JOHANNESBURG - Branded foods company RCL Foods yesterday warned that a downgrade of South Africa's credit rating would harm the business as it reported improved revenue during the half-year to December 2019.
The group said it was pinning its hopes on planned tariffs to counter under-priced chicken imports that are estimated to have cost the local industry more than R6.5billion in annual losses. The group said the tariffs would help it to capitalise on the domestic market.
“The possibility of a credit ratings downgrade for South Africa to sub-investment grade does, however, present an impairment risk over the rest of our financial year,” said RCL.
RCL, whose brands include Sunbake, and Yum Yum peanut butter, again declared an interim 15 cents dividend at the end of December 2019.
It reported that the growth of its sugar business during the half-year ended in December lifted revenue 7.1percent to R14.2bn on strong volumes, particularly in the chicken and sugar divisions.
Sugar revenue rose 12.2percent to R3.7bn on higher sales volumes and prices. The sugar division's underlying earnings before interest, taxes, depreciation and amortisation (Ebitda) jumped a whopping 142.4percent to R294million at a margin of 7.8percent up from R121.3m in December 2018 at a margin of 3.6percent.
RCL said the performance from the sugar division came off a low base, benefiting from higher raw export sales volumes and prices.
“Local sugar demand remains muted due to financial pressure on consumers and declines in consumption brought about by the implementation of the sugar tax. The latter is estimated to have reduced domestic consumption of sugar by more than 300000 tons per annum,” the company said.
“Our goal has been to manage what is within our control, with particular focus on reducing production costs and improving efficiencies, both of which gained traction in the period,” the company said, adding that it had decided to mothball the refinery operations at the Pongola mill.
RCL said it was working with other role players to review the industry structure and operating model to further reduce costs.
RCL declined 5.2percent on the JSE yesterday to close at R10.40.