Cape Town - Pioneer Foods suffered a massive profit drop in its poultry business in the year ended September, but sounded a note of optimism by pegging the final dividend and saying performance in the first two months of the new financial year had been "excellent".
Profit from the Swartland-based firm's agribusiness division - comprising mainly poultry and egg businesses - totalled only R3.5m compared to R100m in the previous year. The poultry business suffered severe margin pressure as a 18% spike in revenue to R2.5bn could not offset 50% and 40% increases in maize and soya feedcosts respectively.
Conditions in the SA broiler industry have been tough in the last six months for all listed companies. Astral, Rainbow Chicken and Country Bird Holdings, in particular, have taken strain as the market suffers from an over-supply.
Fortunately, Pioneer's core Sasko (bread and milling) and Bokomo (cereals) division performed solidly and underpinned the bottom line.
Operating profits were up marginally to R846m, but after taking into account higher finance charges of R250m, the group's net profits were down 10% to R452m, equal to 282c per share.
Sasko bumped up turnover 40% to R8.1bn with operating profits coming in 37% higher at R622m. Bokomo (which includes dried fruit and biscuits) saw a 14.5% hike in turnover to R2.5bn with operating profits shifting up 12% to R239m.
Trading margins at Sasko and Bokomo were both slightly down at 7.6% and 9.4% respectively. With the poultry business lagging, Pioneer's overall net margin fell to 5.8% from 7.1% last year.
Pioneer MD Andre Hanekom said the group would like to see net margins restored to the 8% level. Volumes in the first two months of trading since the close of the financial year-end were "excellent", he said.
Pioneer had started seeing the benefits of lower input costs and the fuel price reductions, although electricity costs were still a worrying factor. "We'd be very disappointed if we don't see margins increasing," Hanekom said.
Pioneer's smallest division, Ceres Beverages, paid the price for pushing turnover up 15% to R2.1bn with trading margins squeezed to under 4%. Operating profit at Ceres Beverages fell 26% to R78m.
The Pepsi bottling venture in Ceres Beverages was "very much on track", said Hanekom who added that market share could be between 2% to 3%.
"There are no expectations of earnings at Pepsi for the first four years of operation, but we are not losing money as we push for significant volumes."
Dividend higher
Pioneer shareholders will at least be pleased that the final dividend payout was pegged at last year's level of 66c/share despite the group carrying total borrowings of around R1.6bn. This brings the full-year distribution to 96c (last year: 93c/share).
Pioneer directors reckon debt would largely remain at current levels. But they reiterated the "inherent strength of the group's product basket and development potential as well as the expectation that expects margins should improve as operating costs stabilise and inflation subsides".
Pioneer's net cash flow was R311m (last year: R605m), equivalent to 194c/share.
Asked whether Pioneer was mulling possible acqusitions, Hanekom said the group had enough on its plate in terms of production capacity.
"It's not our style to be aggressive. If someone comes to us we will have a look. But if we do a deal it will be something of significance and not a small acquisition."
Pioneer had plans to expand into Africa, pointing out that the group had recently appointed a general manager to explore options on the continent, said Hanekom.
He also played down the possible effects of the proposed Tiger Brands/AVI merger, arguing that if such a deal transpired there would: "... be no big negatives coming through."
- Fin24.com