Rainbow Chicken Limited () Interim results 6 month period ended 31 December 2012 20 February 2013
Introduction This presentation covers the results for the 6 month period to December 2012 Historic comparatives for 2009 and 2010 relate to published interims being 6 months to September (year-end changed from March to June in 2011). Thus results comparison against these years is less meaningful as they do not include peak December trading quarter 2
Interims - statutory highlights (Note: 2012 and 2011 to December, 2010 and 2009 to September ) Revenue + 14.9% HEBITDA - 50.4% Rm Rm 3360,5 3384,4 3917,5 4500,6 318,9 316,0 394,8 195,9 2009 2010 2011 2012 2009 2010 2011 2012 Operating margin - 5.7% Headline earnings - 74.1% % Rm 7.4 7.0 7.7 169.8 161,7 202,1 2.0 52,4 2009 2010 2011 2012 2009 2010 2011 2012 3
Group overview is a consumer focused, branded food business The Group was restructured 2 years ago to enable further operational focus on the Rainbow and Vector businesses, as well as to provide capacity to pursue growth opportunities The Group s growth strategy is focused on compelling consumer brands in attractive food categories in sub-saharan Africa. Diversification and leveraging scale benefits are key strategic drivers Recently announced corporate activity (with Foodcorp and Zambeef) demonstrate s intentions to grow its basket of food brands both in SA and sub-saharan Africa The R3.9b rights offer process will be completed early March, proceeds to be used to fund these acquisitions and strengthen the Group balance sheet, especially considering the debt levels to be inherited with the Foodcorp transaction 4
Foodcorp On 14 November 2012 announced the acquisition of an effective indirect 64.2% shareholding in New Foodcorp Holdings Proprietary Limited for a purchase consideration of R1.037 billion. Grocery Milling Competition commission approval is expected in March/April 2013 Specialty Baking Pies Beverages 5
Zam Chick concluded an agreement with Zambeef for the purchase of a 49% shareholding in Zam Chick Ltd for US$14.25 million, as announced on SENS on 4 February 2013 Our partner Zambeef Diversified agri business Zambian based with operations in Nigeria and Ghana Listed in Lusaka and London (AIM) The purchase is subject to regulatory approval in both Zambia and South Africa Zam Chick currently manages and operates Zambeef's chicken broiler business, including the broiler houses, chicken abattoir and processing plant This is an exciting opportunity for both Zambeef and to work together in order to take the poultry industry in Zambia to a new level 6
Rights offer Friday 22 February Last day to trade Letters of Allocation Monday 25 February Listing and trading of Rights Offer shares commences Friday 1 March Rights Offer closes Monday 4 March Rights Offer shares issued Results announced on SENS Tuesday 5 March Results published in press 7
Interim highlights Statutory Dec 2011 Dec 2012 % Revenue Rm 3 917,5 4 500,6 +14.9 Headline EBITDA Rm 394,8 195,9-50.4 Headline EBIT Rm 303,9 89,9-70.4 Effective tax rate % 33,6 33,3-0.3 Headline earnings Rm 202,1 52,4-74.1 Headline earnings per share cents 68,7 17,8-74.1 Interim dividend per share cents 28,0 0-100 Cash generated by operations Rm (88,9) (246,3) -177.1 Net cash Rm 34,9 (300,6) - Capex Spend Rm 142,2 274,1 +92.8 NAV per share cents 987,0 974,1-1.3 Return on equity % 13,3 4,2-9.1 Operational (Pre IAS39 impact) Headline EBITDA Rm 388,6 276,4-28.9 Headline EBIT Rm 297,7 170,3-42.8 Headline earnings Rm 197,6 110,4-44.1 8
Segmental analysis for 6 months The record levels of imports and high feed raw material input costs remain the major issues plaguing the industry. As a result Rainbow posted a marginal loss for the interim period Despite the distribution environment being characterised by above inflation cost increases in fuel and electricity and slow demand, Vector performed well during the interim period Dec 2011 Dec 2012 % Revenue Rm 3 917,5 4 500,6 +14.9 Rainbow Rm 3 582,0 4 121,1 +15.1 Vector Rm 653,0 741,1 +13.5 Sales between segments: Rm Vector to Rainbow Rm (317,5) (361,6) +13.9 Operating profit Rm 301,5 89,8-70.2 Rainbow Rm 220,7 (3,3) -101.5 Vector Rm 80,8 93,1 +15.2 9
