JSE-listed Pioneer Foods achieved a credible performance for the six months ended March 31, with total sales volumes up 4% year-on-year and revenue up 3% year-on-year to R9.9-billion.

Mainly as a result of volume growth and the normalisation of the maize procurement position, the company’s gross profit increased by 12% to R2.9-billion, while its gross profit margin improved too 29.6% from 25.7%.

Operating profit, before items of a capital nature, adjusted for the company’s Phase I broad-based black economic empowerment (BBBEE) transaction share-based payment income/charge and related hedge (SBP) and for one-off merger and acquisition (M&A) costs in 2017, increased by 36% to R949-million.

In turn, the adjusted operating profit margin increased from 6.9% to 9.6%.

Profit before income tax, after finance costs of R88.9-million, increased by 38% to R896.5-million.

The share of profit of joint ventures and associates amounted to a loss of R21.6-million, while earnings per share (EPS) increased by 34% to 332.5c and headline earnings per share (HEPS) increased by 30% to 317.1c.

HEPS, adjusted for the BBBEE SBP net charge/gain and for one-off M&A costs in 2017, increased by 26% to 319.9c.

OPERATIONS REVIEW

The company’s Essential Foods business achieved 70% operating profit growth through a strong maize performance, as well as pasta and rice profit expansion.

Improved sales volumes and the normalisation of the raw material procurement position supported the sound recovery in maize profitability. White Star benefited from general category growth and has retained its market leading position, Pioneer stated.

The improvement in maize was, however, partially offset by a regression in the wheaten value chain performance, the company noted. Flour and bread experienced margin compression in the face of weaker demand and a more competitive environment.

Additional KwaZulu-Natal baking capacity was successfully commissioned in December 2017 and fully available from April, following the refurbishment of existing installations at the Shakaskraal bakery.

The Durban wheat mill upgrade is also progressing to plan and will enhance

value chain competitiveness from 2019.

The baking capacity renewal investment in Gauteng, which came on line in 2017, is also making a positive contribution.

In terms of groceries, good top-line growth during the period, driven by volume growth, restored market share in key categories, in some instances at lower price points to maintain

competitiveness that compressed profit and margins for the period, Pioneer stated.

Operating costs overall were tightly managed, the company added.

Meanwhile, long-life fruit juice and dried fruit export volumes and margins recovered internationally in line with expectations and posted a significant improvement on 2017 profitability.

Margin recovery is, however, not comparable with that achieved during 2016, Pioneer noted.

The lower margin relative to 2016 is mainly owing to the stronger rand and the continuous constrained trading environment in Southern African markets, in particular Zimbabwe, as well as the strengthening of the exchange rate from fruit procurement to time of export.

The R283.3-million Lizi acquisition in the UK has been successfully integrated into Pioneer Foods UK and is already making a positive profit contribution, with the UK's Peterborough business having delivered solid volume growth and consequent margin improvement.

The Nigerian business performed to expectation, delivering strong profit and volume growth, while a solid operating platform has been established and the business is now ready for capacity investment, the company said.

In terms of the company’s financial position, the net cash profit from operating activities increased by 34% to R1.2-billion, with investment in working capital increased by R1.15-billion.

“The group normally invests more in working capital for the interim period ending March. The increased investment in working capital is largely owing to local procurement in respect of wheat and maize compared to a larger import component in the prior year, resulting in a material decrease in trade payables,” Pioneer noted.

Capital expenditure amounted to R222.3-million.

The group's net interesting-bearing debt, excluding the R449.2-million third-party debt relating to the Phase II BBBEE transaction partners, amounted to R1.79-billion as at March 31, with a debt to equity ratio of 22%, compared with net debt of R612.3-million as at September 30, 2017.

Looking forward, Pioneer believes the group is well positioned to deliver sustained volume and improved value growth while maintaining a firm handle on costs and efficiencies.

The group anticipates further improvement in performance in the second half of the financial year.

A gross interim dividend of 105c remains unchanged for the six months ended March 31.