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RCL FOODS LIMITED - Group financial results and cash dividend declaration for the year ended June 2018

Release Date: 28/08/2018 17:01
Code(s): RCL     PDF:  
Wrap Text
Group financial results and cash dividend declaration for the year ended June 2018

RCL Foods Limited 
(Incorporated in the Republic of South Africa) 
Registration number: 1966/004972/06 
JSE share code: RCL 
ISIN: ZAE000179438 
RCL Foods Limited ("RCL Foods" or "the Company")



                                               June       June         %
                                               2018       2017    change
Revenue (R million)                        24 426,0   24 950,7     (2.1)
EBITDA (R million)                          2 046,0    1 747,6      17.1
EBITDA margin (%)                               8.4        7.0       1.4
Headline earnings (R million)                 837,7      548,5      52.7
Headline earnings per share (cents)            96.8       63.5      52.4
Return on invested capital (%)                  8.1        4.8       3.3
Final dividend per share (cents)               25.0       20.0      25.0
Cash generated by operations (R million)    1 784,6    2 293,7    (22.2)

Key features

- Most Groceries brands performed exceptionally well
- Strong chicken recovery
- Sugar negatively impacted by dumped imports


RCL FOODS' headline earnings for the year ended June 2018 increased 52.7% to R837,7 million (2017: R548,5 million). The
improvement was driven by the recovery in the Chicken business unit, strong volume performances in the Dressings, Pet
Food and Pies categories, lower interest costs and a tax credit related to an energy efficiency allowance in the Sugar
business unit.

RCL FOODS measures its efficiency and effectiveness of capital allocation through return on invested capital (ROIC).
ROIC for the period under review increased 3.3% to 8.1% (2017: 4.8%), largely driven by the improvement in underlying
profitability. Significant focus is being placed on driving an improved return.

The 2018 financial year has presented significant challenges such as the impact of the Listeriosis crisis and Avian
Influenza (AI) on the Chicken business unit, and the impact of dumped imports on the Sugar business unit. Whilst these
external factors have constrained what would have been an even more encouraging year, they have forced us to think
differently, resulting in a more resilient RCL FOODS.

Weak domestic macro variables persisted throughout the 2018 financial year, manifesting in low economic growth and
continued high levels of unemployment, indicating that economic recovery will be gradual. The 1% VAT (value-added tax)
increase and higher fuel prices in the second half of the financial year have further impacted on disposable income and
affected consumer demand. Some welcome relief came to the business in the form of lower input costs, as the effects of
the 2016/2017 drought dissipated. This translated into lower revenue growth, but had a positive impact on margins.
Competition remained vigorous across all our markets.


An update on our strategic progress against our six strategic thrusts in the 2018 financial year is shown below:

Grow through strong brands

Our brand strategies and investment behind brands have strengthened our market share. Many of our brands have grown
market share, and key brands such as Nola mayonnaise, Yum Yum peanut butter, Canine Cuisine in the Premium dog food
category and Catmor in the cat food category have grown to become market leaders for the first time over a full 12-month
period.  Existing number one brands, such as Bobtail in the dog food category and Ouma Rusks, grew their market share
further and entrenched their leading status. Pet food brands are a highlight and are well poised to grow market share

Partner with strategic customers

Understanding our customers' businesses and providing them with growth opportunities has been at the core of our success
with strategic customers. We leveraged our capabilities to provide our foodservice customers with a growing and
profitable portfolio of solutions, and we assisted in turning around the pie category in the 2018 financial year,
contributing to a 10.3% volume growth in the Pies business unit. Our Logistics division successfully partnered with Pick
n Pay to launch a dedicated distribution network for the retailer's entire frozen basket of products, including the
specialised ice-cream category.

Extend our leading value chain

During the 2018 year, we continued to make good progress in optimising our value chain. Within our Logistics division,
we centralised all logistics activities into a single Control Tower which is expected to improve customer service and
efficiencies. Innovations in the Logistics fleet to transport super-frozen products (ice-cream) for Pick n Pay have
positioned us well in becoming an operator of choice in multi-temperature supply chain solutions. Continuing our focus
on IT as a key driver in unlocking business value, we implemented SAP in our Speciality and Animal Feed business units,
we enhanced processes and enterprise resource planning (ERP) in Grocery, and we are in the process of consolidating our
bakeries onto a single ERP instance. In our Consumer division, our new R136 million pet food plant in Randfontein came
into production this year, enabling innovations that are helping grow our pet food category.

Expand into the rest of Africa

We maintain a low-risk strategy for our expansion into Africa, remaining cautious of economic and political risk. The
future geographical focus has been narrowed to mainly SADC countries, and whilst potential acquisitions have been
evaluated, none have been effected to date. Within the rest of Africa, we have restructured our activities to increase
alignment between our export efforts and potential acquisitions. As we enter new regions, we are placing specific
emphasis on pursuing route-to-market acquisitions before making investments in other assets. In Uganda, we made further
infrastructure investments within our associate, HMH Rainbow Limited, by constructing additional chicken houses to grow
capacity. We are currently in the process of finalising the acquisition of a 45.0% shareholding in L&A Distribution
(L&A). L&A is an FMCG distribution operation based in Lusaka, Zambia and will provide us with re-entry into the Zambian

Inspire great people

Our ongoing efforts to accelerate a diverse workforce has earned us Gender Commission recognition as a leader in our
sector, with a strong focus on women's development. Highlights in 2018 included a Women in Agriculture leadership
development initiative and training programmes for women engineers, artisans and drivers. We have continued to build our
talent pipeline and during the course of the last three years we have recruited 130 graduates as management trainees,
facilitated 931 learnerships, apprenticeships and internships, and reached 43% of our managers with leadership
development programmes. We have successfully rolled out a medical aid plan and health benefits to shop floor employees,
with 1 080 people signing on during this financial year. Our relationships with unions are strong and promote
collaboration in jointly tackling issues and creating awareness of the factors affecting our people and the industries
we operate within.

