RFG bulks up despite small ‘shock’

Image credit: Just Food

RFG, the Groot Drakenstein-based food producer, will continue to evaluate opportunities for strategic bolt-on acquisitions and has also earmarked capital expenditure of R200 million for the 2022 financial year.

That’s the word from new CEO Pieter Hanekom, speaking at the release of year to end September financial results. He reckoned the gradual normalisation of the economy and the momentum of the Covid-19 vaccination roll-out were positive for consumer spending and should contribute to stronger organic growth and increased brand shares in the new financial year.

RFG plies its trade in the fruit juice, jams, canned fruit, canned meat, pies and spices segments. In the year to end September RFG reported revenue up by 1.5% to R6 billion – a decent top line performance after a 3.4% decline in the first six months. Hanekom said the turnaround was driven mainly by a recovery in fruit juice and international canned fruit volumes. Bottom line profits were up 1,4% to R230 million.

Hanekom said international demand for the Group’s canned fruit products remains strong and exports are being expanded to new markets. He added that international volumes were expected to recover as the shipping backlog reduced over the next 12 to 18 months – which should contribute to RFG’s inventory returning to normalised levels.

It will be interesting to see which niches RFG targets for acquisitions. The last deal was for Pioneer Foods’ Today frozen pie business (effective from next month), and gave RFG access to the top end retail channel. Today is expected to chip into RFG’s operating profit in the second half of the 2022 financial year.

Interestingly, the 2021 financial results included a small shock in form of an abnormal adjustment of R27 million for prior year electricity costs. Hanekom said the matter arose from the increased power capacity supplied to the Groot Drakenstein production hub following the upgrade and expansion of the site in the 2019 financial year.

“In 2021 management identified that the company was possibly being undercharged for electricity consumption and engaged with the local authority on the matter. At the same time management took the prudent decision to raise a provision to cover possible arrear charges for six months, the maximum period allowed for arrear billings by the local authority, based on legal advice sought by the company at the time.”

In November 2021 the local authority notified RFG of incorrect billings amounting to R39 million, covering the arrear expenses for the period since 2019. RFG sought a second legal opinion which confirmed that the local authority was now entitled to claim arrear charges for a maximum of 36 months.

Hanekom said the amount of R39 million included R10 million for the 2019 financial year, R17 million for the 2020 financial year and R12 million for the 2021 financial year.

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