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Edited Transcript of RCLJ.J earnings conference call or presentation 31-Aug-20 9:00am GMT

Full Year 2020 RCL Foods Ltd Earnings Call

Westville Sep 28, 2020 (Thomson StreetEvents) -- Edited Transcript of RCL Foods Ltd earnings conference call or presentation Monday, August 31, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher David Creed

RCL Foods Limited - MD of Logistics Division

* Miles Dally

RCL Foods Limited - CEO, MD & Executive Director

* P. D. Cruickshank

RCL Foods Limited - COO

* Robert Hilton Field

RCL Foods Limited - CFO, Financial Director & Executive Director

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Conference Call Participants

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* Chris Logan

Opportune Investments - CIO

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the RCL Foods annual results presentation. (Operator Instructions) Please note that this call is being recorded.

I would now like to turn the conference over to Miles Dally. Please go ahead.

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [2]

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Good morning, everyone, and welcome to the RCL Foods results for the year ended June 2020. Clearly, our results need to be seen in the context of the COVID-19 pandemic, and we'll unpack some of those impacts as we go through the course of the presentation. And secondly, the ZAR 1.5 billion impairment that we took, we will also touch on that as those are the 2 big drivers on otherwise good set of results.

RCL Foods is an essential service operator, operated throughout locked down, and it was incredibly difficult conditions. As you'll appreciate, in lockdown Level 5, things were really tricky, and we had to move 20,000 people around the country. But our purpose of More Food to More People, More Often was never more relevant than when the President issued a call to arms. And we really did focus relentlessly on 3 areas. Firstly, with the health and safety of our people was absolutely paramount. And this was demonstrated in terms of a number of regulatory reviews we had by Department of Health where we got very complimentary feedback from them in the way in which we are managing. And again, I'll go back to, in particular, during lockdown Level 5, it was really difficult, but we really put a lot of effort into ensuring the safety of our people.

And then food security responsibility to the nation. As I've said, our purpose is More Food to More People, More Often, so it was really great watching the organization step up to feed South Africa. And then as you'll all appreciate, the focus on cash and liquidity was absolutely critical, and there were times when it was really difficult. As you'll appreciate, certain customers were closed down, had no cash flow, no revenue coming in through the front door. So we had to work really hard in order to end up in a very good position that we've, in fact, ended up.

And so as I mentioned, the reported earnings are materially distorted by COVID-19 and the noncash impairment of ZAR 1.5 billion. We've indicated the direct impact, the on cost of ZAR 267 million, and this excludes the lost sales in Chicken and in Vector. And Chicken and Vector are the 2 that were really hard hit, as you'll see as we go through the presentation, and Vector had over and above its impact with the foodservice industry closing down. It had to run the duplicate network after we took over RCL's network in early December last year, and Chris will pick up more on that.

Probably at the highest level, we've had a really pleasing Sugar recovery. Groceries continues to deliver robust performance, and Paul will touch on a number of plans that we put in place that really came together well, particularly in Pet Food, and our strong cash generation.

So Vector Logistics' consolidation of RCL was delayed by lockdown, and that was a significant impact. We were only able to start implementing 2 weeks prior to take on, which was the first of December, and if I recall, that was the weekend after the Black Friday. So it really is difficult. You wouldn't take on this type of task in December in any event. So we're really proud of what the Vector team did in running the RCL network.

If you go to Page 4, the next page, it's worth just briefly sharing a bit of detail on our 3 focus areas that I've touched on. Keeping our employees safe. And what we've done there for you is to talk about what we did immediately in -- and what we're looking at doing going forward. So sustainably protecting the lives and livelihoods of our people is absolutely critical, even though we're at Alert Level 2. As you'll appreciate, managing big operations, getting people there safely, making sure that the appropriate sanitizers and protocols are in place remains very strict for us. We've continued to issue instructions to anyone who can work remotely to continue doing so to play our part in slowing down this pandemic.

I mentioned keeping South Africa fed and really positive way in which we have managed to keep all the operations going and achieved that. And we are now looking at our portfolio and our brand strategy adoption to what this new normal might be and, as I mentioned, a lot of focus on cash and liquidity. So really pleased that we ended up in a strong position in that regard.

If we move on to the next slide, Slide 5, it's really just the headline results. And at the heart of it, our revenue up 7.4%. Good volume and pricing growth in Sugar and the new business taken on by Vector Logistics, so we're now a ZAR 28 billion business. And the underlying EBITDA of -- up 12.6%, but even the reported EBITDA of ZAR 1.6 billion was up 7% driven as you will see by robust Groceries performance led by the Pet Food; Speciality restructure benefits started coming through the recovery in Sugar; and then Chicken materially impacted, as I mentioned, by the lockdown and the restrictions in foodservice.

And clearly, our underlying HEPS needs to be looked at rather than just our reported HEPS, and that was up 45% driven by the improvement in EBITDA. And then cash generated by operations is probably the most pleasing part of our year. Cash generated by operations up significantly at ZAR 2.6 billion.

If we go over to the next slide, it's really a summary of the underlying EBITDA growth. And Paul and Chris will take you through this in detail, so I won't go through the detail here. But suffice to say, other than Chicken, which was significantly impacted by COVID, and you'll keep hearing this, the lost QSR sales and the significant on cost, and we've mentioned Vector was impacted by both of those as well as the delay in combining the networks, all other areas performed well.

If you go to Page 7 and we look at the strategic review, grow through strong brands. There were some very pleasing achievements with our brand strategies. As mentioned, the Pet Food category was the star, and Paul will touch on that. We launched our Rainbow Simply Chicken, should I say relaunched, is exceptionally well received, and we delivered a 75% volume growth. And we now have a real range of #1 brand and entrenched market leaders, as you can see from the number of brands at the bottom of that chart. So we're very pleased with where we're at. And again, I repeat, we're continuing to look at our brand strategy on a very focused manner to say how do we reshape our portfolio given what we've learned in COVID and to make sure we're fit for the future.

If you go on to Slide 8, which is partner with strategic customers. Again, I think our relationships that we have with key customers ensure that we delivered solid volume growth in retail and wholesale. As you'll appreciate, during the crisis, buying days just prior to lockdown and the shutting of QSR, there was a dramatic shift of purchasing to retail and wholesale and in product categories. And suffice to say that this culminated in us achieving our largest turnover month on record in June 2020, and we continue to see strong trading through July and August in certain categories. We also leveraged our partnerships to seamlessly incorporate Siqalo Foods, the Spreads business, into our customer platform and very pleased with the way that's fitted in. And as we've mentioned, Vector took on multiple new customers over the December peak with the acquisition of the ICL network.

If we move on to the next slide, extend our leading value chain. I think what became clear during COVID was the resilience of our value chain. We continue to operate uninterrupted throughout the COVID-19 lockdown period. Not without its on cost and not without its challenges, but I'm really proud of our operational teams and management in the way in which they were able to deliver. We successfully executed on year 1 of the operating model for Siqalo Foods. So that's bedded down and working well and making a good contribution to our overhead costs. And as mentioned, Vector's acquisition positions it as the leading participant in the temperature-controlled logistics space, and Chris will talk more about what we do with that. And also thinking further forward and into the future, we acquired a digital freight marketplace called Empty Trips, enabling dynamic freight matching with available vehicles on an open network. So keeping Vector at the forefront of supply chain digitization.