Financial review for 6 months Revenue + 14.9% Group revenue increased by 14.9% to R4.5 billion. 4500,6 Group Intersegment revenue is the reconciling difference to Group total. Rainbow 5.7% volume and 7.9% 3326,7 3360,5 3384,4 3917,5 653,0 3582,0 741,1 4121,1 Vector Rainbow average realisation growth Vector s growing customer base translated into a 13.5% revenue growth 2008 2009 2010 2011 2012 (Note: 2012 and 2011 to December, 2010, 2009 and 2008 to September) 10
Financial review for 6 months Group margins severely HEBITDA (pre IAS39) -28.9% impacted by Rainbow s interim performance The financial period has been characterised by above inflation cost increases in electricity, gas and diesel. Rainbow s operations continue Margin % 9.1% 9.3% 9.9% to run efficiently with overall operating costs (excluding feed) 388,6 6.1% on a cents per kg basis limited to a 7% increase Rm 304,0 313,5 276,4 Excluding Vector s investment in capacity, overall its costs have been managed within inflation 2009 2010 2011 2012 (Note: 2012 and 2011 to December, 2010 and 2009 to September) 11
Financial review for 6 months Increase in working capital funding requirements explained by the peak December trading period (similar investment in prior year) Inventories impacted by Vector s new business and higher feed commodity prices impacting biological assets and feed raw materials in Rainbow Cash flow Rm 305.8 ACTUAL CASH FLOW - YTD 50.2 245.0 Increase in inventory offset by increase in payables OB WC Tax Int CAPEX Other OP Div CB (30.4) (11.4) (94.4) CAPEX largely a carry over of expansion projects approved in prior year OB - opening balance (491.3) (274.1) (300.6) WC - working capital Int - net interest Div - dividends OP - operating profit CB - closing balance 12
Financial review for 6 months Increased capex relates to the Capex spend Rustenburg and Bushvalley expansion, conversion of chicken house heating from gas to coal and additional freezing and chilling capacity in Worcester Capital commitments materially lower Dep Rm Capex Rm 75,2 79,7 90,9 105,9 274,1 133,3 130,1 142,2 2009 2010 2011 2012 (Note: 2012 and 2011 to December, 2010 and 2009 to September) 13
Financial review for 6 months 7.8 Headline EBIT margin (%) 7.3 6.8 7.0 6.9 297,7 7.6 303,9 Pre IAS39 Post IAS39 228,8 243,7 233,8 236,3 3.8 170,3 2.0 Headline EBIT (Rm) 89,9 2009 2010 2011 2012 (Note: 2012 and 2011 to December, 2010 and 2009 to September) 14
Rainbow Statutory Revenue Rm 3 917,5 4 500,6 Rainbow Rm 3 582,0 4 121,1 Vector Rm 653,0 741,1 Sales between segments: Vector to Rainbow Rm (317,5) (361,6) Rm A flood of imports, continued high feed costs and a worsening exchange rate have put considerable pressure on the results Dec 2011 Dec 2012 Operating profit Rm 301,5 89,8 Rainbow Rm 220,7 (3,3) Vector Rm 80,8 93,1 PRE IAS39 Rainbow Rm 217,3 83,4 15
Rainbow - A flood of imports Imports continue at record levels Imports reached record levels in the festive season The EU is now the major exporter to SA The industry is starting to make good progress with government in stopping unfair imports Source: Sars import stats Source: Sars import stats 16
Rainbow - Continued high feed costs and R/$ worsening! Although there is some relief going forward, feed costs remain very high, and the exchange rate is 12% worse than the corresponding 6 month period Yellow maize price (Safex) Soya price (CBOT) Source: Safex Source: CBOT Consequentially, there has already been some considerable fallout in the industry with medium size players like Darling Chickens (W Cape), Argyle (KZN), Berwin (KZN) and Sangiro (Gauteng) already declaring bankruptcy, and many more nearly there Most small developing farmers have stopped farming poultry
