Low volumes constrain Pioneer Foods

Renet Maphumulo packing sasko bread Pioneer foods is before tea time at the Star building in JHB. Photo: Leon Nicholas

Renet Maphumulo packing sasko bread Pioneer foods is before tea time at the Star building in JHB. Photo: Leon Nicholas

Published Nov 27, 2012

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Nompumelelo Magwaza

Pioneer Foods faces intense challenges caused by muted consumer spend in bread, maize, wheat and fruit beverages as significant commodity price inflation was experienced during the first half of the year and price adjustments on these products affected affordability.

Andre Hanekom, the managing director of Pioneer Foods, said yesterday that the full-year results were “quite disappointing and we cannot run away from that”.

He said although raw material pricing remained volatile, there were indications that prices could weaken in the months ahead, which should bring some relief to the consumer.

For the 12 months to September, Pioneer Foods raised revenue by 10 percent to R18.6 billion, with volumes declining by about 5 percent and selling prices increasing by about 15 percent on average over the comparative period.

The company said the decline of 17 percent to R606 million in headline earnings was affected by the once-off, non-cash flow share-based payment charge of R161m, relating to the second phase of the broad-based black economic empowerment transaction.

Excluding the empowerment deal, adjusted headline earnings rose 6 percent to R767m.

The performance of the Sasko division improved compared with the previous year, but fell short of financial targets in the challenging trading environment.

This division saw a rise in revenue of 10 percent to R10bn, with operating profit up 8 percent to R948m.

Demand in the rice category continued to benefit from comparatively expensive maize meal pricing, as well as the re-introduction of cheaper Indian rice imports. Pasta sales volumes were improving in the lower price point environment, driven by lower prices on imported products.

Pioneer Foods also experienced challenging trading conditions in the agri business division. Although revenue increased by 12 percent to R3.03bn, a net operating loss of R49m was recorded.

“The broiler industry especially is experiencing unprecedented price and volume pressure, aggravated by imported frozen products. Measures to contain operating cost increases and improve efficiencies could not protect margins in this constrained environment,” the company said.

Hanekom expressed his disappointment at the beverage category, which experienced a 35 percent decline in operating profit. But he was impressed with the breakfast product basket, especially Weet-Bix, which achieved strong volume growth at an attractive price point.

Daniel Isaacs, an analyst at 36One Asset Management, said the main theme running through the poor performance was significantly increased input costs and weaker consumers, who were unable to absorb the full extent of the price increases, which was evidenced by overall volumes decreasing by around 5 percent.

“Just looking at the operating profit line and stripping out non-operational items, the result was disappointing with overall operating profit decreasing 6 percent,” he said.

Pioneer is heavily exposed to chicken imports through the agri business division.

Shares rose 0.91 percent to close at R58.60 yesterday. Business Watch, page 16

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