RCL seeks to separate Rainbow’s chicken business from the group
RCL FOOD’S Rainbow business was operating as a largely autonomous subsidiary and the best way forward to fully separate the chicken business from the listed group was being explored, chief executive Paul Cruickshank said yesterday. RCL yesterday reported a solid 10.2 percent increase in revenue to R34.9 billion in the year to June 30, and earnings before interest, tax, depreciation and amortisation (Ebitda) improved by 7.7 percent to R2.59bn.
The Ebitda growth was driven by growth in sugar, a return to profitability at Rainbow and a solid performance in Vector Logistics. Volumes remained relatively stable and several value-added brands grew market share.
Independent analyst Anthony Clark, @smalltalkdaily, commented on Twitter that the results “are hardly anything to crow about” as dividends were flat and core groceries, bread and sugar profits were down, but Rainbow profit was sharply higher and Vector Logistics’s profit was up 18.3 percent.”
In contrast, Wayne McCurrie, a portfolio manager at Ashburton Investment, @WayneMcCurrie on Twitter, commented “fair results. Cost pressures as with everyone else … Food was good despite increased wheat and fuel prices.”
RCL’s share price shot up 9.53 percent to close at R11.50 on the JSE yesterday.
The group said Rainbow did well to return to profitability as part of its turnaround plan. Cruickshank said in a telephone interview the group wanted to separate Rainbow as most of its international competitors were standalone chicken companies, and because they wished to reduce the volatility in earnings that Rainbow brought to the group.
Rainbow’s revenue increased 10 percent to R11.38bn, almost a third of group revenue, its underlying Ebitda grew 214 percent to R348.6 million, off a low base of R111m in the prior period.
This was due to improvements in pricing and agricultural results, procurement gains and buoyant Quick Service
Restaurant sales that helped to offset commodity price increases, and avian influenza mitigation measures. Cruickshank said, however, that despite the gain in Ebitda at Rainbow for the year, it was still “nowhere near” where it should be given the scale of the business.
In this context, he said chicken imports remained a challenge and the recent surprise decision by the Department of Trade, Industry and Competition to suspend anti-dumping duties against Brazil, Denmark, Ireland, Poland and Spain for 12 months was disappointing. He said Rainbow had committed R220m to upgrade and install new technology, and one of its KwaZulu-Natal broiler farms was reinstated.
He said there was no evidence that “dumped” chicken was being sold by the importers at a low price to the consumer – he said they were able to access the landed prices of chicken imports through data supplied by the Poultry Association. They had also initiated a “market-sounding process” in respect of Vector Logistics to test if there was interest from prospective acquirers to accelerate its growth as an independent temperature-controlled logistics player, which had elicited “notable interest”.
Meanwhile, planned separation of the sugar had been deprioritised, he said.
On the group’s prospects, Cruickshank said the outlook for commodity prices and currencies were uncertain factors at this stage, while consumers remained under financial pressure.