RCL Foods registers strong earnings growth despite chicken division lagging behind

SOUTH AFRICA – South African food processor RCL Foods, has reported a 14% rise in full year revenue for the year ended June 2021 to R31.7 billion (US$2.21 billion).

More notable is that the group almost posted an eight-fold increase in headline earnings by 736% to R958.1 million (US$66.94m), from a loss last year after write-downs of around R1.5 billion (US$104m) due to the Covid-19 financial fallout.

Earnings before depreciation, amortisation and impairment (Ebitda) was up 47.3 percent to R2.51 billion (US$175m) and headline earnings per share jumped 723.7% to 107.9 cents.

According to the owner of Ouma Rusks, Yum Yum peanut butter and Selati sugar brands, the good set of performances are attributed to excellent growth in its food division and logistics unit.

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The food division delivered strong results, with a record performance in sugar, which benefited from higher demand, strong cost control and improved sales mix of local versus export volumes, as well as a significantly improved baking result and pleasing growth in groceries.

“All business units continued to benefit from increased in-home consumption and associated higher demand for pantry essentials,” indicated the company.

Sugar, Baking, Grocery divisions benefit from increased local demand

The sugar business reported a record performance, with revenue climbing 10.2% to R8.397 billion (US$624m) despite volume sales going down by 3.6%.

Increased local sugar demand and a shrinking industry crop have created a more favourable supply-demand balance, aided also by a higher sugar price, noted RCL Foods.

Meanwhile, the company’s baking segment, delivered excellent results across all operating units attaining revenue of R5.849 billion (US$408.68m), improving by 12.6% on the prior year.

This was aided by higher volumes in the bread, buns & rolls and speciality operating units, underpinned by focused strategic execution leading to a successful turnaround in the Gauteng bakeries, as well as a more favourable sales mix in the Milling operating unit.

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The R128 million investment in the Polokwane bakery, which commenced during the year, is positioning the Bread, Buns & Rolls category for growth in line with the baking strategy.

Shifting focus to the grocery’s unit, revenue increased by 10.8% to R5.522 billion (US$385m), driven by a good recovery in Pies volumes and higher prices in response to commodity input cost pressure.

Culinary brands remained resilient during the period under review and the pet food brands continuing to perform well, maintaining their category leadership and growing market share despite tough market conditions.

Chicken division struggles

Despite the consumer goods manufacturing seeing a rebound in its performance, its chicken business continues to be a challenge.

The division’s revenue increased by 17.3% to R10.335 billion (US$722m), but underlying EBITDA dropped 50.1% to R98.8 million (US$6.9m) at a margin of 1.0%.

“Extra storage costs and supply chain relief measures materially impacted results by R112.4 million (US$7.85m) – the largest portion of the direct COVID-19 costs adjusted out of the underlying Group numbers,” highlighted the company

Chicken’s volumes, excluding Epol Animal Feed, increased by 6.5% to 1 092 tons per day over the prior period, with pricing up 8.6%.

The underlying result was mainly impacted by continuing breed performance challenges, significant raw material cost increases and the lingering impacts of the initial COVID-19 lockdown, compounded by Avian Influenza (AI) and, to a lesser extent, industry-wide challenges with Salmonella Enteritis (SE).

As part of a strategic review of RCL Foods’ portfolio, a decision was taken to establish the chicken business as a separate division within the company.

The group also entered the plant-based protein category in 2020, via an investment in a minority shareholding in the newly-established LIVEKINDLY Collective (LKC) which was founded by the leading plant-based investor, Blue Horizon, with the aim of creating a vertically integrated plant-based food value chain with global reach.

Vector Logistics delivered an improved performance for the current reporting period, with revenue increasing 21.8% to R3.153 billion (US$220m).

This is mainly due to the take-on of new business and consolidation of the duplicate networks following the acquisition of Imperial Cold Chain (ICL) business in the prior period.

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