JSE-listed consumer goods company RCL Foods’ headline earnings for the financial year ended June 30, decreased by 60.7% to R329.5-million, mainly as a result of a R761.9-million impairment in the company’s sugar business and an adverse performance by the chicken business.
A declining local market demand, mainly owing to the implementation of the Health Promotion Levy, also known as the sugar tax, resulted in an adverse sales mix and a significantly lower result for the sugar business, RCL said on Monday.
The decline in sugar’s profitability led the group to perform a detailed impairment review on the sugar business and, based on the outlook of a permanent reduction in local market demand, a higher proportion of the company’s future production is expected to be exported at significantly lower margins.
As a result, an impairment of R761.9-million was recorded against non-current assets, while earnings before interest, taxes, depreciation and amortisation (Ebitda) declined by 25.4%. Excluding the sugar and chicken divisions, Ebitda increased by 7.8%.
Additionally, the company’s chicken division was also affected by low selling prices owing to an oversupplied retail poultry market, with “dumped” imports at record levels, as well as a rising feed cost environment in the animal feed division, alongside higher costs in logistics.
Combined, the adverse performance of the sugar and chicken divisions led to a decline in profitability, despite a 5.5% year-on-year increase in revenue to R25.9-billion, driven largely by volume gains in most business units, coupled with the commodity-driven price increases in the animal feed division.
RCL CEO Miles Dally on Monday said the company would accelerate stakeholder engagement in the sugar sector to strive for industry-wide interventions, which included a review of industry structures.
“Internally, we will amplify cost optimisation and diversification efforts to deliver a sustainable business model,” he said.
With regard to the chicken business, the company intends to intensify government engagement to allow for a level playing field to reduce dumped imports. According to Dally, “[RCL Foods] will continue its focus on internal business drivers and adapt [the chicken business] to shifting market dynamics”.
Debt funding for the company decreased by 13.2% to R2.8-billion, allowing RCL to maintain its “conservative” gearing position, Dally said.
Meanwhile, RCL Foods’ groceries division delivered a strong result on the back of volume gains and margin improvement in most categories. The Millbake division also continued to improve, RCL reported, adding that the baking division was the main driver of the improved results for the groceries division.
Despite the negative performances in some divisions, RCL, nonetheless, declared a final gross cash dividend of 10c for the interim period, bringing the total dividend for the year to 25c.
KEY ACHIEVEMENTS
During the period under review, RCL assumed the shared services responsibility for the spreads business of Siqalo Foods, a wholly-owned subsidiary of Remgro.
The company’s single synergised One RCL Foods platform with integrated structures, systems, customer and shared service capability delivered an “innovative, alternative business model” which allowed RCL to earn a fee for its service, while Siqalo Foods benefitted from the strategic competencies of RCL, Dally noted during a presentation on Monday.
Additionally, RCL initiated the expansion of its pie manufacturing capacity with an R80-million expansion plan to grow volumes into the future.
In the company’s Logistics division, RCL integrated its systems and extended its value chain for customers to execute Pick n Pay’s super-frozen ice cream distribution and the take-on of Siqalo Foods.
Dally further mentioned that the company had narrowed its focus to Southern Africa, which was paired with the company’s ambition to grow its exports.
“We’ve adopted a low-risk expansion strategy in Africa through only acquiring or establishing new businesses to expand our current value chain,” Dally commented.