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PFG
PFG
PFG - Pioneer Foods - Abridged Financial Results For The Year Ended 30 September
2008
Pioneer Food Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1996/017676/06)
(Share code: PFG)
(ISIN code: ZAE000118279)
("Pioneer Foods" or "the Company" or "the Group")
ABRIDGED FINANCIAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2008
Revenue R14.9 Billion up 27%
Operating profit (before items of a capital up 4%
nature)R865 million
Headline earnings per ordinary share 292 cents down 11%
Dividend per ordinary share 96 cents up 3%
Andre Hanekom MD commented:
"The year under review was characterised by significant pressure on key
operating costs and volatile commodity prices in a challenging operating
environment where the consumer`s discretionary income became more constrained.
We managed to achieve good volume growth in key product categories and increased
final product prices but failed to fully recover steeply rising input costs as
indicated by our declining profit margin.
Headline earnings declined mainly as a result of significantly higher finance
costs to fund increased fixed and working capital spend.
Capacity expansion programmes in the baking, milling, cereals and Pepsi
businesses are addressing production shortfalls caused by rising demand. We are
confident in the inherent strength of our product basket and its development
potential to expect margins to improve over time as operating costs stabilise
and inflation subsides."
Enquiries
Andre Hanekom, MD 021 807 5106 / 082 808 3549
Leon Cronje, FD 021 807 5105 / 082 801 7772
Johannes van Niekerk (College Hill) 011 447 3030 / 082 921 9110
Commentary
Results
Revenue increased by 27% to R14,9 billion through good volume growth in a number
of product categories, along with price increases to recover significantly
higher input costs. The exceptionally high cost of raw material and other input
costs such as fuel and energy and generally depressed economic conditions,
caused challenging trading conditions. This is reflected in the decrease in the
Group`s operating profit margin from 7,1% to 5,8%. Cash profit from operating
activities increased by 2% to R1 142 million and operating profit, before items
of a capital nature, increased by 4% to R865 million.
Investments of R648 million in fixed capital and R511 million in working capital
contributed to an increase in debt levels. This together with higher average
interest rates caused a material increase in net finance cost of R105 million to
R220 million for the year.
This contributed to headline earnings decreasing by 7% to R468 million. Headline
earnings per ordinary share declined by 11% to R2,92. The larger decline when
expressed in per share terms compared to total headline earnings is due to the
increase in the weighted number of ordinary shares in issue after the rights
issue in June 2008.
The fixed capital spend is primarily directed to ease capacity constraints in
the milling, baking, Weet-Bix and Pepsi businesses.
The substantial increase in working capital, specifically inventory, resulted
from the steep increase in wheat cost. Stock volumes however remained comparable
to the previous year. Along with higher general inflation this resulted in
increased final product prices, leading to an increased investment in debtors.
Total Group debt at year-end was R1 455 million, a ratio of 34% to net equity.
Operational Review
The Sasko segment performed particularly well despite a substantially increased
cost base, predominantly from raw material cost increases. Divisional revenue
increased by 39% to R8,1 billion and operating profit by 37% to R622 million,
resulting in a slightly decreased operating margin of 7,6%.
Volume growth and an increased profit contribution from specifically the rice
and pasta businesses were very pleasing. Satisfactory bread volume growth was
achieved, despite a number of substantial price increases during the year. This
trend, along with good maize flour volume growth, again confirmed the defensive
nature of the division`s basket of products. Sales volumes of wheaten products
slowed considerably towards the end of the year as a result of materially
increased sales prices. However, this decline in volume, particularly during the
last quarter of the financial year, was in line with industry trends and thus
indicative of a change in consumer consumption patterns.
The Agri Business segment disappointed with negative contributions from both the
egg and broiler businesses. Although revenue increased by 18% to R2,5 billion,
it was not sufficient to recover the increased cost of maize and soya that rose
by 40% and 50% respectively during the year under review.
The segment`s operating profit declined from R101 million to R4 million,
virtually eroding the 4,8% margin achieved in the previous year. Oversupply due
to increased capacity in both the egg and broiler markets, as well as declining
demand for these sources of protein, prevented a reasonable recovery of
significant raw material and other cost increases in final product prices. The
animal feeds business on the other hand performed well and achieved improved
results.
The Bokomo Foods segment posted an increased contribution to earnings. Revenue
for the division increased by 15% to R2,5 billion with operating profit
increasing by 12% to R239 million. The operating margin decreased slightly from
9,6% to 9,4%.
