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 hand the conference over to Miles Dally. Please go ahead, sir.

Thank you very much, and good morning to all of you, and welcome to our results, interim results presentation, for the 6 months ended December 2020. I will kick off with the first slot. And then joining me today is Rob Field, our CFO; Paul Cruickshank, who's our Chief Operating Officer for Food; Marthinus Stander, who's our recently appointed MD of Chicken, and welcome to you, Marthinus; and Chris Creed, the MD of Vector. If you turn to Page 3, I'll go through fairly briefly the results because Rob will unpack those in more detail and then the MDs will go into some of the numbers in further detail and some of the operational issues. I think on balance, it was a pleasing set of results amid challenging economic environment, and we managed to achieve double-digit growth in heads of both statutory and underlying level. And to a large extent, we can thank our diversified portfolio, which enabled this resilience despite significant commodity input cost pressures. And we saw strong volume performance as cash-trapped consumers focused on staples and trusted brands. And while I'm sure you're all aware, just a reminder that in these 6 months, we've had the impact of COVID and not in the corresponding 6 months of the previous year. I think also talking about COVID, our responsible and effective response to COVID-19 was sustained from H2 last year, with #1 priority being the safety and health of our people and then uninterrupted food supply and good cash management. So we continue to do that in the first 6 months of this year. And as you know, we look at the direct COVID on-cost, we don't take any other impacts such as lost sales, but the direct on-cost was ZAR 120 million and the bulk of that is in our chicken operations. The balance of the points below regarding the portfolio review, I won't go into here because we're going to pick them up during the course of the presentation. If you could go on to the next slide, which is on Page 4, it is just the headline results for the period. So our revenue was just under ZAR 16 billion, and that was up nearly 11% and driven through pricing, which is largely mix related in sugar, baking and higher milling volumes, and then, of course, vector took on the ICL acquisition principles. Our underlying EBITDA was up a strong 18% with a really good performance in baking, and as we said, sugar as well. And chicken continues to be impacted by the ongoing breed issues, which has a flow-through into our agric operations. And then the commodity rally, which took on a little bit by surprise with China buying up lots of maze. And Vector had its worked that out trying to integrate and consolidate the ICL network, but they managed to do that in difficult circumstances. Our HEPS and underlying HEPS are up 12% and 28%, respectively, and a good cash position of ZAR 1 billion at the end of the year. If we go to the next slide, Page 5, that just breaks it down in each of the divisions. And as I say, we'll impact this in a little bit more detail. But just to orientate you, this is underlying EBITDA and growth. So you can see grocery is just over ZAR 300 million, slightly down on the prior year and that was largely a result of pies, which were impacted by the reduced ongoing consumption as a result of lockdown. And we had baking, which, as I said, was a really good performance, up 43% and nicely ahead of the industry metrics and specific to our business, a turnaround of our Gauteng bakeries. And sugar, as we said, improved volumes, optimized mix, and we're up 50-odd percent, at ZAR 460 million. Bear in mind, this is more of a normalized answer given the 100-year drought that we had to deal with and the health promotion levy impacts. So really good to see that normalizing. And then chicken, as I said, a substantial commodity price rally, material COVID impact on the agricultural flow-through challenges ended up in a disappointing chicken results. And then Vector, making good progress on the ICL network integration. So that was up significantly in ZAR 168 million, but still on a journey in terms of improving. If we move on to the next slide, the key deliverables. I will talk to points 1, 2 and 3. And during the course of Paul and Chris' presentation, I'll pick up on 4, 5 and 6. So I think the strategic review is an important part of what we're doing at the moment. And this is all about future-proofing the shape of RCL Foods. It's about what we are and what we want it to be. And our purpose is very clear, it's all about more food to more people more often. That's our true north, and we really are invigorated and challenged by our purpose. And the food industry has many subsectors. And so we've created a unique ecosystem to manage multiple business models. So we have, from one side, the sort of agricultural value chains, end-to-end agricultural value chains, that are very complex. So in chicken and sugar, we have a very strong branded FMCG business in groceries and baking. And then we've moved into this partnership model, where we partner with the best-in-class worldwide, and we've called that food technology. So as an example, we could never develop what we kindly have, either in terms of technology or brands. And so our ability to partner with people like LIVEKINDLY is another business model. And then we have what we call managed platform services. So for instance, as you're aware, when Remgro bought Siqalo as part of their exit from Unilever. We absorbed Siqalo 100% into RCL Foods, and we charge a market-related fee for that, but there's very little on-cost to us. And our platform has, in fact, been able to deliver as well as, and in some cases, better than Unilever did. And I think that's a very good example of the uniqueness and the leverage that we have in our platform. And so really, what we've got to do is look at how we leverage that platform and -- because it is a key competitive advantage, and it entails things such as strategic customer relationships. So as you'll appreciate, we're -- in the big retailers and foodservice, we're in the top 2, 3 customers. So we have a very different relationship and have strategic conversations with them in terms of growing both our businesses. We also have centralized services of excellence. Given our scale and the IT ERP systems that we have, we're able to do an enormous amount of synergized work across our various business units. And as, again, to use Siqalo, as an example, the ability to seamlessly bring in a business of that scale, and in fact, improve the operational performance. And again, when you create a business like this, you are able to attract top talent. So that's really what the strategic review is about. Where are we now and where do we want to go? What do we want more of? What do we want less of? If you turn to the next page, which is Page 8, key component and a first step in reviewing our strategy is to say, "We believe we should give chicken a far greater autonomy within RCL Foods." so we've created a stand-alone chicken structure, and we've appointed Marthinus Stander as the MD and Marthinus reports directly to me, as you can see from the visual on the right. Paul heads up the Food division with those 4 business units, we have the chicken with poultry and feed, and then we have Vector. And you can see again, our national platform that feeds into all of those. If you turn to the next page, which is Slide 9, and that's the third deliverable that I wanted to touch on, and that's the LIVEKINDLY Collective partnership in Africa. As you know, we invested into the LIVEKINDLY International based in the U.S. and from that, we have ended up with a joint venture in Africa with the LIVEKINDLY Collective. And again, this would be another example of the platform that we've created because we were selected by LIVEKINDLY for our unique platform and the capabilities that we can bring. And the joint venture market sell and distribute the collective brands in sub-Sahara and Africa. And I think as you're aware, we mentioned last time, the LIVEKINDLY Collective of both family, food brands in South Africa and internationally, and they have international brands such as LikeMeat and Oumph, which we will roll out. We're in the Competition Commission at the moment being assessed. And so once that's completed, we'll be able to get on and really excited about what we can do with these brands. And we'll look at trying to make plant-based protein more widely available, accessible and affordable and giving people good nutritional choices and making a positive impact on our food system because the world's food system really is challenged at the moment and that was brought into really sharp relief with COVID. So that's my part of the presentation. I'll now hand over to Rob Field.

