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RCL Foods Ltd. interim results 31 December 2015

Revenue for the interim period increased to R12.9 billion (2014: R12 billion). Operating profit before depreciation, amortisation and impairment (EBITDA) decreased to R1.1 billion (2014: R1.2 billion), operating profit lowered to R782.4 million (2014: R866.1 million), while profit for the period attributable to equity holders of the company rose to R745.8 million (2014: R612.8 million). Furthermore, headline earnings per share was higher at 87.2 cents per share (2014: 70 cents per share).



Dividend

The directors have resolved to declare an interim gross cash dividend (number 82) of 15 cents per share for the six months ended 31 December 2015 (H1 2015: 15 cents per share).



Prospects

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 12-18 months.



As a result, synergies, overhead savings and production efficiencies will continue to receive substantial focus in the next period. In addition, innovation including formats and pack sizes suitable for “hard times” and export opportunities are being evaluated. The Chicken business is contemplating a further reduction in production volumes to both mitigate against the exposure to commodity-based lines and to extend current feed procured positions.



A recovery in sugar production during the next season is dependent on a return to normal rainfall levels. The expectation of a global production deficit and some recovery in world market prices is encouraging. However, if the drought persists, sugar availability will remain under pressure, as will the financial results for this business unit. The Logistics division expects relatively stable growth going forward as its customer base settles.



RCL FOODS expects that cash flows in the business will remain positive. However, the current capital expenditure investment programme will be reviewed and tempered as appropriate to the changing market environment. It remains RCL FOODS” intention to explore opportunities in strategic growth markets in the food sector in South Africa and sub- Saharan Africa in line with its long-term aspirations.