RCL Foods reports full year loss amid challenging operating environment

SOUTH AFRICA – The South African consumer goods and milling company, RCL Foods has reported an after-tax loss of R184m (US$12.08m) for the year ending June 2019, as increased pressure on its sugar and chicken business continued to hurt its operations.

RCL Foods, which reported an after-tax profit of of almost R878m (US$57.63m) in 2018, also saw its headline earnings per share (heps) fall by 60.8% to 37.9c in the 12 months to end June 2019.

The Rainbow Chicken and Selati Sugar owner blamed high levels of chicken dumping and an adverse sales mix due to the imposition of a sugar tax, which triggered a 55% decline in cash generated by operations during the period.

“Declining local market demand, mainly due to the implementation of the Health Promotion Levy (sugar tax), resulted in an adverse sales mix and a significantly lower sugar result,” the company said.

“Chicken was negatively impacted by low selling prices due to an oversupplied retail poultry market with dumped imports at record levels, as well as a rising feed cost environment.”

The group said that dumped chicken, accounting for 25% of imports, remains a significant issue in the South African market, reports Business Day.

The company had in August said that had written down its sugar unit by R761.9m (US$50m) due to a bigger-than-expected effect from the imposition of the government’s sugar tax. 

According to the company, the tax resulted in a higher proportion of production needing to be exported at low international prices.

The group’s earnings before interest, taxation, depreciation and amortisation (ebitda) declined 54.1% to R214.3m (US$14.07m), while ebitda for its sugar business plummeted 129.7% to a loss of R84.5m (US$5.55m).

Despite declining performance in the sugar and chicken business, RCL’s groceries portfolio recorded a 23.4% growth in ebitda to R639m (US$41.94m) during the period.

RCL Foods said that South Africa’s economic environment remained subdued, with the group facing sustained pressure on its margins as it battled to hold on to market share amid declining prices for sugar and poultry.

The company said it will continue to focus on initiatives to reduce production costs in its sugar and chicken divisions.

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