Pioneer’s earnings soar as it refines its business
IN A BID to hone Pioneer Foods’ portfolio into a solid value-added brand company, chief executive Phil Roux said yesterday that the group would continue to exit non-viable portfolios if needed, while changes to its culture and strategy were being applied.
Pioneer spun off its poultry units and wrote down its value by about R265 million earlier this year. It had also agreed to end a loss-making bottle agreement with American beverage company Pepsi.
“Due to losses, the investment in the Pepsi business was impaired in the year under review by an after-tax amount of R34m,” Pioneer said. The Pepsi brand portfolio would, however, remain in South Africa.
Roux said the Pepsi business had been making big losses for a long time.
“As we continue to sharpen our portfolio there will be other business that does not fit our portfolio strategically or underperform to the point that it is economically unviable, then we will exit those assets,” Roux said. Pioneer Foods owns brands such as Sasko, Bokomo and Ceres Juice, among others.
Earnings for the group, including Quantum Foods, grew 93 percent to R965m for the year to September.
Revenue from continuing operations rose 9 percent to R17.7 billion, and was attributable to increased selling prices, exports and sales mix.
Net cash profit was up 37 percent to R2.1bn and net cash flow from operating activities amounted to R1.8bn, after a decrease in working capital of R28m and income tax paid of R386m.
Roux said the group’s profit gain was driven by a number of things including fairly good top line growth and costs that grew slower than revenue.
Pioneer was also able to generate a fair amount of efficiencies throughout its operations.
Roux said like most of the fast-moving consumer goods manufacturers, Pioneer had been scratching around for business, especially since the questionable state of the economy.
The company has worked on a number of strategic projects including refocusing the business in the higher-margin value-added brands and away from pure commodities.
“One of the pillars in our strategy was to shape the winning portfolio and to that end we evaluated all our assets as we needed them to fit our strategy going forward,” Roux said. This included a decision to unbundle Quantum Foods as a non-core business.
Ron Klipin, a portfolio manager at Cratos Wealth, said Pioneer seemed to be on the right track and had managed to cut costs.
“They have rationalised their food basket, exiting non- core assets and concentrating on higher margin products such as the Bokomo Cereals range and Ceres range beverages, which produced good margin performance,” he said.
Klipin said exiting the Pepsi business was a good move for Pioneer as it could never have been able to compete with Coca Cola. “This would need someone with deep pockets and it would have taken Pioneer Food years to get there,” Klipin said.
Overall he said, Pioneer’s results had been impressive and had shown that changes in management and culture were paying off. Klipin also noted that Pioneer’s exit in pure commodities and going for higher margin value-added brands was a good decision.
“The unbundling of Quantum Foods, which was not a great investment from the beginning, was a good move. If you have scale like Astral with a whole integrated chain, then chicken business is good for you. But not for a small player like Quantum Foods,” he said.
Pioneer shares gained 2.29 percent to close at R137.02.