Good morning, ladies and gentlemen. Thank you for joining us on this cold, rainy Tuesday morning. It's my pleasure to host the Premier Food Group management team for the interim results, very strong interim results, a very exciting time in their business with the Rhodes Food Group transaction announced. Today we have Kobus Gertenbach, Group CEO, Fritz Grobbelaar, Group CFO, and Rolf Hartmann, the Group Executive for Commercial, on the call with us, and I'll hand over to Kobus to go through the presentation.
Thank you very much, Samir. Good morning, everybody. We are coming to you from a very wet and cold November Johannesburg day. Thank you for taking the time to listen in on our results presentation. As always, we strive to keep it quite succinct and short and to the point, and so we will stay with that again this morning. I'll start off with the key performance highlights and business overview. Fritz will do the financial performance section, and then we'll have a Q&A at the end for anybody that wants to ask any questions. Just from a key highlights perspective overview, there you can see our 13 bakeries, with one in Eswatini and one in Lesotho and 11 in South Africa. Our latest data: August market share is 27%. From a milling perspective, we've got the six wheat mills, one in Eswatini and the other five in South Africa.
We've got the maize mill and the wheat mill, the one maize mill in Eswatini, one in Kroonstad for the two in the group, and then the one beverage plant in Eswatini. From a baking category perspective, obviously our facilities that we have in Mozambique falls within the grocery category. Our latest wheat market share is 41%, maize market share is 15%, and we are still Millbake dominated at 83% of revenue coming from this division. From a groceries and international perspective, first and foremost, our confectionery two plants, one in Wadeville, one in Tunney, and the eastern part of Gauteng. We've got the Lil-lets factory in Durban, and then all the operations on one site in Mozambique being a wheat mill and maize mill, three pasta plants, five biscuit lines, and two animal feed lines.
Our candy market share is running at about 13% at this point in time, and SA femcare market share is 21%. And then in the U.K., we have 6% overall market share of the femcare market, but specifically in non-applicator tampons, which is the traditional strength of the Lil-lets, we're running at 73% market share in that country. 17% of revenue coming from this division for the overall group. Then everybody, I'm sure, is well aware. I'm not going to go through all the details of the Rhodes transaction, but we're basically swapping every seven Rhodes shares. We'll get one Premier share if the transaction completes. It's a nice tick up in premium for Rhodes, but it's still only at about run about a 10 odd P/E on the Rhodes business, which makes an attractive acquisition valuation for Premier.
The Rhodes shareholders will own about 22.5% of Premier if the transaction completes. We're basically waiting for shareholder approval, which is scheduled for the 11th of December. We expect the circular to go out on Thursday. We've been through most of the regulatory approvals, the TRP and the JSE, and so we're pretty much on track with that. And we also have filed all the merger filings for approval from the various competition commissions across South Africa: Eswatini, Namibia, and Botswana. And we certainly, at this point in time, feel that we should be able to close before the end of our financial year on 31 March 2026. I'm going to go into the rationale.
We've put out a fair amount of detail, but I think it's very important to understand that Premier has always stated that what we're trying to do in the longer term is get to double-digit profit growth, which translates into higher EBIT growth and translates into trying to strive to get to the 15%-20% range on the EPS growth in the long run, and what we feel is that the Rhodes acquisition was just another opportunity for us to continue to drive that growth. In the short term, we expect a nice reduction in duplicated costs that will support profit growth on this acquisition for us. In the medium term, we see a lot of opportunities within the procurement of the various raw materials and packaging materials and other services.
And in the longer term, there's some nice growth opportunities that we will look to accelerate within the RFG portfolio. And we believe that these various short, medium, and longer-term opportunities will continue to drive and assist Premier in maintaining that growth profile that we've managed so far. Obviously, RFG or Rhodes has got a very nice balanced product portfolio of products with the long-life juices, the pies, the ready meals, and the spices being some of their strongest businesses. There's some more challenges on some of the canning side of the operation, but I think we've got some ideas and thoughts on how we're going to deal and go about making sure that those opportunities also contribute to our profitability going forward.
And obviously, we have a very strong partnership with Woolworths in particular, and the combination of Premier's business and Rhodes's business will further enhance our drive to grow with Woolworths going forward. We have obviously got exactly the same customer footprint pretty much. And so from an economies of scale perspective, in terms of distributing to all the areas in the country, we certainly see some nice opportunities on the logistics side. The fact that Pieter Hanekom and his executive team will remain in the business and will join us in our management structures to really bring and harmonize, do the cultural integration, and start to unlock all of these opportunities, I think, is a massive strength for us. And I certainly feel very strongly about Pieter Hanekom and his team's support and willingness to really engage with us and work with us on this deal.