If you go to the next slide, #4, inspire great people. Just a reminder, we did have 2 food divisions, and now we have 1 under all food chain. And so that brings many benefits and alignment, and we've seen those benefits coming through. We shared with you how we did that at interims, but we're getting a lot of benefits coming through in the last 6 months of our financial year. We've been very focused on diversity and inclusivity. And quite frankly, we did some research in that regard and found that we were wanting in some areas. And as an exec, myself and my exec and the whole organization has embraced this. This is our journey, and we have a number of processes in place to get us to the right levels of inclusivity and diversity. Our BEE score improved from Level 4 to Level 3 delivered -- driven by our participation in the YES Programme. So we employed 330 youth on a 12-month contract. We also prioritized and delivered on best-in-class COVID-19 protocols for the safety of our people. And as I mentioned at the outset, we were commended by our government for our excellent protective measures. So we were very proud of that.

If we turn to the next slide, expand into the rest of Africa. As you're aware, we slowed down our efforts in Africa and have been very cautious. But what is pleasing is we made some very good progress and, in particular, with Vector. So exports into Africa generated double-digit growth, so that's -- that was encouraging. And in Botswana, Senn Logistics -- Senn Foods Logistics generated strong growth to their March year-end. And then L&A Logistics, our recent associate in Zambia, performed satisfactorily in its first complete year, also had some challenges with COVID. So we're quite nicely positioned now in 2 countries as far as Vector goes.

If we go over to the next slide, another area we're passionate about, drive sustainable business. We've made some really good progress in this area. The exciting opportunity for us is the LIVEKINDLY co. And looking forward to future-proofing our portfolio, we've got a dollar-based minority shareholding in the LIVEKINDLY co., and we've positioned ourselves to launch into the plant-based protein value chain as their partners in Africa in fiscal '21 and gives us an opportunity to provide the consumer population with more choice. And I think COVID has certainly focused everyone's attention on this alternative to animal protein. The earth cannot sustain the impact that animal protein is having. And I think we're going to see more and more shifts to alternate protein sources not only for health reasons, but because of the impact on the earth. And so we're very pleased to be positioned with leaders in this field, namely the LIVEKINDLY co.

Aligned to that, our new waste-to-value plant in Rustenburg has been completed. And once fully commissioned, it will improve our energy and self-sufficiency by approximately 22%. As you know, that was a significant investment for us. We're very proud of our 1,000-odd small-scale sugarcane growers supplied approximately just under 600,000 tons of cane, generating around ZAR 350 million in revenue. So really good to see those transformed areas of our business doing exceptionally well. And an area that really stood out during COVID was our DO MORE FOUNDATION. They really stepped up to providing meals to people in vulnerable communities. So we did over 8 million meals to ease hunger. So we're really proud of our DO MORE FOUNDATION and what it's achieved, and we'll continue to leverage that using other partners who see the advantage of investing in the programs that we set up.

Thank you very much. I'll hand you over to Rob Field.

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Robert Hilton Field, RCL Foods Limited - CFO, Financial Director & Executive Director [3]

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Thank you, Miles, and good morning to you all.

Interpreting our results this year is obviously made very difficult by the number of material impacts, as Miles has mentioned, the main ones. So really, the purpose of my presentation is to try and explain them in some level of detail, and then distill a clear picture of what our underlying performance looks like.

So the first slide there, I'm starting on Slide 14, really sets the context for the operating environment and dominated obviously by the theme of COVID this year. And I'll pick up through the course of the presentation the impact that, that has had. And I don't think for the audience that's on the call that there's need for me to cover off any of the tough economic environment that we find ourselves in South Africa. And so I'll leave that just for your reading.

15 is merely the summary of all the key numbers, and all of them will get unpacked in the balance of the presentation.

So I'll move on to Slide 16 and use this slide to explain some of those key adjustments and -- that we've highlighted have had a significant impact on our results this year. And as Miles mentioned, our underlying EBITDA improvement's at 12.6%, slightly ahead of what our published reported earnings were up on and graphically can be seen here in terms of the contributors. The adjustments on the far left of the chart are the ones which we spoke to last year, so I'm not going to cover them again. But on the far right, you see the material adjustments that have played out in this year's results.

Let me start with the gain on bargain purchase, the ZAR 167 million related to Vector's acquisition of certain assets and people, operations of ICL and the incorporation of that into a broader network for Vector. We have concluded our purchase price allocation process, which we're obliged to do in terms of valuing the underlying assets that we've taken on. And the uplift in value that's sitting in Vector's published numbers and their segment information is at ZAR 167 million. Secondly, the IFRS 16, which most of you will know to be the lease standards. We chose to apply an implementation of that which sees a prospective accounting for that. So hence, it makes our comparatives noncomparable. And hence, it's on the right of this chart here. But a very significant uplift in profit of ZAR 237 million.

This is a slide at the end of my section which unpacks the detail, but maybe just to highlight at this juncture that to you, and you'll see that in the subsequent slides, that it is actually dilutive at a headline earnings level and, as you'll understand, in terms of us removing the lease cost and replacing that with a depreciation and interest cost in respect of those leased assets. And because the bulk of the leases that we have within our business and the majority of them actually relates to Vector in an early stage of their life, it means that, that interest cost component is higher. And as a consequence, at a headline earnings level and the implementation of the IFRS 16 for us was actually dilutive. But those numbers are all clear in the deck.

And lastly, the COVID-19 impact has been very material on our business. In terms of what we have chosen to include in this underlying adjustment, it is limited to only the direct cash costs associated with it. As Miles mentioned, all revenue impacts have been excluded, and those were also very material. When you consider the QSR industry and restaurant trade that's shut down overnight for 2 to 3 months, no revenue coming in from a Vector perspective on that CSD part of their business. And obviously within Chicken, the QSR market is a very significant customer. And Paul will explain some of the operational impacts that backed up there. But in terms of the representation of our numbers, we have only stripped out the direct cash costs associated with COVID to derive this underlying perspective of our results.

When you go to the middle of the chart, clearly, you can see the rebound in Sugar off its very low base of last year has been the most significant contributor to underlying performance and even our published performance improving. And the red bars in the middle relating to Chicken and Vector are because of that point I'm making in terms of that the revenue component of COVID has not been stripped out and as shown in those numbers. But again, Paul and Chris will talk to that in some more detail.

On Slide 17, just really walks for that published answer on an EBITDA basis all the way through to published headline earnings, which actually was backwards 65.4%. But when you strip out those same underlying adjustments that I've just spoken through, our underlying headline earnings actually improved by 47.1%. Any other notable comment on that slide, and we've got it in 2 blocks there, is that there's a lot of noise in our tax numbers. And I'm not going to use this opportunity to explain all of them. They're there and expressed in the announcement so that people can follow the significant impact that it's had on our effective tax rate that we have published.

