Interim Results 6 months ended 30 September 2008
2008 highlights Revenue + 15.9% Operating profit - 44.6% 3326,7 2871,4 315,7 2177,8 256,9 1915,2 214,2 174,8 2005 2006 2007 2008 2005 2006 2007 2008 Headline earnings - 39.6% Interim dividend maintained 151,6 172,4 208,3 20,0 24,0 17,0 125,8 24,0 2005 2006 2007 2008 2005 2006 2007 2008 1
2008 highlights 2007 2008 Trading Days 129 125-3.1 Revenue Rm 2 871,4 3 326,7 + 15.9 Headline EBITDA Rm 378,7 247,5-34.6 Operating profit Rm 315,7 174,8-44.6 Effective tax rate % 36.0 33.0-3.0 Capex Spend Rm 116,4 138,5 + 19.0 Headline earnings Rm 208,3 125,8-39.6 HEPS - diluted cents 71,1 43,3-39.1 Interim dividend per share cents 24,0 24,0 Cash generated by operations Rm 248,7 166,6-33.0 Net cash Rm 556,6 380,0-31.7 NAV per share cents 699,3 807,6 + 15.5 Return on equity % 27.8 20.7-7.1 2
Vision Strategic framework Rainbow Chicken will be at the heart of every meal. We will achieve this by creating innovative solutions and strong brands. Key to our success is consistent, profitable, sustainable demand. Strategic Drivers Consumers Customers Supply Chain Sustainability Culture The single reason we exist Our partners in reaching our consumers Excellence gives us fuel for growth Investing responsibly for growth The right Team Insight into consumers needs inspires innovative solutions, sustained by our strong brands, that delight and satisfy. Our brands will be within easy reach of our consumers, and we will make the chicken category exciting to customers and their shoppers. An integrated supply chain will deliver service excellence by converting the right birds, at the lowest cost, at the right time into the optimal mix. To ensure sustainability and future growth we will continue to invest responsibly with all stakeholders in mind. Build a community of inspirational people with a common purpose, seeing and doing things differently. 3
Strategy Strategy proving itself in the face of extreme input cost pressure Better placed to deliver sustainable earnings but still exposed when commodity input costs rise so significantly and quickly (feed cost 97% higher in only two years) Current chicken product and customer mix much better placed to deal with this environment 4
Strategy into action Notable initiatives: Product innovation and value added growth Re-engineered existing product range New business tools to analyse profitability Low cost production focus, challenge of current feed specification Sales & Operation Planning (S&OP) Hammarsdale PBCS Vector new business Sustainability practices Leadership Journey 5
Market conditions Economic growth slowing High inflation and interest rates Exchange rate volatility Consumers disposable income impacted significantly Food inflation impacted by higher commodity raw material and fuel costs Reducing import volumes 6
Feed raw material costs Market Conditions Maize and soya prices peaked at historically high levels during this period Supported by fundamentals of low international stock levels US Ethanol policy has meant 102m tons of their 310m ton maize crop no longer available for the food industry Speculative fund investments in commodity markets exacerbated price volatility Graphs indicate significant challenge this has posed for our raw material procurement 7
Global maize stocks 30.0% Global Stocks : Use Ratio 25.0% 20.0% % 15.0% 10.0% 5.0% 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 Stock 10.1 8.5 6.0 4.9 10.3 9.1 6.0 5.8 7.0 (Weeks) 8
SAFEX yellow maize R/Ton 2,500 2,000 Average increase over comparable period + 32.4% + 8.4% + 99.4% 1,500 1,000 500 2006 2007 2008 2009 - Financial years to March 9
CBOT soya meal $/Ton 450.0 + 57.4% 400.0 350.0 300.0 Average increase over comparable period + 50.6% 250.0-2.0% 200.0 150.0 100.0 50.0-2006 2007 2008 2009 Financial years to March 10
R/$ exchange rate R/$ 9.00 8.00 Average increase over comparable period + 10.4% + 9.5% + 0.8% 7.00 6.00 2006 2007 2008 2009 5.00 Financial years to March 11
