| Mon 30 Nov 2009, 8:11 | | PFG - Pioneer Foods - Audited Provisional Annual Financial Statements For The |
|
PFG
PFG
PFG - Pioneer Foods - Audited Provisional Annual Financial Statements For The
Year Ended 30 September 2009
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")
Audited provisional annual financial statements for the year ended 30 September
2009
- Revenue R16.3 billion up 9%
- Operating profit (before items of a capital up 34%
nature) R1.2 billion
- Headline earnings per ordinary share 355 cents up 22%
- Final dividend per ordinary share 89 cents up 35%
Andre Hanekom MD commented:
"We achieved this satisfactory set of results in a deflationary environment
where in the second half of the year, selling prices in key categories either
stabilised or contracted.
Our earnings growth for the year, though relatively strong, basically brings us
back to even keel, after the slow or declining growth we showed in recent
reporting periods.
An excellent performance from Sasko improved our capacity utilisation with
increased sales volumes in maize products in particular, which led to margin
growth.
Lower commodity prices reduced our investment in inventory and debtors which
released cash from working capital. The lower debt levels on average decreased
finance charges which provided an additional impetus to earnings.
We expect modest earnings growth in the first half of the current financial
year, depending on the collective impact of declining raw material prices;
increasing labour, transport and electricity costs; shifting consumer patterns
shaping volume growth and continuing deflationary pressure on selling prices."
Enquiries
Andre Hanekom, MD 021 807 5106 / 082 808 3549
Leon Cronje, FD 021 807 5105 / 082 801 7772
Johannes van Niekerk (CapitalVoice) 082 921 9110
Commentary
Revenue for the year increased by 9% to R16 284 million. A 20% revenue growth
for the first half of the year was followed by no revenue growth for the second
six months, demonstrating the deflationary effect in the basket of products.
Much improved world grain stock levels, largely on the back of normalised
weather patterns, led to substantially reduced world and local grain prices for
the duration of the reporting period. A mixture of increased and largely
sustained sales volumes across the various categories buffered the decrease in
selling prices, especially in the second half of the year.
Better cost recovery in finished product prices improved the operating profit
margin from 5.8% to 7.1%.
Operating profit, before items of a capital nature, increased by 34% to R1 160
million. Costs for the unallocated segment, in the operating profit segment
report, increased substantially from R78 million to R141 million. Major
contributors to this increased cost were an increased spend on enterprise
development and a net increase in the mark to market cost of certain interest
rate hedge contracts. Further contributors were increased staff costs as well as
performance bonuses on the back of the improved performance of the Group not
allocated to the various segments.
Net finance charges benefited from an improved debt position and lower interest
rates and decreased to R198 million.
The income tax charge almost doubled to R335 million with an effective income
tax rate of 37.4%. This substantially increased tax rate is the result of a
combination of the following:
A material increase in the non-tax deductible charge to R41 million for the
broad-based employee share scheme as a result of the improvement of the share
price from R25 to almost R34.
Non-tax deductible impairment of goodwill of R45 million.
Derecognising a deferred tax asset of R34 million, due to a revised view of the
time horizon to utilise an assessed loss initially obtained with the acquisition
of a subsidiary in 2003 that increased subsequently.
Earnings increased by 24% to R561 million with headline earnings increasing by
33% to R621 million. The difference between earnings and headline earnings is
largely due to an impairment of the goodwill initially paid for the Moir`s
business of R45 million. The impairment calculations are based on the view of
future profitability in relation to the current value of the investment.
Earnings per share and headline earnings per share increased at lower rates of
14% to 321 cents per share and 22% to 355 cents per share respectively. This is
the result of the increase in the weighted number of ordinary shares in issue
following the rights issue of 20 million ordinary shares in the previous year.
Cash generated by operations improved to R1 888 million. This is the result of
the improved profit performance with cash profit from operating activities
increasing by 32%, to R1 510 million. R357 million was unlocked from working
capital, largely as a result of decreased raw material cost, especially wheat,
and decreased investment in debtors resulting from decreasing finished product
prices. This turnaround follows an investment in working capital of R511 million
the previous year.
