RCL FOODS – business update & trading statement
RCL FOODS’ financial results for the six months ended 31 December 2016 will be materially impacted by the severe challenges faced by the local chicken industry due to dumped imports and high feed input costs. Excluding RCL FOODS’ Chicken business unit performance, the balance of the Group will show trading profit growth over the comparable period. The Sugar business unit has shown improvement on the back of the higher industry pricing and better channel mix. The turnaround within the Millbake business unit has progressed well with the Gauteng bakeries returning to profitability. Certain key brands within the Groceries business unit have continued to grow volumes in a competitive market environment.
RCL FOODS released a SENS (Stock Exchange News Service) announcement on 27 September 2016 announcing its intention to downsize its Chicken business unit to restore its profitability by limiting production of consequential commodity products but continuing to grow the demand-driven portfolio, largely comprising the foodservice market. The Chicken business unit has initiated a programme to reduce its Hammarsdale operations to a single shift, thereby eliminating a portion of loss making IQF (Individually Quick Frozen) product. Before consideration of the once off costs referred to below, the Chicken business unit is expected to record a loss for the first six months of the financial year.
Shareholders are advised that RCL FOODS expects that its headline earnings per share (HEPS) for the six months ended 31 December 2016 is expected to be between 40.0 cents (-54.1%) and 55.0 cents (-36.9%) when compared to reported HEPS of 87.2 cents for the corresponding six months ended 31 December 2015.
Earnings per share (EPS) for the six months ended 31 December 2016 is expected to be between 30.0 cents (-65.3%)and 45.0 cents (-48.0%) when compared to reported EPS of 86.5 cents for the corresponding six months ended 31 December 2015.
The interim financial results for the six months ended 31 December 2016 have been impacted by three material abnormal items, namely:
– An after-tax impairment of R102.7 million (excluded from headline earnings) for redundant plant and equipment related to the decision to reduce commodity chicken volumes. The impact on EPS is a negative 11.9 cents.
– The recognition of a R37.4 million after-tax provision for restructuring costs and fair value adjustments on biological assets, also associated with the decision to reduce chicken volumes. The impact on HEPS and EPS is a negative 4.3 cents.
– A foreign exchange loss of R27.9 million (nil tax impact), as a result of Rand:Dollar appreciation, relating to the settlement of the Zam Chick and Zamhatch options. The impact on HEPS and EPS is a negative 3.2 cents.
As previously reported, the results for the corresponding six months ended 31 December 2015 were materially impacted by the release of a R163.3 million provision for uncertain taxation disputes raised as part of the Foodcorp acquisition. The release had no cashflow impact. The impact on HEPS and EPS in the 31 December 2015 results was a positive 18.9 cents.
The results for the six months ended 31 December 2016 include a negative after-tax IAS39 period on period movement of R56.4 million (HEPS and EPS impact of 6.5 cents) relating to the Group’s raw material procurement strategy. This impact is largely attributable to the strengthening of the rand exchange rate.
The Group’s interim financial results for the period ended 31 December 2016 are expected to be released on SENS on 23 February 2017.