Remgro-majority owned RCL may have a potential buyer of its Vector cold chain distribution business, the company suggested in its half-year results.
The owner of Selati sugar, Yum Yum peanut butter, Ouma rusks, Sunbake bread and Rainbow Chicken among others said it remains committed to separating the two businesses.
RCL, which has underperformed peers Tiger Brands and AVI in recent years, aims to split that business and focus on its higher-margin grocery brands. Vector Logistics has struggled with high fuel prices in the period under review. RCL may also split off its underperforming Rainbow Chicken business.
“Engagements with a potential acquirer for the Vector Logistics business have progressed well in the current period and we will update the market when more certainty exists on the outcome of a transaction,” it said in a statement.
CEO Paul Cruickshacks told Business Day RCL was not “ready to announce a buyer yet. As we alluded to, we remain confident that something will be resolved soon. It’s been an ongoing process for some time now.”
Meanwhile, the company confirmed it is not appealing against a February high court judgment from a 2020 matter in which it argued that free-range farm Vermikor is too close to its largest chicken farm Hopefield in the Western Cape and poses an avian flu risk.
Regulations require birds to be culled within a 3km radius of an outbreak and the nearby farm is 2.9km away.
Rainbow Chickens supplies KFC, Nandos, Chicken Licken and large retailers and argued the closeness of the farm poses a food security risk. The court abstained from a ruling saying it could not intervene in another farm’s biosecurity management or create a buffer zone.
Cruickshanks said RCL is taking its own precautions for avian flu at the farm. “What you’ve got to assume is that all poultry farmers are applying their mind to the biosecurity requirements, because avian flu is a real challenge.”
He said the judgment was very clear when making the point it could not determine other farm’s safety measures. “What we need to do is focus on our own biosecurity. In our opinion, we’re going to leave it,” he said on deciding not to appeal.
He was speaking at the release of results in which headline earnings per share (Heps), the main profit measure in SA that excludes certain items, declined 22.4% to 56.4c.
Load-shedding cost R96m in direct costs in its interim results, adding insult to injury as its profit dropped following a slump in its Rainbow Chicken and baking segments. Profit fell just more than one-third year on year to R404.8m in its half-year results to end-December, despite revenue jumping 17.6% to R20.2bn.
This comes amid tough trading conditions such as high commodity input prices, above-inflation increases in costs and record-high levels of power outages in SA in the reporting period.
All food producers are engaged in a balancing act between putting up prices to absorb cost pressures from higher commodity prices and ensuring consumers do not buy fewer goods as a result. The prices of vegetables, oils and maize and wheat, which are used in animal feed, have rocketed since Russia invaded Ukraine in February 2022.
It could not put up prices enough to absorb its extra costs. “Higher volumes and pricing, coupled with an improved mix were insufficient to offset the higher input costs,” RCL Foods, said.
The group said it remains confident that Rainbow Chickens will deliver on its turnaround plan. The turnaround is being overseen by former Country Bird Holdings boss Marthinus Stander.
Cruickshanks said bread profit margins were under big pressure as consumers switched from mielie meal and bread to rice as rice prices have undergone the lowest inflation. The rising wheat price has been a headache for bread producers. That said, its Sunbake business it had bought in 2022 grew market share in the retail channel.
The outlook for its Selati sugar business is positive due to a higher sugar price but yields of sugar could be lower due to lower levels of irrigation due to load-shedding, it warned.
“The ramifications of the Tongaat Hulett Limited business rescue process also pose a potential threat for the sugar industry.”
Updated: March 06 2023
This article has been updated with additional information
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