RFG Holdings Limited (RFG) Earnings Call Transcript & Summary

Good morning, all. Thank you for joining us on this webcast for the presentation of our 2020 interim results. This is the first time that we've done this on webcast only. So it does feel somewhat strange. And certainly in desperate circumstances. We're very aware of the prevailing hardship in our country. And despite a very challenging work environment, we count our blessings on a daily basis that we are able to continue to operate to the extent that we are. As usual, after my brief introduction, Tiaan is going to take us through the finances, and then I will do the operational reports and the outlook. Firstly then, the review -- high-level review of the first 6 months. We've enjoyed strong sales growth of 11.5% in our regional business, but this was partly offset by a weaker international performance. International turnover was severely impacted by a slowdown in exports of canned fruit to China from Jan -- from as early as January, following the outbreak of COVID-19. And following the declaration of a state of disaster, exports were further adversely impacted by constraints in the ports during the month of March, late March. We suffered a net foreign exchange loss of ZAR 47.6 million and as a result of the mark-to-market valuation of FECs at the end of March. This is an unprecedentedly large number in our experience, and it follows an unprecedented rapid and fairly dramatic depreciation in the Rand very late in the month of March. And this contributed to the international business posting a loss of ZAR 44 million in H1. The group's operating profit was, therefore, 5.3% lower than last year. On the back of this weak international performance. Over to Tiaan.