The performance of the breakfast cereal business was satisfactory. Price
increases to recover the steep rising raw material costs, limited volume growth.
Biscuits, baking aids and the UK breakfast cereals businesses delivered improved
results. The dried fruit business performed well with increased sales volumes in
both the local and export markets.
Revenue in the Ceres Beverages segment increased by 15% to R2,1 billion.
However, the tough trading conditions contributed to the operating profit
declining by 27% to R78 million. The already low operating profit margin thus
decreased from 5,9% to 3,7%.
The fruit juice business performed satisfactorily with export sales achieving
good volume growth in particular. The contribution from the fruit concentrate
mixtures business was lower than expected as aggressive competitor activities
negatively affected realistic pricing strategies and constrained sales volumes.
Pepsi volumes continued its double digit growth benefiting from improving
consumer awareness. The addition of further production capacity enabled a steady
increase in the market share of this exciting venture. Cold and wet summer
conditions influenced sales volumes in general.
Rights Issue
An analysis of the Group`s debt capacity, mindful of the planned expansion
capital program and the increased investment in working capital, resulted in the
decision to attract additional shareholder capital to partially fund the capital
expenditure program.
The board subsequently approved a renounceable rights offer of 20 million
ordinary shares at an issue price of R25 per share, totalling R500 million. The
rights offer was underwritten by Zeder Investments Limited to a maximum of R360
million, or 14,4 million shares. A positive response from shareholders,
subscribing for 88,4% of the rights offer shares, limited the underwriter`s
investment to R58 million, or 2,3 million shares. The fact that the two largest
shareholders, namely Kaap Agri Ltd and Moorreesburgse Koringboere (Pty) Ltd
expressed a vote of confidence in the future of the Group by following all their
rights, was very encouraging.
Prospects
The board remains optimistic about the short and longer term growth potential of
Pioneer Foods. A number of factors will determine the speed and magnitude of the
Group`s earnings growth. The potential turnaround in the egg and broiler
businesses, the contribution potential from the Pepsi venture and the
optimisation of profitability of the Bokomo Foods division are of particular
interest. A sustained solid performance from the milling and baking businesses
is also key to future earnings growth.
The significant decline in international and local wheat prices during the last
quarter of the year under review is expected to contribute to lower food
inflation in the Group`s basket of products in the current year. This will
positively affect earnings while limiting further increases in working capital.
Debt however is expected to largely remain at current levels. The board is
confident in the inherent strength of the Group`s product basket and development
potential and expects margins to improve over time as operating costs stabilise
and inflation subsides.
Dividend
The board approved a final dividend of 66 cents (2007: 66 cents) per ordinary
share. This is in addition to an interim dividend of 30 cents (2007: 27 cents)
per ordinary share declared and paid earlier in the year for a total dividend of
96 cents (2007: 93 cents) per ordinary share. The applicable dates are as
follows:
Last date of trading cum dividend Friday, 23 January 2009
Trading ex dividend commences Monday, 26 January 2009
Record date Friday, 30 January 2009
Dividend payable Monday, 2 February 2009
A final dividend of 19,8 cents (2007: 19,8 cents) per class A ordinary share,
being 30% of the final dividend payable to ordinary shareholders in terms of the
rules of the relevant employee share scheme, will be paid in February 2009.
Share certificates may not be dematerialised or rematerialised between Monday,
26 January 2009 and Friday, 30 January 2009, both days inclusive.
By order of the board.
