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August 19, 2016updated 10 Apr 2021 5:35pm

South Africa’s RCL Foods issues profit warning

RCL Foods, the South African group, has warned annual earnings will come in lower than those generated in the previous 12 months, hit by an impairment on its milling business and the effects of the recent drought on its sugar and chicken operations.

By Dean Best

RCL Foods, the South African group, has warned annual earnings will come in lower than those generated in the previous 12 months, hit by an impairment on its milling business and the effects of the recent drought on its sugar and chicken operations.

The company said it expects its headline earnings per share from continuing operations for the year to 30 June will be between 95.0 cents and 105 cents on a year earlier, a range that forecasts a decline of 6.4% to 15.3%.

RCL Foods pointed to an impairment of ZAR642.8m (US$47.5m) relating to the goodwill and trademarks in the company’s milling cash generating unit. The impairment is due to lower forecasted cash flows as a result of a competitive trading environment, as well as increases in the ten-year government bond yield driving up the discount rate.

Two other one-off factors will have a positive impact on RCL Foods’ earnings, the company said. RCL Foods will book the release of a ZAR163.3m provision for uncertain taxation disputes as part of its acquisition of South African peer Foodcorp last year. The release will lower RCL Foods’ income tax costs for the year.

RCL Foods will also file ZAR67.7m profit after tax relating to the exercise of put options in poultry businesses Zam Chick and Zamhatch.

Excluding one-off items, RCL Foods forecast headline earnings from continuing operations for the year of between 61.4 cents and 71.4 cents, down by 36.4% and 45.3% on a year ago.

RCL Foods said its sugar and chicken business units have been hit by the worst drought in southern Africa in the past 100 years. The company said its chicken business have also been affected by “the massively oversupplied poultry market” amid surplus domestic volumes, as well as “record levels of dumped imports”.

The company added: “The remaining operations of the group have performed well.” RCL Foods expects to publish its annual results on 30 August.

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