RCL Foods slashes its dividend to 10c
Sugar tax, chicken imports take their toll
RCL FOODS yesterday slashed its final dividend by 10 percent to 10 cents a share after it shaved off nearly R1 billion in profits in the year to the end of June as the sugar tax and chicken imports came back to haunt its fortunes.
The group, which owns Selati Sugar and Rainbow Chicken, said it took a R762 million impairment as a result during the period, with headline earnings falling 60.7 percent.
Chief executive Miles Daily said the government’s policies on chicken and sugar had hammered its performance.
The rising levels of chicken dumping and an adverse sales mix due to the imposition of a sugar tax prompted a 55 percent fall in cash generated by operations during the period, with the group reporting an after-tax loss of R184m, down from the prior period’s profit of almost R878m.
“We are disappointed at what has been put in place,” said Daily. “Most countries in the world look after industries in one form or other. We are asking for protection from predatory practices.”
RCL’s shares rose 8.82 percent to close at R11.10, despite the headwinds.
It said headline earnings per share fell 60.8 percent to 37.9c from the year before.
Earnings before interest, tax, depreciation and amortisation (Ebitda) declined by 25.4 percent to R1.53bn, while the total dividend for the year fell to 25c, down from 40c in the prior year.
In 2016, RCL restructured its chicken business by cutting poultry production and staff numbers amid stiff competition from imports from Brazil, Europe and the US.
However, revenue increased 5.5 percent to R25.9bn due to volume gains in most business units, coupled with commodity driven price increases in animal feed.
RCL said the South African sugar industry was in crisis, with the Health Promotion Levy, or sugar tax, permanently reducing local demand, leading to a significant deterioration in profitability and a depressed outlook.
It said the local poultry industry was also in distress, with dumped imports amplifying pricing pressure amid rising feed costs. Ebitda, stripping out sugar and poultry, increased by 7.8 percent to R1.4bn.
Groceries delivered another strong result. MillBake’s turn-around was progressing, with growth in baking volumes and improved operational efficiency recoded.
Daily said debt funding eased 13.2 percent to R2.8bn, a conservative gearing position with the market capitalisation at R9.6bn. RCL Foods is 77 percent owned by majority shareholder Remgro.
Ron Klipin, a senior analyist at Cratos Capital, said RCL Foods was not an attractive company, due to its main focus on chicken and sugar, with problems such as cheap chicken imports from Brazil and the EU, as well as the sugar tax.
“Despite a turnaround strategy, its competitors, such as AVI and Tiger Brands, are more diversified, with stronger brands,” Klipin said.