| Fri 20 Feb 2009, 11:00 | | PFG - Pioneer Foods - Statement Delivered By the Chairman at the 12th Annual |
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PFG
PFG
PFG - Pioneer Foods - Statement Delivered By the Chairman at the 12th Annual
General Meeting of Shareholders
PIONEER FOOD GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1996/017676/06)
JSE share code: PFG
ISIN: ZAE000118279
("Pioneer Foods")
STATEMENT DELIVERED BY THE CHAIRMAN AT THE 12TH ANNUAL GENERAL MEETING OF
SHAREHOLDERS
INTRODUCTION
2008 was indeed a challenging year to list, but given the fact that we listed by
introduction and merely moved from an informal exchange to a formal trading
environment, the share price and market circumstances in the short term did not
influence our decision to list, as such.
REVIEW
We raised debt and equity capital to fund the capital expansion programme.
A rights offer raised R500 million. We received the cash towards the end of June
last year. Being listed at the time did help in the successful conclusion of the
process. Particularly pleasing was the positive reaction from shareholders,
following 88,4% of their rights with our two largest shareholders, Kaap Agri
and Moorreesburg Koringboere following 100% of their rights.
We restructured Group debt to further support the capital programme and ensure
liquidity for working capital needs. This process was successfully concluded
with the introduction of a syndicated facility of R3,6 billion, funded by six
financial institutions. Fortunate timing given the major liquidity contraction
in financial markets in the latter part of last year.
The fixed capital spend is primarily directed to ease capacity constraints in
the milling, baking, Weet-Bix and Pepsi businesses.
Managing and maintaining realistic profit margins in a volatile and fast
changing environment was a particular challenge.
Our revenue for the year to September 2008 increased by a pleasing 27% to R14.9
billion largely on the back of price increases to recover substantial cost
increases but also supported by volume growth in a number of key product
categories.
Operational performance was more subdued with operating profit increasing by 4%
to R865 million and cash profit increasing by 2% to R1,1 billion.
The Group`s operating margin declined to 5,8% from 7,1% with below par
contributions from the Agri and Ceres businesses in this tough trading
environment.
Sasko remains the largest contributor to Group performance and managed to
sustain its margin and achieve acceptable volume growth. Bokomo Foods also
performed satisfactorily and largely retained profit margins on an increased
revenue base.
The increased investment in working capital and the fixed capital spend we spoke
about, contributed to a substantial increase in finance charges to R220 million,
contributing to a 7% decline in headline earnings to R468 million for the year
to September 2008.
The Board remains positive about the Group`s ability to sustain and grow its
cash generation from operations over time and approved an increased dividend for
the full year of 96 cents per share.
The final dividend of 66 cents per share or R132 million was paid to
shareholders earlier this month.
COMPETITION COMMISSION INVESTIGATION
Let me now turn my attention to the contentious issue of alleged anti-
competitive practices in the bakery business of Pioneer Foods.
As you might be aware, the allegations were made in 2007. We received the
complaint referral from the Competition Commission in May 2008.
It is a matter of urgency for Pioneer Foods to conclude the issue and we welcome
the hearing date set for June 2009.
With the facts to our disposal and the complaint referral we received, our legal
opinion is that we have a reasonable prospect of a successful defense against
all the charges in the complaint referral.
I must emphasise the fact that the Board takes the accusation of improper market
conduct very seriously.
Guided by our unwavering commitment to good corporate governance, the Board
established a committee, led by independent non-executive directors to oversee
the process and management`s handling of the investigation.
Management instituted a Competition Compliance Programme which includes ongoing
assessments of business practices and training of employees conducted by an
independent agency.
BUSINESS ENVIRONMENT
Ladies and gentlemen, I would now like to reflect on a substantially changed
business environment since our previous AGM.
I am confident that everyone in this room has been impacted in some way or
another by the macro events of the past year.
For one the oil price of 140 US dollar a barrel less than 9 months ago, is now
at 40 US dollar a barrel.
Of course we are very thankful for these turnarounds, but the magnitude of
change in these economic drivers and indicators poses an interesting challenge
to the management of any business.
OUTLOOK
We are concerned about the plight of the consumer and as such won`t hesitate to
adjust prices lower when we`re in a position to do so. It is a balancing act
with upward and downward cost pressure at any given time and a minimum price
required to ensure our sustainability.
We are well positioned however. Our revenue is not dependent on one single
industry or category of products where credit approval or postponement of spend
is under threat in these difficult economic circumstances.
This and our defensive basket of products and well known brands should sustain
and grow our revenue and profit stream in future.
PROSPECTS
There are however a number of factors that will influence our growth, in
particular a turnaround in the egg and broiler businesses and gaining critical
mass in the Pepsi venture.
We are sensitive to the level of debt we incurred to fund the capital expansion
programme and will continue to manage fixed and working capital with strict
approval and deployment principles.
Looking at the current year, we experienced satisfactory volume growth in the
three months to December, with a softening in volume growth in January and
February as expected at this time of year. Earnings for the first half of the
2009 financial year should be broadly in line with the corresponding period if
current circumstances prevail.
In conclusion, I must say we are confident in the inherent strength of the
Group`s product basket and its development potential and expect our operating
margins to improve over time as operating costs stabilise and inflation
subsides.
2009 will undoubtedly hold many challenges for us but as Board and management we
look forward to meeting them and continuing our proud track record of providing
choice and quality to the consumer.
Paarl
20 February 2009
Sponsor
Barnard Jacobs Mellet Corporate Finance (Proprietary) Limited
Date: 20/02/2009 11:00:01 Produced by the JSE SENS Department.
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