Nompumelelo Magwaza
Continuing cost management and efficiency drives supported by active price point management stimulated volume growth across Pioneer Foods’ product basket, the food company said on Friday.
In a trading statement for the four months to January, Pioneer said revenue increased by 12 percent year on year to R6.82 billion with volumes rising by 3 percent to 5 percent on average in the group’s basket. Pioneer’s brands include Sasko bread, Liqui-Fruit, White Star super maize meal, Spekko rice and Nulaid eggs.
Price inflation for the period under review was estimated at between 7 percent and 9 percent.
The company said margins came under pressure in the generally weak trading environment.
In the same period last year, Pioneer’s revenue rose 12 percent to R6bn with volumes down by between 3 percent and 5 percent.
During the four months under review average cost increases were kept at 6 percent and as low as 2 percent if energy and distribution costs were excluded.
Pioneer said further increases in wheat prices were expected while maize prices were expected to moderate in the months to come. Pricing pressure for rice was expected to remain.
“The impact of upward trending costs is compounded by the weakening rand, making further price increases likely across the group’s product basket,” it said.
The lag in the recovery of rising input costs and the weak trading environment in general were likely to place pressure on earnings growth.
Daniel Isaacs, an analyst at 36One Asset Management, said revenue growth was better than expected but this spoke more to Pioneer’s internal strategy than the consumer spending pattern.
“Revenue was above expectations, earnings pressure worse than expectations,” he said.
Sasko’s performance was worse than the previous year due to a lag in raw material cost recovery. However, a competitive price position supported total volume growth across the Sasko product basket.
Isaacs said: “Pioneer mentioned earnings pressure and in particular that Sasko’s performance was below last year. This means they have managed to grow volumes by not increasing prices on their products as much as they needed to in order to cover the input cost increases they have experienced.”
He added that this had the effect of increasing volumes but decreasing margins through cost input pressures had resulted in pressure on earnings.
The food producer said White Star super maize meal responded positively with the competitive price positions and achieved volume growth irrespective of the drop in consumption at industry level. Bread volumes remained flat while performance in the rice category was negatively affected by competitive prices from India. Egg volumes increased because of better production efficiencies.
Pioneer’s Bokomo products increased volumes by 6 percent and price inflation averaged about 9 percent with raw material costs rising by 14 percent. The food maker said Weet-Bix maintained its market leading position after posting a 10 percent price increase from November.
Cereal volumes rose 3 percent while dried fruit volumes were up 50 percent due to better vine fruit availability, the company said.
Volumes for Ceres beverages were down as local market volumes contracted with cost inflation of 18 percent driven mainly by the higher price for base concentrates.
Isaacs said juice was a very competitive category and large increases in input costs had forced companies to increase prices, reducing demand and profits.
Pioneer shares rose 2.92 percent to close at R70.50 on Friday.