Fixed capital investments contracted to R466 million compared to R648 million
the previous year. Some capital projects were postponed given the uncertain
economic climate, whereas other projects are taking longer to complete and will
be transferred to the new financial year.
Net interest bearing debt benefited from improved cash generation and contained
capital expenditure and decreased by R795 million to R660 million. The debt to
equity ratio improved from 34% to 14% at year end.
Results
Operational Review
Sasko
Sasko delivered a sound overall performance for the year, posting an improved
profit contribution and margin.
The demand for staple food products remained resilient, despite the overall
decline in economic activity. The various government grant support programs
supported this trend, especially in the rural areas where Sasko is well
represented.
Average selling prices in the key categories of bread, wheaten products, pasta
and rice are lower than the comparative period. Upward and downward pressures on
input costs continued during the year with increasing electricity, labour and
rail costs weighing down the benefit of lower grain and fuel prices.
White Star super maize meal made a superb contribution, generating R1,5 billion
of revenue in its tenth anniversary year. The continued expansion and upgrading
of the white maize milling facilities and White Star`s increasing market
presence underpinned this satisfactory performance.
Total rice and legume sales volumes ended below last year`s results despite the
decline in international rice prices. The continued increase in sales volumes
of the Spekko branded premium rice products was satisfying.
The performance of the bakery business improved notably compared to the previous
year from a sound, although slightly reduced volume base. During the year the
various historic bread brands all consolidated under the Sasko banner.
The pasta business again posted excellent results with a continued resilient
demand for pasta products, indicative of slightly increasing per capita
consumption.
Agri Business
The Agri Business recovered somewhat with Nulaid and Nova Feeds performing
adequately and Tydstroom remaining under pressure with a number of poultry
disease challenges. On-farm performance improved in the last two months of the
year and a recovery in performance levels is expected in 2010.
Bokomo Foods
Performance by Bokomo Foods was disappointing and down compared to the previous
year. The major challenge was volume related and consumers traded down to lower
margin products.
Weet-Bix still achieved good volume growth with its value for money offering.
The production capacity expansion was successfully commissioned during the year
and improved production efficiencies unlocked further capacity.
The performance of the dried fruit business deteriorated in the second half of
the year. A poor sultana crop in the Orange River region led to lower production
volumes and increased producer prices not recovered from the market, which
together with the strengthening rand, impacted negatively on earnings.
A fire destroyed part of the Upington raisin factory at the end of August.
Insurance cover is expected to limit any material impact on performance in the
new year due to the fire.
Ceres Beverages
The non-alcoholic beverage category was under pressure in the past year in South
Africa and the international market. The decline in consumer spending reduced
sales volumes. Operating profit increased, but profit margins were under
pressure from continuous cost increases in raw material and packaging.
The fruit juice category achieved volume growth on the back of double digit
growth in export sales volumes. Construction of a fruit juice factory in
Wadeville has commenced and will provide growth capacity and reduce distribution
cost between the Western Cape and the interior.
In the fruit concentrate mixture category profitability was restored in line
with previous years.
The carbonated soft drinks category was under pressure. Pepsi sales volumes
remained satisfactory, but with no contribution to earnings.
In light of the more challenging trading environment, forecasts for the Pepsi
venture were adjusted to reflect a longer establishment phase to position the
brand for long-term sustainable growth.
Prospects
Operating profit in the next reporting period will be influenced by:
The volatility in raw material prices
Cost increases and particularly salaries, wages, electricity and transport costs
Sales volumes driven by changing consumer spending patterns
Deflationary pressures on selling prices
Sasko has experienced strong growth in this and previous reporting periods and
is well positioned for further growth albeit at a slower rate given the
relatively high comparative base.
The other businesses of the Group should further unlock their potential to
improve contributions to earnings.
Group earnings should benefit from decreased finance costs given the improved
debt position.
