The year in review has seen the global economy experience acute uncertainty around growth, resulting in a sustained high degree of volatility in global markets. Several central banks, including the Bank of Japan and the European Central Bank, were forced to implement or upscale their own versions of quantitative easing (“QE”) in response to weakness in their respective economies. Interest rates remained at or near historic lows, providing ongoing stimulus and support to the global economy.

Concerns around the timing of the US Federal Reserve’s commencement of a much anticipated rate hiking cycle, together with the possible exit of Greece from the Eurozone, were two primary drivers of the volatility seen in both foreign exchange and commodity markets over the period. Indications of a US economic recovery against real concerns around China’s growth percolated through to emerging markets – the South African economy enjoyed little amnesty with Rand and GDP projections coming under severe pressure through 2014 and into 2015. In comparison to other major and emerging market currencies, the rand has experienced one of the highest levels of volatility relative to the US dollar.

Revenue* Rm 23 428,2  19 500,8  20,1 
EBITDA Rm 2 224,0  1 122,2   98,2 
EBITDA margin % 9,5  5,8  3,7 
Operating profit Rm 1 452,4  534,0  172,0 
Operating profit margin % 6,2  2,7  3,5 
Net finance cost Rm 321,6  895,2  (64,1)
Headline earnings – continuing operations Rm 964,5  (332,6) NM 
Headline earnings per share – continuing operations cents 112,2  (47,7) NM 
Capital expenditure (excluding intangible assets) Rm 756,6  654,0  15,7 
Return on equity % 8,7  (3,5) 12,2 
Cash generated by operations Rm 2 066,1  1 174,0  76,0 

South Africa posted a 2014 GDP growth of 1,5% (2013: 2,2%) – widespread labour unrest in the first half of 2014, electricity supply constraints and a slowing Chinese economy (which translates to reduced demand for commodities) have hampered and continue to hamper economic activity. Economic growth for 2015 is forecast at 2,0%, having been revised lower from earlier forecasts. Though unemployment decreased from 25,4% to 24,3% in the last quarter of 2014, these high levels are a risk to growth objectives and economic stability.

The Rand has come under severe strain over the last year. The R/US$ exchange rate depreciated 14,1% from R10,66 at the beginning of the current financial year to R12,16 at the end of June 2015. The impact on our procurement expense is significant as local commodities are mostly priced relative to either import or export parity. The Consumer Price Index (“CPI”) number posted at 6,35% at the beginning of the current financial year, above the upper limit of the Reserve Bank’s target band of 3,0% to 6,0%, and touched a low of 3,9% in February 2015. The CPI number at the end of June 2015 came in at 4,7%. Whilst inflation appears to now be on an upward trajectory, the South African Reserve Bank’s Monetary Policy Committee’s July 2015 initiation of a hiking cycle, together with softer energy prices, should contain the rise.

The Euro-denominated debt inherited as part of the Foodcorp acquisition was replaced with a term funded debt package that is rand denominated and funded through a syndicate of local and international banks. This has reduced our exposure to Rand/Euro volatility, however, it has significantly increased our exposure to local interest rate movements. In anticipation of this, RCL FOODS has fixed the interest rate at an average rate of 8,63% for R2,2 billion on the Senior A and Senior B facilities of R2,85 billion. These rates have been fixed for a two-year period. RCL FOODS has further entered into forward starting interest rate hedges that will provide protection for an additional two-year period after the termination of the fixed rate period. A total of R1,0 billion forward starting notional protection was secured in the year under review, and a further R500,0 million notional protection was secured in July 2015 (subsequent to year-end), effective the same period as the initial hedges.


Price volatility in the local and international raw material markets was significant over the reporting period. Swings in currency exchange rates, and speculation around crop damage both locally and internationally, were primary drivers. Our diverse product offering requires procurement of a number of agricultural raw materials. The majority of the procurement cost relates to maize (R1,6 billion), wheat (R1,5 billion) and soybean meal (R1,4 billion), however, RCL FOODS has additional cost exposure to sunflower seeds, soya oil, sorghum and ground nuts.


