Reviewed condensed consolidated interim results for the six months ended 1 April 2018 Rhodes Food Group Holdings Limited (Incorporated in the Republic of South Africa) Registration number: 2012/074392/06 JSE share code: RFG ISIN: ZAE000191979 Reviewed condensed consolidated interim results for the six months ended 1 April 2018 Key features for the six months Group turnover up 16.6% Regional turnover up 19.5% International turnover up 3.6% Headline earnings 34.8% lower on weak international results Diluted HEPS 38.9% down to 31.4 cents COMMENTARY PROFILE Rhodes Food Group is a leading producer of fresh, frozen and long life convenience meal solutions for customers and consumers across South Africa, sub-Saharan Africa and in major global markets. The growing portfolio of market leading brands, which includes Rhodes, Bull Brand, Magpie, Squish, Bisto, Hinds and Pakco, is complemented by private label product ranges packed for major South African retailers and international customers. TRADING AND FINANCIAL PERFORMANCE Group turnover for the six months increased by 16.6% to R2.5 billion, with organic growth of 6.9%. Turnover in the regional segment (South Africa and the rest of Africa) increased by 19.5%, with organic growth of 7.6%. The regional segment accounted for 84% (2017: 82%) of total revenue. - Fresh Foods sales increased by 22.7% (9.3% organic growth) with a strong performance from the bakery category driven by product innovation and continued good growth in pies, snacking and ready meals. - Long Life Foods increased turnover by 17.4% (6.5% organic growth) with the fruit juice category again performing well in a highly competitive environment. The group's brands continued to gain market share across core product categories. Growth in the rest of Africa has slowed as the impact of the stronger Rand in certain major African markets has made the group's products less price competitive. The acquisitions of Pakco and Ma Baker, which were not included in the comparable prior period, contributed combined turnover of R209 million. Pakco has performed ahead of expectations in its first full year in the group while some initial challenges were experienced at Ma Baker. These have been addressed and the integration has been bedded down. International turnover increased by 3.6%. While export volumes have recovered the business has been impacted by the increased costs of canned fruit due to the ongoing drought in the Western Cape and the strengthening of the Rand against the group's trading currencies. The reporting period comprises 26 trading weeks compared to 27 weeks in the prior period. The group's gross profit margin was lower at 25.3% (2017: 27.1%) owing mainly to increased costs and the adverse currency impact in the International business. The regional gross profit margin was impacted negatively by lower margins in the Ma Baker business. The gross profit margin of the Long Life component of the regional business was maintained at last year's levels. Operating costs, excluding the impact of the two acquisitions, grew by 9.2%. Depreciation and amortisation increased by R19 million owing to the higher level of capital expenditure in the past two years and the acquisitions of Pakco and Ma Baker at the end of the prior period. Once-off costs relating to the Ma Baker integration and the relocation of the snacking plant (formerly Alibaba Foods) to the Groot Drakenstein production facility also contributed to the increase. The group operating margin declined from 9.7% to 6.5%. The regional operating margin reduced from 9.2% to 7.8% owing to the dilution caused by the Ma Baker business and the once-off costs referred to above. The regional margin on a comparable basis was in line with the prior period. The weak market for industrial purees, increased canned fruit costs and strengthening currency contributed to the international segment posting a loss for the first half. Interest payments were R17.4 million higher at R51.9 million due to the increased capital investment programme and funding for the Ma Baker acquisition. Profit after tax declined by 35.1% to R80.9 million with headline earnings 34.8% lower at R82.4 million. Diluted headline earnings per share decreased by 38.9% to 31.4 cents, in line with the group's trading statement issued on 20 March 2018. The weighted