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RCL FOODS LIMITED – Annexure to the results announcement

RCL 201408270049A

Annexure to the results announcement



RCL FOODS LIMITED (“RCL Foods” or “Group”)

Registration number: 1966/004972/06

JSE share code: RCL

ISIN: ZAE000179438



Annexure to the results announcement



By eliminating the impact of the corporate transactions, the Group”s attributable profit to

equity holders of the company improves from the published loss of R289,0 million to a pro forma

profit of R428,4 million with an earnings per share of 50,2 cents.



INTRODUCTION

During the current financial year RCL Foods concluded

significant corporate transactions, certain of which had

a material impact on the published results which are

listed below:



– Acquired 100% of the issued ordinary shares in

TSB Sugar RSA Proprietary Limited and TSB Sugar

International Proprietary Limited (collectively referred

to as “TSB”) from TSB Holdings (“TSB Transaction”)



– Restructured the existing BEE notional vendor

financed shareholding and implemented a new BEE

transaction (“BEE Transaction”)



– Raised R790,2 million in a pro-rata minority share

offer (“Pro rata share issue”)



– Redeemed Foodcorp”s Euro-denominated Senior

Secured Notes (“SSN”s”) in November 2013 and

April 2014 through cash and new rand-based debt

(“Foodcorp financing activities”)



– Acquired the remaining 35,82% minority

interest in New Foodcorp Holdings

Proprietary Limited (“Foodcorp”) in two

transactions from Foodcorp management

(1 July 2013) and Capitau Investment Advisers

Proprietary Limited (“Capitau”) (6 September 2013)

for a total consideration of R520,7 million

(“Foodcorp minority buyout”).



RCL Foods has consequently published the pro forma

financial information below that aims to provide

shareholders with a better understanding of the

underlying financial performance of the Group through

the inclusion of a full year impact of the corporate

transactions and the elimination of once-off charges

related to corporate transactions.The pro forma financial

information is the responsibility of the directors and has

been prepared for illustrative purposes only and due to

its nature may not fairly present the Group”s income

statement. The pro forma financial information refers

only to past events and does not contain any forward

looking projections. PricewaterhouseCoopers Inc. have

reported on the pro forma financial information which

report is available for inspection at the registered office

of RCL Foods.



The pro forma financial information, assuming an

effective date of the transactions being 30 June 2013,

effectively presents the following:



TSB Transaction:



– Inclusion of the full year results of TSB



BEE Transaction:



– Exclusion of the current year BEE expenses relating

to the old BEE scheme (including the once-off

acceleration charge of R14,2 million)



– Exclusion of the once-off expenses relating to the new

BEE scheme



– Inclusion of the recurring IFRS 2 charge for a

12-month period relating to the new BEE scheme



Transaction costs:



– Exclusion of all transaction costs associated with the

corporate transactions



Pro rata share issue:



– Inclusion of the finance income for the full year in

respect the cash received from the new shares issued



Foodcorp financing activities:



– Exclusion of the current year effects of Foodcorp”s

Euro denominated debt which removes the impact

of interest on the Euro denominated debt, foreign

currency losses and the bond redemption gain



– Inclusion of finance expense related to the

replacement rand based debt for a full 12 months



Foodcorp minority buyout:



– Exclusion of finance income earned on the cash

utilised to settle the acquisition of shares from

Capitau



– Exclusion of the finance costs and the gain on the

settlement of the preference shares



– Reversal of the loss attributable to minorities in

Foodcorp



The impact of the investment in Senn Foods Logistics

(Pty) Limited and Zamhatch Ltd has not been taken into

account as the impact is considered to be immaterial.



