RCL Foods has told shareholders to expect a sharp fall in earnings for the six months ended December, blaming pressure on its sugar business from a surge in imports and weak global prices.
In a trading update on Tuesday, the group said HEPS are expected to be at least 25% down, or 27.4c lower, compared with a year ago, while EPS are expected to be 40% lower.
The group reported HEPS for total operations of 109.4c a year ago.
The group said the difference between the decline in HEPS and EPS is largely due to one-off items included in the comparative period, including “the non-cash gain realised on accounting for the unbundling of Rainbow”.
The prior period also benefited from the partial recovery of the sugar industry levy, which had a 5.6c effect and which did not recur, RCL said.
After excluding these items, the remaining expected decline in HEPS of at least 21.8c was mainly due to conditions in the sugar market.
RCL Foods said its sugar business took a knock from tough industry conditions, as a surge of low‑priced sugar imports flooded the local market and pushed more of its product into exports, where prices were far weaker.
The group said this displacement and the lower international pricing had a materially negative effect on the unit’s performance. It added that the local market had not been fully protected from the influx of imported deep-sea sugar.
The tariff is currently under review by the International Trade Administration Commission of South Africa (Itac). In a government gazette published in January, ITAC said it had launched a self-initiated probe into the appropriate level of the dollar-based reference price (DBRP) for sugar.
The review follows competing applications from industry stakeholders. The South African Sugar Association applied for an increase in the DBRP from $680 to $905 per tonne, citing the need to protect the local industry and ensure sustainability. The Beverage Association of South Africa applied for a reduction in the DBRP to between $552 and $650 per tonne, citing the effect of duties on beverage producers and consumers.
Itac said the “divergent applications submitted by industry stakeholders prompted a need to determine the most appropriate course of action” and that a combined evaluation would be conducted through a self-initiated review. The commission said this approach would be “the most efficient and effective manner to conduct an investigation into the appropriate level of the DBRP for sugar”.
“An urgent resolution is critical to protect the sustainability of growers and millers within the South African sugar industry,” RCL said.
The group will release its full interim results on March 2.
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