HE Blanckenberg WA Hanekom
Chairman Managing Director
Paarl, 26 November 2008
GROUP INCOME STATEMENT
Audited Audited
Year ended Year ended
30 September 30 September
2008 2007
R`m R`m
Revenue 14,884.4 11,676.6
Cost of goods sold (11,003.4) (8,225.8)
Gross profit 3,881.0 3,450.8
Other expenses (3,015.9) (2,618.9)
Items of a capital nature (19.4) 1.1
Operating profit 845.7 833.0
Investment income 31.5 16.8
Finance costs (250.8) (131.6)
Profit from associated companies 0.7 0.1
Profit before income tax 627.1 718.3
Income tax expense (174.4) (211.3)
Profit for the period 452.7 507.0
Attributable to:
Equity holders of the Group 452.2 506.2
Minority interest 0.5 0.8
452.7 507.0
HEADLINE EARNINGS RECONCILIATION
Audited Audited
Year ended Year ended
30 September 30 September
2008 2007
R`m R`m
Reconciliation between profit
attributable to equity holders and
headline earnings
Profit attributable to equity holders 452.2 506.2
of the Group
Items of a capital nature 19.4 (1.1)
Net profit on disposal of property, (1.7) (6.1)
plant and equipment
Net (profit)/loss on disposal of (1.2) 0.2
investments
Impairment of property, plant, 22.3 4.8
equipment and intangible assets
Tax effect on items of a capital (3.3) (2.5)
nature
Headline earnings 468.3 502.6
Number of issued ordinary shares 201.2 181.2
(million)
Number of issued treasury shares:
- held by subsidiary (million) 18.0 18.0
- held by share incentive trusts 8.6 8.9
(million)
Number of issued class A ordinary 12.6 14.2
shares (million)
Weighted average number of ordinary 160.2 153.1
shares (million)
Earnings per ordinary share (cents):
- basic 282.3 330.7
- diluted 275.5 320.5
- headline 292.4 328.4
- diluted headline 285.3 318.2
Dividend per ordinary share (cents) 96.0 93.0
Dividend per class A ordinary share 28.8 27.9
(cents)
Net asset value per ordinary share 2,437.6 2,338.6
(cents)
Debt to equity ratio (%) 34.2 33.1
GROUP BALANCE SHEET
Audited Audited
30 September 30 September
2008 2007
R`m R`m
Assets
Property, plant and equipment 2,942.7 2,540.6
Goodwill 269.6 280.2
Other intangible assets 409.9 415.5
Biological assets 11.9 7.9
Investments in and loans to joint 32.4 15.0
ventures and associates
Available-for-sale financial assets 29.2 34.8
Trade and other receivables 12.3 7.2
Deferred income tax assets 36.2 25.5
Non-current assets 3,744.2 3,326.7
Current assets 4,297.0 3,502.4
Inventories 2,184.1 1,622.3
Biological assets 143.5 111.3
Derivative financial instruments 13.7 5.4
Trade and other receivables 1,690.8 1,510.2
Current income tax assets 39.2 2.4
Cash and cash equivalents 225.7 250.8
Total assets 8,041.2 6,829.1
Equity and liabilities
Capital and reserves attributable to 4,256.8 3,609.2
equity holders of the Group
Share capital 20.1 18.1
Share premium 1,216.5 734.6
Treasury shares (260.0) (249.6)
Other reserves 16.6 149.4
Retained earnings 3,263.6 2,956.7
Minority interest 6.0 5.8
Total equity 4,262.8 3,615.0
Non-current liabilities 1,758.8 674.7
Borrowings 1,181.3 187.4
Provisions for other liabilities and 78.3 71.9
charges
Share-based payment liability 19.4 -
Derivative financial instruments 37.4 -
Deferred income tax liabilities 442.4 415.4
Current liabilities 2,019.6 2,539.4
Trade, dividends and other payables 1,485.6 1,213.7
Current income tax liabilities 18.4 48.9
Derivative financial instruments 16.3 18.5
Borrowings 499.3 1,258.3
Total equity and liabilities 8,041.2 6,829.1
GROUP CASH FLOW STATEMENT
Audited Audited
Year ended Year ended
30 September 30 September
2008 2007
R`m R`m
Net cash profit from operating 1,141.7 1,117.4
activities
Cash effect from hedging activities (140.5) 64.2
Working capital changes (511.2) (350.7)
Net cash generated by operations 490.0 830.9
Income tax paid (178.3) (225.5)
Net cash flow from operating 311.7 605.4
activities
Net cash flow from investment (648.9) (645.9)
activities
Property, plant, equipment and
intangible assets
- additions and replacements (647.8) (611.6)
- proceeds on disposal 25.1 49.7
Business combinations and disposal of (35.2) (94.0)
subsidiary
Proceeds on disposal of and changes in (22.5) (6.8)
investments and loans
Interest received 30.5 15.9
Dividends received 1.0 0.9
Net cash flow from financing 1,140.9 (331.9)
activities
Proceeds from/(repayments of) 1,066.6 (68.2)
borrowings
Ordinary shares issued 485.7 -
Treasury shares - share incentive (10.4) 4.3
trusts
Employee share schemes transactions (1.5) (2.6)
Interest paid (250.8) (131.6)
Dividends paid (148.7) (133.8)
Net cash and short-term borrowings 2.8 (3.0)
from business combinations and on
disposal of subsidiary
