ANNUAL RESULTS For the year ended 29 September 2019 PRESENTATION - - PowerPoint PPT Presentation

ANNUAL RESULTS

For the year ended 29 September 2019

PRESENTATION OUTLINE

1 2 3 4 5 6 REVIEW OF THE YEAR FINANCIAL PERFORMANCE TRADING PERFORMANCE NEW PRODUCTS CAPITAL INVESTMENT OUTLOOK

REVIEW OF THE YEAR

REVIEW OF THE YEAR

• Strong turnaround in performance with operating profit up 24.9%

and headline earnings 38.1% higher

• Robust regional performance in weak consumer environment
• Early signs of recovery in international business
• Expansion in operating profit margin
• No further once-off costs in H2
• Reduction in net debt/EBITDA ratio from 2.7 to 2.1 times

FINANCIAL PERFORMANCE

NEW ACCOUNTING STANDARDS

New IFRS standards adopted in FY2019 IFRS 9 – Financial instruments

• No material impact on financial performance
• R1.9 million additional lifetime expected credit loss recognised in terms of

IFRS 9

• Adoption had no impact on lifetime expected credit loss recognised for prior

years

IFRS 15 – Revenue from contracts with customers

• Reclassification of distribution and warehouse allowances from expenses to

revenue

• This has resulted in a decrease in revenue and selling costs for 2018 of

R119.4 million

NEW ACCOUNTING STANDARDS

New IFRS standard to be adopted in FY2020 IFRS 16 – Leases

• To be adopted in FY2020
• Expect material impact on balance sheet
• Impact if IFRS 16 had been adopted for FY2019:
• Decrease in profit after tax

R1.0 million

• Increase in the right-of-use asset

R95.9 million

• Increase in the lease liability

R119.8 million

• Increase in net debt to equity ratio

47.0% to 51.8%

CHANGE IN DISCLOSURE PRACTICE

• Group has amended disclosure practice to present expenses

by “nature” as opposed to “function” as in the prior years

• Expenses now disclosed according to:
• Direct manufacturing costs
• Manufacturing operating costs
• Selling and distribution costs
• Other operating costs
• Cost of goods sold no longer disclosed as a separate line item

FINANCIAL PERFORMANCE

• Turnover +8.5% to R5.4 billion
• Improved efficiencies with direct manufacturing costs as a % of revenue

reducing to 66.7% (2018: 67.7%), realising an additional R51m contribution

• This offset the impact of cost increases in other expense line items,

resulting in a 90 bps improvement in the net operating profit margin

• Gains from 7.7% Rand depreciation
• Costs impacted by R27.5m increase in depreciation and amortisation, and
• nce-off H1 costs of R37m
• Gross profit margin on a pre-IFRS 15 basis and before change in

disclosure would have been 25.8% (2018: 24.9%)

FINANCIAL PERFORMANCE

• Operating profit +24.9% and operating margin 7.2% vs 6.3% in 2018
• Regional margin +30 bps despite lower margin long life foods growing

faster than fresh foods

• International returned to profitability
• EBITDA +22.9% and EBITDA margin 10.5% (2018: 9.2%)
• Income tax rebates of R10.0m (2018: R8.5m) relating to capital projects
• Diluted headline earnings per share +37.8% to 83.8 cps
• Dividend per share +37.4% to 27.9 cents

INCOME STATEMENT

R’m 2019 2018 % change Revenue 5 414 4 990 8.5 Direct manufacturing costs (3 610) (3 378) 6.9 Manufacturing operating costs (582) (530) 9.9 Selling and distribution costs (387) (359) 8.0 Other operating costs (485) (445) 9.0 Other income 42 36 20.3 Operating profit 392 314 24.9 Net interest paid (117) (113) 3.7 Profit before tax 275 201 36.8 Tax (60) (47) 27.5 Profit after tax 215 154 39.6 Diluted HEPS (c) 83.8 60.8 37.8 WAN shares in issue (‘m) 261.6 252.6 3.6

GROUP TURNOVER GROWTH

R'm

3 023 4 146 4 593 4 990* 5 414 2015 2016 2017 2018 2019

* Restated

DRIVERS OF TURNOVER GROWTH

R'm

4 990* 5 414 +3.4% +2.9% +1.5% +0.7% 2018 revenue Volume growth Price inflation Forex Acquisitions 2019 revenue

* Restated

SEGMENTAL CONTRIBUTION

30% 27% 20% 20% 20% 39% 45% 47% 47% 48% 31% 28% 33% 33% 32% 2015 2016 2017 2018 2019 International Regional - Long Life Regional - Fresh

OPERATING PROFIT

R'm

311 498 407 314 392 10.3% 12.0% 8.9% 6.3% 7.2% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

• 100

200 300 400 500 600 2015* 2016** 2017 2018 2019 Operating profit Operating profit margin

* Normalised operating profit and margin ** Restated

INTERNATIONAL REVENUE BY CURRENCY

AUD 8% (2018: 15%) CAD 4% (2018: 4%) GBP 14% (2018: 14%) EUR 13% (2018: 12%) USD 61% (2018: 54%) ZAR 0% (2018: 1%)

