Food and logistics group RCL Foods has flagged a drop in profit in its next annual results as a special levy raised by the SA Sugar Association (Sasa) hurt its sugar business unit, load-shedding bogged down performance and feed costs in its Rainbow Chicken division could not be recovered.
According to the producer of brands such as Selati sugar, Nola and Yum Yum, the local sugar industry is in a “state of significant uncertainty” since the start of business rescue proceedings at sugar giant Tongaat Hulett and the 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,” the company, valued about R8.9bn on the JSE, said in a trading statement.
“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,” it said.
This resulted in a net impact of R234m in special levies raised against RCL Foods as the possible recovery of unpaid levies from Tongaat Hulett and Gledhow remains “material unknown at present”.
“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,” RCL Food said.
The creditors of Tongaat Hulett, who are owed billions, voted in June to postpone the date on which they must decide on approving the business rescue plan, to the end of September when more will be known about the identities of the potential or chosen buyers of the business.
Tongaat was placed into voluntary business rescue, a process aimed at averting bankruptcy, in October as the company’s debt far exceeded the value of its assets. The troubles began after fraudulent activities, discovered in 2018, showed a R12bn shortfall in the accounts.
According to a statement by Andrew Russell, chair of the industry body SA Canegrowers, in April, Tongaat Hulett owed Sasa — comprising cane growers and millers — R900m at the end of March, while Gledhow also failed to pay. Tongaat’s amount has since grown to R1.4bn, according to court papers.
Farmers and millers pay sugar levies to Sasa as part of the Sugar Industry Agreement, a legally binding contract. It is then redistributed throughout industry, which produces more domestically than it can sell, having to export the excess at a loss.
“These defaults are in violation of the Sugar Act and Sugar Industry Agreement and have lowered growers’ revenue, placing thousands of small-scale and commercial growers in danger of losing their businesses,” Russell said.
But Tongaat Hulett argued in court papers that if they were forced to pay sugar levies, it could undermine its business rescue process and such a failure would be “catastrophic” for the whole industry, including its employees and 23,000 sugar farmers.
The inability to recoup Rainbow Chicken’s feed costs will compound the pressure on the business unit, which saw core earnings (ebitda) go from a black to red in RCL’s latest interim results.
Overall, the company expects its headline earnings per share, a common profit measure in SA that excludes certain items, to fall “at least” 30% from 2022’s 118.6c, and earnings per share by the same margin from 2022’s 114c in its 2023 annual results, expected to be published on September 4.
With Katharine Child
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