Slide 18 then is just our unadjusted reported numbers, which I'm not going to spend any time on.

Slide 19 then strips out those underlying adjustments and expresses our -- what we refer to as our segments, our business units, into what the numbers that Paul and Chris will then talk to in their sections. But the impairment topic was obviously a very significant accounting effort this financial year-end. And the context is important in terms of the reason as to why we were obliged to consider impairments. And that is the macro issue of COVID and its impacts through the economic space, which was really a weakened one from a South African perspective and with the recent ratings, sovereign ratings downgrades, all translated to growth forecasts that are obviously going to be lower and meant that some level of impairment was going to become inevitable.

Saying all of that, we have placed a very conservative lens to our own future cash flows that are inputs into the discounted cash flow models that are used for this test that we are obliged to comply with. And as a reminder, there are 2 levels at which this impairment test is required every year. We do impairment test of our goodwill and indefinite life intangible assets. When you have an indicator of impairment across the other business units, like COVID has presented itself as, we are obliged then to consider every aspect of our business. But the important thing is that you go in with a lens that the accountants and the IFRS statements require you to do, which is the definition at the lowest level being your cash-generating units.

And on Slide 20, you see then split out the different business units within our business that have now had a impairment booked against them. Importantly, and this will come out in the detail of our financials, is that the single biggest driver to a shift in and an increase in impairment values relative to what we might have done in the past is, again, COVID impacted that we have had to reduce so and appropriately so our terminal growth rate and our valuations from what we applied last year, which was 5.5%, down to 4%. When you analyze the underlying components, whether it be your weighted average cost of capital or the cash flows or this terminal growth rates, in our instance, this was the most significant driver to that deteriorating valuation picture and hence, the translation of these impairment numbers.

So let me move off the impairment slide, move to Slide 21, which presents a very different picture, clearly, at first reading, and that is a very positive cash outcome. Now however we look at our cash, whether it be from a free cash flow perspective, from a cash conversion ratio perspective or even just looking coldly at our closing cash position, it's an excellent result. And especially considering the very difficult circumstances, and as Miles mentioned, when we were in the heat of the pandemic going through the month of April and May, it was a very uncertain future. Clearly, a lot of that has become more certain. Christopher and Paul will talk to kind of how the most significant impact on us, the restaurant trade and foodservice market is busy recovering. But that means that we kept a very careful lens on our working capital management, and you can see a constrained CapEx picture as well, both very appropriately so. And those both are covered on subsequent slides.

So moving on to Slide 22, our working capital position, this is a busy slide and contains a lot of the essence of how our reported position finished for the year. But starting with the good answer in terms of it being nearly 25% lower than the working capital we published a year ago. But importantly, the context of that, you'll see that our trade and other receivables and payable lines are materially up on the prior year. And that is, by and large, a consequence of the ICL business coming into Vector. And you see that in their revenue answer as well. But on behalf of the principles that Vector has taken on, that book is obviously carried on their behalf and translates to a significant uptick in those values.

Another impact for this year in terms of our working capital was plainly the cutoff. It was a contributor, as referenced in the notes on the slide, at our 52-week period, which is our reporting period ended on Sunday the 28th. And as a consequence, many of our payables took place -- settlement after our year-end cutoff. But that wasn't true for all of our receivables and the very significant effort that our business to lean into that space and paid dividends in terms of improved relationship between trade receivables and payables for this period end. And it was a key focus area, especially going through that heightened uncertainty of the pandemic. So we were able to take collections and, in some instances, even negotiate different payment terms. But I think importantly is a reflection is that what we feel proud about is that we've played our part in the pandemic in terms of not delaying a single payment to our suppliers and obviously asking of our customer base to honor the same. And by and large, that was done especially across some of the bigger retailers who are very responsibly active in this difficult pandemic.

And lastly to highlight on this slide is a number that we quote obviously because there's lots of noise on other receivables and payables balances sitting in our published working capital numbers. And so we published what we call an adjusted trade debtors days balance, which is a much -- obviously, the bulk of the number sitting in the trade receivables line are trade debtors. And so the kind of common expression of that in terms of how's your book looking and what are your days, underlying days. And those have worsened by 5 days on a comparable basis to last year, but 2 really big impacts affecting it. And the underlying quality of our book has no concern despite the difficult economic space. So there's no worsening in our aging. It really is a function of the debt book at the end of June this year was very different to a year ago with the inclusion, as I said, of RCL, which are predominantly retail-based plants as well as then the foodservice shutdown that took place meant that -- and they're on different and earlier payment terms than typically the retail clients are means that the mix shift of that trade debtors days balance moved out by 5 days but, as I say, of no significant concern.

Slide 23 then talks to our CapEx picture. And as I said, appropriately managed down this year with all the uncertainty associated with COVID. But pleasingly, we finished off a very big project in the business, and that was commissioned actually mid pandemic, which was a feat in itself that the Rustenburg waste-to-value plant is up and running and delivering as expected. So very excited about that. And over the last 2 years, that's probably been our single biggest CapEx investment that we've had. There's not a lot of others that we would seek to tease out. And then obviously, our commitments are similarly down on the prior year reference.

Slide 24 presents all of the return on invested capital pictures, both at the business unit level as well as at a group level. So the top left deriving an answer of -- on an underlying basis, 6.4%, 2.4% improvement on the prior year. Obviously, our published number is horribly distorted by the impairments and COVID impacts.

We would still obviously offer that even at 6.4% for the group, that's low. But I think important to remember that in that number is the revenue compromised answer this year by virtue of COVID, especially within Chicken and Vector, which we haven't adjusted out of the underlying. So importantly, an improving picture. You look across Groceries and Baking obviously in absolute terms, although they are down, they're still acceptable reference points in a very tough trading market; and the Chicken and Vector numbers, even on an adjusted underlying basis, obviously heavily COVID impacted, that revenue piece that I referenced.

On to Slide 25, a potentially confusing picture from a net finance cost perspective, and that's just explained on the slide. No issues with our debt package and it's tracking towards its maturity in '23, F '23. But this year's interest line, obviously very significantly impacted by the implementation of IFRS 16. So there's a ZAR 115 million without a comparative. As I stressed earlier, that's been prospectively implemented, so that obviously distorts it significantly. Then the fair value adjustments that we had on our interest collar for the debt package. A reminder that to the top of the table there, 75% of that debt is hedged. And in the form of a collar and where -- with where interest rates have got to over the last 6 months, clearly, it's sitting below that collar and translating to noncash mark-to-market adjustments, which also go through that interest line.

So when you get to the far left, which is actually the interest that we've paid, you can see it's almost identical to the value that we paid last year. And the offsetting detail there is that obviously we're paying a slightly lower rate than the prior year on the 25% that's not hedged as well as on our overdraft facilities. But the underlying working capital funding has been slightly higher this year during the course of the year, translating to a net interest cost which is the same as the prior year.

The next slide on covenants is really for your noting, all healthy and no issues to report pleasingly. And so I'm not going to spend any time there.

