Beyond delivering solid results for the 2015 financial year, RCL Foods believes its recent acquisitions and restructuring of the business have led to a stronger, more diversified business that is geared for growth.

The food business posted a “pleasing operating and financial performance” despite challenging economic conditions having remained a feature throughout the year ended June 30.

RCL Foods reported revenue of R23.4-billion on Wednesday, an increase of 20.1%, for the year under review, which was largely owing to the inclusion of a full 12 months of TSB results for the first time, following its acquisition on January 1, 2014.

The company had previously only included six months of results for TSB, which it added had delivered a solid performance.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) were about R2.2-billion, up 98.2% on the previous comparable period’s R1.1-billion, with the associated margin increasing from 5.8% to 9.5%.

Headline earnings a share were 112.2c, up 335.2% from a loss of 47.7c, on the back of headline earnings from continuing operations of R964.5-million, compared with a loss of R332.6-million in the 2014 financial year. Cash generated was up by 76% for the year ended June 30, climbing to just more than R2-billion.

The board had declared a final dividend of 22c a share.

SUBSIDIARIES
During the year under review, Foodcorp, which houses RCL Foods’ baking and milling business units, experienced subdued Ebitda growth of 3.1% to R743.3-million from R721-million. This outcome was driven by weak demand, aggressive competitor activity and a seven-week strike at the Speciality division, which alone had a profit impact of R23-million.

Rainbow delivered a “much-improved” performance for the year and posted a pre-IAS 39 Ebitda of R667.6-million and a R773.9-million statutory Ebitda on the R302.5-million and R203.7-million reported in the prior financial year. Rainbow’s pre-IAS 39 Ebitda margin of 7.4%, however, remained below targeted levels.

TSB delivered a pleasing performance following better local prices and increased volumes after the reversal of last year’s high level of sugar imports. The decline in imports was the result of the sugar tariff introduced during the year under review. The sugar producer’s Ebitda for the 12 months was R505.1-million, with a margin of 8.2%.

Vector, on the other hand, had faced a challenging year with its customers operating in a constrained retail environment.

“Overall volumes were relatively flat, although there was some respite as a result of growth in the foodservice industry, which was aided by international QSR Brands increasing its respective store footprints.

“While this contributed to Vector’s revenue increase, it was tempered by a six-week period of industrial action at the beginning of the year, which cost R20.2-million and resulted in a muted 3.5% Ebitda growth to R206.2-million,” said RCL Foods.

RCL Foods believed the burden of a constrained market, together with the expectation of rising interest rates, labour demands, electricity disruptions and continuing high unemployment, would hamper any sustainable improvement in consumer spending.

“These issues will have an impact across the segments in which the group operates,” it stated.

RESTRUCTURING
The group noted that a defining change had been the implementation of the strategy of conducting business with a “one company” approach, effective January 1, 2015.

However, the group still reported its segmental information on the historical basis for the 2015 financial year as the management accounting systems required to enable this reporting would only be implemented for the 2016 financial year.

RCL Foods advised that its subsidiary entities – Foodcorp, Rainbow Farms, TSB and Vector – had now been structured into logical business divisions.

The Consumer division included the Chicken, Speciality, Grocery, Pies, Beverages and FoodSolutions business units and the Sugar & Milling division the Sugar, Milling and Baking, and Animal Feed business units.

Vector continued to operate as a standalone business, ultimately responsible for group-wide route to market.

The Consumer division’s new management structure and focused investment behind its brands was expected to yield positive financial results in 2016.

“The poultry industry is still facing uncertainty following the recent decision with respect to duty-free US imports, while the injection cap issue remains unresolved. Improvements from the new chicken business model are expected to moderate in the new financial year off a substantially higher base,” RCL Foods pointed out.

Meanwhile, the Sugar and Milling division’s use of irrigation was estimated to, largely, shield it from the current drought conditions experienced by the KwaZulu-Natal sugar producers. “However, the short-term outlook for global sugar pricing is negative,” the company stated.

Vector expected to commission new capacity in the latter half of the year, allowing the take-on of potential new customers, with RCL Foods highlighting that the continued good performance of foodservice customers was forecast to help offset negative economic factors.

RCL Foods expected that cash flows in the business would remain robust against the backdrop of a significant capital expenditure (capex) investment programme, which had been largely directed towards Foodcorp and Vector in 2015. Capex for the year ended June 30 increased to R756.6-million from R654-million in the 2014 financial year.

“[This capex] will allow RCL Foods to continue plans to explore opportunities in strategic growth markets in the food sector in South Africa and sub-Saharan Africa in line with its long-term aspirations,” stated the company.

RCL Foods’ key deliverables for 2016 involved driving the new business model in Chicken, driving group synergies in Sugar, implementing turnaround plans for Milling and Baking, Pies and Speciality, sharpening its strategic customer focus in each category, investing behind brands and systems to enable growth, optimising resources and costs and driving synergies, implementing the next level of the new organisation and continuing with the company’s expansion strategy.