JSE-listed Rhodes Food on Tuesday posted a 14.6% year-on-year increase in net profit to R125-million for the six months ended April 2, while headline earnings rose 15.9% to R126-million.
The food producer attributed the growth to sustained strong organic growth in the regional segment, with fresh food sales up 27.8%, long life foods increasing its turnover by 12.3% and sales in sub-Saharan Africa, excluding South Africa, growing by 55%.
However, it noted that its international revenue was negatively impacted on by the strengthening of the rand. The group also faced pricing pressure in certain major markets, with export volumes 9% lower year-on-year largely as a consequence of timing.
“This should normalise over the full year,” the company said in a statement.
Meanwhile, Rhodes Food noted that its group operating margin increased by 30 basis points to 9.7%, while the regional operating margin expanded to 9.2%, but was below the level of 10.2% reported for the 2016 financial year.
The margin is expected to show sustained improvement as the margins of the recently acquired businesses move closer to the group's targeted 10% level.
The strengthening currency contributed to the international margin declining to 12.6%, although the full impact of the currency was limited by the group's foreign exchange hedging strategy.
“We continue to hedge around 60% of projected foreign sales on a 12-month rolling basis through an internal hedge and forward exchange contracts. The Internal hedge consists of direct import of packaging and raw materials, as well as linking the fruit contract with farmers to exports realised in rand,” CFO Tiaan Schoombie explained during a webcast.
ACQUISITIONS
The group completed two large acquisitions, the R197-million Pakco deal and the R193-million Ma Baker deal, late in the reporting period. The acquisitions had been consolidated, but had no impact on the profit for the period under review.
During the webcast, Rhodes Food CEO Bruce Henderson said Durban-based spices, condiments and instant meals producer Pakco would allow the group to enter the dry packed foods market.
He noted that, while Packo brands have been neglected in recent years, the brand had “high potential”.
“We are now looking to improve Pakco’s manufacturing, marketing and distribution over the medium term,” Henderson highlighted.
Looking ahead, he pointed out that the company is looking to maintain its strong organic growth momentum in the regional segment, while focusing on international sales growth to reverse the negative volume growth in the first half and to reduce inventory levels.
Capital investment of R220-million is planned for the second half of the year, including the upgrading of production facilities at Pakco and Ma Baker.