RCL Foods : 2022 Annual Results Announcement (0.18mb)

RCL FOODS LIMITED

GROUP FINANCIAL RESULTS AND CASH DIVIDEND DECLARATION

FOR THE YEAR ENDED JUNE

2022

GROUP FINANCIAL RESULTS

FINANCIAL HIGHLIGHTS

	REVENUE	EBITDA	UNDERLYING* EBITDA
	R34,9	R2 595,7	R2 580,3
billion	million	million
		10.2%		7.7%		2.0%

HEADLINE	HEADLINE EARNINGS PER	UNDERLYING* HEADLINE
EARNINGS	SHARE	EARNINGS PER SHARE
R1 054,0	118.6	115.5
million	cents	cents
	10.0%		9.9%			1.9%

CASH GENERATED FROM	TOTAL DIVIDEND
OPERATIONS	PER SHARE

R3 427,9	45.0
million	cents

• The underlying view of the results excludes material once-offs and accounting adjustments. The underlying results constitute pro-forma financial information in terms of the JSE Listings Requirements. Refer to the "Reconciliation between unadjusted and underlying results" section provided on page 17 of this announcement for further details and the applicable criteria and the basis on which this pro-forma financial information has been prepared.

RCL FOODS LIMITED GROUP FINANCIAL RESULTS 2022

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GROUP FINANCIAL RESULTS

COMMENTARY

RCL FOODS has achieved a pleasing set of results for the year ended June 2022, demonstrating resilience in a challenging operating environment. Despite the prior year having an additional trading week, revenue increased by 10.2% to R34,9 billion (2021: R31,7 billion) and EBITDA improved by 7.7% to R2 595,7 million, driven by continued momentum in Sugar, a return to profitability in the Chicken business and a solid performance in Vector Logistics. Volumes have remained relatively stable across most categories, with several grocery brands growing their market share. A strong focus on both strategic and operational execution has assisted the Group to maintain its forward momentum, despite the impact of continued commodity input cost increases, the economic and social fallout of the COVID-19 lockdowns, the unrest in KwaZulu-Natal and Gauteng in July 2021 and the floods in KwaZulu-Natal and parts of the Eastern Cape in April 2022.

Against this backdrop, the Chicken business has done well to return to profitability as it works to lay the foundation for a sustainable future. Vector Logistics has continued to deliver improved results, aided by higher revenue and efficiencies.

Where margin pressures have intensified due to input cost increases, we have sought to act responsibly by working with our customer partners to manage the inflationary impact for consumers as far as possible. Innovation in the value tier has also been prioritised to provide cash-strapped consumers with affordable options in key categories. Alongside this, we have actively supported our employees and communities in the aftermath of the COVID-19 lockdowns, unrest and flooding. Our DO MORE FOUNDATION, now five years old, has played a key part in this from both a nutritional and educational support perspective and we are truly proud of the impact it is making in vulnerable communities.

KEY FEATURES

• Strategic focus supports delivery despite headwinds
• Pleasing revenue and EBITDA growth
• Strong cash generation
• Resilient volumes across most categories
• Innovation into value offerings
• Sustained market share growth in value-add categories
• Continued strong Sugar performance
• Improved Chicken performance
• Vector Logistics delivers another improved result

RCL FOODS LIMITED GROUP FINANCIAL RESULTS 2022

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GROUP FINANCIAL RESULTS

PROGRESS WITH STRATEGIC TRANSFORMATION JOURNEY

We are on a journey to create a profitable, sustainable value-added business of scale. At the end of the 2021 financial year we announced our decision to separate our value-added branded business from our poultry, sugar and logistics businesses in order to position them for optimal growth as independent entities. In parallel we undertook to scale our core value-added component through sharper strategic focus and active investment. We have pursued both initiatives in parallel in the 2022 financial year.

MANAGED SEPARATION OF THE CHICKEN DIVISION (NOW REFERRED TO AS "RAINBOW") AND VECTOR LOGISTICS FROM RCL FOODS

Over the last 12 months an extensive process has been followed to establish Rainbow (Chicken and grain-based animal feed) as a stand-alone entity. This included creating a separate legal entity for Rainbow; exiting the RCL FOODS shared services platform as dedicated Rainbow teams are progressively established; and devising an execution plan for the final separation phase at an appropriate future date. While Rainbow continues to share certain Group platform services, the business is now operating as a largely autonomous subsidiary of RCL FOODS, led by an independent management team driving its own focused strategy. Although there is still some way to go before it will be ready for a full separation, Rainbow is making good headway as it continues to focus on its turnaround strategy.

