INVESTOR DAY. Food Additives and Ingredients growth pillar. 27 October 2015

Transcription

1 INVESTOR DAY Food Additives and Ingredients growth pillar 27 October 2015

2 AGENDA 1 1. Welcome and introductions 2. AECI» Overview» Business environment» Focus to year-end» Strategic growth pillars 3. Presentation: Food Additives and Ingredients 4. Site visits to Afoodable and SCP (2 groups) 5. Close

3 AECI OVERVIEW AND FOCUS 2

4 OVERVIEW 3 Sep month rolling TRIR = 0,37 All workers TRIR 1,0 0,8 0,6 Maximum tolerable level 0,4 0,2 0,

5 OVERVIEW: POST-JULY 15 4 Benefits of acquisitions and strategic portfolio management continue to be realised» Pleasing progress on integration of ~ Farmers Organisation Limited (Nulandis) effective 1 June ~ SCP effective 1 August Realisation of property assets at Somerset West» Bulk sale to City of Cape Town ~ Land transferred on 19 October and cash proceeds of R430m (incl. VAT and interest) received on 20 October ~ Sale agreements signed for the remainder of Precinct 1 (subject to CPs) FSB approval obtained for DB:DC pension fund de-risking project» Implementation in progress» Final completion in 1Q16» R120m savings/year from 16 National A credit rating by CGR Share repurchase Good cost control and capex management

6 SHARE REPURCHASE 5 Embarked on a general repurchase on 12 August 15» In terms of AGM authority Share price had declined significantly to R100,00» Value in buying back shares Funded from cash generated by operations As at 22 October 15» 4,4 million shares repurchased» Average price = R95,09 per share» Shares repurchased = 3,43% of total issued share capital» R417m invested Shares cancelled at the end of each month SENS announcement on 15 October 15 reached 3,12% Target = repurchase up to 5 million shares» R500m cap

7 BUSINESS ENVIRONMENT

8 BUSINESS ENVIRONMENT 7 SA mining volumes Jan 10 Aug 15 Source: Stats SA

9 BUSINESS ENVIRONMENT 8 Historical price performance gold and platinum (US$/oz) Source: SNL

10 BUSINESS ENVIRONMENT 9 Historical price performance coal and iron ore (US$/tonne) Source: SNL

11 MINING: BUSINESS ENVIRONMENT EFFECTS 10 SA» Mine and shaft closures» Platinum mining sector has recovered but not to 13 levels» Blue chip customers exposed ~ Business rescue processes underway» Major tenders retained, some margin sacrifice Central Africa» Good volume growth to end-september, but customers have announced cut-backs» Energy constraints West Africa» Gold mining sector stabilised» Political unrest in Burkina Faso New contracts gained by AEL and Senmin in SA and DRC Indonesia» Mining stabilised Australia» Volumes in line with expectations

12 BUSINESS ENVIRONMENT 11 SA manufacturing volumes Jan 08 Aug 15 Source: Stats SA

13 BUSINESS ENVIRONMENT 12 ZAR/US$ exchange rate Jan 14 end Sep 15 Source: INET Bridge

14 BUSINESS ENVIRONMENT 13 Brent crude oil (US$/bbl) Source: INET Bridge

15 BUSINESS ENVIRONMENT 14 SA manufacturing and agriculture Uninspiring overall» Electricity supply more stable of late but remains a concern ~ Effects on customers, particularly SMEs» Sector growth not tracking GDP growth ~ GDP targets revised down» Weak demand impacts margin and volume growth» No step-change in exports by customers, even with weak ZAR» Customers rationalising and reducing production capacity due to cost competitiveness factors» Poor rainfall a concern ~ Affects water treatment, agriculture and general industrial sectors

16 SA MANUFACTURING AND AGRICULTURE: BUSINESS ENVIRONMENT EFFECTS 15 Notwithstanding the difficult environment Specialty chemicals segment pleasingly robust» Good overall performance from the portfolio ~ Strategic portfolio management ~ Benefits of acquisitions Strategic growth pillars validated

17 FOCUS TO YEAR-END 16 Continue to drive cost control and working capital management» Group procurement initiatives» Reshaping the business for prevailing market conditions» Regional Financial Shared Services Centre» S189 issued in some businesses» Moratorium on employment in certain areas Gearing ratio remains healthy» Contain capex to depreciation levels» Continue to pursue strategic acquisitions Progress post-retirement de-risking project Finalise Somerset West transaction

