (R68,9 million direct cost). Sugar
prices did not reflect the cost increases experienced in the cost of
cane and milling operations. The six-month period also included the
off crop season of approximately three months when the majority of
maintenance expenditure takes place. Turnover for the period under
review amounted to R2,5 billion.
During the six months under review TSB produced 190 000 tons of
sugar compared to 246 000 in the comparative period. This decrease
was due to the wet conditions experienced during the start of the
2014/15 milling season and the negative impact of the strike.
On 4 April 2014 an updated import tariff based on the new dollar based
reference price of $566 per ton was announced (previously $358). A
marked decrease in imports has been evident post implementation
of the increased tariff.
Sales by TSB's animal feed operation, Molatek, were 166 000 tons for
the period under review compared to 142 000 tons in the comparative
period. Phase 1 of the current Animal feed expansion project was
commissioned during the period which increased capacity of the
plant by 12% and enables TSB to respond to the growing demand for
the Molatek products.
Greenfield Massingir project
Massingir is TSB's proposed greenfield expansion in Mozambique.
The feasibility studies are on-going with a final decision on the
project being likely by 31 December 2014. R52,2 million of setup costs
relating to the Massingir project is currently recorded in work in
progress, with a further R45,7 million committed for 2015.
VECTOR REVIEW OF OPERATIONS
The subdued economic environment continued to constrain Vector's
trading partners, with many experiencing low or negative growth.
Notwithstanding the adverse economic impact on organic growth
in the secondary distribution environment, Vector's total revenue
for the year improved by 15,1% compared to the prior year. This was
largely due to new revenue being derived from bulk storage, growth
in the primary transport business and new customers Burger King
and Captain DoRegos which joined the network during the first half
of the year. Pleasing progress was made during the second half of the
year with the expansion of the Pick n Pay basket and the introduction
of Sea Harvest into the network.
The Inland network optimisation initiatives continued to provide cost
saving benefits during the second half of the year. These benefits
were largely offset by cost escalations in manpower, electricity
and fuel which affected the distribution sector. A second sales and
merchandising structure employing over a thousand new staff to
support Foodcorp's and TSB's operations was established during the
second half of the year, with implementation effective 1 July 2014.
Once-off start-up costs were incurred as a result of this initiative, the
benefit of which will only be realised in the 2015 financial year.
Disappointingly, litigation relating to the dismissal of a number of
drivers dismissed for misconduct dating back to 2005 was concluded
with a judgement against Vector. The adverse conclusion to the case
resulted in additional costs of R16,6 million being expensed during
the year. As a result, Vector's operating profit of R149,1 million
(margin of 8,8%) only reflects a growth of 4,3% compared to the prior
year of R142,9 million (margin of 9,7%). Excluding the impact of the
litigation, growth in operating profit would have been 15,9% compared
to the prior year with an operating margin of 9,7%.
Acquisition of Senn Foods
Senn Foods is the largest cold chain distribution business in Botswana
and is involved in the distribution of dry, frozen and chilled foodstuffs.
The business currently represents almost all of Vector's principals in
Botswana including Rainbow, McCain, I&J and Fry's as well as QSR
customers Chicken Licken, Nando's, Spur and Wimpy. The effective
date of the transaction was 1 May 2014 and as Senn Foods has a
year end of 31 March, RCL Foods will equity account Senn Food's 11
months results to March 2015 in the Group's 2015 financial reporting
period.
EQUITY ACCOUNTED INVESTMENTS
Royal Swaziland Sugar Corporation ("RSSC")
TSB holds a 27% shareholding in RSSC. RSSC's results for the six
months were an after tax loss of R6,5 million. Their results were
negatively impacted upon by the wet conditions at the start of the
2014/15 milling season, the downward pressure on sugar prices in the
European Union (EU) and the South African Customs Union (SACU)
market and the three-month off crop season.
Zam Chick Ltd ("Zam Chick")
RCL Foods holds a 49% shareholding in Zam Chick in Zambia under
joint management control with Zambeef Products PLC. Due to differing year-
end periods, RCL Foods has equity accounted for Zam Chick's twelve
month results to March 2014 in these reported results, a profit after
tax of R7,5 million. The over stocked situation that occurred early
in the financial year was corrected swiftly which allowed prices to
stabilise. Volumes have grown strongly since then with March 2014
sales surpassing all previous records. Further capital investments
are planned to satisfy the very strong growth in demand being
experienced.
