Strong demand for RCL Foods’ (RCL) Rainbow poultry and grain-based animal feed unit was not enough to stem the severe impacts of high feed costs, failing municipal infrastructure and load shedding, causing sharply lower profit for the entire group.
Revenue at RCL’s Rainbow and grain-based Animal Feed business grew by 18.3% to R13.46 billion in the year to June 30 compared with the previous year, aided by strong demand, increased market share and price increases in the Quick Service Restaurant (QSR) sector.
But earnings before interest tax depreciation and amortisation (Ebitda) at the unit declined by 74.9% to R86 million. The Epol and Driehoek Animal Feed businesses also faced load shedding and margin pressure challenges arising from high commodity input costs and overcapacity in the industry.
RCL group revenue from continuing operations increased 17.3% to R37.8bn, mainly due to higher pricing necessitated by rising input costs. But Ebitda fell 24.5% to R1 71bn, mainly driven by the decline in Rainbow and a revaluation of RCL’s minority shareholding in The LIVEKINDLY Collective International business.
Headline earnings per share fell 45.7% to 60.6 cents.
Agricultural commodity input costs was the biggest contributor to margin pressure, followed by load shedding which added R158.3m in direct costs for diesel, generator hire and additional labour requirements.
CEO Paul Cruickshank said in a telephone interview yesterday that agricultural commodity prices had, in the past three to four months, started to fall marginally, in contrast to experience, when the prices peaked at high prices and dropped more dramatically thereafter, the difference this time probably being due to the impact of the Russia-Ukraine war.
RCL plans for a full separation of the Rainbow business and had taken “significant steps” over two years to prepare it for this.
Cruikshanck said that although the operational and administrative separation was complete, the business would need to stand on its own feet, also financially, with a strong balance sheet and funding capacity, for the full separation to occur.
“Rainbow continues to focus on a turnaround strategy, which includes improving agricultural performance, driving cost efficiencies and economies of scale,” he said.
The Sugar business unit lifted Ebitda by R62.4m or 7.6%, even after the impact of the sugar industry special levy of R234.4m.
This despite a decision by Tongaat Hulett’s business rescue practitioners to suspend payment of their statutory pre-commencement levies and redistribution payments to the South African Sugar Association (Sasa), and the subsequent default of Tongaat and Gledhow.
The remaining industry participants covered the shortfall via a special Sasa levy. Industry-led legal proceedings, including by Tongaat’s business rescue practitioners, were under way to assess whether Tongaat was liable for the 2023 season levy – it had paid its 2024 season levy so far.
“Understanding the key role our business plays in maintaining food security and employment in South Africa, we have focused on ‘controlling the controllables’ to deliver a stable profit while supporting cash-strapped consumers. We have done so through careful management of price increases, innovation in the ‘value’ tier and a focus on operational efficiencies,” said Cruickshank.
No dividend was declared for the year.
RCL Value-Added Business, comprising the Groceries, Baking and Sugar business units, lifted revenue 17.3% to R24.5bn and underlying Ebitda increased 10.8% to R2.01bn. Ebitda declined to R1.79bn from R1.86bn due to the sugar industry special levy impact.
In the Groceries business unit, comprising the Grocery and Beverages operating units, revenue increased 6.4% to R5.03bn and underlying Ebitda fell by 16.6% to R405.8m, mainly driven by load-shedding impacts.
The Baking business division, comprising the Bread, Buns & Rolls, Milling, Pies and Speciality operating units, lifted revenue 16.2% to R8.62bn, while underlying Ebitda improved 1.4% to R547.9m, despite lower volumes and compressed margins in the Bread, Buns & Rolls operating unit.
In the Sugar business unit, revenue increased 23.3% to R11.1bn and underlying Ebitda increased 34.3% to R1.05bn due to higher production volumes; increased local sales; and continued favourable export pricing.
BUSINESS REPORT