RCL owns chicken producer Rainbow. Picture: 123RF/MONTICELLO
RCL owns chicken producer Rainbow. Picture: 123RF/MONTICELLO

Remgro’s RCL Foods says earnings in the six months to end-December fell more than 25%, mainly because of oversupply in the sugar and chicken markets.

Shares in the company, which warned of the decline in February, opened 7.5% higher at R13.85 on Monday.

Interim headline earnings dropped 26.3% to R475.1m due to lower selling prices in the two business units, “mainly due to oversupply”. Margins across the group were also dented by higher commodity and transport costs, RCL Foods said on Monday.

The group, whose brands include Rainbow, Simply Chicken, Nola, Selati and Sunbake, said revenues grew 3.5% to R13.3bn. Its interim dividend remained unchanged from a year before, at 15c a share.

RCL Foods said it was in talks with the government to ensure “a level playing field in the chicken and sugar markets”.

Chicken imports had risen, mainly from Brazil and America. “Dumped imports remain a significant component of, and issue for, the local poultry market,” RCL Foods said.

Moreover, feed costs had increased markedly from November 2018.

The sugar business was also contending with “dumped” imports. To make matters worse, the recently imposed sugar tax in SA had reduced domestic consumption by up to 10% of the industry’s annual production, or 200,000 tons a year, RCL Foods said.

Meanwhile, the company said it aimed to “fully restore” the Rainbow brand to “pre-listeriosis levels”.

It was drawn into the listeriosis crisis even though no trace of the virus was identified in its plants. This damaged its brands and resulted in lost volumes, it said.

The company’s polony products were relaunched in August 2018, and volumes were now “close to 80% of previous levels”.

While the trading environment remained tough, some business units had performed well, including the groceries division. Millbake, which is part of the group’s sugar and milling unit, had shown “steady improvement”.

The group said the poultry market was likely to remain depressed due to oversupply and rising costs, while growth in groceries would be tough to achieve.

The short-term outlook for sugar also “remains challenged”.

“The sugar industry has significant structural issues which require resolution to ensure long-term sustainability.”

RCL Foods said that thanks to co-generation at its sugar plants, waste-to-value energy production and solar power, its operations were now 25% self-sufficient in terms of energy.

It aimed to lift that proportion to 50% over the medium term.

hedleyn@businesslive.co.za