The elimination of corporate transaction costs (R27,4 million),

the BEE expenses relating to the old BEE scheme (R16,1 million),

the once -off BEE expense relating to the new BEE scheme (R88,5 million)

and the NCI relating to the Foodcorp minority buy-out (R7,4 million) is

contrary to IFRS as this effectively removes the amounts from the

pro-forma information. However in terms of the JSE guidance letters of

March 2010-Presentation of pro forma financial information and

August 2012-Presentation of constant currency information the non-application

of IFRS in the context of pro formas on a voluntary basis to accompany

results is not prohibited.



PRO FORMA CONSOLIDATED INCOME STATEMENT

Transaction Pro rata

TSB Transaction BEE Transaction Costs share issue Foodcorp financing activities Foodcorp minority buyout

TSB Sugar

Holdings

Proprietary

Limited

Published (TSB Sugar) Reversal of Pro forma

audited audited elimination Reversal Reversal of Interest Foodcorp results

12 months 6 months of inter- BEE of Senior interest Additional earned Impact of non- 12 months

ended ended group current Interest Secured earned on interest on on cash – Capitau controlling ended

30 June 31 Dec sales year ESOP Transaction earned Notes cash – bridging Foodcorp preference interest 30 June

R”000 2014 2013(3) 6 months(4) charge(5) charge(6) costs(7) on cash(8) (SSNs)(9) SSNs(10) loan(11) buyout(12) shares(13) (NCI)(14) 2014

Continuing operations)

Revenue 19 719 965 2 939 318 (13 553) 22 645 730

Operating profit before depreciation,

amortisation and impairment (EBITDA) 1 122 220 205 955 112 486 (17 600) 27 440 (15 940) 1 434 561

Depreciation, amortisation and impairment (588 177) (67 815) (655 992)

Operating profit 534 043 138 140 112 486 (17 600) 27 440 (15 940) 778 569

Finance costs (1 043 458) (31 330) 903 573 (232 902) 617 (403 500)

Finance income 148 283 2 730 25 085 (71 086) (38 551) (1 228) 65 233

Share of profits of joint ventures 16 854 4 353 21 207

Share of loss of associate (6 520) 102 080 95 560

(Loss)/profit before tax (350 798) 215 973 112 486 (17 600) 27 440 25 085 832 487 (38 551) (232 902) (1 228) (15 323) 557 069

Income tax expense 44 061 (44 963) (7 024) (233 096) 10 794 65 213 344 4 290 (160 381)

Loss after tax from continuing operations (306 737) 171 010 112 486 (17 600) 27 440 18 061 599 391 (27 757) (167 689) (884) (11 033) 396 688

Profit for the year from discontinued operation 29 755 29 755

(Loss)/profit for the year (276 982) 171 010 112 486 (17 600) 27 440 18 061 599 391 (27 757) (167 689) (884) (11 033) 426 443

Attributable to:

Equity holders of the company (289 039) 192 431 112 486 (17 600) 27 440 18 061 599 391 (27 757) (167 689) (884) (11 033) (7 403) 428 404

Non-controlling interests 12 057 (21 421) 7 403 (1 961)

RECONCILIATION OF HEADLINE EARNINGS

Continuing operations

(Loss)/profit for the year attributable to

equity holders of the company (318 794) 192 431 112 486 (17 600) 27 440 18 061 599 391 (27 757) (167 689) (884) (11 033) (7 403) 398 649

(Profit)/loss on disposal of property,

plant and equipment (9 192) 136 (9 056)

Impairment loss reversed (4 639) (4 639)

Headline earnings from continuing

operations (332 625) 192 567 112 486 (17 600) 27 440 18 061 599 391 (27 757) (167 689) (884) (11 033) (7 403) 384 954

Discontinued operation

Profit for the year attributable to equity holders

of the company 29 755 29 755

Headline earnings from discontinued

operation 29 755 29 755

Earnings per share from continuing and

discontinued operations attributable to

equity holders of the company (cents)

