| Mon 24 May 2010, 7:05 | | PFG - Pioneer Food Group - Condensed interim consolidated financial results for |
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PFG
PFG
PFG - Pioneer Food Group - Condensed interim consolidated financial results for
the six months ended 31 March 2010 and renewal of cautionary announcement
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"
Condensed interim consolidated financial results for the six months ended 31
March 2010 and renewal of cautionary announcement
Salient features
Revenue R8.0 billion down 5%
Operating profit (before items of a capital nature) R427 million down 22%
Headline earnings R144 million down 51%
No interim dividend
Adjusted for administrative penalties provided:
Adjusted operating profit (before items of a capital nature) R777 million
up 42%
Adjusted headline earnings R494 million up 66%
Group MD Andre Hanekom commented:
"We achieved this satisfactory set of results in difficult trading conditions
with all operations making a positive contribution.
We focused on containing costs and improving efficiencies to stabilise our
margin in an environment where selling prices mostly declined or remained
constant. Our cost base benefited from lower grain commodity prices, but rising
electricity, fuel and payroll costs have placed additional pressure on margins.
We are investing in growth in key market segments and we believe we can extract
further value from improving cost management and efficiency enhancements.
The defensive nature of the Group`s product basket remains well positioned to
cater for the needs of the consumer in the constrained spending environment."
Enquiries:
Andre Hanekom 082 808 3549
Leon Cronje 082 801 7772
Johannes van Niekerk 082 921 9110
Group Statement of Comprehensive Income
Unaudited Audited Year
Six months ended ended
31 March 30 September
2010 2009 2009
R`m R`m R`m
Revenue 7,954.4 8,374.2 16,283.9
Cost of goods sold (5,395.4) (6,188.4) (11,732.9)
Gross profit 2,559.0 2,185.8 4,551.0
Other expenses (2,132.4) (1,637.0) (3,391.0)
Excluding provision for Competition (1,782.4) (1,637.0) (3,391.0)
Commission administrative penalties
Provision for Competition Commission (350.0) - -
administrative penalties
Items of a capital nature 14.0 (0.3) (68.0)
Operating profit 440.6 548.5 1,092.0
Investment income 17.0 14.3 28.7
Finance costs (78.3) (124.7) (224.5)
(Loss)/profit from associated companies (0.2) (0.3) 0.4
Profit before income tax 379.1 437.8 896.6
Income tax expense (223.4) (140.4) (334.9)
Profit for the period 155.7 297.4 561.7
Other comprehensive income/(loss) for 8.2 (23.6) (34.6)
the period net of taxation
Movement in cash flow hedging reserve 16.7 (6.9) (9.2)
Net fair value adjustment on available- 2.7 (4.0) (0.2)
for-sale financial assets
Movement on foreign currency (11.2) (12.7) (25.2)
translation reserve
Total comprehensive income for the 163.9 273.8 527.1
period
Profit for the period attributable to:
Equity holders of the Group 155.0 296.8 560.5
Non-controlling interest 0.7 0.6 1.2
155.7 297.4 561.7
Total comprehensive income for the period
attributable to:
Equity holders of the Group 163.2 273.2 525.9
Non-controlling interest 0.7 0.6 1.2
163.9 273.8 527.1
Headline Earnings Reconciliation
Unaudited Audited
Six months ended Year ended
31 March 30 September
2010 2009 2009
R`m R`m R`m
Reconciliation between profit
attributable to equity holders and
headline earnings
Profit attributable to equity holders 155.0 296.8 560.5
of the Group
Items of a capital nature (14.0) 0.3 68.0
Net (profit)/loss on disposal of (12.8) 0.7 16.3
property, plant, equipment and
intangible assets
Net profit on disposal of available-for- (1.2) (0.4) (1.7)
sale financial assets
Impairment of property, plant, - - 53.4
equipment and intangible assets
Tax effect on items of a capital nature 3.0 (0.3) (7.6)
Headline earnings 144.0 296.8 620.9
Provision for Competition Commission 350.0 - -
administrative penalties
Adjusted headline earnings 494.0 296.8 620.9
Number of issued ordinary shares 201.2 201.2 201.2
(million)
Number of issued treasury shares:
- held by subsidiary (million) 18.0 18.0 18.0
- held by share incentive trust 5.6 8.4 6.8
(million)
