Sector News

SA’s chicken industry is ‘in a crisis’

August 31, 2016
Food & Drink

The widespread dumping of chicken into South Africa remains a pressure point for diversified food producer RCL Foods, with the pronounced trend continuing to weigh on its earnings.

RCL Foods, formerly known as Rainbow Chicken, reported an 11.9% decrease in headline earnings from continuing operations for the year to June 2016 to R849.7 million, while its headline earnings per share declined by 12.2% to 98.5 cents.

It grew its group revenue by 6.8% to R25 billion during the period under review.

The impact of chicken imports is felt by the company on its Ebitda which declined by 12.8% to R1.8 billion. Excluding the chicken and sugar businesses, its Ebitda would have increased by 12.4% to R1.5 billion.

RCL Food’s CEO Miles Dally says the company is in a difficult space due to the losses it’s making due to South Africa seemingly open doors to cheap chicken imports from countries such as Brazil. “We really need to have a hard look at the chicken industry which is in crisis. We can’t continue making little money like we have in the past five years,” Dally tells Moneyweb.

He adds that South Africa has recorded chicken imports of about 30 000 tonnes in the past month, which is bigger than what Rainbow Chicken sells in the retail market.

“Irrespective of the rand having halved in the last year, the chicken is coming in and we can’t continue with the status quo even though we have been talking about this with the government for five years now.”

The renewal of the African Growth and Opportunity Act (Agoa) between the United States and South Africa, which will see the import of 65 000 tonnes of chicken without anti-dumping duty, was largely supported given the continued trade relations between both countries. But chicken producers have warned that Agoa might have a detrimental impact on the poultry industry and job preservation.

Despite the headwinds in the domestic poultry industry, the company is now embarking on a review of its chicken business model, which Dally says cannot yet be unveiled.

In the interim, the company is focusing on growing higher-margin added-value categories. Among the added-value categories that RCL Foods is looking to grow is the supply of chicken to quick service restaurants such as KFC and Nandos.

“Five or six years ago we got roughly six birds out of 100 that are in their [restaurants] weight range. The remaining chickens had to be put somewhere else. We now get 46 out of 100 in their weight range. And we can make a decent margin here,” Dally explains.

Restructuring

Over the past three years, RCL Foods has restructured its operations to move into sugar and other food products through acquisitions to reduce its reliance on meat.

RCL was previously comprised of subsidiaries TSB, Foodcorp, Rainbow Farms and logistics entity Vector. These businesses have now been structured into three divisions – consumer, sugar & milling and logistics.

The consumer division includes Rainbow Chicken and Foodcorp’s grocery, beverage, pie and speciality divisions. The sugar & milling division includes TSB, Rainbow’s animal feed unit Epol and Foodcorp’s milling and baking business. Vector has been incorporated into the logistics business.

The company’s consumer division grew revenue by 10.1% to R13.3 billion and grew sales volumes (excluding chicken) by 10.1%. Its sugar & milling division grew revenue by 5.6% to R14.9 billion, with the sugar and animal feed business being impacted by severe drought conditions, which has hit large agricultural land across the country.

RCL Foods recorded an impairment loss of R642.8 million for its milling business in the sugar & milling division largely due to a competitive trading environment. Revenue for the logistics division grew by 5.5% to R1.9 billion.

RCL has declared a final dividend of 15 cents per share compared with 22 cents in the previous year.

By Ray Mahlaka

Source: Moneyweb

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