JSE-listed Pioneer Foods recorded a credible topline performance for the six months ended March 31, in a considerably constrained local consumer market with consequent competitive pressures.
Revenue grew by 11.5% year-on-year to R11.04-billion, while sales volumes were up 2.7% year-on-year.
Excluding the acquired Wellingtons and Lizi’s businesses, revenue grew by 7.9% and volumes by 1.3%.
Revenue expansion was driven by sound volume growth in key product categories such as bread, wheat, rice, beverages (long-life fruit juice), cereals, in the UK, and sausage rolls, in Nigeria.
Total basket inflation of 6.6% (ahead of the overall South African consumer price index) was fuelled by price inflation in the essential foods, international fruit and some smaller groceries product categories.
Volume declines in maize and cereals constrained further revenue growth.
Beverage exports into other African countries, however, held its own despite the constrained trading environment with increased credit risk.
The group gained overall market share in South Africa across participating categories during the period.
Gross profit increased by 5% to R3.1-billion during the period. The gross margin decreased from 29.6% to 27.9%, mainly owing to insufficient price inflation to compensate for increased raw material costs and operating cost growth.
Increased operating costs were driven by the considered investment in future growth capabilities, such as bread production and the distribution network expansion, as well as the higher cost of fuel, impacting distribution and energy related cost elements.
Total trade investment required to maintain volume momentum and category participation, increased materially on the comparative period. This was mainly the result of intensified retailer competition and demands for promotional support.
Profit for the period, after finance costs of R97.3-million and the share of profit of joint ventures and associates of R38.7-million, decreased by 17.7% to R512.1-million.
Earnings per share decreased by 18% to 272.3c and headline earnings per share (HEPS) decreased by 14% to 272.4c. HEPS, adjusted for the Black Economic Empowerment SBP net charge/gain, decreased by 15% to 270.9c.
A gross interim dividend of 105c a share has been approved and declared by the board from income reserves.
The essential foods business, excluding maize, delivered an improved performance on the comparative period, but this was insufficient to counter the material maize shortfall.
The recovery in the wheaten value chain performance was led by strong bread volume growth following investments in manufacturing capacity during the past two years augmented by the route-to-market and availability growth strategy.
The major contributor to the decline in the groceries business’ profitability was the newly integrated Wellingtons business. Though overall negative profitability in the Wellingtons business is materially better than the comparative period, the performance of the business was impaired mainly by claims and costs associated with third-party sales and distribution, which has now been addressed.
The international business delivered an improvement on the comparative period in the face of challenging trading conditions in neighbouring export markets and rand:dollar volatility.
Higher export fruit pricing delivered solid revenue and profit growth.
Therefore, the 2019 vine fruit procurement prices experienced double-digit inflation, which was further exacerbated by increased local competition.
Looking ahead, the macroeconomic environment is expected to remain challenging and will continue to place pressure on consumer demand, resulting in muted spending.
With pricing recovery still constrained by lower consumer demand and retailer competitive intensity, pressure on operating margins is expected to continue.
The group will continue efforts to optimise costs and efficiencies while ensuring its brands remain available and relevant to customers and consumers, thereby strengthening the base for continued growth.