INFORMATION TECHNOLOGY (IT)
During this reporting period, RCL Foods has continued to optimise
the Enterprise Resource Planning (ERP) systems within the Rainbow,
Vector, Foodcorp and TSB businesses. Significant focus has
been placed on leveraging the SAP system to successfully drive
sourcing benefits. This initiative has now been extended to include
Foodcorp and TSB information. Data analytics is a key enabler to
unlock business value and insights which can differentiate the Group
from its competitors. Extended focus has also been placed on the
optimisation of the outbound supply chain through the Vector SAP
system solutions. A key project was the successful implementation of
an integrated customer contact centre which has step-changed the
customer and sales teams' service delivery.
An analysis of both the Foodcorp and TSB system landscapes
has been conducted to leverage the opportunities and synergies
across the Group. We are confident that the IT strategy will unlock
significant business benefits through a fully integrated ERP landscape
built on the existing solid IT and business process foundations. The
implementation of global best practice processes and shared services
remains an important pillar of the strategy.
CASH DIVIDEND DECLARATION
The directors have resolved to declare a final gross cash dividend
(number 79) of 20 cents per share for the period ended 30 June 2014
(2013: nil). No interim dividend was declared and paid in either the
2014 or 2013 financial year. Declaration of a dividend for 2014 signals
the Board's intention to resume paying dividends, subject to the
Group's underlying profit delivery.
The dividend has been declared from income reserves. Dividend tax
will amount to 3 cents per share and consequently shareholders,
who are not exempt from dividends tax, will receive a net dividend
amount of 17 cents per share. The issued share capital as at 27 August
2014 is 929 568 796 ordinary shares. The company's income tax reference
number is 9950019712.
The salient dates of the declaration and payment of the final dividend
are as follows:
Last date to trade ordinary shares cum dividend Friday, 10 October 2014
Ordinary shares trade ex dividend Monday,13 October 2014
Record date Friday, 17 October 2014
Payment date Monday, 20 October 2014
Share certificates may not be dematerialised or rematerialised
between Monday, 13 October 2014 and Friday, 17 October 2014 (both
dates inclusive).
DIRECTORATE
Mr Derrick Msibi and Mr George Steyn were appointed as independent
non-executive directors of the Board with effect from 27 August
2013. Dr Munro Griessel and Mr J B Magwaza retired as non-executive
directors from the Board with effect from 18 November 2013. The
Board would like to thank both retiring directors for their years of
dedicated service.
PROSPECTS
The weak state of the South African economy, expectations of rising
interest rates, escalating and prolonged labour strikes and the significant
devaluation of the local currency means a sustainable improvement in consumer
spending is unlikely in the near future. The impact of this is pervasive
across all RCL Foods' segments.
The poultry industry remains in crisis and the effectiveness of the
recently announced anti-dumping protection will be key to the
survival of the industry. Market prices of maize and soya meal have
declined recently and are likely to translate into a lower feed cost if
sustained at current levels.
With the current favourable level of irrigation resources and the
carryover of cane due to the industry strike, a good production
season is expected for TSB. The lower level of sugar imports since
the promulgation of the new tariff promises a normalisation in the
SACU sugar market and better marketing conditions are expected.
The redemption of Foodcorp's Euro denominated debt has removed
the significant foreign currency valuation volatility and allowed a
more appropriate funding structure to be implemented, which will
result in a more stable and lower cost of funding going forward.
The Group continues to explore opportunities in strategic growth
markets in the food sector in South Africa and sub-Saharan Africa in
line with its long-term aspirations.
BASIS OF PREPARATION
The summary consolidated financial statements for the year ended
have been prepared, under the supervision of the Chief Financial
Officer, Robert Field CA (SA) in accordance with the requirements
of the JSE Limited Listings Requirements for preliminary reports
and the requirements of the Companies Act applicable to summary
financial statements. The Listings Requirements require preliminary
reports to be prepared in accordance with the framework concepts
and the measurement and recognition requirements of International
Financial Reporting Standards (IFRS) and the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee
and Financial Pronouncements as issued by the Financial Reporting
Standards Council and to also, as a minimum, contain the information
required by IAS 34 (Interim Financial Reporting).