Average exchange rates 2019 2018 Change USD R14.43 R13.25 8.9% GBP R18.33 R17.66 3.8% EUR R16.20 R15.46 4.8%

BALANCE SHEET - ASSETS

R’m 2019 2018 % change Non-current assets 2 520 2 445 3.1 Property, plant & equipment 1 831 1 777 3.1 Intangible assets & goodwill 662 643 3.0 Other non-current assets 27 25 4.6 Current assets 2 194 2 139 2.6 Inventory 1 204 1 228 (2.0) Accounts receivable 948 810 17.0 Other current assets 35 67 (47.1) Bank balance & cash on hand 7 34 (79.4) Total assets 4 714 4 584 2.8

BALANCE SHEET – EQUITIES AND LIABILITIES

R’m 2019 2018 % change Capital and reserves 2 478 2 318 6.9 Non-current liabilities 1 017 1 199 (15.2) Current liabilities 1 219 1 067 14.3 Accounts payable & accruals 726 701 3.7 Other current liabilities 309 308 0.4 Bank overdraft 184 58 >100 Total equity and liabilities 4 714 4 584 2.8

WORKING CAPITAL AND RETURNS

2019 2018 Net working capital days 119 124 Inventory days 107 117 Debtor days 57 57 Creditor days (45) (50) Return on equity % 9.0 6.8 Return on assets % 4.6 3.6 Return on capital % 10.9 9.1

CASH MANAGEMENT

R'm

560 (65) (97) (53) (238) (6) (254) Operating cashflows Net working capital changes Net interest and tax paid Dividends paid Loans repaid Other Purchase

• f PPE and

intangibles

EXISTING LONG-TERM DEBT PROFILE

1 226 988 754 188 104 62 216 238 234 566 84 42

2018 2019 2020 2021 2022 2023

Balance outstanding Contractual capital repayments

• Bullet repayment of R450m due by end FY2021
• Group may elect to extend portion of R450m capital repayment
• Interest paid quarterly in arrears

R'm

DEBT RATIOS

2019 2018 Net debt R’m 1 164 1 250 Net debt to equity % 47.0 53.9 Net debt to EBITDA x 2.1 2.7 Working capital facilities R’m 925 785 Working capital facilities utilisation R’m 177 24 Headroom 81% 97% Long-term loan facilities R’m 1 500 1 525 Long-term loan facilities utilisation R’m 988 1 226 Headroom 34% 20% Costs of debt Working capital facilities Prime minus 1.5% Term loan facilities Prime minus 1.25% to 1.55% Debt covenants Actual Covenant Net debt to EBITDA X 2.1 < 2.9 EBITDA interest cover X 4.8 > 4.0

TRADING PERFORMANCE

TRADING PERFORMANCE: REGIONAL

• Components of turnover growth
• Volume growth

3.5% (2018: 8.7%)

• Price/mix

4.1% (2018: -5.6%)

• Acquisition

0.8% (2018: 5.7%)

• Margins diluted by once-off costs in H1

R’m 2019 2018 % change Revenue 4 339 4 002 8.4 Long Life 2 579 2 362 9.2 Fresh 1 760 1 640 7.3 Operating profit 359 321 11.7 Operating profit margin 8.3% 8.0%

TRADING PERFORMANCE: REGIONAL

• Long life foods volume growth 4.3%
• Good balance between promotional activity and volume growth
• Good performances from canned meats, fruit juice and dry foods
• Baked beans the fastest growing category; despite margin

improvement still having an adverse mix effect on overall margin

• Inflation averaged approx. 3 – 5% which was recovered in price
• Trading in sub-Saharan Africa remained tough but gains made,

although liquidity constraints are a challenge in some markets

TRADING PERFORMANCE: REGIONAL

• Fresh foods volumes flat year-on-year
• Ready meals resilient although not showing real growth
• Pie category stable but facing strong competitor activity
• Increased capacity in pie production represents opportunity for

growth

• Acquisition of protein snack foods business contributed

sales of R33 million

MARKET SHARE (RFG as manufacturer)

Market shares (%) Sept 2018 Sept 2019 Position Jams 50 47 1 Canned fruit 48 49 1 Canned vegetables 17 18 2 Canned meats & meals 75 80 1 Long life fruit juices 21 22 2 Salads and pickles 31 31 1

Moving annual total. Retailers scanning data processed by IRI Worldwide (market shares in the defined dataset, in retail prices)

BRAND SHARE

Brand shares (%) Brand Sept 2018 Sept 2019 Position Jams 31 28 2 Canned fruit 29 31 2 Canned pineapple 59 65 1 Canned vegetable 14 16 2 Canned tomato 27 28 1 Corned meat 60 65 1

Moving annual total. Retailers scanning data processed by IRI Worldwide (market shares in the defined dataset, in retail prices)

BRAND SHARE

Brand shares (%) Brand Sept 2018 Sept 2019 Position 100% fruit juice 16 18 2 Infant meals 10 9 2 Salads and pickles 17 16 3 Dry gravy 28 27 2