Pursuant to the portfolio optimisation process we decided to initiate a market sounding exercise with a select group of investors in respect of Vector Logistics. The objective of this process was to test if there was credible interest from prospective acquirors that could further accelerate the growth as an independent player in the temperature- controlled logistics space for the benefit of all stakeholders, including customers and staff. We are pleased that this process elicited notable interest and while there can be no certainty that a transaction will be concluded, engagements are developing constructively and we will update the market as and when appropriate.

Sugar remains part of RCL FOODS, with its separation plan being de-prioritised.

We are committed to ensuring a responsible transition for each of these businesses, compromising neither shareholder value nor the welfare of our people.

LAYING FOUNDATIONS FOR A FOCUSED VALUE-ADD BUSINESS

As with the managed separation process, we are committed to growing our value-added business in a well-considered way. The previous Group and Food Division executive teams have been consolidated into a single executive structure with a stronger operational connection that is driving improved strategic alignment. The remit of this new team spans the Groceries, Baking and Sugar business units, our LIVEKINDLY Collective Africa joint venture and Siqalo Foods Proprietary Limited (which is managed on behalf of Remgro Limited). All these businesses are supported by our central functions and business services organisation.

In re-engineering the organisational structure to support our value-added focus, we also revised our strategy with the vision of creating "a business of the right scale which has been built to last, with a diverse and high-performance culture that delivers category growth ahead of the market and enhanced stakeholder value". Its three corresponding pillars - 1) Diverse, High-performance Culture, 2) Business of Right Scale and 3) Built to Last - form the basis of the strategic review below.

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GROUP FINANCIAL RESULTS

STRATEGIC REVIEW

RCL FOODS VALUE-ADDED

BUSINESS

Through the first pillar of our strategy we intend to create a diverse business environment that feels like "home" for all and leverages our strategic capability advantage. Intensifying our commitment to our Diversity and Inclusivity journey during the 2022 financial year, we have made good progress with our Diversity and Inclusivity Conversation Circles with our employees and are achieving increased diversity at senior management level. To support our evolution as a value-added business, we are investing in strategic capabilities such as Research and Development (R&D) and Consumer Insights to support growth in line with the second pillar of our strategy.

This second pillar focuses on leveraging our dynamic platform to create a business of the right scale that owns a greater share of the customer store environment and delivers an EBITDA margin percentage ahead of our peers. A key highlight in the last year has been the creation of a cross-functional Growth Leadership Team, led by our recently appointed Chief Growth Officer, that seeks to drive growth ahead of the market through a combination of brand and product innovation, digital transformation, consumer insights, ecosystem partnerships and customer-centricity.

Our biggest capital investment in the current year was the Polokwane bread capacity expansion which was commissioned at the end of the financial year to address capacity constraints and meet growing demand in line with our Baking strategy.

Both organic and inorganic expansion are needed for us to build our scale and enhance our resilience. We are clear on the categories where we want to grow and can stretch and tier our existing brands. A number of relevant innovations were delivered during the year, including value offerings in Nola Mayonnaise and Yum Yum Peanut Butter, a Vitamin C-rich Number 1 Mageu variant and weight management products in Canine Cuisine and Feline Cuisine.

An important step in scaling the value-added component of our portfolio is our recently announced acquisition of the Sunshine Bakery business in KwaZulu-Natal. Sunshine serves a diversified customer base in the formal retail and general trade channels through its two regional bakeries in Durban and Pietermaritzburg, as well as several depots across the province. Besides providing additional scale in our value- added business, the acquisition will enable us to expand the capability of our established Baking business unit into new geographies. Bread volumes in the RCL FOODS network are expected to increase by 28% as a result of the transaction.

Our integrated business services organisation remains one of our differentiated strategic capabilities and presents scope for both bolt-on acquisitions and contract management. Our plant-based joint venture, LIVEKINDLY Collective Africa (LKCA), is currently in a development phase focusing on educating consumers, attracting new users and building the category. While global and local demand has moderated since the unprecedented highs of the COVID-19 lockdown period, it remains on a long-term upward trajectory. We remain fully committed to growing the plant-based foods category through our investment in LKCA, and are pleased to have launched two global brands - Oumph! and LikeMeat - in the local market.

Our third strategic pillar, Built to Last, focuses on efficient operations and responsible asset investment, while aspiring to build a "net positive" business that gives back more than it takes. A Best In Class initiative is being driven by the business units with the aim of generating significant savings to enable accelerated growth.

Alongside ongoing sustainability efforts, focused executive attention has been brought to bear on creating the foundations for a sustainable business by identifying its core purpose and by crafting a new, focused Environmental, Social and Governance (ESG) sustainability strategy. These initiatives are being pursued in parallel, with a view to embedding sustainability and purpose in our overall business strategy to create long-term value for all the systems we impact.

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