Low commodity prices diminish Pioneer's turnover | Fin24
 
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Low commodity prices diminish Pioneer's turnover

Feb 09 2018 12:29

Johannesburg - Pioneer Food Group's [JSE:PFG] turnover fell by 2.4% last year, largely on the back of sales price deflation in soft commodities. Its South African revenue declined by 5.2% as a result, the company announced in a trading update on Friday.

But as turnover shrank, total volumes rose by 5.2%.

Lower grain prices, ahead of a bumper 2017 crop in which South Africa harvested a record 16.7 million tons of maize, drove the deflation. Wheaten products and rice also saw deflation, albeit to a lesser extent, Pioneer Foods stated.

It said that the group’s South African business, excluding exports, delivered a solid performance despite a challenging economic backdrop and intensified competition by posting volume growth of 4.7%.

Revenue from the group’s international business, including South African exports, grew by 19.5%. Excluding the Nigerian business, revenue grew by 12%.

The increase in sales volumes resulted in Pioneer Foods gaining market share. This was confirmed by the growth in its composite corporate market share in top end South African grocers on a three-month basis, ending December 2017.

The Pioneer group’s operations include the manufacturing of food, beverages and related products under its three primary divisions: essential foods, groceries and international. 

Improved sales volume performance and normalisation of raw material costs, most notably maize, should support higher first-half margin and profit compared to last year, the group believes.

“The improvements will be partially offset by the underperformance in the wheaten value chain as well as price promotional related margin pressure.”

Pioneer’s maize business delivered a strong performance with White Star regaining its market share. The Weet-Bix, Liqui-Fruit and Ceres brands also posted excellent performances during the reporting period with double-digit revenue growth.

Beverage exports performed better than expected, but volume growth remains challenging due to currency volatility and the prudent credit management policies in place. Fruit export volumes also improved, Pioneer stated.

Its Heinz joint venture, however, did not perform to expectations which prompted corrective actions. It said regulatory finalisation of Pioneer Foods’ acquisition of the remaining stake in the joint venture is expected during March 2018.

Pioneer also expressed concern that the water crisis in the Western Cape could impact its business, where it has considerable operations. It added that contingency plans have been developed to ensure sustained supply of products. 

Pioneer shares were trading at R129.95 on the JSE just before 12:30 on Friday, up 2.19%.

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