And then Slide 27 where I'll end is the detail that I referenced earlier in terms of the impact of IFRS 16 on the numbers that's spoken through in terms of the detail.

Now I'll hand over to Paul. Thank you.

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P. D. Cruickshank, RCL Foods Limited - COO [4]

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Thanks, Rob. Good morning, everybody.

I'm not going to dwell on Slide 29, which sets out the Food division performance in our business unit format at a statutory level. My focus will be on the underlying performance in upcoming slides, but it's worth repeating that these underlying results will be materially impacted by COVID.

If you turn to Slide 30, we've highlighted some of our wins for the period. I think it is important to note that these wins are in the context of a very tough operational and trading environment driven largely by the impacts in H2. There are a couple of wins that are worth calling out. As Miles mentioned, employee safety and feeding the nation being the heart of our COVID response. The Food division team did an excellent job of managing the business through an extremely complex operating environment, especially during the initial hard lockdown period.

Volume performance and market share gains are evidenced across several categories with Pet Food having a stellar performance in F '20. Focus on costs across all business units has delivered in line with our expectations, attributed as a special call out with supply chain and agricultural costs having reduced substantially versus the prior period. It was a challenging year for our Gauteng bakeries. A good management focus and a new team, the last quarter has seen both improved volume and operational efficiencies. Finally, it's worth noting that prior to COVID, chicken was gaining momentum in the implementation of our turnaround strategy.

Before moving to the business units, it's worth noting that each landing page reconcile the results of underlying performance, including an adjustment from the COVID impact and others from the prior years. The business has applied a conservative approach in -- when outlining the impact of COVID on operations. As such, we only measured costs associated with managing the virus and have excluded the impact of lost sales because of channel QSR legislation restrictions. This impact is the most material in chicken, as has been mentioned, and also the impact in pies and beverages with a smaller upside benefit in other categories, predominantly as a result of restaurant closure and more at-home consumption.

Moving to Slide 32. The Groceries business unit's underlying margin is slightly down at 4%. The strong result was underpinned by an excellent performance in both culinary and pet, offset in part by challenges experienced in pies and beverages.

Slide 33 sets out the highlights of our pleasing Pet Food performance for the period, gaining market share in all brands and highlighting Optimizor's launch in the co-op channel, quickly reaching the ZAR 100 million milestone. Innovation launched in F '20 has all been successful delivering aggressive growth in the retail channel. We are satisfied that the return on our investment made into this category remains well on track, and we are excited by what we believe represents a significant opportunity for growth.

Slide 34 talks to the culinary categories of the Groceries business unit. H1 volumes were challenged across the space, but we saw improved volumes in H2, especially in the last quarter whilst under lockdown. This is evident to the market share recovery over the shorter term. Despite lower share for the financial period in Nola and Ouma, both brands have maintained their market share leadership status. As highlighted at interim, Yum Yum has been negatively affected by the need to import peanuts at a significant premium to the local prices, following the local crop failure. This, combined with the impact of peanut butter imports not attracting a tariff, has affected Yum Yum volumes, market shares and margin. Progress has been made with ATEC in aligning the logic of both peanut and peanut butter tariff. Rainbow spices has performed well where it has been listed despite aggressive competition. Focus in F '21 will remain on driving consumer trial and market penetration.

On Slide 35, the Pies operating unit was materially impacted by the COVID lockdown as a result of the closure of hot delis in retail and food courts. Whilst trade restrictions have now been lifted, we expect volume to remain challenged given that travel is likely to be constrained for at least the next 6 months. Expansion of manufacturing facilities at Pies was completed at the end of July and innovate -- new innovation will be launched to the market in H2 of F '21. With beverages being an on-the-go consumption category, lockdown has added additional volume pressure to this category. As a result, our focus will shift back to the core with plans to address the underutilization of the UHT plant well underway.

Moving to Slide 37. Underlying Baking performance was slightly up last year with improved Speciality performance offsetting the challenges in milling and bread, buns and rolls.

On Slide 38, H2 volume in bread buns and rolls were buoyed by COVID at-home consumption and a cold winter. Gauteng bakeries, as mentioned earlier, remained a challenge for us. With management changes and a clear recovery plan, the last quarter has seen an improved performance at both bakeries.

Moving to Slide 39. Speciality delivered a pleasing performance, underpinned by sound cost control and improved operation -- operating efficiencies. Closure of coffee shops and restaurants boosted retail sales volumes during the lockdown period. Milling performance was challenged, but improved production reliability has been seen in recent months. Good volume performance in flour has been offset by lower by product recoveries, which is expected to continue into F '21. This, combined with higher wheat prices as a consequence of the currency devaluation late March, has placed pressure on our margins. Our milling strategic focus remains unchanged, which is to use more of our consistent quality flour internally.

On Slide 41, pre-COVID, Chicken was gaining good traction on the business turnaround strategy. Unfortunately, this was the category most impacted by COVID with the closure of QSRs and restaurants.

Slide 42. Repositioning of Chicken includes several critical initiatives, which centered around focusing on cost competitiveness, fixing our agricultural challenges, strengthening our regional sales focus and revitalizing the Rainbow brand. Cobb breed changes have worsened during this full reporting period, but clear plans are in place to accelerate our agri performance recovery. As a reminder, this is not a quick fix and will take us through the 12 to 18 months to fully resolve.

COVID had a material impact on the QSR channel with immediate shutdown of volume at the end of March. Volume moved into the retail channel where possible. But despite this, stock levels increased rapidly due to the fixed nature of our supply chain. Additional store space was secured but quickly exhausted. In order to prevent the collapse in the supply chain, the business decided to temporarily execute additional supply chain relief by reducing in effect 2% of our annual volume. Initial demand since the reopening of the foodservice channel has been positive.

Okay. So I'm going to Slide 43. Post the implementation of the increased tariff, there's been no further steps taken in the rollout of the chicken master plan. Coupled with the currency devaluation, imports have reduced since the tariff was implemented.

On Slide 44, external feeds through the EPOL brand has seen good volume growth, which, together with a strong focus on margin, shown improved EBIT performance.

Moving to Slide 46. Sugar has produced a substantially improved result, albeit off a low base.

Slide 47 unpacks the Sugar result in more detail. Retail demand improved significantly during the year with high in-home consumption during the lockdown as well as distribution of relief hampers being the main driver. Lower imports also contributed to improved local sales. The Sugar business unit's cost control focus in both agriculture and the supply chain were key contributors to the improved result, the impact of the Health Promotion Levy, further impact on operations during the period with the unfortunate but necessary decision taken to mothball the Pongola refinery.

Moving to Slide 48. Significant progress has been made by government in the sugar master plan to find a longer term, more sustainable solution to local sugar businesses. Phase 1 is now in play and requires all parties to play a role in delivering the social compact agreed to between government labor, retailers and industry. We're encouraged by the progress made in this space.

On Slide 49, the Molatek performance in H2 was more challenging as farmers switched to cheaper substitutes like maize, but the overall result for F '20 was pleasing.

