August 29, 2017 / 4:19 PM / 2 years ago

South Africa's RCL Foods blames drought for sharp drop in annual profit

JOHANNESBURG, Aug 29 (Reuters) - South Africa’s RCL Foods reported a 34 percent drop in full-year earnings on Tuesday, blaming rising competition and a severe drought, which pushed up input costs.

The group, which produces poultry, sugar and other foods, said southern Africa’s worst drought in decades had increased prices of the maize used to feed its chickens, hurting its margins.

That added pressure on the company, which announced in November that it would cut poultry production and staff numbers as part of a restructuring effort amid stiff competition from imports from Brazil, Europe and the United States.

“Demand and volumes have become constricted and record drought-related hikes in input costs could in many cases not be passed on, leading to contracting margins,” RCL said in a statement on Tuesday.

It said its headline earnings per share for the year through June fell to 63.5 cents, from 96.5 cents a year ago.

Headline earnings per share is the main profit measure in South Africa and strips out certain one-off items.

The drought parched most of South Africa until early this year, but ample rains helped the summer rainfall regions recover.

RCL, which released the results after the market closed on Tuesday, said its outlook was improving as conditions were now much better.

“On the positive side, the record maize crop, adequate rainfalls, as well as an improved supply of other crops, should restore margins and contribute to welcome price relief for consumers,” it said.

Still, it cautioned that the domestic food market remained oversupplied.

“Poultry imports, and more recently, rapidly increasing sugar imports, have been adding pressure to domestic supplies,” the company said. (Reporting by TJ Strydom; Editing by Susan Fenton)

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