RCL Foods anticipates a strong second half amid market challenges and solid first half

RCL Foods, after a period of change that included unbundling Rainbow, is trading slightly ahead of its managements expectations and is on track for a continued strong second-half performance, CEO Paul Cruickshank said.

Earnings before interest, taxes, depreciation, amortisation and impairments (EBITDA) increased by 25.1% to R1.55bn for the six months to December 31, and a 20 cents a share dividend was declared - last year the interim dividend was passed.

In an interview, Cruickshank said these results were “pleasing” and were achieved despite very little volume growth in the foods sector as a whole.

The gain in EBITDA was largely driven by the Baking segment (up R194.5 million) and Groceries (up R884m), and “diligently managing factors under its control,” despite the subdued food market, he said Monday.

Positive movements in macroeconomic factors, including cooling inflation, interest rate reductions, and the two-pot retirement system, had yet to appreciably improve consumer food demand.

In response, RCL Foods has looked for profitable growth by innovating, managing costs, and restoring margins, he said.

“Our focus on managing costs, less load-shedding and lower prices in certain commodities, have allowed us to judiciously manage price increases and provide some welcome relief to cash-strapped consumers. Our market shares largely remain healthy,” Cruickshank said.

Questioned on the potential challenges in the second half, he said they would carefully monitor volumes and certain commodity prices, even though they were well positioned from a procurement perspective, as well as the end of the current sugar crop and the start of the next crop around the beginning of April.

RCL Foods’ debt package, which expired in December 2024, was refinanced at lower interest margins, a positive indicator of the financial market’s appetite and willingness to partner with the group and its view of the business’ lower risk profile.

The disposal of Vector Logistics and the unbundling of Rainbow was successfully concluded.

Cruickshank said they could now concentrate on “Growing what Matters” in a future-fit branded business that aims to deliver sustainable earnings and consistent value to stakeholders while pursuing growth opportunities to bolster the portfolio.

Group revenue increased 5.4% to R13.6bn. The Groceries unit delivered an improved result from a favourable product mix in pet food with more focus on premium brands, improved margins from lower raw-material input costs, savings initiatives, better production, and reduced load-shedding.

Profitability in Culinary improved by investing in brand equity, defending market leadership, and maintaining margins, although volumes fell. Despite lower volumes, the Beverage business saw an improved result from cost savings and a shift in the sales mix.

The Baking business unit improved performance, despite muted volumes in most categories. The Bread, Buns, and Rolls operating unit generated an encouraging improvement. The Pies segment saw improved profitability, while Speciality and Milling did well.

The Sugar business unit delivered a strong result after two consecutive years of record financial performance, despite lower world market pricing and increased sugar imports. The group benefited from a higher share of the local industry through RCL’s bigger sugar crop and a drop in KwaZulu-Natal’s coastal crop.

Milling performance improved with higher sugar production and packaging throughput, while the rebuilt Komati warehouse contributed to operational efficiencies.

During the six month period, RCL recovered R72.3m of the R234.4m special industry levy charged to the group in the 2023 financial year. This partial recovery was facilitated through the South African Sugar Association (SASA). Legal action to recover the remaining funds was underway, said Cruickshank.

“RCL Foods continues to actively participate in defending the Tongaat appeal to ensure that SASA and RCL Foods are paid the balance of monies due,” he said.

He said demand remains soft across most categories, but improving macroeconomic factors should translate into stronger demand. GDP growth was expected to increase marginally in 2025 and support a gradual recovery in consumer spending and associated volume growth.

However tough trading conditions were expected to continue in the short to medium term. RCL intended to continue to execute growth plans while enhancing margins to offset the impact of any shortfall in volumes.

Sugar’s continued strong performance might be offset by lower international prices and increasing imports due to inadequate import protection.

BUSINESS REPORT