Already owning a 76.6% stake in the business, Remgro Ltd. has announced it is taking an even larger stake in RCL Foods. The investment company is prepared to spend 805 million rand (ZAR; US$53.6 million) to achieve this ambition, reports Business Day.
Just last month, Remgro acquired its latest 20% share in RCL. Despite this, the investment company says its intention is to provide liquidity to RCL’s shareholders. It is not an attempt at acquisition of the remaining voting shares of RCL, says Remgro.
Because of strong links with clients for its Rainbow Chicken products — including KFC, Nando’s, and Chicken Licken — RCL shares are among the least liquid on the Johannesburg Stock Exchange. However, Remgro says it will continue to make bids for RCL shares until the market closes on December 11, according to the report.
Founded in the 1940s, the investment portfolio of Remgro Ltd. has since expanded to cover seven platforms. Its interests comprise mainly investments in financial services, healthcare, consumer products, industrial, infrastructure, and media and sport industries.
Total revenue up but business challenges for RCL in 2020
For the 2020 financial year, RCL Foods achieved a 7.4% increase in revenue year-on-year to ZAR27.8 billion. Expressed as Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) was up by 7.2% at almost ZAR1.64 billion. Excluding one-off charges and accounting adjustments, Underlying EBITDA was over ZAR1.51 billion. This represented a year-on-year improvement of 12.6%.
However, the firm recorded a drop of more than 65% in headline earnings at ZAR114.2 million.
For several of its product groups — including chicken and pet foods — RCL reports “strong volume growth.”
Of its more than 30 brands, its Rainbow poultry generated more than ZAR1 billion in annual revenue, and “Rainbow Simply Chicken” a further ZAR100-400 million.
During the financial year just ended, RCL announced the achievement of a key target in its ambition to become energy self-sufficient. A second Waste-to-Value plant was commissioned at its chicken processing and feed mill at Rustenburg.
In its annual report, RCL highlights that South Africa was already facing economic challenges before the coronavirus (COVID-19) pandemic struck. The resulting lockdown exacerbated the situation, hitting both consumer and business confidence, as well as the nation’s food systems.
By revising its strategy in response to the COVID situation, RCL increased its sales of Rainbow chicken to retail and wholesale by 29%. Meanwhile, it delivered 75% more volume of its Rainbow Simply Chicken (frozen to fryer products).
Despite an increase of 2.1% in revenue from the firm’s Chicken division (which includes Epol Animal Feeds), divisional EBITDA fell by 93%. As a result, EBITDA margin lost 4.3 points to 0.3%. These developments are attributed to an unfavorable sales mix as a result of the nationwide lock-down.
COVID-related shutdown of quick service restaurants in South Africa impacted 460 metric tons of chicken sales every day, according to RCL.
Strategic review and management changes
In November, the board of RCL Foods announced it was undergoing a strategic review of its business. To carry out this review, the firm appointed the services of Rand Merchant Bank. At the same time, the firm announced immediate changes to the functions of three of its non-executive directors.
Earlier this month, News 24 reported that RCL has hired three key executives from its rival, Country Bird Holdings, to turn around its own struggling chicken division. Among these is its former CEO, Marthinus Stander, who will head up RCL’s chicken business.
More on RCL Foods
According to the company, RCL Foods is a leading South African food manufacturer that produces a wide range of branded and private label food products in various categories. These range from staples to value-added high-end specialty offerings. Distributing to its retail and food service customers is the firm’s own supply chain specialist.
Together with its sugar business, poor performance by its chicken division was blamed for a 25% fall in profitability by RCL Foods in its 2019 annual report.
With annual slaughterings of 260 million birds, RCL Foods leads the Top Poultry Companies in Africa database from WATT Poultry.
With its fully vertically integrated chicken business, RCL Foods Ltd. operates more than 200 farms, and distributes its products across South Africa, Eswatini (formerly Swaziland), Namibia, Botswana, Uganda, and Zambia.
