While improving consumer confidence in the country is positive for growth, Rhodes Food Group says it is too early to expect any marked improvements in the regional trading environment.
The food manufacturer on Tuesday reported a 16.6% year-on-year increase in its group turnover to R2.5-billion for the six months ended April 1.
Turnover in the regional South Africa and the rest of Africa segment, which accounts for 84% of total group turnover, increased by 19.5% year-on-year.
Fresh Foods sales increased by 22.7%, with a strong performance from the bakery category driven by product innovation and continued good growth in pies, snacking and ready meals.
Long Life Foods’ turnover increased by 17.4%, with the fruit juice category again performing well in a highly competitive environment.
The group's brands continued to gain market share across core product categories, Rhodes Food noted.
Growth in the rest of Africa, however, has slowed as the impact of the stronger rand in certain major African markets has made the group's products less price competitive.
The acquisitions of Pakco and Ma Baker, which were not included in the comparable prior period, contributed combined turnover of R209-million.
“Pakco has performed ahead of expectations in its first full year in the group while some initial challenges were experienced at Ma Baker. These have been addressed and the integration has been bedded down,” the company said.
While export volumes have recovered, the business has been impacted on by the increased costs of canned fruit owing to the ongoing drought in the Western Cape and the strengthening of the rand against the group's trading currencies.
International turnover increased by 3.6% year-on-year.
The group's gross profit margin was lower at 25.3%, owing mainly to increased costs and the adverse currency impact in the international business.
The regional gross profit margin was negatively impacted on by lower margins in the Ma Baker business, while the gross profit margin of the Long Life component of the regional business was maintained at last year's levels.
In addition, operating costs, excluding the impact of the two acquisitions, grew by 9.2%.
Rhodes Food noted that depreciation and amortisation had increased by R19-million, owing to the higher level of capital expenditure in the past two years and the acquisitions of Pakco and Ma Baker at the end of the prior period.
The group operating margin declined from 9.7% to 6.5%.
Interest payments were R17.4-million higher at R51.9-million, owing to the increased capital investment programme and funding for the Ma Baker acquisition.
Profit after tax declined by 35.1% to R80.9-million with headline earnings 34.8% lower at R82.4-million, Rhodes Food added.
Diluted headline earnings a share decreased by 38.9% to 31.4c, which the company says is in line with the group's trading statement issued earlier this year in March.
The weighted average number of shares in issue has increased by 15.9-million, or 6.7%, over the prior six-month period.
The ongoing focus on efficient working capital management is reflected in the increase in net working capital being contained to 7.2%.
Cash generated from operations of R135.8-million was R42.3-million higher than the prior period owing to the lower investment in working capital.
Meanwhile, the group's net debt to equity ratio increased to 60.4% owing to the higher level of funding for the capital investment programme.
In addition, the group invested R268-million in capital projects in the first half of the current financial year.
Major projects include a capacity expansion at the Gauteng pie and bakery facilities, commissioning of a new baked bean production facility, upgrading facilities at Pakco and Ma Baker, and the installation of a clear juice concentrate plant at the Groot Drakenstein production hub to further vertically integrate the fruit juice operation.
Looking forward, the company aims to continue focussing on driving organic growth, increasing brand shares, extracting benefits from the recent acquisitions and completing major projects.
“The group will look to maintain momentum in sub-Saharan Africa and benefit from the addition of the Pakco brands to the Long Life product offering.”
Rhodes Food group plans a further R115-million capital investment in the second half of the year, with the completion of the current production capacity expansion and upgrade progamme remaining a priority to ensure that these projects start generating returns to enhance the group's earnings.
Trading conditions are expected to remain constrained over the remainder of the financial year, the company noted.