Thank you, Miles, and good morning, everyone. I'm starting on Slide 11, and I'll resist getting into any of the commentary around the results and leave that to my colleagues. Suffice to say, landing with a 10.5% revenue increase and a statutory 12% HEPS increase was a pleasing performance for the period. The underlying representation there on that first chart of our HEPS increase actually goes up to 28%. We have given the detail in terms of the adjustments that we applied to that. But essentially, it's the fact that there was COVID in the current period, and as Miles stressed, that wasn't in the comparative. That's the pleasing performance of an underlying HEPS up 28%. Just a few comments on the balance sheet. There are some subsequent slides talking to net working capital and it's relationship with how our cash generation took place. And so I'll say that for a better explanation on the slides as well as just headline what looks like an adverse answer from a return on invested capital on a reported basis. But obviously, as a rolling 12-month measure, that picks up all the impairments that we booked at June. So better to look at the underlying ROIC answer, which was a pleasing 3.4% up on the comparable period. And then lastly on this chart is, we have held our dividend constant. In the interims, we've paid the same dividend as last interim of ZAR 0.15. So nothing being signaled in that. And as we historically do, we wait for the full year playouts to suggest any improvement on the prior year. Moving on to Slide 12 is more than just a graphical representation of where that underlying performance came through. Similarly, I'm going to defer to my colleagues to talk through the detail. A pleasing uplift in baking, sugar and vector offset to some degree by chicken's performance in the period. And as Miles has already said, groceries overall was an acceptable performance, but really just a pie's category challenge experience in the last 6 months. Moving to Slide 13. This waterfalls that EBIT results all the way down to headline earnings level as well as into an underlying headline earnings. And you can see improvements across most of those lines between EBITDA and headline earnings, and I'll touch on some of them just now, but landing at a underlying headline earnings growth of 30.6%, obviously, a very pleasing performance. Slide 14 is really just to navigate the audience through what our published unadjusted numbers. Slide 15 then converts them with those expressed few -- only a few underlying adjustments to represent what our underlying profitability is, which is what the divisional guys will pick up on in terms of their commentary because it more accurately reflects the underlying operational performance, and so it's a better reference of how the business is truly performing. So I'm not going to spend any time there. Slide 16 demonstrates our continued focus on liquidity and cash preservation, and we've continued to carry that flag well through this interim period. As a business, overall, our underlying cash generation remains strong. And there is an anomaly there in terms of our working capital movement for the period, but it's better explained in the detail on Slide 17. So overall, the takeout in terms of our working capital position at December was a pleasing one, and that was that the absolute rand balance of net working capital was lower than the comparable period by 13.5%. And as a percentage of turnover, which is probably the more accurate measure for it, it was down 3.1% to 12% of revenue. So a pleasing performance demonstrates the focus that we have within this area. But don't be confused by the absolutes being a lot higher on the individual line items, and that's just a testament to the growth in the underlying business as well as the take-on of the significant business within vector of ICL, which Chris will talk to you in some more detail. So as we always do, we try and reference them for you what is the kind of the most important number on this chart. Our inventories have been managed at a very similar level to the prior period. So we look at that as adjusted debtors days, which is up 6 to 50 days versus the comparable period's 44. There is no concern in that increase. A virtue of the ICL take on with vector, which carries the book for all of the group debtors as well as its external principals, took on a much more significant mix weighted towards retail, and retail days are generally longer than the average of Vector's previous book. And at 30 days for monthly statement, it is the average terms that's [indiscernible]. So you would expect a debtor days on a good book to be managed somewhere between 45 and 50. And then there was a further contribution to that in this period, which is the earlier cutoff where -- versus the prior period, we had slightly less ability to coax our customers to pay us earlier, but no issue with the underlying quality of our debtors book. Moving to Slide 18 is our investments for the period and the CapEx picture. So overall, a very similar level of spend to the prior period and managed -- continuing to be managed on a very constrained basis, early ZAR 400 million in the period. But important to note a shift there that's coming through in this period versus the last, and that is more replacement versus expansion CapEx. Some of that is really just a carryover from the prior period where we intentionally constrained some CapEx in the heart of the COVID pandemic. Some of it was out of our control in terms of not physically being able to get to certain sites and execute some of the work. So there is a little bit of catch-up that is coming through the system now and perhaps demonstrated in the forward-looking capital commitments piece, although the bulk of that uptick and balance relates to some of our expansion CapEx, which I will leave to Paul, as you can see, it largely relates to our baking space. Moving on to Slide 19. A reflection of our return on invested capital, a very important measure that pulls everything together. Unfortunately, by virtue of its calculation, as I said at the opening chart, with it being on a rolling 12-month basis, you're picking up the adverse impairment that we booked at June. And so our reported numbers, which on each of those quadrants on the left-hand side are horribly distorted. So better to look at our underlying perspective of it. And for the total grouping up 3.4%, a very pleasing increase from an overall food division perspective. Vector is on its trajectory of improvement as it's planned network consolidation plays itself out. So that improvement is on track. But again, because of the 12 months reference, you're not seeing -- you're rather -- you're seeing the trailing effect of that first 6 months, the second 6 months of last year. So if you have to just look at Vector on a last 6-month basis, it would be a pleasing answer. So we do expect that to continue its trajectory of improvement. And then second story is really about the underlying poor performance that's coming through there and driving that answer down. So I think a really nice reflection of the different aspects of the business coming together to that consolidated group answer. Slide 20 talks to our debt package. We always include it, obviously, because it's a material part of our lives. I think the most pleasing aspect is the middle bottom, where you can see our net finance costs down on the comparable period, a function of both our underlying rates being lower. And we've floored out at the hedge levels for the period lower and the absolute cash requirements being better managed during the period. So the consequence of that being a lower finance cost for the period and a significant reduction. And then secondly, just to note that we have our first planned repayment, bullet repayment, of the debt package in December of this calendar year. Not a significant number, only ZAR 112 million, but it is on -- we're moving through the third year of the last of this 5-year package. And I'm finishing on Slide 21 with us needing to say much. We've got a lot of green reference in terms of our headroom on our covenants. So no issues to communicate in that space. And with that, I'll hand over to Paul.

