Rhodes Food sees drop in profits that could reach 22%
RHODES Food fell more than 3.5 percent in early trade yesterday after the group announced that it expected profits for the year to the end of October to decrease by up to 22 percent as the Western Cape drought and international business weighed on the bottom line.
The company said the drought had pushed up canned fruit costs and impacted negatively on its export volumes, while its international units underperformed as a result of the rand strength. Its shares shed 1.06 percent to close at R19.69 on the JSE yesterday.
The Western Cape-based food producer owns brands such as Rhodes, Bull Brand, Magpie and Squish.
It said turnover for the period increased 10.8 percent compared with the similar period last year.
It said its international unit also took the fall on the back of pricing pressures emanating mainly in Asia.
“Canned fruit export volumes recovered in the second half of the year, but were marginally down year-on-year,” Rhodes said. “The full impact of the strengthening currency on the operating margin was limited in the first half by the group’s foreign exchange hedging policy. This could not continue in the second half and the margin deteriorated as a consequence of the stronger rand.”
Last year, the company completed its two largest acquisitions, with the purchase of Durban-based food manufacturer Pakco for R197 million and KwaZulu-Natal pie producer Ma Baker for R193m.
Pakco owns a portfolio of strong and well-known brands, including the iconic Bisto brand, Hinds, Buffalo, Southern Coating, Trotters and Gold Dish. Ma Baker produces pies, pastries and snacking products at its manufacturing facilities in Pinetown and Pietermaritzburg.
The acquisition of Ma Baker marked the eighth acquisition made by Rhodes Food Group since listing in 2014, with the acquisitions totalling R900m to date.
The group said headline earnings would decline between 17 percent and 22 percent during the period in review over the restated headline earnings of R293.1m for the prior year.
The company said the drought had pushed up canned fruit costs and impacted negatively on its exports.
It said international turnover eased 18.1 percent compared to the prior year as a result of industrial sales of pulp and puree products which slowed significantly in the second half of the year because of a major decline in global pricing and reduced demand in key international markets.
However, the group’s regional sales, which include the rest of Africa, increased 21.4 percent, with organic growth of 12.7 percent.
“The regional performance benefited from the acquisitions of Pakco and Ma Baker, which have settled well and have been consolidated for six months in this period,” it said.
“The group has continued to gain market share in key categories, and sales in the rest of Africa continue to show good growth.”
Famous Brands, owners of the Mugg & Bean franchise, last year acquired UK-based Gourmet Burger Kitchen, which has severely underperformed and caused its debts to rise.