SOUTH AFRICA – RCL Foods has reported an annual headline earnings per share slump of 45%, attributing the dip to increased production costs, load-shedding, and the extra sugar levy it had to pay.
The company, which reported its year-to-end-June results on 4 September on the Johannesburg Stock Exchange, said that its key businesses particularly Rainbow chicken, bakery, and pet-food businesses had weathered a tremendously difficult 12 months”.
RCL Foods owns a range of food brands including Bobtail pet food, Yum Yum peanut butter, Nola mayonnaise, Ouma rusks, Sunbake bread, Pieman’s pies, Rainbow, and Selati sugar.
The results mark the fruition of the company’s third profit warning two weeks ago. According to the Sunbake bread maker, profits were expected to be down in the region of 39% to 46% as a sugar levy and power shortages weighed on the branded and private-label manufacturer.
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 (US$8.4m) for the current year and also impacted service levels, especially in our pet food operations.”
The Supreme flour and Sunbake bread manufacturer also revealed that the overall group result [was] negatively impacted by the continued unrecovered cost pressure in Rainbow [chicken].
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.
According to the company, the grocery unit result was the most impacted by load-shedding, reducing pet food production by up to 50% from November 2022 to April 2023.
On the other hand, 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”.
To keep up with the hurdles, RCL Foods has been forced to invest in alternative energy sources to keep their business going against a backdrop of rolling power blackouts (load shedding) in the country, as the government attempts to tackle an ongoing energy crisis.
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.
Last month, RCL described the South African sugar industry as being in a “state of significant uncertainty”.
However, there is still hope as the South African government declared a state of emergency in February, with President Cyril Ramaphosa pledging to “dramatically reduce” the power blackouts.