South African food group Pioneer Foods has reported rises in revenue and profits for the year to September, helped, it said, by a buoyant economy.
Revenue grew by 11% to ZAR8.4bn (US$1.3bn) and the operating margin increased to 8%, resulting in a 23% growth in operating profits to ZAR672m.
Cash profit from operating activities increased by 25% to ZAR915m, whilst decreased stock levels and lower raw material prices unlocked ZAR117m from working capital.
“Despite the challenge of incorporating the new acquisitions of the past year, we are pleased with improved contributions from all the divisions,” said managing director André Hanekom.
Favourable procurement positions in declining raw material markets and sustained sales volumes contributed to the profitability of the Sasko and Agri-business divisions. The balance in demand and supply in both the chicken and egg businesses further contributed to a good performance by the latter.
SAD and Ceres experienced good growth in local markets. However, the relatively strong rand continued to challenge export profitability. Although a solid performance was achieved by Bokomo Foods, production capacity constraints inhibited this business from benefiting fully from increased consumer demand.
In July, PepsiCo International appointed Pioneer Foods as its carbonated soft drink franchisee in South Africa. The Group’s beverage division, Ceres Fruit Juices, will bottle and distribute Pepsi, Diet Pepsi, 7-Up and Mirinda from its existing facilities in Gauteng. “We can now offer the consumer a truly diversified choice of popular brands of fruit juice products, fruit concentrate mixtures and carbonated soft drinks,” says Hanekom.
During the year, the group bought Marmite, Bovril and Maizena from Unilever SA, and Redro and Pecks fish paste from Premier Fishing.
According to Hanekom, new expansions and investments during the past two years almost doubled net interest bearing debt to ZAR588 million. The increased debt to equity ratio of 27% is still within acceptable limits, given the strong cash flow generated from operations.
Pioneer Foods has proposed a BEE (black economic empowerment) scheme to transfer an effective 10% of its shares, worth ZAR373m, to employees. Voting rights will vest with employees immediately on inception of the scheme. Employees will receive 30% of all dividends declared to ordinary shareholders for the duration of the scheme. The remaining 70% will be utilised to cover the cost of shares over time.
If approved by shareholders, this broad-based empowerment scheme will, on its proposed implementation in February 2006, enable the group to allocate 18.1m shares to some 11,000 permanent employees – an estimated 85% of whom are black.
The cost to ordinary shareholders is estimated at ZAR163m, or 4.4% of the Group’s market value at the time of board approval.
“The board is pleased that Pioneer Foods’ first BEE initiative at shareholder level will benefit its own employees, regardless of race, remuneration or seniority. Once this scheme has been implemented, we will review the rest of our BEE shareholder road map,” said Hanekom.
“Our priorities for the coming year are to implement the BEE scheme, bed down latest investments, and align production capacities with consumer demand. We are confident that current strong cash flow streams will fund the expansion of capital projects,” he said.