JSE-listed Rhodes Food Group’s headline earnings a share for the six months ended March 29, 2020, decreased by 2.8% year-on-year to 31.2c, while its earnings a share decreased by 2.3% to 30.2c.
Diluted headline earnings a share were down 3.1% at 31.1c.
Turnover, however, increased by 9.6% year-on-year to R2.9-billion, while turnover in the regional segment, comprising South Africa and the rest of Africa, increased by 11.5%, after having benefitted from strong sales in March following the declaration by President Cyril Ramaphosa of a state of disaster, ahead of announcing the national lockdown.
Sales for March were 22.2% higher than in the previous year.
The Long Life Foods division's turnover increased by 12.6% and volumes by 6.3%, with good growth in fruit juices and baked beans, as well as strong sales in canned fruit, vegetables and meat ahead of the start of the lockdown.
The Fresh Foods division's turnover increased by 9.6% and volume by 4.7%. The ready meals and pie categories continue to be the main drivers of sales growth, the company said in a statement on May 19.
International turnover, meanwhile, was in line with last year’s result, despite the division being severely impacted by the slowdown in exports of canned fruit to China from early January, following the outbreak of Covid-19 in that country.
Limited shipments were made to China in the first quarter of 2020, and exports were further impacted by constraints at the Cape Town port in March. These contributed to a decline of 11.5% in international volumes.
As a result of the foreign exchange losses, the group’s operating profit declined by 5.3% to R160.7-million and the operating margin declined to 5.5%, down from 6.3%.
The regional operating profit increased by 21.1% as the operating margin improved from 7.6% to 8.3%. this was lifted by the good growth in the Fresh Foods segment.
Additionally, the sudden and rapid devaluation of the rand had a significant impact on the profitability of the international segment, with net unrealised losses on the mark-to-market revaluation of forward exchange contracts (FECs) amounting to R48.8-million for the period.
The difference of R1.2-million relates to net gains on other foreign currency denominated assets and liabilities. This compares to net gains of R9.2-million in the same period during 2019.
This contributed to the international segment posting a loss for the first half of R44-million relative to a profit of R3.7-million in the prior period. The international operating margin declined from 0.8% to -9.5%.
Earnings before interest, taxes, depreciation and amortisation (Ebitda), meanwhile, increased by 4.3% to R260.6-million, while the Ebitda margin was lower at 8.9%, down from 9.3%.
Net interest paid reduced by R4.1-million to R54-million owing to the reduction in the group's debt levels. Excluding an International Financial Reporting Standard 16 interest charge of R5.6-million, interest paid reduced by R9.7-million or 16.7%.
Profit after tax declined by 3% to R77.8-million while headline earnings were 3% lower at R81.6-million.
Cash generated from operations increased by 16.6% to R137.8-million.
Further, owing to the anticipated negative impact of Covid-19 on the economy and the increased risk to the business, Rhodes' management is focusing on cash preservation through tighter cost management and by reviewing all non-critical expenditure, including capital investment.
The company said measures being undertaken include maximising exports to improve cash flow and the closure of factories where necessary, and that reducing debt levels and improving working capital efficiency remain priorities for the group.
The 225 basis point reduction in the repo rate this year should have a material benefit to the group in the second half although this could be partially eroded by increased borrowings owing to Covid-19-related impacts on cash flows.
Capital expenditure for the financial year is expected to be R150-million.
Certain capital projects are also being delayed. The group has committed to installing a new fruit juice line in its Wellington factory to meet increased demand.
In the regional segment, sales of Long Life Foods for the first seven weeks of the second half of the financial year have remained buoyant, with continued strong demand for canned fruit, vegetables and meat.
Fresh Foods sales have slowed owing mainly to the restrictions on the sale of hot pies during the lockdown.
Additionally, the recent deterioration in the rand/dollar exchange rate will have a favourable impact on the profitability of the international segment in the second half of the year.
Taking everything into account, Rhodes expects a slow recovery in exports of canned fruit into China from around July.
Management is confident that products previously destined for China in the first half of the year will be placed in other markets.