Last season’s South African crop of 14,25 million tons started to enter the local market in June 2014. With South Africa’s annual total maize requirements for food and feed totalling just under 10,0 million tons, the surplus of maize saw prices come under downward pressure. Yellow maize in South Africa traded between R1 874 per ton and R2 184 per ton between July 2014 and February 2015. Softer prices, as a result of the surplus, saw local maize priced competitively relative to the international market. A total of just over 2,0 million tons of maize was exported, with as much as 1,3 million tons exporte over the five-month period June to October 2014.

Toward the latter part of the season the focus shifted toward the new crop and feedback from the fields was that low rainfall coupled with hot and dry weather particularly in key growing regions, would result in a sub 10,0 million ton crop, below South Africa’s annual maize requirement.

While our analysis shaped the view that South Africa would remain in surplus of maize, with a surplus on white maize negating a deficit in yellow maize, the market consensus appeared to be one of significant concern. Prices rallied from R1 990 at the end of January 2015 to R2 680 at the end of June 2015.

The average SAFEX market price for maize this reporting period was R2 111 per ton compared to the previous period of R2 474 per ton, a decrease of 14,7%.


Local wheat spot prices peaked at R4 012 per ton during the period under review. The average market price for local wheat for this period was R3 776 per ton compared to the average market price of R3 662 per ton over the previous 12-month period, an increase of 3,1%.

South Africa is a net importer of wheat, and wheat prices are therefore correlated to international wheat prices, the exchange rate and the derived inland import parity price. For the year-ended June 2015, a total of 410 000 tons of wheat was milled through our facilities.


Over the most recent financial year, the price of soybean meal, as traded on the Chicago Mercantile Exchange (“CME”), averaged $355 per short ton (“pst”) or some $100 pst below that of the previous financial year. The nearby contract price at the start of the period was over $400 pst and finished the period at a low of under $300 pst, not seen since December 2011.

The declining price trend was on the back of consecutive record soybean crops for both the USA and South America (Brazil and Argentina), ensuring more than ample world soybean stocks. The projected season-end September 2016 carry-out stocks for the USA is somewhat smaller than anticipated at around 7,0% versus the world crop carry-out of over 30,0%, giving some support to price on the CME.

Prices are expected to hold the $300 to $400 range over the next period. Locally we have seen a welcome expansion in both crush capacity and crop size, with a record 2015 harvest of over 1 million metric tons expected. As a result RCL FOODS now purchase the total soybean meal demand for our inland feed mills from local crushers.


RCL FOODS has delivered a pleasing financial performance for the 2015 financial year with headline earnings from continuing operations increasing by R1 297,1 million to R964,5 million.

The increase in revenue of 20,1% can be mainly attributed to the inclusion of TSB’s revenue for the full 12 month period (only six months in the comparative).

The inclusion of TSB’s results for the full 12 months as well as an improved underlying performance, together with Rainbow’s significantly improved performance as a result of the implementation of its new business model, had a significant impact on the Group’s EBITDA which increased to R2 224,0 million, a 3,7% margin improvement to 9,5%.

Difficult trading conditions coupled with the adverse impact of the industrial action in its Speciality division resulted in Foodcorp experiencing modest growth in their EBITDA of 3,1%. Despite the subdued market, the Grocery division continues to perform well with pleasing margins being achieved by key brands. Rainbow delivered a significantly improved result with pre-IAS 39 EBITDA increasing by R365,2 million to R667,6 million, with the associated margin increasing to 7,4% from 3,4% in the prior year.

Whilst feed costs continue to be fairly high relative to long-term historic levels, Rainbow’s new business model has had a profound impact on Rainbow’s results. TSB’s EBITDA for the year increased by 44,6% to R505,1 million, from R349,3 million on a pro forma basis (an improved margin of 8,2%), which was largely as a result of lower imports into South Africa. TSB’s operating profit was impacted by an impairment of R84,0 million relating to the greenfields Massingir project in Mozambique. Vector’s results for the period were negatively impacted by industrial action costs, resulting in EBITDA increasing by only 3,5% to R206,2 million (a margin of 10,9%).

