Strategic thrusts and progress

GROW THROUGH STRONG BRANDS

RCL FOODS owns a large portfolio of leading brands that enjoy wide support from consumers across multiple product categories. We intend to exploit this position of strength by investing consistently behind our brands. We will grow our categories and our market share as we increase the penetration and consumption of these brands and broaden their reach through product extensions and innovation. Our category leadership will also be enhanced as we continue to produce for retailer-owned brands, where relevant.

As part of this process we will strive to understand our consumers better and drive innovation to address their changing needs. In line with market dynamics, we will also acquire new brands and/or businesses to gain access to new strategic growth categories.

In the well-developed South African market, the above strategy will focus on maximising potential of our core categories and accelerating added-value categories tailored for customer and consumer needs, in line with our business model. In this way we aim to grow ahead of the market in key categories and drive a steady and sustainable improvement in operating margin.

R243 million
INVESTMENT INTO NEW UHT BEVERAGE
AND PET FOOD PLANTS

* Ultra-high-temperatur

 

2015 ACHIEVEMENTS

  • Rainbow’s new business model is delivering more profitable, consistent results. The changed business model has assisted in driving strong operational performance, as well as allowing Rainbow to grow prices ahead of the market in the retail mainstream area. (Rainbow’s pre-IAS 39 EBITDA grew 120,7% to R667,6 million, while margin increased to 7,4% against pro forma results).
  • TSB had a good year, growing production volumes to 702 000 tons and increasing EBITDA from R349,3 million to R505,1 million. Selati sugar also had a strong share performance throughout the year.
  • Nola and Yum Yum started to show signs of an encouraging market share turnaround in the last three months. Efficiencies generated by our newly commissioned Polyethylene Terephthalate (“PET”) plant also assisted in achieving good margin growth.
  • We are investing R243,0 million in new UHT beverages and pet food plants to accelerate innovation and growth in these categories.

2016 KEY DELIVERABLES

  • Our chicken business has made substantial improvements in operating margin and we aspire to improve this further. We will continue to drive the new business model in pursuit of our targeted margins.
  • Low cost, efficient operations are in the DNA of our sugar business. We will continue to drive synergies from centralised services in line with our “one company” philosophy.
  • We have developed a comprehensive set of turnaround strategies for underperforming categories (Milling& Baking, Pies and Speciality), which we expect to bear fruit in 2016.
  • Product and packaging innovations are also a significant feature for the next year, with exciting offerings being brought to market.

PARTNER WITH STRATEGIC CUSTOMERS

We have developed mutually beneficial, strategic partnerships with a range of Quick Service Restaurant (“QSR”) and retail customers by providing solutions tailored to their needs. One of these is South Africa’s premium food retailer, Woolworths, which our Speciality division supplies with superior Ready to Eat and convenience food products. Another is the foodservice industry in South Africa, to which we are a leading supplier of tailored chicken solutions for QSR brands such as KFC, Nando’s and Chicken Licken. We also have partnerships with various retailers for whom we produce and package customised, retailer-owned brands in categories such as sugar, mayonnaise, peanut butter and pet food. Finally, we strategically pursue joint business partnerships with retailers in key categories where we have common growth and profitability ambitions.

R30 million
INVESTMENT INTO NEW SPECIALITY
PLANT FOR WOOLWORTHS

2015 ACHIEVEMENTS

  • Rainbow’s strong growth in QSR is evidence of our commitment to building and maintaining lasting relationships with key strategic partners across the fast food industry.
  • We have introduced various new categories, such as mayonnaise, desserts and sugar into the QSR network in the 2015 financial year.
  • We commissioned a fourth Speciality plant for Woolworths in Worcester (R30,0 million investment) to drive growth and bring the supply of chilled products to the Western Cape region.

2016 KEY DELIVERABLES

  • We will continue to strengthen existing relationships and introduce further products for the QSR market.
  • We will work to sharpen our strategic focus per category per customer, and to build on joint business partnerships where relevant.
  • We will conclude our work on the Manufacturing Blueprint for Speciality, which aims to extract efficiencies through the manufacturing network and processes while creating space for growth.

EXTEND OUR LEADING VALUE CHAIN

We will leverage Vector’s route-to-market capabilities (warehousing and distribution, call centres, sales and merchandising and debtors and information management) across the Group with the intention of Vector influencing 100% of our route-to-market.

The Group’s enhanced scale provides opportunities to optimise resources and costs in key areas such as Finance, IT Resources and Systems, Strategic Sourcing and People and Organisational Management (with an emphasis on achieving the “Right Organisation”).