Moving on to the last section, outlining the future food division longer-term strategy, the F '20 and F '21 focus areas. My exec team has spent substantial amount of time over the past 6 months clarifying our strategy and focus areas across all 4 business units. Groceries and Baking are our clear targeted areas for growth whilst the commodity business units require a different focus and energy.

Moving to Slide 52, the last slide in the Food division section, we have set out the key areas from a strategic and operational perspective to focus on in the next 12 months. Despite significant progress since we last reported in March, many of these items are rolled over from F '20 and with clear action plans in place, we expect to accelerate our momentum in the next 6 to 12 months.

I'm now going to hand over to Chris.

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Christopher David Creed, RCL Foods Limited - MD of Logistics Division [5]

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Thanks, Rob (sic) [Paul], and good morning, everybody.

If we skip past Slide 54 and go straight to Slide 55, as the headline says, watershed year sees Vector winning significant new business but impacted in the short term by investment costs and lost revenue in foodservice due to COVID-19. We had a pleasing revenue growth, up 18.6% to just under ZAR 2.6 billion driven by our Siqalo Foods new business, the realization of our long-term customer-centric strategy by being awarded the Shoprite and Massmart frozen supply chain business and the December take-on of significant number of new customers, largely ex-Imperial Cold Logistics customers.

Second bullet, we talk to EBITDA. We can see an -- EBITDA improves over underlying EBITDA down once you remove the gain on bargain purchase of ZAR 167 million as a result of the acquisition of certain assets and obligations of the Imperial Cold Logistics business as well as the ZAR 106 million IFRS 16 impact in the period.

Third bullet talks to the significant investment in new capacity and running duplicated networks. And the duplicated networks refers to the current Vector network and the acquired Imperial network that we're running until we've synergized the networks, obviously, increasing our cost base in the short term, and I'll talk more to this in the subsequent slides.

Moving to Slide 56. As I said earlier, pleasing new business in line with our customer strategy, been awarded the Shoprite and Massmart frozen business; the new customer business taken on in December, which are mostly ex-ICL customers, on principles, and can be seen at the bottom right of the slide. That's the full year benefit of the Siqalo Foods business. The new revenue mitigated the significant impact of COVID-19 on our foodservice customers' loss of revenue and reaffirms the benefit of our diversified portfolio.

Moving to Slide 57. We talk to significant investment in capacity. The capacity enablement for our new business and the duplicated network have increased our cost base, which will continue for the next 9 to 12 months until our final network has been achieved. That said, we have completed a number of large inland network integration moves successfully. And our focus is now to complete the capacity expansion projects at our inland satellite sites or our smaller sites and some of our coastal hubs. As the slide says, the final synergized network, once bedded down, will unlock synergies of scale, reduce the cost base and help build a sustainable model into the future.

Finally, moving to Slide 58. The first bullet, I've already discussed. The second bullet talks an exciting investment we've made in acquiring Empty Trips, a smart online digital freight matching platform, which positions us well to further grow our Primary Transport business. The third bullet, driving sustainability, the key priority with solar installations in identified facilities. And I'm pleased to say that our first installation in the Cape is about to be commissioned in the next few days. And lastly, Miles has already mentioned earlier, that a pleasing and positive contribution from our joint venture partners in Senn Foods in Botswana and L&A Logistics in Zambia further enhances our network reach into Africa.

And with that, I hand back to Miles.

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [6]

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Thanks, Chris.

If we go to Slide 60, the last slide in the deck is key deliverables emerged from COVID-19 stronger. And as I've said at the outset, we're having a firm look at our business on how we want to manage it in the future. I think the first is really having a hard look at the RCL portfolio and accelerate our portfolio brand strategy review. So that's both at the highest level in terms of the portfolio that we hold and where it's delivering and where it's not delivering and then within the various entities to look at the brands that we want to prioritize and drive hard.

No doubt, Groceries is one of those that we're going to drive hard and we're going to continue to maximize growth potential. We really think we've got some great brands. And the last couple of years, we've made headway, and we still see opportunity to grow further. Paul has touched on the bread, buns and rolls and the forward integrating in baking. There's no doubt that opportunity to do more of that in enhancing the internal consumption of our milling flour. So that's going to be key.

Accelerate Chicken's refresh strategy really have been a tough couple of years with chicken. And as Paul mentioned, we were just starting to make some really good headway, particularly in fixing parts of the business. But it's more than just agriculture. But we do have a real challenge with our breed, and that isn't a quick fix. But we've also been focusing on revitalizing the Rainbow brand. It's a fabulous brand that's powerful. It has strong consumer heritage. And so we want to look at leveraging that in the retail area and continue to drive supply chain efficiencies.

And Sugar is really all about delivering on diversification. Sugar, for us, can be more than just sugar in the sense of it being something that goes into coffee and tea, but it really is a great energy play. But as you will appreciate, in order to take advantage of some of these projects, you need government to put the appropriate regulatory environment in place and you need quite significant capital projects a little over on, but it is an area that we're putting a lot of work into and obviously being very supportive of the industry master plan. And really, the big area for Vector is all about synergizing those duplicated networks and we see, as Chris has pointed out, a number of opportunities there.

So we're in a solid position. We've had a really good performance during COVID because, as I said, very proud of the business and what they achieved during very, very difficult conditions in the lockdown. And we've got a strong cash position and balance sheet. And so we look forward to the future positively, although it is going to be tough. There's no doubt it's going to be tough, but we're very clear what we need to do to manage RCL Foods going forward.

So with that, we'll turn it over to questions. We have received quite a few. So we'll start with those and then wait for any more online. Thank you.

So Paul, should we join a kickoff?

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Questions and Answers

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P. D. Cruickshank, RCL Foods Limited - COO [1]

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Yes. Okay. So first question, there's 4 questions in here from [Antifog]. So I'll just read each part and then answer it. So good morning, gents, very good, interesting results. Please comment further on how QSR volumes have returned since your June year-end. So the QSR volume started first week in June. And June month, so strong pull from a QSR perspective, and then into July and August has slowed down somewhat. We are expecting volumes to sit around 90% of pre-COVID levels. That's kind of what the entire industry is expecting, and that's more or less where we're trading. Currently, we have traded since the market opened.

The next part is you also stated you've cut chicken production 2%. Any update? Yes. We did cut production for the period May and June. And our birds were then put back into the system early August in 2 tranches. So middle of September, we will start slaughtering at normal volumes again, middle to end September.

And the next part is there was a huge 20,000 ton excess inventory in the system -- per month, the excess inventory in the system due to QSR. How is the current sector inventory? And so I mean, really, what happened was the mix switched into ITF. As everyone would expect, stocks, other than ITF stocks are largely imbalanced. ITF stocks are higher than what we would be comfortable with. Hence, we flag in the prospect some concern through the full F '21 as that stock needs to move through the system. And so we still sit at levels which are higher than what we'd normally have will be comfortable with.

And then the last part is about maize. At 3,000 a ton, no signs of declining. How does that square your comment about input pricing for maize as a given. So the South African crop is the second highest in history at just about 15.5 million tons. There are some downgrades in terms of white maize into white maize crop, which would be positive for animal feed. And at the moment, maize is staying positively high, but our expectation at some point that stock needs to come to the market. So hopefully, that answers those.