Rainbow - Added Value performance is steady FoodSolutions Quick Service Restaurants have delivered solid volume growth in tough times for consumers New store openings have more than offset price increases needed to cover feed cost growth Rainbows purchase of 49% of the chicken component of Zambeef will clearly allow Rainbow a first platform to supply QSR customers ambitions in Africa Retail The launch of Mamas Nine Nine has seen Rainbow added value retail brands grow by 26% Ytd + Added value categories now make up 55% of Rainbows turnover 18
Rainbow - Mainstream is the area under pressure Performance Mainstream is the area affected by imports, with IQF the most impacted Government recently announced a decision to cap injection at 8%. Stakeholder input was requested by January 18 th. A decision will be reached by government in time This decision will benefit Rainbow most of the major players as Rainbow injects at the lowest levels of the major players 19
Rainbow - Business efficiencies are good Rainbow, in a strongly inflationary environment has kept cost growth, excluding feed, at low levels Overhead expenses are only up 4.1% on last year Salary and wages costs are less than 1% up on last year Rainbow has a number of key efficiency projects in place to reduce costs Rainbow is moving away from IQF, the category most price depressed by excessive imports Rainbow IQF daily production (tons) Source: Internal numbers 20
Vector Vector delivered 13.5% revenue growth in a market where consumer demand remains under pressure and grew EBIT by 15.2%, despite above inflationary increases in major cost drivers of fuel and electricity. Dec 2011 Dec 2012 Revenue Rm 3 917,5 4 500,6 Rainbow Rm 3 582,0 4 121,1 Vector Rm 653,0 741,1 Sales between segments: Rm Vector to Rainbow Rm (317,5) (361,6) Operating profit Rm 301,5 89,8 Rainbow Rm 220,7 (3,3) Vector Rm 80,8 93,1 21
Vector - Midrand capacity expansion Midrand expansion now completed to enable full consolidation of PnP Inland volumes and create capacity for growth B A New expansion has added approximately 20% additional warehousing capacity to our total network D 22
Vector Namibian Operations The take on of two new principals in Namibia, namely Namib Poultry and Mello Pies, has contributed to an improved performance from this operation 23
Vector Operational Efficiency While revenue grew by 10.7% in the secondary distribution network, stock levels increased by only 4.7% and demand service levels remained constant Revenue, Stock and Service Level Trends The full implementation of advanced planning tools will allow further reduction of inventory and improved service levels Stock Loss Trend 25.1% 16.4% Continued focus is driving stock loss to world class levels 24
Conclusion The two major issues facing the poultry industry, namely high levels of imports and record high raw material input costs, are unlikely to be resolved in the near term and will continue to supress Rainbow s margins The trading outlook for Vector is likely to remain challenging, particularly in the retail business where Vector s principals are coming under increased pressure from cheap imports. Despite this, the recent investment in additional capacity positions Vector well for future growth opportunities The Group continues to explore opportunities in strategic growth markets in the food sector in SA and sub-saharan Africa in line with its long-term aspirations 25
Appendices 26
transformation phase Revenue (Rbn) 0,5 1991-1998 Business in trouble 1,5 1,5 1,6 1,7 1,9 2,1 2,2 1999-2003 2,2 Fixing the basics 2,3 2,5 3,0 3,7 3,8 4,0 4,1 4,7 6,0 6,8 7,0 2004-2010 Transformation to consumer focused business Acquired Vector (R455m) to enable optimisation of outbound supply chain 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 765 09 10 Consumer insight driving brand strategies - emphasis on Added Value Statutory HEBIT (Rm) 30 76 (41) 45 Attributable Loss (Rm) 76 (83) (115) (147) (173) (229) (268) 38 47 2,0 2,0 153 139 HEBIT Margin (%) 5,6 303 290 260 7,9 7,2 6,9 5,0 578 657 14,1 13,9 12,8 425 514 6,2 7,4 Strategic customer approach to eliminate volume volatility and create higher margin business Significant capex investment of R1,6bn Agreed IT strategy roadmap and implemented profitability tools Strengthened leadership talent pool and aligned leadership through Good To Great journey Rainbow well positioned for growth 27