Thanks, Rob. Good morning, everybody. The Food division delivered a strong set of results for the 6-month period, with Slide 23 highlighting exceptional performance in both baking and sugar. Whilst the EBITDA growth is 27.3% at a statutory level, the underlying performance is similar at 26.3%. If you turn to Slide 24, we've highlighted some of our wins for the period. Most of these arrive from a clear and focused strategy with heightened emphasis on managing costs and price in a tough operational and very competitive trading environment. In light of that, there are a couple of specific points that are worth calling out. COVID risk continues to be well managed, both in terms of employee safety as well as minimizing disruption on our operations. Volume performance and market share gains are evident across several categories, with pet food delivering another stellar performance despite the market contracting. Cost focus across all business units has delivered results in line with expectations, with sugar supply chain and agricultural costs having reduced substantially versus the prior period. With a solid plan in pace, we have seen pleasing recovery in beverages results and volumes are growing ahead of the market. And finally, with a more focused effort in turning around the Gauteng bakeries, the bread buns and rolls operating units has seen a considerable improvement in both volume, operational efficiencies and profit. Before moving on to the business units, worth noting that each individual landing page will reconcile the results to the underlying performance, including adjustment for direct costs associated with managing COVID over this period. These were fairly immaterial compared to the last quarter of F '20 and have become less of an impact closer to the end of this reporting period. Moving on to Slide 26. The Grocery business unit's underlying EBITDA is 6.5% down on the prior year despite the strong canary and pit result. Volume recovery in both pies & beverage categories has been slow, with both markets being severely impacted by less on-the-go consumption, especially in the first quarter. Both operations have, however, seen a pleasing recovery in volumes more recently. Slide 27 talks to the culinary categories within groceries, which performed ahead of expectation for the period. Although initial strong demand has softened in recent months as a result of price increases, this necessitated a substantial increase in input costs, the category nevertheless demonstrated pleasing profit growth, driven by focused pricing strategies and operating efficiencies. Furthermore, like all, RCL Foods brands have gained good market share over the period. Nola & Ouma grew their market leadership share positions of more than 1% despite aggressive competitor promotional activity. Yum Yum's growth was especially pleasing considering continued presence of imported peanut butter in the market, which does not attract the tariff, whereas raw peanut imports do. Progress has been made with our tech in alignment of peanuts and peanut butter tariffs. Slide 28 highlights a pleasing performance from the pet category despite the market that has come under increasing pressure with cash-strapped consumers trading down. Successful innovation launching F '20, together with tactical promotional pet sizes has delivered aggressive growth in the retail channel. In addition, optimizes entry into the cold channel in F '20 continues to outperform expectations with the brand revenue almost doubling. Strong performance in our own brands has enabled us to offset some lost ELA-owned brand business, which was a result of a conscious decision made not to chase volume with little or low margin. We are satisfied the return on our investments made into this category remains well on track and remain excited by the many growth and innovation opportunities that this category presents. On Slide 29, the Pies operating unit has been materially impacted by changing shopper habits through lockdown. More recently, however, volumes have started to recover towards pre-lockdown levels, especially in the Forecourt channel. Expansion of the manufacturing facilities at Pies was completed at the end of July, enabling increased capacity and new innovation, which will be launched to the market in H2. With beverages being an on-the-go consumption category, this market came under severe pressure through lockdown. We have, however, seen a steady recovery in volumes, coupled with an improved performance, resulting from plant efficiencies and cost savings. Going forward, further recovery is expected on the back of a decision made to mothball's underutilized UHT facility. Moving to Slide 31. Baking's underlying performance is significantly up on the prior period, underpinned by strong demand and an overall improvement in operational efficiency. It's worth noting that the market benchmarking data suggest that our RCL Baking business has notably outperformed the industry basket for the 6-month period. On Slide 32, volumes in bread, buns and rolls were initially buoyed by COVID at-home consumption and a colder winter. However, after landing a price increase early in the period to counter commodity price pressure, volumes have started to slow. Business has nevertheless delivered a much improved result, largely driven by a significant turnaround at the Gauteng bakeries. With an overall improvement in operations and bread production nearing capacity, the business has approved the capacity expansion CapEx to drive Baking's longer-term growth strategy. Moving to Slide 33. Speciality delivered an exceptionally strong results driven by increased in-home consumption, successful new product launches, coupled with sound cost control and improved operating efficiencies. Milling performance has also improved considerably over the period with heightened focus on efficiencies and production reliability, driving a more consistent result. Our milling strategic focus remains unchanged, which is to use more of our consistent, high-quality flower internally and good progress has been made in this regard. Moving to Slide 35. Sugar has produced a substantially stronger results, driven by significant cost savings and an improved sales mix, driven by increased local sales. Slide 36 unpacks Sugar's result in more detail. Strong local retail demand, driven by higher in-home consumption as well as the distribution of COVID relief hampers was a key contributor to the improved result. The business units focused on cost control in both agriculture and the supply chain were also major drivers behind the significantly improved performance. Furthermore, the decision to mothball the unprofitable refinery at Pongola has successfully turned around this mill's performance. Moving to Slide 37. Whilst the international price is higher versus the comparable period, a more recent substantial increase in the sugar price will only impact next season's export sales. Significant progress has been made by governments on the Sugar Master Plan, which aims to find a longer-term more sustainable solution for local sugar businesses. The plan was signed by governments and industry stakeholders in November 2020, and all role players, including RCL, have started working on the detailed worksheets set out in the plan. We are encouraged by the progress made in this space thus far. On Slide 38, Molatek has managed to maintain a relatively stable performance despite a very competitive molasses-based feed market due to herd reductions. Driving an improved mix and closely managing costs will be a key focus area in H2. Moving to Slide 40, the last slide of the Food division section. We have again set out the key areas from a strategic and operational perspective to focus on over the course of the next 6 months. Whilst the division is confident that it will deliver on its strategic priorities, having made significant progress to date, operationally the business is closely monitoring commodity pricing pressure and the potential impact on margins. Moving into the Chicken section on Slide 42. Poor agric breed performance continues to materially impact the chicken results. Pleasingly, however, the business grew its revenue despite challenges faced in resolving excess stock. Slide 43 unpacks the chicken results in more detail. Poor COBB top breed genetics performance still presents a significant challenge to the business. Although good progress has been made to ensure delivery of the longer-term breed recovery plan. As a reminder, this is not a quick fix, and we believe it will take a further 12 months to resolve. In addition to breed challenges and to some extent, a consequence of this Salmonella outbreak across the industry, caused supply chain challenges and increased costs over the period. We believe that this risk is now under control through enhanced measures. By accelerating our strategy to expand our customer base and regionalize our sales, we have been able to resolve excess QSR stock built up during the lockdown through other avenues, whilst the channel recovers. Our added value brands have performed well with pleasing market share gains in both the Vienna and freezer-to-fryer categories. Upcoming innovation will further grow in the mainstream polony market. Moving to Slide 44. It's worth noting the considerable rally that we're seeing in the commodity prices. This is likely to put margins in H2 under pressure, and Marthinus will talk to this in the next section. On the Chicken Master Plan, good progress has made pre-COVID across most of the pillars of the plan, including the implementation of the import tariffs in March last year. However, focus for the poultry producers and government shifted over this period to managing the impact of the pandemic. On Slide 45, external feed through the EPOL brand has come under pressure in the last 6 months, with volumes slowing as a result of price increases to counter rising raw material input costs. I'll now hand over to Marthinus.