18 STRATEGIC GROWTH PILLARS

19 STRATEGY SUMMARISED 18

20 STRATEGY SUMMARISED 19

21 1H15 REVENUE SPLIT (%) 20 Mining solutions = 59% of revenue

22 SPECIALTY CHEMICALS 21 1H15 revenue by market sector (%) water solutions = 16%

23 SA FOOD AND BEVERAGE CONSUMPTION per capita food consumption (ZAR) = +6,7% y-o-y» 5-year forecast CAGR to 19 = +7,0%. 15 soft drinks volume sales = +4,2% y-o-y» Forecast compound annual growth to 19 = +4,0%. 15 mass grocery retail sales (ZAR) = +7,8% y-o-y» Forecast compound annual growth to 19 = +7,9% Source: BMI, October 15

24 FOOD ADDITIVES AND INGREDIENTS

25 FOOD ADDITIVES AND INGREDIENTS: VISION AND STRATEGY 24 Vision To become a major supplier of food ingredients and additives to customers in SA s food manufacturing and retail sectors Thereafter, to expand exports (Africa, Middle East) Strategy To focus on expanding the product offering of the existing business and aggressively target acquisitions in SA» Lake Foods and SCP are the Group companies in the pillar» Increase revenue from about R400m in 13 to R1bn by full-year 17» Acquisitions and product development and services are key for growth» IP and value-added products and services are fundamental for margin maintenance

26 FOOD ADDITIVES AND INGREDIENTS PILLAR: BUSINESSES 25 Exclusive representative for leading international manufacturers and suppliers of specialty ingredients and commodities Offers products and services into the dairy, beverage, wine, meat, bakery, health and nutrition industries Manufactures and distributes a broad range of juice-based products Includes formulated compounds, fruit concentrate blends and emulsions

27 SA FOOD AND BEVERAGE MARKET OVERVIEW (%) 26 R285bn in 14 (6% of GDP) Beverages Bakery and confectionery Cereals and grains Dairy and ice cream Spices, soups, sauces, dressings Meat and meat processing Snack foods 4 15 Source: Frost & Sullivan

28 AECI 14 REVENUE FROM FOOD INDUSTRY BY MARKET SECTOR (%) Meat Dairy 7 Poultry Health Bakery 10 Beverage Glucose 23 Edible oil 21

29 SA FOOD AND BEVERAGE MARKET OVERVIEW (%) 28 Market access 38% 62% Source: Frost & Sullivan

30 SA FOOD AND BEVERAGE MARKET OVERVIEW 29 Source: Lake Foods

31 AECI FOOD ADDITIVES AND INGREDIENTS: GROWTH HISTORY 30

32 LAKE FOODS: THREE DIVISIONS 31 Food Solutions» Represents international manufacturers and suppliers of specialty ingredients and commodities for the dairy, beverage, wine, meat, poultry, bakery, health, nutrition industries Infigro» Perlite and related products as a filter aid Afoodable» Liquid marinades and sauces for the industrial, food services and retail markets

33 LAKE FOODS: VALUE PROPOSITION 32 Qualified and highly skilled sales and marketing staff» Application laboratory and technical specialists formulation development and pilot plant application trials» Technical expertise for implementation at customer s manufacturing facility» Development of customised blends and Lake brands for chosen market segments Exclusive agreements with principals global leaders, support innovation Food safety

34 LAKE FOODS: FOOD SAFETY 33 Responsibility for food safety and quality is integral Controlled by an internal lab with qualified food technologists SABS audited HACCP system implemented from 06 Continued focus FSSC implemented by June 16 Food Solutions and Infigro also ISO9001 accredited

35 LAKE FOOD SOLUTIONS 34

36 SOME KEY PRINCIPALS 35

37 INFIGRO 36

38 AFOODABLE product lines

39 AFOODABLE 38 Established in 90 Privately-owned Producing liquid marinades and sauces for the local market Acquired by AECI in 12» In line with strategy to grow Food Additives and Ingredients pillar for critical mass» Divisionalised into Lake Foods Facility in Montague Gardens, Cape Town» R20m upgrade» Officially opened May 15» Increased capacity from 550t/month to 1 000t/month» Business rebranded