Feed cost vs sales realisation growth 40.0 35.0 % Growth Feed Cost + 35.7% Sales realisation + 37.9% 30.0 25.0 20.0 15.0 + 14.9% + 15.4% 10.0 5.0 + 6.4% + 5.2% - 2006 2007 2008 12
Feed cost vs headline EBIT Rm Feed Cost Headline EBIT pre IAS 39 2005 2006 2007 2008 13
Financial review Revenue (Rm) + 15.9% 3326,7 Chicken sales + 15.5% Total External 1915,2 370,2 2177,8 450,4 1727,4 2871,4 654,1 2217,3 765,6 2561,1 Volumes up marginally despite 4 less trading days (3.1% impact) Average price realisation growth of 15,4% Chicken 1545,1 External sales (Cobb, Epol, Vector) + 17.0% Higher feed realisations Vector s higher external volumes and new primary transport service offering 2005 2006 2007 2008 8 14
Feed cost growth + 38% + 36% + 38% Financial review Headline EBITDA - 34.6% Headline EBITDA Margin % 12.2% 14.4% 13.2% 378,7 8.6% Headline EBITDA Rm 265,5 314,3 247,5 2005 2006 2007 2008 2005 2006 2007 2008 Significant growth over the last two interim periods Higher feed raw material costs not being entirely recovered in chicken pricing 15
Financial review Headline earnings - 39.6% Dividends per share Effective tax rate % 30.3% 36.1% 36.0% 33.0% Total 57,0 40,0 68,0 48,0 68,0 44,0 210,5 Headline Earnings Rm 149,2 171,0 125,8 Final Interim 17,0 20,0 24,0 24,0 2005 2006 2007 2008 Lower effective tax rate due to 1% rate reduction and lower STC charge on reduced final dividend 2005 2006 2007 Interim dividend maintained 2008 16
Financial review Cash generated by ops - 33.0 % Capex spend R138,5m Depreciation & Amortisation Rm 65,2 72,3 56,0 48,9 252,2 248,7 138,5 210,7 141,1 166,6 Capex Spend Rm 76,4 99,3 116,4 2005 2006 2007 2008 Working capital requirements increased further due to higher receivables (increased trading) and valuation of inventories (higher feed costs) 2005 2006 2007 2005 includes R64,7m spent in respect of the Further Processing plant 2008 spend includes R54m in respect of new 5000 pallet plant based cold storage (PBCS) facility at Hammarsdale Continued investment in upgrading facilities funded from own resources 2008 17
Reporting the financial effects of only certain procurement instruments in terms of IAS39 introduces volatility to statutory results Margin in 2008 impacted by significant input cost pressure Financial review 13.4 Headline EBIT margin (%) 11.3 11.9 12.0 10.9 Pre IAS39 10.0 292,4 344,7 313,2 6.9 Post IAS39 216,6 258,3 228,1 5.3 190,8 175,2 Headline EBIT (Rm) 2005 2006 2007 2008 12 18
Moving Rainbow to Sustained, Profitable Demand 1. Growing Added Value : Our new vision 2. Growing Food Service 3. Re-engineering the Core 19
1. Growing Added Value 1. Frozen Meal ideas : Bigger than fish 2012 > Consumers prefer chicken to fish > The real volume opportunities are still untapped 2. Mass volume frozen chicken : Make added value 1/3 of the freezer > The target consumer here is middle/low income South Africans > The volume opportunities are in stews 3. Chilled Processed Meats: R300m by 2010 viennas, b > we are growing a powerful brand in Simply Chicken polony and based on sound marketing principles > we will turn over R165m on polony and viennas this year 20
1. Growing Added Value.Progress 1. Frozen Meal ideas : Bigger than fish 2012 2. Mass volume frozen chicken : Make added value 1/3 of the freezer 3. Chilled Processed Meats: R300m by 2010 21
2. Growing Food Service 1. Focused around long standing partnerships with most of the food service industry 2. We have developed a strong, credible food service brand, called capable of delivering high spec, customised, guaranteed supply products 3. Have averaged over 20% growth per annum for the last 5 years 4. It is a sustainable business at an acceptable margin 22
3. Re-engineering the Core 23
Some consequential facts Our added value products launched in the last 3 years will turn over R250m in FY 09 16% of our retail sales are in added value Over 40% of our sales to PnP are in Added Value products The % of our total business with a sustainable margin is now at 47% of our turnover and more than half of our profit 24