Right. Thank you, Paul. So on Slide 47, we've listed, obviously, some of the plans. We've got a business that we need to turn around. We are not competitive at this stage, mostly from a cost point of view. As Paul also pointed out, it mainly sits in the agric space, and it's very much linked to the breed. So we have divided into short-term, medium-, and obviously, long-term strategic focus. Short term is very much a hot list of items that we are addressing. I think we all live in times when we experience the impact of that soft commodity very bullish market. And we're obviously looking at ways to make the feed and make the maize because 70% of the cost to grow chicken comes from the feed side. So we've got to make that maize work for us better, and we obviously must address that breed performance. We sit with situation where that leads to excessive cost on the agric side. We're not self-sufficient in the regions with a number of chicks, et cetera. So there's cost-plus impact on that, and we've got to come up with a solution that will take us into the future. In the medium term, I think what I want to emphasize is the right structure, appropriate structure for a fitful purpose competitive and sustainable and stand-alone poultry business. That obviously means also that we need to find the right people. I think I'm very pleased to say there are many wonderful people with a long track record in terms of experience. So it's a matter of building the team and implementing both structure and the right team. On the long-term side, we're obviously going to work with the 5-year plan and then work back with the end in mind, managing our presence from the future. In a nutshell, I think if we can get the cost base on the agric side sorted, we can get the elements of the value chain: feed, breed and processing, distribution, all working together to deliver a low-cost result. If we can focus on the right things, we can add the right work ethic to it, also experience a little bit of luck, we can get the desired results out of this business. Thank you.