average number of shares in issue has increased by 15.9 million or 6.7% over the prior six-month period. The ongoing focus on efficient working capital management is reflected in the increase in net working capital being contained to 7.2%. Cash generated from operations of R135.8 million was R42.3 million higher than the prior period due to the lower investment in working capital. The group's net debt to equity ratio increased to 60.4% (2017: 45.2%) owing to the higher level of funding for the capital investment programme. The group invested R268 million (2017: R233 million) in capital projects in the first half. Major projects include capacity expansion at the Gauteng pie and bakery facilities, commissioning a new baked bean production facility, upgrading facilities at Pakco and Ma Baker, and the installation of a clear juice concentrate plant at the Groot Drakenstein production hub to further vertically integrate the fruit juice operation. OUTLOOK Driving organic growth, increasing brand shares and extracting benefits from the recent acquisitions and major projects will be the focus areas in the regional business. The group will look to maintain momentum in sub-Saharan Africa and benefit from the addition of the Pakco brands to the Long Life product offering. The Pakco brand portfolio was relaunched in March with extensive product innovation, new pack formats and refreshed packaging designs across the Bisto, Hinds, Pakco and Southern Coating brands. After reporting a loss for the first half, Ma Baker has returned to profitability and is expected to be earnings accretive in the second half. The international business should benefit in the second half from the sale of lower cost-based industrial products from the 2018 season coming onto the market as well as a small uplift in foreign selling prices of canned fruit and continued improvement in volumes. However, the operating margin for the international segment will remain low and a strengthening Rand remains a risk to performance. The group plans a further R115 million capital investment in the second half of the year. The completion of the current production capacity expansion and upgrade progamme is a priority to ensure that these projects start generating returns to enhance the group's earnings. Working capital management remains a focus area to reduce interest costs. Trading conditions are expected to remain constrained over the remainder of the financial year. While the improving consumer confidence in the country is positive for growth, it is too early to expect any marked improvement in the regional trading environment. Any reference to future performance included in this announcement has not been reviewed or reported on by the auditors. CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 1 April 2018 Reviewed Reviewed Six-month Six-month Audited period ended period ended Year ended 1 April 2 April 1 October 2018 2017 2017 Notes R'000 R'000 R'000 ASSETS Non-current assets 2 333 815 1 914 124 2 145 186 Property, plant and equipment 4 1 658 574 1 272 039 1 460 493 Intangible assets 202 490 164 138 207 282 Goodwill 444 857 468 984 457 183 Investment in associate 5 5 740 - - Biological assets 10 760 8 963 10 664 Deferred taxation asset 2 688 - 9 294 Loans receivable 8 706 - 270 Current assets 2 259 795 2 102 438 1 964 903 Inventory 6 1 393 491 1 320 301 1 144 080 Accounts receivable 779 390 702 041 767 679 Biological assets 10 553 18 742 10 553 Loan receivable 4 123 3 307 6 170 Taxation receivable 40 804 10 084 32 193 Foreign exchange contract asset 14 237 8 021 - Bank balances and cash on hand 17 197 39 942 4 228 Total assets 4 593 610 4 016 562 4 110 089 EQUITY AND LIABILITIES Capital and reserves 2 239 771 2 122 716 2 235 865 Share capital 1 565 509 1 565 509 1 565 509 Equity-settled employee benefits reserve 13 189 5 776 8 779 Accumulated profit 652 025 541 744 652 326 Equity attributable to owners of the company 2 230 723 2 113 029 2 226 614 Non-controlling interest 9 048 9 687 9 251 Non-current liabilities 847 135 645 618 877 883 Long-term loans 650 635 509 374 700 407 Deferred taxation liability 180 928 126 383 161 711 Employee benefit liability 15 572 9 861 15 765 Current liabilities 1 506 704 1 248 228 996 341 Accounts payable and accruals 737 597 683 482 534 590 Employee benefits accrual 50 134 