JSE-listed Pioneer Foods expects a muted first half, largely owing to an exceptional performance in the first half of the prior year, where adjusted headline earnings a share for continuing operations grew by 39%.
The company was currently dealing with a weak rand and the concomitant cost-push effect, which was forecast to accelerate inflationary pressure on food manufacturers and increase the burden on consumers.
Although, the fast-moving consumer goods company noted on Friday that the strategic process of embedding a new operating model, some three years ago, placed Pioneer Foods in a far more defensive position to counter the headwinds facing South African business.
Pioneer Foods said it remained positive and continued to invest in significant fixed capital as a key enabler in realising its medium-term objectives; however, the severe drought in South Africa had furthermore exacerbated the current economic situation.
“As a result of these volatile external factors, managing volume and margin imperatives becomes a delicate balance,” Pioneer Foods explained, adding that it had made every effort to respond to these vagaries as responsibly and assertively as possible.
The company reported that its unaudited group turnover grew by 8% – adjusting comparatives for biscuits, Pepsi and Maitland Vinegar – for the four months ended January 31, 2016. “There has been a sustained effort to contain costs, to price appropriately and enhance efficiencies to mitigate some of the impact,” Pioneer Foods stated.
The Groceries division succeeded in meeting stretch profit and margin targets to date, with long-life juice and breakfast cereals, in particular, delivering excellent results.
The International division traded well, especially export fruit. Managing the price, volume and margin pressures within the soft currency markets in Africa, however, proved challenging for beverages.
The maize industry was mainly affected by the drought conditions, resulting in input costs rising by about 74% for the period under review, with a significant impact on Pioneer Foods’ volume. However, the company retained its category leadership. Wheat was also adversely affected by the weakening currency and the significant import tariff hike from R156/t to R911/t over 12 months. As such, substantial price recovery was unavoidable, the company added.
Meanwhile, the Bakeries division performed satisfactorily, given the major base effect of the Shakaskraal bakery, in KwaZulu-Natal, the Duens bakery, in the Western Cape, refurbishment and increased competition, while rice performed exceptionally well.
Future Life process development was well under way and poised for “promising innovation”.