RCL Foods issues third profit warning as sugar levy, blackouts impacts performance

SOUTH AFRICA – South African chicken and pet food business, RCL Foods has issued a new profit warning ahead of its final annual results as a sugar levy and power shortages weigh on the branded and private-label manufacturer.

The profit warning is the third from the Johannesburg-listed group in its current financial year.

In July, the Rainbow chicken and Bobtail pet-food brand owner advised its headline earning per share (HEPS) in the 12 months ended in June would be 30% below the previous year’s print.

Now, profits are expected to be down in the region of 39% to 46%, RCL Foods noted in a stock-exchange filing.

“The decline from the comparative period is largely driven by the impact of the special levy raised by the South African Sugar Association on the group’s sugar business unit, unrecovered feed costs in Rainbow and the significant impact of load-shedding across all operations in the current period,” RCL Foods said ahead of the final results on 4 September.

For the year ended June 2022, the company reported a HEPS of 118.6 South African cents. For the current financial year-end, that is expected to drop to between 64 and 72 cents.

Earnings per share are envisaged at 65 to 73 cents, representing a decline of between 36% and 43% from last year’s 114 cents.

Issuing its previous profit warning in July, RCL Foods described the South African sugar industry as being in a “state of significant uncertainty” since the commencement of business rescue proceedings by Tongaat Hulett Sugar and Gledhow Sugar Company.

As a consequence, the remaining industry participants have had to bear additional costs in the form of a special levy imposed by the Sugar Association to cover the resulting shortfall.

So-called load shedding has plagued South African industries this year, including the food sector.

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

“We are in the grip of a profound energy crisis, the seeds of which were planted many years ago,” Ramaphosa declared.

RCL Foods’ peers Tiger Brands, Astral Foods and Libstar have all previously emphasized the financial pressures from the power outages.

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