75 707 75 324 Current portion of long-term loans 237 327 150 117 218 831 Taxation payable 258 - 2 732 Bank overdraft 481 388 338 922 158 077 Foreign exchange contract liability - - 6 787 Total equity and liabilities 4 593 610 4 016 562 4 110 089 CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the six-month period ended 1 April 2018 Reviewed Reviewed Six-month Six-month Audited period ended period ended Year ended 1 April 2 April 1 October 2018 2017 2017 R'000 R'000 R'000 Revenue 2 507 375 2 150 737 4 593 317 Cost of goods sold (1 873 723) (1 567 317) (3 355 146) Gross profit 633 652 583 420 1 238 171 Other income 36 275 41 017 54 480 Operating costs (507 193) (416 735) (885 844) Profit before interest and taxation 162 734 207 702 406 807 Interest paid (51 855) (34 462) (84 836) Interest received 93 22 386 Profit before taxation 110 972 173 262 322 357 Taxation (30 107) (48 616) (87 566) Profit for the period 80 865 124 646 234 791 Profit attributable to: Owners of the company 81 068 123 931 234 512 Non-controlling interest (203) 715 279 80 865 124 646 234 791 Other comprehensive income Items that will not be reclassified subsequently to profit or loss - - 1 Remeasurement of employee benefit liability - - 2 Deferred taxation effect - - (1) Total comprehensive income for the period 80 865 124 646 234 792 Total comprehensive income attributable to: Owners of the company 81 068 123 931 234 513 Non-controlling interest (203) 715 279 80 865 124 646 234 792 Earnings per share (cents) 32.1 52.4 95.9 Diluted earnings per share (cents) 30.9 50.4 92.4 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six-month period ended 1 April 2018 Equity-settled employee Share benefits Accumulated Non-controlling capital reserve profit interest Total R'000 R'000 R'000 R'000 R'000 Balance at 25 September 2016 - audited 720 205 2 773 524 948 8 972 1 256 898 Issue of ordinary share capital 845 304 - - - 845 304 Total comprehensive income for the period - - 123 931 715 124 646 Recognition of share-based payments - 3 003 - - 3 003 Treasury shares dividends received - - 475 - 475 Dividend paid - - (107 610) - (107 610) Balance at 2 April 2017 - reviewed 1 565 509 5 776 541 744 9 687 2 122 716 Total comprehensive income for the period - - 110 303 (436) 109 867 Recognition of share-based payments - 3 003 - - 3 003 Treasury shares dividends received - - 279 - 279 Balance at 1 October 2017 - audited 1 565 509 8 779 652 326 9 251 2 235 865 Total comprehensive income for the period - - 81 068 (203) 80 865 Recognition of share-based payments - 4 410 - - 4 410 Treasury shares dividends received - - 350 - 350 Dividend paid - - (81 719) - (81 719) Balance at 1 April 2018 - reviewed 1 565 509 13 189 652 025 9 048 2 239 771 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS for the six-month period ended 1 April 2018 Reviewed Reviewed Six-month Six-month Audited period ended period ended Year ended 1 April 2 April 1 October 2018 2017 2017 R'000 R'000 R'000 Cash flows from operating activities Operating cash flows before working capital changes 239 732 257 567 532 420 Working capital changes (103 978) (164 122) (185 306) Cash generated from operations 135 754 93 445 347 114 Net interest paid (51 766) (37 010) (86 150) Taxation paid (16 348) (100 438) (139 023) Net cash inflow/(outflow) from operating activities 67 640 (44 003) 121 941 Cash flows from investing activities Purchase of property, plant and equipment (268 475) (233 258) (486 946) Proceeds on disposal of property, plant and equipment 4 865 269 1 478 Acquisition of subsidiaries and businesses less net cash acquired - (180 477) (207 297) Loan receivable advanced (3 273) (307) (3 732) Loans receivable repaid 246 - 1 471 Dividend paid (81 719) (107 610) (107 610) Treasury shares dividend received - 475 475 Net cash outflow from investing activities (348 356) (520 908) (802 161) Cash flows from financing activities Issue of ordinary share capital - 648 304 648 304 Loans raised 75 589 300 000 621 000 Loans repaid (105 215) (495 492) (556 742) Government grant received - 2 742 3 432 Net cash (outflow)/inflow from financing activities (29 626) 455 554 715 994 Net (decrease)/increase in cash and cash equivalents (310 342) (109 357) 35 774 Cash and cash equivalents at beginning of the period (153 849) (189 623) (189 623) Cash and cash