RCL Foods revenue up, chicken and sugar still ‘real’ challenges

JSE-listed RCL Foods' revenue for the 12 months to June 30 increased by 6.8% to R25-billion, up on the R23.4-billion in 2015, the first full year of operating under its new structure and leadership.

RCL Foods CFO Rob Fields told Engineering News in a telephone interview on Wednesday that the company was pleased with underlying performance, excluding in the South African sugar and poultry markets, where the impact of harsh operating conditions currently being experienced was visible, noting that these markets were real challenges for RCL.

Fields said RCL was focused on the big issues and there were things, such as the drought, that were out of the company’s control, therefore, “it’s about managing those very difficult circumstances”.

RCL is engaging government as strongly as it possibly can in terms of intervening to level the playing field within the chicken space. “The imports that are landing in the country at the moment are the size of Rainbow’s retail business. It is just ridiculous and they are coming in at a cost reference way below that of ours, indicating that it is dump product. We know it is.” 

In addition, Field described the drought as “quite pervasive across the soft commodity input prices”, which resulted in inflationary pressure at the worst possible time to try and absorb it, both from a company and consumer perspective.

The company noted that an impairment would need to be raised should the supply/demand equilibrium not be restored or, despite management interventions, there be no meaningful improvement in the chicken business unit's profitability.

“RCL believes that the local poultry industry is in a crisis. As a consequence, the board is forced to relook all options in evaluating our chicken business model.”

In terms of sugar, Field said RCL was “tracking the weather man” for signs of La Niña, which bought higher than average rainfall in the summer months, and would permit its sugar business to produce the volumes it had the capacity to produce by financial year 2018.

Field highlighted that operating under its new structure “absolutely” had a positive impact on RCL’s results under review.

“There’s a significant amount of work happening under the banner of the Transformation Management Office and we have dedicated a very senior resource in the business to leading that. There are 153 projects going on that are translating into a multiplicity of synergies and benefits from system implementation, the standardisation of our costing systems across the business to doing more business internally.”

On the corporate identity side, RCL is emphasising that it is one business, internally. Therefore, the company’s old corporate identities of TSB and Foodcorp have fallen away. “So, we are one business with brands,” Fields explains.

“We have logically structured ourselves into the three divisions – Consumer, Sugar Milling and Logistics. It has had a very positive influence, but it is early days,” he said, adding that there was always room to improve.

Reflecting on the financial year ahead, Field noted that the company’s capital expenditure was focused on growing its beverage, pet food and logistics business, enabling and skewing the company’s growth towards a value-added, more bankable margin branded business and space.