The accounting policies applied in the preparation of the consolidated
financial statements from which the summary consolidated financial
statements were derived are in terms of IFRS and are consistent with
those accounting policies applied in the preparation of the previous
consolidated annual financial statements except for the adoption
of IFRS 10 (Consolidated financial statements), IFRS 11 (Joint
arrangements), IFRS 12 (Disclosure of interests in other entities), IFRS
13 (Fair value measurement), the revised IAS19 (Employee benefits)
and the amendments to IFRS 7 (Financial instruments disclosure)
which became effective 1 July 2013. The adoption of IFRS 10, IFRS
11, IFRS 12 and IFRS 13 as well as the amendments to IFRS 7 have no
effect on the results, nor has it required any restatement of results.
The most significant impact on the Group relating to IAS 19 has
been that IAS 19R eliminates the option to defer the recognition of
actuarial gains and losses on post-retirement medical obligations
and the remeasurements are required to be presented in other
comprehensive income in full.
IAS 19R has been applied retrospectively in accordance with the
transitional provisions. Consequently, the Group has restated its
reported results throughout the comparative periods presented and
reported the cumulative effect as at 1 July 2012 as an adjustment
to opening equity. The effect of the application of IAS 19R on the
reported results for the year ended 30 June 2014 and 2013 are as
follows:
30 June 30 June
2014 2013
R'000 R'000
Impact on profit for the year
(Decrease)/increase in operating profit (22 979) 1 026
Decrease/(increase) in income tax expense 6 434 (287)
(Decrease)/increase in profit for the year (16 545) 739
Impact on comprehensive income/(loss)
for the year
Remeasurement of retirement
medical obligations 21 460 (1 786)
Tax relating to items of other
comprehensive income (6 009) 500
Increase/(decrease) in other
comprehensive income for the year 15 541 (1 286)
Decrease in total comprehensive income
for the year (1 004) (547)
Impact on the statement of financial
position
Increase in retirement medical obligations 1 519 14 985
Decrease in deferred income tax liabilities (425) (4 196)
Decrease in retained earnings (1 094) (10 789)
Following a re-assessment of the legal details relating to certain of
Vector's contracts, R139,5 million of inventory relating to Customer
Secondary Distribution (CSD) contracts has been reclassified to
other receivables as at 30 June 2013 as the risks and rewards are not
considered to have passed to Vector. There is no impact on profit
relating to this change.
The initial accounting for the Foodcorp business combination was
based on provisional values as the transaction occurred on 1 May 2013,
resulting in insufficient time to calculate the fair value of
all assets and liablilities. The fair values (mainly intagibles,
goodwill and deferred tax) have been reassessed at 30 June 2014 as
more evidence was available. These adjustments had no impact on the
results of the prior year.
These results are extracted from audited information, but are
not themselves audited. The consolidated financial statements
were audited by PricewaterhouseCoopers Inc., who expressed an
unmodified opinion thereon. The audited consolidated financial
statements and the auditor's report thereon are available for
inspection at the Company's registered office. The directors
take full responsibility for the preparation of these results
and confirm that the financial information has been correctly
extracted from the underlying consolidated financial statements.
The Integrated Annual Report will be posted to shareholders
and made available on RCL Foods' website on or before
30 September 2014.
For and on behalf of the Board
JJ Durand M Dally
Non-executive Chairman Chief Executive Officer
Durban
27 August 2014
Directors: JJ Durand (Non-executive Chairman)
M Dally (CEO)*, HJ Carse, RH Field*, PR Louw
NP Mageza, DTV Msibi, MM Nhlanhla, RV Smither
GM Steyn, GC Zondi. *Executive Directors
Company secretary: JMJ Maher
Registered office: RCL Foods Limited
Six The Boulevard, Westway Office Park, Westville, 3629
Transfer secretaries: Computershare Investor Services
Proprietary Limited
70 Marshall Street, Johannesburg 2001
Auditors: PricewaterhouseCoopers Inc.
Sponsor: RAND MERCHANT BANK
(a division of FirstRand Bank Limited)
Bankers: ABSA Bank Limited
Website: www.rclfoods.com
RCL Foods will hold a conference call on Thursday, 28 August 2014 at 10:00 (SAtime) for interested parties.
The conference call will take the form of a presentation of the results, followed by questions.
The slide presentation will be available for download prior to the call on www.rclfoods.com
To participate in the call, please dial:
SA Toll-free 0800 200 648
SA Toll 011 535 3600
UK Toll-free 0808 162 4061
PLAYBACK (available for 48 hours) on 011 305 2030, code 32025 or alternatively on www.rclfoods.com
Date: 27/08/2014 05:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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