Conclusion Summary Prospects Consumer spending is expected to continue to soften over the next six months Maize and soya prices and the exchange rate are likely to remain volatile over the next few months. Prices are expected to remain at the current higher levels translating into significantly higher feed input costs than the 2008 financial year. Sales realisations are unlikely to fully recover all the anticipated production cost increases As a result earnings for the full year on a pre- and post-ias39 basis are likely to be lower than 2008
Appendix
Background Infrastructure Windhoek Botswana North West Rustenburg Gauteng Northern Province Mpumalanga Pretoria Carolina Swaziland South Africa s largest processor and marketer of chicken 7,653 employees 4 processing plants 5 feed mills 22 distribution facilities 190 farms / hatcheries Namibia Free State KwaZulu Natal Pietermaritzburg Northern Cape Lesotho Hammarsdale Durban Cape Town Western Cape Worcester Port Elizabeth Eastern Cape East London 25
Background Complex business chain GP OPERATION AGRICULTURE PROCESSING Grandparent chicks Grandparent farms Rearing Laying Hatching 22 wks 40 wks 3 wks Parent chicks Parent farms Broiler Broiler farms chicks Rearing Laying Hatching Growing 21 wks 40 wks 3 wks 35 days Broilers Processing 3 plants + FP World s oldest pedigree broiler breed. Located in Carolina and East London to ensure optimal bio-security. 3 broad agricultural regions - Northern, KZN, W Cape. FEED SUPPLY 5 feed mills. Around 70% of production to Rainbow. CONSUMERS BRANDS CUSTOMERS DISTRIBUTION The consumer is at the heart of our business Grade A Quality, Grade A Taste They taste so good cos they eat so good Foodservice Retail Strategic acquisition mid F05 for R455m. The Chicken Experts Wholesale chains Wholesale Independents 26
Rainbow past Revenue (Rbn) 0,5 Headline EBIT (Rm) 91 92 93 94 95 96 97 98 30 1,5 1,5 1,6 1,7 76 (41) 1991-1998 1999-2003 2004-2008 45 76 Attributable Profit (Rm) 1,9 2,1 2,2 (83) (115) (147) (173) (229) (268) 2,2 2,3 99 00 01 02 03 38 (13) 47 2,0 2,5 132 5,3 3,0 153 3,7 260 5,1 6,9 3,8 04 284 7,4 4,0 05 06 317 7,9 4,1 515 12,6 14,2 HEBIT Margin (%) 4,7 07 671 6,0 08 740 12,4 2004-2008 Fundamental restructure and elimination of major business risks Restructure Regional to Functional Significant board changes Route to market R455m Vector acquisition gives control of RTM Customer base Created more consistent demand Grew with strategic partners Broadened customer base Eliminated unprofitable independent / reprocessor business Under investment Capex 99-03 R262m Capex 04-07 R735m Plant specialisation Worcester Fresh upgraded and VA commissioned Rustenburg refurbished and converted to Frozen plant Brands All brands repositioned after strategic review Further Processed products Created sustainable higher margin earnings 27
Industry perspective Average broiler production per week by producer Million broilers per week as at March 2008 3% 4,2 18% 3,9 Increased competitor supply into the market 14,6m broilers produced per week 1,3m tons per annum Astral = Earlybird Farms + County Fair Others = approximately 50 smaller producers producing less than 200k broilers per week 10% 2,7 38% 1,1 79% 71% 0,8 0,8 14% 0,7 25% 0,5 Rainbow Astral Country Bird Fouries Sovereign Tydstroom Daybreak Others Source: Management estimate 28
Total poultry imports ( 000 tons) Imports continued to decrease during the past six months Chicken products mainly dark meat and offal decreased by 42,0% over 2007. 289 84 279 98 Industry perspective 225 198 60 69 35 Origin of poultry imports September 2007 - August 2008 Brazil 80% Canada 2% Argentina 9% Australia 4% Other 5% 27 111 24 132 169 37 144 145 75 1 69 101 45 16 40 Mechanically Deboned Meat Turkey products Chicken products 05 06 07 08 For 12 months to March 07 08 For 6 months to Sep Source: SAPA 29