Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RFG Holdings Ltd (JSE:RFG, Financial) achieved a strong improvement in profitability despite volume pressures, with the operating profit margin increasing by 100 basis points to 10.2%.
- The company saw a reduction in debt levels, with the net debt equity ratio improving from 46.7% to 33.3%.
- Regional operating profit increased by 19.7% to ZAR327 million, with the operating profit margin improving by 110 basis points to 10%.
- RFG Holdings Ltd (JSE:RFG) achieved market share gains in key categories, including canned fruit, vegetables, and meat.
- The company has made significant investments in capital expenditure, particularly in the meat and Tulbagh fruit plant, which is expected to support future revenue and margin growth.
Negative Points
- The company experienced a decline in international revenue by 8.6%, impacted by challenges at the Cape Town port and softer global pricing.
- Volume growth was negative by 6.1%, indicating a weak domestic consumer spending environment.
- Load shedding costs, although reduced, still amounted to ZAR18.2 million, impacting overall profitability.
- RFG Holdings Ltd (JSE:RFG) faces ongoing shipping challenges, with export shipments adversely impacted by port congestion and inefficiencies.
- The company anticipates continued pressure on consumer demand due to cost pressures and commodity price increases, which may impact future volumes.
Q & A Highlights
Q: In this highly challenging consumer environment where consumers are highly resistant to price increases, what price increases has Rhodes implemented lately, if any, and what categories are currently doing better than others?
A: We have implemented inflation-related price increases, particularly in the fruit category, which saw price inflation north of 10%. We expect future price increases to moderate to between 4% and 6%, depending on the category. Specific raw materials like orange concentrate and ginger have seen significant price hikes due to shortages. Categories such as protein and pies are performing well, with pies offering good value for consumers.
Q: What consumer trends are you currently seeing?
A: Consumers are under strain and are seeking the cheapest protein options available. We see good growth in our pie category, which offers value for money. There is also potential in the juice category with our new nectar range, which is a cheaper alternative to 100% juice. Additionally, our spices category, where we are now the number-two brand, shows promise for further growth.
Q: Is there any appetite for refinancing any of the upcoming debt maturities?
A: We continuously evaluate the balance between short-term and long-term debt. Currently, we are satisfied with our debt structure and the amortization schedule over the next three years. Given the cost of debt and associated fees, it is unlikely we will refinance soon.
Q: Can you please advise on your factory capacity utilization rate, which he guesses has dropped given the declining volumes?
A: Yes, declining volumes have impacted capacity utilization. However, this also provides an opportunity to focus on efficiency gains and capital investment in replacing old equipment. We aim to achieve operational leverage despite volume declines.
Q: How much of the volume decline was because of the port issues? And does that mean we will see some of these volumes falling into the second half?
A: We are approximately three weeks behind schedule due to port issues. We are working hard to recover these volumes in the second half, but it is challenging to predict with certainty due to ongoing port inefficiencies and weather-related disruptions.
Q: Do you expect to see an improvement in volumes for the international division, or are we still cyclically weak through canned inventory and challenges at the port?
A: The second half is typically stronger for us, and we expect this trend to continue. While regional market volumes remain under pressure, we see opportunities for improvement in the international market, despite the challenges.
Q: Given that you're already at a 10% margin in the regional business and you still expect efficiency gains going forward, is the 10% margin an appropriate target? What is the downside risk to that margin going forward and specifically in the second half?
A: We believe a 10% operating margin is appropriate for our business, allowing us to invest and achieve returns. We will continue to focus on operational efficiencies and product innovation to maintain this margin. Volume increases and a more buoyant consumer environment will also be crucial.
Q: Given RFG's robust ESG targets, is it likely to look at any green or sustainability funding in the short to medium term?
A: Yes, we are considering green or sustainability funding options offered by various banks, and it is something we will evaluate as we move forward with our ESG initiatives.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
