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RCL Foods reports profit growth despite chicken business struggling

CFO Rob Field says ‘early on in the pandemic we suffered quite significantly as a consequence of the food-service chains being shut during the hard lockdown. They’ve since bounced back really well’.

FIFI PETERS: Looking at our first set of results for the show today, RCL Foods – the guys that make Ouma Rusks, Nola Mayonnaise and Rainbow Chicken – (have been) swinging back into a profit at this time around, with group sales also higher. RCL Foods’ CFO Rob Field joins the show. Rob, thanks so much for your time. Quite a turnaround in events for the group this time. Just take us through what happened.

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Read: RCL Foods’ results for the year to end June

ROB FIELD: Thanks Fifi, and good evening to your listeners, and thank you for this opportunity. Yes, it was a very good turnaround. The business has performed particularly well this year, especially when you consider the economic environment in which we are trading, and the Covid challenges that face all of our businesses and our trying to get food to the nation.

But it was pretty much across the board. All of our business units performed exceptionally well with the exception of chicken. Unfortunately chicken still suffered some challenges with its breed, the long-standing issue that has unfortunately continued. But for the rest, a really strong demand and good overall performance by the teams.

FIFI PETERS: Can you just describe to us the consumer behaviour and sort of buying patterns that you witnessed, because most people admit to putting on a kilo or two – or maybe five – during the lockdowns as a result of eating more while staying at home. But what were the buying patterns that you witnessed?

ROB FIELD: There’s no doubt there has been a significant shift toward more in-home consumption, quite understandably so with the Covid conditions. But I think that played to our basket where we have exposure across many grocery lines and many staples that were very necessary in this difficult economic climate and pandemic.

The counter to it [was]… early on in the pandemic we suffered quite significantly as a consequence of the food-service chains being shut during the hard lockdown. They’ve since bounced back really well, and we’re back mostly at pre-Covid levels there. So our exposure to both the retail wholesale sector, as well as food services – there has been stronger demand in the latter part of this year.

FIFI PETERS: But, as you mentioned, not all parts of the business did well. You did talk about the challenges in the chickens business. So take us through your plans there, and how you plan to manage the risks around things like the avian influenza.

ROB FIELD: So yes, there are unfortunately many challenges in the chicken business. The one that’s been ongoing for over a year is the challenge with us farming our Cobb breed: the birds’ performance is well below its own standard, as well as its competitor set. That translates into a very significant cost impact in our supply chain. But yes, in this period unfortunately there’ve been challenges in the industry with Salmonella, with Avian influenza. Obviously the recent unrest was post the year-end. [But] there are other significant challenges in that business and a perfect storm with inputs, commodity costs being more high, as they are, and they are remaining stubbornly high. So we’ve done a lot in that business in terms of giving it the focus it needs. The new management team was inserted at the beginning of this calendar year, and they are getting to grips with the challenges and building a new team with a level of independence from our business, and really giving it the focus with me.

FIFI PETERS: Talking about those high input prices or costs that you are facing, what does that mean for the prices that consumers can expect to start paying for the products that you produce?

ROB FIELD: Worryingly, that space remains a challenge. Obviously we and our retail partners do everything we can to try and limit the flow-through of that, hence many of the initiatives that our business ran this year were cost-focused, other-cost-focused in terms of trying to mitigate some of the impacts. But we know from the food-inflation perspective that it’s tracking higher than normal …. inflation. And so we can expect that these prices remain stubbornly high. We can expect the pressure to flow through the system, which is obviously not a great outcome.

FIFI PETERS: Just lastly, as you did mention, the effects of the July riots are not reflecting in the set of numbers. What should we expect in terms of which parts of the income statement the July riots will possibly impact RCL Foods?

ROB FIELD: We did quote and I know that it’s not insignificant at R50 million, but it really was largely related to stock losses, the looting that took place out of facilities, mostly rented facilities. So we didn’t have any physical damage, fortunately. But it’s more of a direct cost of that lost stock.

The impact was more severe for our trading partners, and we were at the time trying to support the whole supply chain in the sense of getting back on its feet and playing the role that we could – a challenging issue.

FIFI PETERS: All right, Rob, thanks so much for joining the show. We’ll leave it there. Rob Field is CFO at RCL Foods.

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