Rhodes Food issues profit warning on hard trading conditions

SOUTH AFRICA – The South African food producer Rhodes Food group (RFG) has said that it expects earnings for the financial year to fall as much as 41% as a result of difficult trading conditions characterized by low economic growth and the Western Cape drought.

Business Day reports that the financial update triggered a decline in the share price which closed 10.43% down at US$1.11.

The group said the year’s results ending September 30 may record a slowdown in sales growth impacted by interest payments expected to be between US$1.74 million and US$1.87 million higher than the previous year.

This related mainly to the funding for the acquisition of Ma Baker, an increased capital investment programme and lower levels of cash generated as a result of the lower profit over the past year.

RFG acquired KwaZulu-Natal based producer Ma Baker Pies in October 2016 for US$14.20 million though the group said the turnaround in this venture has been slower than expected thus, the business is anticipated to report a small loss for the full year.

The business is also facing the reality of declining consumer disposable income, inflation and the recovery from drought, economic declines to low levels of growth leading to a more risk-averse spending behaviour and a heightened focus on saving.

Headline earnings were projected to decrease by 28% to 38% compared to US$15.89 million reported for the previous year.

According to the company, earnings per share measures had been impacted by the US$543,155.71 or 3.3% increase in the weighted average number of shares in issue over the prior year relating to the issue of shares for the capital raise.

This was also affected by the acquisition of the Durban-based food producer Pakco for US$13.40 million to further expand its product range.

Pie category performed well despite tough trading conditions and lower consumer spending, enabling it to maintain market share.

Poor economic conditions coupled with liquidity constraints in some of its major markets in sub-Saharan Africa saw trading in this region remain tough in the year.

“Dry foods (formerly Pakco) continues to perform well and gain momentum from the relaunch of its brand portfolio earlier in the year.

“The regional operating margin for the second half is anticipated to be at a similar level to the 7.8 percent reported for the first half, although the margin for the first six months was net of certain once-off costs,” the company said.

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