The graph below depicts EBITDA from both a statutory perspective and adjusted for unrealised gains and losses on financial instruments (pre-IAS 39) used in Rainbow’s feed raw material procurement strategy. Reporting (in terms of IAS 39) the financial effects of certain financial instruments used in Rainbow’s feed procurement strategy introduces volatility to the Group’s financial results. For the period under review, the pre-taxation impact on the Group’s results of these unrealised positions is a positive impact of R106,2 million (2014: negative R98,8 million), being largely related to the recent increase in the maize price and devaluation in the R/US$ exchange rate.


Net finance costs have decreased by R573,6 million, mainly as a result of the comparative period results being materially impacted by exchange losses of R557,3 million incurred on Foodcorp’s historic Euro-denominated debt and a reduction in overall debt during the current financial year.


Royal Swaziland Sugar Corporation (“RSSC”)

TSB holds a 27,4% shareholding in RSSC. RSSC’s equity accounted earnings for the 12 months were an after tax profit of R84,2 million, a decrease of 11,9% against the 2014 pro forma R95,6 million. Their results were negatively affected by the downward pressure on sugar prices in the European Union (“EU”).

Akwandze Agricultural Finance Proprietary Limited (“Akwandze”) and Mananga Sugar Packers Proprietary Limited (“Mananga”)

TSB’s Akwandze and Mananga contributed a combined after tax profit of R19,8 million for the 12 months to June 2015.

Zam Chick (“Zam Chick”)

Due to differing year-end periods, the Group has equity accounted Zam Chick’s 12-month results to 31 March 2015. Zam Chick exceeded expectations and continues to perform well, with equity accounted earnings increasing by 41,1% to R10,6 million (2014: R7,5 million).

Senn Foods Logistics (“Senn Foods”)

Vector’s investment in Senn Foods in the prior year has delivered solid results, with the Group’s share of after tax profits amounting R7,6 million. Senn Foods has recently invested in a world-class infrastructure expansion to prepare for the planned growth. Due to differing year-end periods, the Group has equity accounted Senn Foods 11-month results to 31 March 2015.


The effective tax rate before the share of the Group’s associate and joint ventures profit is 31,8%. Non-deductible expenses predominantly relate to non-deductible depreciation, the Massingir impairment, listed company expenses and other capital costs arising due to the restructuring exercise performed in the current year.


Following lengthy deliberations at the Competition Commission and the Competition Appeal Court, the sale of Foodcorp’s Fishing division was approved, subject to a condition that the Glenryck trademark be excluded from the transaction. The last conditions precedent were finalised on 2 February 2015. The revised purchase price for the Fishing division was R395,0 million (previously R445,0 million including the trademark) resulting in a loss of R31,9 million being included in the discontinued operation line.


Key statement of financial position items are highlighted below.



Capital expenditure (excluding intangibles) for the year was R756,6 million (2014: R654,0 million). An amount of R461,7 million (2014: R173.0 million) has been contracted and committed, but not spent, whilst a further R460,7 million (2014: R200,2 million) has been approved, but not contracted. The significant capital expenditure programme is supported by strong internal cash generation within the Group and underpins RCL FOODS’ growth aspirations.

Approved capital expenditure includes Vector’s distribution and warehousing facility in Port Elizabeth (R142,7 million), the Thekwini and Peninsula expansions (R90,3 million and R71,2 million respectively), Foodcorp’s Mageu UHT project (R120,0 million) and the pet food plant upgrade (R123,0 million).


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.


The increase in the investment in associate is mainly attributable to the Group’s share of RSSC’s profit less dividends received. An additional investment in the Zamhatch joint venture of R45,8 million was made during the year. The share of the Group’s profit in joint ventures amounted to R38,0 million, whilst dividends of R11,2 million were received by the Group from Akwandze and Mananga.

In the current financial year 50,0% of the investment in TSGRO, a previously 100% owned subsidiary of the Group, was disposed of. This has resulted in TSGRO no longer being consolidated but being equity accounted as it has been classified as a joint venture. The impact of the disposal in not material to the Group.


The increase in inventories is largely driven by the additional sugar stocks (R398,5 million) held at June 2015 resulting from an industry-led decision to hold back exports in anticipation of a smaller local crop, due to drought impacting the KwaZulu-Natal (“KZN”) sugar producers.