Basic earnings per share

From continuing operations (45,7) 46,7

From discontinued operation 4,3 3,5

From (loss)/profit for the year attributable to

equity holders of the company (41,4) 50,2

Diluted earnings per share17

From continuing operations (45,7) 46,6

From discontinued operation 4,3 3,5

From (loss)/profit for the year attributable to

equity holders of the company (41,4) 50,1

Ordinary shares in issue (“000)

Weighted average ordinary shares in issue 697 988 853 924

Diluted weighted average ordinary shares in issue 697 988 856 264

Pro forma financial effects on

segmental analysis

R”000

Revenue 19 719 965 2 939 318 (13 553) 22 645 730

Foodcorp 7 768 001 7 768 001

Rainbow 8 732 933 8 732 933

TSB 2 482 052 2 939 318 5 421 370

Vector 1 699 903 1 699 903

Sales between segments: –

Foodcorp to Rainbow (61 981) (61 981)

Rainbow to Foodcorp (51 736) (51 736)

TSB to Foodcorp (13 552) (13 553) (27 105)

Vector to Foodcorp (21 495) (21 495)

Vector to Rainbow (814 160) (814 160)

Operating profit/(loss) before depreciation,

amortisation and impairment (EBITDA) 1 122 220 205 955 112 486 (17 600) 27 440 (15 940) 1 434 561

Foodcorp 720 960 (5 312) 715 648

Rainbow 203 650 2 656 (5 862) 200 444

TSB 147 483 205 955 (4 095) 349 343

Vector 199 132 727 (2 213) 197 646

Unallocated Group costs (149 005) 109 103 (118) 27 440 (15 940) (28 520)

Depreciation, amortisation and impairment (588 177) (67 815) (655 992)

Operating profit/(loss) 534 043 138 140 112 486 (17 600) 27 440 (15 940) 778 569

Foodcorp 455 172 (5 312) 449 860

Rainbow 622 2 656 (5 862) (2 584)

TSB 79 541 138 140 (4 095) 213 586

Vector 149 119 727 (2 213) 147 633

Unallocated Group costs (150 411) 109 103 (118) 27 440 (15 940) (29 926)

Finance costs (1 043 458) (31 330) 903 573 (232 902) 617 (403 500)

Finance income 148 283 2 730 25 085 (71 086) (38 551) (1 228) 5 233

Share of profits of joint ventures 16 854 4 353 21 207

TSB 9 327 4 353 13 680

Zambian operations 7 527 7 527

Share of loss of associate (6 520) 102 080 95 560

TSB (6 520) 102 080 95 560



(Loss)/profit before tax (350 798) 215 973 112 486 (17 600) 27 440 25 085 832 487 (38 551) (232 902) (1 228) (15 323) 557 069

Pro forma financial effects on weighted average ordinary and diluted weighted average ordinary shares in issue Number of shares “000

Published audited 12 months ended 30 June 2014 697 988

Impact of TSB transaction15 126 546

Impact of pro-rata share issue15 29 390

Pro forma weighted average number of shares in issues 853 924

Share option dilution impact16 2 340

Pro forma diluted weighted average number of shares in issues 856 264



NOTES

1. The pro forma consolidated income statement was prepared on

the assumption that the TSB Transaction, the BEE Transaction,

the Transaction costs, the Pro rata share issue, the Foodcorp

financing activities and Foodcorp minority buyout occurred on

30 June 2013.



2. The consolidated income statement of RCL Foods Limited was

extracted from its audited financial statements for the year

ended 30 June 2014.



TSB Transaction

The effective date of the TSB Transaction was 1 January 2014. The

effects below seek to demonstrate the impact of consolidating

TSB”s results for a 12-month period. The consolidation of TSB will

be recurring.



3. The consolidated income statement of TSB Sugar was extracted

from its audited financial statements for the period 1 July 2013

to 31 December 2013.