I think it's going to be one of the things that will really make us successful going forward. From an enlarged group perspective, I do think the extra scale from a market cap perspective will move us closer to becoming a viable investment opportunity for a larger universe of investors that have in the past indicated their willingness to invest in Premier, but due to a lack of scale and liquidity and free float, have elected not to do so. I think that that should be nicely supportive of a positive spiral in our share price going forward. Just from a business overview perspective, I think a lot of people comment a lot on the macroeconomic environment, South Africa and neighboring African countries.
The reality is, although we trade into all the spheres and across all the LSM levels in all the markets that we operate in, we actually are not economists, and we don't really have a massive crystal ball insight into what happens in those environments. I think a lot has been written in South Africa about the impact of online gambling, and I've been quite vocal about the relief that has come through on staple foods for the consumers, that especially now at this time now versus this time last year is driving a big deflation in core categories like maize meal, rice, and even some to a more limited extent within the wheat categories. So there's been a lot of relief for the consumers that have come through from a basic staple foods perspective.
Then the competitive environment, I think everything is a normalized environment as it's always been. I don't think there's anything new. We have competitors that are continuing to also look at reinvestment in their facilities, improving their operations. And I think a highly competitive environment is really what the industry needs in order to drive it forward. And so I think that from our perspective, we're certainly satisfied with the way that the competitive environment is shaping up. Our capital projects, Aeroton is in the last throes of startup. We should be into commercial production by the end of the month, first week of December. And so we should have the volumes from the Aeroton facility and the quality that we put out there being available to assist us during the festive season trade.
Every single year, we see December as the biggest volume month for the basket, especially as the consumers have 13th cheques and other payouts that support consumer spending over the festive period, and bread in particular certainly has a category of benefits from that, and so the fact that we have Aeroton up and running for the season will stand us in good stead. From a share buyback perspective, we have announced that this morning. The reality is that we're doing the Rhodes transaction on a share-for-share deal, so there's absolutely no debt being drawn for the acquisition, but that does leave us with a fairly unclear balance sheet going forward.
To augment that, we have opted to use the general buyback authority that was afforded to us at our AGM in September, where we're allowed to buy up to 10% of Premier shares in a general buyback through the normal trading platforms on the JSE. We intend to start doing that. We will only purchase up to ZAR 154 per share, which is the value that we've ascribed to the Rhodes transaction from a Premier perspective. To the extent that there are shareholders that are opting to sell shares at those levels, we will look to pick that up. One might ask yourself, with Premier having traded recently in the ZAR 160-ZAR 164 range, as to whether ZAR 154 will attract any sellers.
The reality is that I do think that the volumes on the market have not been such that to the extent that there are larger shareholders that want to exit, that they can just trade through the market. And so they will always look at a discount to do a private placing. And this might afford some of the shareholders an opportunity to sell into this general offer. We are going to make 100% sure that we communicate this as widely as possible. We want all shareholders to have equal opportunity to tender their shares through this general buyback program. And so we will embark on it in an organized manner over a period of time so that all shareholders will get 100% equal right to participate. From a Millbake perspective, I think it's another strong performance on our Millbake division.
We've seen, as I've noted, quite significant deflation in maize and rice prices, and even wheat has sort of trended sideways to down. And so the 6.4% revenue growth that we've generated over the last interim period really is a strong performance in our view. And we certainly are now at the bottom of that commodity cycle for the time being. We've seen super maize meal prices on 12.5 kilos falling from ZAR 130 a bag to ZAR 109.99 and even trading at the ZAR 99 and down levels. And so that's where the significant relief has come through for the consumers. Market pricing reflects current raw material prices. And so I think at this point in time, we really are, from a deflationary perspective, at the bottom end of the cycle. Snowflake has remained a powerhouse of a brand.
We are able to take a small premium versus the other players in the market that continues to support our profitability in the category. And I think the multi-decade focus on exceptional quality as the best quality cake flour in the market, especially for home baking as well, has really elevated our product to be recognized for that. And I think we're reaping the benefits of that. Yeah, I've talked about the maize and the rice that have been reductions that have passed through. On the rice side, we've also hit the bottom end of the deflationary cycle for now, where current prices to consumers in the market are reflective of the global raw material prices. And we've certainly seen a nice uptick in trading activity in these categories as these products have become a lot more affordable.
We continue to remain vigilant on price point management, procurement, and we try to drive sustainable volume growth. As always, that's a big part of our DNA. I've talked about Aeroton coming on stream. This will be the first of the two lines that we will get up and running, with the second one hopefully entering commercial production in February next year, and these investments certainly, we believe, future-proof the supply in the high-demand regions. From a groceries international perspective, we've invested heavily in our Lil-lets facility. We've put a new pads line with extensive packing automated packing lines in. We've invested in a new liners line with automated packing lines, and we've put some semi-automation within the boxing of non-applicator tampons that also drives further economies of scale for us, and all of those investments are, as we said, finished and concluded at the end of October.
