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News 635 views update:May 31, 2006

Rainbow Chicken reports strong earnings

Rainbow Chicken, South Africa's largest chicken producer, reported an 89.7% rise in headline earnings to R400 million (€48.4m) for the year to March as a favourable economic climate, an improved product mix and investments in ready-to-eat meals paid off.

Miles Dally, Rainbow's chief executive, said: "With extensive research into local and international consumer trends, we have invested in a processing plant that will enable us to deliver differentiated value-added products to our customers."


The completion of the R160 million (€20m) processing plant in Hammarsdale enabled Rainbow to launch 66 new retail and food service products during March.


These included ready-to-eat whole chickens, sliced chicken, chicken mayonnaise mix and chicken nuggets, marketed through the Farmer Brown and Rainbow brands.


Other investments that have been completed are the upgrades to plants in Rustenburg and Worcester. Combined with the new Hammarsdale plant, new investment totals R222 million (€26.8m).


Apart from these investments other factors also improved performance. Rainbow reduced its supply to non-strategic, unprofitable third parties like re-processors, which significantly improve its mix, which is evident in the margin improvement.


Operating margin improved to 14.1%, compared with 7.8% the year before, while cash generated by operations showed a 69.1% rise to R680 million (€82.2m).


Group revenue increased marginally to R4.1 billion (€496m). However, Rainbow achieved a 14% increase in chicken volumes to targeted customers and in branded products.


Other factors behind Rainbow's performance included the lower cost of maize, the better integration of the supply chain and the inclusion of Vector's results for the full year.


Vector Logistics, which Rainbow acquired in December 2004, has secured new distribution contracts with Nando's, Spur and Willowton, from January next year. Vector has also taken over the distribution of the balance of Rainbow's volumes previously distributed by a third party.


Epol, Rainbow's feed unit, is still recovering volumes lost after contaminated feed from a supplier, which dented the group's profit in the year to March 2005. Rainbow said the feed industry was under pressure due to overcapacity. To address this, the group is consolidating its feed operations by closing down the Roodepoort mill.

Editor WorldPoultry

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