Number of issued class A ordinary 10.8 12.0 11.4
shares (million)
Weighted average number of ordinary 176.4 174.6 174.7
shares (million)
Earnings per ordinary share (cents):
- basic 87.9 169.9 320.8
- diluted 86.4 166.4 315.7
- headline 81.7 169.9 355.4
- adjusted headline 280.1 169.9 355.4
- diluted headline 80.3 166.4 349.8
Dividend per ordinary share (cents) - 36.0 125.0
Dividend per class A ordinary share - 10.8 37.5
(cents)
Net asset value per ordinary share 2,616.3 2,529.8 2,622.9
(cents)
Debt to equity ratio (%) 18.9 32.0 14.3
Group Statement of Financial Position
Unaudited Audited
31 March 30 September
2010 2009 2009
R`m R`m R`m
Assets
Property, plant and equipment 3,301.4 3,023.2 3,098.7
Goodwill 221.1 273.9 222.6
Other intangible assets 445.0 406.3 426.3
Biological assets 14.7 13.7 14.0
Investments in associates and loans to 24.8 44.3 38.5
joint ventures
Available-for-sale financial assets 36.2 25.0 31.7
Trade and other receivables 19.1 15.8 16.9
Deferred income tax assets 2.7 35.9 2.7
Non-current assets 4,065.0 3,838.1 3,851.4
Current assets 4,562.0 4,604.6 4,250.1
Inventories 2,146.2 2,263.9 1,950.3
Biological assets 177.0 148.8 151.7
Derivative financial instruments 0.5 12.0 0.1
Trade and other receivables 1,785.3 1,832.3 1,537.8
Current income tax assets 3.9 3.8 12.7
Cash and cash equivalents 449.1 343.8 597.5
Total assets 8,627.0 8,442.7 8,101.5
Equity and liabilities
Capital and reserves attributable to 4,647.1 4,421.6 4,628.0
equity holders of the Group
Share capital 20.1 20.1 20.1
Share premium 1,213.5 1,216.5 1,215.9
Treasury shares (236.2) (259.5) (246.5)
Other reserves 4.9 (1.0) (7.0)
Retained earnings 3,644.8 3,445.5 3,645.5
Non-controlling interest 6.3 6.6 5.8
Total equity 4,653.4 4,428.2 4,633.8
Non-current liabilities 1,706.2 1,783.4 1,753.6
Borrowings 1,023.6 1,168.0 1,096.6
Provisions for other liabilities and 85.8 84.3 82.3
charges
Share-based payment liability 67.9 19.9 57.1
Derivative financial instruments 26.4 58.3 26.4
Deferred income tax liabilities 502.5 452.9 491.2
Current liabilities 2,267.4 2,231.1 1,714.1
Trade and other payables 1,432.8 1,577.6 1,494.1
Current income tax liabilities 134.9 22.2 5.2
Derivative financial instruments 46.1 40.9 53.6
Borrowings 303.2 590.2 161.1
Provisions for other liabilities and 350.0 - -
charges
Dividends payable 0.4 0.2 0.1
Total equity and liabilities 8,627.0 8,442.7 8,101.5
Group Statement of Changes in Equity
Unaudited Audited
Six months ended Year ended
31 March 30 September
2010 2009 2009
R`m R`m R`m
Share capital, share premium and 997.4 977.1 989.5
treasury shares
Opening balance 989.5 976.6 976.6
Movement in treasury shares 10.3 0.5 13.5
Employee share scheme - repurchase of (2.4) - (0.6)
shares
Other reserves 4.9 (1.0) (7.0)
Opening balance (7.0) 16.6 16.6
Transfers (to)/from retained earnings (0.4) 0.3 0.5
Equity compensation reserve transactions 4.1 5.7 10.0
Deferred income tax on share-based - - 0.5
payments
Other comprehensive income/(loss) for 8.2 (23.6) (34.6)
the period net of taxation
Retained earnings 3,644.8 3,445.5 3,645.5
Opening balance 3,645.5 3,263.6 3,263.6
Profit for the period 155.0 296.8 560.5
Dividends paid (157.9) (115.4) (178.8)
Transfers from/(to) other reserves 0.4 (0.3) (0.5)
Profit with increase in interest in - - 0.4
subsidiary
Management share incentive scheme - 1.9 0.8 0.4
disposal of shares
Employee share scheme - stamp duty on (0.1) - (0.1)
share transactions
Non-controlling interest 6.3 6.6 5.8
Opening balance 5.8 6.0 6.0
Dividend paid (0.2) - -
Non-controlling interest acquired - - (1.4)
Profit for the period 0.7 0.6 1.2
Total equity 4,653.4 4,428.2 4,633.8
Group Cash Flow Statement
Unaudited Audited
Six months ended Year ended
31 March 30 September
2010 2009 2009
R`m R`m R`m
Net cash profit from operating 949.7 711.3 1,509.7
activities
Cash effect from hedging activities 13.6 38.5 21.7
Working capital changes (530.8) (154.4) 356.6
Net cash generated by operations 432.5 595.4 1,888.0
Income tax paid (80.3) (86.5) (234.4)
Net cash flow from operating activities 352.2 508.9 1,653.6
Net cash flow from investment activities (340.5) (227.1) (465.0)
Property, plant, equipment and
intangible assets
