RCL Foods will focus on growing organically and by acquisition and partnerships in the next part of its strategic journey following recent portfolio realignments that included listing Rainbow on the JSE.
This was according to CEO Paul Cruickshank, who said in an interview that the food and sugar group, which has brands such as Bobtail, 5 Star, Pieman’s, Selati and Yum Yum, had seen an upturn in market demand in the two months after the June 30 financial year end in particular, although it “is not nearly enough yet” to indicate that consumers’ dire financial situation might have improved significantly.
In the past year, there were two milestones to reshape the group’s portfolio around its value-added components. The first was disposing of Vector Logistics in August, which Cruickshank said was “a positive conclusion to an important strategic step for both parties”. A relationship would continue via agreements between Vector and some RCL Foods business units.
The second milestone was the unbundling of Rainbow to shareholders and its listing on the JSE on July 1, with RCL Foods continuing to provide Rainbow with certain transitional services for two years.
“RCL Foods’ strategic clarity and cash-generative operations place us in a strong position to consider acquisitions as they arise. Our central business services platform remains a key strategic capability in this regard,” he said.
He said average food inflation of South Africa food producers had been 7.8% over 12 months, which had fallen to about 4.4% in the last three months of the financial year. He said if one went back to the same three months a year back, food inflation was in double-digit territory.
However, an area of concern was in staple foods, where volumes were still negative, although price inflation had begun to taper in this sector as well. Cruickshank said “there was still a long way to go” to alleviate the financial pressures that consumers were feeling, and he believed that interest cuts this year would go some way to help.
Profitability and market share growth would continue to be the focus in the existing portfolio, leveraging from consumer insights and digital capabilities. Export revenues in the SADC region, still a small part of the business, would also be grown, he said.
Momentum was being built in efficiency and ESG (environmental, social, governance) projects. With the need to mitigate energy and water supply interruptions at sites, energy plans were in place and water risk assessments had been completed.
Rainbow declared a 35 cents a share dividend for the year, resuming dividends that had stalled in 2022 when commodity inflation had rocketed due to the onset of the Ukraine conflict. The board had also considered that the unbundling of Rainbow was complete, in deciding to resume dividends.
Earnings before interest, tax, depreciation, amortisation (EBITDA) and impairments from continuing operations increased by 36.8% to R2.3bn, buoyed by strong performance in the Sugar unit. A recovery in Pet Food volumes, coupled with efficiency initiatives, contributed to better profit in the Groceries unit, partially offset by volume and margin challenges in the Culinary category.
The Baking business unit was marginally down, with improved margins in its Milling and Speciality operating units offset by volume pressure across all operating units. This unit had seen some improvement in volumes towards the end of the financial year, said Cruickshank.
Input cost pressure had necessitated price increases of 6.8% on average across the Groceries and Baking segments, slightly below the 7.1% national average price inflation for food and beverages. Lower market demand was mostly offset by margin improvements enabled by savings initiatives. Lower levels of load shedding also assisted the positive performance.
Cruickshank said they needed to make sure their business was sustainable, so it could continue to provide affordable food to consumers, keep staff employed and provide an acceptable return on investment. “This entails carefully balancing revenue, margin and profit and responsibly managing trade-offs, while remaining committed to our long-term stakeholder value creation strategy,” he said.
Cruickshank said they did this by focusing on “controlling the controllables” in their business environment – which in 2024 was about restoring service levels, protecting volumes and market shares, driving efficiencies, preserving cash and executing on the unbundling and listing of Rainbow.
In the Groceries business unit, revenue increased 5.5% to R5.31bn while underlying EBITDA increased 22.6% to R497.4 million. Groceries’ improved performance was mostly attributable to a better sales mix and improved Pet Food margins and service levels. Beverages delivered an improved performance.
In the Baking unit, revenue increased 5.9% to R9.14bn. EBITDA fell by 5.8% to R516.1m as gains in Speciality and Milling were offset by a disappointing volume performance in Bread, Buns & Rolls. Pies was impacted by lower demand.
In the Sugar business, unit revenue was up 6.4% to R11.81m and EBITDA rose 20.7% to R1.27bn. This was largely due to higher prices in local and export markets, an improved agricultural performance, and a good result in Molatek Animal Feed.
BUSINESS REPORT