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Recovery on cards, says Pioneer Foods

Companies
Durban - Pioneer Foods slipped 8.84 percent to R147.01 a share in early trade on Monday, down from Friday’s closing price of R160 a share on the JSE, following the release of their half-year results in which the group reported a significant drop in earnings.

However, after digesting the news, the share price recovered to close at R153, up 4.38 percent.

The company is confident recovery is on the cards for the year ahead despite a 47 percent drop in adjusted headline earnings for the six months to end March, as the worst drought in over 30 years, which weighed down the agricultural sector, is showing signs of easing off.

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The company also has made a strategic acquisition in Weetabix East Africa, and combining these two factors, it is enough to believe that Pioneer Foods might see the recovery in its earnings much sooner than anticipated.

Read also: Drought, higher grain prices cut Pioneer Foods earnings by 47%

The group acquired a 49.89 percent interest in Weetabix East Africa for R190 million as at March 3, 2017.

“We have acquired Weetabix East Africa not for what it is but for what it can become. It is a small acquisition but it has huge potential - having 70 percent market share of the breakfast market in that region,” said Pioneer chief executive Phil Roux.

Roux said the group would invest in Weetabix East Africa to ensure it reached its growth potential by also appointing dedicated people to drive the business forward.

Although Pioneer Foods is not eyeing any possible acquisitions at the moment, Roux said the group would rekindle the acquisition pipeline in due course.

The forecast for the business is looking better compared to a year ago, with maize prices expected to come down significantly. Lower maize input costs from June, increased raisin supply and lower beverage input costs is expected to boost its second-half performance.

The Crop Estimate Committee reported in March that South Africa can expect to reap its second largest crop harvest since 1981. The committee revised up its forecast by 3percent in March to 14.32 million tons. The largest crop harvest of 14.66 million tons was recorded in 1980/81.

The maize prices have since recovered compared to January, 2016. The white maize cost is about R1 810 a ton. This is much lower than R5 000 a ton levels recorded early last year.

“It bodes well for the industry. Our financials will look decent because maize was very expensive last year. The cost of maize seriously impacted our profits,” said Roux.

Maize is very important to the group as it operates a bakery division as well.

“We expected the rand to weaken more than it did but the reaction was not that bad. The downgrades did weaken the rand and when this happens costs start to go up. The other problem with the downgrade is that it dampens consumer confidence.

“This is not good because it means consumers are reluctant to spend or are spending less. It has a negative impact on interest rates, which might go up and that would increase the cost of borrowing. It is not ideal for our economy,” added Roux.

In the results, the group reported an increase in revenue to R10.18 billion, slightly up from R10 billion reported in 2016.

Profits tumbled by 56 percent to R459.6 million, down from R1 billion while headline earnings per share dropped to 244.4 cents a share, down from 556.4c a share compared to 2016.

The group showed strong cash generation which continued to underpin Pioneer’s operations with cash generated from operations up by 27 percent to R875 million - up from R690 million in 2016.

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