Drive sustainable business

Our efforts to become more energy self-sufficient have resulted in our achievement of 25% of energy self-sufficiency
through co-generation at our Sugar plants, waste-to-value energy production and solar power. The success of our
Worcester waste-to-value plant has prompted us to invest in a similar waste-to-value plant in Rustenburg in 2019, where
we expect to provide 65% and 50% respectively of the energy and water requirements of the total site. Irrigation
projects in our Sugar business unit and the use of alternative water sources in Logistics also assisted us in our
continued focus on reducing water consumption. On the social front, we established the DO MORE FOUNDATION as a separate
non-profit organisation to enable participation of a broader group of external stakeholders in our CSI agenda which
focuses on doing more for young children, easing hunger and supporting youth.


Income statement

RCL FOODS' revenue for the year ended June 2018 declined 2.1% to R24,4 billion (2017: R25,0 billion), largely due to the
reduced consequential category (mainly IQF and other commodity lines) volumes in the Chicken business unit following its
restructure in February 2017. EBITDA improved by 17.1% to R2 046,0 million from R1 747,6 million, with the associated
margin improving 1.4% to 8.4%.

Rm                June 2018   June 2018 margin %   June 2017   June 2017 margin %   % change Margin  change
EBITDA              2 046,0                  8.4     1 747,6                  7.0       17.1            1.4
Consumer              985,2                  7.7       506,5                  3.8       94.5            3.9
Sugar & Milling       869,0                  6.4     1 036,1                  7.2     (16.1)          (0.8)
Logistics             204,3                 10.3       203,1                 10.0        0.6            0.3
Group                (12,5)                              1,9  

Consumer's improved result was driven by a recovery in the Chicken business unit, and gains in key groceries categories.
Sugar & Milling's decline was mainly due to pricing in the Sugar business unit and operational challenges in Baking.
Logistics benefitted from new business and cost saving initiatives which offset the reduced Chicken business unit loads
through the network, post the Chicken restructure in February 2017.


RCL FOODS' effective tax rate for the period, excluding joint ventures and associates was 21.2% (2017: 27.4%). The 2018
effective rate was reduced by the R64,0 million tax credit received in respect of a section 12L energy efficiency
allowance and dormant farm sale profits which were taxed on a capital gains tax basis.

Non-controlling interests

The Group's non-controlling interests relate mainly to minority shareholding in the Sugar cane grower companies. As a
result of price decreases in the local sugar market, the cane grower companies have posted consecutive losses with the
minority shareholders share of losses added back in deriving the profit attributable to the equity holders.

Statement of financial position

Property, plant and equipment increased by R202,5 million with capital expenditure totalling R814,4 million for the
year, which was partially offset by depreciation charges of R651,7 million.

Investment in associates increased by R13,1 million driven mainly by movements in Royal Swaziland Sugar Corporation
Limited (RSSC). Included in the RSSC movement is an additional investment of R26,4 million made in December 2017 (which
increased our shareholding by 1.8% to 29.2%), profits capitalised of R50,9 million, offset by dividends received of
R59,8 million.

Biological assets were largely in line with the prior year. The lower sugar price as a result of the price decreases in
the local market were offset by higher sugar volumes resulting in a fair value of the sugarcane plants that was in line
with the 2017 balance.

Net working capital (including biological assets) has increased by R359,6 million over the comparative period and from
10.1% to 11.8% as a percentage of revenue. The increase was mainly due to higher inventory balances (up R260,1 million)
and lower revenue as a result of the reduced consequential category chicken sales post the February 2017 restructure.
The increase in inventory was mainly driven by a 26.5% increase in sugar tons on hand at year-end, driven by higher
production volumes post the drought, with the stock to be realised in the 2019 financial year. Whilst there has been a
1.7% increase in net working capital as a percentage of revenue, we are comfortable that our investment remains

Trade and other receivables and payables balances at June 2018 were both influenced by the timing of the year-end
cut-off being over a weekend. This resulted in material receipts from customers and payments to suppliers being deferred
to the week following year-end close. A total of R542,7 million receipts and R277,7 million payables were received/paid
late, post the year-end cut-off. Trade and other receivables increased R801,7 million, whilst trade and other payables
increased R718,1 million.

Cash on hand net of overdrafts, has increased from R1 053,8 million in 2017 to R1 263,4 million in 2018 mainly driven by
the improvement in underlying profitability.

Assets held for sale relate mainly to the assets of the Prepared lines (which consists primarily of the deli snacks,
sandwiches, salads, biltong and pizza lines) at the Speciality Bronkhorstspruit site, and includes goodwill of R130,0
million allocated to the Prepared lines from the Speciality cash-generating unit. Included in the 2017 assets and
liabilities held for sale was the Tzaneen chicken operation, which was disposed of in the 2018 financial year.

Interest-bearing liabilities of R3 248,7 million are R56,5 million lower than last year (2017: R3 305,2 million), with
the decrease due mainly to the replacement of loans granted to the Sugar cane grower companies from Akwandze, with
internal funding. Included in the balance is the R2 852,0 million term-funded debt package of which R1 097,0 million is
due in February 2019 and as a result has been reclassified as a short-term liability in the current period.

