RCL Foods Limited (RCL) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the RCL Foods interim 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, sir.

Thank you very much, and good morning to all of you, and thank you for joining us for the RCL Foods Interim Results Presentation. As in the past, we will go through page by page. If you could start with Page 3, which is the headline results for the 6 months ended December 2019. We're all acutely aware of the state of the economy and the pressure that consumers are under, and the impact this has had on many companies, particularly those in the consumer space. Against this backdrop, we think our performance was satisfactory, and the headlines are as follows. Firstly, we went to the next phase in the evolution to One Food business with the restructure of the Consumer and Sugar & Milling divisions into a single Food division. We saw a significant improvement in Sugar albeit off a low base, though, significant challenges remain in the industry. Continued oversupply in the poultry market. Progress in the chicken industry master plan, but antidumping measures yet not implemented, and we're really hoping those will be implemented soon. Vector Logistics acquires Imperial Logistics, South Africa's cold chain business, and enters into new agreements with a number of previous ICL customers. And we'll touch on all of these during the course of the presentation. If you could turn to Page 4, this is just a diagrammatic view of our new structure for our Food business. So Vector remains as is reporting to me, and as you're aware, Paul Cruickshank is the COO of the Food division. And as you can see, we've simplified our operations significantly into 4 key business units. If you can turn to Slide 5, the headline results for the 6 months, just picking up the key lines of the income statement. I think pleasingly, revenue was up 7.1%, driven by good volume growth, particularly in Chicken and Sugar, and pricing improvements in Sugar. Our underlying EBITDA was up 11.1%, again, a significant improvement in Sugar, which was the key driver in our improvement in EBITDA. Pleasingly, a consistent strong performance in Groceries. We've seen this now year in and year out, and we're very pleased with that. And Vector Logistics' underlying EBITDA has been impacted by the significant changes that we have spoken about in terms of taking on the new businesses, in particular, Siqalo Foods and ICL. And Chris will unpack this a little bit more. The underlying HEPS was up nearly 24%, and also we're very positive about our cash generated, which increased nearly 21%, driven largely by the improved profitability. If you could go to Page #6, which just highlights the underlying EBITDA and growth percentages per business unit and looking at -- specifically at underlying EBITDA, Groceries remains a consistent performer, and the bulk of the growth came from Sugar. And I'll touch on the business unit's specific performance in the next slide, which we go to in some more detail. So if you turn to Page #7, if you look at Groceries, very strong Pet Food performance. As you know, we invested significantly in our grocery business over the last couple of years, and we grew volumes around 15%, so really good performance there. And the culinary basket, so that's everything other than Pet Food, grew ahead of the market, although volumes were challenged by aggressive competitive activity and the consumer being under pressure. But we've taken certain strategic steps there, and we're very comfortable to have suffered some market share loss on the basis that we don't earn duly compromised margin. And we'll have plans in place to address that in the coming 12 months. ZAR 18 million was impacted by lower volumes and rising input costs. In Chicken, again, we still have the oversupply, which creates pricing pressures, but that was exacerbated by increased feed costs and agricultural challenges, all of which have the plan in place to resolve. But we've made really good progress in repositioning the business through investing in dedicated teams. So we've created an MD of the Chicken unit with his own exec team. So we brought significant amount of focus to that part of our business, also revitalizing the Rainbow brand and a real focus on cost competitiveness and the agricultural challenges, which stem from our -- from the breed right through the supply chain, are being addressed. And very pleasing recovery in viennas and polonies post the listeriosis crisis, so we're very pleased with the share gains there. Sugar, as you're now aware, has had a significant improvement but off a low base, driven by higher market pricing, high export sales volumes and cost savings. The local volumes have still been negatively impacted by the sugar tax, and as you know, that's order of 300,000, 400,000 tons that came out of sugar demand in South Africa. If we turn to Vector, the underlying EBITDA was impacted by the enablement of costs for the new Imperial cold chain customers post the acquisition period. And we're well positioned to synergize the duplicate network going forward. I must say that Vector took on the RCL business in the very difficult circumstances. The regulatory approvals were only around mid-November, and we implemented a go-live on the 1st of December, which happened to be the Monday after the Black Friday sales on February -- sorry, on Friday. So it was really a tough ask, but we're very pleased with what was achieved and our customers and new principals. We're equally pleased with the manner in which we handled that over the very difficult trading conditions in December. We've seen a small improvement in underlying EBITDA margin to 7.3%. And the Groceries margin is solid, and we have plans in place to restore the Chicken and Vector margins. If you turn to Slide #8, we're very excited about our stake in Foods United. Foods United was incorporated late last year by Blue Horizon, a leading investor in plant-based food industry. Over and above our investment in Foods United, RCL Foods is the platform partner for Foods United for Africa. And so we will implement the supply chain and be the go-to market using the RCL Foods infrastructure. So we'll have a separate joint venture with Foods United for Africa in order to bring all of these products to life. And as you know, the increasing demand for healthy, sustainable and responsible sourced alternative protein, coupled with our unique farm-to-fork capability, best position us well to leverage this opportunity in the future, and we'll keep you updated as this progresses. I'd now like to hand over to Rob Field. Thank you.

