Distell Group Limited (Distell)

DISTELL GROUP LIMITED (DISTELL) Distell has a June year-end and therefore its results for the 12 months ended 30 June 2017 have been included in Remgro’s results for the year under review. Distell’s contribution to Remgro’s headline earnings for the year under review, which includes Remgro’s indirect interest in Distell held through Capevin Holdings Limited, decreased by 3.6% to R481 million (2016: R499 million).

Distell’s reported headline earnings for its year ended 30 June 2017 decreased by 3.6% to R1 553 million (2016: R1 611 million), mainly due to the stronger rand. Headline earnings adjusted for foreign currency movements increased by 7.3% to R1 600 million (2016: R1 491 million).

Distell reported for its year ended 30 June 2017 that turnover increased by 3.7% to R22 259 million (2016: R21 470 million). Sales volume and revenue growth in the South African market remained muted as the country is in a technical recession and with intensified competition and corporate action. The latter half of the year showed early signs of a recovery as volumes grew by 5% over the comparative period. The rest of Africa delivered mixed results amid continued economic uncertainty and lower income from commodities. Revenue was maintained on sales volumes, which were down by 5.2%. Certain focus markets recorded strong growth, but overall performance was negatively impacted by challenging macroeconomic conditions in Angola. Revenue derived from overseas markets showed resilience amid more challenging trading conditions and the consolidation of multinational competitors entrenching their dominant positions. Revenue and earnings from international operations were negatively impacted by a stronger rand, which appreciated by 11% against the basket of currencies of countries with which Distell trades. Revenue derived from operations outside of South Africa comprises 30.8% of Distell’s revenue.

RCL FOODS Limited (RCL FOODS)

For the year ended 30 June 2017, RCL Foods reported headline earnings from continuing operations amounting to R549 million (2016: R833 million). Remgro’s share of the headline earnings of RCL Foods amounted to R424 million (2016: R645 million) for the year under review.

Severe drought conditions and a lack of economic growth over the past two years have intersected to create a tough environment for consumers and businesses alike. Demand and volumes have become constricted and record drought-related hikes in input costs could in many cases not be passed on, leading to contracting margins. Poultry imports, and more recently, rapidly increasing sugar imports, have been adding pressure to domestic supplies.

Against this negative background, a highlight of the year has been a higher sugar price, which has compensated for the drought-related decline in production volumes. Similarly, the increased engagement and understanding among industry players and government in response to the poultry crisis will hopefully create a platform for a healthier industry going forward.

It should be noted that the prior period’s headline earnings included the release of a R163 million provision for uncertain taxation disputes raised as part of the Foodcorp acquisition that was concluded in RCL Foods’ favour.

RCL Foods’ total revenue for the year under review declined 0.3% to R24.95 billion (2016: R25.03 billion).

The Consumer division’s revenue increased by 1.5% to R13.5 billion (2016: R13.3 billion). The Chicken business unit’s EBITDA declined by 63.9% to R57 million largely due to the impact of the oversupplied retail poultry market. The remaining Groceries business units’ EBITDA declined by 16.9% to R449 million largely due to challenges in the Beverages and Speciality business units.

While the Sugar & Milling division’s revenue declined 2.7% to R14.5 billion (2016: R14.9 billion), EBITDA increased by 38.5% to R1 036 million (2016: R748 million). Sugar’s EBITDA increased by 119.5% to R507 million (2016: R231 million) due to favourable sugar prices and an improved channel mix, which compensated for the drought-induced decline in production volumes (down 289 603 tonnes). In addition, Sugar also benefited from the R158 million insurance receipt for the Pongola silo. Animal Feed and Millbake’s EBITDA declined as both business units were negatively impacted by high raw material input costs and lower volumes.

Revenue from the Logistics division increased by 2.3% to R2 033 million (2016: R1 987 million), with EBITDA declining 22.2% to R203 million (2016: R261 million). The generally muted economic environment and resulting subdued consumer spending, coupled with significant disruptions in the chicken industry, served to constrain growth during the period.