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Hit by sugar tax and cheap chicken, RCL’s profit slumped 70% – but grocery brands like Ouma and Nola are still booming

Hit by sugar tax and cheap chicken imports, RCL Foods [JSE: RCL] saw its headline earnings slump by almost 61% in the year to end-June. But its grocery brands continued to be massively profitable. 

The company - which owns brands like Rainbow, Nola, Ouma, Epol, Sunbake and Bobtail – says it has been hit hard by the sugar tax, which was introduced this year. A 20% tax per gram of sugar is levied on products since earlier this year.

RCL, which owns the Selati sugar brand, believes the sugar tax will lead to a permanent reduction in demand. It has therefore decided to write down more than R760m of the value of its sugar unit.

Sales of chicken were hit by "dumped imports at record levels" and rising feed costs. Apart from Rainbow, RCL also supplies KFC, Nando’s and Chicken Licken.

Still, RCL managed to hike its revenue by 5.5% to R25.9bn, with strong sales at its groceries and animal feed units.

Its groceries division saw a 23% gain in earnings before interest, tax, depreciation and amortisation (Ebitda) to R373.8m. The groceries unit has achieved average Ebitda growth of 19% a year since December 2014.

Its newly launched Feline Cuisine has taken 8% of the premium cat food market, while a number of its brands continued to grow their market share:

rcl

RCL’s share price rocketed almost 13% by Monday lunchtime following the release of its results.

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