Pioneer’s growth surprises market

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Johannesburg - Pioneer Foods expected its adjusted earnings a share to increase by between 38 percent and 52 percent for the six months to March, the food producer announced on Friday.

The announcement not only reflected strong growth but also surprised the market, a retail analyst said.

The company said, excluding adjustments for its black economic empowerment (BEE) deal and excluding treatment of Quantum Foods as a discontinued operations, earnings a share would grow by between 80 percent and 95 percent and headline earnings a share would increase by between 95 percent and 110 percent compared with a year earlier.

The food producer owns brands such as White Star maize meal, Sasko breads and Ceres beverages.

Revenue growth from existing operations was in line with growth reported for the four months to January, which came in at 8.1 percent.

Daniel Isaacs, an analyst at 36One Asset Management, said the important number to look at was for adjusted earnings, which was in the 38 percent to 52 percent range. “You have to adjust for the impact of the BEE transaction and Quantum Foods being treated as a discontinued operation.”

He said these adjusted earnings numbers were strong and surprised the market positively. He added that although the top line growth was more subdued, growth below this line was strong and implied that there was a lot of margin expansion. “This probably came predominantly from cost savings, something which the new chief executive Phil Roux has said he is working on.”

Pioneer Foods said earnings growth benefited from a value enhancement initiative and a continued focus on efficiencies and cost reductions. In addition, a strong volume performance from the international business resulted in increased profitability, aided by rand weakness, it said.

The cash settled phase one BEE transaction was affected by the relative movement in the company’s share price and the number of scheme participants.

It added that a charge of R65 million was recorded in the corresponding period due to the share price increasing from R53 to R71.57 during that period. “A gain of R48m was recorded in the current period following a decline in the number of scheme participants and the share price declining from R87.50 to R83.50,” it said.

It announced its plans to unbundle its Quantum Foods division. Last week, the company entered into a long-term supply agreement with poultry producer Astral Foods in terms of which Quantum would close its Tydstroom abattoir in Durbanville. The agreement includes plans for Quantum Foods to supply up to 550 000 broilers a week to County Fair, a division of Astral Foods.

On Friday, Pioneer Foods said Quantum Foods was treated as “an asset held for sale” and a “discontinued operation”. This has led to the net assess of Quantum Foods having to be valued lower than the carrying amount. It added that an independent valuation resulted in a further impairment of R54m to the consolidation net asset value of Quantum Foods. This, Pioneer Foods said, reflected continuing challenges in the broiler industry.

The company’s shares rose 6.83 percent to close at R89.67 on Friday. - Business Report

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