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Pioneer Foods bets on international operations

Group’s international division sees operating profit climb 57.3% to R285m in period under review.
Pioneer's groceries division realised strong results, driven by volume growth in the cereals and long-life fruit juice categories. Picture: Supplied

Consumer-driven companies have had a rough ride in 2018, with Pioneer Food Group’s latest results reflecting a similar trend across the sector – tough trading conditions in the wake of a recession.

Despite headwinds, revenue for the year ended September 2018 was up 3% to R20.2 billion as volumes increased 4% with headline earnings per share up 33% to 545 cents per share. Earnings per share also improved by 47% to 575 cents pushing the gross final dividend to 260 cents per share for the period under review.

In the last three years, Pioneer Foods has endured turbulent times with the share price shedding more than 50% of its value as input costs surged yet retail price adjustments remained a challenge.

Beyond South Africa

In Pioneer’s international division, operating profit climbed 57.3% to R285 million for the year ended September 2018, supporting the group’s aggregate operating profit to gain 26% to R1.6 billion. Despite the volatile nature of many African markets, pioneer noted the potential in new markets.

“The business delivered as anticipated, as new route-to-market strategies were bedded down. Fruit exports benefited from improved local fruit availability, strong global demand as well as high USD prices, primarily driven by the lower crop in the USA,” says Pioneer CEO Tertius Carstens.

Among the potential expansion markets, pioneer remains bullish on the UK despite the macroeconomic uncertainty. “The UK posted a pleasing result despite continued input cost inflation and increasing competitive pricing in the UK breakfast category,” said Carstens.

This is indicative of the December 2017 deal where Pioneer acquired 100% of the shares in ‘The Good Carb Food Company Ltd’, a UK based granola manufacturer and owner of the Lizi’s brand, for a net amount of R264 million. “The recent acquisition of the Lizi’s brand, continued to support the growth of the branded products within the business,” says Carstens.

Pioneer reported “a solid set of results” from its Nigerian subsidiary, which comes off the back of foods concepts pioneer Ltd entering into a new six-year funding arrangement amounting to R21.9 million with the Bank of Industry in Nigeria. In a statement, Pioneer said, “Monthly repayments will only commence after the first year and the funding will be used to finance the construction of a new bakery plant in Lagos. This loan is secured by a bank guarantee from First City Monument Bank PLC.” 

Nesan Nair, senior portfolio manager at Sasfin Wealth, adds that the Nigerian loan is to finance equipment for its West African subsidiary Food Concepts but, overall, the loan is quite small and meant to build a new bakery in Lagos.”

In addition, Pioneer entered new syndicated facility agreements, which in principal will allow for bullet term facilities with three- and five-year terms of R500 million each. “General working capital facilities amounting to a base of R1 billion, and a seasonal increase for a part of a year of a further R600 million, were obtained,” the group said.

The group’s net debt to equity ratio however dropped three percentage points to 5%.

Recession prompts consumer down trading

The latest results reported an improvement in the essential foods division as the segment added 59% to the revenue stream and contributed a stellar 57% to the operating profit.

Meanwhile, South Africa’s recession has forced consumers to down trade in a bid to save. “This was specifically evident in maize meal during the final quarter with White Star trading at an all-time high price premium to other brands in the category,” says Carstens. “Although demand for maize meal products should remain strong, given ample local raw material supply and relative consumer value, down-trading within the category is expected to continue.”

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I love making peanut butter sandwiches. I do not like to eat ordinary nuts, but I really like nut butter.

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