RFG flags decline in sales volumes

RFG Holdings has reported a 5.2% dip in sales volumes for the five months to end-February as it grappled with constrained consumer spending, operating inefficiencies and congestion at the Cape Town port that hampered its international segment.

However, the group, whose products include Bull Brand corned beef, Hinds spices and Bisto gravies, said it was upbeat about a recovery in the coming holiday season, saying management expected sales volumes in the regional business to benefit from the Easter long weekend.

In a trading update on Monday, the food producer said though sales had declined, group revenue was up 5.1%, driven by price inflation of 7.9% as it recovered higher input costs.

“Management maintained its intense focus on the price-volume balance to recover costs and sustain the operating margin in the weak trading environment,” RFG said in a statement.

“Despite the pressure on sales volumes, the group is focused on improving its operating margin by driving profitable growth, recovering costs, generating operational efficiencies and applying tight cost management.”

Food producers in SA have had to increase what they charge for their goods as commodity prices, such as maize, have been high and diesel spend has been increasing due to power constraints. But price increases often mean consumers buy less food, and this leads to a drop in sales volumes.

RFG said in its bid to counter this effect, production efficiency gains from recent capital investment were supporting its margins. The efficiency gains included the upgrade and replacement of equipment at the fruit products factory in Tulbagh and new canning equipment and capacity expansion at the meat products plant in Krugersdorp.

It said the deciduous fruit canning season at the Tulbagh factory — which accounts for about 70% of the group’s exports — was nearing a successful completion, with this year’s crop yielding high-quality fruit.

RFG, which has a market capitalisation of R3.5bn on the JSE, has 14 state-of-the-art production facilities and two farms — dairy and pineapple — and has customers and consumers across SA, Sub-Saharan Africa and major global markets.

In its regional business, the Paarl-based group said it had experienced cost pressure from the high tinned can and paper packaging costs in the five months under review, while sales of long-life foods, in particular, slowed in January and into February.

On the upside, the group formerly known as Rhodes Food Group, said the pie category had maintained its recent volume growth momentum while the meat products division had sustained the turnaround reported in the previous financial year.

The vegetable and salads categories improved their performance while the fruit juice and dry foods categories both delivered good growth.

The ready meals category had benefited from the resilience of higher-income consumers, RFG said.

Additionally, RFG said load-shedding-related diesel costs had nearly halved to R16.8m from R32m in the prior period.

RFG’s international segment reported a 3.7% drop in revenue.

The firm attributed the decline to a combination of softer international pricing relative to the prior year and the decline in export volumes as a result of lower opening stock levels.

The situation was further compounded by the challenges at the Cape Town port, which reduced exports.

The Western Cape Tourism, Trade and Investment Promotion Agency (Wesgro) has said it expects exporters and shippers of high-value fruit and other perishables to continue to look for alternatives to ports in 2024.

Air cargo, though more expensive, was a viable option, the agency said.

However, RFG remained upbeat, saying “demand from international customers remains good”, but it cautioned that export shipments were dependent on overcoming the port challenges.

RFG interim financial results for the six months to end-March are expected to be released on or about May 22.

The shares of RFG were 1.4% lower at R13.41 by early on Monday afternoon, having risen more than 16% in the past three years.

gumedemi@businesslive.co.za