Cash flow and working capital

Cash generated by operations decreased to R1 784,6 million, a decrease of 22.2%. The prior year benefitted from a R827,5
million release of working capital off a high 2016 base. The working capital base has been stable in the current period,
with a minimal change, despite rising sugar stock levels over year-end. As a result of the significant working capital
release in 2017, the cash conversion ratio decreased to 87% from 131% in the prior year.

Included in the non-cash items of R512,7 million are add-backs of depreciation, amortisation and impairment charges of
R775,6 million and non-cash IFRS 2 and BEE charges of R151,9 million. These were offset by deductions of positive fair
value adjustments on biological assets within the Chicken and Sugar business units of R39,7 million and R330,1 million
respectively. Within the Sugar business unit, the entire biological assets balance is capitalised using a fair value
adjustment, with the realisation of the prior year's biological assets expensed through cost of sales and reflected
under working capital movements (R334,3 million), resulting in a net R4,2 million decrease in Sugar biological assets
for the year.

Investing activities spend has increased by R351,7 million. The prior year included the R289,5 million receipt on
settlement of the Zam Chick and Zamhatch options. Included in the current year spend is capital expenditure (including
intangibles) of R849,1 million (2017: R834,5 million), cash paid for the acquisition of Matzonox (Waste-to-Value
operation) of R56,3 million and proceeds on disposal of fixed assets of R115,5 million (2017: R34,6 million).

Financing activities spend in the current year relates mainly to the repayment of the Akwandze loans granted to the
community based joint venture cane growers. The prior year included the early repayment of the revolving credit facility
of R498,0 million.

Capital expenditure

Capital expenditure (including intangibles) for the year ended June 2018 was R849,1 million (2017: R834,5 million).

Major spend items in the current period include:

- restoration of the damaged Pongola silo (R66,5 million);
- investments in the ERP systems across RCL FOODS (R49,2 million);
- investments in the Logistics fleet to accommodate the Pick n Pay frozen business (R28,5 million); and
- investments in plant and equipment related to the new pet food plant (R21,9 million).

An amount of R327,3 million (2017: R155,5 million) has been contracted and committed, but not spent, whilst a further
R586,1 million (2017: R354,9 million) has been approved but not contracted. Major items included in these amounts relate

- investment in a waste-to-value plant at our Rustenburg Chicken site (R300,0 million);
- investments behind the ERP implementations across RCL FOODS (R60,9 million); and 
- spend to move the remaining Bronkhorstspruit operations to other Speciality sites (R60,0 million).

Impairment assessment

We have assessed the need for impairments of assets and no further write-downs were required at June 2018.


Consumer division

The Consumer division generated revenue of R12,8 billion (2017: R13,5 billion), down 5.4%. Despite the decrease in
revenue, EBITDA increased by 94.5% to R985,2 million at a margin of 7.7% (2017: R506,5 million at a margin of 3.8%),
benefitting from a R69,0 million improvement in the Groceries cluster and a R409,7 million improvement in the Chicken
business unit.

Groceries (Grocery, Beverages, Pies and Speciality business units)

Groceries EBITDA rose 15.4% to R518,4 million at a margin of 9.0% (2017: R449,4 million at a margin of 8.2%). The result
includes a R62,0 million provision for retrenchment costs in the Speciality business unit (related to the exit from the
Prepared lines at the Bronkhorstspruit site) as well as gains on commodity procurement positions of R19,1 million (2017:
R14,3 million loss) stemming from favourable sunflower and currency positions relative to the prior year. Excluding
these two items, Groceries EBITDA would have increased 21.0% to R561,3 million at a margin of 9.7% (2017: R463,7 million
at a margin of 8.5%). 

The Groceries cluster had a solid year with excellent volume and market share growth. Apart from Sorghum and Beverages,
all categories contributed strongly, benefitting from favourable commodity pricing and appropriate pricing strategies to
enable growth in a subdued market. Despite a poor Beverages performance and a muted Speciality result, margins improved
across the board, due to lower input costs, innovation, higher volumes and production savings. 

The strong branded groceries performance was a highlight this year, given the deflationary environment, strong
competition and no growth in the market. Our larger categories of Dressings, Pet Food and Pies managed market share
gains and improved margins which is considered an excellent result, especially given the already high base in 2017. Key
brands such as Nola mayonnaise, Yum Yum peanut butter, Canine Cuisine and Catmor have grown to become market leaders in
their respective categories measured on a 12 month moving average basis to June 2018, whilst existing number one brands,
such as Bobtail and Ouma Rusks, grew their market share further and entrenched their leading status. 

An independent research company, Ask'd, reported in its June 2018 analysis that, even with the impact of the Listeriosis
outbreak on the Chicken added-value range, the RCL FOODS Consumer basket growth was ahead of the Ask'd industry basket
on the six- and 12-month rolling average basis. Volume growth over 12 months for the RCL FOODS Consumer total basket was
4.1%, relative to market growth of just 1.6%. 

Pet Food volumes were a big driver following a strong innovation roll-out from the newly commissioned pet food facility.
The facility has allowed us to introduce several varieties of products that were previously not available locally,
including gravy-coated pellets, soft nuggets and pet food containing fresh meat. The offering is on par with the best
internationally. The new products have not materially influenced the numbers for the financial year, given that the
launch was in April 2018. Consumer acceptance to date of the new ranges has been very promising and we are optimistic
about its prospects for the 2019 financial year. 