Despite difficult economic conditions, trade debtors continue to be well managed across the Group with only 2,3% of trade debtors being considered doubtful.

The reduction in assets and liabilities held for sale is due to the final approval of the disposal of Foodcorp’s Fishing division in February 2015 following a protracted Competition Commission process. The remaining held for sale assets and liabilities relate to the ongoing sale of the Glenryck brand and the proposed sale of certain of TSB’s cane operations.

Cash on hand net of overdrafts and including the investment in money market fund, has decreased from R1 472,7 million in 2014 to R870,5 million in 2015, mainly as a result of the reduction in interest-bearing debt.


During the current financial year, the Group has placed significant focus on the raising of capital and the efficient use of cash to support the Group’s growth ambition. In line with the Group’s strategy, total long-term and short-term interestbearing liabilities have decreased from R4 995,3 million to R3 642,8 million. The debt package that was put in place to replace the bridging loan facility in the prior year has been designed to have a level of flexibility that allows the Group to match inherent cash generation with the investment strategy both into new markets in sub-Saharan Africa as well as to enable capital expenditure in existing operations. The reduction in debt of R1,15 billion was financed from existing cash resources and the proceeds of the Foodcorp Fishing division disposal.


Deferred tax of R1 458,9 million (2014: R1 362,7 million) arises from numerous temporary differences across the Group.

The post-retirement medical obligation of R187,7 million (2014: R225,8 million) arises from the actuarial valuation of the Group’s potential liability resulting from post-retirement medical aid contributions in respect of current and future retirees. This liability is unfunded. The obligation of the Group to pay medical aid benefits after retirement is no longer part of the conditions of employment of the Group. The decrease in the current year is due to an outsourcing exercise that was offered to Rainbow and Vector pensioners resulting in an amount of R47,0 million being transferred to a registered third party annuity provider.


Cash generated by operations improved to R2 066,1 million, an increase of 76,0%, mainly as a result of the stronger financial performance and a continued focus on working capital management practices across the Group.

Net finance cost decreased to R322,6 million from R530,6 million, largely due to the replacement of Foodcorp’s historic Euro-denominated debt with a cheaper local debt package.

The cash outflow of R80,7 million from investing activities is largely attributable to the capital expenditure (excluding intangibles) of R756,6 million, R45,8 million investments in joint ventures offset by the R446,0 million reduction in money market fund and the proceeds received on the sale of the Fishing division. The cash outflow from financing activities of R1,32 billion, mainly relates to the replacement of the bridging loan and a TSB loan of R216,0 million repaid as part of the debt refinance process.


  R million 
Opening balance* 1 472,7 
Operating profit adjusted for non-cash flow items 1 914,8 
Working capital changes 151,4 
Net finance costs paid (322,6)
Tax paid (280,9)
Dividends paid (301,8)
Capital expenditure (including intangibles) (756,6)
Proceeds on disposal of Fishing division (net of cash) sold 251,1 
Additional investment in joint venture (46,0)
Proceeds on sale of PP&E 31,6 
Interest-bearing liabilities (1 357,7)
Discontinued operation – net cash inflows 35,3 
Other 79,2 
Closing balance* 870,5 


The Group’s accounting policies are governed by International Financial Reporting Standards (IFRS). Guidance has been obtained from the International Financial Reporting Interpretations Committee (IFRIC) and circulars.

The Group maintains the view that the standards set the minimum requirements for financial reporting. The financial statements in this integrated annual report have been prepared with the aim of exposing the reader to a detailed view of the results, using a simplified approach, in the hope of facilitating a deeper and more informed understanding of the Group’s performance.


Following a reassessment of Foodcorp’s trade agreements with its customers, it was concluded that certain allowances granted to customers that were previously recorded as an expense should be recorded as a reduction in revenue. As a result, revenue for the year ended 30 June 2014 has been restated. The restatement has no impact on operating profit or the statement of financial position. The effect of the above reassessment on the income statement for the year ended 30 June 2014 is a decrease in revenue of R219,1 million.


The contingencies balance is due to the inclusion of TSB’s joint venture Akwandze. TSB has guaranteed long-term loans from the Land Bank on behalf of Akwandze. No losses are expected as the risk of default is extremely low due to the fact that some debtors are joint ventures to the Group with no history of default.


