Pioneer Foods profit halved
• Drought saps earnings as declining volumes and maize hedges eat into margins, but recovery expected in 2018
Pioneer Foods sees a recovery in the 2018 financial year after disappointing results in the year to September. The group posted a 49% drop in profit due to high maize prices during the first part of the year after the drought. /
Pioneer Foods sees a recovery in the 2018 financial year after disappointing results in the year to September.
The food and beverage manufacturer attributed its negative performance to constrained trading conditions, price hikes and an unfavourable procurement position in the first half of the financial year, following the severe drought that hit the region in the 2015-16 season.
The group posted a 49% drop in profit due to high maize prices during the first part of the year after the drought.
An El Niño-induced drought in southern Africa crippled production of maize, sugar and other agricultural products.
On Monday, CEO Tertius Carstens said while the company had suffered setbacks during the trading period, it would see volume recovery in 2018.
Given the maize price deflation of about 30% coupled with increased maize milling of about 8%, Pioneer Foods was already participating in the recovery trend experienced by the industry in October.
“We are in a far more competitive position than what we were last year at this time,” Carstens said. “But it will probably be a step-by-step recovery … and not an immediate one.”
Vunani Securities analyst Anthony Clark sees a potential recovery in earnings for Pioneer starting in the first half to March 2018 and accelerating in the full year ended-September 2018.
He said the stock, which was trading at a historical price: earnings ratio of 26 times, was “hell of an expensive” but this would quickly unwind if recovery did start to show in 2018.
“The new CEO has his work cut out for him. However, he is capable, knows the business inside out and the levers to recovery in 2018 from maize, beverages, cereals and fruit are all there, he just has to steer the ship into them,” Clark said.
Pioneer Foods said revenue declined 5% to R19.6bn due to, among other things, raw material deflation, volume declines and resistance to price hikes.
Its operating profit margin contracted from 11% to 6.5% due to unfavourable procurement positions as well as volume declines in material categories.
Headline earnings per share decreased by 55% to R4.10.
The company said headline earnings per share was negatively affected by the net effect of a black empowerment scheme, which amounted to a loss of R42m after tax.
The group experienced disappointing performances in several segments. Bokomo Botswana was significantly affected by the group’s unfavourable maize hedge position, while Heinz Foods SA’s volumes lagged expectations.
“Due to the inability to adjust its cost base to this volume reality, [Heinz] posted a poor profit performance,” the group said.
Pioneer Foods declared a gross final dividend of R2.60 per share, equal to the prior year.