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Foodmaker RFG’s shares stumble as it flags rising costs for global commodities

Strong demand for the group’s canned fruit products contributed to international turnover rising by 44.1 percent as export volumes grew by 24.2 percent. | Supplied

Strong demand for the group’s canned fruit products contributed to international turnover rising by 44.1 percent as export volumes grew by 24.2 percent. | Supplied

Published Mar 18, 2022

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SHARES in RFG Holdings yesterday plunged nearly 8 percent in intraday trade after it warned in a trading update for the 22 weeks ended February that its margins had come under further pressure due to significant increases in input costs.

Input costs included tin plate used in food cans, global commodities and raw materials such as meat and fats.

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“In the constrained consumer spending environment, it is proving particularly challenging to recover the higher input costs through price increases, with resistance from both retailers and consumers,” it said.

RFG, which owns brands such as Rhodes, Bull Brand, Magpie, Squish, Bisto, Hinds and Pakco, is not alone in the dilemma, with the likes of AVI, Tiger Brands, and Tongaat, among others, all facing similar challenges.

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The group also flagged that Eskom’s loadshedding and related water supply interruptions continued to impact certain of RFG’s facilities in Gauteng, resulting in lower production output, higher manufacturing costs and “ultimately lost sales”.

Furthermore, its international segment was faced with the ongoing global logistics challenges and congestion at the Cape Town port, which continued to create a shipping backlog.

“Shipping challenges have contributed to significantly increased sea freight costs since the start of the Covid-19 pandemic, while also impacting the group’s raw material imports,” RFG said.

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Despite this, RFG said its revenue had increased by 20 percent, with strong volume and turnover growth in both the regional and international segments.

Turnover in the group’s regional segment increased by 16.1 percent, with volume growth of 14 percent and acquisitive growth of 0.9 percent, while strong demand for the group’s canned fruit products contributed to international turnover rising by 44.1 percent as export volumes grew by 24.2 percent.

RFG said the main driver of growth was long life foods, where strong volume growth contributed to turnover increasing by 17.7 percent for the five-month period.

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The two best performing categories were fruit juice and dry foods. Fruit juice achieved high double-digit sales growth, due to robust volume growth, which contributed to increased market share in this highly competitive category. Dry foods also achieved strong sales growth, supported by good volume growth.

Canned meat turnover declined, owing mainly to the impact of inflationary pressures, primarily in cans and mechanically deboned meat, which was mainly imported from South America, with prices more than doubling year-on-year.

Long life foods sales into the rest of Africa grew by 12 percent, while fresh foods turnover increased by 13.4 percent.

Ready meals continue to prove resilient in the weak consumer spending environment and achieved good volume growth. Pie sales recovered and the category recorded double-digit volume growth. However, meat price inflation and increased competitor activity continue to place pressure on margins.

RFG said the turnover for the Today pie business, with brands Today, Mama’s and Big Jack, had been included in these results for one month since the effective date of the acquisition on February 1, 2022.

The Today operation had been relocated from Atlantis in the Western Cape to RFG’s pie production facilities in Gauteng.

“The pie category should benefit from improved operational leverage following the consolidation of the Today pie business into the existing plants,” it said.

The group said it expected to incur once-off acquisition costs of R19 million in the first half of the 2022 financial year, including restructuring, relocation and severance costs.

Referring to the war in the Ukraine, RFG said while it was expected to have a significant inflationary impact on global commodity and food prices in the months ahead, it was too early to assess the possible impact of the conflict on inflation, pricing and potential supply chain disruption.

RFG did not import any raw materials from Ukraine or Russia and has no direct raw material sourcing exposure to the region.

The group’s interim financial results were expected to be posted on May 25.

BUSINESS REPORT

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