RCL Foods delivers improved earnings despite 2.1% dip in revenue for the year

SOUTH AFRICA – The South African consumer goods and milling company, RCL Foods has said headline earnings for the year ended June 2018 increased 52.7% to US$58.31 million while revenue totalled US$1.69 billion, a 2.1% decrease attributed to reduced volumes in the restructured Chicken business.

Despite a challenging business environment and a strain taken on both the food and sugar businesses as a result of cheap imports, profitability was boosted by strong performance for its chicken business, strong growth through its brands and a focus on cost containment.

Headline earnings growth was also driven by strong volume performances in the Dressings, Pet Food and Pies categories, lower interest costs and a tax credit related to an energy efficiency allowance in the Sugar business unit.

Through its “ONE RCL FOODS” transformation programme launched four years ago, the company focused on building a strong regional food business with a diversified portfolio.

The chicken unit recorded 717.5% increase in EBITDA to US$32.48 million despite challenges including Listeriosis crisis and Avian Influenza (AI).

A new long-term contract with Pick n Pay for their frozen category, including ice-cream, helped to offset the decline in chicken volumes.

EBITDA in the Consumer division nearly doubled, rising 94.5% to R985,2 million led by chicken business while sugar, milling and logistics divisions were not able to turn around to profitability.

Consumer division benefitted from a significant improvement in the groceries as strong branded groceries performance was a highlight of the year, given the deflationary environment, strong competition and no growth in the market.

The sugar business saw increase in sugar production and improved efficiencies, more than offset by the impact of significant volume of dumped imports.

The company expressed the need to establish import parity to quell imports and excess supply drove significant local price decreases of more than 20% during the period.

Animal Feed performed well supported by gains on maize and currency positions following the merger of Molatek and Epol that created one of South Africa’s largest animal feed businesses.

Since South African milling industry continues to be challenged by overcapacity and margins remain tight as a result, the company said focus remains on increasing volumes and improving efficiencies in the Millbake business unit which faced operational challenges including prolonged strike action as well as competitor pressure that impacted volumes and margins.

Impact of listeria and dumped imports

RCL FOODS estimated the financial impact of the listeriosis crisis at US$10.98 million, once off costs of US$5.43 million for product recall and the restoration of the Rainbow brand, and an estimated US$5.55mn as lost contribution.

“Given that we have never had listeria in our products at our Wolwehoek plant, and have subsequently been cleared of the ST6 ‘outbreak strain’ of listeria, we have been working to restore consumer trust both in our Rainbow brand and the chilled processed meats category,” the company said.

The business was influenced by significant impact of dumped imports on chicken and sugar, forcing the business to resize and restructure.

The Chicken business restructuring reduced production from 4.8 million birds to 3.4 million birds per week, resulting in a substantial proportion of low margin consequential (commodity) chicken being removed from the system.

“These external challenges have forced us to think differently, find alternatives, drive efficiencies and reduce costs.

The result has been a more resilient company, and a more profitable one,” said CEO Miles Dally.

Cautiously looking foward

RCL said it is continuing its cautious expansion into Africa, finalising a 45% shareholding in an FMCG distribution operation based in Lusaka, Zambia which will provide a re-entry into the Zambian market.

Looking forward, RCL FOODS expected the recent modest recovery in market volumes to continue: “Trading conditions will continue to be challenging and the fight for market share will remain fierce.”

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