JSE-listed consumer goods company RCL Foods has posted a 24.5% year-on-year decrease in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R1.71-billion for the financial year ended June 30, on the back of cost pressures.

The company says it experienced a “tremendously difficult” 12 months that were impacted by continued unrecovered cost pressures in the Rainbow business and a fair value revaluation of the company’s minority shareholding in The Livekindly Collective International business.

Underlying headline earnings a share were down 20% to 84.5c, while headline earnings a share were down 45.7% year-on-year to 60.6c.

Profit for the period from continuing operations attributable to equity holders of the company came to R768-million in the year under review, compared with an attributable profit of R959-million reported in the prior financial year.

Agricultural commodity input costs remain the biggest contributor to margin pressure for RCL Foods, followed by loadshedding, which added R158-million in direct costs to continuing operations in respect of diesel, generator hire and additional labour requirements.

Consumer demand also came under increased pressure amid high unemployment levels and double-digit food price inflation during the year under review.

Conversely, the Sugar business unit delivered a strong result, including Ebitda growth of R62-million, or 7.6% year-on-year, despite the impact of the sugar industry special level of R234-million.

The levy was imposed following Tongaat Hulett’s business rescue practitioners suspending payment of their statutory levies and redistribution payments to the South African Sugar Association, which placed the burden on remaining industry participants to cover the shortfall by means of a special levy.

RCL Foods has remained focused on “controlling the controllables” to deliver a stable profit while supporting cash-strapped consumers through careful management of price increases, innovation in the ‘value’ tier and a focus on operational efficiencies.

The company has been on a journey to reshape its portfolio since 2020, with a focus on growing its Value-Added business and separating out its Rainbow and Vector Logistics businesses, in efforts to ensure more consistent returns for shareholders.

To this end, the sale of Vector was finalised at the end of August. RCL Foods will maintain a relationship with the business through the logistics services that Vector provides to parts of the RCL Foods group.

RCL Foods remains committed to its plans for a full separation of the Rainbow business and has taken steps to prepare it for an independent operation when ready.

In the meantime the Value-Added business launched its “we grow what matters” purpose statement in June, which ensures that the business delivers value for all and creates the fuel to fund enduring positive impact.

CEO Paul Cruickshank says the newly articulated purpose acts as a compass directing the business, while a revised sustainability strategy is embedded in the business strategy to provide a roadmap for stakeholder value creation and positive impact.

The Value-Added business comprises the groceries, baking and sugar business units. In the year under review, its underlying Ebitda grew by 10.8% year-on-year to R2-billion, driven by a strong sugar performance, despite impacts on loadshedding on volumes in

all business units. Ebitda including the impact of the sugar industry levy, however, declined to R1.79-billion, compared with Ebitda of R1.85-billion generated in the prior financial year.

RCL Foods made some pleasing market share gains in the peanut butter, mayonnaise, rusks, pies and premium pet food categories.

The Rainbow business had underlying Ebitda decline by just under 75% to R86-million, with revenue increases proving insufficient to offset the severe impacts of high feed costs, failing municipal infrastructure and loadshedding.

Rainbow nonetheless continues to make progress with its turnaround, RCL states, adding that agricultural performance in the business has improved to satisfactory levels.

The Hammarsdale plant and hatchery have been upgraded in preparation for a second processing shift to be brought online by March 2024 and the Simply Chicken brand is growing ahead of the market in the chilled processed meats and freezer-to-fryer categories.

Looking ahead, RCL Foods says challenges will persist in trading and operational conditions, with commodity prices still at elevated levels, the rand remaining weak and loadshedding continuing.

With plans in place to mitigate loadshedding in most areas of the Value-Added business, a key priority in the coming year will be to recover lost volumes and deliver on growth plans.

Alongside this, the business will continue to focus on what is within its control such as maximising efficiencies, driving further value innovation and portfolio tiering to improve margins.

The local sugar price increase of 14% in June will assist in relieving some of the pressure on local millers and growers, however, the future of the local sugar industry remains a grave concern.

RCL Foods is hopeful of a just and timeous resolution that protects the industry’s sustainability and the thousands of jobs it supports

Rainbow expects the benefits of the new breed rollout and the doubling of the Hammarsdale shift to flow through in the coming year, with some commodity input cost relief also anticipated. Rainbow has had one recent case of Avian Influenza and the strictest biosecurity measures are in place to protect flocks.

“RCL Foods has continued to move forward against significant headwinds by resolutely focusing on what is in its control. Guided by our purpose, we enter the 2024 year focused on making an impact that counts as we grow what matters, together,” concludes Cruickshank.