Thanks, Miles, and good morning to everyone. Miles has set the scene well in terms of our interim results, and Slide 11 is then just a summary sheet of all of the key steps. My ensuing slides will expand on some of the more noteworthy items. So I want to go straight across to Slide 12, and this shows the contributors by segment to our EBITDA's underlying growth of 11.1% for the period. Paul and Chris will cover this in more detail. I'll merely deal with the underlying adjustments that's between our reported and our underlying results. I think as the market has come to know, we only adjust for material and one-off items, and so this slide seeks to just unpack some of that for you. Firstly, IFRS 9, which appears both as an adjustment to the opening -- or the prior period as well as an adjustment to the current period results, remains a very material feature of our reported results and, as I think the market is well aware, deals with removing the unrealized profits and losses on our raw material commodity positions, so importantly, taken up to get an underlying perspective of our results. Similarly, in the prior period, we had the farm sales associated with Rainbow's downsizing in KZN and the sale of certain farms there. Going across to the current period adjustments, the ZAR 110 million gain on bargain purchase was associated with Vector's acquisition of ICL, Imperial's cold chain business. That business was bought on the 1st of December, and IFRS 3 obliges us to report the transaction on the basis of an at acquisition picture, which essentially is suggesting per these numbers that the net assets that we took over exceeded the net liabilities and what consideration we had to pay, ZAR 110 million. So booked as a profit in the period. Chris will expand a bit more in terms of how that gain is going to be -- needs to be utilized in the second 6 months as we run duplicate networks. And then IFRS 16, at the end of my section, there is a slide specifically covering off all that detail. But just to note that we have effectively implemented, as we're entitled to, IFRS 16 on a prospective basis and how it affects EBITDA as an uplift, obviously, as you get excused from lease payments, and that gets substituted with a depreciation charge as well as an interest charge. So at this level, from an EBITDA profit line perspective, you get this -- as significant as ZAR 106 million uplift in our EBITDA. So that then just neatly captures for you that our reported results at an EBITDA level are up 7.7%, but when you strip out some of those items, you get to an underlying 11%, as Miles said, a satisfactory performance in the circumstances. Moving to Slide 13. This really just walks forward then that reported EBITDA results through to headline earnings as well as then on the far right, similarly, a underlying headline earnings reflection, which is up at 24%, a pleasing result. The only 2 things I want to highlight on this chart is bringing to your attention just what I've spoken about in terms of IFRS 16, both that depreciation and finance cost uplift by virtue of the statements coming into play from the 1st of July; and then secondly, the penalty that we are carrying in terms of an effective tax rate by virtue of us not being able to claim or choosing not to claim the tax losses associated with our sugar joint ventures, which we fully consolidate and come out on an [ OSR ] line. And so that just explains that component. The next 2 slides just set out for your benefit all the numbers, both on a reported and underlying basis, for our divisions and business units, which my colleagues will deal with. And so I'm going to skip straight past them and go to Slide 16, which deals with the cash flow. Cash generation and preservation are high priorities in the business, and this slide demonstrates the good job that we believe we're doing in this space. Our language is strongly associated with key lines with -- on the cash generation, free cash flow, cash conversion. They are within the business profiles. And so you can see on that free cash flow line a pleasing result there for this interim 6-month period. And then above that, both the working capital and CapEx numbers lower than the reported period -- the comparable reported period. So let me deal with those 2 separately. Slide 17 is a busy slide that deals with our working capital. It looks offensively up in rand value by 26% and as a percentage of revenue, up 2.2%. But this slide seeks to just unpack for you and demonstrate where that variance is coming from. It essentially is largely in the trade receivables balance. And on the right there, we point for you to some of the contributors to that balance for the period. But I think the most important one that I'd like to highlight is the adjusted debtors days that we have, which is flat on 44 days compared to the prior period, and we spell out there how -- that that is the best reflection of what is the majority of that trade receivables balance, and our debtors book continues to be well managed. And the big rand value tick-up, obviously, is contributed by, in the month of December, taking on the previous ICL business and the role that Vector plays in terms of carrying that book and managing that book on our behalf. So a good result, I will contend. Slide 18 gives you a snapshot of our CapEx for the period, pleasingly down on the comparative. But we've listed out some of the more significant projects that we remain excited about and certainly, in the case of the Rustenburg waste-to-value coming to completion. As a reminder, that was a project just over ZAR 300 million spent, and so this is the tail end of it. It actually is being commissioned this month of March. So lots of excitement in the business with the success that we had in Worcester translated into a much bigger project in Rustenburg. And just to note in the capital commitments at the components attributed to Vector's acquisition of RCL and, again, Chris will talk to how those networks are going to be synergized over a period and require some further investment both in sites and vehicles to run the bigger revenue stream. I'm actually going to end it there. The last 3 slides deal with our debt package and our covenants, all looking good. We've managed to manage that area really well. And the last slide really on IFRS 16, as I said, is really just for your noting and how you see the EBITDA uplift as a dilution effect on a headline earnings level. So it has quite a significantly different impact both at a reported EBITDA and headline earnings level. But the details are all there for you to track as we have implemented this prospectively. So I'll hand over to Paul.

