JSE-listed RCL Foods says it delivered a resilient set of results for the six months ended December 31.

Revenue for the period increased by 17.6% year-on-year to R20.2-billion, driven by a combination of higher pricing to counter rising input costs, and higher volumes in Sugar, Rainbow and Vector Logistics.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) declined by 8.9% to R1.18-billion owing to exceptionally difficult trading conditions marked by high input costs, rising living costs for consumers and significant loadshedding, RCL Foods says.

“Focusing on the factors we can control in current conditions, we have sought to deliver a stable rand profit and grow market share, while supporting cash-strapped consumers as far as possible, both through value innovations and responsibly-managed price increases. In so doing, our concern has been to balance the need for margin protection with the pressure on consumers’ pockets,” says group CEO Paul Cruickshank.

The group acknowledged that both volumes and margins had come under pressure amid persistently high agricultural commodity input costs and record levels of loadshedding, which impacted on production and added direct costs amounting to R96-million during the period.

Additionally, service levels in the Groceries and Baking business units were affected by industrial action, the resolution of which was undertaken with due concern for employees’ welfare as consumers and a desire to limit potential food price increases, RCL Food says.

With the Rainbow and Vector Logistics separation processes still in progress, and considering the impact of ongoing external pressures described above, the directors have resolved not to declare an interim dividend to preserve cash while the group repositions its portfolio.

STRATEGIC PROGRESS UPDATE

The group continues its journey towards generating more consistent value for its stakeholders, with a focus on value-added brands.

It says it remains committed to the process of separating Vector Logistics from RCL Foods, as previously noted. Engagements with a potential acquirer for the Vector Logistics business are indicated to have progressed well.

In parallel, it has taken significant steps to prepare the Rainbow business to operate as a fully standalone entity when appropriate.

Despite difficult market conditions, RCL Foods says it has pressed ahead with strategic growth efforts in key categories within its value-added portfolio.

The acquisition of Sunshine Bakery Holdings was finalised in February, effective March 1, to expand its Baking business unit’s reach into the strategically important KwaZulu-Natal region.

The group is currently focusing on accelerating internal growth by leveraging its brands and capabilities. It is also working to distil its core purpose and craft a new sustainability strategy, both of which underpin its overall business strategy.

OPERATIONAL REVIEW

RCL Foods’ Value-added Business (comprising the Groceries, Baking and Sugar business units) delivered a resilient set of results, growing its market share in several categories amidst a decline in total market sales volumes.

Revenue increased by 16.7% to R12.24-billion, while Ebitda declined by 4.6% to R978.3-million, with volumes declining across most operations owing to a combination of higher pricing and production challenges.

The Groceries business unit had a solid performance despite being challenged by stage 6 loadshedding and industrial action at its Grocery and Pies facilities, the group says.

The Baking business unit was impacted by a slowdown in demand following price increases taken to counter high wheat and maize prices; nevertheless, Sunbake continued to make share gains in the retail channel.

The Sugar business unit produced a good set of results, RCL Foods says, driven by an increase in local market sales volumes aided by strong industrial channel growth, as well as more favourable local and export pricing.

Pleasingly, it was able to crush its entire crop and extend the crushing season to enable farmers to bring all their cane to the mill, the group reports.

The Rainbow business achieved a 19.2% revenue increase to R6.58-billion, driven by higher volumes and pricing and an improved mix.

However, Ebitda declined by 110.5% to negative R6.1-million as a result of high commodity input costs, poor agricultural performance and loadshedding impacts. Despite this, Simply Chicken achieved all-time-high market shares.

Vector Logistics’ revenue increased by 17.2% to R2.14-billion with food service volumes recovering beyond pre-Covid-19 levels and retail revenue growing despite supplier stock availability challenges.

Progress with the final phase of the network consolidation of Imperial Logistics South Africa’s cold chain business and Vector Logistics realised further cost and scale benefits; however, Ebitda of R165.6-million was 9.1% lower as a result of cost pressures arising from loadshedding, electricity price hikes, and higher fuel and insurance costs, RCL Foods says.

PROSPECTS

With little relief in sight from a commodity pricing perspective, consumer demand is expected to remain muted, the group states.

In this context, RCL Foods’ tiered portfolio will be critical in providing affordable nutrition as part of its Value-Added growth strategy, the group posits.

While the outlook for Sugar is positive from a price and crop perspective, yields could be impacted if irrigation is reduced owing to loadshedding.

The ramifications of the Tongaat Hulett business rescue process also pose a potential threat for the sugar industry.

Rainbow expects improved agricultural results in the coming financial year and remains confident of delivering on its turnaround plan.

With Vector Logistics’ network consolidation now complete, it is on track to deliver on its turnaround strategy. The impact of loadshedding on suppliers is expected to negatively affect volumes through the Vector Logistics network.

RCL Foods says it is considering further investments to increase its energy self-sufficiency, which is expected to come at a significant cost.

“We have delivered a resilient set of results in an exceptionally tough market. We are committed to maintaining a relentless focus on the factors within our control to keep moving forward in line with our strategic growth agenda, guided by our unfolding Purpose And Sustainability journey,” Cruickshank comments.