The food producer says there’s an oversupply of chicken in the market due to imports, while high levels of imported sugar remain even after the government increased tariffs.
RCL Foods says the local market has been flooded with imports of chicken, mainly from Brazil and America, leading to oversupply. And while the Department of Trade and Industry has stepped in with higher tariffs for imported sugar, high levels of stocks remain in the market.
These cheap imports have had a significant impact on two important areas of RCL’s business. While chicken prices have fallen as a result, the food group has also had to contend with higher costs, putting pressure on its margins. On top of that, last year’s outbreak of the listeriosis resulted in brand damage, even though no trace of the ST6 “outbreak strain” was identified at its plans. It said that resulted in the loss of higher margin added-value business for an extended period at significant financial loss.
Since the listeriosis crisis, the group has worked to restore confidence in its Rainbow brand and its chilled processed meats. Polonies were relaunched last August and are back at close to 80% of previous levels, while Viennas will be relaunched in the third quarter of 2019.
Within its sugar business, RCL says there’s a strong focus to ensure the continued sustainability of the business, as well as the industry. It’s looking at improving costs, productivity and efficiency while it continues to interact with government and industry bodies. It’s also considering alternative products and uses over the longer term, including ethanol production, electricity co-generation and bio-plastics.
The group’s Groceries division did well over the six months to end December due to strong growth in its Pies and Dressings categories as well as gains in Beverages and Spreads. Consumers also reacted positively to new ranges in its Pet Foods categories, resulting in market share gains in a very competitive environment.
Millbake, its Milling and Baking division, also performed well due to higher sales volumes and cost savings.
Overall, revenue increased by 3.5% to R13.3 billion in the six months to end-December. Earnings before interest, tax, depreciation, and amortisation fell 9.9% to R1.08 billion and headline earnings per share declined by 26.4% to 54.8c. It’s maintained its interim dividend at 15c per share.
“We expect that the poultry market will remain depressed whilst the market remains oversupplied and as commodity input costs continue to rise,” RCL Foods said. ”Further volume and market share growth in Groceries will be challenging in a highly competitive market.”
RCL said the short-term outlook for Sugar remained challenging with the overhang of high levels of imported sugar still impacting the local market, despite the implementation of tariffs that offered some level of protection for the industry.