Shares in RCL Foods surged to their highest level in five months after the consumer foods maker said its chicken unit is back in the black and its logistics business has attracted buyout interest.
The shares climbed the most since February, up 9.52% to R11.50 on Monday to levels last seen in April, trimming losses so far in 2022 to lest than 14%.
RCL is in the throes of a sweeping strategic revamp that includes offloading poultry unit Rainbow Chicken, its logistics business Vector and its TSB sugar milling business to focus on branded consumer foods products that will better compete with Tiger Brands.
CEO Paul Cruickshank said the group had recently undertaken a market-sounding process to test if there was credible interest from prospective acquirers for the niche frozen and chilled distributor Vector Logistics, which the market welcomed with enthusiasm.
“We want in future to become a value-added branding business,” Cruickshank told Business Day. “And therefore we are saying that Vector as a distribution business would be better housed in a pure-play, distribution environment.”
Vector Logistics, which continued its turnaround as volumes in the food service industry returned to pre-Covid-19 levels in the period, delivered a 17.1% revenue improvement to R3.6bn from R3.1bn in 2021, while underlying earnings before interest, tax, depreciation and amortisation (ebitda), or core profit, surged 16.4% to R337m.
RCL has embarked on a turnaround strategy that includes a decentralised operating model, and interventions to save costs and improve focus across the supply chain.
So far, R220m has been spent on upgrading and installing new technology at its Hammarsdale P2 plant and hatchery, and reinstating one of its KwaZulu-Natal broiler farms. Extra broiler volumes will largely be bought from emerging black contract growers.
The group has also started hiving off Rainbow into a stand-alone entity, but it continues to share certain group platform services.
“Chicken over the last few years has brought volatility to our results and those of other chicken producers, and we are looking for stable earnings going forward,” said the CEO.
“As a consequence, we also see Rainbow in a pure-play, chicken-focused environment.”
The owner of Nola, Rainbow Chicken and Selati sugar brands, saw Rainbow — its biggest segment by revenue — return to profitability in its 2022 year, a sign that a revival plan that includes slashing costs is in full flight.
Rainbow Chicken posted a R89m operating profit after losing R209m a year earlier, brushing aside commodity input cost increases, bird flu and the devastating floods in KwaZulu-Natal in April.
But RCL lamented the recent freeze on anti-dumping tariffs on chicken from five countries as “disappointing”, mainly because the decision came as a surprise to local chicken producers.
Cruickshank outlined that RCL foods had made major investments on the back of the poultry master plan with the understanding that all stakeholders were interested in safeguarding and growing the local industry.
But Cruickshank says he was shocked when the minister made the decision to not punish the countries that had been found to be dumping their products in SA.
“The impact of this duty being removed for the period could have an impact going forward, and that is our concern because it brings uncertainty to the industry,” said the CEO.
He said while dumped products come into the country at a low price, the challenge was that the benefit is not passed on to the consumer “so you don’t see a significant reduction in the price of chicken on the shelves, or you certainly don’t see chicken being sold at the price at which it is imported”.
The revenue of RCL Foods increased 10.2% to R34.9bn over the last financial year. Rainbow generated the most with just less than one-third, followed by the sugar segment of the business with 25.79% and 17.8% coming from the baking side.
Core earnings increased 7.7% to R2.6bn while headline earnings per share (Heps), a widely used measure of profit that strips out impairments and one-off items, jumped 9.9% to 118.6c.
A final dividend of 30c was declared. This brought the total dividend to 45c for 2022, the same as in 2021. Profit for the year declined 1.82% to R977.7m.
Update: September 5 2022
This story has been updated with additional information.
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