Pioneer Foods upbeat on profit turnaround in the coming year

PIONEER Foods is confident that it will achieve a turnaround in profits next year, despite yesterday posting a 57 percent decline in headline earnings for the year to the end of September. Headline earnings per share declined 55 percent to 410 cents a share, down from 904c. The group declared a final dividend of 260c a share payable from income reserves, the company said.

The group’s confidence stemmed from the fact that the unfavourable procurement position on the maize price ended in May, giving the company a market competitive price to procure the maize going forward.

The other factor that favours Pioneer Foods is the end of the severe drought, which almost crippled the agricultural industry in the country.

The white maize price climbed to R5 000 a ton early last year, and it has since dropped to R1 980 a ton.

Chief executive Tertius Carstens yesterday said that the company expected that maize would deliver a normalised performance in 2018.

“Bakeries’ performance will benefit from the investment in additional capacity at the Aeroton and Shakaskraal facilities, with the latter expected to come on stream in January 2018. With a more competitive supply chain and brand portfolio strategy in place, performance of the beverage category should accelerate in 2018,” Carstens said.

Positive signs

“The early signs show that we are going to have a better trading environment in the next period. Since the beginning of October, 11 out of 17 categories in our business have shown positive signs as compared to 10 categories which showed negative trading environment in this trading period,” he said.

The expected improvements in the group’s different business units are set to reverse the unfavourable results that the company reported yesterday.

In the results, the company reported a 5 percent decrease to R19.58 billion, down from R20.60bn, while headline earnings declined 57 percent to R726.2 million, down from R1.69bn reported last year. The decline was due to a combination of raw material deflation, volume declines and resistance to price increases.

The operating profit margin contracted from 11 percent to 6.5 percent as a result of unfavourable procurement positions, as well as volume declines in material categories.

The group has three units: Essential Foods, Groceries and International Businesses.

In the International division, the economic instability in key markets such as Mozambique and Zimbabwe negatively impacted trading conditions. Operating margins were further impacted by significant input cost inflation on global fruit concentrates and the inability to increase selling prices within the context of constrained consumption.

Pioneer’s share price dropped 1.73 percent to close at R115.99 on the JSE yesterday.