| Tue 27 May 2008, 7:05 | | PFG - Pioneer Foods - Unaudited Interim Report For The Six Months Ended |
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PFG
PFG
PFG - Pioneer Foods - Unaudited Interim Report For The Six Months Ended
31 March 2008
PIONEER FOOD GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1996/017676/06)
JSE share code: PFG
ISIN: ZAE000118279
("Pioneer Foods" or "the company")
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2008
Revenue up 25.0% to R7 billion
Operating profit before items of a capital nature up 11.7% to R395
million
Operating profit margin 5.7% (2007: 6.3%)
Headline earnings up 10.0% to R222 million
Headline earnings per share up 8.8% to 144 cents
Net cash utilised by operations R99 million (2007: R106 million
generated)
Interim dividend per ordinary share up 11.1% to 30 cents
Debt to equity ratio up to 53.0% (2007: 42.8%)
Andre Hanekom, Pioneer Foods` Managing Director commented: "As expected our
margin and cash flow has been impacted by very high input costs. We expect these
pressures to continue in the second half of the financial year.
We will continue to act responsibly in addressing margin pressure to achieve an
optimal balance between the affordability of our products for the consumer and
the sustainability of our operations.
We remain positive that with the added capacity coming on-stream in the next 18
months, and the defensive nature of our product mix, we are well positioned to
maintain our earnings growth momentum in the medium to long term, while
recognising that margin pressure will cause growth to slow in the current
financial year. In fact, the Group will do well to achieve growth in earnings
for the year to 30 September 2008."
Enquiries
Pioneer Foods 021 807 5100
Andre Hanekom, MD 021 807 5106 / 082 808 3549
Leon Cronje, FD 021 807 5105 / 082 801 7772
College Hill 011 447 3030
Johannes van Niekerk 082 921 9110
Results
Headline earnings increased by 10.0% to R222 million on the back
of a 25.0% growth in revenue to R7 billion for the six months
ended 31 March 2008. This earnings growth is moderate if compared
to rather weak results in the comparative reporting period. If the
once-off deferred tax effect due to the lower income tax rate is
reversed, headline earnings grew by only 3.0%.
Growth in revenue was driven predominantly by increased sales
prices, as well as sustained volume growth in wheaten products,
bread, pasta, rice, Pepsi and Weet-bix. The higher selling prices
were necessitated by substantially increased cost of raw
materials, specifically wheat, and other costs.
Cash profit from operating activities increased by 11.6% to R540
million, whereas operating profit before items of a capital nature
increased with 11.7% to R395 million. This lower growth rate in
relation to revenue growth resulted in the operating profit margin
declining from 6.3% to 5.7% due to the lagged recovery of steep
increases in raw material and other costs. Pleasing though is the
increase of the branded products margin from 6.9% to 7.4% mainly
due to improved results from cereals.
Total debt increased to almost R2 billion, mainly as a result of
an investment in working capital of R604 million together with
R370 million invested in fixed capital. The increased debt, along
with increased interest rates, resulted in an increase in net
finance cost by R36 million for the reporting period. The
substantial increase in working capital changes by R604 million
(2007: R328 million) is largely the result of the abnormal
increase in the cost of wheat, as well as increased debtors
following the increased selling prices. Cash profit from
operations was insufficient to fund the increased working capital
needs for the period under review.
The fixed capital expenditure is in line with the approved capital
expansion programme to address capacity constraints in the
milling, baking, Weet-bix and Pepsi businesses.
Operational review
Despite good volume growth, Sasko bakeries posted disappointing
results, mainly due to margin pressure caused by rapidly rising
input costs and delayed increases in selling prices. Excellent
performances were achieved by the rice and pasta businesses due to
significant sales volume growth, supporting the strategy to
diversify the product basket into these categories.
The Agri division continued to perform disappointingly, mainly due
to the sustained losses in the egg business. The broiler business
performed well for the first quarter, but experienced significant
margin pressure in the second quarter due to the oversupply of
chicken during this period.
During October 2007 the Bokomo and SAD divisions were merged with
the objective to leverage the benefits of a bigger division which
houses some of South Africa`s strongest food brands. This division
posted a pleasing performance on the back of good volume growth
from Weet-bix and improved efficiencies from the Moir`s and
Kwality Biscuit businesses.
The Ceres Beverage Company also performed well, given the
constraints of CO2 shortages and load shedding. Although the fruit
juice and fruit concentrate mixture businesses struggled to
sustain sales volumes, profit growth was still achieved. Despite
the CO2 shortages the targeted sales volumes of Pepsi were
achieved, but the venture, as planned, was not earnings enhancing
yet.