Value can also be extracted by maximising our growth opportunities through leveraging our foodsolutions, marketing and sales capabilities. Our enhanced scale will also enable us to engage in higher-level relationships with our customers and business partners.

2015 ACHIEVEMENTS

  • In the past year we set up a transformation management office (TMO) to drive a single company mindset, which will play a critical role in progressing our transformation agenda, identifying growth opportunities, achieving savings and extracting synergies across the business.
  • Centralised sourcing generated savings of R115,3 million in 2015, relative to savings of R103,0 million in 2014. Significant focus has been placed on leveraging Information Technology (IT) to maximise opportunities in this regard.
  • We successfully launched a new sales force, Vector Trade Marketing, in July 2014, creating 1 064 additional jobs and increasing revenue by R93,0 million.
  • The Pieman’s warehousing solution which was implemented in August 2014 generated additional revenue of R12,0 million in the 2015 financial year.

2016 KEY DELIVERABLES

  • We anticipate spending R304,0 million of capex on three key supply chain expansion initiatives that are due to be completed during the 2016 financial year. These include the new Vector facility in Port Elizabeth (Coega) as well as the expansion of both the Thekwini and Peninsula depots.
  • We will continue to optimise resources and costs and drive synergies through the TMO.
  • We will continue to explore opportunities for Vector to leverage its route-to-market capabilities across the Group, as identified in extensive engagements over the last financial year.
  • IT is a key driver in unlocking business value through its ability to extract synergies between the divisions, optimise the supply chain and identify opportunities for integrated product offerings across divisions. There will be a strong focus on maximising this competitive advantage within the Group.
R115 million SAVINGS FROM
SOURCING IN 2015


INSPIRE GREAT PEOPLE

Developing our talent, building leaders and creating the “right organisation” are crucial to achieving our growth ambitions and delivering on our Passion. A key thrust in this process is the identification of Standards of Leadership which capture the leadership attributes and behaviours we see as key in developing a performance-driven, accountability-based culture. Leadership at RCL FOODS is defined as an ability to lead in four main areas: Performance, Change, People and Self. These categories address the most salient aspects of who we are: a performance-driven organisation that combines excellence with a passion for innovation and inspires greatness in all its people.

4 NEW
STANDARDS OF LEADERSHIP

2015 ACHIEVEMENTS

  • We implemented our new organisation and restructured the four subsidiaries into three logical divisions. We have already seen benefits from the new structure in terms of cost savings, synergies in the supply chain and new products and services which are being pursued across our three divisions.
  • The implementation of the new organisation, in conjunction with a thorough review of our Passion and Ambition, has created a tangible energy and willingness in the business to see and do things differently and to realise new and exciting possibilities for the Group.
  • New Standards of Leadership have been defined and rolled out throughout the business to develop a common vision across management of how to, amongst others, create a high performance culture, inspire people to exceed expectations, encourage experimentation and innovation and lead by example.
  • We launched three new Leadership Development Programmes across various management levels, along with several training and skills development programmes.
  • We implemented performance management programmes that standardise performance evaluations and align targets across the business.

2016 KEY DELIVERABLES

  • We will continue to implement the new organisation through inspired leadership and people.
  • Our high performance culture requires high performance people. Continuously upskilling and developing our people is an important driver of performance and job satisfaction. Functional capability and skills development is a key focus area for 2016.
  • We will continue to build a business culture based on performance and accountability, through aligned targets and incentive schemes.

EXPAND INTO AFRICA

Growth in the African population and increasing global food demand in decades to come make expansion into the rest of Africa a moral and economic necessity. Our goal is for our Rest of Africa operations to contribute approximately 10,0% of our revenue by 2020.

We will follow a low-risk expansion strategy by following our established customers, entering into joint ventures with other established players in food and route-to-market, and acquiring or establishing new businesses to broaden ownership of our value chain.