Good morning, everyone. During the current year, we adopted IFRS 16 leases. The impact on that was reflected in the current year numbers. We didn't restate the 2019 numbers. So the impact was, firstly, an adjustment, one-off adjustment to retain earnings of -- a reduction in retained earnings that is of ZAR 18 million. That's the effect of the adoption of this standard from prior years. In the current year, the impact was -- resulted in a rather in a net increase in profit after tax of ZAR 100,000. On the balance sheet, we now include right-of-use assets worth ZAR 82 million, and similarly, short-term lease liabilities of ZAR 26 million and long-term lease liabilities of ZAR 81 million. IFRS 15. Revenue from contracts with customers, that standard was adopted in the 2019 financial year, and the impact on the current year was just a restatement of the comparative numbers. Group turnover grew by 9.6% year-on-year with regional growth of 11.5% and international growth of 0.5%. Manufacturing costs grew at 6.8%, below the 9.6% growth in turnover. And that resulted in the margin expansion. Operating cost increased by higher than inflation rates, and that was mainly due to higher depreciation cost, again, following the capital investment over the past few years, maintenance cost, insurance and advertising costs. The operating profit declined by 5.3% year-on-year with the margin at 5.5% versus 6.3% last year. The regional margin improved by 70. 7-0 basis points, while the international margin declined from 0.8% the prior year to the current negative 9.5%. As Bruce mentioned, a ZAR 48 million, unrealized losses on mark-to-market revaluations of foreign exchange contracts contributed to the losses in the international segment. EBITDA increased by 4.3%, and the EBITDA margin is at 8.9% versus 9.3%, the prior year. Net interest payments, excluding the interest relating to leases, reduced by 16.7% year-on-year. Improved working capital efficiency contributed to increased cash generations from operations by 16.6%, while net debt reduced by ZAR 24 million. The net debt-to-equity ratio improved from 58.9% to 55%. And excluding the impact of IFRS 16, the ratio improved to 50.3%. Diluted headline earnings per share is down 3.1% to ZAR 0.311 during the current year. On the income statement, you can see the effect of the turnover, increased 9.6% versus direct manufacturing cost increase of 6.8%, which like I said earlier, gave rise to margin expansion. The cost inflation increases manufacturing cost and other operating costs for the reasons mentioned. And just to -- one other thing, the other income line, there's also a restatement in the prior year, where the net ForEx gains in the prior year of ZAR 14 million was moved out of that line into the separate line that you see there net ForEx losses and gains. Double interest payments, ZAR 54 million versus ZAR 58 million that is inclusive of almost ZAR 6 million relating to leases. Profit after tax, ZAR 78 million versus ZAR 80 million the prior year. Diluted EPS, ZAR 0.311 and the weighted average number of shares in issue remain the same at just short of 262 million shares in issue. Group turnover, compounded growth over the period from 2016 until now is 10.2%. The drivers of turnover growth in the current year, volume growth contributed 2.3%, price and price inflation and mix, 5.2%, while the depreciating rand contributed 1.1%, and the acquisition of this snacking business from RCL in 2019 contributed 1% to the year-on-year growth. In terms of segmental turnover performance, pretty much a stable scenario with the growth in the business mainly coming from the regional Long Life segment in the first half. Operating profit showing a decline since 2007 for the reasons mentioned in the current year. Then the breakdowns of international revenue by currency, USD increased from 57% last year to the current 62%, which is in line with 61% at the end of the 2019 financial year. Average exchange rates, you can see the 3 major currencies. The U.S. -- against the U.S. dollar 8.3%, British pound 7%. On average, the depreciation amounted to 6.8% until end March. And to the point of how -- the rapid depreciation in March that average depreciation until end February was 3.6%. On the balance sheet. Noncurrent assets, basically flat, if you exclude the right-of-use assets, that's -- that was brought on to the balance sheet for the first time. Property plant and equipment is basically in line with the prior year, which tells you that the depreciation basically outstrips by a small margin, our capital expenditure in the first half. Current assets almost 11% increase. The big increase was in accounts receivable given the rapid increase in regional sales in the last 2 weeks of March. On the capital and reserve side, again, just to note that these liabilities, which I referred to earlier, in terms of working capital, specifically, an improvement of -- net improvement of 5 days in the net working capital days for the business. The big contributor to that was inventory, and that was the result of the sales in March contributed to that, but that was offset by lower exports to China since January. Cash management, the business generated operating cash flows of ZAR 279 million, which was utilized. We invested in working capital to pay interest and tax, dividends of ZAR 73 million, loan repayments of ZAR 122 million. And then CapEx ZAR 87 million. CapEx for the period amounted to ZAR 87 million versus ZAR 129 million the prior year. In the prior year, we were still finishing off some of the bigger projects that we took on 3 years ago. Major areas of spend included upgrades and replacement in the fruit products. So in Tulbagh, vegetable facility in Limpopo and a pie facility in Aeroton. We're also busy installing additional fire protection equipment at Groot Drakenstein, which will be rolled out to other sites in the years to come. There's also included there the ongoing development of pineapple plantations in Eswatini. And even the circumstances or planned capital expenditure is under review in order to preserve cash. In terms of our debt profile, it is position at each of the financial years mentioned there. This now includes the lease liabilities in terms of IFRS 16. The end of 2019, we had ZAR 988 million outstanding this year -- this coming year-end, that number will change to the order of ZAR 847 million. And then in 2021, given the bullet payment that's due at the end of 2021 to ZAR 259 million. And from there on, very, very low outstanding debt. If we just look at the bank debt, the profile of that, obviously, the same number as in 2019. And then the big repayment due in 2021. But we have proposed to our bankers to refinance this bullet payment, which is illustrated, or the impact -- potential impact thereof on the profile is shown on the following slide. So you can see we proposed to repay ZAR 75 million in 2021; in 2023, ZAR 150 million; and also in 2024, ZAR 150 million and the balance in FY 2025. That will change the profile completely as is illustrated above, which means by the end of 2021 we'll still have ZAR 563 million of long-term debt in the bank. But importantly, the repayments in that year will reduce from ZAR 566 million to ZAR 191 million. We are in discussions with our bankers, and it is in an advanced stage at this point in time. Then on the debt ratio slide, the next one. And at the end of March, net debt amounted to just more than ZAR 1.3 billion. It was slightly lower than the prior year. That includes our short-term debt, overdraft, et cetera. Debt-to-equity ratio was at 55% versus 58.9%. And the net debt to EBITDA of 5.2x. This was 5.5x. So both ratios have improved. And bear in mind, these numbers include the lease liabilities, which the previous year didn't include. In terms of facilities, net working -- working capital facilities of ZAR 925 million. We utilized 42% of that at the end of March. So we've got 58% headroom. In terms of long-term facilities, ZAR 1.3 billion with the utilization of 66%, giving us a 34% headroom. In terms of these facilities, we're obviously very aware of that we -- in the worst-case scenario might have to use more of these. And we've got that option to convert some of our long-term facilities to short term if need be. Thank you.