Pies generated strong volume growth due to the successful execution of a range of initiatives implemented. In addition,
effective cost savings initiatives have increased margins pleasingly. The business is rapidly gaining traction in the
market and, together with what is now regarded as an appropriate cost structure, is well down the track in terms of
improved performance. 

Speciality's performance was disappointing, with both volume declines and under-recovery in price, especially in the
Prepared lines. We are working closely with customers to restore the profitability and performance of this business
unit. We have entered discussions with various stakeholders aimed at re-organising our manufacturing capabilities to
allow for a more focused and sustainable approach going forward. We have decided, in consultation with our customers, to
focus on our expertise to drive growth in the Bakery categories and to exit the Prepared lines. The restructuring will
result in a disposal of the assets related to the Prepared lines in the 2019 financial year and move of the remaining
operations at the Bronkhorstspruit facility to other Speciality sites. By re-focusing the manufacturing capabilities,
the smaller business will deliver a better return and be a more sustainable business going forward. A retrenchment
provision of R62,0 million was raised in the current year.

Beverages remains a challenge, with profits down mainly due to volume pressure and lower prices arising from strong
competition. Whilst new launches have been driving consumer interest in our brands, strong competition and an
unfavourable mix weighted towards bigger packs have depressed margins. The business is receiving significant attention
and a comprehensive plan of differentiation and innovation has been developed to extract value from our unique
Ultra-High Temperature (UHT) capability.


Chicken's EBITDA for the year improved 717.5% to R466,8 million at a margin of 6.7% (2017: R57,1 million at a margin of
0.7%). Chicken benefitted from the revised business model, improved pricing in the consequential chicken category, a
decrease in input costs and a R101,4 million profit on sale of dormant farms resulting from the February 2017 Chicken
restructure. The improvement in Chicken's underlying profitability was particularly pleasing considering weak consumer
demand, the negative impact of AI and, significantly, the Listeriosis outbreak which had an estimated negative impact of
R158,2 million for the period, of which R78,2 million related to once-off costs. 

The changed Chicken business model has performed well and is on track to deliver what it set out to achieve – a more
consistent profitable business with much less reliance on commodity cycle pricing. The changes have been significant,
with production reduced from 4,8 million birds to 3,4 million birds per week and a substantial proportion of low margin
consequential chicken being removed from the system as a result.  Chicken's average margins have also improved since the
implementation of the revised model. These changes, together with the related positive impact on consequential category
pricing and lower input feed costs, have assisted to negate to some extent two major external impacts over the past
year, those being AI and Listeriosis. It is worth noting that dumped imports remain a significant component of and issue
for the local poultry market.

RCL FOODS lost approximately 5% of its breeding stock to AI in the winter months, with a total financial impact
estimated at R69 million. While AI continues to pose a risk for all producers, we have mitigated future risk to volumes
by further increasing bio-security and carrying surplus flocks. 

The outbreak of Listeriosis in South Africa, which tragically resulted in more than 180 deaths earlier in 2018, was a
major crisis for the local food industry and our country, and it remains so. RCL FOODS was drawn into the crisis amidst
widespread public panic, uncertainty regarding the regulatory framework and pressure on government to identify the
source of the outbreak. No trace of the ST6 "outbreak strain" of listeria was present at our Wolwehoek plant and since
being cleared, we have been working to restore consumer trust both in our Rainbow brand and the chilled processed meats
category. Post the crisis we have introduced a variety of initiatives to restore confidence in the Rainbow brand and the
chilled processed meats category. Our Quality and Food Safety team together with our Processing team have implemented a
raft of additional safety measures at our production facilities over and above the international food safety standards
already followed. We are working closely with government and key experts to ensure that appropriate regulations are put
in place to safeguard consumers going forward.  The estimated financial impact of the Listeriosis crisis of R158,2
million, is attributable to once-off costs of R78,2 million (net of insurance recoveries of R9,3 million) associated
with the recall of our products and restoration of the Rainbow brand, with the remaining R80,0 million estimated as lost
contribution. We are continuing to engage with insurers regarding our assets and business interruption policies response
to the financial losses suffered due to the outbreak.

Sugar & Milling division

The Sugar & Milling division generated revenue of R13,6 billion (2017: R14,5 billion), down 6.2%, and an EBITDA of
R869,0 million at a margin of 6.4% (2017: R1 036,1 million at a margin of 7.2%), a decline of 16.1%. The decline in
profitability was mainly attributable to lower prices and adverse channel mix in Sugar, as well as operational
challenges at Baking. 


Despite a 6.3% increase in revenue, on the back of higher volumes post the drought, Sugar's EBITDA declined 44.0% to
R284,1 million at a margin of 5.2% (2017: R507,0 million at a margin of 9.9%) driven by two price decreases in the local
market and lower margins. The prior year result benefitted from the R138,1 million insurance receipt related to the
Pongola silo, excluding which the EBITDA decline moderates to 23.0%. The Sugar operations experienced challenging market
conditions in the period under review. Pleasing increases in production (volumes up 35.8% to 594 850 tons) and improved
efficiencies were more than offset by low international prices, a relatively strong currency, and a significant volume
of dumped imports. The abnormally high level of imports was initially triggered by a period without appropriate import
tariff protection, though even after being rectified, the new tariff remains insufficient to stem imports. The imports
are mainly due to surplus global stocks, as well as the effective subsidisation of sugar industries in competing world
markets which enables dumping at reduced prices in South Africa. Locally, the need to establish import parity to quell
imports and excess supply drove significant price decreases of more than 20% during the period. Imports displaced local
production volumes forcing a change in the sales channel mix towards higher exports at lower international prices and
hence margins.

