Picture: ISTOCK
Picture: ISTOCK

Rhodes Food Group’s (RFG’s) acquisition of pie and pastry products supplier Ma Baker two years ago continues to give it indigestion.

The owner of Rhodes, Bull Brand, Magpie, Bisto and Hinds brands, bought Ma Baker in October 2016 in a move   to strengthen RFG’s position in the pie and pastry market.

But Ma Baker, which was founded in 1987 in Pietermaritzburg and sells its products to major retailers and convenient stores, has so far been a liability.

On Tuesday, RFG partly blamed the reduction in SA and sub-saharan Africa’s operating margin in the year to September on Ma Baker’s underperformance.

The region’s operating margin — which measures the company’s profitability after accounting for all costs — fell to 7.8% from 9.7%.

The group’s gross profit margin was lower at 24.9% from 27.0% previously. This was mainly due to deflation in the international business, weak industrial pulp prices,  inability to pass on cost increases to consumers and lower margins in the Ma Baker business.

Soon after taking over the KwaZulu-Natal-based company, RFG closed distribution centres in Port Elizabeth, Cape Town, Bloemfontein and Johannesburg,and retrenched 12 staff.

RFG said internal distribution in markets outside KwaZulu-Natal was expensive.  RFG said previously that when it took over Ma Baker it was inefficient and did not comply with  food-safety regulations.  

While Ma Baker's turnaround was slower than expected, good progress was being made to restore the profitability of the business, RFG said.

The acquisition of Ma Baker, alongside Pakco, a Durban-based producer of spices, condiments and instant meals, coincided with back-to-back decreases in RFG’s dividends. The company’s 20.3c dividend in the year to September is 34.7% down compared with that of the  matching period in 2017. Dividend in the year ended October 1 2017 was 31.1c.

In the year ended September 30, RFG grew turnover  11.2% to R5.1bn, while sales in SA  and sub-Saharan Africa rose  11.9%.

International sales grew 8.4% as export volumes picked up in the second half of the year.

But the international division reported a loss of R5m, compared with a profit of R58m in the year to September 2017, due mainly to higher canned-fruit costs and a weak industrial fruit-puree market.

CEO Bruce Henderson was, however, optimistic about prospects for the international business in the new financial year.

“Good rainfall in the Western Cape and the weaker currency are expected to contribute to our international business being restored to profitability in 2019,” Henderson said.

He said the SA and sub-Saharan Africa business experienced deteriorating trading conditions in the second half of the year because of increasing pressure on consumer disposable income.

Sales in the fresh-foods division grew  10.3% with a good performance from the pie category. The long-life foods division increased sales  13.1% with fruit juice continuing to grow strongly.

RFG said it invested almost R1bn over the past two years to expand capacity and improve production. This included a new baked-bean production facility in Gauteng and expansion of a ready-meals plant in the Western Cape.  The company owns 15 production facilities across SA and Eswatini.

Capital investment budget for 2019 was R200m, the company said.

“Our major two-year capital investment programme is nearing completion and the group is well-positioned to start generating returns on these assets,” Henderson said.

RFG said it was in the process of acquiring a protein-snacking business from RCL for R30m. The targeted business produced protein-snack foods for Woolworths and would be integrated into RFG’s ready-meals operation in Groot Drakenstein, RFG said.

njobenis@businesslive.co.za