RFG pins its hopes on exports
• Food producer posts near double-digit rise in revenue but takes a hit from rand’s depreciation
RFG Holdings, the maker of Bull Brand corned meat and Bisto gravies, expects a recovery of its export performance to lift its second-half profit as it braces for a weak SA economy in which passing on rising costs to consumers will be difficult. The group receives high margins on its exports of tinned peaches to China, which are considered a premium product. However, because they are considered as such they are used in bakeries and coffee shops, which remain affected by Covid19, even as that country begins easing restrictions, CEO Bruce Henderson said.
RFG Holdings, the maker of Bull Brand corned meat and Bisto gravies, expects a recovery of its export performance to lift its second-half profit as it braces for a weak SA economy in which passing on rising costs to consumers will be difficult.
The group receives high margins on its exports of tinned peaches to China, which are considered a premium product. However, because they are considered as such they are used in bakeries and coffee shops, which remain affected by Covid-19, even as that country begins easing restrictions, CEO Bruce Henderson said.
The group has been largely successful in diverting exports to other Asian countries, which also provide high margins, said Henderson. But it is facing difficulties due to congestion in SA ports, which are affecting about a quarter of the group’s exports.
“The situation is improving, but nothing works in isolation,” he said. “Containers filled with imported clothes aren’t considered an essential item, so are sitting in port, but that means you don’t have empty containers for export.”
RFG reported a 3% decline in profit after tax to R77.8m for the six months to March, but Henderson said a weaker rand should be an overall benefit for the group during its full year. It will assist the group in terms of exports, even as a weaker currency pushes up operating costs.
Strong demand for canned goods in SA helped boost group turnover by almost double digits to R2.9bn in its six months to March 29, but the coronavirus pandemic hit canned fruit exports to China, while a rapid weakening of the rand cost the group R47.6m.
This was due to losses on forward forex contracts, referring to agreements to buy currencies at a future date for a certain price.
RFG reported that sales spiked by a fifth in March as SA consumers stocked up on canned goods ahead of the Covid-19 lockdown, and this sales trend continued in April and into May. However, the benefits have been offset by a fall-off in juices — often a component of school lunchboxes — and pie sales, after restrictions on sales of hot food.
RFG, formerly known as Rhodes Food Group, is now looking to preserve existing margins, with a weaker rand pushing up some costs, such as packaging.
Passing on cost increases will be the key challenge for the group, said Kagiso Asset Management associate portfolio manager Dirk van Vlaanderen. “This is no easy task given the extreme financial pressure on the SA consumer as a result of the Covid-19 pandemic.”
Encouragingly, though, the weaker rand and a recovery in China should bring much better profitability from the international division in the coming six months, Van Vlaanderen said.
RFG said it is focusing on cash preservation through tighter cost management and is reviewing its noncritical expenditures.
RFG’s share price increased by 2.37% to close at R14.25. The company has a market capitalisation of R3.74bn