FOOD MANUFACTURER

Market leader RCL Foods’ spat with its minority shareholder over share rights keeps declaring dividend on hold

SHAREHOLDER sentiment prevails as RCL Foods battles consumer price inflation, strike action and rallies in global agricultural commodity and energy prices.

RCL Foods is accusing Breede Coalitions of abusing and profiteering from appraisal rights clauses under the Companies Act stipulations following the company’s repurchase of R2.2 million worth of shares held by the minority shareholder.

RCL Foods is a leading local food manufacturer selling products such as chicken, dog food and maize meal.

The dispute arose subsequent to the group unwinding its existing black economic transaction and the repurchasing of shares.

Earlier this month, RCL Foods chief finance officer, Rob Field, said the company was not declaring a dividend in the interim period for the year ended December 2022 with the goal to to keep preserving capital.

The company, whose underlying earnings before interst, taxes, depreciation and amortisation (Ebitda) earnings fell 9.2% to R1.24 billion despite a 17.6% revenue surge to R20.2bn, is also in urgent need of “significant investment” such as working capital.

The spat with minority shareholder Breede Coalitions is seen by analysts as among the reasons for failure to declare a dividend for the interim period to December.

RCL Foods, which is controlled by Johan Rupert’s Remgro, on Monday charged that the exercise of appraisal rights by Breede Coalitions “is an abuse” although it admitted that this was by no means “unlawful”.

“Breede Coalitions has profited in an estimated amount of R600 000 (and) it is the company’s opinion that the Appraisal Rights Exercise by Breede Coalitions, represented by (sole director) Abraham Albertus Cilliers, is an abuse of the appraisal rights remedy under section 164 of the Companies Act,” RCL Foods said in a trading statement on Monday.

“Although this conduct is not unlawful, the company is of the view that enabling strategies such as those executed in this instance, could not have been the intention of the appraisal rights remedy in the Companies Act.”

The JSE approved the delisting of the appraisal rights shares in RCL with effect March 16, 2023, with the shares subsequently “cancelled in accordance with the Companies Act”.

This after the according of appraisal rights to Breede Coalitions voting against RCL Foods’ repurchase resolution, which mandated the company to pay them “fair value for all shares” they held.

“As a consequence of the Appraisal Rights Exercise, Breede Coalitions surrendered 150 000 RCL Foods shares to the company and the company paid to Breede Coalitions an amount of R14.69 per share (amounting to an aggregate repurchase price of R2 203 500).

“The Appraisal Rights Shares amount to 0.016% of the 890 189 904 RCL Foods shares in issue,” further reads the trading update.

JSE listing rules do not deem the repurchase of shares under exercise of appraisal rights “as a repurchase” of shares in the concerned listed entity.

With interests across the foods sector such as chickens, sugar and pet foodstuffs, RCL Foods is not anticipating an improvement in the South African operating environment.

The spat with its minority shareholder over exercise of appraisal rights may have an effect on shareholder sentiment.

Its shares on the JSE slumped 5.02% to close at R12.29 on Monday. It is, however, nearly 30% up on a year-to-date basis.

Describing the South African trading environment as “exceptionally challenging,” RCL Foods is battling consumer price inflation for food and non-alcoholic beverages, ongoing rallies in global agricultural commodity and energy prices as well as a weaker rand.

It said higher pricing was negatively impacting consumer demand and sales volumes.

Additionally, the increased regularity and extent of Eskom load shedding weighed on its performance in terms of production impacts and added direct costs amounting to R96 million for the half-year to end December 2022.

There has also been pressure on industrial relations. The service levels at RCL Foods’ groceries and baking business units were affected by employee strike action. Workers, who are also consumers, are under pressure.