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The earnings of Pioneer Foods [JSE:PFG] fell 15% amid a "difficult" trading environment characterised by rising maize prices and weak demand from consumers in the general food and beverage sectors.
The owner of brands such as Weetbix, Pronutro, and Sasko on Monday released its financial results for the year ended September 30, 2019.
Group earnings fell 15% to R910m, while headline earnings per share declined 6% to 511c. Its total dividend for the year was 11% lower than the previous year, at 324c.
"The major business challenge during this period was the lagging recovery of the significant input inflation in sales pricing, which was, with the exception of the maize and Wellington's categories, effectively addressed," the report read.
Excluding its maize products and Wellingtons, the operating profit of the group would have improved by 6.3%. However, it decreased 13.1% to R1.4bn.
"Group earnings were negatively impacted by items of a capital nature amounting to a net after income tax loss of R61m," the group said. In 2018, a R55.2m profit after income tax was reported. "This loss in the current year relates for the most part to impairment charges on certain assets and trademarks, while the profit of the previous year relates to profit on the sale of assets and shares," the report read.
Maize costs up
Pioneer, which owns the White Star maize brand, said its maize value chain came under the pressure from rising maize costs and lower crop quality.
"Although White Star super maize meal volume share was retained, the impact of the raw material dynamics could not be fully recovered in the year under review. In contrast White Star instant porridge managed to strengthen its market position due to strong volume growth.
While lower cost pasta imports posed a risk to locally produced pasta, but this was countered by Spekko rice being able to sustain its market share growth. In its groceries division, long life fruit juices Ceres and Liqui Fruit showed improvements, while corn flakes cereals returned to profitability.
"The Wellingtons business is showing signs of improvement, albeit off a low performance base, with the condiments portfolio in particular recording a good recovery," the group said. Pioneer Foods acquired Heinz Foods in 2018, which became part of Wellingtons operations.
The group said export volumes to the rest of Africa were negatively impacted by volatile currencies and constrained consumer markets. "Trade barriers also impeded progress as foreign governments adopted a protectionist approach towards local manufacturing in order to mitigate the consequences of the constrained macro-economic backdrop."
"The export of long life fruit juice and related groceries products into Zimbabwe in particular was hampered by the challenging and demanding economic conditions in that country."
Its dried fruit exports also took a knock from high US stock levels from the previous season and a bumper harvest of vine fruit in Turkey.
PepsiCo merger
Pioneer Foods gave a brief update on its merger with PepsiCo, which was approved by its shareholders in October.
The transaction is still subject to regulator approval. The result from the Competition Commission, and the Competition Tribunal is expected next year.
If the merger is approved, the group structure will change, including a delisting from the JSE.
By 12:43 on Monday shares in the food and beverages group were trading 0.11% weaker at R108.88 on the JSE.
