“Controlling the controllables” drives resilient interim results for RCL Foods

Focusing on the factors within its control in challenging conditions, RCL FOODS delivered a resilient set of results for the six months to December 2022.

• Revenue increased 17.6% to R20,2 billion
• Earnings before interest, taxes, depreciation, amortisation and impairments (EBITDA) declined by 8.9% to R1 177,7 million in difficult trading conditions
• Headline earnings per share declined 22.4% to 56.4 cents
• Load shedding added direct costs of R96.0 million during the period
• Resilient Grocery market shares in a declining market
• Good Sugar performance off a high prior-year base
• Rainbow turnaround hampered by high feed input costs
• Vector impacted by cost pressures

Revenue growth was driven by a combination of higher pricing to counter rising input costs, and higher volumes in the Sugar, Rainbow and Vector Logistics operations. EBITDA came under pressure as volumes and margins were impacted by high agricultural commodity input costs, rising consumer costs, significant load shedding and industrial action. With the managed separation of Rainbow and Vector Logistics from RCL FOODS still in progress, and considering the impact of ongoing external pressures, the directors have resolved not to declare an interim dividend in order to preserve cash while the Group repositions its portfolio.

“We have sought to deliver a stable Rand profit and grow market share while supporting cash-strapped consumers as far as possible, both through value innovations and responsibly-managed price increases. In so doing, our concern has been to balance the need for margin protection with the pressure on consumers’ pockets,” said RCL FOODS’ Chief Executive Officer Paul Cruickshank.

The RCL FOODS Value-added Business (comprising the Groceries, Baking and Sugar business units) delivered a resilient set of results, with revenue increasing by 16.7% while EBITDA declined 4.6% versus the prior period. Despite gaining market share in several categories, volumes were impacted by higher prices and by production challenges related to the industrial action and load shedding. The Sugar business unit produced a good set of results off a high prior-year base.

Despite a 19.2% revenue increase, Rainbow’s turnaround was hampered by high commodity input costs, poor agricultural performance and load shedding which contributed to a 110.5% EBITDA decline.

Vector Logistics’ revenue increased by 17.2% due to a post-pandemic recovery in food service volumes and higher retail revenue, aided by cost and scale benefits arising from its completed network consolidation. EBITDA was 9.1% lower as a result of cost pressures arising from load shedding and higher electricity, fuel and insurance costs.

Despite adverse conditions, we have continued our journey towards generating more consistent value for our stakeholders, with a focus on value-added brands. We remain committed to the managed separation of Vector Logistics and Rainbow from our Value-Added Business. Engagements with a potential acquiror for the Vector Logistics business have progressed well in the current period and we will update the market when more certainty exists on the outcome of a transaction. We have also taken significant steps to prepare Rainbow for a full separation from the RCL FOODS Value-Added Business when appropriate to do so. Rainbow continues to focus on improving its underlying performance in line with its turnaround strategy.

The acquisition of Sunshine Bakery Holdings Proprietary Limited was finalised in February 2023, effective 1 March 2023, to expand our Baking business unit’s reach into the strategically important KwaZulu-Natal region. We are currently focusing on accelerating internal growth by leveraging our brands and capabilities, and on distilling our core Purpose and crafting a new Sustainability Strategy.

“We are committed to maintaining a relentless focus on the factors within our control to keep moving forward in line with our strategic growth agenda, guided by our unfolding Purpose and Sustainability journey,” concluded Cruickshank.