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Rhodes Food sets sights on concluding two largest acquisitions yet

21st November 2016

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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JSE-listed Rhodes Food Group has prioritised wrapping up its two largest acquisitions yet, as it reports a year-end profit surge of 70% on the back of organic and acquisitive growth.

The food conglomerate is currently undertaking due diligence and seeking competition authority approval for the R200-million buy-out of food producer Pakco and the R212-million acquisition of pie producer Ma Baker.

“The completion and integration of the Pakco and Ma Baker acquisitions are a priority for the group,” CEO Bruce Henderson told investors on Monday, pointing to the strategy of complementing organic growth with value-accretive acquisitions of food producers in aligned product categories.

This latest activity brought the total number of acquisitions by Rhodes to eight, with a value of R900-million, since listing in 2014, and would enable the company’s entry into the dry packed foods market, strengthen its position in the pie and pastry market and create integration synergies in the pie and the snacking and bakery operations within Alibaba Foods and General Mills, as well as diversify its customer base and geographic presence.

It is expected that Rhodes will close the buy-out of Durban-based Pakco by January 1, 2017, and that of the fellow KwaZulu-Natal-based Ma Baker by the end of February.

Addressing investors at the company’s 2016 financial results presentation, in Sandton, Henderson noted that Ma Baker generated revenue of R248-million and earnings before interest, taxes, depreciation and amortisation (Ebitda) of R24-million during the financial year to February 29, while Pakco generated revenue of R221.5-million and Ebitda of R9.5-million in the financial year ended December 2015.

Post the acquisitions, he assured that Rhodes was well positioned to improve the profitability and increase the sales volumes of its new entities, while implementing significant cost-savings and synergising its assets in a relatively short timeframe.

This followed the successful integration of several acquisitions during the financial year ended September 25, which bolstered the group’s year-end revenue and profits and accelerated the company’s expansion and entry into key markets.

The additions of Deemster, General Mills and Alibaba Foods, which were all acquired in the first half of the financial year under review, contributed to a stronger second-half performance, with respective turnover contributions of R63.7-million, R49.9-million and R30.5-million for the full year.

During the year under review, Deemster contributed Ebitda of R5.9-million, General Mills R6.7-million and Alibaba Foods R3.2-million.

In addition to the inclusion of General Mills for ten months, Alibaba Foods for eight months and Deemster for the full year, the 2015 acquisitions of Pacmar, Boland Pulp and Saint Pie were consolidated for the 2016 financial year.

These acquisitions had accelerated Rhodes’s entry into the bottled salads and pickles, bakery products and snacking categories.

Pacmar and Saint Pie, bought for a respective R165-million and R26-million in 2015, posted 2016 turnover of R505.1-million and R49.2-million, and performed above the group’s targeted Ebitda.

Boland Pulp’s Ebitda fell below group expectations, but achieved turnover of R262.3-million during the period under review.

“Management will continue to extract benefits from the other recent acquisitions through new and expanded ranges and product innovation, and the group continually reviews its capital structure and funding needs to ensure it has the necessary capacity to pursue growth opportunities,” Henderson said.

Acquisitions contributed turnover of R651.3-million in the year ended September 25, representing 21.5% of the revenue growth, with organic growth contributing 15.7% of overall revenue growth.

During the year under review, turnover grew by 37.2% to R4.1-billion on the back of sustained organic growth and recent acquisitions, while international revenue, which increased 22.6%, was boosted by a 17.4% depreciation of the rand during the year.

“Regional turnover, which accounted for 73% of group's turnover this year, increased by 43.4%. [The] Fresh Foods [division's] sales increased by 26.5% with particularly strong growth in the pie category. [The] Long Life Foods [division] increased turnover by 56.7% with juice and canned meat the best performing categories,” said Rhodes CFO Tiaan Schoombie.

Overall, Rhodes posted profit after tax of R289.8-million for the 2016 financial year, compared with the R120-million reported in the prior year, with headline earnings some 70% higher year-on-year at R289.7-million.

The group’s diluted headline earnings per share (HEPS) increased by 70% to 126.5c, while normalised diluted HEPS increased by 50.8% to 126.5c, adjusted for listing costs of R21.8-million in the prior period, he said.

The group's gross profit margin improved by 140 basis points to 29.3% and gross profit increased by 43.9% to R1.2-billion during the 2016 financial year.

The operating margin improved strongly in the second half, increasing by 230 basis points to 11.9%, ahead of the group's medium-term target of 10%.

Rhodes reported capital expenditure (capex) of R229-million, mainly for the upgrading of its meat production plant, increasing production capacity at the fruit juice and fruit products facilities and starting construction on a baby foods factory.

Capex of R250-million is planned for 2017 for the continued upgrading of production facilities and ongoing investment in capacity expansion.

Rhodes declared a cash dividend of 42.2c a share, an increase on the maiden dividend of 24.8c declared for the 2015 financial year.

Edited by Creamer Media Reporter

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