RCL Foods reports growth, despite headwinds

Conditions were tough, shaped by mounting global cost pressures and an avian flu outbreak.
Image: shutterstock

JSE-listed South African food producer RCL Foods has reported 9.2% growth in half-year revenue to R17.1 billion. It said this growth was largely supported by improved volumes and prices of chicken, improved prices of groceries and higher revenue coming from its logistics segment.

The group – which owns Selati sugar, Nola mayonnaise, Ouma rusks, Sunbake bread and Yum Yum peanut butter – says its headline earnings per share (Heps) for the six months ended December 2021 rose by 21.6% to 72.7 cents.

In a Sens statement the group noted that food producers battled continued rises in agricultural commodity input costs during the period, as a result of increasing world prices which have been influenced by lower global crop estimates and increasing demand.

RCL Foods says it has also faced cost pressures related to the outbreak of Avian Influenza (AI) in the Southern Africa region, the aftermath of the July civil unrest and the impact of a fire at its Komatipoort sugar warehouse which took place in October 2021.

“Our response to the headwinds affecting the food industry and our own business is to focus on what we can control and to consistently excel at the basics, while actively pursuing our strategic growth agenda with the aim of creating a focused and resilient value-added business that generates sustained shareholder value,” RCL Foods CEO Paul Cruickshank says in a statement.

RCL Foods will issue an interim dividend of 15 cents per share, the same amount issued in the previous comparable period.

Chicken business to return to profit

The once loss-making chicken business has returned to break-even, achieving a 32.4% increase in earnings before income tax, depreciation and amortisation (Ebitda) to R115.1 million.

“The earnings improvement was driven by better agricultural results as well as higher volumes and price realisations in an AI-impacted local market where there were also reduced levels of bone-in chicken imports,” the group says.

However, the food producer did note that the AI outbreak and the civil unrest chipped away R85.8 million and R34 million respectively from the segment’s earnings.

Besides focusing on fixing agricultural performance, reducing debt and supporting growth, RCL Foods says implementing breed changes has become part of its turnaround strategy aimed at returning its chicken business to profit.

“The business is currently implementing a breed change and is already banking some benefits of breed improvement, with the majority to start flowing early in the 2023 calendar year.”

Steady food division

For its food division the group saw a 4.3% increase in revenue to R10.49 billion for the period, after strong demand across most of its categories remained – despite implementing selective price increases in its mayonnaise and pet foods business to offset rising commodity costs.

The group’s baking segment hit a bit of a slowdown for the period, with revenue only increasing by 2.2% to R2.98 billion. The segment also saw a 8.7% decline in underlying Ebitda to R245.7 million.

“Despite good volume growth in bread, buns and rolls, and pleasing operational improvements in milling, baking came under pressure due to high input costs in all operating units.”

On the other hand, the sugar division registered a strong performance, benefiting from high global sugar prices and strong local market demand.

The sugar business saw underlying Ebitda increasing by 7.8% to R498.4 million, at an underlying Ebitda margin of 11.2%.

However the group did report that the fire at its Komatipoort sugar warehouse destroyed 40 000 tons of raw sugar, resulting in material costs of R25 million.

In a forward-looking statement Cruickshank says, “RCL Foods has maintained good momentum in the first half of the financial year and we are clear in our strategic priorities for the second half and beyond.”

“At group level our key focus will be on progressing the managed separation pathway of the chicken, sugar and vector businesses in a responsible and well considered manner, while actively pursuing growth opportunities in the value-added segment,” he adds.

Listen: RCL Foods report profit growth despite chicken business struggling

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