“Exceptional performances” in its sugar and baking business units helped drive JSE-listed RCL Foods’ earnings growth for the financial year ended June 30.
However, the company’s strong topline growth was offset by input pricing pressure in certain business units, owing to a significant rally in agricultural commodity prices.
The consumer goods company posted earnings before interest, taxes, depreciation and amortisation (Ebitda) growth of 47.3% year-on-year to R2.4-billion, with earnings a share 208% higher year-on-year at 111.8c.
RCL declared a total dividend of 45c apiece, compared with a total dividend of 25c apiece declared in the year ended June 30, 2020.
Operating profit, adjusted for non-cash flow items, totalled R2.03-billion, compared with the operating profit of R1.25-billion posted in the prior year.
The company had cash on hand of R897-million at the end of the reporting period.
Capital expenditure came to R921-million, which was R109-million more than the prior financial year, mostly comprising of replacements within the Vector Logistics fleet, the replacement of certain production lines at the Pretoria West bakery and electricity generation spend within the sugar business.
Importantly, CFO Rob Field noted during a results presentation on September 6, that the group had achieved a higher return on invested capital growth in the year under review, from -4.8% in 2020 to 8.5% in the financial year under review.
COO Paul Cruickshank unpacked an operational update, explaining that the sugar business had benefited from higher demand, strong cost control and an improved sales mix, while the baking business saw higher volumes and successful turnaround initiatives at RCL’s Gauteng-based bakeries.
The sugar business alone recorded an underlying Ebitda increase of 144% year-on-year to R907-million, at a margin of 10.8%. This compares with underlying Ebitda of R371-million and a margin of 4.9% in the 2020 financial year.
Cruickshank mentioned that the groceries business unit also delivered pleasing growth, aided by a good recovery in pies, and overall higher demand for pantry essentials as in-home consumption remained solid.
The sugar, baking and groceries business units make up the company’s food division.
The chicken division was, however, negatively impacted on by breed performance challenges, significant raw material cost increases and lingering impacts of the initial Covid-19 lockdown. These challenges were compounded by Avian Influenza and, to a lesser extent, industrywide challenges with Salmonella Enteritis impacts.
RCL Chicken MD Marthinus Stander said RCL spent R121-million on Covid-19 mitigation costs, mostly relating to additional storage costs in the chicken division. These have, however, declined since the financial year ended, as the supply chain had returned to more normal operating levels.
Since separating its chicken business unit from the food division, which will be legally effective from the second quarter of the 2022 financial year, the company has ventured into expanding the plant-based protein category through a minority shareholding investment in Livekindly to develop the plant-based market in South Africa and sub-Saharan Africa.
The Vector Logistics business posted an improved performance in the year under review, owing to the take-on of new business and the consolidation of duplicate networks – following the company’s acquisition of Imperial Logistics’ cold chain (ICL) business in the prior financial year.
RCL Vector Logistics MD Chris Creed expects the consolidation process of the networks of ICL and Vector to be completed within the next few months once capacity enhancements at facilities in Durban, Gqeberha, Polokwane and Bloemfontein are finalised.
Meanwhile, RCL continued driving its digital strategy to take a more insight-driven approach to the way it markets, sells and distributes its products. The group had also continued to build resilience through its sustainable business drive.
RCL was able to generate 160 GWh of its own electricity in the year under review, with waste-to-value electricity generation having increased by 182% and solar output having increased fivefold, compared with the prior reporting year.
RCL diverted 91% of its waste from landfill in the year under review and initiated several projects to increase the recyclability of its plastic packaging.
CEO Miles Dally expects the commodity price surge, and its resultant constraining impact on consumers, to continue in the 2022 financial year.
The persistent impacts of the pandemic on the economy are also likely to continue.
To this end, RCL’s food division is well positioned with a clear strategic focus and growth aspiration, coupled with drive, to achieve cost efficiencies across all business units.
This while the company is working toward accelerating cost-saving and growth initiatives in the chicken division.
As of December 1, Dally will be succeeded by Cruickshank as CEO, who will drive RCL’s next chapter “with clarity and conviction”.
“The next phase in RCL’s journey will see us building sustainable shareholder value in scaling strategic components of our business, while preserving what makes RCL unique: our people, our culture, our integrated platform, our compelling brands and our strong history as a great food business,” Dally noted.