Cape Town - Swartland food giant Pioneer Foods, which fattened its net trading margins considerably in the six months to end-March 2009, declared its ambitions to grow its Western Cape-based poultry business into a national player.
Speaking at a conference call on Monday, Pioneer MD André Hanekom said the group's Tydstroom broiler business could go national in the longer term. "Either we'd build this presence from scratch, or look to acquiring a small player."
He pointed out that Pioneer already operated its egg business on a national basis.
Expansion for Pioneer's poultry division would make sense in the light of recent developments (involving Sovereign Food Investments, Afgri and Country Bird Holdings), which point to a consolidation in the local chicken industry.
Pioneer also needs to build on food businesses and brands outside its traditional staple food areas in cereals (Bokomo) and milling (Sasko), which account for about 70% of the group's turnover and operating profit.
But Hanekom stressed the immediate focus was on increasing profitability in the poultry business' key Western Cape market. He said there were plans under way to increase capacity in the Cape Town plant, with another broiler farm expected to come on stream shortly.
Ironically, the broiler business was the laggard in the interim period to end-March 2009. Pioneer's Agri Business segment - which includes chickens, eggs and feed - increased revenue 10% to R1.34bn, but saw operating profit up only 8% to R41m.
Hanekom said a stronger performance from the egg business was offset by a disappointing performance from the broiler business.
He explained that challenging trading conditions in the broiler business prevented a proper recovery of increased costs, and that certain on-farm performances were disappointing.
Solid boost from Sasko and Bokomo
As a whole, Pioneer continued to benefit from strong performances from its Sasko and Bokomo businesses, with group revenue up 20% to R8.4bn.
While gross margins were squeezed slightly to just under 26%, Pioneer pushed its net trading margin to 6.6% (previously 5.6%) by effective cost-cutting - especially, according to Hanekom, on the distribution side of the business.
Cash profits from operating activities rose 32% to R711m with earnings coming in at 170c/share.
The quality of Pioneer's interim earnings was emphasised by reassuring net cash flows of R595m.
Gearing was pegged at around the 32% mark, with finance costs lopping R125m off the income statement. However, Hanekom said Pioneer was comfortable hiking the interim payout 20% to 36c/share.
Addressing the gearing issue, Hanekom said the increased interim dividend signalled that Pioneer's board was comfortable with the level of debt measured against cash flows.
He said Pioneer hoped to bring its gearing down to 25%, but stressed that current levels of gearing (32%) were not a worry.
Looking ahead, Hanekom believed Pioneer could sustain its solid profit performance over the second half of the financial year, pointing out that volumes in April and May were encouraging.
Pioneer's shares were up 0.56%, to 2 700c, in early Monday trade.
- Fin24.com