Thanks, Marthinus. Chris Creed here. Good morning, everybody. Moving to Slide 49. I think the headline on the top of Slide 49 gives a nice summary of our performance over the last 6 months. We talked about volume recovery, new principles and good progress with the consolidation of duplicated networks delivered a solid performance. Under the headlines, we can see a pleasing revenue performance, up 19.3% to ZAR 1.5 billion, driven by the ICL, which is Imperial Cold Logistics principal that we took on in December 2019, in spite of the continued impacts of COVID-19 on our foodservice business. Further, the next point we talked to, the good progress made in consolidating the duplicated networks, which I think you're all aware, we've been running in large parts of the country to networks, the previous ICL network and the Vector network, and we've needed to integrate that. And I'll talk a little bit more about it on the next page. But -- so the integration work has commenced nicely, and we're making good progress, and this has further enhanced the performance. And the final capacity enablements are expected to be completed in the next 12 months. These 2 points have delivered a solid underlying EBITDA performance as you can see, at ZAR 168 million, and certainly, well ahead of the prior year if you strip out the ZAR 110 million on gain on bargain purchase from RCL. However, that is off a compromise base, so we won't talk on that too much. Moving over to Page 50. Here, we talk about the pleasing revenue growth in spite of the continued COVID-19 impact on our food service business, and the revenue growth has been driven, as I said earlier, by the new principals landed in December '19. On the bottom right of the chart, you can see some detail around the new principals taken on the significant volume enhancement to the business and certainly making a difference. And this business was awarded largely as a result of the partnership we have with Shoprite, Massmart and Pick n Pay in the retail space, reaffirming our customer line strategy. This revenue in retail continues to mitigate the impact of COVID-19 on our foodservice business. And as we all know, confirming the benefit of driving on this diversified revenue base. Moving to Page 51. Here, we talk about the good progress has been made in the last 6 months in consolidating the duplicated networks, as I said earlier. And if you look at the bottom part of the chart, you can see that we have completed up to the end of Phase II, and we're now busy with the final Phase III consolidation, which is the capacity enablements for the new business and certain warehouses around the country and the consolidation of -- further consolidation of the network fleet. And this we hope to have wrapped up by the end of November. The final synergized network, once better down, will continue to unlock synergies of scale, reducing our cost base and certainly helping us have a sustainable model into the future. On Page 52, we talked to Empty Trips, a smart online digital freight matching platform, which we acquired in November 2019, has been successfully integrated into our network, completing Phase 1 of the implementation, with further rollouts planned. Our joint venture partners in Senn Foods in Botswana and L&A Logistics in Zambia, although impacted by COVID, continue to drive a positive contribution, enhancing our reach and network into Africa. Further to the above, we've acquired an additional 40% in L&A Logistics in Zambia. We concluded that literally a couple of weeks ago. I'm pleased to see our increased holdings to a controlling share of 85%. And with that, I'll hand back to Miles.