growth phase Revenue (Rbn) 0,5 1,5 1,5 1,6 1,7 91 92 93 94 95 96 97 98 Statutory HEBIT (Rm) 30 76 45 76 1,9 2,1 2,2 2,2 2,3 2,5 3,0 99 00 01 02 03 38 47 153 139 (41) (83) (115) HEBIT 14,1 (173) (147) Margin 13,9 12,8 Attributable (229) (%) 7,9 7,2 6,9 (268) 6,2 7,4 Loss (Rm) 6,5 7,8 5,6 5,0 2,0 2,0 3,7 3,8 04 4,0 303 290 260 4,1 05 06 578 4,7 07 657 6,0 08 765 6,8 09 425 7,0 10 514 8,6 11 15m 559 7,9 12 414 2011-2015 Growth phase Restructured 2 focused operating companies with clear strategies and opportunities Strategic focus CEO / CFO Capacity enhanced Acquisition of 2nd further processed plant (Wolwehoek) Acquisition of 4th primary processing plant (Tzaneen) Midrand distribution facility Growth focused strategy Compelling consumer brands in attractive new food categories Leverage scale and synergies Target strategic growth markets in sub-saharan Africa Diversification to counter cyclicality Current activity Foodcorp Zam Chick Rights issue 28
Complex business chain Integrated supply chain from farm to fork GP OPERATION AGRICULTURE PROCESSING Grandparent chicks Grandparent farms Rearing Laying Hatching 21 wks 40 wks 3 wks Parent chicks Parent farms Broiler Broiler farms chicks Broilers Rearing Laying Hatching Growing 21 wks 40 wks 3 wks 34 days Processing 4 plants + 2 FP plants World s oldest pedigree broiler breed. Located in Carolina and East London to ensure optimal bio-security. 3 broad agricultural regions - Northern, KZN, W Cape. FEED SUPPLY 5 feed mills producing 1,1m tons pa. Around 80% of production to Rainbow. CONSUMERS The consumer is at the heart of our business BRANDS Grade A Quality, Grade A Taste They taste so good cos they eat so good CUSTOMERS Foodservice Retail DISTRIBUTION Strategic acquisition mid F05 for R455m. Wholesale The Chicken Experts 29
Infrastructure Listed holding company for Rainbow Farms and Vector Logistics Market capitalisation approximately R5,2bn (after rights issue approximately R10,0bn) Over 8,000 employees (excluding seasonal casual workers) 209 rearing, laying and broiler farms and hatcheries 30m birds on the ground 5 feed mills 1,1m tons per year 4 primary processing plants nearly 250m birds per year 2 further processed plants 27,000 tons per year North West Botswana Rustenburg Free State Gauteng Wolwehoek Lesotho Limpopo Province Pretoria Tzaneen Mpumalanga Carolina Swaziland KwaZulu Natal Pietermaritzburg Hammarsdale Western Cape Northern Cape Eastern Cape Worcester East London 30
Infrastructure Listed holding company for Rainbow Farms and Vector Logistics Market capitalisation approximately R5,2bn (after rights issue approximately R10,0bn) Over 8,000 employees (excluding seasonal casual workers) Windhoek 209 rearing, laying and broiler farms and hatcheries 30m birds on the ground 5 feed mills 1,1m tons per year 4 primary processing plants nearly 250m birds per year 2 further processed plants 27,000 tons per year 4 plant-based cold stores and 15 distribution facilities 43m cases delivered per year 410 vehicles North West Rustenburg Roodepoort Free State Bloemfontein Polokwane Limpopo Province Mpumalanga Pretoria Nelspruit Gauteng Swaziland Carolina Wolwehoek Lesotho Tzaneen KwaZulu Natal Newcastle Pietermaritzburg Hammarsdale Durban Northern Cape Eastern Cape Western Cape Cape Town Worcester George Port Elizabeth East London 31
Market conditions - imports Calendar growth: MDM 6% Chicken 14% Turkey 41% Source: SAPA 32