equivalents at end of the period (464 191) (298 980) (153 849) CONDENSED CONSOLIDATED SEGMENTAL REPORT for the six-month period ended 1 April 2018 PRODUCTS AND SERVICES FROM WHICH REPORTABLE SEGMENTS DERIVE THEIR REVENUES Information reported to the chief operating decision-maker for the purposes of resource allocation and assessment of segment performance focuses on the types of goods or services delivered or provided, and in respect of the 'regional' and 'international' operations. The information is further analysed based on the different classes of customers. The executive management of the Group have chosen to organise the Group around the difference in geographical areas and operate the business on that basis. Specifically, the Group's reportable segments under IFRS 8: Operating Segments are as follows: - Regional - International SEGMENT REVENUES AND RESULTS The following is an analysis of the Group's revenue and results by reportable segment. Segment revenue Reviewed Reviewed Six-month Six-month Audited period ended period ended Year ended 1 April 2 April 1 October 2018 2017 2017 R'000 R'000 R'000 Regional Fresh products sales 844 955 688 546 1 529 291 Long life products sales 1 251 622 1 065 693 2 151 307 2 096 577 1 754 239 3 680 598 International Long life products sales 410 798 396 498 912 719 Total 2 507 375 2 150 737 4 593 317 Segment profit Regional 164 322 161 779 358 254 International (1 348) 49 930 57 553 Total 162 974 211 709 415 807 Impairment loss - - (3 321) Acquisition costs (240) (4 007) (5 679) Interest received 93 22 386 Interest paid (51 855) (34 462) (84 836) Profit before taxation 110 972 173 262 322 357 Segment depreciation Regional 51 591 38 685 92 435 International 13 844 10 428 18 113 Total 65 435 49 113 110 548 Segment amortisation Regional 4 511 1 422 5 791 International 281 321 748 Total 4 792 1 743 6 539 Segment revenue reported above represents revenue generated from external customers. Inter-company sales amounted to R271.840 million (six months ended 2 April 2017: R285.290 million, year ended 1 October 2017 R541.821 million). The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1 to the condensed consolidated interim financial statements. Segment profit represents the profit before tax earned by each segment without allocation of impairment losses, acquisition costs, interest received and interest paid. This is the measure reported to the chief operating decision-maker for the purpose of resource allocation and assessment of segment performance. GEOGRAPHICAL INFORMATION The Group's non-current assets by location of operations (excluding goodwill and deferred taxation asset) and revenue are detailed below. The chief operating decision-maker does not evaluate any of the Group's other assets or liabilities on a segmental basis for decision-making purposes. Non-current assets Reviewed Reviewed Six-month Six-month Audited period ended period ended Year ended 1 April 2 April 1 October 2018 2017 2017 R'000 R'000 R'000 Republic of South Africa 1 753 647 1 332 852 1 548 831 Kingdom of Swaziland 132 623 112 288 129 878 1 886 270 1 445 140 1 678 709 Revenue Republic of South Africa 2 458 651 2 103 111 4 472 594 Kingdom of Swaziland 48 724 47 626 120 723 2 507 375 2 150 737 4 593 317 INFORMATION REGARDING MAJOR CUSTOMERS Two customers (six months ended 2 April 2017: two, year ended 1 October 2017: two) individually contributed 10% or more of the Group's revenue arising from both regional and international sources. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the six-month period ended 1 April 2018 1. BASIS OF PREPARATION Rhodes Food Group Holdings Limited is a company domiciled in the Republic of South Africa. These condensed consolidated interim financial statements ("interim financial statements") as at and for the six-month period ended 1 April 2018 comprise the company and its subsidiaries (together referred to as the "Group"). The interim financial statements are prepared in accordance with IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Pronouncements as issued by the Financial Reporting Standards Council, and the requirements of the Companies Act of South Africa and the JSE Listings Requirements. The accounting policies and methods of computation applied in the preparation of the interim financial statements are consistent with those applied in the audited consolidated financial statements for the year ended 1 October 2017. The accounting policies adopted and methods of computation are in accordance with International Financial Reporting Standards. These interim financial statements were prepared under the supervision of CC Schoombie CA(SA), Chief Financial Officer. 