2015 ACHIEVEMENTS

  • Post year-end, we acquired 33,5% of Hudani Manji Holdings Limited, a poultry producer in Uganda. This is an exciting opportunity to enter the East African region with an established, reputable partner. The company operates a feed mill, broiler farms and processing plant in the country and the new venture will create one of the largest processors and marketers of chicken in both Uganda and East and Central Africa, as well as being the regional leader in the supply of fresh and frozen chicken, offering a broad portfolio of chicken products in this market.
  • Senn Foods Logistics, a joint venture in Botswana which was entered into during the 2014 financial year, has delivered solid results with an after tax profit contribution of R7,6 million and is a good example of our approach to a sound strategic partnership in Africa. Senn Foods has a capable management team and has recently invested in an infrastructure expansion to prepare for the planned growth over the coming years.
  • Zam Chick exceeded expectations with strong volume growth driven by consumer demand. We are striving to make chicken more affordable to people in Zambia and to this end we were able to keep price increases below inflation. Equity accounted earnings increased a pleasing 41,1% versus the prior year despite the rand strengthening against the Zambian Kwacha during the year by 6,0%. Volume growth isexpected to remain strong in 2016.
  • Investment in our new breeding operation in Zambia, Zamhatch, is well advanced. This investment comprises a breeding farm, a hatchery operation and a feed mill.
  • Royal Swaziland Sugar Corporation (“RSSC”) sugar production has been positive, but profitability was constrained by downward pressure on sugar prices in the European Union. RSSC (in which TSB holds a 27,4% shareholding) contributed an after tax profit of R84,2 million to our earnings, a decrease of 11,9% against the 2014 pro forma R95,6 million profit after tax.
SIGNED A DEAL FOR A R50 million
INVESTMENT IN UGANDAN
POULTRY PRODUCTION

2016 KEY DELIVERABLES

  • An amount of R84,0 million (no taxation impact) relating to work-in-progress spend for Massingir, the proposed greenfields sugar project in Mozambique, has been impaired in the current year as a suitable funding structure that reduces the risk to the Group within the mandate set by the board of directors, had not been obtained.
  • We will continue to explore further low-risk entry points into Africa in line with our African expansion strategy.

DRIVE SUSTAINABLE BUSINESS

We believe that by nourishing people while sustaining our resources, everyone wins. Communities are enriched, employees are inspired and our customers and shareholders enjoy the benefits.

RCL FOODS is working towards setting ambitious goals which align with the Sustainable Development Goals (SDGs), namely:

  • Nourishing people
    Providing economic and physical access to food for all, providing more food choices to improve nutrition, defining the social purpose of our brands and promoting food security through sustainable agriculture.
  • Enriching communities
    Promoting sustained, inclusive and sustainable economic growth, productive employment and decent work for all.
  • Sustaining resources
    Ensuring sustainable consumption and production patterns, driving efficiencies, reducing waste and promoting beneficiation.

We are working towards demonstrating our commitment to these goals through real examples and achievements.

37,7 GWh OF
CO-GENERATED ELECTRICITY
SUPPLIED TO GRID

2015 ACHIEVEMENTS

  • We are actively looking for ways to convert the waste generated throughout our supply chain, into value. In the current year, TSB generated 223,8 GWh electricity from bagasse – a 10,0% increase over last year and exported 37,7 GWh electricity into the national grid.
  • We started investigating the viability of turning postprocessing poultry oil into bio-diesel in partnership with a young and upcoming technology provider, DNA Biofuels. After converting 400 litres of poultry oil into diesel, and doing the necessary quality testing, the plant was upgraded from a batch system to a continuous process. The upgraded process is undergoing further tests for different feed stocks in order to increase production volumes. To date about 10 000 litres of bio-diesel was used to replace liquid furnace oil at RCL FOODS’ operations.
  • We have installed a real time water monitoring system in our Worcester processing facilities resulting in a 15,0% reduction of potable water use. Worcester water use reduced from 12 litres per bird to consistently below 10 litres per bird after the installation. The system was designed in-house and will be rolled out to Hammarsdale and Rustenburg poultry processing facilities in the 2016 financial year.
  • We source our sugar cane from over 1 600 individual farmers who support communities of more than 12 800 people. Some 15,0% of these are small-scale growers. With the support of the Department of Rural Development and Land Reform, TSB partnered with farmers in KwaZulu- Natal and Mpumalanga to produce 988 516 tons of cane during the 2014/15 season.

2016 KEY DELIVERABLES

  • Following the conclusion of a pilot study at one of our plants, we will implement a poultry waste-to-energy project and continue to investigate, innovate and trial options of converting waste into value.
  • We will continue to develop our sustainable sourcing policy (which provides guidelines for specific procurement category strategies) and initiate its roll-out to suppliers.
  • In line with our corporate social investment strategy, we will launch a flagship initiative that will have a focused impact on the communities in which we operate.
  • We will review and align our sustainability goals across the Group and finalise our sustainability roadmap to 2020.