Pioneer Foods plagues might disappear
A painful restructuring was part of this period; with a second-phase strategy of restoring vitality to the brands, focusing on growth and competitiveness. The last two years Pioneer was plagued - among other things - by a costly maize hedge transaction, failed corporate action after the downgrading of South Africa, and a surprise change of leadership.
Pioneer Foods is one of the largest South African producers and distributors of a range of branded food and beverage products.
Pioneer Foods exports to more than 60 countries across the globe. The growing international business represents 21percent of operating profit. There are two more reporting divisions, namely Essential Foods and Groceries, representing 64 and 22 percent respectively.
The group operates many world-class production facilities, producing a range of products that include some of the most recognisable and best-loved brand names in South Africa, such as Weet-Bix, Liqui-Fruit, Ceres, Marmite, ProNutro, Safari and Spekko.
Their White Star brand is the top-selling maize meal in South Africa. Some of their international joint venture investments are Heinz Foods SA (100percent owned), Bowman Ingredients South Africa, Bokomo Namibia, Bokomo Botswana, and Food Concepts Pioneer Limited, Nigeria.
Pioneer is also the most prominent wheat miller in South Africa, and Sasko one of the most significant contributors to company revenue. Despite the rough ride consumer-driven companies have had in 2018, Pioneer succeeded in growing revenue by 3percent and volumes by 4percent. Extremely difficult in an environment where input costs keep increasing, but retail price adjustments remain challenging.
Not words shareholders want to hear any more. Luckily Pioneer’s international division grew operating profit by 57percent to R285million for the year ended September 2018. Despite the volatile nature of many African markets, pioneer noted the potential in new markets.
Results from its Nigerian subsidiary were solid, and a six-year-funding arrangement for R22m was entered into with the Bank of Industry in Nigeria. The funds will be utilised toward the construction of a new bakery plant in Lagos. Other potential markets include the UK, where most South African companies could not manage to be successful.
In December 2017 Pioneer acquired 100 percent of The Good Carb Food Company, a UK based granola manufacturer and owner of the Lizi’s brand, for a net amount of R264m. “The UK posted a pleasing result despite continued input cost inflation and increasing competitive pricing in the UK breakfast category,” the chief executive Tertius Carstens recently said.
Nevertheless, because of its potential to stage a robust profit recovery and its strong brands, it might be a share to consider buying.
The most significant risk facing food companies is a slump in already weak demand. This risk can be mitigated by stable, and even growing demand thanks to the relief of VAT exemption on some of their products.
The share price is higher than its recent R77 low, but the current R89 is still far off the R200 high reached in late 2015.
Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. Discovery shares are held on behalf of clients.
The views expressed here do not necessarily represent those of Independent Media.