Pioneer Foods banks on strong brands, exports

Published Nov 26, 2013

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Johannesburg - As consumer confidence sinks and input costs continue to rise, food producer Pioneer Foods believes its growth will come from market share gains of its strong brands and export business – and not from volume growth.

The company, which is home to staples such as White Star super maize meal, Sasko bread and Spekko rice, described its final year-end results as a “fair set of results in a constrained and highly competitive market”.

It added it was experiencing increased competition from local and international market entrants. “The combination of a soft and highly competitive market makes it difficult to pass the full impact of input cost increases on to consumers without volume loss,” the company said.

Pioneer Foods said it was now imperative to continue to invest in its power brands in order to keep up with its strategic intent of being a leading branded consumer goods business.

The new chief executive, Phil Roux, said the company’s raw material costs went up by 11 percent, but it managed to limit production cost increases to only 7 percent.

For the year to September, Pioneer Foods raised revenue by 10 percent to R20.5 billion, with volumes across the group’s basket increasing by only 1 percent. The group’s headline earnings a share increased by 15 percent to R3.89, with headline earnings up 13 percent to R826 million.

Roux said it was a concern that the bulk of the main categories, including maize, bread and rice, were declining, which was a good sign of where consumers found themselves.

“This gives an indication of where consumers stand at the moment. They are taking a lot of strain. However, we were able to hold on to our market share.”

Maize profitability in the first half of the reporting period was compromised despite strong volume growth due to insufficient price recovery in a rising commodity cycle. Pioneer Foods said this was corrected in the second half of the reporting period.

The group added that despite its improved performance, the business environment continued to be challenging.

“The South African consumer is experiencing substantial pressure on several fronts. Consumer confidence is low, household debt levels are high and discretionary income limited, translating to price-sensitive and more discerning shopper behaviour,” it said.

Although the food producer struggled to gain traction in volume growth, Roux said there was some good performance from the export business, beverages category, and maize business, which managed to double its profit in the second half of the year.

He added that while the group was expecting growth to come from the export business, it wanted to look for new growth opportunities in South Africa and the rest of the continent through acquisitions.

An analyst at Cratos Wealth, Ron Klipin, said Pioneer Foods’ newly appointed chief executive was what the company needed.

He added that Roux’s experience from Tiger Brands and other expertise would enable him to turn things around over the next 12 to 24 months.

“His arrival at Pioneer Foods means that the group can now focus on being more business orientated.”

There was a change in culture from being a co-operative to being a more of a corporate entity and hence more profit orientated in its strategy, which entailed head count reduction and culling non-performing operations, he said.

Pioneer Foods also plans to unbundle its poultry and egg division, Quantum Foods. It said this business would be listed as a separate entity on the JSE next year.

The food producer’s shares rose 1.32 percent to close at R85.30 on the JSE yesterday. - Business Report

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