Moving annual total. Retailers scanning data processed by IRI Worldwide (market shares in the defined dataset, in retail prices)

TRADING PERFORMANCE: INTERNATIONAL

• Components of turnover growth
• Volumes

3.0% (2018: 6.6%)

• Price/mix (1.9%)* (2018: 1.6%)
• Forex

7.7% (2018: 0.1%)

* Negatively impacted by drought related quality issues in H1

R’m 2019 2018 % change Revenue 1 074 989 8.8 Operating profit/(loss) 37 (5) Operating profit margin 3.4% (0.5%)

TRADING PERFORMANCE: INTERNATIONAL

• Stronger canned fruit sales
• Good increase in export of fruit snacks in plastic cups to the USA
• Benefit of production line installed in Tulbagh factory in 2017
• Drought-related fruit quality issues had an adverse impact on price in

H1 but now out of the system

• Operating margin strengthened owing to favourable product

mix towards higher value-add products and weaker Rand

NEW PRODUCT DEVELOPMENT

PRODUCT INNOVATION

• Strategic goal to be market leader in product innovation
• Centralised group new product development (NPD) capability
• Drivers of NPD:
• Lateral extensions of brands into adjacent categories
• Range extensions through innovation
• Identifying and capitalising on global eating and health trends
• Specialised NPD facility in Gauteng for pies, pastries and bakery
• World class NPD centre at Groot Drakenstein opened in 2018

NEW PRODUCT DEVELOPMENT CENTRE

New product development centre, Groot Drakenstein

RECENT NPD ACHIEVEMENTS

• Packaging innovation

‘Easy-open’ cans and snap-on caps Tomato paste in plastic cups ‘One-step’ juice opening First to market with baby food in pouches 200ml fruit juice leaf pack

• Successful entry into adjacent categories, including fruit juice
• Large number of range extensions (eg Pakco products) and

product upgrades (eg baked beans)

• Plant-based protein ready meals and ‘dairy’ products

NEW PRODUCTS: RFG BRANDS

Further Rhodes fruit juice range extensions Bisto ready to serve gravy range Pakco dry cook-in-sauce range introduced

NEW PRODUCTS: PRIVATE LABEL

Soya fruit products range Lactose free low fat yoghurt

NEW PRODUCTS: PRIVATE LABEL

CAPITAL INVESTMENT

CAPITAL INVESTMENT

R'm 86 91 106 94 126 142 384 355 118 10 12 19 20 24 2016 2017 2018 2019 2020 planned Maintenance capex Expansion capex Pineapple crops 238 487 480 232 150

MAJOR PROJECTS COMPLETED IN FY2019

• Relocation of pulps and purees plant to Groot Drakenstein
• Expansion of Western Cape ready meals factory to incorporate

snacking business (Alibaba Foods and RCL snacking acquisition)

• Completion of infrastructure and site upgrade at Groot Drakenstein
• Expansion of warehouse capacity at fruit juice production plant
• Ongoing development of new pineapple plantations in Eswatini

OUTLOOK

OUTLOOK

Group expects to maintain positive growth momentum into 2020 Regional

• Drive organic growth and increase brand shares
• Focus on high potential new categories
• Continued margin improvement

International

• Following good recovery in 2019, business is well positioned with

experienced international team with strong global relationships

• Expect continued recovery in operating margin
• Increasing natural hedge to offset Rand volatility

OUTLOOK

Group

• Improve balance sheet by generating stronger cash flows to

reduce debt levels

• Continued focus on working capital management
• Contain costs in the constrained consumer environment
• Committed to medium-term operating margin target of 10%
• Continue to evaluate strategic acquisition opportunities

THANK YOU THANK YOU

DISCLAIMER

Rhodes Food Group Holdings Limited (“RFG” or “the company”) has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this presentation, including all information that may be defined as 'forward-looking statements' within the meaning of United States securities legislation. Forward-looking statements may be identified by words such as 'believe', 'anticipate', 'expect', 'plan', 'estimate', 'intend', 'project', 'target', 'predict' and 'hope'. Forward-looking statements are not statements of fact, but statements by the management of RFG based

• n its current estimates, projections, expectations, beliefs and assumptions regarding the group's future

performance. No assurance can be given that forward-looking statements will prove to be correct and undue reliance should not be placed on such statements. The risks and uncertainties inherent in the forward-looking statements contained in this presentation include, but are not limited to: changes to IFRS and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions; changes in the regulatory and legislative environments; changes to operational, social, economic and political risks; and the effects of both current and future litigation. RFG does not undertake to update any forward-looking statements contained in this presentation and does not assume responsibility for any loss or damage whatsoever and howsoever arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings, profits, or consequential loss or damage.

INVESTOR RELATIONS CONTACTS

Bruce Henderson CEO Bruce.Henderson@RFG.com Tiaan Schoombie CFO Tiaan.Schoombie@RFG.com Graeme Lillie IR graeme@tier1ir.co.za

www.rfg.com