And so as those products start to enter our bill of materials and the pricing, we should see the benefit of the margin uplift from those investments starting to come through. On the U.K. side, we continue to see a decline in the use of femcare products in the U.K. It's a declining market at low single- digits. And we've done extensive work in entering the cotton wool category. Lil-lets is the only branded cotton wool provider in the U.K. at this point in time versus all the other private label providers. And what that has meant is that we were able to launch the Lil-lets cotton wool range on Amazon in particular, where there's no other competitor on Amazon for the time being, given that all the other competitors are private label. And Amazon is, by quite a large margin, our largest customer now in the U.K.
Subsequent to COVID, it started to overtake Tesco's, and it's just continued from strength to strength. And it's a very good channel for us, especially in the developed markets. It's also allowing us to look at exploring other geographical areas where Amazon is also strong, where we feel that the range might have some relevance. And we'll keep you posted on developments in that area. Our sugar confectionery business has had an incredibly busy year. They've onboarded more than 150 products for Woolworths, with a lot of it in the chocolate ranges that we never manufactured before. It was new manufacturing capability that we had to bed down and get up to the Woolworths standard. And I think the team has done an absolutely magnificent job to get all of that done in around about 12 months' time. The portfolio is in. It's being produced.
We're certainly continuing to see the benefit of that as that flows through our sales and our profitability. It's really, in my view, at a point where it's starting to step change our overall sugar confectionery business. We've also finally launched Liquorice Allsorts now into the Woolworths footprint. You would have noticed Woolworths was out of stock on Liquorice Allsorts for the last few months as we were trying to get the quality and get the product right. It's gone through Gold Seal approval, and it's been distributed into stores. The full Liquorice lineup will be in Woolworths available for this festive season. Once again, a very strong performance operationally by the teams at factory level to bed all of that down and get that done for us. On a Mozambique perspective, we've certainly had our headwinds in Mozambique over the last few years.
But the improved operational performance that we started to see from the middle of January in the wake of the political unrest has continued subsequently. And so we've actually seen quite a nice uptick in performance of the Mozambique business versus the prior year, although it isn't nearly at the level that we would hope that we can get it to over time. You will also see the Smiles range here shown, the three cookie variants that we launched for Woolworths. We manufacture those in our Mozambique facility on our biscuit lines there. And I think both Woolworths and us were blown away by the uptake of this range. And we've had to scramble quite a lot to increase production on those lines in particular to make sure that we continue to keep the product on shelf for Woolworths.
Just a last item on general is that because Rhodes' year-end and our year-end is six months apart, it would have been unfair if Rhodes had received their full year dividend in January and then also get Premier's full year dividend in July, and so we've decided to split our dividend in two as a once-off this year, so we will pay half of our annual dividend in January, we scheduled for around about the 26th of January, and then we'll pay the other half of the dividend on the normal timeframe in July, and thereby effectively not just putting our Premier shareholders in a worse position vis-à-vis the Rhodes shareholders. Hand over to Fritz for the financial performance.
Good morning, everyone. Thank you for joining us on the call. The Premier Group delivered a stellar set of results for the six months ended 30 September.
The continuous implementation of a successful business strategy resulted in a revenue of ZAR 10.3 billion for the period, which represents a 6% increase year on year. The relentless focus on operational efficiencies in the Millbake division and other divisions, as well as the expansion of Synergy's logistics platform, culminated in an EBITDA of ZAR 1.3 billion for the period. This represents a 14% increase year on year. We've also seen the EBITDA margin increase by 80 basis points, up to 12.7% for the period. With depreciation remaining fairly flat year on year, we've seen the leverage effect that Kobus has alluded to, with operating profit increasing 17% year on year to ZAR 1.1 billion. The margin of the operating profits also increased by 100 basis points, up to 10.7%.
The reduction in interest for the period of 27% has resulted in a net profit of ZAR 719 million, and the increase year on year is 27%. The margin of net profit has increased by 120 basis points, up to 7% for the period. On the 16th of September, we released a SENS to say that we've given some guidance that the earnings per share would be up 20%-30%. The actual for the period is up on earnings per share 27% to ZAR 5.58, headline earnings per share 28%, up to ZAR 5.60. We've generated ZAR 1.3 billion of cash from operations, which is an increase of 35% year on year. The result of an increase in EBITDA, as well as good working capital management, contributed to the ZAR 1.3 billion. The ZAR 1.59 of the interim dividend will be paid on the 26th of January, as Kobus has already mentioned.
