06 Sep 2023 SA food producers hit by rolling blackouts and surging operating costs
Monday (4 Sept) was ‘food day’ on the JSE as the three producers, RCL, AVI and Sea Harvest, released results that could have been so much better if they weren’t forced to hike prices to offset the cost of keeping the lights on.
The South African Sugar Association’s levy, input costs and rolling power cuts have made doing business expensive in South Africa, with RCL on 4 Sept reporting a 46% plunge in annual profits; AVI – whose food products include Five Roses, Baumann’s and Provita – posting a moderate profit; and Sea Harvest registering a hit by cost pressures.
To offset operational pressures, producers were forced to hike prices.
RCL Foods has increased group revenue by 17.3% to R37.8-billion; AVI bumped up revenue by 7.8% to R14.91-billion; and Sea Harvest by 10% to R1.57-billion.
RCL, which produces Ouma Rusks, Selati Sugar, Rainbow and Yum Yum peanut butter, among others, says the sugar industry’s special levy has “materially” hurt its profits, with rolling blackouts affecting all of its operations.
Rolling blackouts cost the company R158.3-million (pretax) in FY 2023 and affected its service levels, particularly in its pet food division.
Despite the decline in annual profits, RCL’s revenue was up 17.3% on last year, mainly due to higher pricing to offset rising input costs. Earnings before interest, taxes, depreciation and amortisation (Ebitda) from continuing operations declined by 24.5%, mainly due to the decline in Rainbow Chicken.
It says its key grocery brands are growing, despite a declining market, and its sugar business delivered a strong result, with Ebitda growth of R62.4-million – despite the levy of R234.4-million. Performance was driven by higher production volumes, increased local sales and continued favourable export pricing.
RCL is currently in litigation with Tongaat Hulett over its business rescue practitioners’ decision to suspend payment of their statutory pre-commencement levies and redistribution payments to the SA Sugar Association, and the default of both Tongaat and Gledhow.
In July, RCL told shareholders that profits for the year to June 2023 were expected to be down at least 30% year on year.
In what it described as an “extremely challenging” operating environment, RCL said agricultural commodity input costs were the biggest contributor to its margin pressure, followed by rolling blackouts which added R158.3-million in direct costs to continuing operations in respect of diesel, generator hire and additional labour requirements.
Consumer demand was also under pressure amid high unemployment levels and double-digit food price inflation during the period.
RCL’s Foods division grew market share in the peanut butter, mayonnaise, rusks, pies and premium pet food categories, but production of some pet food suffered due to cutbacks as a result of power issues.
The main contributors to RCL’s decline were Rainbow (R312.3-million) and the fair value revaluation of its minority shareholding in the LIVEKINDLY Collective (R127.4-million).
“Within the Rainbow business unit, higher revenue driven by higher volumes and prices were insufficient to offset the severe impacts of high feed costs, failing municipal infrastructure and load shedding, resulting in a 74.9% decline in underlying Ebitda,” the company said.
AVI’s woes
AVI, meanwhile, blamed a “challenging macroeconomic environment” for its performance, with rolling power cuts disrupting operations and costing it R58.5-million, with significant indirect costs.
I&J, an AVI brand, was hurt by higher fuel prices, poor catch rates, rolling blackout costs and lockdowns in Asia affecting abalone sales.
The group also trades in hot beverages, biscuits and snacks, frozen convenience foods, out-of-home ranges, personal care products, cosmetics, shoes, accessories and apparel…..
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