Higher sugar yields and commensurate improved performance of the factories bode well for a profit recovery, should sugar
prices and sales mix normalise. Adequate water supplies will also ensure that the recovery in sugar production is
sustained into the next season.  A recent acquisition in the sweetener category will give us the ability to extend our
product range into the expanding low-carb and low-calorie segment. 

World sugar surpluses are expected to continue for the foreseeable future, with significant potential overhang of stock
from India, Europe and Brazil. In South Africa after significant interaction with government, the Dollar-Based Reference
Price, a component of the existing local market tariff, was updated in August 2018 (post year-end) which will provide
the local market with additional protection from imports. A significant amount of imported stocks have built up during
the period of inadequate protection, which still needs to work its way through the local market before any improvement
in profitability can be expected in the Sugar business unit. There is a strong focus within Sugar to ensure the
continued sustainability of the business and the industry. In addition, alternative products and uses are being
considered, with a simultaneous focus on improving productivity and efficiency to reduce costs further.

Animal Feed

Animal Feed remains a stable business with sound results. EBITDA of R319,5 million at a margin of 7.0% (2017: R245,4
million at a margin of 4.3%) increased by 30.2% driven by gains on our commodity raw material procurement positions
during the year of R61,7 million (2017: R23,0 million loss). The R84,7 million improvement over the prior year was a
result of gains on maize and currency positions due to higher maize prices and the weakening of the Rand relative to our
positions. Excluding the impact of the above, Animal Feed's EBITDA declined 3.9% to R257,8 million at a margin of 5.6%
(2017: R268,4 million at a margin of 4.7%).

This performance should be viewed against the substantial reduction in internal volumes due to the revised Chicken model
and the temporary loss of key bulk external customers. We are pleased that these customers have since returned because
of our superior product performance.  A relentless focus on reducing costs as well as more favourable commodity input
costs, assisted to partially counter the lower volumes. 

The merger of Molatek and Epol created one of South Africa's largest animal feed businesses. Post the merger, Animal
Feed is a well settled business with a diversified product basket. There is a continuous focus on developing tailormade
feed solutions to attract new customers, improve profitability and strengthen the brands. A clear strategy is in place
to diversify and grow more animal feed categories and expand into new markets and geographies. A recent post year-end
acquisition of a horse and game feed business, Driehoek Voere, will complement the existing product range. The business
has a single mill in Vaalwater, Limpopo, and produces high roughage animal feed for a variety of domestic and wild
animals under the well-known Driehoek, Equus, Lotmix and Winterveld brands.

Millbake (Milling and Baking)

The Millbake business unit generated an EBITDA of R265,4 million at a margin of 7.3% (2017: R283.7 million at a margin
of 7.5%), down 6.5%. The business had a leadership change during this financial year and has set a clear recovery plan
going forward. 

The South African milling industry continues to be challenged by overcapacity and margins remain tight as a result. Our
well-regarded brand, as well as targeted interventions, delivered increased Milling volumes, which also benefitted from
lower commodity prices. However, we continue to run below optimal capacity and the focus remains on increasing volumes
to improve efficiencies.  

Baking's results were disappointing. Operational challenges including prolonged strike action as well as competitor
pressure impacted volumes and margins. Rural bakeries have performed well while urban bakeries experienced strong
competition. Quality issues have been resolved and efficiency and productivity issues are being fixed. More work needs
to be done to position this business unit for the right level of growth and profitability. 

We remain committed to the category and are evaluating options to grow volumes which will better utilise the excess
capacity within Milling.

Logistics division

Logistics continued to trade in a tough environment over the past year, with substantially reduced internal volumes,
specifically due to the Chicken restructure, which was further impacted by the Listeriosis outbreak. Foodservice's
revenue has grown, with improved results across customer groups.

Gains in new business, as well as a concerted effort to right-size the business by taking out costs, resulted in a
financial performance that is ahead of expectation and in line with the prior year.  Logistics generated revenue of R2,0
billion, marginally down on the prior year, and EBITDA of R204,3 million at a margin of 10.3% (2017: R203.1 million at a
margin of 10.0%), an improvement of 0.6%. 

A key long-term contract with Pick n Pay was signed in the latter half of 2018 for their frozen category, including
ice-cream. This assisted to partially offset the decline in Chicken volumes, as well as enhanced our capabilities to
include super-frozen solutions going forward. 

Cost containment initiatives, which resulted in meaningful cost reductions, were implemented spanning network redesign,
hub and transport optimisation, as well as an investment in a consolidated supply chain Control Tower aimed at further
improving customer service and operational efficiencies.

Logistics is well positioned to offer customers a multi-temperature route-to-market supply chain solution, including
chilled, frozen and super-frozen temperature solutions. Further new business and strategic cost right-sizing
opportunities are being pursued, to further mitigate the revised Chicken business model volume impact in the 2019
financial year.

Equity accounted investments


Royal Swaziland Sugar Corporation (RSSC) (Swaziland)

RCL FOODS' Sugar business unit increased its shareholding in RSSC from 27.4% to 29.2% in the 2018 financial year. RSSC's
results for the year ended June 2018 were down due to conditions similar to those in the Sugar business unit. The
after-tax contribution was R50,9 million (2017: R110,6 million). Imports negatively impacted on local market sales,
while the sugar price decrease also significantly impacted the fair value adjustment on biological assets, with our
share of the fair value adjustment being a negative R15,2 million in 2018 (2017: R30,7 million fair value gain). 