During the period, we've paid ZAR 70 million of voluntary debt back. This is the Eswatini facility, the long-term facility we had, which was the most expensive in the group. That's now settled completely. We've only got an overdraft left at that. We've also degeared the business from the previous period, from one times geared down to 0.7 times. We've seen our ROIC increase by 210 basis points to 24.8%. Just a reminder, this 24.8% includes all the inefficiencies of Aeroton being started up, as well as all the CapEx that's been spent on that facility. ROE has also increased slightly from 31.9 to 32.3. We report in the two divisions, which is Millbake, which is the biggest division by far, that contributes 83% of the revenue, and then groceries and international. We've seen Millbake revenue increase this year by 6%.
2% is price mix, and 4% is volume growth. If you look at the graph on the left, we've had CAGR growth of 10% in revenue since 2021 up to 2026 to record ZAR 8.6 billion of revenue. Again, the relentless focus on operational efficiencies, as well as the cost containment culture in this business, affected the CAGR growth of 18% up to ZAR 1.3 billion for the six months EBITDA in this period. We've also seen the EBITDA margin increase from 11.4% all the way up to 14.7%. Again, just a reminder that Aeroton inefficiencies are sitting in this 14.7% EBITDA margin. Similar effect on operating profits, that's increased by 22% CAGR from 2022 up to 2026. Groceries and international, this year we've seen the revenue increase by 8% year on year, which is a good result.
The three divisions that sit here. HPC has bedded down the liners line and the pads packing line. Candy has implemented all the new Woolies products for it, and Mozambique has managed to operate quite well, although the currency is quite soft in country, and that all culminated in an EBITDA growth for the specific year of 13.1% year on year. EBITDA margin remained fairly flat. Mozambique is probably still the biggest contributor why the margin has not increased significantly here. Thank you. Okay. The next slide is the headline earnings waterfall. It is a reconciliation between EBITDA and headline earnings. With the three biggest portions here is depreciation. If you look at depreciation year on year, as I've alluded to before, it has remained fairly flat. Net finance cost is reduced by ZAR 47 million, which represents 27% year on year.
It's a result of degearing the balance sheet, as well as the effective interest rate that's reduced from 9.7% down to 8.7%. Then the tax you would see has increased significantly as a result of the increase in the EBITDA to record headline earnings of 7.21 for the specific period. Next one is the cash flow. We've alluded to the cash from operations of ZAR 1.3 billion, which represents 35% year on year. As a result of the increase in the EBITDA, as well as working capital management that has been managed very well, we've seen improved debt collections, as well as soft commodity prices decreased, which then had a result of only ZAR 70 million of working capital that's been absorbed in this period versus ZAR 240 million in the previous period. We've talked about the finance cost, tax paid as well.
Dividends during the year. August or July, we paid ZAR 359 million of dividends. We've spent ZAR 510 million of CapEx for the six months up until now, of which ZAR 400 million is expansionary CapEx. Most of that sits in the Aeroton plant, as well as in the HPC plant. Then we've talked about the Eswatini repayment, the ZAR 70 million that was done during the year, and that then ended up in a cash balance of ZAR 388 million for the six months. The next slide just shows the cash conversion that's gone up from 67% all the way up to 81% for this period. The average is 72%, and we foresee this trend to continue on this level. Capital expenditure, the graph on the left indicates what is the capital amount versus revenue. For the previous period, it was 2.9%.
This period, it's 4.9%, which is much higher than what it's normally been. ZAR 400 million is the expansionary CapEx. We've already alluded that it is the Aeroton portion that sits there and HPC, and ZAR 110 million has gone to maintenance CapEx. Next slide is the debt breakdown. If you look at the bottom, we've degeared the business from 1.9 times geared in 2021 all the way down to 0.7 times geared at this level. We've just looked at our long-term facility in South Africa. We've refinanced that. So we've got a term facility and an RCF facility. Term facility is ZAR 1.5 billion with a four-year maturity sitting at JIBAR plus 125. The RCF is ZAR 1.7 billion with the same rate. Of the RCF, ZAR 1.4 billion is available to be drawn for future expansion if required.
That's it. Thank you very much, everybody.
As I said, try to keep it short and sweet. That was 30 minutes. If there's any questions, we're happy to take them now. Thank you, Samir.
Yes. Thank you for the presentation. I just wanted to remind the people on the call, if you have a question, either raise your hand or post it on the chat. I see Shaun's got his hand up. Shaun, please go ahead.
Thanks. Thanks, Samir. Morning, everybody. No, thank you. Great results. But I think you know what puts a smile on my face, the RFG transaction, which is good news for you guys. Just one question around this. So the new issuance of shares increases your free float to about 40%. And then obviously, I just want to check, is Brait keen to do the buyback transaction?
So if you buy Brait shares at ZAR 154, you can only do a maximum of 10%. How much do Brait own? Because as it stands, if they own about 32%, this tells me if you just by the nature of the transaction, they get diluted to about 26.5%. Because it feels like there's more free float that can come out of it beyond the 40% if they opt for the buyback as well. Maybe just talk me through the mechanics. Thanks.