Thanks, Chris. Perhaps just before we take questions, the last sort of 4, 5 years, we've really been putting RCL Foods together. And as you appreciate, an enormous amount of work is involved in putting 4 very different companies together. And as I mentioned earlier, a part of that was creating this platform, which is proving a real competitive advantage for us and building a team of highly talented people being able to attract the top talent. So we've been well positioning us all, but the challenges that we've had operationally have been quite significant over this period as well, whether it was the 100-year drought that we experienced with sugar, the whole promotion levy with sugar getting caught up in the crossfire of this area. It is a significant impact for us and now COVID-19, as you'll appreciate, all these things have a significant impact. Having said that, we still managed to deliver an EBITDA between ZAR 1.5 billion and ZAR 2 billion each year. And our HEPS, however, has been impacted largely by accounting charges resulting to the purchase price allocation that we did, particularly with Food Corp. and then, as you appreciate, the end of last year, there was a very great concern about COVID and the impact on South Africa, and so we took greater risks -- and in terms of adjustments. So those things have impacted on our results. So I think it's important just to have that sort of context to what RCL has done over the last couple of years. Hopefully now, we're seeing a normalizing of the sugar business, and we've seen the great results in the Baking business, and Vector has also been through a massive restructure and putting the ICL business together. So these come with a fair amount of pain. But we are, I think, in a good place now, and we've really just got to sort our chicken. And as you know, we've put in a significant amount of focus into doing just that. So on that, we will now take questions.

