Beverages lead the way in the JSE counters
Profits driven by volumes
AN analysis of the 13 JSElisted consumer goods companies found that firms in the sector food producers and diversified companies made approximately R6 billion each in annual profits in 2018.
The study conducted by professional services firm EY found that revenue growth in the sector was marginally positive at 0.7 percent, but with profits up a robust 10.4 percent during the first half of 2018.
The analysis further showed that by segmental revenue, beverage companies grew fastest, followed by food specialists, and trailing behind that, diversified producers.
The research looked into Astral, AVI, Clover, Crookes Brothers, Distell, Oceana, Pioneer Foods, Premier, Quantum Foods, RCL Foods, Rhodes Foods, Tiger Brands and Tongaat Hulet.
Derek Engelbrecht, EY Africa’s Consumer Products and Retail sector leader, said the higher profits were largely driven by a recovery in volumes, aided by margin stability.
“While a rebound in food manufacturers’ profits may appear at first glance to be an astonishing result, it is a case of catch-up,” Engelbrecht said.
“In both the previous reporting cycles, food manufacturers experienced falling revenue and profits, due to a combination of weak growth, drought and water shortages and high import input costs.”
The sector was earlier this year hurt by a listeriosis scandal that hit heavyweight Tiger Brands. In March, the group suspended operations at its factories in Polokwane, Germiston and Pretoria, which the Department of Health linked to the listeriosis outbreak which has claimed more than 200 lives.
In its six months to March, the group reported that the listeria outbreak had a negative impact on its results as it reported a 4 percent decline in revenue. The recall associated with its value-added meat processing amounted to R415 million, but balanced at R363m, net of the R50m insurance claim and R2m in profit from the disposal of related property.
Listeriosis
Engelbrecht said consumers held back on a number of purchases, particularly processed meat products, based on fear of exposure to a health risk.
“The listeriosis outbreak earlier in the year had a dramatic impact on the industry, particularly the food segment,” Engelbrecht said.
‘While it was initially confined to a handful of companies, and ultimately isolated to one company, the fallout across the industry was visible.”
The hike in value-added) and surge in fuel prices has cut through retail sales in SA. The retail sales figures for June surprised on the downside further raising the possibility of the economy has entered a technical recession last quarter.