Thanks, Rob. Good morning, everybody. I'm not going to dwell on Slide 23, which sets out the Food division performance and our new business unit format at a statutory level. My focus will be on the underlying performance in the forthcoming slide. If you turn to Slide 24, we've highlighted some of the wins for the period. I think it's important to note that these wins are in the context of a very tough trading environment, and I'll talk to the specifics of that when I get to each of the business units. There are a couple of wins that are worth calling out. Miles has spoken to the construct of the new divisional structure. We have during the period completed our senior management restructure and are busy with the remainder of the business. This is a significant change for us in some parts of the business as we work towards the One Food business that Miles has already articulated. I'd just like to add that during the process, we have not only looked for obvious synergies but also taken the opportunity to invest appropriately in functions or areas of future strategic intent as well. Load shedding has had a material impact on operations, especially in December when we reached Stage 6. The intermittent nature of load shedding is extremely disruptive, especially in the Chicken business unit, but the teams have done well to navigate through what has been a challenging period. Focus on sugar supply chain costs has paid off with a substantial cost reduction versus the prior year. I will talk to the pleasing Pet Food performance a little later. And the final one I'd like to highlight is the focus we have brought to our chicken KPIs in the last few months, which have started to show an improvement. This will remain an important focus period -- focus area for the upcoming period. Moving on to Slide 26 with the Groceries business unit's underlying margin remaining unchanged at 13.6%. This is despite extremely difficult trading conditions, where both volume and price were under significant pressure. Slide 27 talks to the culinary section of the Groceries business unit. Market shares in Yum Yum and Nola have been under pressure. Yum Yum have negatively impacted -- been negatively impacted 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 any import tariffs has affected Yum Yum's volumes and margin. During the period, Rainbow Spices was launched and is being well supported. More recently, Chocolate Dreams under the Yum Yum brand was launched to trade, and we are cautiously optimistic about the role it'll play in the category. Culinary area represents a fierce competitive landscape at present, and we expect this to remain a challenge for the upcoming period. Slide 28 sets out the highlights of our pleasing Pet Food performance for the period, gaining market share in all brands, with the highlight being Optimizor's launch in the co-op channel. We are satisfied that the return on our investment made into this category remains well on track and are excited by what we believe represents a significant growth opportunity. On Slide 29, Pies has performed well mainly as a result of good cost control with increased capacity and capability anticipated to come online in the last quarter of the financial year. Beverages has had a challenged 6 months. We are busy reviewing our strategy in this category and have this completed in the next few months. Moving to Slide 31, the Baking performance is in line with last year with an improved Speciality performance offsetting the challenges in milling, bread, buns and rolls. On Slide 32, with the disposal of the prepared business complete, Speciality delivered a pleasing performance, underpinned by tough cost control and improved operating efficiencies. Milling performance was challenged driven mainly by lower volumes in maize. We have responded by launching new products under the 5 Star brand, focused on the Gauteng region. Slide 33 completes the milling picture with the low performance improving significantly in the latter part of the reporting period. Focus will now shift to improve cost and efficiency delivery at the facility. The competition in bread, buns and rolls has been fierce, and with rising wheat costs not recovered in pricing, the margins in the category are under pressure. Our focus on the next period is to improve operational efficiency and cost control in our 2 Gauteng bakeries, and this is already gaining traction. Moving to Slide 35. Underlying chicken margin lower than last year, driven by continued oversupply as a result of dumped imports, lower food partners volume and higher feed costs. Slide 36. We are focused on repositioning our chicken business. Volume reduction in recent years has negatively impacted our cost recoveries and efficiencies. The repositioning of Chicken includes a number of critical initiatives, which are to focus on cost competitiveness, fix our agricultural challenges, strengthen our regional sales focus and revitalize the Rainbow brand. Cobb breed challenges had worsened in the reporting period, and we have added additional specialist experience resource to this space as a result. Whilst we're working closely with the Cobb international team to fix the breed challenges, this is not a quick fix and will take 12 to 18 months to resolve completely. Moving to Slide 37. The CPM range was relaunched following the listeria crisis and has quickly regained and then subsequently grown market share. Following the restructure discussed earlier, Animal Feed has been reintegrated into the Chicken business unit and combined into agriculture to form one unit, whose sole purpose is to produce the lowest cost bird at the right weight to our processing facilities. External feed through the EPOL brand remains an important value driver to utilize our excess capacity at the mills. In the current period, our focus on margin as opposed to volume has paid off with a strong EPOL performance. Slide 39. Sugar has produced a substantially improved result albeit with a challenged base. Slide 40 unpacks the Sugar results in more detail. The industry remains in severe distress driven by a substantial increase in export sales at significantly lower prices as a result of the sugar tax impact on local demand. The Sugar business unit has focused on what is within our control with efficiencies and significant cost reduction, together with the price increase in key contributors to the improved result. We remain supportive of government's master plan initiative, but much work is still required before this can be implemented. On Slide 41, Molatek performance has been pleasing, the shift in mix being the main driver of its results. Moving to the last slide in the Food division section, Slide #43. We've set out key areas from a strategic and operational perspective to focus on over the next 6 months. As an operational exec team, we are driving prioritization across the business to ensure that in the current economic environment and where we are placed as a business, our -- we focus our attention on the things that will move the needle. Those that we see fit to be represented here have been set out on this slide. I'm now going to turn over to Chris.

