Companies / 16 August 2019, 09:00am / Sandile Mchunu
DURBAN – RCL Foods tanked more than 10 percent on Thursday after the South African food producer flagged that its earnings were likely to plummet more than previously forecast on the back of cheap imports, subdued consumer spending and a difficult trading environment.
RCL said its earnings were expected to fall as much as 66.9 percent for the year to the end of June, dragged down by its sugar and chicken business units.
The group said it projected that the difficult trading environment would continue with driving down local volume, and the oversupply of dumped imports would also put the local industry under further pressure, negatively impacting pricing amid a rising feed cost cycle.
It said the sugar business division would record significant operating losses, driven by lower local market demand, primarily due to the implementation of the health promotion levy (sugar tax).
“This resulted in a higher proportion of production having to be exported at low international sugar prices, adversely impacting the business unit’s sales mix and hence margins,” the group said.
The group, which owns Rainbow Chicken and Selati Sugar, said it performed a detailed impairment review on its sugar division as a result of the sugar tax.
It said the write-down affected its property, plant and equipment and goodwill during the year in review.
The group said its headline earnings per share would decline between 54.5 percent and 66.9 percent to be between 32 cents a share and 44c during the period, down from last year’s 96.8c.
In the year to date, RCL has shaved nearly 30 percent off its market cap as a result of what the industry claim were cheap imports from abroad.
In March, RCL said chicken imports increased by more than 25 percent in the six months to the end of December, mainly from Brazil and the US, with only partial relief to the market’s oversupply position being provided by the reduction in volumes as a result of its changed business model.
On Thursday, the SA Poultry Association (Sapa) entered the poultry fray, denouncing an EU study into the causes and effects on the sector.
Sapa said the study failed to offer new insights or solutions to the core problem of dumping, which has hit the chicken industry hard over the last few years.
Chairperson Aziz Sulliman said the EU was dismissive of unfair competition and failed to appreciate the anti-dumping duties against the Netherlands, Germany and the UK.
“The integrated poultry industry could create 30 000 jobs in a reasonably short space of time if its market security could be safeguarded from predatory imports.
“We call on the EU to review the scope of its research to investigate real ways in which Europe can apply its considerable resources to strengthen the South African poultry industry so that we can, first and foremost, feed our own nation as we are capable of doing.
“With a level playing field, without constantly battling unfair competition and predatory trade practices, the local industry would regain its buoyancy and be able to explore other potential, including a strong export market,” Sulliman said.
RCL Foods is expected to release its results next month.
Later in the day the company’s share price recovered to close 0.64 percent higher at R10.97.