RCL Foods, the South Africa-based peanut butter-to-poultry supplier, has cautioned the recent drought in South Africa and the weak rand could lead to inflation and affect margins.
The warning came as RCL Foods booked higher half-year sales and profits from its consumer division despite lower results from its chicken business amid over-supply in the sector.
The company saw sales from its consumer business grow 9% to ZAR6.7bn in the six months to the end of December, driving an 8.8% increase in EBITDA to ZAR501.6m.
The consumer division accounts for over half of RCL Foods’ total revenue and just under 50% of its EBITDA.
Group revenue was up 7% at ZAR12.9bn. However, RCL Foods’ EBITDA was down 5.1% at ZAR1.1bn, with EBITDA from RCL Foods’ sugar and milling arm falling almost 11%.
Looking ahead, RCL Foods suggested consumer spending in South Africa could come under pressure. “Key features for the next reporting period will be the pervasive impact of the drought as well as the impact of the weak rand on soft commodity prices. These two issues are expected to drive food inflation and consequently challenge margins across most categories. RCL Foods is in the process of developing proactive pricing strategies designed to protect market share as far as possible, whilst still recovering cost pressure. However, aggressive competition and a distressed consumer will make it difficult to fully recover these increases from the market. Negative growth in real consumer spending is expected over the next 12 to 18 months.”
RCL Foods said its the performance of its groceries unit – including products such as dressings, spreads and pies – was “outstanding”. The company reported “robust volume growth and market share gains in a range of key product categories”. It pointed, for example, to its mayonnaise becoming the local category leader during the period.
The group revealed it had upped its “investment in brands” by 30% year-on-year. That said, EBITDA from the groceries unit grew 37%.
The second arm of RCL Foods’ consumer business – chicken – saw its EBITDA drop 15.3% to ZAR210.8m. Amid lower sales, RCL Foods said it had moved to try to reduce costs.
RCL Foods said the sector “remains massively over-supplied” amid local production and “dumping” from international processors.
RCL Foods said the renewal of South Africa’s participation in the African Growth and Opportunity Act trade deal with the US has led to a deal “to allow the importation, free of anti-dumping duty, of 65,000 tons of chicken from the United States”.
It added: “The AGOA agreement and the risk of associated dumping exacerbates the already substantial dumped product that is finding its way into the market and which is disrupting pricing and supply dynamics in the poultry industry.”