RCL payout rises on Rainbow
Focus on higher-margin business spurs a recovery in the poultry business that exceeds expectations
Consumer brands conglomerate RCL Foods has reiterated longer-term plans to double the size of its business after its restructured poultry subsidiary Rainbow Chickens returned to a profitable perch in the six months to endDecember.
Consumer brands conglomerate RCL Foods has reiterated longer-term plans to double the size of its business after its restructured poultry subsidiary Rainbow Chickens returned to a profitable perch in the six months to end December.
The dramatic improvement in poultry performance spurred a 50% increase in RCL’s interim payout to 15c a share. However, RCL shares, which have risen about 15% in the last three months, retreated on the JSE.
Interim results released on Monday showed the recovery in the poultry business exceeded expectations with a focus on higher-margin business yielding ebitda (earnings before interest, tax, depreciation and amortisation) of R290m compared with a loss of R38m.
The poultry segment’s ebitda margin fattened to almost 8%.
The recovery in Rainbow Chickens was driven by a new chicken business model launched in February 2017 that was structured to limit the company’s participation in commodity-driven consequential chicken categories.
By focusing on higher-margin business offerings, such as supplying the quick-service restaurant sector, RCL aimed to secure less volatile and more consistent returns throughout the poultry cycle.
RCL CEO Miles Dally said the changes had already proven effective and combined with lower commodity input costs had assisted in returning the poultry business to profitability.
He also noted that domestic volumes had reduced substantially after some poultry producers went into insolvency and Rainbow made efforts to curb commodity chicken production, which reduced the company’s chicken volumes by 18.6% year on year.
Dally said chicken volumes to the quick-service restaurant industry had grown modestly as consumer spending improved.
The Rainbow freezer-tofryer category continued to be the highlight, growing volumes and gaining market share.
The culling of parts of the poultry division did mean reduced volumes at RCL’s animal feed and logistics units. But Dally said initiatives were under way to utilise this spare capacity and reduce the negative effect 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.”
In the groceries cluster, Dally said RCL’s basket had again outperformed the rest of the market in terms of volume growth.
Despite aggressive competitor activity, the RCL basket grew volumes by 7.1% in the interim period compared with general market growth of only 1.7%.
Meanwhile, the grocery segment reported a 12% hike in ebitda to R295m, with the margin improving to 11%.
Looking ahead, Dally said RCL had made steady progress towards its goal of a diversified food portfolio with more than 20 resilient brands.
He was confident that RCL could double its revenue line to R50bn a year turnover in the ensuing years.
Dally said the goal of building a R50bn-a-year business implied acquisitions. “We have looked at a number of deals. We got close with some, but just could not get over the line.”
DOMESTIC VOLUMES HAD REDUCED SUBSTANTIALLY AFTER SOME PRODUCERS WENT INTO INSOLVENCY