The widely reported issues facing the domestic poultry industry have decimated JSE-listed RCL Foods’ profits, with the company reporting a 21.9% decrease in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R900.4-million for the six months ended December 31.
Related margin also declined to 6.9%.
Speaking during a webcast on the company’s results, RCL MD Scott Pitman said poultry imports remained high, at an average of 28 000 t/m over the last year.
“This is three times higher than seven years ago, which continues to contribute to a massively oversupplied retail poultry market,” he pointed out.
Pitman noted that, to mitigate this, the company had strengthened its resolve to speedily implement a new business model, which included initiating a programme to reduce its Hammarsdale operation, in KwaZulu-Natal, to a single shift from the beginning of this month.
This would eliminate a portion of lossmaking individually quick frozen (IQF) mixed portion product. IQF is the primary source of consequential volume, but has declined by 50% over a three-year period. If sold at current levels it would have compounded losses by up to R100-million.
However, the total cost of implementing these strategic actions in the current period amounted to R194.1-million, comprising a R142.2-million impairment to the fixed asset base, as a consequence of the downsizing, predominantly in the IQF space; a R42.9-million provision for restructuring costs and R9-million in biological assets write-downs, directly related to the reduction in the size of flocks and bird numbers at Hammarsdale in anticipation of moving to a single shift.
“The unfortunate outcome of these actions is that they will lead to a permanent contraction in production capacity and employment opportunities in this region. The situation will be monitored closely in the coming months and further cutbacks may become necessary should the market situation not improve,” the company said in a statement.
Further, RCL recorded a foreign exchange loss of R27.9-million relating to the settlement of its Zam Chick and Zamhatch options. The exit from the Zambian operations was finalised in September 2016, with RCL Foods receiving cash as settlement for its investment.
This resulted in cash outflow from investing activities being reduced by cash received on the exit, of R289.5-million.
However, excluding its chicken business unit, the company’s Ebitda was up 8.4% to R973.6-million at a margin of 11%, bolstered largely by the profit recovery in sugar and good progress with the turnaround of its Gauteng bakeries. “We are proud of these results,” Pitman said.
The sugar and milling division's Ebitda increased by 20.7% to R578.2-million at a margin of 7.6%, despite having its production volumes impacted on by the drought last year, declining by 33.5% to 248 777 t for the period.
“If good summer rains continue, this is expected to normalise towards the end of the 2018 financial year,” the company noted, adding that more rain was needed for normal irrigation to continue through winter.
RCL, which produces one-third of the country’s sugar output and processes around 700 000 t/y, further attributed the increase to the lower volumes being offset by a 15% price increase, approved by the South African Sugar Association, in July.
The Ebitda of RCL’s consumer division declined by 55.2% to R224.9-million, but excluding chicken, the remaining units' Ebitda declined by only 9.6% to R262.7-million at a margin of 9.2%, owing to challenges in the specialty
and beverages business unit, owing to a cooler summer season, reduced consumption and aggressive competitor activity.
Certain key brands within the groceries cluster grew market share by 3.1%, particularly Nola mayonnaise, Yum Yum peanut butter and key pet food brands.