Dividend
The board declared a final dividend of 89,0 cents (2008: 66,0 cents) per
ordinary share, an increase of 35% on the declaration for the comparative
period.
Last date of trading cum dividend Friday, 22 January 2010
Trading ex dividend commences Monday, 25 January 2010
Record date Friday, 29 January 2010
Dividend payable Monday, 1 February 2010
The total dividend declared for the year amounts to 125,0 cents (2008: 96,0
cents) per ordinary share, an increase of 30%.
A final dividend of 26,7 cents (2008: 19,8 cents) per class A ordinary share,
payable to employees as members of the broad-based employee share scheme, will
be paid in February 2010. The total dividend declared per class A ordinary share
amounts to 37,5 cents (2008: 28,8 cents) per class A ordinary share for the
reporting period, also an increase of 30%.
Share certificates may not be dematerialized or rematerialized between Monday,
25 January 2010 and Friday, 29 January 2010, both days inclusive.
By order of the board.
HE Blanckenberg WA Hanekom
Chairman Managing Director
Paarl, 26 November 2009
Group income statement
Audited Audited
Year ended Year ended
30 September 30 September
2009 2008
R`m R`m
Revenue 16,283.9 14,884.4
Cost of goods sold (11,732.9) (11,003.4)
Gross profit 4,551.0 3,881.0
Other expenses (3,391.0) (3,015.9)
Items of a capital nature (68.0) (19.4)
Operating profit 1,092.0 845.7
Investment income 28.7 31.5
Finance costs (224.5) (250.8)
Profit from associated companies 0.4 0.7
Profit before income tax 896.6 627.1
Income tax expense (334.9) (174.4)
Profit for the year 561.7 452.7
Attributable to:
Equity holders of the Group 560.5 452.2
Minority interest 1.2 0.5
561.7 452.7
Headline earnings reconciliation
Audited Audited
Year ended Year ended
30 September 30 September
2009 2008
R`m R`m
Reconciliation between profit
attributable to equity holders and
headline earnings
Profit attributable to equity holders 560.5 452.2
of the Group
Items of a capital nature 68.0 19.4
Loss/(profit) on disposal of property, 16.3 (1.7)
plant and equipment
Profit on disposal of available-for- (1.7) (1.2)
sale financial assets
Impairment of property, plant, 53.4 22.3
equipment and intangible assets
Tax effect on items of a capital (7.6) (3.3)
nature
Headline earnings 620.9 468.3
Number of issued ordinary shares 201.2 201.2
(million)
Number of issued treasury shares:
- held by subsidiary (million) 18.0 18.0
- held by share incentive trusts 6.8 8.6
(million)
Number of issued class A ordinary 11.4 12.6
shares (million)
Weighted average number of ordinary 174.7 160.2
shares (million)
Earnings per ordinary share (cents):
- basic 320.8 282.3
- diluted 315.7 275.5
- headline 355.4 292.4
- diluted headline 349.8 285.3
Dividend per ordinary share (cents) 125.0 96.0
Dividend per class A ordinary share 37.5 28.8
(cents)
Net asset value per ordinary share 2,622.9 2,437.6
(cents)
Debt to equity ratio (%) 14.3 34.2
Group balance sheet
Audited Audited
30 September 30 September
2009 2008
R`m R`m
Assets
Property, plant and equipment 3,098.7 2,942.7
Goodwill 222.6 269.6
Other intangible assets 426.3 409.9
Biological assets 14.0 11.9
Investments in associates and loans to 38.5 32.4
joint ventures
Available-for-sale financial assets 31.7 29.2
Trade and other receivables 16.9 12.3
Deferred income tax assets 2.7 36.2
Non-current assets 3,851.4 3,744.2
Current assets 4,250.1 4,297.0
Inventories 1,950.3 2,184.1
Biological assets 151.7 143.5
Derivative financial instruments 0.1 13.7
Trade and other receivables 1,537.8 1,690.8
Current income tax assets 12.7 39.2
Cash and cash equivalents 597.5 225.7
Total assets 8,101.5 8,041.2
Equity and liabilities
Capital and reserves attributable to 4,628.0 4,256.8
equity holders of the Group
Share capital 20.1 20.1
Share premium 1,215.9 1,216.5
Treasury shares (246.5) (260.0)
Other reserves (7.0) 16.6
Retained earnings 3,645.5 3,263.6
Minority interest 5.8 6.0
Total equity 4,633.8 4,262.8
Non-current liabilities 1,753.6 1,758.8
