Drought, higher grain prices cut Pioneer Foods earnings by 47%

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Published May 22, 2017


Johannesburg - Pioneer Foods pointed to a "confluence of various inhibitors" as profitability for the first half of the financial year ended 31 March materially declined, with the headline earnings per share (HEPS) declining by 47 percent to 253 cents per share. 

The owners of SASKO bread, White Star Super Maize Meal, Weetbix, Liqui-Fruit and many other brands said the most significant detractor was maize due to the unfavourable procurement position taken in 2016.

However, the group said the margin drag on maize was expected to cease from June as lower cost raw material comes into effect. 

Pioneer Foods said the international business was severely impacted by a raisin crop shortfall, African exports and a stronger rand.

Profit contraction was the most severe in this division because of lower export beverage volumes and margins as a result of currency devaluation in key markets, placing pressure on the Ceres value proposition in market. 

The groceries performance also disappointed, beverages in particular.

The group said cost push inflation into the summer season coupled to a cooler summer inland, impacted volume and margins significantly. Breakfast cereals, also affected by cost push inflation and competition, managed to increase profitability.

Despite this, strong cash generation from operations went up by 27 percent to R875 million, up from R690 million in 2016. 

Read also:  Inflation buoys Pioneer Foods income

Pioneer Foods' group turnover increased by only two percent, with the South African business increasing turnover by four percent and international declining by 11 percent.

The food maker said the cost of goods sold increased by 10 percent due to significant raw material cost push, resulting in gross profit decreasing by 16 percent to R2.6 billion and the gross profit margin compressed from 31 percent to 26 percent. 

Notwithstanding a constrained trading environment in South Africa, Pioneer Foods said it anticipated an improvement in performance in the second half of the financial year.

The food maker said increased raisin supply, lower maize input costs from June, and lower beverage input costs were among various factors that should assist in improving profitability.

A gross interim dividend for the six months ended 31 March of 105 cents per share, the same as last year, was declared from income reserves. 

- African News Agency (ANA)

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