4. Inter-company sales between Foodcorp and TSB for the period

1 July 2013 to 31 December 2013 have been reversed.



BEE transaction

The effective date of the new BEE Transaction and the cancellation

of the old BEE scheme was 17 January 2014. The Group”s income

statement includes the effect of the once-off charges related to

the cancellation of the old scheme (non-recurring), the once-off

charges related to the Strategic Partners” equity holding (non-

recurring) and a portion of the charges related to the employee

portion (recurring) of the new BEE Scheme. The effects below seek

to demonstrate the impact of excluding the non-recurring expenses

related to the BEE Transaction and including a full year”s effect of

the recurring charge relating to the new BEE Scheme.



5. All BEE expenses (relating to the new and old scheme) included

in the Group results have been reversed.



6. The recurring employee portion expense, relating to the new

scheme, for the 12-month period has been included. The

valuation assumptions are consistent with those used in the

RCL Foods Limited audited financial statements.



Transaction costs

The transaction costs related to the corporate transactions are

once-off and the effect below seeks to demonstrate the impact of

excluding the non-recurring expense.



7. Transaction costs relating to the corporate transactions have

been reversed.



Pro-rata share issue

The cash inflow from the pro-rata share issue occurred on

10 February 2014. The interest earned on the cash is expected to

be recurring. The effects below seek to demonstrate the impact of

receiving the cash on 30 June 2013.



8. Interest earned on the cash received from the pro rata share

issue for the period 1 July 2013 to 10 February 2014, at an

average rate of 5,15% has been included.



Foodcorp financing activities

The Foodcorp Euro-denominated debt was settled during the year

by utilising funds obtained from a rand-denominated bridging loan

and existing financial resources. The Euro-denominated debt was

settled in November 2013 (10%) and April 2014 (remaining 90%).

The bridging loan was obtained in April 2014. The effects below

seek to demonstrate the impact of replacing the SSN”s with the

bridging loan for the full year. The expenses related to the SSN”s

are considered once-off and the expense related to the bridging

loan is considered recurring until such time that the bridging loan

is repaid.



9. Allfinance costs (including foreign exchange losses and the

profit on the extinguishment of debt) currently included in the

Group results relating to the SSN”s have been reversed.



10. The interest relating to cash utilised in settling the SSN”s for

the period from 1 July 2013 to the date of redemption has

been calculated at a rate of 5,15% and deducted from finance

income.



11. Interest relating to the bridging loan has been calculated

at a rate of JIBAR plus a margin of 1,65% for the period

1 July 2013 to 9 April 2014 and added to finance costs.



Foodcorp minority buy out

The Foodcorp management buyout was effective 1 July 2013 and

consequently the impact of the transaction is fully recognised

in the consolidated results for the year. The transaction with

Capitau and the settlement of the related preference shares

were effective 6 September 2013. From this date, RCL Foods

held a 100% interest in Foodcorp and no preference share debt.

The effect below demonstrates the impact of reversing the non-

recurring expense as well as demonstrates the impact of assuming

that the cash outflow related to the transactions occurred on

30 June 2013.



12. Interest on the cash utilised to settle the transaction with

Capitau and the settlement of the preference shares for the

period from 1 July 2013 to 6 September 2013 has been

calculated at a rate of 5,15% and deducted from finance

income.



13. The preference share finance costs have been added back and

the profit on the settlement of the preference shares has been

deducted.



14. The full non-controlling interest (“NCI”) charge for Foodcorp

relating to period 1 July 2013 to 6 September 2013 has been

reversed.



Weighted average ordinary shares and diluted weighted

average ordinary shares



15. The shares issued in respect of the TSB acquisition occurred on

17 January 2014. The shares issued for the pro rata minority

offer occurred on 10 February 2014. The effects demonstrate

the impact of the assumption that the shares were issued for

the full year.



16. The dilutive impact of the share options issued in terms of the

employee share schemes amounts to 2 340 000 and is taken

into account in determining the diluted EPS as the pro forma

adjustments result in a pro forma profit for the year.



Diluted earnings per share



17. Dilutive earnings per share has been updated for the impact of

the above transactions.







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