High costs and dumping hurt Rainbow

21 Feb 2013

In what it described as the most difficult period in the history of the South African poultry industry‚ Rainbow Chicken on Wednesday (20 February) reported a 74.1% decline in first-half profits as record levels of poultry imports and high feed raw material input costs weighed heavily.

"Feed costs ultimately translate to a 17% increase for us on a rand-per-ton basis and we can't recover that in the market. In terms of imports‚ there's no doubt that there's dumping taking place. Brazilian exports are now finding SA as a very good home. Most countries in the world have some form of protection - we don't‚" chief executive Miles Dally said.

Over the past few years‚ surging chicken imports from the European Union (EU)‚ Brazil and rest of the world have been blamed for SA's poultry industry woes - 50% of the 400‚000 tons of poultry imports now come from Brazil‚ while the EU has significantly penetrated the bone-in or chicken pieces market where it has achieved a 70% share.

Dally said the company had been engaging with the government "a lot" about the matter over the past two weeks.

Rainbow‚ which is SA's largest processor and marketer of chicken said revenue for the six months to end December increased by 14.9% to R4.5bn. Headline earnings per share slipped to 17.8c from 68.7c previously.

Avior Research analyst Jiten Bechoo said the outlook seemed bleak with continued pressure on poultry profitability.

"By our estimate it's only sufficient for a break-even at best. Even though a weaker rand has boosted the price of Brazilian imported leg quarters to R16.95/kg‚ profitability is likely to be hurt‚" Bechoo said.

Given the adverse prospects for the poultry industry‚ the company continues to explore opportunities in the food sector.

Rainbow has agreed to buy a 49% stake in Zam Chick from Zambian agricultural company Zambeef for US$14.25m‚ it said earlier this month. It is also buying 64.2% of Foodcorp‚ SA's third-largest food producer‚ with a range of products that include Yum Yum peanut butter and Ouma Rusks.

Equity analyst at Vunani Securities‚ Anthony Clark‚ said both these deals lessen the risk for Rainbow and its shareholders as the "commodity" risk of owning Rainbow is now far less than Astral Foods and Country Bird.

"As the best placed poultry stock‚ with a much lower risk given its diversification and continued drive to move away from the commodities to value-added products‚ Rainbow is in a better position than any other poultry share‚" Clark said.

Rainbow's logistics business - Vector - saw a 13.5% rise in revenue to R741m.

Rival Astral last month said it expected basic earnings per share for the six months ended March to fall by between 45% and 65% and headline earnings per share to drop by between 75% and 95%.

"Rainbow cancelled their interim dividend and it seems increasingly likely that Astral will do so too‚" Bechoo said.

Source: I-Net Bridge

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