HMH Rainbow Limited (HMH) (Uganda) 

RCL FOODS has a 33.5% shareholding in HMH Rainbow Limited. HMH is a poultry producer operating a feed mill, broiler
farms and processing plant in Uganda. The business delivered an improved performance over the period, with higher
volumes stemming from the investment in additional chicken houses and increased exports to Kenya. Its after-tax profit
contribution was R0,9 million (2017: R1,1 million loss).

Joint ventures

Akwandze Agricultural Finance Proprietary Limited (Akwandze) and Mananga Sugar Packers Proprietary Limited (Mananga)

Sugar & Milling's Akwandze and Mananga investments contributed a combined after-tax profit of R16,6 million for the 12
months to June 2018 (2017: R38,6 million), with the decline driven by the prevailing conditions in the sugar market.

Senn Foods Logistics (Senn) (Botswana)

RCL FOODS has a joint venture with Senn in Botswana. Senn delivered another sound performance, with good growth in
Nando's, new business from Famous Brands coupled with successful cost containment efforts in transport costs. Its
after-tax profit contribution was R11,7 million (2017: R9.9 million). Senn has delivered consistent performance since
the acquisition in 2014.


The directors have resolved to declare a final gross cash dividend (number 87) of 25.0 cents per share bringing the
total dividend declared for the year ended June 2018 to 40.0 cents (2017: 30.0 cents). 

The dividend has been declared from income reserves. Dividend tax, at the rate of 20%, will amount to 5.0 cents per
share and consequently shareholders, who are not exempt from dividend tax, will receive a net dividend amount of 20.0
cents per share. The issued share capital as at June 2018 is 938 086 609. The company's income tax reference number is

The salient dates of the declaration and payment of the final dividend are as follows:

Last date to trade ordinary shares cum dividend      Tuesday, 16 October 2018
Ordinary shares trade ex-dividend                    Wednesday, 17 October 2018
Record date                                          Friday, 19 October 2018
Payment date                                         Monday, 22 October 2018

Share certificates may not be dematerialised or rematerialised between Wednesday, 17 October 2018 and Friday, 19 October
2018 (both dates inclusive).


Whilst we are expecting the recent modest recovery in market volumes to continue, we acknowledge that trading conditions
will continue to be challenging and the fight for market share will remain fierce.

The Consumer division will continue to drive its groceries brands and keep the momentum in market share growth through
strong innovation and brand investment. Speciality is expected to become a smaller but more sustainable business. The
revised Chicken model has delivered per expectation and substantial focus will be centred around restoring consumer
confidence in the Rainbow brand following the Listeriosis challenge.

Government have responded to industry concerns in the local sugar market by implementing a revised Dollar-Based
Reference Price, a component of the existing tariff. The positive impact of the tariff will only become evident once the
excessive import stocks that have built up prior to the increased tariff being implemented have been sold through the
market and the supply/demand balance restored in the local market. The Sugar business unit will continue to focus on
ways to reduce costs as well as investigate alternative applications to ensure the business' long-term sustainability.
We expect volume recovery at Milling to continue and for initiatives implemented at Baking to start bearing fruit.

Logistics will continue to seek new business and reduce costs. The various innovations in the business are positioning
it favourably to recover from the volumes lost through Chicken's restructure.

Our transformation into 'ONE RCL FOODS' and the shared vision and commitment it has brought across all our businesses,
has presented a host of synergies and opportunities that have exceeded our expectations. It has given us a solid
platform from which to create value on our journey to building a food business with brands that matter.


The summarised consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS), the information required by IAS 34 (Interim Financial Reporting), IFRIC interpretations, SAICA
financial reporting guides and circulars and in compliance with the Companies Act of South Africa and the Listing
Requirements of the JSE Limited, under the supervision of the Chief Financial Officer, Robert Field CA(SA). The
accounting policies comply with IFRS and are consistent with those applied in the previous year, except for the adoption
of the disclosure amendments to IAS 7 effective 3 July 2017, which have had no effect on these results. 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 and
shareholders are advised that, in order to obtain a full understanding of the nature of the auditor's engagement, they
should obtain a copy of the auditor's report together with the accompanying financial information. The auditor's report
does not necessarily report on all the information contained in this announcement. 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 28 September 2018.

RCL FOODS has reported on the retail calendar of trading weeks which treats each financial year as an exact 52-week
period, incorporating trade from Monday to Sunday each week. This treatment effectively results in the loss of a day (or
two in a leap year) per calendar year. These days are brought to account approximately every six years by including a
53rd week. The results for the year under review are for the period ended 1 July 2018, a 364-day period compared to a
367-day period in the previous financial year.

For and on behalf of the Board

JJ Durand                    M Dally
Non-executive Chairman       Chief Executive Officer

28 August 2018

Directors: JJ Durand (Non-executive Chairman), M Dally (CEO)*, HJ Carse, RH Field*, CJ Hess, PR Louw, NP Mageza, DTV
Msibi, MM Nhlanhla, RV Smither, GM Steyn, GC Zondi.  

* Executive directors

Company secretary: JMJ Maher

Registration number: 1966/004972/06

JSE share code: RCL

ISIN: ZAE000179438

Registered office: RCL Foods Limited, Ten The Boulevard, Westway Office Park, Westville, 3629

Transfer secretaries: Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue,
Rosebank, 2196

Auditors: PricewaterhouseCoopers Inc.

Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited)

Bankers: Absa Bank Limited, First National Bank Limited, Standard Bank Limited, Investec Bank Limited and HSBC Bank plc


as at

                                                                   1 July          2 July
                                                                     2018            2017
                                                                    R'000           R'000
Non-current assets   
Property, plant and equipment                                   5 922 829       5 720 285
Intangible assets                                               2 162 828       2 222 912
Investment in joint ventures                                      248 570         227 366
Investment in associates                                          526 437         513 323
Deferred income tax asset                                          28 448           6 876
Loans receivable                                                   35 920           1 555
Trade and other receivables                                        58 010          12 788
Goodwill                                                        2 533 162       2 658 493
                                                               11 516 204      11 363 598
Current assets   
Inventories                                                     2 926 748       2 666 622
Biological assets                                                 807 331         791 469
Trade and other receivables                                     4 254 014       3 452 331
Derivative financial instruments                                    5 031           1 339
Tax receivable                                                     32 953          70 410
Loans receivable                                                   29 072          17 200
Cash and cash equivalents                                       1 263 364       1 056 660
                                                                9 318 513       8 056 031
Assets of disposal group classified as held for sale              156 580          88 685
Total assets                                                   20 991 297      19 508 314
Capital and reserves                                           11 179 703      10 386 753
Non-current liabilities   
Deferred income                                                        22             141
Interest-bearing liabilities                                    1 965 983       3 078 822
Deferred income tax liabilities                                 1 253 584       1 248 056
Retirement benefit obligations                                    135 072         136 668
Trade and other payables                                            6 410           3 157
                                                                3 361 071       4 466 844
Current liabilities   
Trade and other payables                                        5 116 615       4 398 538
Deferred income                                                     7 835           8 338
Interest-bearing liabilities                                    1 282 673         226 383
Derivative financial instruments                                   31 056          12 995
Current income tax liabilities                                     12 344           4 190
Bank overdraft                                                                      2 878
                                                                6 450 523       4 653 322
Liabilities of disposal group classified as held for sale                           1 395
Total liabilities                                               9 811 594       9 121 561
Total equity and liabilities                                   20 991 297      19 508 314
                                                                                      June              June
                                                                                      2018              2017
                                                                                     R'000             R'000
Revenue                                                                         24 425 996        24 950 655
Operating profit before depreciation, amortisation and impairment (EBITDA)       2 045 984         1 747 633                      
Depreciation, amortisation and impairment                                        (775 640)         (971 125)
Operating profit                                                                 1 270 344           776 508
Finance costs                                                                    (315 104)         (373 741)
Finance income                                                                      62 624            40 999
Share of profits of joint ventures                                                  28 268            48 577
Share of profits of associates                                                      51 834           109 516
Profit before tax                                                                1 097 966           601 859
Income tax expense                                                               (219 589)         (125 552)
Profit for the period                                                              878 377           476 307
Attributable to:
Equity holders of the company                                                      922 439           515 657
Non-controlling interests                                                         (44 062)          (39 350)
Profit for the period attributable to equity                                       922 439           515 657
holders of the company
Profit on disposal of property, plant and                                         (77 583)           (3 423)
Gain on disposal of subisidiary                                                                      (4 512)
Insurance proceeds                                                                (11 931)          (87 735)
Impairments                                                                          6 107           128 554
Insurance proceeds included in equity                                              (2 344)
accounted earnings of associates
Loss on disposal of property, plant and                                              1 047
equipment included in equity accounted
earnings of associates
Headline earnings                                                                  837 735           548 541
                                                                                     Cents             Cents
Earnings per share attributable to equity
holders of the company
Basic earnings per share                                                             106.6              59.7
Basic earnings per share – diluted                                                   104.1              59.2
Headline earnings per share                                                           96.8              63.5
Headline earnings per share – diluted                                                 94.5              63.0

                                                                                      June              June
                                                                                      2018              2017
                                                                                     R'000             R'000
Profit for the period                                                              878 377           476 307
Other comprehensive income                          
Items that will not be reclassified to profit and loss                        
Remeasurement of retirement medical obligations – net of tax                         9 041             7 713
Share of associates other comprehensive income                                       (664)           (2 090)
Items that may subsequently be reclassified to profit and loss                        
Cash flow hedges - net of tax                                                        (467)           (9 194)
Currency translation differences                                                  (10 011)          (11 651)
Other comprehensive income for the period – net of tax                             (2 101)          (15 222)
Total comprehensive income for the period                                          876 276           461 085
Total comprehensive income for the period attributable to:                        
Equity holders of the company                                                      920 338           500 435
Non-controlling interests                                                         (44 062)          (39 350)
                                                                                   876 276           461 085
                                                                                      June              June
                                                                                      2018              2017
                                                                                     R'000             R'000
Operating profit                                                                 1 270 344           776 508
Non-cash items                                                                     512 686           689 669
Operating profit before working capital requirements                             1 783 030         1 466 177
Working capital requirements                                                         1 587           827 506
Cash generated by operations                                                     1 784 617         2 293 683
Net finance cost                                                                 (257 901)         (325 081)
Tax paid                                                                         (180 351)         (262 030)
Cash available from operating activities                                         1 346 365         1 706 572
Dividends received                                                                  62 394            93 522
Dividends paid                                                                   (304 610)         (217 147)
Cash outflows from investing activities                                          (838 018)         (486 322)
Cash outflows from financing activities                                           (56 549)         (406 043)
Net movement in cash and cash equivalents                                          209 582           690 582
Cash and cash equivalents at the beginning of the period                         1 053 782           363 200
Cash and cash equivalents at the end of the period                               1 263 364         1 053 782

