Pioneer is confident of higher earnings after good rains
Companies / 19 November 2019, 1:30pm / Sandile Mchunu
DURBAN - Pioneer Foods expects the recent rains to bolster its earnings going forward as rising maize prices and weak demand from consumers in the general food and beverage sector's value chain blighted its earnings in the year to end September.
Chief executive Tertius Carstens said yesterday that the rains were welcome and maize would see the benefits of the rain as the group had a carry-over stock to clear first.
“It bodes well for the maize planting season and we hope it will have a positive impact on the group’s earnings in the future,” Carstens said.
Pioneer Foods produces brands such as White Star and Sasko. Its wheat milling-to-baking value chain delivered a solid performance through strong bread volume growth after recent investments in baking capacity and distribution during the year.
“The maize value chain felt the pressure of acute raw material cost increases and this, together with the lower quality of the crop, drove elevated White Star price premiums relative to price competition in the category. Although White Star super maize meal volume share was retained, the impact of the raw material dynamics could not be fully recovered in the year under review,” Carstens said.
The group reported a 4percent decline in headline earnings to R971million, but revenue increased by 11percent to R22.27billion and volumes increased by 2percent, despite enduring weak demand in the general food and beverage sectors.
The group said the major business challenge during this period was the lagging recovery of the significant input inflation in sales pricing, which was, with the exception of the maize and Wellington's categories, effectively addressed.
Its adjusted headline earnings per share declined by 6percent to 522cents a share, and the group declared a gross final dividend of 219c. Its groceries division recovered strongly in the latter part of the year owing to higher prices and firmer margins. In the international business, export volumes into the rest of Africa continued to be dampened by volatile currencies and constrained consumer markets.
“Trade barriers also impeded progress as foreign governments adopted a protectionist approach towards local manufacturing in order to mitigate the consequences of the constrained macroeconomic backdrop,” the group said.
The long-life fruit juice business excelled and recorded volume growth of 7percent on slightly higher prices, and delivered strong operating profit growth in the process. Cereals also showed strong underlying volume growth, with inflation around 3percent, the group said.
Looking ahead, Pioneer Foods said it anticipated inflationary cost pressure to continue with weak demand and muted consumer spending.
Pioneer Foods gave an update on its merger with PepsiCo, which saw is shareholders vote in favour of the deal last month. It said it was waiting for competition regulatory approval both in South Africa and Namibia, Botswana, Nigeria, Kenya, Germany, Comesa and some others.
“We anticipate the transaction to be finalised early in 2020,” it said.
Pioneer Foods share price declined 0.89percent to close at R108.03 on the JSE yesterday.