Net increase/(decrease) in cash, cash 806.5 (375.4)
equivalents and bank overdrafts
Net cash, cash equivalents and bank (885.5) (510.1)
overdrafts at beginning of year
Net cash, cash equivalents and bank (79.0) (885.5)
overdrafts at end of year
GROUP STATEMENT OF CHANGES IN EQUITY
Audited Audited
Year ended Year ended
30 September 30 September
2008 2007
R`m R`m
Share capital, share premium and 976.6 503.1
treasury shares
Opening balance 503.1 505.6
Movement in treasury shares (10.4) 4.3
Ordinary shares issued 485.7 -
Employee share scheme - repurchase of (1.8) (6.8)
shares
Other reserves 16.6 149.4
Opening balance 149.4 104.9
Transfers from retained earnings 0.9 0.2
Equity compensation reserve 7.2 21.0
transactions
Conversion of foreign currency 9.8 (8.0)
Fair value gains on available-for-sale (6.5) 6.9
financial assets
Transfer to cash-settled liability (28.2) -
Hedging reserve (116.0) 24.4
Retained earnings 3,263.6 2,956.7
Opening balance 2,956.7 2,576.2
Profit for the year 452.2 506.2
Dividends paid (148.6) (133.8)
Transfers to other reserves (0.9) (0.2)
Management share incentive scheme - 4.3 8.5
disposal of shares
Employee share scheme - stamp duty on (0.1) (0.2)
share transactions
Minority interest 6.0 5.8
Opening balance 5.8 5.0
Dividend paid (0.3) -
Profit for the year 0.5 0.8
Total equity 4,262.8 3,615.0
GROUP SEGMENTAL ANALYSIS
Audited Audited
Year ended Year ended
30 September 30 September
2008 2007
R`m R`m
Segment revenue
Sasko 8,143.0 5,848.8
Agri Business 2,493.4 2,106.9
Bokomo Foods 2,539.4 2,217.3
Ceres Beverages 2,082.9 1,807.3
15,258.7 11,980.3
Less: Internal revenue (374.3) (303.7)
14,884.4 11,676.6
Segment results(Operating profit
before items of a capital nature)
Sasko 622.0 453.8
Agri Business 3.5 100.7
Bokomo Foods 239.4 213.0
Ceres Beverages 77.8 106.4
Unallocated (77.6) (42.0)
865.1 831.9
NOTES
1. Basis of preparation
These abridged financial statements are derived from the audited annual
financial statements of the Group for the year ended 30 September 2008 which
have been prepared in accordance with International Financial Reporting
Standards (IFRS), the Listing Requirements of the JSE Limited and the Companies
Act of South Africa (1973), as amended. The abridged financial statements comply
with the requirements of IAS 34 - Interim financial reporting.
2. Accounting policies
These abridged financial statements incorporate accounting policies that are
consistent with those adopted in the Group`s annual financial statements and
with those of previous financial years, except for the adoption of IFRS 7 -
Financial Instruments: Disclosures. Adoption of IFRS 7 had no impact on the
Group`s results of either the current or the prior year.
3. Change in accounting estimates
3.1 Re-assessment of the useful lives of trademarks
The useful lives of certain Group trademarks were re-assessed as being
indefinite as there are no foreseeable limits to the period over which these
assets are expected to generate net cash inflows for the entity. This resulted
in an increase in profit after income tax of R8,8 million for the year.
3.2 Broad-based employee share scheme
The Group changed its accounting treatment of the broad-based employee share
scheme from equity-settled to cash-settled to reflect the Group`s current
settlement practices. The opening balance of the equity compensation reserve on
1 October 2007 was, therefore, transferred to the share-based payment liability.
4. Share capital
4.1 Rights issue
During the year 20,000,000 ordinary shares of 10 cents each were issued at R25
per share. Issue costs of R14,3 million were written off against share premium.
4.2 Treasury shares held by the share incentive trusts
A net number of 715,513 shares of 10 cents each were sold. The trust exercised
415,384 rights as part of the rights offer.
4.3 Unlisted class A ordinary shares
During the year 1,593,900 shares of 10 cents each were bought back from
employees that left employment for an amount of R1,8 million.
5. Debt restructure
Group debt was restructured to better align the term of debt with the nature of
investments funded. During the year the Group obtained syndicated financing of
R1,3 billion in the form of bullet and amortising loans. These loans are secured
by mortgages over certain Group immovable properties and notarial bonds over
certain Group items of plant and equipment with carrying values of R1,2 billion
at year-end. New short-term facilities of R2,3 billion were obtained from the
same syndication transaction of which R450 million were utilised at year-end.