2. SEASONALITY OF OPERATIONS The Group's performance is subject to seasonal trends based on the seasonality of fruit crops which are processed annually from November to April and June to August. Due to the seasonal nature of fruit production working capital is actively managed over an annual cycle. 3. EVENTS SUBSEQUENT TO REPORTING DATE On 1 May 2018 the company appointed B Lakey as company secretary subsequent to the resignation of Statucor (Pty) Ltd. The directors are not aware of any other matter or circumstance of a material nature arising since the end of the six-month period ended 1 April 2018, otherwise not dealt with in the interim financial statements, which significantly affect the financial position of the Group or the results of its operations. 4. PROPERTY, PLANT AND EQUIPMENT Opening Acquisition of Government Closing balance subsidiaries Additions grant received Disposals Impairment balance COST R'000 R'000 R'000 R'000 R'000 R'000 R'000 1 April 2018 1 765 295 - 268 475 - (18 148) - 2 015 622 2 April 2017 1 197 797 107 419 233 258 (2 742) (374) (3 872) 1 531 486 1 October 2017 1 197 797 105 644 486 946 (3 432) (17 788) (3 872) 1 765 295 Opening Closing balance Depreciation Disposals Impairment balance ACCUMULATED DEPRECIATION R'000 R'000 R'000 R'000 R'000 1 April 2018 304 802 65 435 (13 189) - 357 048 2 April 2017 210 971 49 113 (161) (476) 259 447 1 October 2017 210 971 110 548 (16 166) (551) 304 802 Opening Closing balance balance NET ASSET VALUE R'000 R'000 1 April 2018 1 460 493 1 658 574 2 April 2017 986 826 1 272 039 1 October 2017 986 826 1 460 493 The disposal of property, plant and equipment resulted in a loss of R0.094 million (six months ended 2 April 2017: profit of R0.056 million, year ended 1 October 2017 loss of R0.144 million). The impairment of property, plant and equipment resulted in a loss of Rnil (six months ended 2 April 2017: loss of R3.396 million, year ended 1 October 2017 loss of R3.321 million). These losses were recognised as part of 'operating costs' in the condensed consolidated statement of profit or loss and other comprehensive income. During the six-month period ended 1 April 2018, the Group contracted R105.595 million (six months ended 2 April 2017: R366.717 million, year ended 1 October 2017: R264.664 million) for future capital commitments. There has been no major change in the nature of property, plant and equipment, the policy regarding the use thereof, or the encumbrances over the property, plant and equipment. 5. INVESTMENT IN ASSOCIATE The Group entered into a sale of share agreement during October 2017 to dispose of 50.83% of the shares in Ma Baker Xpress Proprietary Limited for a consideration of R6.100 million. On the date of disposal Ma Baker Xpress Proprietary Limited ceased to be a subsidiary. From that date it was accounted for as an investment in an associate, using the equity accounting method, at a value of R5.900 million. During the six months ended 1 April 2018 the loss from the investment in the associate recognised in 'operating costs' was R0.160 million. 6. INVENTORY A provision of R13.490 million for the six months ended 1 April 2018 (six months ended 2 April 2017: R6.066 million, year ended 1 October 2017: R13.380 million) was raised in order to recognise inventory at the lower of cost or net realisable value. Reviewed Reviewed Six-month Six-month Audited period ended period ended Year ended 1 April 2 April 1 October 2018 2017 2017 R'000 R'000 R'000 7. EARNINGS PER SHARE 7.1 HEADLINE EARNINGS PER SHARE Reconciliation between profit attributable to owners of the company and headline earnings: Profit attributable to owners of the company 81 068 123 931 234 512 Adjustments to profit attributable to owners of the company 1 284 2 405 2 495 Loss/(profit) on disposal of property, plant and equipment 94 (56) 144 Impairment of property, plant and equipment - 3 396 3 321 Loss on sale of subsidiary 1 216 - - Taxation effect (26) (935) (970) Headline