Thank you, Tiaan. Then looking at the trading performance, a very pleasing result on the regional segment, where we saw a decent sales of 11.5%. Strong growth in Long Life, 12.6%, and a solid performance from Fresh Foods at 9.6% growth. Operating profit increased by 21%, and importantly, and pleasingly, increase in the operating margin of 7.6% to 8.3%. Breakdown of the growth was 6% volume, price and mix, 4.3%. And acquisitive growth through the RCL snacking business, which was acquired last year of 1.2%. The baby food category has been reclassified, as reported at the end of last year, from Fresh Foods to Long Life, and that would moderate the difference in growth of the 2 subsegments that one sees at face value. Some more underlying detail. Long Life Foods, we had volume growth of 6.3%, a very good growth of fruit juices and canned vegetables. And both of these categories reflect strong growth in brand share. We had particularly strong sales of canned vegetables and meat products in March ahead of the lockdown. And we undertook a consolidation of the dry food product range ahead of our Hinds spices launch, which took place in April. Trading in the rest of Africa has been -- was strong in the first half, especially on fruit juice. And we've seen -- and we have seen sustained higher demand for canned goods well into the second half. On Fresh Foods, we had volume growth of 4.7%, and the newly acquired protein snacking business provided an additional -- provided additional growth of 3.2%. Ready meals and pie continued to be the main drivers of growth. This was an overall strong performance from Fresh Foods, with further upside potential from ready meals and snacking. Pies have been severely constrained in -- early in the second half due to the somewhat irrational ban on sale of hot foods, which has had a negative impact on the Fresh Foods results at the beginning of H2. On to market shares. Firstly, as a manufacturer, solid performance across the board with particularly pleasing gains in canned vegetables and Long Life fruit juices. Fruit juices where we're now, as a manufacturer, hold 24% of the market. As our own brands, again, good growth across the board. Canned vegetables up to 17%. It is a very big category. And as a result of recent investment in capacity, we feel -- and the relatively low market share we hold in that category versus other categories, we feel that, that offers a good opportunity in the medium term. Fruit juices, a gain of 25% in our market share up to 20%, and flat on infant foods despite the fiercely competitive environment. Then on to international. Very disappointing final results for half year. We had traded well for the first 6 months despite the difficulties that we faced in China. So we finished flat on revenue, and we did miss a large chunk of shipments at the end of March due to complete congestion and very poor port operating efficiencies in the last week of March, which got carried into the second half. And then, of course, the big whammy being the net foreign exchange loss of some ZAR 48 million, which on a comparative basis, is a swing of ZAR 62 million year-on-year. We've made very good progress on our relatively new product range of fruit cups, particularly into the U.S., we have reduced our fruit cups for a long time now, out of our Eswatini operation, but we only have been producing this product in Tulbagh for the last 3 years. And we further expanded our footprint into the U.S. retail market through a new supply agreement with Walmart on canned pears. We've had very limited shipments to China in H1, and we expect a slow recovery during the second half. We've had good sales of product, which was destined for China, into other Asian markets, which will help, and this product will be shipped in the second half. On new product development. Under the current circumstances, our philosophy is a little along the lines of less is more. And we have a big launch or have -- or undertaking a big launch right now during the month of April and May of a revamped and revitalized range of spices under one of Pakco's brands, Hinds. It is a large category, and this product has been very well received initially. An ongoing newness in our Fresh Foods operation, which underpins some good ready meal growth. Then some specifics on the impact of COVID-19. We've continued to trade throughout the lockdown period, and there's obviously a national imperative for us to maintain a reliable supply of food products. The COVID task team has been constituted to manage workplace risks as employee and community safety is