Recapitalisation and Debt Restructure
During the previous financial year the board approved an extensive
capital expansion programme. The capital will predominantly be
utilised to address capacity constraints across all divisions
which constraints were caused by the substantial growth in the
business over the past number of years. An analysis of the Group`s
debt capacity, mindful of current debt levels and the increased
investment in working capital on the back of abnormally high food
inflation, resulted in the decision to attract additional
shareholder capital.
A renounceable rights offer of 20 million ordinary shares at an
issue price of R25 per share, totalling R500 million, was
subsequently approved by the board. The rights offer is
underwritten by Zeder Investments Ltd to a maximum of R360
million. Kaap Agri (Pty) Ltd and Moorreesburgse Koringboere (Pty)
Ltd, have irrevocably undertaken to follow their rights to a
minimum of R100 million and R28.35 million respectively. A minimum
amount of R488.35 million is therefore guaranteed to be added to
shareholder equity. The debt to equity ratio at the end of the
reporting period would have improved from 53.0% to 35.5% if this
equity injection was executed on the balance sheet date as
reported.
Concurrent with this process the board approved a restructure of
Group debt to closer align the term of debt to the long-term
nature of the capital programme. Group assets will be encumbered
to the extent required as security for the loans to ensure optimal
pricing and availability of funds.
Following the close of the interim period, an additional R1.5
billion has been committed in principle by a syndication of
financial institutions for a period of five years. In addition to
this, short-term borrowing facilities are in place to ensure
liquidity to optimally fund working capital requirements.
Prospects
The prospects of the Group are very much linked to the success in
managing profit margins which will be difficult to achieve in the
current climate given the challenging trading environment.
Given the lagged recovery of record high input costs, further
price increases will follow and could cause volume growth in key
staple categories to slow in the following months.
Nevertheless, the board remains positive that with the added
capacity coming on-stream in the next 18 months, and the defensive
nature of the product mix, the Group will be able to maintain its
earnings growth momentum in the medium to long term, while
recognising that margin pressure will cause growth to slow in the
current financial year. The Group will do well to achieve growth
in earnings for the year to 30 September 2008.
Dividend
The board has approved an interim dividend of 30.0 cents (2007:
27.0 cents) per ordinary share. The applicable dates are the
following:
Last date of trading cum dividend: Friday,6 June 2008
Trading ex dividend commences: Monday,9 June 2008
Record date: Friday,13 June 2008
Dividend payable: Thursday,3 July 2008
An interim dividend of 9.0 cents (2007: 8.1 cents) per class A
ordinary share, being 30.0% of the interim dividend payable to
ordinary shareholders in terms of the rules of the relevant
employee share scheme, will be paid during July 2008.
By order of the Board
HE Blanckenberg WA Hanekom
Chairman Managing Director
Paarl, 21 May 2008
DIRECTORS: HE Blanckenberg (Chairman), JA Louw (Vice-chairman), WA
Hanekom (Managing)*, LR Cronje*, TA Carstens*, MT Swanepoel*, WA
Agenbach, GD Eksteen, JN Hamman, N Mjoli-Mncube, AH Sangqu, AC
Singleton, Dr FA Sonn, Dr MI Surve, CJ Truter, JH van Niekerk (*
Executive)
COMPANY SECRETARY: P J Stofberg
REGISTERED ADDRESS: 32 Market Street, Paarl, 7646, PO Box 20,
Huguenot, 7645, Tel: 021 807-5100, Fax: 021 807-5280
E-MAIL: Info@pioneerfoods.co.za.
