RCL FOODS: An Improved Performance Notwithstanding a Weak Operating Environment

RCL FOODS has reported underlying EBITDA and headline earnings increase of 11.1% and 24.1% respectively versus the comparative period, showing resilience amidst a weak operating environment. The company attributed the underlying improvement to a significantly better performance in Sugar, albeit off a low base, and consistently strong performance in Groceries. As a result of increased profitability, cash generated by operations was up 20.8% for the period. Revenue was up 7.1% to R14,2 billion (December 2018: R13,2 billion), driven by strong volume growth in Sugar and Chicken, coupled with price increases in Sugar.

The company has declared an interim gross cash dividend of 15,0 cents per share (2019: 15,0 cents).

As part of its drive to secure sustainable quality of earnings in a volatile and competitive environment, the company recently executed the next phase in its evolution to One Food business, restructuring its Consumer and Sugar & Milling divisions into a single Food division. “This restructuring has established four business units that are closely aligned and integrated. This provides a solid foundation for further synergies, optimising resource allocation and sharpening our strategic focus,” said CEO Miles Dally.

Within the Food division, Sugar’s underlying EBITDA increased 142.4% off a low base to R294,0 million at a margin of 7.8% (December 2018: 3.6%). Sugar benefited from higher raw export sales volumes and price, a local price increase and better cost control. Local demand remains muted due to pressure on consumer spending and lower consumption due to the Health Promotion Levy (Sugar Tax). “We support the development of a Sugar Industry Master Plan and are working with all role players to review the sugar operating model to further reduce industry costs and find a sustainable solution,” said Dally.

In a difficult trading environment with increased competitor activity, Groceries continued to perform well, fuelled by an exceptional performance in Pet Food which saw its basket grow 2.3%, ahead of the market.

Chicken’s underlying EBITDA decreased 10.8% to R198,1 million at a margin of 4.2%. Chicken imports continue to displace locally produced chicken in an oversupplied market, and although the Poultry Industry Master Plan is progressing, anti-dumping measures are yet to be implemented. Results were consequently affected by softened pricing amidst higher feed costs and agricultural challenges.

In the Logistics division, Vector Logistics’ underlying EBITDA declined 80.5% to R17,3 million, mainly driven by enablement costs associated with the recent acquisition of Imperial Logistics South Africa’s cold chain business (ICL) without the commensurate revenue for the period. The formation of new service agreements with previous ICL customers and ability to synergise duplicate networks positions Vector well to realise the Customer model strategy and sustainably grow going forward.

With a view to securing its future while establishing competitive advantage in a fast-changing world, RCL FOODS secured a minority shareholding in Foods United Incorporated (FUN), a start-up international entity with a vision to create a vertically integrated plant-based food and beverage value chain of scale, with global reach. FUN’s pioneering vision is to create a vertically integrated, plant-based food and beverage ecosystem that ranges from farm to fork, at scale and at speed, with global reach. Partnerships with established platforms with demonstrated capability are key to its business model, and RCL FOODS’s capabilities and aspirations make it an ideal fit as a partner. RCL FOODS’ investment in FUN will progress the company’s strategic imperative of growing through strong brands in the strategically targeted category of plant-based alternatives, and particularly in the fast-growing ‘alternative protein’ segment. Participating in this category will meet RCL FOODS’ desire to offer consumers added choice in the context of a diverse and growing population, while still remaining focused on its core Chicken (animal protein) businesses.  For more information on its founding investor and controlling shareholder, see www.bluehorizon.com.

RCL FOODS’ renewable energy initiatives have gained further prominence amidst the current national power supply challenges. A second waste-to-value plant, to be commissioned in Rustenburg in the last quarter of the financial year, will supply 65% of chicken processing plant and feed mill’s energy needs, 100% of the feed mill’s steam, and 40% of its water requirement – while also allowing limited operations in “island mode” during load shedding.

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