Yeah. So the reality is that every single shareholder of Premier will get equal opportunity to participate in the general buyback. We've got no pre-arrangements or anything whatsoever with any of our large shareholders.
What Brait might and might not do, to be honest, their results presentation is on Thursday at 2:00 P.M., and I suggest that maybe you pose that question to Peter Hayward-Butt, but I'm wholly unqualified to give you any guidance on that. I think we're trying to focus on ourselves and what we do. Brait have stated that in the long run that they would look to unbundle the Premier shares at some point in time in the future and to significantly improve our free float. I presume your calculations are more or less right around the 26% level, but that's as much as I can comment at this point in time.
Got it. Got it. No, no, thank you. Yeah. No, thanks for that.
Just a reminder, if you have any questions, please raise your hand or post it in the chat. I don't see any.
Here's a question from Isak. Isak, please go ahead.
Hi guys. Thanks for the presentation. Just on the Rhodes Foods transaction, have you had any initial feedback from the Competition Commission on stumbling blocks for approval? I think we've just seen over time management teams have been very disappointed with the timing of approvals. And I wish you get it done by March next year, but I'm just concerned that you're a bit optimistic there.
We have had the Competition Commission appointed a commissioner immediately upon us having filed our application. The commissioner has been very active. All the communications have gone out to the unions, to the competitors, whoever else. We certainly remain of the view that the transaction has no competitive issues whatsoever.
And so the only real unknown for us at this point in time is whether we will be subjected to public interest matters that are virtually impossible to speculate on in terms of what those could be. So I think we feel that we're seeing a lot of progress from the commission themselves. We see highly competent regulators fully engaged on the transaction, going about doing their work appropriately and very well. And we certainly, in our mind, at this point in time, have no reason to believe that we will have a drawn-out lengthy process.
Thank you. That's encouraging.
I don't. Oh, yeah. Talia, please go ahead.
Thank you. Could you confirm if you could hear me?
Yes, we can hear you.
Okay. Perfect. So I saw you had quite a good capital unwind this year. And so is that basically all because of the soft commodity prices?
Yes. I think soft commodity prices heavily influences it. But I think the fact that our profitability has just grown has also generated cash for us. Our EBITDA running at ZAR 1.3 billion. We benefited from having made a repayment on the debt on 31 December last year. Then obviously, on a comparative basis, that debt wasn't in our number this year versus prior year. And then we also, as we have said, we settled all the Eswatini facilities. The Eswatini facilities was just due to the nature of capital markets in the country was at higher levels, and we were able to borrow it in South Africa. And so the cash generation in Eswatini enabled us to settle those facilities completely. So we've benefited from that. And then overall, lower interest prices has certainly benefited us across the board.
So I think it's really just a combination of strong operating performance, lower commodity prices, releasing money out of working capital, and then reduced debt levels with lower interest. I mean, it's a little bit of a positive spiral at the moment that we managed to take full advantage of.
Okay. Thanks for answering that. So if I can ask, what led to the soft commodities decreasing in price this year?
It rained globally.
Yes.
So there was a big maize harvest. Last year, the maize harvest was looking very small. And there was especially a lot of demand for maize in our neighboring countries with a very big harvest that came about with very strong rains most of this past calendar year. We've seen a big increase in raw maize production, and that has resulted in much lower maize prices. It's just really a supply and demand issue.
And then on the right side, India anticipated drought conditions, closed their markets for exports. And then the drought didn't fully materialize. They ended up with quite large excess stocks, and that's driven down global rice prices. So I think the world at the moment, as we sit here right now, in all the major grains, are a wash in stocks. And so prices have come down and reflect the supply and demand position globally.
In many ways, your maize price decreased from ZAR 5,500 a ton last year. This time, down to ZAR 3,500 a ton, which is a 34% reduction. And that's just on white maize. I mean, Indian rice, we've talked about some very similar, and wheat is also reduced. And to give you an idea, sensitivity for every ZAR 1,000 that the price reduced, it releases ZAR 100 million in working capital.
Okay. All right.
I see. And so it seems to me also a lot of your growth was driven just by margin expansion. So I suppose efficiencies. And would that be sustainable into the future?
We certainly believe so. The 4% volume growth has also helped us. It's just a nice continued upward march. Nothing out of the ordinary. And we certainly feel that with Aeroton coming on stream and us able to take a lot of inefficiencies out of the existing operations where we will close a number of smaller bakeries and consolidate, we will continue to see that economies of scale drive through to our cost base and give us further uplift in margins.
So where do you see your EBIT margin going or EBIT margin targets?
Ooh, I don't know that. We don't really provide that kind of forward-forward guidance.
