The South African food and beverage industry is facing challenges as RCL Foods, a major manufacturer in the sector, has issued a profit warning. The company expects its profits for the 12 months ending in June to be at least 30% lower than the previous year.
The decline in profits can be attributed to several factors, including a levy imposed on RCL Foods’ sugar business by the South African Sugar Association (SASA). The ongoing energy shortages in the country have also had a negative impact on the company’s production levels.
This is RCL Foods’ second profit warning this year, as the company had previously predicted a decline in earnings back in February.
In a trading statement released on the Johannesburg Stock Exchange, RCL Foods stated that its forthcoming financial results, to be announced on 4 September, are likely to show a decrease of almost a third in its headline earnings per share and earnings per share compared to the previous year.
The expected decline in headline earnings per share is at least 35.6 South African cents lower than the prior year’s 118.6 cents, while earnings per share are expected to be at least 34.2 cents lower than last year’s 114.0 cents.
RCL Foods attributes these decreases to multiple factors, including the special levy imposed by SASA on its sugar business, the significant impact of load-shedding on its operations, and unrecovered feed costs in its chicken business.
The South African sugar industry is currently experiencing significant uncertainty due to the business rescue proceedings initiated by Tongaat Hulett Sugar and Gledhow Sugar Company. As a result, the remaining industry participants have been burdened with additional costs in the form of the special levy imposed by SASA to cover the resulting shortfall, which has amounted to R234m ($12.5m) for RCL Foods.
Load-shedding, which refers to the regular electricity blackouts implemented by the state to conserve energy during supply shortages, has greatly affected the country’s food manufacturers, including RCL Foods.
In March, RCL Foods reported a substantial decline in its fiscal H1 earnings due to commodity and energy costs. The company’s profit attributable to equity holders fell by 21.8% to R512.2m, while operating profit decreased by 20.7% to R647.7m.
RCL Foods also mentioned that the ongoing separation of its Rainbow and Vector Logistics units has had an impact on its financial results. In addition, the company is considering investing in energy self-sufficiency to mitigate the effects of load-shedding, but this is expected to come at a significant cost.