My next one is then around the PAS markets. What is the current size of the PAS market in South Africa and what is RCL share? So we sit just shy of 30% of the market and the current markets between 31 million and 32 million dozen parts.

And I'm just going to hand one over to Chris.

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Christopher David Creed, RCL Foods Limited - MD of Logistics Division [2]

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Thanks, Paul. A question from [Talia Gutenberg]. Would you say there are any synergies between Vector and the food businesses? And the second part, and why did you acquire Imperial Logistics cold chain business? First part about synergies. Yes, absolute synergies. I assume when you refer to the food businesses, you mean RCL Food division. So we supply a fully integrated outbound supply chain, which brings lots of synergies with the integration, and that has been the case for a number of years.

And then why did you acquire Imperial logistics cold chain business? With Imperial closing their doors at the end of November and us taking on a new business, we needed the capacity and the assets to enable additional volume.

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [3]

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And before we carry on with the online questions, operator, maybe let's go through the audience to see whether there's any online or on-the-call questions that we can take and that will also just demonstrate to us that everybody is still listening in.

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Operator [4]

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(Operator Instructions) The first question comes from Chris Logan from Opportune.

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Chris Logan, Opportune Investments - CIO [5]

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Yes. Thanks a lot for a comprehensive presentation. If I may just ask 2 questions. First of all, you said there's some problems in chickens with the breed. Could you just give a bit more clarity on what that's about? Actually -- and then also, what's very helpful when Astral presents on chickens is their performance in terms of mortality and how they're improving the weight per bird and all of those type of stats. Is that not something you think you should show? And then the third question is the major question. You're making a lot of progress in a lot of fronts, but there's one area which is really missing, and that's shareholder value. And this is a key thing. I mean RCL come up at discussion at the [Ringo] AGM, I think, the last 4 AGMs. When is shareholder value going to be a consequence at RCL? And by that, I mean in terms of share ownership of the executives and aligned incentives.

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [6]

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Maybe -- Chris, it's Miles here. Let me deal with the shareholder value, and then we will pass on to Paul to talk around the chicken and the chicken KPIs. Yes. And I hear you loud and clear. We're equally disappointed that the value that we see in RCL Foods is not reflected in the share price as one obvious indicator of creating shareholder value and clearly, underpinning that is our ROIC, which is too low. And there are a number of issues that are associated with that. One is just the absolute answer in terms of profitability. And as you know, we've had a really tough time with chicken and sugar. Part of the chicken issues were a strategic direction that we took which didn't deliver what we wanted, and so we'll take responsibility for that. Allied to that is the breed impacts that we've had, which Paul would talk to. But whichever way you put it, the chicken answer is too low. And then sugar, when we acquired sugar, we had the 100-year drought and a number of impacts in that area, the wool price of sugar coming down. And so the sugar answer, quite frankly, hasn't been where it should be. So those are the 2, let's call it, functional drivers of lack of profit.

Our Groceries business, our Baking business have done exceptionally well. Vector has now also been impacted. As you know, that was a fairly solid performer. It was impacted, firstly, by unrealistic, let's call it, competitive pricing, which put a lot of pressure on our pricing. And in the last couple of years, we've really been working hard to drive a customer-related model, a customer-focused model. We believe we've achieved that by being awarded the Pick n Pay business, the Shoprite business and the Massmart business. And yes, it's going to take some time to put these networks together. So those are 3 areas that are big parts of our business that are impacting on our absolute delivery of profit and hence, impacting on our ROIC.

Having said all of that, we, as an exec and as a Board, realized that we need to do whatever needs to be done to unlock that shareholder value. And so both the management incentive plans are very much aligned to ROIC. And we did put out a notice that PwC, we're doing a review, and that contains a very strong component of ROIC modifiers in bonusing and in the long-term incentive plan, which hasn't quite been finalized yet.

I've mentioned the portfolio shape a few times today, and we had to take a hard look at our portfolio shape. Ultimately, we believe to generate shareholder value, we need brands. Brands give you consistent demand. They give you consistent margins. And that's going to be a big focus area for us. So quite a long answer to your question, but hopefully gives you a sentiment of what we think is the problem sitting behind the lack of shareholder value measured both by ROIC and by the share price.

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P. D. Cruickshank, RCL Foods Limited - COO [7]

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Yes. Then maybe just to -- Miles, to jump onto the breed issue. So this goes back to breeding. So the quality of the birds that we import into the grandparent operation which previously we used to import from the U.K., and we have now switched to the U.S. to try and get improved performance, Cobb have acknowledged that there are issues with the performance of the bird. And practically, what happens is you need to import significantly more grandparent birds to get the egg production that we need through our system. It has a knock-on impact in the broilers in that you are forced to place all eggs, and the least quality eggs give you the least broiler performance. So a knock-on impact there, but the vast majority of the issue actually sits in breeding. So we have worked the workaround through the U.S. to try and get a quick fix into it and are doing other steps to try and mitigate the impact. But we feel like we're on track now, but it is going to take -- unfortunately, the nature of chicken, it takes a significant period of time to get the improvement through the system. All our flocks now have been -- from July have been moved to the U.S. So you'll start to see the benefit of that coming through in the earliest 50 weeks, but full production will take 12 months.

And then just from a KPI, the answer on the KPI is yes, we see the KPIs of internal management information and therefore, isn't included in our pack.

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Chris Logan, Opportune Investments - CIO [8]

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Miles, if I just may make the direct point. I mean you guys say you're using PwC. PwC have been associated with all these misaligned incentives across the JSE. And isn't it time you took -- got an outside perspective? And there is precedent Distell recently did that where they went to the shareholders and changed quite dramatically, even though they had a 99% growth for their misaligned incentives. And I think impatience is needed in this situation. So don't you think that would be a good idea rather than just going to the same club?

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [9]

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Yes. Thanks, Chris. The project is actually driven by the RemCom independently obviously with management's input and obviously, the counseling. But at the end of the day, it's a RemCom-driven project, and they made the decision in terms of who they would use. But I'm very happy to pass on your thoughts to Peter Mageza, the Chairman of our RemCom, very happy to do that.

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Chris Logan, Opportune Investments - CIO [10]

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Sure. I mean because Jannie Durant has made some direct comments that -- and Johann Rupert that in the future, incentives must be aligned with shareholder value and management mustn't do better than shareholders like has been very successful at FirstRand. So…

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [11]

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300%. So we're all on the same page as far as sentiment goes. And hopefully, what we've come up with PwC will reflect that, but I will, in any event, pass on your comments to Pete, if they want to get it tested externally.

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Operator [12]

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The next question comes from [Albi Silius] from Salandia Capital. Unfortunately, we cannot hear anything from [Albi's] line. We do not have any other questions on the audio line.

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [13]

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Thank you. Then we'll go back to the ones in front of us.

