Pi­o­neer’s earn­ings soar as it re­fines its business

The Star Early Edition - - COMPANIES - Nom­pumelelo Mag­waza

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.

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