RCL's earnings sour on sugar tax


RCL's earnings sour on sugar tax

Published Date: 2019-09-03 | Source: Stephen Gunnion | Author: Stephen Gunnion

RCL's earnings sour on sugar tax

The branded food producer has impaired its Sugar business due to what it sees as a permanent reduction in local demand.

RCL Foods has swung to a full-year loss after problems at its Sugar and Chicken operations negated strong results from its groceries business. The group owns the Selati sugar and Rainbow and Farmer Brown's chicken brands, amongst others.

The branded food producer said its Chicken business unit was impacted by an oversupplied retailer poultry market and higher feed input costs, which couldn't be recovered due to depressed selling prices. It impaired its Sugar assets by R762 million because of the weak outlook for local market demand.

The group said both industries were under significant pressure as a result of oversupply and falling demand due to muted consumer spending and the recently implemented Health Promotion Levy, better known as sugar tax, which had affected sugar producers. Based on the current outlook of a permanent reduction in local demand, it said a higher proportion of its future production was expected to be exported at much lower margins, resulting in the impairment.

RCL said Groceries performed strongly despite the challenging market conditions, with improving volumes and margins across a number of categories. Millbake, the group's milling and bread unit, continued to improve its performance, but profitability at Animal Feed was hampered by rising costs and an extremely competitive trading environment, it said.

Revenue rose 5.5% to R25.9 billion in the year to end-June but earnings before interest, tax, depreciation and amortisation (EBITDA) fell 25% to R1.53 billion. Excluding its sugar and chicken businesses, EBITDA was 7.8% higher at R1.4 billion. It reported a loss for the year of R184 million, down from profit of R878 million previously. Earnings per share (EPS) swung to a loss of 12.7c and headline EPS declined 61% to 37.9c. It's cut its final dividend by 60% to 10c per share, taking its total dividend for the year to 25c, down from 40c last year.

The group said it was accelerating its engagements with the appropriate industry bodies and government to find a sustainable way forward for its Sugar and Chicken businesses. In the meantime, it was focused on returning them to acceptable profitability.

Its shares closed 8.8% higher at R11.10 yesterday.

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