JSE-listed consumer goods group RCL Foods has posted a 48% year-on-year increase in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R1.5-billion for the six months ended December 31.

This was on the back of an 8.4% increase in revenue from continuing operations to R20.1-billion, as well as profits from the sale of the Vector Logistics business and positive fair value adjustments in the group’s commodity raw material procurement positions.

Underlying Ebitda, which excludes material one-off items and accounting adjustments, amounted to R1.43-billion – a 32.4% year-on-year increase compared with the prior corresponding six months.

Headline earnings per share (HEPS) from continuing operations were up 52% year-on-year to 81.2c, while earnings per share (EPS) increased by 67% to reach 90c.

From a total operations perspective, HEPS increased by 43% year-on-year to 80.8c and EPS by 108% to 119.8c.

RCL classified the Vector Logistics business as a discontinued operation in the second half of the prior financial year and subsequently sold the business in August 2023. RCL realised a R255-million profit from the disposal of the business.

The main contributors to the group’s underlying Ebitda were the Rainbow and Sugar divisions, with the former delivering an impressive result despite the negative impacts of Avian Influenza in the period under review.

RCL plans to formally separate the Rainbow business through an unbundling to shareholders and a concurrent listing on the JSE. The board, following a strategic review, decided that the unbundling of Rainbow will enable the business and RCL, respectively, to grow in a focused manner, with improved alignment on capita allocation priorities.

Considering that the Rainbow separation is in progress, RCL has opted not to declare an interim dividend.

Moreover, an improvement in the Sugar segment was achieved despite lower crop yields, owing to higher market prices.

The Sugar unit reported an almost 50% increase in Ebitda from R490-million in the prior comparable six months to R732-million in the reporting six months.

The company explains that the Sugar operating unit benefitted from a higher local and export sugar price, which offset the impact of lower local sales, lower exports and lower production throughput in the six months under review.

RCL is progressing initiatives to address poor sugarcane yields, owing to flooding in Nkomazi earlier this year, as well the impact of loadshedding on its operations.

RCL notes that volume challenges in the Culinary category following restoration of service levels drove a muted result in the Grocery operating unit, which was partially offset by volume recovery in the Pet Food category within this operating unit.

The Beverages operating unit delivered an improved result owing to strong cost control, despite volume pressure.

Within the Baking business unit, improved margins in Milling, Pies and Specialty were partially offset by a “disappointing performance” in Bread, Buns and Rolls, the group reports.

RCL says the Bread, Buns and Rolls operating unit continues to face an extremely competitive operating environment with high input costs and promotional activity leading to margin pressure.

Overall, the Groceries operating unit delivered 5% increase in Ebitda at R295-million, the Baking operating unit an 8.8% increase in Ebitda at R225-million and the Sugar operating unit an almost 50% increase in Ebitda to R732-million.

The Rainbow business swung from a loss of R6.1-million in the six months ended December 31, 2022, to Ebitda of R270-million in the six months under review.

The RCL Value-Added Business ultimately delivered an 18.9% increase in Ebitda to R1.1-billion, largely owing to the strong performance of the Sugar operating unit.

RCL spent R524-million in capital expenditure in the reporting period, including R45-million funded by insurance proceeds for a raw sugar warehouse rebuild at Komatipoort following a fire incident in October 2021, R18-million of replant and irrigation expenditure on sugar farms and R16-million to increase capacity at the Rainbow Hammarsdale processing facility.

The group’s return on invested capital, which remains a key metric used by RCL to measure its efficiency and effectiveness of capital allocation, increased to 6.8% in the six months under review, compared with 5.9% in the prior comparable period.

Looking ahead, RCL says consumer demand is likely to remain soft in coming months as cost pressures persist despite lower inflation, with loadshedding and a weaker rand continuing to pose downside risks to consumer demand.

The group says commodity input prices have moderated from historic highs but remain elevated. In this context, bread volumes and margins are expected to remain under pressure in an oversupplied local market, with limited capacity to absorb higher prices.

RCL will continue to focus on balancing volumes and profitability across all operating units.