Thanks, Paul. Moving to Slide 45, which I'll skip past, which just shows our revenue and EBITDA performance. Let's move to Slide 46, which talks to our underlying performance. And the top of Slide 46 sums up Vector's year-to-date nicely. It says, "Watershed year sees Vector winning significant new business, but impacted in the short term by investment costs." Watershed year in the industry because we saw closure of Imperial cold chain business, ID Logistics and KLL, a subsidiary of Barloworld, leaving Vector the last man standing in the frozen retail distribution area. Pleasing performance driven by the new Siqalo margarine business and the December take on of new principals, mostly ex-Imperial customers, plus being awarded the Shoprite and Massmart business as frozen supply chain partners. Our underlying EBITDA down once you remove the gain on bargain purchase and the IFRS 16 impact. And this lower performance is short term driven by investment costs and running duplicated networks until the integration of the network is completed, which I'll talk a bit more just now. Turning to Slide 47. Top of the page, we say "Pleasing new business in line with our customer strategy." And in line with this strategy, we are now the appointed frozen supply chain partners for Pick n Pay and more recently for Shoprite and Massmart groups, allowing us to drive synergies and optimize these networks going forward, which is a big tick and a big positive for us. Significant new business taken on in December, mostly ex-Imperial as can be seen on the table on the bottom right. There's a number of principals there that you can cast your eyes over. Moving to Page 48. Slide 48 talks to investment in capacity and synergizing the network. Picture at the bottom of the slide tells the story. We start on the left, which shows the combined networks of Vector and Imperial before the deal was done, where we had 19 sites and 445 vehicles for retail secondary distribution with the final network moving to 12 sites and 399 vehicles once it's fully integrated and it's in state. The interim states we are currently in, and that's depicted by the middle chart. We anticipate that it'll take us 6 months until the end of June this year to complete the major network integration and a further 6 months to complete the capacity expansions that are needed for the new business. And then turning to Slide 49. First bullet talks -- point talks to the opportunity for growth across our other services such as Primary Transport and Sales & Merchandising, which we can offer to the new principals who have just joined our network. Second bullet point talks to the recent investment in a digital platform start-up called Empty Trips, which will further enhance our primary transport offering with a focus on filling empty backhauls. Also pleasingly, a good performance, positive contribution from our JV partner, Senn Foods in Botswana and L&A Logistics in Zambia extending our reach into sub-Saharan Africa. And in closing, we are very excited by the acquisition of ICL, previous Imperial Cold Logistics business. And once we have integrated the 2 networks into 1, we expect to deliver sustainable positive earnings. And with that, I hand back to Miles.