earnings 82 352 126 336 237 007 Headline earnings per share (cents) 32.6 53.4 96.9 7.2 DILUTED HEADLINE EARNINGS PER SHARE Diluted headline earnings per share (cents) 31.4 51.4 93.4 7.3 WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE Ordinary shares in issue at beginning of the period 253 762 018 221 000 000 221 000 000 Weighted number of shares issued during the period - 16 853 874 24 657 869 Treasury shares (1 125 000) (1 125 000) (1 125 000) Weighted average number of shares in issue 252 637 018 236 728 874 244 532 869 Effect of convertible preference shares 9 000 000 9 000 000 9 000 000 Effect of share options 403 093 175 828 189 081 Weighted average number of dilutive shares in issue 262 040 111 245 904 702 253 721 950 8. CONTINGENT LIABILITIES The Group has entered into guarantees in favour of South African Revenue Service, for import and export activities as well as various municipalities for operational activities. The guarantees from import and operational activities outstanding as at 1 April 2018 are R6.560 million (six months ended 2 April 2017: R5.070 million, year ended 1 October 2017: R6.560 million). There were no other changes in the contingent liabilities from the prior period as disclosed in the audited annual financial statements for the year ended 1 October 2017. 9. RECLASSIFICATION OF PRIOR PERIOD DISCLOSURE R18.742 million of the non-current biological assets balance in the Condensed Consolidated Statement of Financial Position for the period ended 2 April 2017 was reclassified to the current portion of biological assets, as this is a better representation of the expected lifespan of the asset. 10. RELATED PARTY TRANSACTIONS The Group generated sales from Peaty Mills Plc of R86.122 million (six months ended 2 April 2017: R76.300 million, year ended 1 October 2017: R182.483 million). Included in accounts receivable are amounts due from Peaty Mills Plc of R34.960 million (six months ended 2 April 2017: R28.718 million, year ended 1 October 2017: R43.143 million). There were no other significant related party transactions during the period under review. 11. DIVIDEND On 15 January 2018, a dividend of 31.1 cents per share, total dividend R81.719 million (16 January 2017, a dividend of 42.2 cents per share, total dividend R107.610 million) was paid. 12. SIX-MONTH PERIOD END The Group's financial year ends in September which reflects 52 weeks of trading, and as a result the reporting date may differ year on year. The 2017 financial year, however, included a 53rd week of trading. References to an interim financial period are to the 26/27 weeks ended on or about 31 March. As a result the interim financial statements were prepared for the 26 week period ended 1 April 2018 (27 week period ended 2 April 2017). 13. REVIEW REPORT The directors have elected to engage the Group's auditors, Deloitte & Touche, to conduct a voluntary review of the condensed consolidated interim financial statements. The Group's auditors have issued an unmodified review report on the condensed consolidated interim financial statements which is available for inspection on the group's website (http://www.rfg.com) as well as the group's registered office (Pniel Road, Groot Drakenstein, 7680), at no charge, during normal business hours. The auditor's report does not necessarily report on all of the information contained in this announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement they should obtain a copy of that report together with the accompanying financial information from the group's registered office. CORPORATE INFORMATION Registered address Pniel Road, Groot Drakenstein, 7680 Private Bag X3040, Paarl, 7620 Directors Dr YG Muthien* (Chairperson) MR Bower* BAS Henderson (Chief Executive Officer) TP Leeuw* LA Makenete* B Njobe* CC Schoombie (Chief Financial Officer) CL Smart** GJH Willis** * Independent non-executive ** Non-executive Company secretary B Lakey Transfer secretaries Computershare Investor Services Proprietary Limited Auditors Deloitte & Touche Bruce Henderson Chief Executive Officer Tiaan Schoombie Chief Financial Officer Groot Drakenstein 22 May 2018 Sponsor Rand Merchant Bank, a division of FirstRand Bank Limited Date: 22/05/2018 07:05:00 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. 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