Miles, it's Rob here. Just to note that we are receiving feedback that the webcast is going down every night again, coming and going. So humble apologies for that. What we will do is make sure that we get this recording up onto our website as soon as possible. So on a playback basis, you will have access to it. But obviously, we will continue with the online questions and then coming through the web for -- and hopefully, that situation improves in terms of our link.

Thanks, Rob. The first question I've got here is from Charles Boles from Titanium Capital. First question on chicken is, is the new stand-alone structure stepped towards separating chicken from ICL? And no, at this stage, what we've done, as we said, we wanted to be a stand-alone business within RCL. So we can leverage the benefits of that platform I was describing, but give it its own head in the sense to be able to drive the sort of business that Marthinus was describing. And Marthinus and team will be given license to utilize the parts of the platform that they think makes sense to leverage it, but also to do things differently where they think things should be done differently. So sort of a hybrid, in a sense, take that the best but change things where they feel it's not appropriate. The second part of the question was, "Has the focus on brand/value-added products resulted in an uncompetitive cost structure in brackets rather than focus on being a low-cost producer?" Not at all. I think the chicken has had some very specific issues, not necessarily to do with the ICL platform. There's no doubt that, that platform and the focus on the brands hasn't added any cost to chicken. But chicken has had very different business model to the other producers with a strong weighting to QSR also being a national player. So that's slightly different to being a regional player. So I think we have done some things inappropriately or incorrectly from a strategic point of view, and we want to shift that emphasis from a strategic point of view. And secondly, there's been some very specific chicken-related issues such as the breed issue that we've described in some detail, and that has really -- has a massive impact on the chicken operations. And quite frankly, if you go back in time, Rob -- sorry, Ross and Cobb used to overtake each other in terms of genetic performance. This is just a real specific issue for Cobb, and quite frankly, it could have been an Ross issue and then we would have been fined. Hopefully, that answers the question. What is the next one?

I've got the next one.

Paul has got the next one.

I've got a follow-up from Charles as well around chicken. And apologies, Charles, some other question is cut off, but I can interpret most of it. And if I don't, please send a follow-up. It says, Chicken -- is the imbalance in chicks causing a buying of healthy chicks? So yes, what we've done is imported eggs during the period, to balance off our supply chain, which is obviously an expensive and be necessary to do to make sure we get to our committed volume in terms of our contractual customers and their supply. So that's what we've been forced to do. It is as a consequence of the -- as we mentioned earlier, the Cobb breed issue, which essentially dates all the way back to the inability to get the right number of chicks or eggs out of the system. What we have done to mitigate it is switch the pipeline from the U.K. to the U.S., and we are seeing an improvement in -- all the way through in terms of delivery of additional eggs, which we require to balance off the supply chain. So hopefully, that answers your question.

We can just check on the audio line, operator, just to remind everybody how to ask a question on the audio.

[Operator Instructions] We have a question from Myuran Rajaratnam of MIBFA.

I've got a couple. The first one is -- well, congratulations on the really good performance on the Baking side and the sugar side. And I'm sort of encouraged to see the higher commitment to Baking, especially the expansion of bread, buns and so on, right? And I saw that slide on the CapEx commitment of something like close to ZAR 500 million. How much -- can you give us some color as to how much expansion -- volume expansion with this amount, just broadly speaking? I mean, are we talking single digit or double digit? Or is it sizable in your lives? That's my first question.