Thanks, Chris. If we go to key deliverables, looking forward, while consumers and the economy remain under pressure, we were encouraged by Minister Mboweni's budget speech as, in essence, it recognizes economic growth and job creation as crucial for the future. This, coupled with a focus on production, in particular, the tax avoiders, will grow the tax revenue. Our internal focus will be on the following. Firstly, in terms of Groceries, we're going to keep up the momentum that we've built over the last few years and continue to deliver on the brand extensions, capacity and innovation. So there's a lot going to be happening in that space. Regarding Baking, we're going to deliver new category expansion plans and forward integrate into Milling. Ultimately, what we need to do is utilize more of our flour in a value-added way. And you heard on the turnaround on Speciality, and we want to embed that, but we're very comfortable as to where we have taken Speciality. Chicken, we're going to deliver on identified opportunities. In particular, there's massive focus in the agricultural area in the broader sense and, as I mentioned earlier, the breed as well as agricultural practices while executing the plan to adapt Chicken to shifting market dynamics. And also we need to evaluate the impact of the anticipated industry master plan on local markets, which may well create a number of opportunities for us. Sugar, we're going to continue to focus on the cost optimization, and we're also looking at a number of diversification efforts to deliver a sustainable business model. And certainly with Chicken, the industry engagement on the master plan is well underway. Chris has just gone through the detail on Vector, and clearly, we need to settle down and take the opportunities that have been created through the acquisition of ICL. And then continue on future-proofing RCL Foods. So the Food division creation of a single structure is really an opportunity for us to continue to evolve and to maximize that platform. Also the investment into plant-based alternatives to unlock future opportunities, and we're really excited about that. And there's a massive push in that direction, both from a health perspective but also importantly, from a sustainability point of view. We can't continue to feed the world the way we do currently. And then Rob touched on the Rustenburg waste-to-value project. That's another big area for us both in terms of sustainability and in terms of risk aversion, but also it will generate its own EBITDA stream. So with that, I'd like to end the presentation and then start taking questions.

