Consumer goods company RCL Foods says it achieved a pleasing set of interim results despite “extremely tough” market conditions, maintaining its positive momentum to deliver a 9.2% year-on-year increase in revenue to R17.1-billion for the six months ended December 31, 2021.

Statutory earnings before interest, taxes, depreciation, amortisation and impairments (Ebitda) rose by 14.4% to R1.29-billion.

Groceries continued its solid performance, while Sugar’s positive momentum was largely maintained.

An improved Chicken performance off a low base contributed to both revenue and Ebitda growth versus the prior period.

Revenue was also boosted by the continued recovery in Vector Logistics, together with the consolidation of L&A Logistics into Vector Logistics from the second half of the 2021 financial year. 

During the period, the group was materially impacted by costs associated with the current 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.

Of particular concern for food producers is the continued rise in agricultural commodity input costs owing to escalating world prices, fuelled by lower global crop estimates and continued higher demand, RCL points out.

It emphasises that, while price increases have been kept to a minimum to support customers and protect volumes, delivering relevant and accessible solutions that meet consumer needs remains vital.

To enlarge the value-added component of the business, a robust innovation pipeline is being built to deliver brand extensions and new offerings over the next two years, with Nola value mayonnaise, a new frozen pies offering and a new crumb coating for the food service channel launched during the period.

The business continues to enter private label partnerships with customers where appropriate.

“Our response to the headwinds affecting the food industry and our own business is to focus on what we can control and to consistently excel at the basics, while actively pursuing our strategic growth agenda with the aim of creating a focused and resilient value-added business that generates sustained shareholder value,” says CEO Paul Cruickshank, who succeeded Miles Dally after the latter’s retirement in December 2021.

The company has declared an interim gross cash dividend of 15c apiece.

STRATEGIC REVIEW

A recent strategic portfolio review confirmed that the group’s portfolio is not optimally configured for sustainable shareholder value creation, leading to a decision taken at the end of the 2021 financial year.

This decision entailed separating the value-add branded foods business (Groceries and Baking) from the poultry (Chicken and grain-based feed), sugar (Sugar and molasses-based feed) and logistics (Vector Logistics) businesses to prepare them to operate in a more pureplay environment; and to scale the fast-moving consumer goods component through sharper strategic focus and active investment.

Both initiatives are progressing simultaneously, with the focus being a responsible and well-considered transition.

The Sugar operating model is set to continue unchanged in the medium term.

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.

The group’s integrated services platform, now known as the RCL Foods Business Services Organisation, remains key to its capability set and future growth, it says.

PROSPECTS

Given rising levels of unemployment amid a slow economic recovery post the Covid-19 lockdowns, consumers are expected to remain under significant pressure in the medium term.

High agricultural commodity input prices present a particular risk to food companies, especially when coupled with energy cost hikes, and this could impact food prices and demand, RCL states.

Delivering relevant and affordable product solutions will be important for it in this context, as will continuing with efficiency improvements and scaling the value-add component of the business.  

Groceries is expected to remain resilient, although margins and volumes are at risk should commodity input costs not moderate.

Sugar is forecast to continue benefiting from operating efficiency and sustained higher demand; however, the full-year result is not expected to match the record results achieved in the prior financial year owing to agricultural challenges.

Although the Chicken business is not yet at a sustainable level, it has made strides in implementing its turnaround strategy which is starting to yield benefits, RCL says.

Vector Logistics expects to finalise its consolidated, customer-focused network by the end of the financial year when capacity builds in Durban, Gqeberha, Polokwane and Bloemfontein are complete, further enhancing its position from a cost and scale perspective.

The group is set to continue driving the managed separation pathway of the Chicken and Vector business as a key focus in the second half of the current financial year.