So thanks, yes. So the expansion CapEx is an additional line in our Polokwane bakery, which will assist the balancing of our production between the rural and Gauteng bakeries. So we do move bread between our bakeries as and when required. It is a 4,000 per hour line, which, in the bigger scheme of our total capacity is small, but what it does enable us to do is meet our peak demand from a production perspective, which is particularly in the winter months. And over the weekend, the first weekend and last week end of the month is when you get your peak demand. So it is the first step in our baking expansion, as you mentioned, and we'll start to give us some freedom over those tough weeks.

Great. The second question is RCL Group, as a whole, has changed a little bit in the last couple of years. I mean on the Vector side, you've added on ICL and consolidated that business. Then the Sugar Master Plan has come in as well as -- then there was COVID impacts and all sorts of things. So I'm just trying to get a sense of the seasonality in the business. You just reported first half, and I'm not talking about this particular, but in a typical year, is the seasonality the same as historical? Or has it changed quite a bit? Is it 50-50? Maybe you can just talk a little bit to what you think the seasonality in the business is.

So, it's Rob here. The seasonality is most pronounced in our sugar business, followed by our chicken business. And typically, the second half of the year is a lower trading period than the run-up to Christmas. So our H2 to June -- so it does vary, but it definitely is a lower contributing half, driven largely by sugar, which with 3 months of crop has seasonally and historically demonstrated a much lower contribution in the second 6 months. For the rest of our businesses, the volumes are pretty similar and have to have the benefit of an April Easter peak, but it's always less than a December Christmas trading period. So by and large, sugar and chicken are the contributors to our lower seasonality performance in our H2.

Great. I have one last question, if I can. You talked about the platform part of your business model and the uniqueness and leveraging of this platform by, for example, adding Siqalo and how you get lots of economies of scale into this. And I know you've -- I think I don't know if it's you or Remgro appointed investment bankers at Morgan Stanley and so on to decide how to strategically look at this business as a whole. Typical investment bankers, they might come back and say, "Divest the chicken business." But that sort of brings on this economies of scale if you get rid of it, like -- I mean, Charles was asking the same question, I think. So how do you think about the fact that there's a potential to divest? And wouldn't that not bring diseconomies of scale? You're getting rid of -- it's the negative platform effect, if you like. So some thoughts on that.

My pleasure. It's Miles here. Yes, you're absolutely right. The strategic review is to look at that current shape of RCL Foods and what we think is competitive advantage, which we believe our platform is and what future shape do we want and waiting. But we have kind of chapter and verse ourselves on exactly what the contribution of each of the different parts of our business is to the platform. What parts of the business benefit from that. So we would do it in a very considered manner and be fully mindful of any potential dissynergies. And clearly, we would also look at being acquisitive because we know that the platform is designed to add on businesses at a very little on-cost and that's businesses that fit our model. So yes, your observation is absolutely valid. Okay. We've got a question here from [ Younus Murtaza ] from Risk Insights. He says he's been tracking your company's performance on ESG over the last 5 years, your disclosure on environment, social and governance factors is quite good. With regards to social factors, what is your company strategy towards labor policies and gender issues? So I think that's a very good question and something that we're very focused on. As you say, just generally, we have been doing a lot of work in governance and environment. And I think we're certainly punching ahead of our weight there, particularly with our waste-to-value plant in Rustenburg and Worcester. We also think through our DO MORE FOUNDATION through doing an enormous amount of good, we managed to distribute 8 million meals to South Africans during this COVID environment. We've taken on external partners who are providing funding because they believe in the DO MORE FOUNDATION's ability to deliver. So a lot of good work taking place there. And I think regarding the specific question on label and gender, we similarly have a number of forums internally and a number of practices internally to deliver on those. Perhaps our disclosure is not where it should be, and we'll have a look at that. But we run internally inclusivity and diversity programs, which deal with a lot of these issues. I wouldn't say we're at our destination yet. There's a way to go, but certainly, internally, we feel that we're making a lot of good progress in those regards.

Operator, any more questions on the audio?