RCL Foods surges to 52-week high as it swings back to profit

Group sees double-digit growth in revenue and pays out an 80% larger dividend to shareholders.
RCL Foods headquarters in Westville, Durban. Image: Supplied

Durban-based RCL Foods, which owns the Selati Sugar, Ouma Rusks and Rainbow Chicken brands, delivered a strong set of full-year results on Monday, which saw its share price firm more than 6% on the day and hit a 52-week high.

The group reported a revenue increase of 14% to R31.7 billion for the year to the end of June 2021. However, more significantly, RCL posted an almost eight-fold increase in headline earnings to R958.1 million, from a loss last year after write-downs of around R1.5 billion due to the Covid-19 financial fallout.

While the group continues to be impacted by the pandemic, like many of its JSE-listed peers, it has also seen some benefits with its baking and other consumer food products seeing a surge in demand, partly due to more South Africans staying and eating at home.

RCL declared a final dividend of 30 cents per share (cps), bringing its total dividend to shareholders for the financial year to 45 cps.

This is 80% up on the payout of 25 cps during its pandemic-hit prior year.

Headline earnings per share (Heps) were up 723.7% to 107.9 cents, while ‘underlying’ Heps were up 166.9% to 117.7 cents.

Source: RCL FY2021 results

RCL notes in its results statement on Sens that the performance was “driven by an excellent performance in the sugar and baking business units and continued strong delivery in [the] grocery [unit]”.

“Notwithstanding the strong topline growth, input pricing pressure has continued to build in certain business units during the past year due to a significant rally in agricultural commodity prices,” the group however adds.

“The food division delivered a strong result, with a record performance in sugar, which benefited from higher demand, strong cost control and improved sales mix. Baking’s improvement was mainly driven by higher volumes and a successful turnaround at the Gauteng bakeries.

“Groceries delivered pleasing growth aided by a good recovery in [the sale of] pies and continued strong performance by the grocery operating unit. All business units continued to benefit from increased in-home consumption and associated higher demand for pantry essentials,” it points out.

Despite the group’s robust overall performance, RCL’s legacy chicken business continued to face headwinds in the financial year. The division, however, still contributes almost a third of the group’s overall revenue.

“The chicken division’s results continue to be negatively impacted by breed performance challenges, significant raw material cost increases and the lingering impacts of the initial Covid-19 lockdown, compounded by Avian Influenza and, to a lesser extent, industry-wide challenges with Salmonella Enteritis impacts,” its Sens statement notes.

RCL further points out in a results media statement that revenue in its chicken division increased 17.3% to just over R10.3 billion. However underlying EBITDA (earnings before interest, taxes, depreciation, and amortization) dropped 50.1% to R98.8 million at a margin of 1% (2020: R197.8 million at a margin of 2.2%).

Source: RCL FY2021 results

“Direct Covid-19 mitigation costs amounted to R121.3 million during the period, of which the bulk relate to additional storage costs in [the] chicken [division] earlier in the period. These have declined as the supply chain has returned to more normal operating levels,” it adds.

Meanwhile, updating the market on the group’s strategic review, which commenced in November last year, RCL says the review “has confirmed that the current portfolio is not optimally configured for its purpose”.

RCL adds that this is “due to its diversification across different asset classes, namely value-added branded foods [groceries and baking]… poultry [chicken and grain-based feed]; sugar [sugar and molasses-based feed]; and, logistics [Vector Logistics].”

“In this context, the board has accordingly resolved that a separation of the businesses will ultimately better position the group to achieve a more consistent quality of earnings and thus enable shareholder value creation.”

RCL’s outgoing CEO Miles Dally comments: “Going forward, our intention is to unlock growth in the FMCG [fast moving consumer goods] component of the business through sharper strategic focus and active investment; to identify value creation opportunities and to scale into adjacent and new categories, both organically and through acquisition activity.”

He says the group “is actively evaluating opportunities” related to this.

Listen: RCL Foods CFO Rob Field discusses its results for the year to end June


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