All right. Okay. Well, thanks for answering my questions.
No problem. Anytime.
Thanks, Talia. Dirk, please go ahead.
You had your hand up first.
Yeah. Thanks, Samir. Morning, guys. Maybe if you could, to the extent you are willing, just unpack the Millbake moving parts half on half? Was there any significant swings we should be aware of in maybe some of the more commoditized parts of that portfolio, maybe maize or wheat? That was positive or negative. And that's my first question. And then the second question just on kind of your outlook for input costs in the year ahead and maybe just a brief comment on what you're seeing on the pricing front in bread in the market. Thanks.
Well, I think that it's quite obvious that we took a little bit of strain in the maize category. It's a cyclical business.
And so last year, with the huge inflation that we saw there, we had to continue to pass price increases through to our consumers. And this year, we were in the deflationary side of things where we continuously, as our bill of materials came down, passed through price decreases to the consumers. And so in that volatile environment, sometimes you're able to protect your margin a little bit better than other times. Last year, we struggled a bit with that. This year, we benefited a little bit from that. So I think overall, our maize category has done better than last year. Certainly not an outlier from a performance perspective, but just at a more long-term sustainable level.
From a wheat perspective, as I've alluded to, we just continue to see the strength of Snowflake really as the market leader and the quality leader in the market being a very strong performer for us. And then on the bread side, we've always managed to run our operations well. Pricing on bread in the market has basically been flat now for 12 months with a little bit of relief on the wheat side in terms of the bill of materials helping you out a little bit with offsetting some of your other costs. We've seen diesel costs and fuel costs come down as well, assisting us there with offsetting your wage increases in particular. And so overall, the bread category has just continued to trade on its long-term trajectory as it's always done.
So I think it's really across the board on the various areas, just a good, strong continued performance on the same track as we've always been, Dirk. I don't see there's any outliers. I don't, from my perspective, view the market as having changed in terms of competitive dynamics or any one player winning more out over any other player. I think it's just been more of the same.
Okay. Great. Thanks. Just maybe one follow-up. You mentioned the Aeroton ramp-up in two phases. What are those two distinct phases?
There's two 8,000 loaves an hour lines in that facility. So you start up the one, and then once you've bedded that down, then you start up the second one.
Okay. Thanks. Very clear. Thanks .
Thanks, Dirk. Shaun, you had your hand up. Please go ahead.
Yes. Thanks. Yeah.
Building on to Dirk's question on the Aeroton bakery and a lot of the new business that came in within groceries, all the things that are coming in, it points to obviously higher profitability, higher margin. Are we going to see a scenario where the incremental sort of new shares in issue have no impact on earnings because the core business, it's growing at such a high rate that it will offset the dilution from the new shares? Just looking at the core business, I know you're very modest and polite when you speak about this, but it kind of gets that the dilution is minimal relative to the quantum of what you see. Or am I being too optimistic?
Look, Shaun, I think the first thing you've got to recognize is that because we're buying Rhodes at a much lower multiple than what Premier's trading at, the number of shares we have to issue to acquire Rhodes versus the earnings that they add to us is actually earnings enhancing. I think it's almost like ZAR 1 or so that our earnings will jump just as a result of the deal where the number of new shares that we issue is less than the earnings that Rhodes adds. It's accretive from an EPS perspective immediately once we've consummated the transaction. From our perspective, that in itself immediately then is earnings enhancing.
I think that combined then with a continued trajectory on our core business as well as the synergies and opportunities for improvement in efficiency and the growth projects, as I've alluded to in Rhodes, I think will continue to drive the earnings growth that I spoke about.
Yeah. Shaun, if I can add, I think the circular that will come out later this week, which obviously has the pro forma earnings, I think will have part of the answer to what you're looking at. Obviously, that's on a historic basis, but I think it'll give you a picture as to the earnings effect of the transaction.
Yeah. Yeah. And then just to build on that, obviously, there's a lot of work you've done. You're reaping the benefits.
There's the view to take on margin expansion, but there's another school of thought of keeping things the way they are for the customer, given that it's a constrained environment and providing a little bit of relief. When you add all these benefits that are going to come through, how are you thinking about them? Is it more for shareholders? You're thinking about it from a shareholder perspective, or are you thinking about it first from a customer reinvestment perspective?
Thanks. Look, we trade in a highly competitive environment. In every single one of our categories, we have very significant other players that are strong enough and that if we don't remain competitive, will eat our lunch. And so from our perspective, pricing and what we charge for our products in the market is very heavily determined by market forces.
