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RCL warns of 80% profit drops on milling writedown

Johannesburg - RCL Foods, South Africa’s largest chicken producer, said full-year profit probably fell as much as 80% after it wrote down $48m in its milling business and the nation’s worst drought in more than a century hurt its sugar and poultry units.

Earnings per share were in the range of R0.20 ($0.01) to R0.30 in the year ended June 30 from R0.99 a year earlier, the Durban-based company said in a statement Thursday. The results will be released August 30.

“The sugar and chicken business units have been adversely impacted by the worst drought in southern Africa in the past 100 years,” it said. “Chicken results have also been adversely impacted by the massively oversupplied poultry market as a result of surplus domestic volumes as well as record levels of dumped imports.”

South Africa last year had the least rainfall since records started in 1904, damaging crops and herds and raising food prices. Its farmers will need as much as R16.6bn in the year through March to subsidize feed purchases, a study by the Agri SA lobby group and others showed.

The milling unit recorded lower forecast cash flows in the period, resulting in a R642.8m impairment on goodwill and trademarks that reduced per-share earnings by R0.75, RCL said. Profit was boosted by the release of a R163.3m provision for uncertain tax disputes as part of the producer’s purchase of New Foodcorp Holdings Ltd. and the recognition of profit from options to sell shares in its Zambian hatching operation.

The stock dropped as much as 6 percent, the most in more than a month, and was 5.3% lower at R14.20 at 13:53 in Johannesburg, giving the company a market value of R13.3bn.

The company, formerly known as Rainbow Chicken, has since 2013 sought to move into sugar and other food products by acquisitions to reduce its reliance on meat.

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