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P. D. Cruickshank, RCL Foods Limited - COO [14]

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So I'll go first. Chris, I think there's one for you, but yes, okay. From [Anton Smith]. Can you please elaborate a bit on more on your expectation of chicken imports going forward? Will the bottom of time be enough to offset the pressure from QSR weaknesses? I think I've sort of answered that earlier in terms of this -- partly earlier with the stock levels of ITF, which we expect to stay high at least until December. Imports have dropped off with the combination of currency and the import tariff and continue to be more or less the same numbers as the last 2, 3 months in a row, around 11,000, 12,000 tons with the ban in import. So the answer is not yet. The market is out of balance. It will need to come back into balance, and then we'll see the true import -- true impact of the tariff.

And then the next one is also on chicken and then also to Chris. It talks about, in addition of oversupply and poultry input costs we -- they don't seem to be moving in our favor despite good local maize crops. And so I think the answer to maize is part of it earlier. But the rest of the questions, are you expecting the loss-making in poultry going into the new year? Obviously, we don't give direct forecasts. We are expecting H1 to be very difficult in chicken. And we -- and as a consequence, expecting the whole of F '21 to be challenged in poultry.

The next part is only large players in chicken decreasing volumes? I don't know. I'm not sure what the other players have done. But as I mentioned earlier, we took a decision to maintain the integrity of our supply chain and make sure that we didn't run out of storage base during COVID. And that has now been reversed and the volume -- our volume is back in the system.

And the last one, is it fair to assume that cost recovery in bread is unlikely for the big -- all the big players? Wheat prices are remaining high. Yes. They are remaining high and we are seeing some movements in the market in terms of price increases in bread, including our own brand, which has moved up in the last couple of months. Now I'll hand over to Chris.

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Christopher David Creed, RCL Foods Limited - MD of Logistics Division [15]

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Thanks, Paul. [Tumela Madiva] asked when was Empty Trips acquired? And is it only operational in South Africa? We acquired Empty Trips in November 2019. And we have -- at this stage, it's Phase 1. We're using it in our internal business only in enhancing our operational performance internally. And we will roll it out on a phased basis, but it is South Africa only at this stage.

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [16]

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Thanks, Chris. It's Miles here. We've got a comment from Peter Cromberg from Mergermarket. Given the company's strong cash position, to what extent will it look at acquisitions? What specific assets or sectors would you have interest in terms of acquisitions? So yes, certainly. Part of the comments I made earlier was this very hard review of our existing portfolio and what portfolio should look like going forward. So the one investment we've already made is in LIVEKINDLY as a complete alternate protein opportunity and a trend that we think is going to accelerate over the next couple of years. So we've really positioned ourselves there with an investment in the LIVEKINDLY holding company and, as I said, looking at setting up some form of JV operation in Africa. Similarly, we will continue to look at food and continue to look at brands. So we really want to be able to get food brands higher margin. And as you know, a brand gives you that consistent demand. It gives you consistent margins, it gives you ability to reinvest in innovation and marketing spend. And that's such a good recipe. So those are the areas that we would continue to look at. And we do feel that there may be some opportunities that will emerge post-COVID. Thank you. I'll hand over to Rob. There's a question on goodwill.

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Robert Hilton Field, RCL Foods Limited - CFO, Financial Director & Executive Director [17]

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Yes. Let me take the one first. Kgosi from Citigroup asked the ZAR 287 million goodwill written off within Vector, does it relate to the new ICL business or the hold business? Obviously, that balance was there predating the ICL transaction. But because of the accountant's definition of Vector as a CGU, it gets tested for impairment at a total Vector level. And to the extent that the overall valuation doesn't support the book value, what you do is you impair goodwill first. And so that's why that entire balance that was there historically has now been impaired.

Justin Richie from Aylett also had some questions for me. Regarding the release of working capital, can you help us understand what the normalized level of working capital looks like? How much of that cash release should we expect to reverse? I'm happy to guide that at a total level, our working capital investment should trade around 12% of revenue. Obviously, the construct of that has changed, as I mentioned earlier, in terms of Vector's new business taken on. But that's not an appropriate number to reference, which means that there's probably going to be about ZAR 400 million, ZAR 500 million worth of reversal of that cash release.

And then you asked a more direct question than what Chris' sentiment one was, and that is what would management's team consider an acceptable ROIC number to me. And clearly, the answer is as high as possible and certainly north of our cost of our capital. But just to repeat Mile's answer and hence -- and then also in my ROIC slide in the deck was that yes, as we stand right now, Groceries and Baking business units ROICs are healthy and well north of that reference point. The struggles that we've had and issues relate obviously to Chicken, Sugar and Vector businesses and all for different reasons. So when you look at it at a composite level, obviously, that's why you get that averaging of that 6-odd percent reference that we have now, but obviously very different than its underlying construct. Handing over to Paul.

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P. D. Cruickshank, RCL Foods Limited - COO [18]

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And so just there's a question around COVID impact and trading in July and August. And so could you just talk about revenues and profits you lost in COVID? I think we set out in the presentation the impact of COVID, which was on direct costs and not the revenue impact, as I mentioned earlier. And then the second part was how was trading in July and August? Miles mentioned that demand continued to be strong as it has across all of our categories in July and August. And now into September, we still continue to see good demand.

I've got a question around what is the view of the sustainable margin in Sugar given the global oversupply? We still believe our Sugar business is well positioned given the location of our agriculture growing area. And we would like to believe that we could get to sustainable margin of around 6% in Sugar. Given its commodity nature, it will probably fluctuate, but that would be our deal. In carrying on with Sugar, from Anthony from Investec, about the Pongola refinery, and it does -- do you still have refining capacity? How does this affect national refining supply versus demand? Is it just Pongola's driven refinery and [not those Rustenburg] unit lift? And what are hopes for the master plan? So yes, we still have a refinery in Malelane, which is now running much closer to capacity. So there are other refineries. If any given refinery is the one in the industry which still has the most capacity, but there has been a rationalization of refining capacity in the last 12 months as we did with Pongola. But we believe there still is sufficient refining capacity in South Africa to meet the demand. And then our hope for the master plan, we hope that will bring some clarity in terms of -- to the sugar industry and support from government in terms of diversification is a key part of the master plan. So we are hopeful that it's moving in the right direction, and it will continue to get the support from government as the plan is rolled out.

And then my next one is, do you expect current sugar performance to continue? Consumer -- with the consumer constraints, do you expect further market share losses? What percentage is the competition versus private label? So our sugar performance has continued. Demand has continued to be strong since the lockdown, as I mentioned. We are unsure what demand will look like post-COVID. And that will just need to be managed with the industry. But all industry players are seeing strong demand. Our market share losses in sugar are not significant. Our shares are pretty similar to what they've been over the last couple of years in terms of the industry split.