Maybe before we take questions, we received one on our webcast. It's from David Fraser of Peregrine Capital. He just says that, in my commentary, I referred to the SA chicken market being soft due to increased local market supply, which I appear to blame imports for and then indicate that our own chicken volumes grew by 8.7%. Given that imports are broadly flat over this period, it's clear that Rainbow has, in fact, been responsible for the oversupply and results in price pressure in the SA market, do you now plan to cut back on the growth of your chicken volumes in order to restore balance to the SA market? So we've had a shift in some of our volumes from QSR into the retail area. Also our value-added products have gone exceptionally well. And while small, they're quite significant in the current context, and we have no plans to cut back on our chicken production.

Okay. It's Paul here. A question from Muneer Ahmed at Prescient Securities. Two questions. There doesn't seem to be any relief coming from wheat price perspective. ZAR is blown out. Will you or competitors move on pushing price increases? How much of an issue is in-store baked bread considering it sells at a significant discount, and there is a shelf life difference? So firstly, yes, wheat price has moved up to almost ZAR 4,900 a ton in the last few weeks, largely on the back of the currency. Just from a price increase perspective, we did move on price in December in certain areas, and it continues through into the retail part now in February. Obviously, can't talk on -- can't talk for our competitors. I'm not sure what the intention is. But the wheat price movement more recently is going to place additional pressure on pricing. And if you look back in history, traditionally, when wheat price moves, the bread industry then takes price increases to recover that cost, so we would expect some movement at these wheat prices. In-store bakery bread, yes, it's certainly -- the pricing discount in in-store bakery bread or discount relative to baked bread is significant. The in-store baked bread is a completely different sector to what we're competing in with our plant-based bread. But yes, in some of the areas, particularly in retail, it will have an impact on our volumes. The majority of our sales into general trade, well over 80%, and therefore, in general trade, it's less of an issue for us. Second question is Minister Patel signed the poultry master plan on November 8, 2019. We've all been waiting and waiting for Government Gazette. Any idea from your side what the hold-up is? We are very keen to see the import tariff and every Friday morning, awaiting anxiously to understand what the impact may be. What we understand is that the tariffs are now sitting with Treasury, which is the last step in the process for it to be gazetted. But that is as much as we all thought -- actually know on where -- what the status is.

Operator, can we just check on the audio line if you have any questions?

Okay. We have no questions at the moment. [Operator Instructions] We have a question from [ Albie Soliers ] from Salandia Capital.

I was late, sorry. I'll ask just one question. So if it was already answered, just tell me what it is. I just want to know, we haven't heard anything from the tariffs on the chicken imports. Any update on when we can expect an announcement?

So as I've mentioned earlier, we are not sure of when the announcement will come through. It was expected in February. We understand that the tariff is sitting with Treasury, which is the last step in the process before it is gazetted.

Our next question is from [ Chris ].

Just in -- looking at the group, particularly with the long-term perspective, you haven't made your cost of capital for, I don't know, at least 8 years, and we're starting to see a greater focus in the Remgro group on doing just that. For instance, there was a lot of discussion on this at the Remgro AGM. And then last week, Distell announced change in incentive structures designed to align to beating cost of capital. Has there been any movement within RCL? Because when you keep trending along with these type of returns, the share price says it all. So perhaps you'd just like to address that.

Thanks, Chris. It's Miles Dally here. Yes. So ROIC is compromised, and it's been further compromised by some of the recent acquisitions and sort of the creation and putting RCL Foods together. So one, clearly, you need to look at a number of lines in the income statement. So our EBITDA has been reasonably consistent, although, as you know, we had the big impact with the sugar, 100-year drought and the challenges in chicken, whereas the original grocery business, the old Foodcorp business is going along well and in terms of returns. But we are acutely aware that a key measure -- probably the ultimate measure is our ROIC, and it's something that's very much part of the measurements that we have within RCL Foods and part of the bonus scheme. So we're very, very aware and very focused on that. But a key driver, as you'll appreciate, there are some things we can do with the asset bases, but getting the EBITDA or the earnings off that asset base is absolutely key. But to answer your question, yes, very aware and very focused on it.

