There were some pertinent questions asked at RCL Foods’ annual general meeting last week, with one shareholder wondering if it was still worth the food producer being listed, and another querying whether chief executive Paul Cruickshank had enough “skin in the game” as his shareholding in the firm was extremely low.
This as RCL Foods, at its current price of R8.60, is trading way below its all-time high of R20 established as long ago as 2008. The branded foods company used to trade at a large premium to its net asset value, but is now trading at record 35% discount to its net asset value of R13.17.
Remgro holds 81% of RCL Foods and is itself now trading at a historically-high 40% discount to its investment holdings.
Shareholder activist Albie Cilliers asked: “Given that close to 90% of RCL Foods’ shares are in the hands of Remgro and only three fund managers, RCL Foods has provided negative returns to shareholders for multiple years now, what are the chances of the company being delisted as a public company given its current performance?”
Jannie Durand, the CEO at Remgro and RCL Foods's chairman, said Cilliers was correct that it was a very thinly traded share.
“Unfortunately, to take it private you require capital allocation and you overpay for some of these assets. You never get the return on that and you overpay for these assets if you delist,” he said.
In a recent valuation exercise that RCL Foods undertook, it determined a valuation range of R17.17 per share to R18.98 per share, with a most likely value of R18.08 per share on a control basis.
Chris Logan, a shareholder activist and Opportune Investments owner, asked RCL Foods’s chairman: “Why has a high level of minimum shareholding requirements not been established for the top executive (as prescribed by Remgro, its main shareholder)?”
Logan said RCL Foods has previously said this practice was encouraged and both executive directors were shareholders in the company.
However, Logan said Cruickshank’s shareholding was minimal, with 447 000 shares.
“There is an overwhelming body of evidence that there is a correlation between high shareholding and company performance. Business leaders and Mr Rupert actively support the stance of big shareholdings and minimum shareholding requirements.
“Here we have a company, which has not shot the lights out over the past two decades, and hasn’t earned a double-digit return on equity for 13 years, and there is no serious alignment. How does the board rationalise this? ” he asked.
Durand said: “We’re now doing the minimum requirement shareholding at Remgro. Next year, we are rolling out a minimum requirement for shareholding at subsidiaries next year. We take your point.”
This means RCL Foods from next year will have to follow suit.
Logan also asked about a lack of speed of execution at the company.
Durand defended the speed of execution on chicken, saying it had been delayed by avian influenza on-site, and the losses incurred had set them back by a few months.
Anthony Clark, an independent analyst at Small Talk Daily, asked about the turn around of Rainbow Chicken.
Cruickshank said the Hammarsdale plant expansion was important to align the supply chain and for cost efficiencies and turnaround. “It is a critical unlock,” he said.
He said it was vital to fix the South African chicken business.
He also said the switch to the Indian River chicken breed should be complete by end of 2024.
“We are seeing a good performance of the breed and are, therefore, confident that aspect of the turnaround will play through. It will take two years to flow through the system. It is on track. We are confident in what has been executed,” Cruickshank said.
He also said chicken pricing had improved after the past few months. It would not be sufficient to get margin back amid high commodity prices.
“The overall balance with avian influenza and pricing is being carefully managed into December and beyond.”
Chicken tariffs remained a concern.
Meanwhile, on Friday, RCL foods changed the board of directors and appointed Carel Vosloo as an alternate director to Durand, “in respect to Durand’s position as a director of the board and his position as a member of the Remuneration Committee”.
Vosloo is a qualified chartered accountant (CA)(SA) and a CFA Charter holder member, and joined Remgro in March last year, where he acts as investment executive.