Rhodes in a jam over the drought and the rand


Rhodes in a jam over the drought and the rand

Published Date: 2018-03-22 | Source: Stephen Gunnion | Author: Stephen Gunnion

Rhodes in a jam over the drought and the rand

The food producer expects first-half profit to be up to 47% lower due to acquisitions costs, the strong rand and more expensive canned fruit

The food producer says group turnover rose 16.2% in the five months ended February, with organic growth of 5.5%. Turnover in its African markets including South Africa jumped by 19.5% over the same period, boosted by the acquisitions of dry packed foods producer Pakco and pie maker Ma Baker. Excluding them, regional organic growth totalled 6.5% as its brands continued to gain share across core product categories. Although Pakco has performed well in its first year since being bought by the group, it said the complete integration of Ma Baker has taken longer than planned and further once-off costs have resulted in the business reporting a loss for the five months.

Rhodes says trading conditions in South Africa and across the region have remained constrained while growth rates in some of the other African markets where it operates have slowed due to the stronger rand making its products less price competitive.

Its international business increased turnover by 0.5%. While export volumes have recovered, it says margins have been affected by the increased costs of canned fruit as a result of the drought over the last two seasons in the Western Cape. It says the strengthening of the rand against the group's trading currencies, as well as an adverse move in the mark-to-market revaluation on forward exchange contracts, have also weighed on international earnings.

In a first-half trading statement on Tuesday, Rhodes said these factors were likely to result in its international business reporting a loss for the six months to 1 April. Combined with an interest bill up to R20 million higher than last year and once-off costs of around R10 million it expects headline earnings for the six months to be between 33% and 43% lower than last year. Diluted headline earnings per share will be 37% to 47% lower as a result of an increase in the weighted average number of shares in issue.

Rhodes says its regional business is expected to continue trading at similar levels for the remainder of the financial year. Despite improving consumer sentiment in South Africa, it says it is too early to expect any marked improvement in the regional trading environment. The international business is expected to benefit in the second half of the year from the sale of lower cost-based product form the 2018 season coming on the market, a small improvement in foreign selling prices and improved volumes. However, it says the rand remains a risk to performance.

The company's shares fell 0.9% to R18.55 on Tuesday.

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