These are secured by pledges over inventories, biological assets and trade
receivables with year-end carrying values of R3,8 billion.
6. Impairment
The Group re-assessed and impaired the carrying values of the underlying assets
of the Moir`s and Kwality businesses with an after-tax amount of R20,5 million.
These impairment losses were calculated by comparing the carrying amount of the
cash-generating unit (CGU) to the value in use of these CGU`s.
7. Segments
The Group`s business segments were amended during 2008 to achieve improved
presentation of the organisational units for which information is reported to
management. Comparative figures for 2007 were restated accordingly. Sasko
includes wheaten flour, maize meal, rice, pasta and bread products. Sasko also
includes the foreign African businesses and the business of Bowman Ingredients.
Agri Business includes eggs, broilers and animal feeds. Bokomo Foods includes
breakfast cereals, dried fruit products and other fast moving consumer goods and
the Heinz Foods SA and Bokomo Foods (UK) businesses. Ceres Beverages includes
fruit juices, fruit concentrate mixtures and carbonated soft drinks.
8. Contingent liabilities
8.1 Complaint Referral by Competition Commission
In May 2008 Pioneer Foods (Pty) Ltd received a complaint referral by the
Competition Commission for alleged restrictive practices in contravention of
section 4(1)(b)(i) and section 4(1)(b)(ii) of the Competition Act of 1998 in the
national bread market. Pioneer Foods submitted its response to the complaint
referral within the set time limits. The Competition Commission opted not to
respond to the answering affidavit. Independent legal advice indicated that
Pioneer Foods has reasonable prospects of a successful defence against all the
charges in the complaint referral. This referral is in addition to the one
received in the previous financial year for alleged restrictive practices in the
Western Cape bakeries. Independent legal advice in that case also indicated a
reasonable chance of a successful defence against all or some of the charges in
that complaint referral. Accordingly, no provision was made in the year under
review for the payment of any penalties. A liability only arises if
contraventions of the Act are ultimately proven against Pioneer Foods. Should
Pioneer Foods not be successful in its defence, an administrative penalty may be
imposed in terms of section 59 of the Competition Act. The amount of the
administrative penalty would be determined by taking into account the factors
listed in section 59 (3) of the Competition Act, but may not exceed 10% of the
annual turnover of Pioneer Foods in the financial year preceding the referral. A
pre-trial conference was held in October 2008 with a follow-up conference to be
held in December 2008. It is foreseen that at that meeting a trial date will be
set. In keeping with its unwavering commitment to good corporate governance, the
board established a committee, consisting of mostly independent non-executive
directors, to investigate all related matters. External consultants are
assisting the committee in this assignment. Management instituted a Competition
Compliance Programme which includes ongoing assessments of business practices
and training of employees. A Competition Compliance Charter for the Group is
also in the process of being finalised.
8.2 Dispute with egg contract producers
Prior to year-end claims were received from some contract producers for the
alleged breach of the terms of specific supply agreements. Based on advice from
the Group`s legal advisors, management is convinced the Group will not incur any
material liability in respect of this matter. The Group`s legal advisors are
currently attending to this matter.
8.3 Guarantees
The Group issued guarantees of R158,4 million (2007: R163,8 million) at year-
end, primarily for loans by third parties to contracted suppliers.
9. Audit report
The external auditors, PricewaterhouseCoopers Inc., have audited the Group`s
annual financial statements and the abridged financial statements contained
herein for the year ended 30 September 2008. Copies of their unqualified audit
reports are available on request at the Company`s registered office.
DIRECTORS: HE Blanckenberg (Chairman), JA Louw (Vice-chairman), WA Hanekom
(Managing)*, LR Cronje*, TA Carstens*, MT Swanepoel*, WA Agenbach, GD Eksteen,
JN Hamman, AE Jacobs, N Mjoli-Mncube,
AH Sangqu, AC Singleton, Dr FA Sonn, Dr MI Surve, AW Bester, JH van Niekerk
(* Executive)
COMPANY SECRETARY: PJ Stofberg E-mail: pstofber@pioneerfoods.co.za
REGISTERED ADDRESS: 32 Market Street, Paarl, 7646, PO Box 20, Huguenot, 7645,
South Africa 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, PO Box 62200,
Marshalltown, 2107, South Africa Tel: 011 750 0207, Fax: 011 750 0607
Date: 01/12/2008 07:05:02 Produced by the JSE SENS Department.
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