While RFG awaits its imminent merger with Premier, it has found itself embroiled in a long, slow and uncertain diversification process as its international business comes under pressure from US tariffs, which are raising costs to uncompetitive levels, and as a global oversupply of deciduous fruit hammers prices.
RFG told Business Day on Wednesday these challenges had created one of the toughest export environments in years, forcing the food producer, known at home for its Bull Brand staple, to rethink its entire international strategy as earnings come under pressure.
CEO Pieter Hanekom said that while the regional operations delivered a strong performance in the year to end-September, the international division, which contributed 19% of total revenue, had become the biggest drag on profitability.
International revenue fell 7.9% as export volumes slipped 6.8% for the year, weighed down by weak global demand and US tariffs hampering its competitiveness. Headline earnings fell about 10% to R521m.
He said the US market, which accounted for R400m-R500m of RFG’s export sales, had become particularly difficult. Tariffs on canned peaches, already 17%, had risen by an additional 30%, placing SA exporters at a major disadvantage to Greece, Europe and China, which dominate global supply, he said.
“We must take into consideration that in total South Africa’s canning industry is less than 5% of the global market with regard to peaches. So we are price takers.”
The global deciduous fruit market has also been hit by oversupply, pushing prices down across key categories. Hanekom said RFG had invested heavily in its fruit processing plant in recent years, but the market downturn and the tariff shock had eroded returns. Making matters worse was the expiry of the US African Growth & Opportunity Act (Agoa) at the end of September, which, according to him, had amplified risks for exporters.
The end of Agoa effectively cut duty-free access to the US for eligible Sub-Saharan countries, subjecting South Africa to further tariffs.
Hanekom said the group was being forced to diversify the international product mix but warned that this would not be quick or easy. Opening new markets “does not happen overnight”.
He said RFG remained committed to its international segment but acknowledged that the cyclical nature of the business meant the contribution would likely continue to shrink relative to the stronger regional division. About three years ago, international revenue made up about 25% of total sales but is now below 20%, with a further drop to 15% possible.
Hanekom said diversification formed part of the company’s broader international strategy but the process would unfold gradually.
He said the Premier Group share-swap transaction announced in October could help RFG build a stronger global presence over the long term. The deal aims to create a larger, more competitive food producer with better access to capital. RFG shareholders will hold 22.5% of the enlarged Premier Group if the transaction is approved.
The acquisition will be voted on by shareholders on December 11 and is subject to approval from regulatory and competition authorities. RFG will delist from the JSE on completion of the deal.
The group reported a 1.5% rise in revenue to R8.1bn for the year to end-September. Profit for the year fell 21.3% to R445m.
Its regional segment increased revenue 4.1% in an environment of constrained consumer spending and continued weak sentiment.
In line with the group’s strategy of focusing on its growth categories, dry foods and fruit juice continued to deliver strong volume and revenue growth. The long-life food performance was negatively affected by pressure on canned meat volumes due to high input costs and consumer pushback on higher prices.
“In this environment, it was pleasing that the group continued to record market and brand share gains in key product categories,” it said.
Its brands are market leaders in canned meat (Bull Brand), canned tomato (Rhodes), frozen pies (Today and Mama’s) and puff pastry (Today). The Rhodes brand holds the number two positions in fruit juice, nectar, canned fruit, jam, canned vegetables and infant meals, while Hinds is the number two brand in spices, herbs and peppers.
Owing to the underperformance of meat products, an impairment loss of R104m was recognised against this business unit, RFG said.
A final dividend of 70c per share was declared, bringing the total dividend for the year to 99.6c.
While consumers remain under pressure, South Africa’s improving macroeconomic outlook with lower interest rates, sustained low inflation and expectations of improved economic growth should support modest growth in consumer spending and sentiment in the short to medium term, it said.
Management will maintain its focus on achieving its operating profit margin target of 10% through active management of sales volumes, gross profit margin and operating costs.
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