Remgro-owned RCL Foods hit by South African sugar wars

RCL Foods informed shareholders this morning that it expects a significant decrease in earnings for its 2023 financial year, largely due to the special levy raised by the South African Sugar Association (SASA) on the company’s sugar business.

In accordance with JSE listing requirements, RCL Foods – which is more than 80% owned by South African investment firm Remgro – informed shareholders that it expects a significant change in its earnings for FY2023 compared to the previous year.

The company expects the following changes to its FY2023 earnings compared to FY2022:

• Headline earnings per share – decrease by between 39.3% to 46%
• Earnings per share – decrease by between 36% and 43%

The company said in a previous trading statement on 4 July 2023 that the decline from the comparative period is largely driven by the impact of the special levy raised by SASA on the group’s sugar business unit. 

According to RCL Foods, “The South African sugar industry is in a state of significant uncertainty since the commencement of business rescue proceedings by Tongaat Hulett Sugar and Gledhow Sugar Company.” 

“Pre-commencement levies and redistribution payments owed to SASA have not been paid, and this was aggravated by the decision of the appointed business rescue practitioners of Tongaat Hulett Sugar to suspend payment of their statutory industry obligations as at 31 March 2023.”

“As a consequence, the remaining industry participants have had to bear additional costs in the form of a special levy imposed by SASA in terms of the Sugar Act 9 of 1978 and Industry Agreement in order to cover the resulting shortfall.” 

The company said the net impact of these special levies raised to date is R234 million (pre-tax impact). 

“Any recovery of unpaid levies and redistribution payments from Tongaat Hulett Sugar and Gledhow Sugar Company remains a material unknown at present,” RCL Foods said. 

“Litigation has commenced in relation to the lawfulness of the decision by the appointed business rescue practitioners of Tongaat Hulett Sugar to suspend compliance with its statutory obligations.” 

Other contributing factors to the company’s performance decline included unrecovered feed costs in Rainbow and the significant impact of load-shedding across all operations.

The company also pointed to a R127.4 million negative fair value adjustment processed at the year-end reporting date concerning RCL Foods’ minority shareholding in The LiveKindly Collective.

RCL Foods’ financial results for the current period are expected to be released on SENS on Monday, 4 September 2023.