Skip to main content

Pioneer navigates difficult climate

| Economic factors

Pioneer Foods announced an improvement in profits, in a vulnerable local economy, and sustained competition with a significant cost push.

In its financial results for the year to September, Pioneer reported a revenue increase of 6 percent to R18.7 billion; with adjusted operating profit, before items of a capital nature, up 28 percent to R2.15bn; along with adjusted headline earnings per share of 832c, up 30 percent compared with the same period last year. The group declared a final gross dividend of 237c, up 52 percent from last year.

Pioneer said profit before tax amounted to R1.766bn, up 26 percent from R1.4bn after financing costs of R142 million, and income from joint ventures and associates of R71m.

“Pioneer Foods, focusing on core brands (which it refers to as power brands), is one of the main reasons for its success,” said Daniel Isaacs, an asset management analyst at 36One.

Despite the improvement in earnings, the stock lost 5.52 percent to close at R171, which valued the company at R39.8bn.

Pioneer said the key factors that gave it a boost during the year included volume growth and share gains in most key categories; a second-half recovery in fruit exports; progressive expansion of bakery margins; containment of operational costs; the successful exit of Pepsi and biscuits from its portfolio; and the acquisition and integration of the Nigerian joint venture.

Bokomo Namibia, Bokomo Botswana and Bowman Ingredients SA delivered solid results, while Heinz recovered from first-half supply chain difficulties.

Essential Foods up

Pioneer’s subsidiary Essential Foods delivered exceptional results in a low-growth, contested environment, while successfully navigating challenging soft commodity procurement vagaries.

Essential Foods recorded a 31 percent increase in operating profit for the year to R1.3bn, while its operating margin improved from 9.2 percent to 11.3 percent.

“The first half delivered strong maize volumes, which came under pressure in the second half due to exponential cost-push inflation. Bakeries continued to make progressive strides in expanding its operating margin through the relentless focus on key value drivers underpinning the strategy,” the group said.

It said a turnaround in rice profitability was achieved from a strong increase in volumes and efficiencies. Pasta continued to contribute positively.

The groceries division had a 26 percent increase in operating profit for the year to R435m, successfully exiting both biscuits and Pepsi, and achieving excellent growth in wheat biscuits, cornflakes and long-life juice.

“The smaller brands underperformed, requiring increased attention,” the group said.

The new international business division contributed 14 percent of total revenue and grew well ahead of the local market, supported by favourable international supply and demand dynamics in second-half fruit exports.

The international unit recorded a 22 percent increase in operating profit for the year to R444m, while operating margin improved from 16 percent to 17 percent.

Isaacs said the group, along with the whole sector, had yet to see the impact of the ongoing drought and would probably experience higher input costs.

“A decision will need to be made as to how much to pass on to consumers, taking into account how much they could afford. There could well be some margin squeeze and a net negative impact, not just for Pioneer but for all players in this space,” he said.

Related Articles

Official fuel prices for December: margin hikes...

By: Jason Woosey - IOL The Department of Mineral Resources and Energy (DMRE) has announced the official petrol and diesel price adjustments for December.

South Africans predicted to spend R224bn this f...

According to the results from the sixth annual Summer Spending Survey by short-term lender Wonga, South Africans are expected to spend an estimated R224 billion over this year’s festive season.

Grocery budgets: Say goodbye to these foods as ...

By: IOL Business Fried chips, potato salad, baked or roasted potatoes, and stews and curries with potatoes – whichever your favourite, you may have to do without if you have any hope of spending less on groceries in the coming weeks. And don’t p...

Black Friday shoppers spent R4.5bn, with jewell...

By: TimesLive Black Friday 2023 levels reflected tougher economic conditions in South Africa, but sales totalled R4.5bn.

December fuel price outlook is good news for bo...

By: IOL With a week to go until December’s fuel price sums are finalised, the outlook is positive for both petrol and diesel.