Bread sales boost Pioneer

Johannesburg - Strong sales from bread subsidiary Sasko have boosted food producer Pioneer Food Group's earnings, with the company expecting a 13% to 19% increase for the six months to end-March 2009.

In a statement released on Wednesday morning, the company said it expected headline earning to be between 163c to 172c per share and earnings between 164c to 173c per share for the period, an increase of between 13% and 19% from the 144c per share and 144.9c per share respectively in 2008.

The company - whose brands include Bokomo Foods and the Ceres Beverage Company - said the first half of 2008 was "negatively affected by the delayed recovery of increased raw material costs as well as the once- off commissioning costs to upgrade baking facilities, which are now contributing improved sales revenue".

Sasko "achieved an improved operating margin for the reporting period with stronger than expected sales, particularly in March 2009".

Fund manager at Coronation Fund Managers Sarah-Jane Morley said this "seems to be a good result", but making a comparison is difficult due to the 20 million new shares Pioneer issued in June 2008. The company raised R442m through the offer.

"Sasko is a large division for the group, contributing 70% to earnings before interest and tax in 2008, so a good performance here is vital. Delayed recovery from raw materials price increases is expected in 2009 as noted in the trading statement. We would expect to see this from Tiger Brands' milling and baking divisions too,? said Morley.

Cartel activity charges

Morley said cost pressures continue, especially in the packaging area, but the group's comment that food inflation will moderate towards year-end are in line with expectations.

Pioneer Foods has been implicated in cartel activity in the bread industry by the competition commission. Independent distributors were paying between 30c and 35c more per loaf as a result of the price-fixing in December 2006.

Listed food giant Tiger Brands received a R99m fine for its involvement and Pamodzi Group-owned Foodcorp was fined R45.4m by the commission, although it denied participation in cartel activity.

Pioneer Foods remains the sole respondent on the case, with its hearing scheduled for June 2009.

If found guilty, the affected Pioneer Foods subsidiary will be liable for a fine of up to 10% of its turnover for the year in which the transgressions took place.

For Pioneer, this could translate into a fine of just over R1bn, as revenue for the year to end-September 2007 - the year in which Pioneer (trading as Sasko and Duens Bakeries) is alleged to have participated in cartel activities - came in at R11.7bn.

The group expects "a more stable food pricing environment" to help it achieve "an improved performance for the full year".

Pioneer Foods' share price went unchanged at 2 450c late Wednesday morning.

Its full financial results for the six months to end-March 2009 will be released on or about May 25 2009.

- Fin24.com