Rainbow market conditions - yellow maize Summary: Average market price for yellow maize (SAFEX) increased by 15.0% vs. the comparable 6 months to December R/ton Feed costs remain high with some relief going forward Context: Last year a large scale drought across the U.S corn belt resulted in record high Chicago prices with the SA maize market reacting accordingly Severe drought in Mexico supported the local export market, with SA expected to export close to 1.4MMT of maize for the 11/12 season, largely white maize to Mexico. Exports together with a Rand that traded between 8.00 and 9.00 to the Dollar through most of 2012 kept local maize prices supported Exports were slower toward the end of 2012, this together with a larger than expected local supply and slightly lower U.S prices had a cooling effect on maize prices, which has filtered through to 2013. Looking forward: Indications are that local new crop maize prices will be softer, the softer July 13 contract price is indicative of this. Most plantings are in good form, however lower prices are dependent on continued precipitation over the crucial Feb/March period Exporters are expected to take advantage of current prices and a similar amount of exports could be seen over 2013, which should have an underpinning effect on the market The expectation is for softer international prices in the 2 nd half of 2013, though weather and the Argentine crop are factors that could lend to uncertainty 3,000 2,750 2,500 2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 0-24% FY2010 +4% FY2011* +59% FY2012 * 15 month period, increase for this period represents simple average of 15 months vs.12 months in prior period. +15% FY2013 33
Rainbow market conditions - soya (CBOT) Summary: Average CBOT soya meal price increased by 48% vs. the comparable 6 months to December Context: Prices had an exceptionally strong bull run (+83%) commencing in the 3 rd quarter of FY12 to peak at a record $554 in August 2012 as the USA harvest commenced Prices were driven mostly by drought reduced crops in both South America and the USA resulting in extremely tight USA carry-out stocks in the face of firm international demand Prices came off sharply into the 2 nd quarter of FY13 as the USA soybean crop benefitted more from late season rains than initially predicted Prices remain historically high despite the 24% pull back off the record high, this on the back of record USA exports and firm international demand USA carry-out stocks remain critically low and further price movements will be predominantly weather driven initially in South America, but the focus will soon move back to the USA US $ per ton 600.0 500.0 400.0 300.0 200.0 100.0 0.0 +1% FY2010 +1% *FY2011 FY2012 * 15 month period, increase for this period represents simple average of 15 months vs.12 months in prior period. +7% + 48% FY2013 34
Rainbow market conditions - exchange rate The average R/$ exchange rate weakened by 12% vs. the comparable 6 months to December In FY2013 the Rand traded weaker and largely above the R8.50 level to the Dollar, trading near or above the R9.00 level on a few occasions. Stronger bond interest especially toward year end kept the ZAR supported Labour unrest in the mining sector and the Marikana incident were hugely negative for the Rand. Uncertainty as the ANC elective conference at Mangaung approached was also seen as a factor that added pressure 11 10 9 8-12% - 9% + 9% + 12% As the major feed ingredients in South Africa (maize, soy) track import/export parity, the foreign exchange exposure is significant Given the current world economic uncertainty, the high volatility in the Rand is expected to remain for some time 7 6 FY2010 FY2011* FY2012 FY2013 * 15 month period, increase for this period represents simple average of 15 months vs.12 months in prior period. 35
Chicken industry perspective Estimated per capita consumption of broiler meat in Kilograms per capita Source: SAPA 36
Chicken industry perspective Average broiler production per week (in millions) excluding imports 16.8 17.8 18.5 18.7 14.6 12.9 12.8 8.0 8.5 9.2 9.8 9.8 10.5 11.0 11.0 11.8 11.8 11.9 94 95 96 97 98 99 00 1 2 3 4 5 6 7 8 9 10 11 Source: SAPA 37
Chicken industry perspective Source: Red Meat Abbatoir Association 38