SOUTH AFRICA – South African food producer RCL Foods has reported 9.2% growth in half-year revenue to R17.1 billion (US$1.11 billion).

The growth was largely supported by improved volumes and prices of chicken, improved groceries prices and higher revenue from its logistics segment.

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

During the period, the group was materially impacted by costs associated with the outbreak of avian influenza in Southern Africa, the impact of the civil unrest in July 2021 which disrupted operations at certain KwaZulu-Natal and Gauteng sites, and the fire at its Komatipoort sugar warehouse in October 2021.

The food producer also battled continued rises in agricultural commodity input costs, as a result of increasing world prices which have been influenced by lower global crop estimates and increasing demand.

Chicken unit turns to profitability

The once loss-making chicken business returned to break-even, achieving a 32.4% increase in earnings before income tax, depreciation and amortisation (Ebitda) to R115.1 million (US$7.45m).

“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 (US$5.55m) and R34 million (US$2.20m) 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.

Food segment benefits from higher prices

Meanwhile, its food division saw a 4.3% increase in revenue to R10.49 billion (US$679m) 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 (US$192.9m). The segment also saw an 8.7% decline in underlying Ebitda to R245.7 million (US$15.9m).

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 (US$32.27m), 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 (US$1.62m).

In a forward-looking statement RCL Foods CEO Paul 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.”

The group’s executive structure and operating model have been re-engineered in recent months to support a value-added focus.

The roles of CEO and COO have been consolidated under Paul Cruickshank; the RCL Foods group and Food Division executive teams have been merged to create a single executive structure; and a new value-added operating model with a clear growth mandate has been implemented.

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