High feed costs shrink Rainbow’s profit

12-06-2009 | |

High feed costs have taken a chunk from South African Rainbow Chicken’s profit in 2008, but efforts to diversify its product range have helped the group maintain its profitability during difficult times.

Rainbow has been launching added value products the past three-and-a-half years, and since then have become its “bread and butter”, according to marketing and customer director Scott Pitman.
Already added value products constitute 50% of what Rainbow sells to supermarkets, he added.
Pitman said Rainbow will launch another three sub-ranges within six weeks in an effort to grow its 28% market share of the chicken market.
Chief financial officer Rob Field said the group’s plants for added value products have been operating at full capacity for three years.
“We are under-servicing demand in the added value space,” he said. A substantial part of the R201.9m set aside for capital expenditure this year will be used to add capacity in the division.
Feed costs
Rising input costs, especially feed costs which have risen by 33.6%, have depressed Rainbow’s results.
Although revenue increased 14% to R6.8bn (€603.7 million), its profit margin halved to 6%. Rainbow’s operating profit decreased 45.7% to R423.8m (€37.6m), while earnings were down 41% to R317m (€28.1m).
Rainbow has performed in line with market expectations, but the performance was mainly driven by the high feed costs which weren’t recovered by chicken price increases.
“Even though we hiked our prices by 15%, this was not enough to cushion it from the feed price rise,” Coronation Fund Managers’ Pallavi Ambekar said.
“We still face challenges with the recession and the volatility of commodity and exchange rate markets,” CFO Rob Field said. However, he expected feed prices to be lower this year, which bodes well for earnings.