|*||Effective 2 July 2018, Unilever repurchased Remgro’s interest in the company for a total consideration amounting to R11.9 billion. The consideration consists of Unilever’s Spreads business (owning brands like Rama, Stork and Flora) in Southern Africa and R4.9 billion cash. The spreads business is housed in Siqalo Foods.|
Distell Group holdings Limited (Distell)
Distell’s contribution to Remgro’s headline earnings for the year under review amounted to R459 million (2018: R467 million). Including additional IFRS 3 charge, Distell contributed R412 million (2018: R459 million).
Distell’s reported headline earnings for its year ended 30 June 2019 decreased by 1.7% to R1 441 million (2018: R1 466 million). Excluding the currency conversion movements, the group retrenchment and restructuring costs, credit loss provision on Zimbabwe bonds and the Tanzania Distilleries Limited losses in the prior year, headline earnings increased by 7.0%. Normalised headline earnings adjusted for foreign exchange movements increased by 5.2% to R1 682 million (2018: R1 599 million).
Distell reported for its year ended 30 June 2019 that revenue increased by 8.0% to R26 180 million (2018: R24 231 million) on constant volumes, while revenue excluding excise duty increased by 8.8%. Comparable revenue in the South African market increased by 9.5% with sales volumes down by 0.9% as consumer confidence and disposable income remain subdued and with increased value offerings by competitors, particularly in beer. The cider and ready-to-drink (RTD) portfolio delivered double-digit revenue growth, with Savanna, Extreme and Bernini maintaining their excellent growth momentum. The spirits category showed strong revenue growth led by premium white spirits. The wine portfolio recorded muted revenue growth as wine supply shortages resulted in above-inflation cost increases, which were passed on to consumers. The renewed focus on core brands is yielding results with established brands achieving solid growth and overall margin improvement.
African markets, outside South Africa, delivered revenue growth of 20.0% on sales volume growth, which were up 10.3%. Focus markets on the continent also recorded strong growth. Volumes in international markets outside Africa declined by 10.6%.
RCL FOODS Limited (RCL FOODS)
For the year ended 30 June 2019, RCL Foods’ headline earnings decreased by 60.7% to R329 million (2018: R838 million). Remgro’s share of the headline earnings of RCL Foods amounted to R254 million (2018: R647 million) for the year under review.
The decline in the company’s headline earnings was largely attributable to the adverse performance of the Chicken and Sugar business units. The local poultry and sugar industries are under significant pressure, impacted by oversupply and declining local market demand due to muted consumer spending and, specifically with respect to sugar, the recently implemented Health Promotion Levy (sugar tax). The supply/demand imbalance resulted in low selling prices being realised in both the Chicken and Sugar business units, inhibiting cost recovery, thereby severely reducing margins. In the absence of an appropriate tariff chicken imports remained high, with sugar imports having stabilised following the implementation of the revised tariff in August 2018.
Despite the challenging market conditions, Groceries performed strongly, improving volumes and margins across a broad spectrum of categories. The performance of the Millbake business unit continues to improve, whilst profitability at Animal Feed was hampered by rising commodity costs and an extremely competitive trading environment. Logistics has made substantial investments during the period, specifically for the take-on of the frozen business of Pick n Pay and the spreads business of Siqalo Foods.
RCL Foods’ revenue for the period increased 5.5% to R25.9 billion (2018: R24.5 billion) driven largely by volume gains in most business units coupled with commodity driven price increases in Animal Feed. Despite the revenue gains, EBITDA declined by R520 million (25.4%) to R1 526 million (2018: R2 046 million) due mainly to Chicken (down R253 million) and Sugar (down R369 million).
R million June 2019 June 2019
June 2018 June 2018
% change Margin
EBITDA 1 526 5.9 2 046 8.3 (25.4) (2.4) – Consumer 854 6.6 985 7.7 (13.3) (1.1) – Sugar & Milling 518 3.5 869 6.4 (40.4) (2.9) – Logistics 119 5.4 204 10.3 (42.0) (4.9) – group 35 (14)
Siqalo Foods Proprietary Limited (SIQALO FOODS)
Siqalo Foods comprises of Unilever South Africa Holdings Proprietary Limited’s (Unilever) spreads business that was acquired by Remgro on 2 July 2018 as part of the sale of Remgro’s shareholding in Unilever. The company manufactures spreads, which are sold under market-leading trade marks such as Rama, Flora, Stork and Rondo within the Southern African customs union territories.
Unilever continued to act as principal as part of its obligation under the transition agreement until the end of March 2019. Thereafter Siqalo Foods assumed full operational control of the business.
Siqalo Foods’ contribution to Remgro’s headline earnings for the year under review amounted to R332 million, excluding additional IFRS 3 amortisation of R80 million. During a challenging, turbulent year of transition from Unilever to a standalone business, Siqalo Foods managed to realise a 2.9% growth in volumes, as well as achieving its 2019 budgeted EBITDA. In its new structures, the business has continued to deliver similar results as in prior years. On 30 June 2019, Siqalo Foods had a combined twelve-month moving average value market share of 74.1%, up 3.5% from 30 June 2018. Siqalo Foods remains committed to grow its brands and volumes while maintaining its profit margins in 2020 in order to maximise shareholder value.
Two contracts are in place with RCL Foods. Vector Logistics provides the distribution, sales and merchandising, while a management services contract governs certain services that RCL Foods Shared Services platform provide to Siqalo Foods on an arm’s length basis. The result is an innovative, alternative business model, leveraging the capabilities within the wider Remgro Group of companies.