Cape Town – Despite avian flu creating a shortage of poultry products, RCL Foods’ [JSE: RCL] financial results were positively impacted by the higher chicken prices.
According to the group’s financial results for the six months ended December 31 2017, the group’s turnaround strategy for its chicken business, implemented in February 2017, helped yield positive results for the consumer goods and milling company.
“The group’s financial results were assisted by favourable trading conditions in the poultry market, which benefited from lower feed input costs and higher chicken prices following lower levels of unprotected imports and the impact of avian influenza on supply,” the report read.
The group reported headline earnings growth of 56.9% to R644.7m, attributable to the new chicken business model, according to the report.
Profit of R609.95m was up 128% from the same period last year at with profit at R267.57m. EBITDA was up 33.4% to R1.2bn, from R900.44m reported in the same period last year. Operating profit was R810.27m, up from R355.47m reported previously.
Revenue, however, was down 2.4% to R12.8bn, mainly due to reduced chicken volumes given the revised business model.
An interim dividend, up 50%, of 15c was declared.
Revised chicken business model
The new chicken business model is meant to provide “less volatile, more consistent and sustainable returns” throughout the cycle, according to RCL.
The changes which led to job losses in the previous year have since resulted in returning the business to profitability.
During the period RCL reduced its chicken volumes by 18.6%, impacting supply conditions, which improved pricing and lowered feed input costs.
EBITDA margins improved from -0.9% to 7.7% for chicken. The recovery in profitability is attributed to the improved operational performance of the business unit and the impact of the avian flu, RCL Foods explained.
The reduced imports from the European Union during the period due to avian flu were replaced by imports from Brazil.
“No solution or permanent measures have yet been proposed by government to restore the long-term sustainability of the South African chicken industry,” the group said.
The higher tariffs of Brazilian imports helped improve local pricing.
The pricing was also helped by the introduction of an injection cap limit of brine, to create a level playing field for domestic producers, RCL Foods explained.
The avian flu saw RCL Foods lose approximately 5% of its breeding stock, and the financial impact was R58m.
The animal feed and logistics unit which are suppliers to the chicken unit, however, felt the impact of reduced chicken volumes. “Initiatives are underway to utilise this spare capacity and reduce the negative impact on profitability.
“The impact of the revised chicken business model has been positive for the group overall with the chicken recovery far outweighing the compromise within animal feed and logistics,” said RCL Foods.
The share price which opened at R18.20 was trading down 1.49% to R17.24 by 12:50.
* Sign up to Fin24’s top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER