A strong turnaround in the chicken business, along with good rainfall and lower prices for commodity inputs benefited JSE-listed RCL Foods in the six months ended December 31, contributing to margin recovery across the group’s business units, CEO Miles Daily said on Monday.
The group reported a 26.6% year-on-year increase in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R1.19-billion for the six months, compared with Ebitda of R935.7-million for the six months ended December 31, 2016.
Headline earnings increased by 56.9% year-on-year to R644.7-million, equating to headline earnings a share of 74.5c, compared with 47.6c in the prior comparable period.
RCL in February 2017 initiated a new chicken business model, which had been designed to curb commodity-driven consequential chicken categories and to provide less volatile, more consistent and sustainable returns throughout the cycle.
Daily said the changes have already proven effective within a short period of time and, combined with lower commodity input costs, have assisted in returning the chicken business unit to profitability.
The animal feed and logistics units, which are suppliers to the chicken business, continued to feel the impact of reduced poultry volumes. Initiatives are under way to use this spare capacity and reduce the negative impact on profitability.
“The impact of our changed model has been positive overall, with the chicken recovery far outweighing the compromise within the animal feed and logistics business units.”
Within the groceries cluster, the RCL basket outperformed the rest of the market in terms of volume growth.
Despite aggressive competitor activity, the segment grew its volumes by 7.1% in the six months under review.
Production volumes in the sugar business unit showed a solid recovery stemming from an improved crop as the drought abated; however, this was offset by lower industry prices owing to the impact of significant import volumes.
The lower commodity input costs drove gains in animal feed and milling, but labour challenges negatively impacted on baking.
Over the last six months, RCL completed the acquisition of a 50% stake in Matzonox, a waste-to-value operation based at RCL Foods’ Worcester chicken site.
Its main operations include the processing of wastewater from the chicken plant to generate electricity and to reduce effluent charges and its acquisition forms part of RCL’s overall sustainability drive.
“Driving sustainable business as a key business and social imperative has gained even more prominence over the last few years, owing to energy and water challenges in South Africa. Our ambition is to ultimately become an energy self-sufficient business and we have made good progress toward this goal in recent times,” Daily noted.
An interim gross cash dividend of 15c a share has been declared.