40 AFOODABLE: INVESTMENT RATIONALE 39 Food health and safety Planned FSSC implementation» Risk management Process flow, QC improvements Increased capacity Improved efficiencies Increased flexibility and diversity of product range

41 AFOODABLE: VALUE PROPOSITION 40 Products prepared to set recipes or formulations» Formulated by product development team or specified by customers Several manufacturing processes Sensory profiling» In-house capability» Scientific characterisation/description of food product/raw material as perceived through five senses Packaging options» Retail 250ml to 1l» Wholesale and industrial 1l to 1 000l

42 SA SPECIALTY SAUCES MARKET: KL 41 Afoodable = 6 000k /year 50% 32% Food services Export Wholesale Industrial Retail 5% 5% 5% Source: BMI

43 AFOODABLE: GROWTH STRATEGY 42 Increase volumes to 8 000k in 16 Predominantly in food services» Large sector» Key distributors/customers IP-driven Expansion of product range» Strong R&D» Pizza toppings, pasta and white sauces Pursue exports

44 LAKE FOODS: GROWTH STRATEGY 43 Focus on enhancing the offering to food additives sector of the market» Includes the commodity products portfolio» Existing and new principals, innovations» Aligned with global trends» Stronger partnerships with customers Growing IP in the business» Dairy stabiliser blends» Baking pre-mixes» Food fortification Improve position in processed ingredients sector (incl. sauces and marinades)» Strong sourcing platform» Benefits of new plant Pursue growth in the rest of Africa» Synergies with SCP

45 SOUTHERN CANNED PRODUCTS ( SCP ) 44 Manufacturer and distributor of ingredients for juice-based drinks and products, in Cape Town Strengthens Food Additives and Ingredients pillar Purchase price = R235m» 6 7x EBITDA Effective 1 August 15 Standalone business in AECI Group

46 SCP 45 Established in 60s; canned fruit production, trading other products (US, Europe, Japan) 05: management acquired 50% shareholding from Gerber Goldschmidt» Began importing and supplying fruit concentrates and purees to local (e.g. Distell, Appletizer, Ceres) and European formulated juice blenders 08: factory built in Bellville to produce formulated juice concentrates; established a bulk handling facility Products: formulated compounds; juice concentrates; emulsions Strategic alliances with multinational companies Fully HACCP and ISO accredited (incl. FSSC 22000)

47 FRUIT PROCESSING FLOW 46

48 SCP BUSINESSES 47 Traded» Global sourcing» Volumes = purchasing power» Value-added component Branded» Oil imported» Bottle and blend

49 SCP BUSINESS SPLIT 48 Business split 14 (%) Targeted business split 18 (%) 23 Traded Branded Traded Branded Formulated Formulated 13

50 SCP: FORMULATED PRODUCTS 49 Compounds» Tailored for customers requirements» Allows beverage manufacturers to produce/reproduce end product consistent in taste, appearance and flavour Fruit concentrates» Blends of standardised juices developed and manufactured specifically for the profile of the market/region Emulsions» Used in the manufacture of beverages with low juice content while maintaining good colour, flavour and cloudiness

51 SCP: CAPACITY AND CAPABILITY tpa of liquid products» tpa bulk juices, tpa formulated blends Also blend and bottle olive and seeded oils under the Olive Pride brand» l/month Packaging to customer requirements» Road bulk tankers, ISO bulk container systems, flexi-tanks, intermediate bulk container systems, plastic and steel drums, PET and HDPE plastic bottles At 50% of formulated product capacity All juice products sold frozen, preserved or packed aseptically» Shelf life» Transportation

52 SCP GROWTH STRATEGY 51 Focus on growth in formulated juices and compounds/emulsions» IP and technical expertise for emulsions/flavours and syrups (carbonated beverages) Build on current SA customer base Maintain strategic relationships with multinationals Increase exports of formulated products to Africa and Middle East» Collaboration with strategic partner

53 FOOD ADDITIVES AND INGREDIENTS: CONCLUSION 52 Food and beverages remains a fast-growing sector Fragmented and diversified» Opportunities for growth through acquisitions and consolidation ~ Enhance the product and services offering Further acquisitions will be pursued to build this growth pillar Pursue exports into African market

54 AECI FOOD ADDITIVES AND INGREDIENTS: REVENUE TARGETS (RM) SCP (5 months) Afoodable

55 THANK YOU 54