RCL Foods has reported an annual headline earnings per share slump of 45% as a result of increased costs, load-shedding, struggles at its Rainbow chicken business and the extra sugar levy it had to pay.
The company, which reported its year to end-June results on Monday, owns a range of food brands including Bobtail pet food, Yum Yum peanut butter, Nola mayonnaise. Ouma rusks, Sunbake bread, Pieman’s pies, Rainbow and Selati sugar.
Its revenue increased 17.3% to R24.5bn and underlying earnings before interest, tax and depreciation and amortisation (ebitda) increased by 10.8% to R2bn.
But like all food producers, it faced increased costs that it could not fully pass onto consumers in the form of higher prices, as they face severe financial pressure.
Due to increased costs, headline earnings per share, a main profit measure in SA, dropped almost 46% to 60.6c
Load-shedding cost it R158.3m in diesel bills and it said all food producers are paying some of their costs rather than passing them onto customers.
CEO Paul Cruickshank told Business Day: “Everybody’s in the same boat here.
“That will carry on until we get to a point where load-shedding stabilises. We aren’t recovering that load-shedding cost at all.”
Its Selati sugar business increased revenue by 23.3% to R11bn on the much higher sugar export price. This helped offset the one-off sugar industry special levy of R234.4m.
The sugar levy is part of a redistributive mechanism in a complex, regulated industry that ensures all farmers get the same price per tonne of sugar and mills that produce more subsidise the smaller players.
Sugar producer Tongaat Hulett stopped paying the levy from November to March as it is in a business rescue process leading to RCL and other millers and farmers having to pay in extra.
The nonpayment is subject to a court case between Tongaat Hulett and the SA Sugar Association, in which RCL is also a respondent.
Its Rainbow chicken business continues to disappoint with underlying ebitda tumbling 74.9% to R86m.
Prices of maize used in animal feed have come off their highs, which came about when Russia invaded Ukraine in early 2022. But RCL said agricultural costs, which would include maize, were the biggest contributor to costs. It also struggled with declining municipal infrastructure which affects water and power supply and leads to damaged roads.
Astral, SA’s largest chicken producer, said this year it was selling chickens at a loss. Local producers struggle to compete with imported chicken prices and cannot raise prices too high as consumers will switch to alternate protein such as polony or canned fish.
The chicken businesses has also suffered a recent case of avian flu.
Smalltalkdaily analyst Anthony Clark said he will be watching if an outbreak results, if contagious bird flu spreads, it can lead to high costs of culling and lost sales.
Aware of the challenges its underperforming chicken business faces, RCL said it “remains fully committed to its plans for a full separation of the Rainbow business and has taken significant steps to prepare it for independent operation when ready”.
It also said: “Rainbow continues to focus on its turnaround strategy which includes improving agricultural performance, driving cost efficiencies and economies of scale.”
It said it made market share gains in the peanut butter, mayonnaise, rusks, pies, and premium pet food categories, though certain pet food shares were affected by production cutbacks due to load-shedding.
RCL’s share price dropped 0.9% to R11 on the JSE on Monday.
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