Maker of corned beef, jams and juices, RFG Holdings [JSE: RFG], says it has the capacity to ramp up production as consumers stock up on long-life foods amid the Covid-19 outbreak.
The group, which owns canned food and juice brand Rhodes, as well as seasoning brands Hinds and Pakco, on Monday issued a trading update for the five months ended February 2020. The update also included the group’s response to the Covid-19 outbreak. It recently changed its name from Rhodes Food to RFG Holdings.
Last week, President Cyril Ramaphosa announced a state of national disaster in response to the virus reaching SA shores. A number of restrictions have been introduced, including a travel ban and port closures to limit the movement of people.
Demand for long-life products
With fears of an impending lockdown, consumers have also taken to grocery stores, wiping out shelves with supplies. So far retailers Pick ‘n Pay, Woolworths and Clicks are among those which have placed limits on the amount of units per product consumers can buy. Government has also discouraged consumers from panic buying, Fin24 previously reported.
RFG said that the outbreak had not yet impacted its manufacturing facilities, but it has picked up on increasing buying patterns of long-life products: canned meat, vegetables and baby food.
Dr Greg Cline, head of corporate accounts at Investec for Business, told Fin24 that consumers were panic buying as they are anticipating quarantine. Cline said that there should not be issues with supply chains – goods moving into South Africa and goods going out.
However, local manufacturers might be affected if the workforce is limited when government introduces more measures to restrict movement. Another issue is delivery by trucking, even if cargo is processed at ports it might be difficult to get goods to stores if the labour force is compromised.
“It’s one thing to get goods into country, it’s another challenge to get them on shelves,” Cline said.
Capacity for production
RFG, however, has said it has capacity at most of its manufacturing facilities to increase production at relatively short notice if consumer demand increases. “The production facilities are supported by a robust supply chain and the group currently has sufficient raw material stock cover for 9 to 12 weeks on imported materials should the international supply chains be disrupted,” the group said.
RFG expects a slow recovery of volumes exported to China from mid-year. “Management is confident that the shipments previously destined for China will be successfully placed in other markets.
“The impact of the lower margin yielded on exports to these other markets should be partially offset by the weaker currency,” the group said.
Businesses also experienced lower demand for goods from China over the outbreak. “While some of the excess volume of canned fruit earmarked for China was exported to other Asian markets, a significant volume will be placed in alternative markets at lower margins than those typically achieved in China,” RFG said.
While RFG’s group turnover increased 7.6%, its international turnover declined 1.7%, mainly due to the slowdown in exports of canned fruit to China since January, due to the Covid-19 outbreak, it said.
“Limited exports have been made to China since January which has resulted in a decline of 11.3% in international volumes.
“The impact of this reduction in export volumes was partially offset by inflation of 6.0% and the 3.6% depreciation of the Rand against the basket of trading currencies,” RFG said.
Its turnover in the South Africa and rest of Africa operations increased 9.3%, with performance driven by strong growth in its ready meals and pie categories.
“Trading for March has been strong across all categories and there has been an uplift in canned food volumes (particularly vegetable and meat products) following the national state of disaster being declared in the country,” RFG said.
It expects the devaluation of the rand to positively impact its profitability in the second half of the year. The group will release its interim financial results for six months ended 29 March 2020 is expected to be released on 19 May 2020.