Poultry, sugar reined back RCL Foods’ profits

Despite achieving an increase in total revenue, South African agri-food group RCL Foods reports a fall of more than 25% in overall profitability for the past fiscal year, reflecting major challenges faced by its poultry and sugar businesses.

Phongphan | Bigstock.com
Phongphan | Bigstock.com

Despite achieving an increase in total revenue, South African agrifood group RCL Foods reports a fall of more than 25% in overall profitability for the past fiscal year, reflecting major challenges faced by its poultry and sugar businesses.

For the fiscal year to June 2019, revenue by RCL Foods totaled ZAR25.9 billion (US$1.75 billion), which represents an improvement of 5.5% from the previous 12-month period. However, profitability expressed as Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) was down by 25.4% to just under ZAR1.526 billion.

Commenting on these results, the firm highlighted the “subdued” state of the South African economy, which has led to low GDP growth, rising unemployment, and consumer spending under pressure.

Among its own business areas, RCL Foods says the sugar and poultry industries are under “significant pressure” as a result of oversupply in the market, and a decline in local demand arising from the local economic conditions, which have combined to put downward pressure on selling prices. The situation has been further exacerbated by high levels of “dumped chicken imports” for poultry, and the recent imposition in South Africa of a Health Promotion Levy on sugar.

The group acknowledged the importance of its diversified product portfolio that includes well-established brands, and their contribution to a healthy cash flow despite the general economic conditions and adverse impacts of the sugar and poultry sectors. Particularly good performances were achieved by its Grocery and Millbake business units.

'Doing things differently' in RCL chicken business

RCL Foods says its core value of “seeing and doing things differently” has been a strategic imperative in addressing the challenges faced by its Chicken business unit. The firm has been engaging with others in the sector and government to overcome the “significant pressures of having to compete with dumped imports.”

Of the overall ZAR520-million fall in EBITDA for the year just ended compared with the previous 12 months, the group attributed ZAR253 million — almost half — to the difficulties of its chicken business. Over the year, the firm generated profit of ZAR105 million on the disposal of dormant farms (ZAR101 million in 2018), and ZAR78.2 million in one-off costs related to listeriosis outbreaks linked to chicken products in South Africa in 2018.

Overall, the firm reported revenue of just over ZAR6.735 billion for its Chicken business in the year to June 2019, compared with ZAR6.693 billion for the comparable previous period.

A new team has been appointed to identify strategies to improve competitiveness of its Chicken business unit. Sales have been gained by the Freezer-to-Fryer range, and both sales and market share have now recovered to pre-listeriosis levels, the firm reports.

HMH Rainbow — RCL Foods’ associate business in Uganda — recorded reduced profit after tax in the fiscal year just ended compared with 12 months previously. Sales volume was higher as the result of the construction of additional chicken houses, but this also raised depreciation and finance costs, and the business made a loss of ZAR1.8 million.

Rising prices for the animal feed business

Commodity-driven price increases in its animal feed business contributed to the overall growth in the group’s annual revenue, according to RCL Foods. For the year just ended, this sector achieved revenue of more than ZAR5.433 billion, which represents an increase of almost 16% compared to the previous 12 months, through sales of all brands and price increases. Although low meat prices for consumers made it difficult to recover fully the increases in raw material prices, EBITDA for the Animal Feed business was 3.3% higher than in the previous year.

RCL Foods’ highest sales in volume terms were to the broiler sector, followed by ruminants. Horse and game feed ranges were extended as the result of the acquisition of Driehoek Voere during the fiscal year. Despite strong volume growth, margins were under increasing pressure for the company’s Molatek brand, which covers molasses-based products for ruminant animals.

Compared to the previous 12-month period, the firm reports it increased its market share in the Pet Food category through new products introduced during the year from its newly commissioned pet food plant.

According to the latest update of WATTAgNet’s Top Feed Companies database — for 2017 — RCL Foods was Africa’s largest producer of livestock feeds.

Animal health issues challenge South African poultry, pig sectors

South Africa has been battling highly pathogenic avian influenza (HPAI) for more than two years. As with previous cases, the latest outbreak was linked to the H5N8 virus subtype, and detected in a flock of commercial ostriches.

There have also been 13 confirmed outbreaks of African swine fever (ASF) since April this year, all of which were in the non-commercial sector, and outside the country’s ASF Control Zone. South Africa’s most recently reported cases were among backyard pig herds in early August.

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