obviously of paramount importance. We've implemented protocols to reduce risk of factory closures, and to allow for cleaning and reopening in the event of infections. And an employee assistance fund has been established through contributions by directors and management to help employees where operations have to be closed down temporarily or for -- to balance supply or for short term, and we do have incidences of COVID infection. Specifically on Tulbagh, where we have had just that. The production at the fruit canning factory in Tulbagh has been impacted by COVID cases. The factory is located in the Witzenberg region, which has proven to be a COVID-19 hotspot. The region has had an excess of 200 cases to date. We've had 9 confirmed positive cases amongst employees. We've screened over 720 employees at the factory. This is in addition to ongoing community screening. And the factory has been closed for 4 days last week for third-party deep cleaning. We remained in close engagement with the Departments of Health and Labor. And we're very close to the end of the deciduous fruit season, which should be done in probably less than 2 weeks, but this has been disruptive through the operation, needless to say. With regards to trading, we've seen an ongoing increase in demand for canned goods during this lockdown period. And production levels have been increased to meet this higher demand. We had a rapid slowdown of pies in April and this ground to a halt once the regulations were changed to expressly ban the sale of hot foods. So our pie factories in both Gauteng and KwaZulu-Natal that had to be closed periodically to balance production with the reduced demand. Our supply chain has been functioning efficiently despite current constraints and the bumping occasionally into the odd obstacle. But we do, in the main, have sufficient raw material stock to meet our increased demand of canned products. Finally then the outlook. I must say it's difficult to talk about an outlook in the current circumstances with any real conviction. But for now, we've been seeing a continued strong demand for canned fruit and vegetables and meat. This has partially offset the decline in juice sales and particularly in the out-of-home channel. So there is some adverse -- there is an adverse margin effect as a result of mix. Ready meals slowed quite dramatically in the early stages of lockdown, but recovered well through the month of April and is now performing strongly. By the end of April, I would say, we were back -- close to normal and have had a good month during May. Restriction on pie should be lifted in terms of draft regulations in Level 3, and we do expect a quick recovery except in the food service channel, which will obviously be dependent on when things like university residences, et cetera, open up again. RFG's range of product categories has provided resilience under the current circumstances. But it's been quite remarkable where we see quite a significant drop-off on our biggest category like juice. And yet we have still been able to beat budget due to uplift in other categories. We will focus in the short-term and in the remaining half on organic growth, maintaining margins and growing our brand shares and maintain our momentum into Africa. Internationally, we do expect a recovery of exports into China, although this is likely to be slow and only really from the month of July. Product previously destined for China is being sold into other markets. We've had good shipments since the end of March despite the logistical challenges with regards to obtaining empty containers for export and port efficiencies. The recent decline in the rand to the dollar exchange rate, we expect to significantly benefit profitability in the second half and bring about a full recovery in those segments. Bearing in mind that in the first half, we had an exchange rate of about ZAR 15.30-odd to the dollar, and the current rate is ZAR 18.30-odd. At the group, we are focused on cash preservation in the COVID-19 environment. Working capital remains a priority, and we'll continue to reduce debt levels. We expect a material benefit in H2 from the 225 basis points reduction in the repo rate. Borrowings can be increased if required due to COVID impacts on cash flows. We expect capital expenditure of ZAR 150 million for the full year of 2020. And our Board has assessed the impact of COVID-19 on solvency and liquidity, and is confident in the group's ability to continue as going concern. That brings to an end of presentation. Thank you very much, and we are happy to take questions.