So that's aligned -- it's starting to align through to your incentives because I know it didn't use to.

Yes, it does align through to our incentives, and it's a key part of that.

I've got quite a few on the webcast, so I'm going to jump next here. Rob, if you'd like to take the next one.

Sure. And this question comes from [ Anthony Clark ], so thank you. Dealing with the SAFEX maize prices and how much they've fallen recently with the prospects of a good crop coming at us, so really just asking what is our view. And so we have had a view, has been for a while, that maize prices were too high, and fortunately, the weather is playing its part. And we do agree that we are looking at a really good crop coming at us. And as such, the forward markets are indicating that there is a prospect for these prices to come down. There is a differential between white and yellow, and so that was one of Anthony's specific questions. We do trade both, so we can hold positions on either and then take delivery ultimately of whatever we use. You're aware we're a consumer of both white and yellow maize. So obviously, I can't speak to the specifics of our positioning, but I would suggest -- comfortably suggest that we are relatively short in anticipation of better prices in the medium term. Maybe, Chris, do you want to...

Yes. A question from [ Justin Ritchie ] with regards to the ICL business acquired. What detail can you give us on the renegotiated terms of customers? Are there material changes? Justin, I'd say that we have negotiated -- I've got no idea of the previous terms. Obviously, those were between Imperial and customers. We have negotiated contracts 3 years in essence with most of the customers that we've taken on, and they're on a sustainable basis. So I can't comment much more than that. Hopefully, that answers your question.

Paul, do you want to go next? Then we'll go back to the audio lines.

Sure. I've got 2 questions from Bob Tayler from Investec. How much of the revenue growth is organic? Most of the revenue growth is organic. It differs by business unit. Pet Food is the one area where we have grown volumes quite significantly with our investment in the Pet Food facility. The second question was, thanks for the presentation. Well done on a good performance despite the challenging environment. Does RCL Foods plan to ramp up [ RTF ] production again considering the chicken master plan? Also is the development of export channels part of the master plan initiatives? So just on the first question, we are looking at -- I mentioned the inefficiency through the reduction of volume, so we are looking at the Hammarsdale facility and putting additional volume into Hammarsdale. And obviously, we'll put that into the biz mix available for the market in KZN. So yes, volume -- additional volume is part of our plan. And then the second one around export channels, yes, export channels is part of the initiatives of the master plan. This remains a challenged one to execute given that we are not permitted to export to virtually any country. And unless that is unlocked, it will be very difficult for any exports from South Africa. But yes, it is part of the master plan initiative.

Chris, next one and then we'll go to the audio line.

Okay. Thanks. Question here from Kgosi Rahube. Can you quantify the take on costs from the new Siqalo business in the first half 2020? Should we anticipate similar take on Imperial Logistics business? Our understanding of that Imperial CPG business has been loss-making. Can you comment on the cold chain business that you acquired from Imperial and how you plan to make them more profitable? So the first part of it, the question around Siqalo is, like all new business that we take on, we have settling down costs. They have a lot of upfront costs before you start getting the revenue in the case of Siqalo and other businesses, less so in Imperial because that was sort of a hot cutover. But certainly, the Siqalo business is well settled now and it's into our network, and we're comfortable going forward. As far as the Imperial Logistics business is concerned, yes, CPG was certainly loss-making and that is why the deal that we've done with Imperial Group on their cold chain business allows us to integrate the 2 networks. So while we run 2 networks, it is loss-making, and we need to integrate the 2 networks into 1 synergized and optimized network over the next 4, 5 months, which we're hoping to do, as I said earlier, by the end of June. And thereafter, we look to be in a very sustainable, profitable environment going forward. So hopefully, that answers your question.