Pies and fruit juice are popular staples in South Africa, providing a convenient meal on the go or tucked into children’s lunchboxes. They are also two of the largest product categories at RFG Holdings, the company previously called Rhodes Food Group. 

So, the government’s perhaps irrational decision to ban the sale of hot food in supermarkets dented sales at RFG Holdings last year. This year, travel restrictions during the December holiday period had a similar effect, with fewer vehicles on the road and reduced sales of pies and baked goods in convenience stores and forecourts. Similarly, restrictions on entertainment and leisure activities during the summer holidays season, as well as the delayed start of the school year, resulted in a slowdown in juice sales. 

Despite that, the food group says its first-half operating performance was resilient in a constrained trading environment, supported by foreign exchange gains and a return to profitability at its international operations.

RFG owns brands that include Rhodes, Bull Brand, Magpie, Squish, Bisto, Hinds and Pakco. It’s the leading manufacturer of canned fruit, jams and canned meat and is also a big supplier of ready meals and pies to supermarkets and convenience stores.

While results for the six months to 31 March were impacted by lower sales in key categories and once-off costs, it benefitted from net forex gains of R19.6-million after posting net forex losses of R47.6-million in the first half of last year. Its international operations reported a modest first-half profit from a near R44-million loss a year ago.

Group turnover fell 3.4% to R2.8-billion, partly due to the decline in sales of pies and fruit juice. It was also held back by a 12.6% reduction in international sales owing to shipping and logistics challenges. Turnover in the regional segment, which includes South Africa and the rest of Africa, was 1.7% lower, reflecting the impact of the additional Covid-19 restrictions imposed during the second wave of the pandemic over the festive season. Sales into the rest of Africa grew by a strong 11.1%, driven mainly by the dry foods and canned meat categories.

Dry foods did well following the successful relaunch of the Hinds spices range. However, fresh foods sales declined by 3.6% as the pie and bakery categories were adversely impacted by the reduced travel over the festive season.

The centralisation of the group’s pies and pastries business was successfully completed, with the KwaZulu-Natal pies and pastries operation (formerly Ma Baker) being integrated into its Gauteng pie and bakery facilities. It said it was now well positioned for growth in this key category after the integration of the business, bought towards the end of 2016, didn’t go as expected.

“The pie business actually does quite well. The trouble is, you need to run it efficiently, have economies of scale and have a great brand which appeals to the mass market,” Smalltalk Daily Research analyst Anthony Clark said.

“The pie market is very, very competitive. While the pie business they bought a few years ago looked like a great transaction, it’s been mired in integration and operational problems, leading to the restructuring.”

Operating profit for the six months rose 14.9% to R184.6-million, with its operating profit margin expanding by 100 basis points to 6.5%. Earnings before interest, tax, depreciation and amortisation (Ebitda) rose 12.1% to R307-million. Its interest bill fell by R18.8-million to R35.1-million thanks to the 300 basis point reduction in interest rates last year and lower debt levels. That left after tax profit 36.4% higher at R106.1-million. Diluted headline earnings per share came in 46.3% higher.

“If it wasn’t for a sharp reduction in losses in the international business, which went from a near R44-million loss in the corresponding period to a modest profit in this period, Rhodes would not have delivered the numbers you’ve seen today,” Clark said. 

“The underlying domestic situation was exactly lacklustre and there’s been a period of underperformance and restructuring at Rhodes, probably now for the last 18 months.”

RFG said while the consumer spending environment was expected to remain tough in the short to medium term, it had seen a steady recovery in fruit juice and pie sales in the past few months. However, it cautioned that the rising Covid-19 infection rate in the country, together with the slow pace of the vaccination rollout programme, increased the potential for a third wave of infections in the weeks and months ahead.

“This heightens the risk of the country reverting to lockdown restrictions which could adversely impact the group’s sales and profitability,” CEO Bruce Henderson said. 

“We expect to maintain the growth momentum in the dry foods category and the strong sales growth into the rest of Africa in the second half of the year. Our main focus in the regional business is on growing brand shares and increasing our operating margin, while in the international business we are aiming to capitalise on customer demand to recover sales volumes.”

Clark said while RFT would probably have a slightly better second half given the underlying recovery in the economy, the recent strength of the rand would remove some of the shine.  

“The key issue with Rhodes… is they have failed consistently to get their operating margin above 10%,” Clark said.

“This acquisitive-led business has really struggled at times with integration and the rationalisation benefits from all the acquisitions that they have done.” DM/BM