Bruce, the first question is from Shaun Chauke at HSBC. What was the impact of the ban on sale of hot foods on group revenue and profits?

Thank you, Shaun. We don't disclose revenue by category at all. But in the month of April, as I said, the -- so ready meals weren't affected by the ban on hot foods, but there was a significant drop in the first week of April on ready meals. And then there was a steady recovery during the month of April as we all got a bit over the cooking from scratch and made a return to ready meals. So yes. So we -- but that wasn't related to the ban on hot foods. So the ban on hot foods has affected the pie category only. And that was -- that impact was actually slower in the beginning of April because there was uncertainty in terms of hot foods. The pies continued to sell, albeit at a lower level until that regulation was clarified, with the 3 weeks into the lockdown and sale has -- the sales basically ground to a halt. Woolworths elected to stop their hot counters altogether as some of our key customers, although many, and increasingly bakeries and especially smaller independent operations are baking pies regardless. So in terms of the overall impact on revenue, Fresh Food suffered considerably in the month of April as a result of that. And again, in the month of May, and we hope to see hot food being back on the market by the month of June. In terms of profitability, Fresh Food is a higher-margin subsegment of the Long Life, so while we have seen uplift -- a net uplift in Long Life because there's also been a mix change there, it does have a -- this has had an adverse impact on margin.

Next question from [ indiscernible ] Asset Management. It sounds like volumes have held up post 31 March, what is the pricing and promotional backfill like? Have you been impacted by the COVID restrictions on passing on price leases? And has the promotional environment eased at all?

Yes. Volumes have certainly held up, but there's been interesting swings in mix. So yes, both within the subsegments and from one segment to the other. Pricing, there hasn't been any changes. We are impacted by the regulations. So we are able to maintain margins through this period. We are able to recover cost-push but we are not able to -- or entitled to expand margins. We do foresee that there will be cost-push. It's starting to come through now as a result, obviously, of the weaker rand. So it will be a period of very close price management to make sure that we are able to maintain margins, but our drive to expand those will have to be put on hold in the current circumstances. In terms of the promotional activities, there has definitely been a reduced level of promotional activity. And perhaps we were not seeing a swing as well because where categories have suffered volume decline, we're starting to see some promotional -- more promotional activity as producers look to try and push those volumes. So net-net margins, we'll be looking to maintain our margins, and we have seen a decline in promotional activity.

Well, then we have a couple of questions from Paul Steegers from Bank of America. How should we think about the ForEx losses for the full year?

Yes, the ForEx is a funny one. And it's often difficult to explain. So we do run -- we consistently apply this hedge on our forward sales, where we look to -- we look to keep our forward sales at a level of approximately 60%. Some of that half -- most of that is internal hedge, and the balance we top up with FECs. So the situation -- that policy has an adverse effect on us in the situation where the currency deteriorates. But bear in mind that we still have a big chunk of our sales open and we are net beneficiaries of a weakening currency. However, it's that moment in time situation on FCE revaluations. So at the end of March, we -- and as I say, in the month of March, even in the last day or 2, we saw that real weakening out due to COVID-19. And so we took this unprecedented revaluation. That was, call it, approximately ZAR 48 million of which how much was unrealized, ZAR 46 million, ZAR 47 million, mostly was unrealized. And so that's had unravel entirely into the -- if the currency had moved from -- in the month of April, or if the currency moves post that moment in time back to '15, '16, that entire unrealized loss on revenues. It's unlikely that, that will happen, but the effect of the mark-to-market means that you have negated your book, basically your FEC book. Basically, we back fully exposed to spot and all exports will proceed at spot. So then you get the big gains in the next 6 months. So the policy works over an ongoing period of time, but it's just that you can get caught on a close. So yes, it should be -- the currency impact should be very positive in the second half given especially that most of the product has been packed. So that we normally have to give up a big chunk of a weakening currency to increase manufacturing costs. But if the products are already in the can and it's already sold. Then a bigger chunk comes through to the bottom line. There is still some internal offsets. Obviously, we ship based on hard costs, on hard currency. We pay commissions. We have adjusting price to the farmers based on what we realized. So we do still give up some of the gains, but we'll be shipping, let's call it -- we had ZAR 15.30 in the first half, let's call it, ZAR 18.30. If it stays where it is. If it firms up, the unrealized loss will unravel. If it stays at ZAR 18, we'll be shipping at ZAR 18 versus ZAR 15. And that's 20-odd percent is material difference on the remaining exports for the year. So at face value, and all things being equal, to say they are, it has a -- the currency will have a big impact on the second half to bring about a full recovery despite the loss in the first half. I hope that explains it. It sounded -- perhaps sounded a bit muddled, but I believe that does explain.