TRANSFER SECRETARIES: Computershare Investor Services (Pty) Ltd,
PO Box 61051, Marshalltown, 2107, South Africa, Tel: 011 370-5000,
Fax: 011 688-5219
SPONSOR: Barnard Jacobs Mellet Corporate Finance (Pty) Ltd,
Switchboard: +27 11 750 0000 Corporate Finance fax: +27 11 750
0009 BJM House, 24 Fricker Road, Illovo, Corner Illovo, 2196.
PO BOX, 62200 Marshalltown, 2107
GROUP INCOME STATEMENT
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30
31 March 31 March September
2008 2007 2007
R`m R`m R`m
Revenue 6,978.9 5,582.7 11,676.6
Cost of goods sold (5,116.2) (3,927.0) (8,225.8)
Gross profit 1,862.7 1,655.7 3,450.8
Depreciation and (128.3) (110.5) (250.5)
amortisation
Net other expenses (1,339.9) (1,192.1) (2,368.4)
Items of a capital nature 1.3 4.3 1.1
Operating profit 395.8 357.4 833.0
Investment income 15.9 8.1 16.8
Finance costs (98.2) (54.6) (131.6)
Profit from associated 0.6 - 0.1
companies
Profit before income tax 314.1 310.9 718.3
Income tax expense (90.0) (104.4) (211.3)
Profit for the period 224.1 206.5 507.0
Attributable to:
Equity holders of the 223.6 205.9 506.2
Group
Minority interest 0.5 0.6 0.8
224.1 206.5 507.0
Number of issued ordinary 181.2 181.2 181.2
shares (million)
Number of issued treasury
shares:
- held by subsidiary 18.0 18.0 18.0
(million)
- held by share incentive 8.4 9.6 8.9
trusts (million)
Number of issued class A 13.3 15.4 14.2
ordinary shares (million)
Weighted average number of 154.3 152.7 153.1
ordinary shares (million)
Earnings per ordinary
share (cents):
- basic 144.9 134.9 330.7
- diluted 140.8 130.3 320.5
- headline 144.0 132.3 328.4
- diluted headline 140.0 127.7 318.2
Dividend per ordinary 30.0 27.0 93.0
share (cents)
Dividend per class A 9.0 8.1 27.9
ordinary share (cents)
Net asset value per share 2,417.8 2,135.2 2,338.6
(cents)
Debt to equity ratio (%) 53.0 42.8 33.1
Reconciliation between
profit attributable to
equity holders and
headline earnings
Profit attributable to 223.6 205.9 506.2
equity holders of the
Group
Items of a capital nature (1.3) (4.3) (1.1)
Net profit on disposal of (0.4) (3.8) (6.1)
property, plant and
equipment
Net (profit)/loss on (0.9) (0.8) 0.2
disposal of investments
and subsidiary
Impairment of property, - 0.3 4.8
plant, equipment and
intangible assets
Tax effect on items of a (0.1) 0.4 (2.5)
capital nature
Headline earnings 222.2 202.0 502.6
GROUP BALANCE SHEET
Unaudited Unaudited Audited
31 March 31 March 30
2008 2007 September
R`m R`m 2007
R`m
Assets
Property, plant and 2,787.5 2,347.4 2,540.6
equipment
Goodwill 283.7 281.9 280.2
Other intangible assets 414.8 423.7 415.5
Biological assets 9.8 5.8 7.9
Investments and loans in 30.0 10.1 15.0
joint ventures and
associates
Available-for-sale 32.9 29.9 34.8
financial assets
Trade and other 8.4 8.2 7.2
receivables
Deferred income tax assets 27.4 28.3 25.5
Non-current assets 3,594.5 3,135.3 3,326.7
Current assets 4,270.5 3,580.0 3,502.4
Inventories 2,121.7 1,670.3 1,622.3
Biological assets 132.4 106.4 111.3
Derivative financial 9.3 0.2 5.4
instruments
Trade and other 1,786.6 1,588.5 1,510.2
receivables
Current income tax assets 31.3 17.1 2.4
Cash and cash equivalents 189.2 197.5 250.8
Total assets 7,865.0 6,715.3 6,829.1
Equity and liabilities
Capital and reserves 3,741.7 3,280.3 3,609.2
attributable to equity
holders of the Group
Share capital 18.1 18.1 18.1
Share premium 733.1 739.4 734.6
Treasury shares (250.3) (245.7) (249.6)
Other reserves 161.3 78.7 149.4
Retained earnings 3,079.5 2,689.8 2,956.7
Minority interest 6.0 5.6 5.8
Total equity 3,747.7 3,285.9 3,615.0
Non-current liabilities 663.7 731.2 674.7
Borrowings 156.2 240.1 187.4
Provisions for other 77.4 71.5 71.9
liabilities and charges
Deferred income tax 430.1 419.6 415.4
liabilities
Current liabilities 3,453.6 2,698.2 2,539.4
Trade, dividends and other 1,402.5 1,325.2 1,213.7
payables
Current income tax 21.4 9.5 48.9
liabilities
Derivative financial 8.6 0.8 18.5
instruments
Borrowings 2,021.1 1,362.7 1,258.3
Total equity and 7,865.0 6,715.3 6,829.1
liabilities
GROUP CASH FLOW STATEMENT
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30
31 March 31 March September
2008 2007 2007
R`m R`m R`m
Net cash profit from 540.4 484.3 1,117.4
operating activities
Cash effect from hedging (34.8) (50.8) 64.2
activities
Working capital changes (604.4) (327.6) (350.7)
Net cash (98.8) 105.9 830.9
(utilised)/generated by
operations
Income tax paid (127.6) (146.4) (225.5)
Net cash flow from operating (226.4) (40.5) 605.4
activities
Net cash flow from (363.7) (318.0) (645.9)
investment activities
Property, plant, equipment
and intangible assets
- additions and replacements (369.8) (248.0) (611.6)
- proceeds on disposal 6.2 26.8 49.7
Business combinations and - (102.2) (94.0)
