JSE-listed Rhodes Food Group grew its turnover 12.4% to R1.3-billion for the six months ended March 29, while normalised operating profit was up 17.3% to R126-million, the company reported at its interim results presentation on Monday.

The company’s normalised operating margin had climbed from 9.3% in the previous comparable period to 9.7%, with profit after tax soaring 52.6% to R58.1-million. Normalised headline earnings a share increased 116.6% to 36.6c a share.

The food producer saw competitive performance in a tight trading environment during the first half of the 2015 financial year, during which regional and international trading conditions were largely unchanged. Nonetheless, Rhodes Food experienced market share gains across key product categories; however, load-shedding weighed on the company, resulting in disruptions and additional costs.

Speaking at the food producer’s interim results for the first half of its financial year, CFO Tiaan Schoombie highlighted that in the second half of Rhodes Food’s 2015 financial year, acquisitions were expected to increase interest costs, without necessarily growing earnings before interest and taxes, and be accretive from financial year 2016.

The company had completed the acquisition of fruit juice manufacturer and distributor Pacmar for R165-million on April 1 and expected to finalise the sale of pie producer and manufacturer Saint Pie on June 1. The acquisition of fruit and vegetable concentrates and purees producer Boland Pulp and vegetable canning and salad bottling business Deemster, where both earmarked for July 1.

Rhodes Food had created a beverage division within its Long Life Food division to house Pacmar and Boland Pulp, the acquisition of which was currently subject to competition authority approval.

Rhodes Food further foresaw a medium-term operating margin target of at least 10%, capital expenditure (capex) of R100-million in the second half, an effective tax rate reduction of about 32% for financial year 2015 and maintaining a flexible sheet structure – providing capacity to raise debt to fund capex and current acquisitions.

The group planned to pay the first dividend for the 2015 financial year in early 2016.

REGIONAL

Rhodes Food CEO Bruce Henderson explained that the turnover contribution from Long Life Foods grew to 39% from 37% in the first half of 2014, while Fresh Foods improved by 1% from 33%.

The regional segment experienced volume growth of 8.6% and a 9.8% price inflation, with Henderson noting a sustained increase in the demand for canned fruit, meat and vegetables, and a robust performance from canned vegetables.

He also reported that the Bull Brand turnaround was ahead of schedule, highlighting that, going forward, the company would continue to focus on the brand’s turnaround.

The first half also saw strong growth in supply to Woolworths and Corner Bakery.

The regional segment contributed R950-million in revenue, of which Long Life Food generated R503-million and Fresh Food R447-million, resulting in an operating profit of R105-million overall. This was a 73% increase on the 2014 period, which saw revenue of R802-million and an operating profit of R61-million.

Sales for the period under review in sub-Saharan Africa were up 39.2%, excluding South Africa, which Rhodes Food attributed to the addition of canned meat to its product range. The company expected to increase its presence in the region going forward.

INTERNATIONAL
The group foresaw strong performance from its international segment in the second half of the year to normalise international shipments over the full financial year, in light of the segment’s turnover contribution falling from 30% to 27% in the period under review. Revenue also declined by 1.4%, down to R345-million from the R350-million compared with the six months ended March 29, 2014.

Rhodes Food explained that the international segment was managed on a 12-month cycle owing to seasonality. The period under review was impacted by a shift in timing of export orders and shipments into the second half of the year, and increased regional sales volumes.

Henderson advised that there were fewer shipments to higher margin Asian and Australasian markets during the first half, while the segment also recorded a one-off R8.5-million claim from the US owing to packaging failure.

Rhodes Food predicted that the international segment’s growth would be driven by the industrial channel and further value-add opportunities. Regarding its recent and pending acquisitions, Boland Pulp was expected to enhance the group’s industrial offering, while Pacmar currently had about 10% international exposure, creating opportunity for growth.

CAPACITY & PRODUCTION EFFICIENCY
The group highlighted that its listing on the JSE had helped accelerate its growth strategy by reducing debt, with R426-million in debt settled, and deleveraging its balance sheet. It also enabled Rhodes Food to invest in the expansion of its capacity and the improvement of production efficiency.

Rhodes Food had planned a R190-million capex for this year, almost double that of 2014’s R88-million. The company’s investment programme for 2014 to 2015 involved upgrading the Bull Brand facility in two phases worth R50-million combined. Phase 1 was due to be complete in July and Phase 2 in December.  In September, Rhodes Food expected to complete Phase 1 of increasing the efficiency at its vegetable plant and the production capacity upgrade at Pacmar for R20-million and R26-million, respectively.

The company had already completed two projects under the programme; increasing storage and dispatch capacity at its fruit production facilities for R52-million and the R22-million installation and upgrade of generators.