Borrowings 1,096.6 1,181.3
Provisions for other liabilities and 82.3 78.3
charges
Share-based payment liability 57.1 19.4
Derivative financial instruments 26.4 37.4
Deferred income tax liabilities 491.2 442.4
Current liabilities 1,714.1 2,019.6
Trade and other payables 1,494.1 1,485.4
Current income tax liabilities 5.2 18.4
Derivative financial instruments 53.6 16.3
Borrowings 161.1 499.3
Dividends payable 0.1 0.2
Total equity and liabilities 8,101.5 8,041.2
Group cash flow statement
Audited Audited
Year ended Year ended
30 September 30 September
2009 2008
R`m R`m
Net cash profit from operating 1,509.7 1,141.7
activities
Cash effect from hedging activities 21.7 (140.5)
Working capital changes 356.6 (511.2)
Net cash generated by operations 1,888.0 490.0
Income tax paid (234.4) (178.3)
Net cash flow from operating 1,653.6 311.7
activities
Net cash flow from investment (465.0) (648.9)
activities
Property, plant, equipment and
intangible assets
- additions and replacements (465.6) (647.8)
- proceeds on disposal 18.2 25.1
Business combinations (33.6) (35.2)
Proceeds on disposal of and changes in (11.6) (22.5)
available-for-sale financial assets
and loans
Additional interest acquired in (1.1) -
existing subsidiary
Interest received 27.0 30.5
Dividends received 1.7 1.0
Net cash flow from financing (517.5) 1,140.9
activities
(Repayments of)/proceeds from (123.7) 1,066.6
borrowings
Ordinary shares issued - 485.7
Treasury shares - share incentive 13.5 (10.4)
trusts
Employee share schemes transactions (4.0) (1.5)
Interest paid (224.5) (250.8)
Dividends paid (178.8) (148.7)
Net cash and short-term borrowings - 2.8
from business combinations
Net increase in cash, cash equivalents 671.1 806.5
and bank overdrafts
Net cash, cash equivalents and bank (79.0) (885.5)
overdrafts at beginning of year
Net cash, cash equivalents and bank 592.1 (79.0)
overdrafts at end of year
Group statement of changes in equity
Audited Audited
Year ended Year ended
30 September 30 September
2009 2008
R`m R`m
Share capital, share premium and 989.5 976.6
treasury shares
Opening balance 976.6 503.1
Movement in treasury shares 13.5 (10.4)
Ordinary shares issued - 485.7
Employee share scheme - repurchase of (0.6) (1.8)
shares
Other reserves (7.0) 16.6
Opening balance 16.6 149.4
Transfers from retained earnings 0.5 0.9
Equity compensation reserve 10.0 7.2
transactions
Conversion of foreign currency (25.2) 9.8
Fair value adjustments to available- (0.2) (6.5)
for-sale financial assets
Deferred income tax on share-based 0.5 -
payments
Transfer to cash-settled liability - (28.2)
Hedging reserve (9.2) (116.0)
Retained earnings 3,645.5 3,263.6
Opening balance 3,263.6 2,956.7
Profit for the year 560.5 452.2
Dividends paid (178.8) (148.6)
Transfers to other reserves (0.5) (0.9)
Profit with increase in interest in 0.4 -
subsidiary
Management share incentive scheme - 0.4 4.3
disposal of shares
Employee share scheme - stamp duty on (0.1) (0.1)
share transactions
Minority interest 5.8 6.0
Opening balance 6.0 5.8
Dividend paid - (0.3)
Minority interest acquired (1.4) -
Profit for the year 1.2 0.5
Total equity 4,633.8 4,262.8
Group segment report
Audited Audited
Year ended Year ended
30 September 30 September
2009 2008
R`m R`m
Segment revenue
Sasko 8,876.7 8,143.0
Agri Business 2,599.4 2,493.4
Bokomo Foods 2,625.0 2,539.4
Ceres Beverages 2,410.1 2,082.9
16,511.2 15,258.7
Less: Internal revenue (227.3) (374.3)
16,283.9 14,884.4
Segment results (Operating profit
before items of a capital nature)
Sasko 926.3 622.0
Agri Business 80.3 3.5
Bokomo Foods 195.4 239.4
Ceres Beverages 98.6 77.8
Unallocated (140.6) (77.6)
1,160.0 865.1
Notes
1. Basis of preparation
These provisional annual financial statements are derived from the audited
annual financial statements of the Group for the year ended 30 September 2009
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 provisional annual financial
statements comply with the requirements of IAS 34 - Interim financial reporting.