disposal of subsidiary
Proceeds on disposal of and (16.0) (2.7) (6.8)
changes in investments and
loans
Interest received 15.5 7.7 15.9
Dividends received 0.4 0.4 0.9
Net cash deficit (590.1) (358.5) (40.5)
Net cash flow from financing (55.2) (184.4) (331.9)
activities
Proceeds from/(repayments 148.2 (41.0) (68.2)
of) borrowings
Treasury shares (0.7) 8.3 4.3
Employee share schemes (2.3) (5.0) (2.6)
transactions
Interest paid (98.2) (54.6) (131.6)
Dividends paid (102.2) (92.1) (133.8)
Net cash and short-term - - (3.0)
borrowings on disposal of
subsidiary
Net decrease in cash, cash (645.3) (542.9) (375.4)
equivalents and bank
overdrafts
Net cash, cash equivalents (885.5) (510.1) (510.1)
and bank overdrafts at
beginning of year
Net cash, cash equivalents (1,530.8) (1,053.0) (885.5)
and bank overdrafts at end
of year
GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30
31 March 31 March September
2008 2007 2007
R`m R`m R`m
Share capital, share premium 500.9 511.8 503.1
and treasury shares
Opening balance 503.1 505.6 505.6
Movement in treasury shares (0.7) 8.2 4.3
Employee share scheme - (1.5) (2.0) (6.8)
repurchase of shares
Other reserves 161.3 78.7 149.4
Opening balance 149.4 104.9 104.9
Transfers from retained 0.7 0.1 0.2
earnings
Equity compensation reserve 7.6 9.4 21.0
transactions
Conversion of foreign 18.2 (2.8) (8.0)
currency
Fair value gains on (2.6) 3.1 6.9
available -for-sale
financial assets
Hedging reserve (12.0) (36.0) 24.4
Retained earnings 3,079.5 2,689.8 2,956.7
Opening balance 2,956.7 2,576.2 2,576.2
Profit for the period 223.6 205.9 506.2
Dividend (102.1) (92.1) (133.8)
Transfers to other reserves (0.7) (0.1) (0.2)
Management share incentive 2.1 - 8.5
scheme - disposal of shares
Employee share scheme - (0.1) (0.1) (0.2)
stamp duty on share
transactions
Minority interest 6.0 5.6 5.8
Opening balance 5.8 5.0 5.0
Dividend (0.3) - -
Profit for the period 0.5 0.6 0.8
Total equity 3,747.7 3,285.9 3,615.0
GROUP SEGMENTAL ANALYSIS
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 31 March 2007
2008 2007 R`m
R`m R`m
Segment revenue
Staple foods 5,037.7 3,823.4 8,323.0
Branded products 2,061.6 1,840.2 3,520.9
7,099.3 5,663.6 11,843.9
Less: Internal revenue (120.4) (80.9) (167.3)
6,978.9 5,582.7 11,676.6
Segment results
(Operating profit before
items of a capital
nature)
Staple foods 264.9 264.0 615.6
Branded products 151.7 127.8 256.5
Unallocated (22.1) (38.7) (40.2)
394.5 353.1 831.9
Notes
1. Basis of preparation
This consolidated unaudited interim financial statements of the
Group for the six months ended 31 March 2008 have been prepared in
accordance with International Financial Reporting Standards
("IFRS"), IAS 34 - Interim Financial Reporting and the Listing
Requirements of the JSE Ltd.
2. Accounting policies
The accounting policies applied in this interim financial
statements comply with IFRS and are consistent with those applied
in the preparation of the Group`s annual financial statements for
the year ended 30 September 2007.
3. Contingent liability due to complaint referrals by the
Competition Commission of South Africa
As announced on 7 May 2008, Pioneer Foods received a complaint
referral from the Competition Commission ("the Commission") in
connection with the alleged operation of a bread cartel within the
Republic of South Africa and contravention of sections 4(1)(b)(i)
and (ii) of the Competition Act 89/1998 ("the referral").Pioneer
Foods and its advisors are studying the contents of the referral
and will respond to the Commission in due course.
Should Pioneer Foods ultimately not be successful in its defence
against the complaint, an administrative penalty may be imposed in
terms of section 59 of the Competition Act. The amount of the
penalty would be determined by taking into account various factors
listed in section 59(3) of the Competition Act, but may not exceed
10% of the annual revenue of Pioneer Foods.
The Group remains firmly committed to participate constructively
with Competition authorities and other parties to facilitate a
speedy conclusion of the matter. No provision for a possible
penalty has been made. The board appointed a sub-committee to
oversee the process and management`s handling of the
investigation. External experts have been appointed to assist on
various fronts, ranging from legal counsel to forensic
investigation.
As previously reported, the commission has indicated that further
complaint referrals will be made regarding alleged restrictive
practices in the national flour markets. Further announcements
will follow at the appropriate time.
26 May 2008
Date: 27/05/2008 07:05:02 Produced by the JSE SENS Department.
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