The group will also spend the money on consolidating production
facilities acquired through recent acquisitions. It bought Pakco and Ma Baker,
which are expected to be earnings accretive in the 2018 financial year. The
businesses contributed R230m to turnover.
Rhodes reported a 10.8% increase in turnover to R4.6bn for the year to
October, lifted by strong growth from SA and sub-Saharan Africa where sales
were driven by robust customer demand for canned meat and fruit juice. This
accounted for 80% of revenue up from 73%.
However, performance from the international businesses was
disappointing, owing to the combined effect of the strengthening rand, reduced
global demand for industrial pulp and puree products, foreign pricing pressure
and increasing costs on canned fruit as a result of the prolonged drought in
the Western Cape.
Regional segment gains were offset by the reduction in international
profitability, which resulted in group profit after tax declining by 20% to
R234.8m, said CEO Bruce Henderson.
While the results were at the better end of the weak guidance at -27%
down, much of what has affected other food retailers in the region also had an
impact on Rhodes Food, Anthony Clark, equity analyst at Vunani Securities,
The strong rand, as well as increased pricing for internationally
sourced fruit concentrate and puree used in its juices, not only hurt Rhodes
Food’s international segments but also the business of close competitor Pioneer
On Monday Pioneer posted a 49% drop in profit due
to high maize prices during the first part of the year after the drought, while
its revenue declined 5% to R19.6bn due to, among other factors, raw material
deflation, volume declines and resistance to price hikes.
Rhodes said its fresh foods sales increased by 30.1% with continued
growth in the pie category across all sales channels and growth in ready meals.
Long Life Foods also grew turnover by 15.9% with volume growth and market share
gains in key product categories.
“The focus in the year ahead will be on brand architecture, product
upgrades and improved distribution,” Henderson said.
Diluted headline earnings per share decreased by 27.0% to 93.4c and the
board had declared a cash dividend of 31.1c per share.
Clark also raised concern about the sharp drop in the operating profit
margin which plummeted to 8.9% from 12%. “I have consistently harped on
that no matter what Rhodes do [in terms of deals etc] it simply can’t get
margin traction,” he said.
Although the outlook for the international canned fruit market was
upbeat, the company said the continued drought in the Western Cape was expected
to adversely affect input costs owing to poorer quality fruit, which would give
rise to lower yields and higher labour costs.
Source: Business Day Live