It is the Board’s intention to continue paying dividends, subject to the Group’s underlying profit delivery.

The directors have resolved to declare a final cash dividend of 22,0 cents per share for the year ended 30 June 2015. An interim dividend of 15,0 cents was declared and paid during the financial year. The dividend has been declared from income reserves. Dividend tax will amount to 3,3 cents per share and consequently shareholders, who are not exempt from dividend tax, will receive a net dividend amount of 18,7 cents per share.


The rapidly expanded Group has presented both challenges and opportunities from a financial perspective. Some of the key opportunities are covered below:


In the period under review, the Group continued to invest in a centralised structure with specialist skills focused on strategic sourcing. The business operations across the Group remain supported by traditional procurement resources, however, the strategic sourcing team introduces a new level of engagement with the business and suppliers that ensure significant benefits are identified and delivered. This initiative is greatly enabled with the appropriate supporting systems like Rainbow’s SAP implementation, however, benefits associated with the enlarged Group now including Foodcorp and TSB are being pursued despite the lack of systems and data alignment. A benefit of R115,3 million was achieved in the current year.


The Group applies an umbrella approach to insurance, and aims to insure all Group companies under the same insurance structure.

The Group strategy is to keep insurance to a minimum without exposing the Group’s assets or profitability to unacceptable financial loss which could materially affect either trading results or cash flow. RCL FOODS’ stronger balance sheet has allowed more scope to self-insure predictable losses and less material risks which are not administratively cost effective to transfer to insurers. The level of self-insurance is determined based on the recommendations of RCL FOODS’ broker, given the levels of policy deductibles and general risk environment.

The increased scale of the Group’s assets has also allowed the underwriting to be broadened to include international insurance markets. A balanced placement of underwriting between local and international underwriters is considered to be more cost effective over the long term, as it protects the Group should the market experience excessive claims which would impact pricing risk in that market.


The inheritance of significant debt levels through the Foodcorp acquisition has led to an increased focus on gearing and cash flow management. Monthly management reporting and incentive structures now include a direct link to free cash flow generation and return on assets managed.

The treasury function has been centralised in order to minimise the cost of funding and to provide a single point of reference with funders.

The objective of the centralised treasury is to:

  • Ensure that sufficient cash resources are available to meet working capital requirements across the Group;
  • Ensure that excess cash is pooled and invested optimally;
  • Reduce risk related to changes in asset values, interest rates and foreign currency holdings by the use of hedging and netting strategies;
  • Determine and implement an optimal level of debt financing; and
  • Minimise transaction costs.

During the year under review the R4,5 billion bridging loan was replaced with a longer term funding structure across 3, 4 and 5 year terms. Given the current growth trajectory and significant capital expenditure, flexibility within the funding package is key with R0,5 billion designated as a revolving credit facility. The Group’s cash flow is also significantly impacted by the traditionally lower profit and cash flow in the second half of the financial year, as well as the three-month off-crop period of TSB whereby the year’s major maintenance projects in the mills are completed. The Group is able to pre-pay the debt without penalty from internally generated cash flows.

Although the new average funding cost is slightly higher than the bridging facility it replaced, it is reflective of the longerterm nature of the debt with normal covenants but is still competitive due to the investment grade debt profile of the Group. The participants in the package are Rand Merchant Bank, Standard Bank of South Africa, ABSA and HSBC.

The funding package is structured on the following basis:

Facilities Type Term R million 
Senior A Loan Bullet 5 years 1 755 
Senior B Loan Bullet 4 years 1 097 
Senior C Loan Revolving 3 years 498 
Total     3 350 

The Group will continue to seek ways to reduce volatility in cash flows through strict management of working capital investment, the hedging of interest rate risk and partnering with our funding service providers to improve transparency and forecasting of cash flows.

Key covenants on the debt package are net interest-bearing senior debt/pre-IAS 39 EBITDA cover ratio of less than 3,0 and a senior interest cover ratio of greater than 3,0. All covenants have been met with a significant safety margin in the 2015 financial year.

RH Field
Chief Financial Officer