RCL FOODS Faces Earnings Decline Amid Industry Challenges

  • RCL FOODS expects a significant decrease in earnings for 2023, with HEPS and EPS projected to be at least 30.0% lower compared to the previous year.
  • Challenges within the South African sugar industry, loadshedding, and unrecovered feed costs contribute to the decline in financial performance.
  • The disposal of Vector Logistics and pending fulfillment of conditions precedent further impact the company's financial statements.

RCL FOODS LIMITED has announced that its headline earnings per share (HEPS) and earnings per share (EPS) for the year ended June 2023 are expected to be at least 30.0% lower compared to the previous year. The company attributes this decline to several challenges faced within the industry.

RCL FOODS has been impacted by a combination of factors, including challenges within its Sugar business unit, widespread loadshedding, and unrecovered feed costs in its subsidiary Rainbow. These issues have significantly affected the financial performance of the company during the current period.

A major concern for RCL FOODS is the ongoing uncertainty in the South African sugar industry. The business rescue proceedings initiated by Tongaat Hulett Sugar and Gledhow Sugar Company have led to non-payment of pre-commencement levies and redistribution payments owed to the South African Sugar Association (SASA). As a result, SASA imposed a special levy on the remaining industry participants, including RCL FOODS, to cover the resulting shortfall. The impact of these special levies on RCL FOODS totals R234 million (pre-tax impact). However, the recovery of unpaid levies and redistribution payments from Tongaat Hulett Sugar and Gledhow Sugar Company remains uncertain.

Compounding the challenges, RCL FOODS has faced significant disruptions due to loadshedding, a controlled power outage implemented by the South African power utility to manage electricity demand. The frequent interruptions have adversely affected the company’s operations, leading to production disruptions and increased costs.

Furthermore, Rainbow, a subsidiary of RCL FOODS, has struggled to recover feed costs, further straining the financial performance of the Group during the current period.

To address these challenges, RCL FOODS announced the disposal of Vector Logistics on March 29, 2023. However, the transaction is subject to the fulfillment of conditions precedent, some of which are still in progress. As a result, Vector Logistics will be reported as an asset held for sale in the company’s annual financial statements.

RCL FOODS’ full financial results for the year ended June 2023 will be released on September 4, 2023, via the Stock Exchange News Service (SENS). The company intends to issue a further trading statement once there is a reasonable degree of certainty regarding the expected ranges of HEPS and EPS for the current period.

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