RCL approves spin-off and separate listing of Rainbow Chicken

There remained some preparation before the listing, but much work had already been done. Image: Supplied.

There remained some preparation before the listing, but much work had already been done. Image: Supplied.

Published Mar 4, 2024


RCL foods’ board has approved the spin-off and separate listing of its poultry and animal feeds business Rainbow Chicken “sooner rather than later,” RCL CEO Craig Cruickshank said Monday.

“On March 1, 2024 the board gave its preliminary approval to pursue the formal separation of Rainbow via an unbundling to shareholders, and a concurrent listing on the JSE.,” RCL said in its interim results for the six months to end-December.

“The board is of the view that the unbundling of Rainbow will enable both businesses to pursue their respective growth ambitions and investment theses in a focused manner and with improved alignment on capital allocation priorities,” a statement said..

Cruickshank said in an interview that the listing, which he hoped would occur in a matter of “months” would give RCL the opportunity to elect to invest in a pure chicken play through Rainbow's listing, or to invest in RCL’s value-added branded products businesses.

“We see it providing upside for both companies,” said Cruikshank.

For RCL, the separation was in line with RCL’s value added branded products strategy, while for Rainbow, and given the volatile environment and the fact that the benefits from the breed transition were starting to take effect, it was a good time to list, he said.

There remained some preparation before the listing, but much work had already been done, he said.

RCL’s earnings before interest, taxes, depreciation, amortisation and impairments (EBITDA) increased by a substantial 48.6% to R1.51 billion in the six months to end-December, largely driven by a turnaround at Rainbow and at its Sugar division.

This was in spite of a tough trading environment, where high input costs, load-shedding and a weak rand/dollar exchange rate exerted pressure on prices and consumer demand.

Rainbow’s revenue increased 10.8% to R7.27bn in the six month period while underlying EBITDA increased by 364.8% to R286.8m due to a better agricultural performance, improved volumes and margins and sound cost control.

Its performance was compromised by load-shedding and the impact of the Avian Influenza (AI) outbreak.

The Hammarsdale Processing plant expension was implemented, which resulted in increased volumes and the creation of 346 direct and 143 indirect job opportunities. Full capacity utilisation was expected in July 2024.

Rainbow’s Animal Feed business benefited from improved margins, although volumes were affected by avian influenza and strong market competition.

Cruikshank said consumer demand is likely to remain soft in the coming months, with cost pressures persisting despite moderating from recent highs.

The Poultry Sector Master Plan was progressing slowly, despite significant capacity investment by the industry.

Rainbow and its growers invested more than R600m at Hammarsdale to double processing and grow capacity to return the jobs lost in 2017. Hreater and more urgent government support was required to access new markets in line with the Plan, he said.

Trade measures to support the local industry were a key pillar of the Plan. Anti-dumping duties on chicken imports from Brazil and four European Union countries were reimposed in August 2023 after a year-long delay in implementation.

On January 26, 2024 the International Trade Administration Commission (ITAC) recommended certain rebates of duties on frozen poultry imports be implemented as a temporary measure to mitigate potential impacts of the avian flu outbreak.

RCL said these rebates were “concerning” as the local industry had taken costly steps to ensure there was no shortage of poultry on the local market and that the supply chain was well stocked.

On February 6, 2024 the Competition Commission of South Africa announced an investigation into the broiler and layer industries over concerns that their concentrated structure and vertical integration might lead to anti-competitive behaviour and increased prices.

Cruickshank said globally, the poultry industry requires vast scale to be able to drive down cost structures and be competitive, while the South African consumer in particular, also required low cost poultry as part of their diet,

“The scope of the Competition Commission investigation is wide and is likely to take an extended time to complete. The poultry industry of South Africa is already internationally competitive; is the biggest segment of South African agriculture; and is a significant contributor to rural development, job creation and food security. We intend to participate in the enquiry and will table our comments for consideration by the Competition Commission,” he said.