Reporting an increase of 8% in revenue and 36% in operating profit for the six months ended March 31, JSE-listed Pioneer Foods on Monday said its results reflected the progress of its strategic focus of strengthening brands and expanding margins.

Revenue for the period under review was R9.450-billion, while adjusted operating profit was R1.166-billion, with the resultant expansion of margins.

Adjusted headline earnings for the six-month period increased by 40% to R830-million, or 451c a share, from the 325c a share reported for the prior period. Adjusted earnings increased by 40% to R834-million, or 453c a share, from the 325c a share reported for the prior period.

“Pioneer Foods' prospects remain good. Overall, we are pleased with the quality of earnings and the ability to extract further value through the relentless execution of the strategy. The environment, however, is likely to be characterised by ongoing muted consumer spending, costly energy disruptions, sustained exchange rate volatility and significant competition,” the company advised.

Pioneer said its performance was underpinned by pleasing revenue growth despite price deflation in maize and vine fruit exports, power brands share growth, maize volume and production efficiency gains, a step change in [the] Bakeries [division’s] performance, a solid contribution from the international business and cash operating costs being well contained.

ESSENTIAL FOODS
With revenue of R5.610-billion, Essential Foods increased revenue by 7%, while operating profit increased by 46% to R698-million on the prior period.

The division increased its volume market share with “exceptional” performance delivered by Bakeries, which grew its volumes by 13%, revenue by 17% and concurrently increased margins.

Notwithstanding the deflation of the maize price, through the “diligent management of maize margins”, maize delivered pleasing results in a period of significant volatility.

Pasta, rice and wheat contributed positively to the overall results, Pioneer added.

GROCERIES
Revenue increased by 9% to R2.628-billion, while operating profit increased by 29% to R253-million.

Operating profit margin expanded by 150 basis points to 9.6% despite deeper losses on Pepsi. Cereals and the balance of the Groceries portfolio increased volumes by 9%, while beverage volumes, excluding Pepsi, increased by 8%. Strong volume growth in breakfast cereals and market share gains in long-life juice contributed to the results.

INTERNATIONAL
International, comprising exports, Bokomo UK, the fruit business and the newly acquired Nigerian bakery business Food Concepts Pioneer, was challenged during the period under review by tough trading conditions within certain oil-dependent African countries and increasing trade barriers in key global markets.

The division contributed 13% of group revenue and 19% of operating profit, and improved its revenue by 10% to R1.211-billion and operating profit by 18% to R218-million.

Overall volume growth of 10%, tempered by lower fruit exports, was achieved for the six-months period, while Africa achieved a 14% increase in volumes.

Performance was driven by growth in grocery and beverage volumes. Breakfast cereal volumes increased by 23% through leveraging the existing beverage route to market and customer base.

Global vine fruit price deflation and supply impacted performance relative to the prior period. As a result, overall fruit sales volumes declined by 11%.
The UK business performed well as a result of favourable wheat procurement and an increase in sales volumes.

Pioneer acquired 50.1% of Food Concepts Pioneer during the period and the transaction became effective on March 1.

GROUP PERFORMANCE
Pioneer noted that the group performance included the discontinued operations of Quantum Foods, and the effect of the October 6, 2014, unbundling.

Headline earnings for the period under review decreased by 10% to R627-million, or 341c a share, from the 380c a share reported for the prior period. Earnings decreased by 15% to R545-million, or 296c a share, from the prior period’s 349c a share.

Earnings were affected by an IFRS 2 share-based payment charge relating to the Phase I (2006) broad-based black economic-empowerment (BBBEE) transaction and the unbundling of Quantum Foods.

Net cash profit increased by 23% to R1.345-billion, while net cash from operating activities amounted to R339-million, following Pioneer’s seasonal investment in inventory and an income tax payment of R157-million.

Total capital invested by the group during the six months under review was R296-million, an increase on the comparable period in 2014’s R259-million.

Net interest-bearing debt, which excluding third-party funding relating to the Phase II (2012) BBBEE transaction, decreased to R535-million from R1.541-billion in 2014, with a debt to equity ratio of 8% compared with the 22% of last year’s six-months ending March 31, 2014.