Another question from Paul Steegers. How do you see your working capital position unfolding in H2 in terms of inventory, creditors and debtors?

We -- as always underlying to the question is obviously what the business performance is going to be. Which is a difficult one to comment on. But what we plan is, is to stick to our normal practices by our creditors in line with agreed terms. We are seeing on the debt side immediately when the lockdown was announced, especially from the customers in the food service out-of-home sector, people giving deficit -- they'll -- it will be difficult. If possible for them to make any payments to us. That is the current status on those accounts. So we are a bit longer on debtors, but it's a relatively smaller portion of our debtor book because we've got -- the big retailers is our biggest debtors, and they are continuing to pay. So in terms of stock, the deposition will improve because, as Bruce has just mentioned, our peaking in stock holdings and in working capital investment is around this time of the year, just after the completion of the seasonal -- fruit canning season. And from there on, it -- the stock housing reduces as we ship the stock. And we -- what we obviously expect and foresee that, that will happen again this year. We've got the -- the stock is out, we miss just the shipping. So in summary, I foresee a pretty much the same net working capital position at year-end, as in previous years. But that -- I must qualify, I'd say it's all subject to the very first point what is going to be the actual performance in the business. But thus far, I've got no real reason to indicate that it's not going to happen.

Right, another quick question from Paul Steegers. What is your sales exposure to food service?

Sure. I looked at the pies the other day, it's about 15%. And out-of-home in Long Life is less than 10%. And certainly, the sales that we -- the uplift in other channels has more than compensated for food service per se. But it is the channel that we are pretty sure will take the longest to recover. So as I say, pies 15%, Long Life Foods is less than 10%.

Right. Then a question from Anthony Geard from Investec. Great results. Well done. Please provide a bit more color on the rest of Africa sales, which seem to be doing well even in April and May. Which product categories and which countries are the standout performers?

Thank you, Anthony. Our -- bear in mind that our strength in Africa is very much the neighboring state. So it's Southern Africa, primarily BNLS and then Zambia, Mozambique. The Mozambique hasn't been great. That's probably flat year-on-year. They've got some problems. But for the rest, it's been growth across the board. And so pre-COVID, it was led particularly by juice. And then as towards the end of March, very much like South Africa, strong performance from canned foods. So canned vegetables and canned meat and even canned fruit, which -- canned fruit, surprisingly, has picked up in South Africa and Southern Africa as much as canned vegetables and canned fruit. So I think similar impact given the proximity of those countries to South Africa and a very similar reaction that they've taken to this crisis. We're seeing a similar product range. But prior -- for the first 6 months, it was it was mainly led by juice, which has been pleasing for us.

A question from Jiten Bechoo from Avior. Pity the ForEx losses. Do you foresee more frequent and deeper promotion activity, which could weigh on inflation and margins in the next 12 months?

Thanks, Jiten, we share your view on the pity about the ForEx losses. But at the end of the day, it is better for us as an exporter to have a weak currency. I think what worries me the most about margin is cost-push. There's been quite a lot of rationality in terms of pricing and not craziness on promotional activity, although there is the risk that, that would creep and take, for example, category like juice, where volumes are suffering. So -- and that's -- category volumes are suffering. So they're -- an incentive to increased promotions definitely comes into the picture. But we will see and we are already seeing cost-push, and that's going to be into a very weak consumer environment. So I do have some concerns about margin. And it's really about our ability to be able to fully recover that cost-push in pricing.

Question from James [indiscernible] from Bank of America. Have the port hindrances and efficiency problems in March being improved? And what are you seeing in terms of current international supply chain efficiency?

