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Rhodes and Pioneer warn over drought

| Economic factors

Local food producers Rhodes and Pioneer have warned that the effects of the severe drought could continue to be felt in 2017, which would put a strain on their interim earnings.

Pioneer reported a 6% rise in full-year adjusted headline earnings per share to R8.83 in the year to end-September and a 12% increase in revenue from continuing operations to R20.60bn compared with the year-earlier period.

The essential foods division, which accounts for about 60% of the company’s revenue, reported a 2% contraction in profit to R1.24bn.

Pioneer said the contraction was largely due to the significant raw material inflation on maize, wheat duty structure, drought and the rand-to-dollar exchange rate volatility.

CEO Phil Roux said while the essential foods division had delivered a creditable performance under the circumstances, the effects of the drought were still of concern.

"I’m too nervous to forecast the weather. But as the brand leader of the maize category through White Star, we have an ethical responsibility to ensure that we can supply for the demand," he said.

SA is usually a net exporter of white maize, but will be an importer this year due to the drought. To hedge against an expected 1.2-million tonne maize production fall, Pioneer had no option but to buy maize forward. Although maize prices are declining, Pioneer will have to wait for futures contracts bought at higher prices to unwind. The group declared a final dividend of R2.60, bringing the total dividend to R3.65.

Aarqam Capital, which has a buy rating on Pioneer, said the results were within the guidance range provided by the company in its trading statement in late October.

"The results are also indicative of the current SA consumer environment where consumers have shifted to more essential items like maize and wheat.

"The company’s fixed capital investment and recent acquisitions should help it secure long-term growth.

"However, this could be negated in the short term by the current maize positions and reduced raisin crops which could negatively impact Pioneer’s first-half of 2017 performance," it said.

Rhodes reported a 70% jump in diluted headline earnings per share to 126.5c in the year ended September. It said the drought could hurt its production costs and volumes in the year ahead "if there is no improvement in climatic conditions".

CEO Bruce Henderson said while an eye had to be kept on the weather, Rhodes perceived the risk of little rain to be low.

"We are all about having contingency plans for our factories and the crops.

"When the weather is bad, it had an overall depressing effect. We are hoping that the worst is over and we are hopeful that we will have good rain going forward," said Henderson.

Rhodes declared a dividend of 42.2c per share.

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