RCL Foods profits slump as sugar tax, power outage headwinds kick in

The chicken, bakery and pet-food business said it had “weathered a tremendously difficult 12 months”.

Andy Coyne September 04 2023

South Africa’s RCL Foods has seen its annual profits plummet by 45% year-on-year following a battering from headwinds including a sugar levy and rolling power cuts.

Announcing its results for the year ending June 2023 on the Johannesburg Stock Exchange today (4 September), the chicken, bakery and pet-food business said it had “weathered a tremendously difficult 12 months”.

Two weeks ago, the company issued its third profit warning of the financial year ahead of today’s results, suggesting a 39% to 46% decline in earnings.

Today, with that prediction coming to fruition, the Supreme flour and Sunbake bread manufacturer said: “The overall group result [was] negatively impacted by the continued unrecovered cost pressure in Rainbow [chicken]. Whilst agricultural commodity input costs remain the biggest contributor to margin pressure for RCL Foods, load-shedding added direct [pre-tax] costs to continuing operations of R158.3m ($8.4m) for the current year and also impacted service levels, especially in our pet food operations.”

South African food manufacturers have been forced to invest in alternative energy sources to keep their business going against a backdrop of rolling power blackouts - or load shedding - in the country as the government attempts to tackle an ongoing energy crisis..

In addition, they have had to pay a sugar levy imposed by the South African Sugar Association to cover a shortfall linked to business rescue proceedings at industry players Tongaat Hulett Sugar and Gledhoe Sugar Co.

Last month, RCL described the South African sugar industry as being in a “state of significant uncertainty”.

Today, RCL said its grocery unit result was the most impacted by load-shedding, reducing pet food production by up to 50% from November 2022 to April 2023 while its Rainbow chicken business saw higher revenue driven by both higher volumes and prices but this was insufficient to offset the “severe impacts of high feed costs”.

The company reported headline earnings per share (HEPS) from continuing operations - the main profit measure in the country - of 60.6 cents for the year ended 30 June, down from 111.5 cents a year earlier. EBITDA was down 24.5% to R1.71bn.

Revenue, however, was up 17.3% to R37.8bn.

RCL also announced that this would be the last time that the results of its frozen logistics business Vector Logistics operation would feature on its balance sheet following its sale to a South African subsidiary of Denmark’s A.P. Møller Capital.

The South African government declared a state of emergency in February, with President Cyril Ramaphosa pledging to “dramatically reduce” the power blackouts.

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