Yes. Thank you, James. They've improved somewhat. And I must say we've had very close interaction with the DTI. And ahead of the lockdowns, they were very consultative and asking questions of us and asking to get back, and I think a strong awareness of the importance of food security. And we raised our concerns to them about port efficiency and they facilitated discussions with the port authorities, and we saw a little bit of improvement. But it's still -- it's nowhere near where it should be. So for example, in Cape Town, I think the last time I saw we were operating -- we had been operating 2 out of 5, and now we operate in 3 out of 5 of the terminals. And so it's a challenge. And then, of course, empty containers. And then in terms of other supply chain, we've had to airfreight a small thing around. Yes, so we've been caught every now again with some shortages. But in the main, we've been able to keep going across the board. So yes, there are challenges, but we've been okay.

The next question is from [indiscernible] Investment Managers, what are your plans to turn around the international business?

Yes. So the international business itself underlying performance was not bad in the first half. So it -- the loss is largely a result of that of that moment in time exchange -- or ForEx loss. In terms of underlying operations, the concern was the lack of shipments to China. So that meant lower volumes. Overall, we are flat, but we had missed out on the Chinese volumes, and it meant a mix factor with lower margins. So going forward, we will continue our operations. The product is all being packed in the normal course of events. It's a question of shipping it. There is a need to replace certain goods that would have gone to China. So we'll see a little bit of an uptick into China itself, but we expect that to be slow at late only from July. We have placed some of that product into decent-margin Asian markets. And some product will have to be sold elsewhere at lower margins, although those will be assisted greatly by the ForEx. So there's not a lot -- so operationally, it's about placing a certain amount of stock that we weren't able to place in China elsewhere. And for the rest, the big swing takes place purely as a function of ForEx.

And a question from [indiscernible] from MIBFA. Very encouraging to see market share gains in the canned vegetable segment. If you have the data, how is the brand's market share performance been in the last quarter to March?

Yes, I'm trying to think of the split. It was pretty much a steady -- it was a steady -- it wasn't though that it was like in the second quarter, better than the first quarter. We've even last quarter last year, can't remember when our baked bean line came online, was in April last year, around about April last year. That created a more efficient, cost-effective baked bean solution in the main market [indiscernible]. And importantly, it opened up a capacity in the vegetable factory where baked beans were previously made. So since that time, we've seen a very steady progression in brand shares on both bake beans and other can vegetables. So that's given rise to -- And the actual market share on Rhodes brand finished at 17% end of March versus 14% the year before. But it was a very much a ratable plan since the time we launched it, simply we commissioned it bake bean factory.

Then 3 questions from Irina Schulenburg at Foord Asset Management. You speak of maintaining margins in H2. Is this relative to H1 '20 or H2 '19?

It's certainly relative to H1. And I'm just trying to think what the difference was between H2 2019 and H1. So in regional, it's about maintaining margins. Now we were looking to expand, and the challenge has been, is a mix -- the challenge is one of mix because we are seeing within Long Life. We're seeing certain categories, specifically, canned vegetables growing to compensate for lack of volume on juice, and that has an adverse effect on mix. And then also Long Life compensating for Fresh Foods, where we will suffer for, what is it, April, May and hopefully not June on pies. So it's really a question of maintaining where we are now. And then international will be the big recovery.

Our next question from Irina. The tax rate at 26%. Can we expect something similar for H2?

Yes. That's certainly -- the expectation on this site is a similar one. In the previous 2 years, we had significant lower tax rates in the second half because we were able to claim the Section 12I rebate on the capital expenditure. But there may be some this year, but it's not going to be significant. So yes, the same effect of rate.

And Tiaan, another question from Irina. The bank overdraft facilities increased materially. Have you experienced difficulty renegotiating your debt?

No, no. It's -- we don't -- we've got a good relationship, long-standing relationship and no problems experienced to-date.

Right. Then a question from Thambo Mthwalo from Primaresearch. Have you seen an increase in private label production activity? Could you comment on the performance of sales into the wholesale channel and informal space?