The reality is that if market forces continue at the trajectory at which they are at the moment, we should be able to deliver some of the cost savings and synergies and use that to drive profit growth. We shouldn't have to pass all of that on to the end customer. But that's constantly being evaluated. We look at it every single day, and we have to be nimble, and we will move fast, and we will do what we need to do in order to run our business right. But that's certainly, in my view, the expectation is that some of the efficiency gains wouldn't need to be passed through price reductions but can be used to continue to drive our profit growth.
No. Thank you. Got it.
Thanks, Shaun. Nomandla, you have your hand up. Please go ahead.
Hi. Can you guys hear me?
Yes. Yes. We can.
Thank you so much for taking my questions. Two questions from my side. I guess the first one is on just the sustainable level of capital expenditure, just given the fact that you've done all these capacity expansions and then you're planning on closing some of these old bakeries. Just within the context of you guys growing volumes in a constrained consumer environment and potentially against some recovery in one shape or form in time is inevitable. How are you guys thinking about the level of CapEx that you guys have been running at? And how should we think about the sustainable level of CapEx as you guys balance these dynamics that are taking place? And then the second question from my side is, when we talk about the combined entity of Rhodes and Premier, how should we think about the capital allocation framework of that combined entity?
Just how the two businesses will be integrated from that perspective?
So in terms of our investment cycle, we've always stated that our investment in both Waltloo initially in Pretoria and now the Aeroton facility was always done on the basis that we want to consolidate capacity into large-scale bakeries that gives us economies of scale and efficiencies. That is still our primary driver of these projects. We have not attempted to add any real significant amount of capacity into our footprint. The decision on what capacity we need to do next or investment in our facilities we do next will purely be driven by market forces and what happens in the market. To the extent that we feel that there's a need for additional production volumes, then we will continue to make investments.
But I think that for the time being, we're satisfied that we're going to conclude Aeroton, and we will see what the Aeroton operation, whether it fully delivers on our expectations in terms of our CapEx plans. From a going-forward perspective with Rhodes, we've done preliminary work, but our due diligence initially was very much around confirmatory in nature and to make sure that there's no major issues within the Rhodes world that would have caused us to not want to do the transaction. We've got some ideas and thoughts, but I think that the capital investments that we would look to make in Rhodes would be driven by exactly the same philosophy that Premier's always been running. We would look to make investments where we get cost savings and economies of scale that gives us our return profile.
And we would look to invest in new capability or new areas where we feel organic growth is possible and that we would see a good return on that capital invested. And I think that the one thing I will tell you is that I don't think we're going to run out of ideas. So if I was a Premier shareholder, I would be expecting that us as a management team will continue to come up with very strong, good capital investment opportunities and that we would continue to invest in our business for the foreseeable future.
Nomandla, do you have any other questions?
Yes. Just a clarification on the capital allocation framework, Kobus. Just when we think how you think about the balance sheet positioning of the two businesses, just given the fact that Rhodes has a slightly different, more cyclical business in terms of its working capital.
I guess from a combined entity, how do you think about the different parts of the business and then overlay that against the cash returns to shareholders' posture of the combined entity if the deal is successful? And then just on your points that you mentioned on capital investments, how much capacity do you have? Because I guess given the fact that you guys are growing volumes nicely, I guess what I'm trying to understand is with the Aeroton bakery and then you guys closing down some of the bakeries, do you have enough capacity to run as of today given the run rate of volumes? How should we think about that?
Look, I think that to answer your last question first, we certainly feel that we've got appropriate production capacity and in terms of flexibility.
I mean, to the extent that we need more volume, then there are opportunities for us within our footprint to augment that, but we don't really want to get ourselves in a position where we overinvest in capacity and then we sit with it and now we're trying to find a market for it. So we've been quite cautious. We've never overinvested. And I think that as we've stated in the past, to the extent that we do find pressure on volumes, then we can look at our existing footprint, some of the bakeries we were going to close down, etc., etc. There's a lot of options for us depending on geographically where the constraints start to develop. In most of our coastal regions, everywhere, we've still got ample capacity.
We upgraded our Durban bakery in the last two years, and we've always had decent capacity availability within the KwaZulu-Natal market. So I'm not concerned that we won't have the capacity to service the market, whatever it is, and I think we've been quite prudent to not get ourselves into a position where we've overinvested and then we sit with excess capacity. As for the capital allocation on Rhodes, we as a management team together with Pieter Hanekom and his team will go through an extensive process once we have got approval for the transaction. At this point in time, we're not allowed to really influence. We're not allowed to have any control or nothing, and so we really are in a holding pattern.
But the reality is that Rhodes has got enormously successful businesses and other businesses that are also like our Mozambican business, perhaps a little bit under stress from time to time and a little bit more cyclical. And what I think we're going to have the opportunity is to continue to invest in the areas that are perhaps more consistent, that drive more consistent performance, and continue to de-emphasize within the portfolio the contribution of the businesses that are slightly more volatile from a cyclical perspective. I think within Premier, our maize business has been cyclical from time to time, and we've managed to actually overcome that quite well from a portfolio effect. I know the exports business within Rhodes has been cyclical from time to time. But within the Rhodes world, the exports business is declining below 20%. Was going to go towards 15% anyway.