2. Accounting policies
These provisional annual 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 the following interpretations and amendment to published standards that
became effective during 2009:
IFRIC Interpretation 12 - Service Concession Arrangements
IFRIC Interpretation 13 - Customer Loyalty Programmes
IFRIC Interpretation 14 - The limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
IFRIC Interpretation 16 - Hedges of a Net Investment in a Foreign Operation
Amendment to IAS 39 - Financial Instruments: Recognition and Measurement and
IFRS 7 - Financial Instruments: Disclosures - Reclassification of Financial
Assets
The application of these standards and interpretations did not have any impact
on the Group`s results and cash flows for the year ended 30 September 2009 and
the financial position at 30 September 2009.
3. Share capital
During the 12 months ended 30 September 2009 the following share transactions
occurred:
Listed ordinary shares
No listed ordinary shares were issued (2008: 20,000,000 ordinary shares were
issued at R25 per share through a rights issue) or bought back (2008: Nil).
Treasury shares held by the share incentive trusts
A net number of 1,812,830 (2008: 715,513) ordinary shares of 10 cents each were
sold for R13,880,913 (2008: R5,699,841). In 2008 the trust exercised 415,384
rights as part of the rights offer.
Unlisted class A ordinary shares
During the year 1,221,990 (2008: 1,593,900) class A ordinary shares of 10 cents
each were bought back from employees that left employment for an amount of
R629,080 (2008: R1,771,795).
4. Borrowings
Changes in borrowings reflect the repayments made in terms of agreements. Short-
term borrowings fluctuate in accordance with changing working capital needs.
5. Impairment
The Group re-assessed and impaired the carrying values of the underlying assets
of the Moir`s and Kwality businesses with after-tax amounts of R50,913,156
(2008: R20,474,433). These impairment losses, with the exception of the current
year calculation for Kwality, were calculated by comparing the carrying amount
of the cash-generating unit (CGU) to the value in use of these CGU`s. The year
under review calculation for the Kwality business was done by comparing the
carrying value of this CGU to the fair value less cost to sell.
6 Post-balance sheet events
There have been no material events requiring disclosure after balance sheet date
and up to the date of approval of the annual financial statements by the board.
7. Business combinations
No material changes to the composition of the Group occurred during the year
under review.
8. Contingent liabilities
8.1 Complaint Referrals by Competition Commission
In June 2009 Pioneer Foods appeared before the Competition Tribunal on two
complaint referrals initiated by the Competition Commission. On the 9th of
September 2009 the final legal arguments of the Competition Commission and the
Company`s wholly-owned subsidiary Pioneer Foods (Pty) Ltd were made before the
Competition Tribunal with regards to the complaint referrals for:
alleged prohibited practices in the Western Cape seeking, amongst others, the
imposition of an administrative penalty of 10% of the revenue derived by Pioneer
Foods (Pty) Ltd from the production and sale of bread in the Western Cape in
2006; and
allegations of participating in a national bread cartel seeking, amongst others,
the imposition of an administrative penalty of 10% of Pioneer Foods (Pty) Ltd`s
revenue in 2007.