Private label, not really any significant changes. In fact, if you look at our market share gains, we have grown more as a brand than we have overall as a manufacturer. Yes, so that certainly doesn't indicate any real gains of private label in the categories in which we operate. With regards wholesale, we continue to progress very well with that channel. It is a focus area for us. We didn't see the crazy uplift in sales that we saw in mainstream retail at the end of March. Although we did see quite a significant uplift a few weeks later. I can't remember, it was probably a lag of about 2 weeks, or maybe it was after month-end in March, that would make sense. Once pay day, et cetera, then we did see an uplift in wholesale as well. And we see the same, particularly this increase in canned goods is quite amazingly across all channels, obviously, except for food service. But it's not always the same product, but canned meat is definitely benefiting, and that is very prevalent in wholesale and canned vegetables likewise. So similar products picking up in that channel, too.

Jiten from Avios. Thanks for the insights on cost-push. Can you please share your perspectives on where cost-push is coming from? Further, could you guide if raw materials have building dynamics where we could see a spike in input prices?

Our experience to-date is mainly packaging material, and it will apply to anything where there is a ForEx exposure. So on juice packaging, it's almost directly costed based on prevailing exchange rates. On tin cans, there is a lag. But again, there is a foreign element to it because the tin plate is imported. Sugar has an international pricing component. So that's where we've seen immediate pressure. And in terms of the spike, generally, we will have a term to our purchasing agreements. So the supply has to absorb the initial bit. But so it can lead to everything coinciding at the same time, but it does give us a bit of time to mitigate and start looking to address pricing, et cetera. But it will be pushed as a result of currency.

[ Sean Brands ] from [indiscernible] Asset Management, a question for Tiaan. Our direct manufacturing costs, essentially raw, and pack, and if you take direct manufacturing, plus manufacturing operating costs, would this be the equivalent to COGS?

Yes and no. Direct manufacturing costs, if you deduct that from turnover, that is -- gives you a good indication of GP, and that's also not exactly in line, but it's -- like I said, it's a good indication of how we used to report until 2018, in terms of results, 2018 -- 2019. We -- sorry, Greg, just to finish there, we do include a portion of variable operating cost in product cost. But -- so that's sitting currently that manufacturing operating costs. So -- but not the full amount of manufacturing operating cost is included in COGS or we used to do it.

And a question from Charles Balls of Titanium Capital. He says, China has reopened, why do you expect the recovery from the Chinese market to be slow?

Yes, it seems it's opened in a fashion. And so our product unlike South Africa and U.K., U.S.A., where we're seeing an uplift in demand for canned fruit, fortunately, where it's consumed -- where it's sold primarily in retail and consumed in households. In China, the product is very much a food service item. Our South African canned peaches are very sought-after there, and the premium is paid for them because they go mainly into bakery applications, mainly cake decorations and fillings. And that coffee shop and cafe culture has been hard hit by this pandemic. And so as China opens up, I think even though opening up is somewhat slower than we might believe. But definitely, that coffee shop culture is not what it was. I mean you see footage on TV, et cetera, people kind of stopping at doorways and having counters across there getting served something on the fly, it's not -- so that's impacting our business.

Dirk from Kagiso asks another question. The Hinds spice launch is a big move in the category. How are you positioning these brands from a price perspective? And what response have you seen from the main multinational competitor and/or private label?

Yes, it's early days. And we -- our approach and positioning is not dissimilar to what we've done in the past in terms of entering new categories, particularly categories that are dominated by one player. We're very pleased with the product and the look and feel. Hinds is a very old brand that despite decades of neglect, still had a prevalence in bottom-end market. It was particularly strong in Eastern Cape and Free State and Natal. And so -- and that prevails even before this relaunch, particularly in wholesale. So we are focusing on that bottom end and on wholesale, where it's been very well received. And if I can take a small example, Hinds ginger, continues to be in bottom end, the highest selling 50-gram pack, and -- of a bag in a box as opposed to an envelope or anything else, and that's used to make ginger beer. So you can imagine the uplift that we've seen in the last few weeks on that one. But it's just to give an idea that there is still an awareness of that brand. So our focus has been on the bottom end. And then we will also -- in fact, we are entering retail now. So by the end of May, you should see us on shelf at most of the retailers.

Thanks, Bruce. No further questions.

Very good. Thank you all. Thank you for joining us once again.