On a combined business, that's now going to 4% or 5% contribution. So I do think just the combination of Premier and Rhodes immediately puts us in a position where the more cyclical natures of both of our businesses get de-emphasized, and the stronger performing businesses will continue to be the biggest driver of the profitability going forward.
Thanks, Nomandla. We have a question from Steven, and I see we've got four minutes left. So I think after Steven's question, we'll take one last question. Steven, please go ahead.
Thanks, Emil. Thanks, guys. Just quickly from me, I've got a few questions, but that shouldn't take too long. The first one, just on Rhodes, I mean, are there any quick wins that you look at when you see that business that you guys can come in and extract synergies?
Yes, absolutely.
I mean, we would immediately lose the listing fees on the JSE, but audit fees, board fees. There's all sorts of, I guess, duplication in costs as two standalone businesses that one would look to sort of rationalize, so I do think there's what I've alluded to in the presentation is that there's costs that will reduce in the short term quite quickly. And then there are cost synergies that will take a little bit longer to unlock, so, for instance, bringing Rhodes into the logistical platforms of Premier will take a little bit more time. And harmonizing our merchandising structures and a few other areas will take a bit more time.
And then, as I say, we will also use the benefit of that then to really put kickstart and accelerate a few of the growth opportunities within the portfolio and make sure that we get those to come on stream as we finalize and get the final benefits of the consolidation cost savings coming through. But from a pure operational perspective, you have to understand that we don't have factory overlap. So it's not as if we have two factories doing the same thing. We close the one down, and the other one makes everything. I mean, there's none of that type of opportunity. It's much more at a service provider level and at a head office level.
And procurement efficiencies.
And procurement efficiencies, yeah.
Great. And then just in terms of the international part of Rhodes business, it's very working capital intensive.
I mean, is that just something that you are happy with and you understand the price that you're paying accounts for that? Or do you think there's a solution to address that very large working capital drag?
Look, I think that, as I've alluded to in the Rhodes world, that was a 15%-20% contributor and probably a bigger part of their working capital. In the Premier world, on the combined Premier Rhodes world, it becomes significantly smaller overnight. But I mean, we will I think there's various options. The business is obviously cyclical. There were times when Rhodes managed to make very good profits in that business, and they at the moment are part of the cycle where the profitability is at the lower end of the range.
I certainly, if I look at the business and I look at the profitability of it and you look at it through the cycle, I certainly don't see anything wrong with it. I think it's just been an influencer of earnings at the Rhodes level, which I think we would be able to smooth out given the sheer size of the combined entities going forward.
Okay, great. And then, sorry, last question from me. Just in terms of the share buyback, the mechanism that you're going to try and do in order to execute the buyback, from your perspective, you'd want to pay the lowest price. And I think there are quite a few large sellers that have been in this or large institutional holders that have been in the stock for long. I mean, would you be able to do a reverse Dutch auction type of buyback?
Or why not just let them try to place it in the market, and then you could be a bidder for those shares? At the end of the day, you want to try and minimize the price that you're paying.
Look, that is true. We obviously would like to minimize the price that we pay, but at the same time, we also want to make sure that we are 100% fair and democratic to every single shareholder. Every shareholder should get an equal opportunity to tender shares into this. And so, from our perspective, we're going to start out, and we're going to put some offers in through the normal trading platforms. And whoever wants to sell, we will sell. And as we go along, depending on appetite and depending on how it goes, we might be able to adjust the price or not.
So I think that its market forces will determine it. Sellers will determine it. People that decide to participate or not will determine it, and we'll take it as it goes. If we get an avalanche of sales at ZAR 154, then, of course, we would look to see if we need to reduce the price to ZAR 150 or something. But we also might sit in a situation where we offer at ZAR 154 and we don't have a single party that shows up, and then we just go home. So we would definitely be doing some market exploration and market making in this process. And that's where experts like Investec, trading and equities desks, and brokerage services, these guys have been doing it forever and a day. They've done it for every single large listed company almost out there from Shoprite to Pepkor to name it.
And we will give them a hand to try and see what the best is that they can do for us.
Okay, great. Thank you.
We are on time. Steven, do you have any other questions? Are you good?
No, that's all from me. Thanks.
Excellent. I think we don't have any further questions, gentlemen, so we will call it there. Thank you so much for your time and for answering the questions. And thanks to everybody for joining the call. I think we can now disconnect.
Thanks for your support, Emil. We really appreciate hosting for us. Thank you.
It's always a pleasure. Thanks, everyone. Cheers.