RCL pins hopes on restructuring

• Group seeks to benchmark better

Remgro-controlled consumer brands conglomerate RCL Foods is acutely aware of the need to fatten up its returns to shareholders. RCL owns popular household brands such as Ouma Rusks and Yum Yum Peanut Butter but has been dragged down by its underperforming poultry unit, Rainbow Chicken, in recent years.

Remgro-controlled consumer brands conglomerate RCL Foods is acutely aware of the need to fatten up its returns to shareholders.

RCL owns popular household brands such as Ouma Rusks, Yum Yum Peanut Butter, Nola Mayonnaise, Dogmor, 5 Star Maize Meal, Selati Sugar, Sunbake Bread and Supreme Flour — but has been dragged down by its underperforming poultry unit, Rainbow Chickens, in recent years.

At its AGM on Wednesday RCL chair and Remgro CEO Jannie Durand conceded the group’s return on equity (ROE) is “not where we would like it to be”. This was in response to shareholder activist Chris Logan pointing out that the last time RCL earned a double-digit ROE was in 2011.

He told Business Day that in the face of these poor returns RCL has derated from a share price to net asset value (NAV) of 1.57 times in 2011 to 0.8 times at the end of the 2022 financial year. Logan said that “to move momentum at RCL to another level we need to take bold steps”.

Durand said such steps have been taken in RCL’s restructuring over the past 18 months in which the chicken business had been separated from the valueadded grocery brands, coupled with a possible sale of the Vector Logistics business.

POTENTIAL ACQUISITIONS

He said the restructuring will allow RCL to benchmark better against its food sector peers, and that a focused value-added grocery brands business should offer more consistent returns. RCL CEO Paul Cruickshank said that executives consider increasing RCL’s profile in measuring returns on cost of capital in every investment decision.

“Our more recent track record does show an underlying improvement — if you exclude the troubles of a chicken business — and will show we have an absolute return much closer to the weighted cost of capital for the businesses we are taking forward,” said Cruickshank.

In terms of potential acquisitions to add to RCL’s grocery brands segment, Logan asked how such expansion will be financed considering the group’s present share price discount of about 18% to NAV, which would rule out issuing scrip as settlement in a deal. RCL finance CFO Rob Field said RCL would use cash generated from operations to fund any acquisitions. “If we are obliged to go further than that, we would obviously pause and consider how we will do that.

“But we will not take on anything that does not meet our minimum return profile.”

Logan asked whether subsidiary Vector Logistics is likely to be sold rather than spun out of RCL. Cruickshank said RCL is in a process with Vector to gauge whether there is any interest in the market for the business. “We have not completed our work in that space, so we will continue to do so over the next while.”

He said the process is designed to unlock value for shareholders and look after Vector’s employees.

Executives at RCL, which owns a sprawling sugar operation in Selati, were also quizzed about opportunities and threats from sugar producer Tongaat Hulett entering business rescue.

Cruickshank said the situation is concerning. “You never want to see a competitor in this situation. The sugar industry needs Tongaat to come through this in some shape or form ... that’s in everyone’s interest.”

OUR MORE RECENT TRACK RECORD DOES SHOW AN UNDERLYING IMPROVEMENT