Then the next one is a question on peanuts. Could you provide more color on the local crop failure? And where is the crop gone and which country of peanuts you source from and the FX impact? So the -- yes, the local crop failure was last year, and there's some strain on the current crop and it did force imports of peanuts. What we do is we take a long position and long -- because of the long lead time to get the peanuts into South Africa, we make sure we have sufficient supply to meet our demand and where we're very challenged in this space over COVID, but were managed by the teams. Obviously, the weak currency will make imports or will make the positive peanuts more expensive. That is all factored into our future view on pricing. But yes, so it certainly would have an impact on the peanut butter market. The real issue, which I highlighted, is the difference between peanut butter and peanuts, which is the tariff -- where you have a tariff on peanuts, but no tariff on peanut butter, which is what created the shift in the market. And as I mentioned, we're quite close to ATEC or work closely with ATEC and quite close to resolving a tariff, which would bring consistency between peanuts and peanut butter.

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [19]

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Done. Paul? Let's go back on to whether there's any questions from the participants.

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Operator [20]

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Yes. We have a question from [Albi Silius] from Salandia Capital.

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Unidentified Shareholder, [21]

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Can you hear me this time?

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Operator [22]

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Yes, we can.

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [23]

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Yes, [Albi].

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Unidentified Shareholder, [24]

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I just want to follow up on Mr. Chris Logan's question. I think you've mentioned there that you used PricewaterhouseCoopers for the remuneration strategies that the Board uses. Why does management needs to give any input at all? I've listened to what you guys have said here today, and I've read the results announcements and over the years. And every time, I hear just excuses and this needs to be done, and this needs to be done different, and we're on track or committed or whatever. If you were a sports team and you had so many years of nonperformance and losing, do you think you would have value at all for any other team? I mean why do you get to make your own salaries as part of the remuneration subsidies that the Board is to implement? Can you explain that to me, please?

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [25]

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[Albi], it's Miles Dally here. I'm not quite sure if I miscommunicated or we're missing each other. So ultimately, it is the RemCom's decision, and it's their project. And they're running with this decision. And we don't make our own salaries. And the only reason is for input is that ultimately, any incentive scheme needs to be aligned for both management and shareholders. So it's purely from that perspective. There's no point is putting in a scheme that's not aligned and it turns out to be disincentive or a long-term incentive scheme that doesn't put the appropriate kinds of retreatment in place. But ultimately, it's 100% RemCom's project and their decision. So hopefully, that's clear.

And yes, you're quite right, regarding a sports team. You can look at it in a number of ways. Our guess is that the Board also have the ability to remove management if they feel that there are better management that they can put in place or they're not comfortable with what management's performance is. So all we're doing are presenting the facts here. I mean you either buy into those facts or you don't buy into the facts. We're equally disappointed that there was a 100-year drought. And we're equally disappointed with some of the challenges we faced in Chicken. On the other hand, we've done exceptionally well with Groceries, and we've ensured that Vector is the last man standing in the frozen distribution. RCL didn't last that long. So in fairness, there are a number of parts of the business that have worked well. There are a number of parts of the business that are directly impacted by external factors, and there are parts of the business that are impacted on by management, and we take responsibility for that.

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Unidentified Shareholder, [26]

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I appreciate that there's part of the business that is doing well. But unfortunately, us as shareholders don't own parts of the business. We all earn our hold of the business. And the share price, it's just performed abysmally. And then on top of that, you have to, at the same time, a lead in the news of other Chicken business like Country Birds are doing exceptionally well. They're doing acquisitions, multiple of them. Content food is doing well, [SL], Directors, all of them buying shares. And yes, I sit in Rainbow chickens. And you just tell me every time, I should look forward to the future and the Chicken business will do well. And Mr. (inaudible) at AGM say that, no, you will outperform Astral in the years coming. And it's 2 years down the line and nothing has happened. And I don't see it here with chickens. Directors buying shares of their own money. And I just see them in their minor leagues here. They're just not performing. So I appreciate that the grocery business might do well, but it doesn't help us, the shareholders. What's the reason for Rainbow Chicken continuing as a listed company at this stage?

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [27]

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So I think you've raised another couple of points, [Albi], that we're just touching on. I think that the Chicken business has had some challenges, as we've acknowledged. And quite frankly, it could have been -- there are 2 big breeds in the world, one being Ross, one being Cobb. Astral, as you know, have Ross, we have Cobb. It could easily have been the Ross bird that has had this real trough, and it took a while to pick it up. As you well know, Cobb and Ross are international brands. They're both the 2 biggest and really the only 2 real big breeds in the world. And Cobb is part of Roslin, and they've acknowledged that there is a genetic issue. And this is not something that you can fix quickly. So yes, that's the reality for us in the chicken business.

I'm not sure on your comment on Country Bird performing well given they're not listed. So I'm not aware of them performing well. They're certainly very active in the corporate space, and I think that's as a result of Kevin James having direct influence in that area. We're pretty big. So to be corporate activity in chicken is not easy for us. And I agree with you, the shareholders are buying RCL Foods. So at the end of the day, RCL Foods has to perform, and our Chicken business has let us down in that regard and overshadowed a lot of the good work that's happened in other areas.

And I agree with you on the share price. And I still hold my shares that I've had since 2003, which I increased in 2007, and then I've increased it again more recently. So we hang on to our shares. I think the fact that the shares are patently a reflection of the market's view of the business and not necessarily the fundamental underlying view of the business, and that doesn't help shareholders either. I think the other challenge that we have is that there's not a lot of liquidity in our share, as you're aware. So that is, again, an anomaly. But I do think that the time has come that we have to deliver shareholder value and no matter what that takes in terms of reshaping our portfolio. As I said at the outset, we're working hard with the Board on saying what is the end shape of our portfolio that makes us get to an appropriate share price, let's call it, to reflect the underlying value of the business, which, I concur, isn't reflecting at the moment. You can do the math. If you look at just the Foodcorp business that we bought, if it we're worth more than our market cap. So yes, clearly, the market and -- it doesn't like the way we are structured and doesn't like our results, and we accept that. And it's I'll hold on enough to do something about it.

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Operator [28]

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We have no further questions on the audio line.

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Robert Hilton Field, RCL Foods Limited - CFO, Financial Director & Executive Director [29]

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And there's no more that have come through to us either.

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [30]

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So I think -- yes?

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Operator [31]

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No. I was just going to say, in that case, do you have any closing comments before we conclude?

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Miles Dally, RCL Foods Limited - CEO, MD & Executive Director [32]

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Yes. I'd just like to say, firstly, thank you for dialing and listening. And thank you very much for the direct and frank questions. We really appreciate it. It is the only way that we can shape the business is by getting direct feedback from people like yourselves that are interested in our business or concerned about our business. So I really take that on Board, and thank you for that feedback.

And then secondly, just to say to the people of RCL Foods, I'm incredibly proud of them. I'm incredibly proud of the way they performed during lockdown. I don't think anyone realizes the extent of what some people in this business did in lockdown Level 5 came 24/7, 20,000 people moving around the country and continuing to produce, albeit with an on cost to the business, continuing to produce food for South Africa. So I'm very proud of you, and I'm very proud of where we've ended up at the end of this year in spite of very, very difficult years. And I'm confident that we will go forward in a much stronger position than we entered COVID with and with much clearer thinking in terms of where we want to be. Thank you.

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Operator [33]

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Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.