                                                                                       Common      Share-                
                                                                                                    based                  Controlling        Non-
                                                            Stated       Other        control    payments       Retained      interest controlling   
                                                           capital    reserves        reserve     reserve       earnings         total    interest         Total
                                                             R'000       R'000          R'000       R'000          R'000         R'000       R'000         R'000
Balance at 1 July 2016                                  10 023 804      25 517    (1 919 832)     434 863      1 403 502     9 967 854      78 402    10 046 256
Profit/(loss) for the period                                                                                     515 657       515 657    (39 350)       476 307
Other comprehensive income for the period                             (20 845)                                     5 623      (15 222)                  (15 222)
Ordinary dividend paid                                                                                         (216 079)     (216 079)     (1 068)     (217 147)
BEE share-based payments charge                                                                    17 600                       17 600                    17 600
Employee share scheme:              
   Proceeds from shares issued                              17 886                                                              17 886                    17 886
   Value of employee services                                                                      78 959                       78 959                    78 959
   Exercise of employee share options                                                            (17 886)                     (17 886)                  (17 886)
Balance at 2 July 2017                                  10 041 690       4 672    (1 919 832)     513 536   1 708 703 10      348 769      37 984    10 386 753
Profit/(loss) for the period                                                                                     922 439       922 439    (44 062)       878 377
Other comprehensive income for the period                             (10 478)                                     8 377       (2 101)                   (2 101)
Ordinary dividend paid                                                                                         (303 068)     (303 068)     (1 542)     (304 610)
Acquisition of subsidiary                                                                                                                   56 349        56 349
BEE share-based payments charge                                                                    17 600                       17 600                    17 600
Employee share scheme:                
   Proceeds from shares issued                              45 551                                                              45 551                    45 551
   Value of employee services                                                                     134 330                      134 330                   134 330
   Equity component of deferred tax on share-based payments                                        13 005                       13 005                    13 005
   Exercise of employee share options                                                            (45 551)                     (45 551)                  (45 551)
Balance at 1 July 2018                                  10 087 241     (5 806)    (1 919 832)     632 920      2 336 451    11 130 974      48 729    11 179 703
                                                                                     June              June
                                                                                     2018              2017
                                                                                    R'000             R'000
Capital expenditure contracted and committed                                      327 259           155 492
Capital expenditure approved but not contracted                                   586 140           354 869
Statutory ordinary shares in issue (includes BEE shares)                (000's)   938 087           935 566
Ordinary shares in issue for accounting purposes                        (000's)   867 328           864 807
Weighted average ordinary shares in issue                               (000's)   865 649           864 167
Diluted weighted average ordinary shares in issue                       (000's)   886 486           870 488
Net asset value per share                                               (cents)   1 289.0           1 201.0
Ordinary dividends per share:
   Interim dividend declared                                            (cents)      15.0              10.0
   Final dividend declared                                              (cents)      25.0              20.0
   Total dividends                                                      (cents)      40.0              30.0


                                                                                         June          June
                                                                                         2018          2017
                                                                                        R'000         R'000
Revenue                                                                            24 425 996    24 950 655
Consumer                                                                           12 752 874    13 474 031
Sugar & Milling                                                                    13 566 850    14 467 407
Logistics                                                                           1 979 958     2 033 102
Sales between segments:
Consumer to Sugar & Milling                                                         (136 392)     (230 274)
Sugar & Milling to Consumer                                                       (2 727 031)   (3 713 778)
Logistics to Consumer                                                               (977 755)   (1 050 894)
Logistics to Sugar & Milling                                                         (32 508)      (28 939)
Operating profit before depreciation, amortisation and impairment
Consumer                                                                              985 205       506 485
Sugar & Milling                                                                       869 037     1 036 072
Logistics                                                                             204 341       203 117
Unallocated group costs                                                              (12 599)         1 959

Operating profit before depreciation, amortisation and impairment                   2 045 984     1 747 633
Depreciation, amortisation and impairment                                           (775 640)     (971 125)
Operating profit/(loss)
Consumer                                                                              654 055       (7 404)
Sugar & Milling                                                                       521 204       669 184
Logistics                                                                             131 054       121 776
Unallocated group costs                                                              (35 969)       (7 048)

Operating profit                                                                    1 270 344       776 508
Finance costs                                                                       (315 104)     (373 741)
Finance income                                                                         62 624        40 999
Share of profits of joint ventures
Sugar & Milling                                                                        16 576        38 628
Logistics                                                                              11 692         9 949

Share of profits of joint ventures                                                     28 268        48 577
Share of profits/(loss) of associates
Sugar & Milling                                                                        50 889       110 590
Ugandan Operation                                                                         945       (1 074)

Share of profits of                                                                    51 834       109 516
Profit before tax                                                                   1 097 966       601 859
                                                                                       1 July        2 July
                                                                                         2018          2017
                                                                                        R'000         R'000
Consumer                                                                            8 426 106     8 363 089
Sugar & Milling                                                                     8 918 780     8 208 674
Logistics                                                                           3 748 581     3 307 004
Unallocated Group assets*                                                           1 062 404       833 157
Ugandan operation                                                                      53 535        58 146
Set-off of inter-segment balances                                                 (1 218 109)   (1 261 756)
Total per statement of financial position                                          20 991 297    19 508 314
Consumer                                                                            2 783 814     2 693 566
Sugar & Milling                                                                     2 788 927     2 484 827
Logistics                                                                           2 499 840     2 235 929
Unallocated Group liabilities*                                                      2 957 122     2 968 995
Set-off of inter-segment balances                                                 (1 218 109)   (1 261 756)
Total per statement of financial position                                          9 811 594      9 121 561
* Includes the assets and liabilities of the Group treasury company, Waste-to-Value operation and consolidation entries.
Date: 28/08/2018 05:01:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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