RCL Foods says all business units in the Groceries division benefited from increased in-home consumption and associated higher demand for pantry essentials. Picture: Simphiwe Mbokazi
RCL Foods says all business units in the Groceries division benefited from increased in-home consumption and associated higher demand for pantry essentials. Picture: Simphiwe Mbokazi

RCL Foods earnings grow strong from much-improved sugar and baking operations

By Edward West Time of article published Sep 7, 2021

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RCL Foods’ share price soared 16.1 percent to 1 139 cents on Monday after it lifted headline earnings per share a massive 723.7 percent to 107.9 cents in the year to June 30.

Management said the financial performance had been driven by a strong performance in the Sugar and Baking business units and continued robust delivery in Grocery.

The food division delivered a strong result, with a record performance in sugar, which benefited from higher demand, strong cost control and improved sales mix.

Chief financial officer Rob Field said the sugar division benefited from a bigger share of generally improved sugar industry proceeds, aided also by a higher sugar price.

“It just goes to show how well this industry can do when things work in the right direction,” he said.

Baking’s improvement was driven by higher volumes and a turnaround at the Gauteng bakeries. In addition, the division also used a low percentage of flour to bake bread compared with its competitors, indicating a potential area of growth, said Field in a telephone interview.

Pleasing growth in Groceries was aided by a good recovery in Pies and a continued strong performance by the grocery operating unit, he said.

All business units in the Groceries division benefited from increased in-home consumption and associated higher demand for pantry essentials.

A focus on internal cost control and progress against strategy supported the division’s positive overall result.

Group revenue was up 14 percent to R 31.7 billion. Earnings before depreciation, amortisation and impairment (Ebitda) was up 47.3 percent to R2.51bn. The total dividend came to 45 cents, well up from 25c in June 2020.

Field said they were adopting a cautious stance on prospects, because notwithstanding the strong top-line growth, input pricing pressure was building in certain business units due to a significant rally in agricultural commodity prices.

“The way these prices are trading at present, we see no end in sight to these pricing pressures as yet,” said Field. In addition, “consumers are in a hard place”, he said, referring to consumer spending capacity.

The chicken division’s results continued to be negatively impacted by breed performance challenges, significant raw material cost increases and lingering impacts of the initial Covid-19 lockdown, compounded by Avian influenza and, to a lesser extent, industry-wide challenges with salmonella enteritis impacts.

He said the biggest of these challenges was breed performance. The group had started introducing a more competitive breed of chicken to its operations, but this was a process likely to take another year.

Vector Logistics delivered an improved performance for the current reporting period, mainly due to the take-on of new business and consolidation of the duplicate networks following the acquisition of Imperial Cold Chain (ICL) business in the prior period.

As part of a strategic review of RCL Foods’ portfolio, a decision was taken to establish Chicken as a separate division within RCL Foods, rather than being a separate business unit within the food division, to enable a dedicated focus on chicken.

The rally in agricultural commodity prices for maize, soya, sunflower, wheat and peanuts stemmed mainly from global crop failures and increased demand from China, leading to local agricultural producer price inflation of 17.4 percent year-on-year in June.

This had been largely absorbed by local food producers in a constrained consumer market, with June food producer price inflation of 7.3 percent exceeding Consumer Price Index (CPI) Field said Covid-19-induced shifts in consumer spending and behaviour persisted, with cash-strapped consumers focusing on staples and trusted brands, shopping less often and making more frequent use of online shopping channels.

This translated into volume growth, particularly in “essential foods”, but margin growth was more muted. Field said the focus on innovation would continue, particularly on branded groceries, and acquisitions in this sector would also be sought.

He said RCL had entered into a joining venture with Livekindly Collective Africa (LKCA) to deliver on the group’s alternative protein, plant-based alternative food growth ambitions.

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BUSINESS REPORT ONLINE

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