In its answer to the complaint referrals received in 2007, Pioneer Foods (Pty)
Ltd admitted to certain facts relating to prohibited practices in the Western
Cape, but has continued to defend itself against all other allegations made by
the Commission.
On 28 September 2009, the Commission applied to the Competition Tribunal for
leave to amend the relief sought by it in the complaint referrals by
introducing, amongst others, claims for:
substitution of the original relief sought in the Western Cape referral by the
demand for an administrative penalty of 10% of Pioneer Foods (Pty) Ltd`s revenue
for 2006; alternatively an administrative penalty of 10% of Pioneer Foods (Pty)
Ltd`s revenue derived from the production and sale of bread in 2006; and
substitution of the original relief sought in the national referral by the
demand for an administrative penalty of 10% of Pioneer Foods (Pty) Ltd`s revenue
for 2006; alternatively an administrative penalty of 10% of Pioneer Foods (Pty)
Ltd`s revenue derived from the production and sale of bread in 2006.
Pioneer Foods (Pty) Ltd has opposed certain of the amendments sought.
The legal entity Pioneer Foods (Pty) Ltd`s audited revenue in 2006 amounted to
R7,86 billion, whereas the comparative revenue in 2007 amounted to R9,23
billion. Pioneer Foods (Pty) Ltd`s national revenue from the production and sale
of bread in 2006 amounted to R1,65 billion. Pioneer Foods (Pty) Ltd`s revenue
derived from the production and sale of bread in the Western Cape in 2006
amounted to R384 million. This was the maximum potential penalty base (10% being
R38,4 million) for the Western Cape case in terms of the initial request for
penalty from the Commission.
At the date of approval of the financial statements by the board, the Tribunal
has not ruled on the amendment sought by the Commission nor on the two complaint
referrals.
No provision for a potential administrative penalty has been made.
8.2 Dispute with egg contract producers
As previously reported, claims were received from some contract producers for
the alleged breach of terms of specific supply agreements. The claimants then
withdrew these claims in arbitration proceedings and have now submitted new
claims to the Western Cape High Court.
Pioneer Foods has filed answering pleas to all these claims. In several of these
matters counter claims to recover damages suffered by Pioneer Foods as a result
of breach of contract by the contract producers are being quantified and will be
filed in the current financial year.
The Court is unlikely to hear these matters before 2011. Management remains
convinced, based on legal advice regarding the legal merits of the claims
against the Group, that the Group will not incur any material liability in
respect of this matter.
8.3 Guarantees
The Group issued guarantees of R156,5 million (2008: R158,4 million) at year
end, primarily for loans by third parties to contracted suppliers.
9. Future capital commitments
Capital expenditure approved by the board and contracted amount to R376,7
million (2008: R301,2 million). Capital expenditure approved by the board, but
not contracted yet, amount to R486,3 million and R211,8 million for 2010 and
2011 respectively (2008: R413,6 million only for 2009). Capital commitments of
joint ventures amount to R39,0 million (2008: R54,9 million).
10. Audit report
The external auditors, PricewaterhouseCoopers Inc., have audited the Group`s
annual financial statements and the provisional annual financial statements
contained herein for the year ended 30 September 2009. 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, AW Bester, GD
Eksteen, AE Jacobs, NS Mjoli-Mncube, JF Mouton, AH Sangqu, AC Singleton, Dr FA
Sonn, Dr MI Surve, JH van Niekerk
(* Executive)
Company secretary: T Naidoo E-mail: tnaidoo@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) Limited, PO Box
61051, Marshalltown, 2107, South Africa Tel: 011 370 5000, Fax: 011 688 5209
Sponsor: Barnard Jacobs Mellet Corporate Finance (Pty) Limited, PO Box 62200,
Marshalltown, 2107, South Africa Tel: 011 750 0000, Fax: 011 750 0009
Date: 30/11/2009 08:11:10 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