- additions and replacements (291.9) (198.0) (465.6)
- proceeds on disposal 23.5 6.7 18.2
Business combinations (100.1) (33.8) (33.6)
Proceeds on disposal of and changes in 11.0 (16.3) (11.6)
available-for-sale financial assets and
loans
Additional interest acquired in existing - - (1.1)
subsidiary
Interest received 16.6 13.5 27.0
Dividends received 0.4 0.8 1.7
Net cash flow from financing activities (309.2) (296.1) (517.5)
Repayments of borrowings (80.0) (54.8) (123.7)
Treasury shares - share incentive trust 10.3 0.5 13.5
Employee share schemes transactions (3.6) (1.7) (4.0)
Interest paid (78.3) (124.7) (224.5)
Dividends paid (157.6) (115.4) (178.8)
Net (decrease)/increase in cash, cash (297.5) (14.3) 671.1
equivalents and bank overdrafts
Net cash, cash equivalents and bank 592.1 (79.0) (79.0)
overdrafts at beginning of period
Net cash, cash equivalents and bank 294.6 (93.3) 592.1
overdrafts at end of period
Group Segment Report
Unaudited Audited
Six months ended Year ended
31 March 30 September
2010 2009 2009
R`m R`m R`m
Segment revenue
Sasko 4,150.3 4,468.6 8,876.7
Agri Business 1,239.3 1,341.7 2,599.4
Bokomo Foods 1,323.3 1,333.5 2,625.0
Ceres Beverages 1,345.7 1,356.5 2,410.1
8,058.6 8,500.3 16,511.2
Less : Internal revenue (104.2) (126.1) (227.3)
Total 7,954.4 8,374.2 16,283.9
Segment results (Operating profit before
items of a capital nature)
Sasko 166.8 365.1 926.3
Excluding provision for Competition 516.8 365.1 926.3
Commission administrative penalties
Provision for Competition Commission (350.0) - -
administrative penalties
Agri Business 73.1 40.8 80.3
Bokomo Foods 121.1 126.4 195.4
Ceres Beverages 108.8 80.9 98.6
Unallocated (43.2) (64.4) (140.6)
Total 426.6 548.8 1,160.0
Excluding provision for Competition 776.6 548.8 1,160.0
Commission administrative penalties
Provision for Competition Commission (350.0) - -
administrative penalties
Notes to the condensed interim consolidated financial statements
1. Basis of preparation
The unaudited interim results of the Group for the six months ended 31 March
2010 have been prepared in accordance with the recognition and measurement
principles of International Financial Reporting Standards ("IFRS"), the Listings
Requirements of the JSE Limited and the requirements of the South African
Companies Act, Act 61 of 1973, as amended. These condensed interim consolidated
financial statements comply with the requirements of IAS 34 - Interim Financial
Reporting.
2. Accounting policies
These condensed interim consolidated financial statements incorporate accounting
policies that are consistent with those applied in the Group`s annual financial
statements for the year ended 30 September 2009, except for the following new or
revised accounting standards that became effective during the period from 1
October 2009 to 31 March 2010 and that the Group adopted:
IFRS 3 - Business Combinations - Revised (effective 1 July 2009)
The revised standard provides for a choice on an acquisition-by-acquisition
basis to measure the non-controlling interest in the acquiree either at fair
value or at the non-controlling interest`s proportionate share of the acquiree`s
net assets. Also, all acquisition related costs should be expensed.
IFRS 8 - Operating Segments (effective 1 January 2009)
The standard requires a management approach to reporting on financial
performance of operating segments, but needs to be reconciled to IFRS amounts
reported.
IAS 1 - Presentation of Financial Statements - Revised (effective 1 January
2009)
The revised standard introduces a statement of comprehensive income. This will
enable readers to analyse changes in a company`s equity resulting from
transactions with owners in their capacity as owners separately from `non-owner`
changes. The revisions also include changes in the titles of some of the
financial statements to reflect their function more clearly.
IAS 23 - Borrowing Costs - Revised (effective 1 January 2009)
The amendment to this standard requires an entity to capitalise borrowing costs
directly attributable to the acquisition, construction or production of a
qualifying asset as part of the cost of the asset. The option of immediately
expensing these borrowing costs was removed.
The adoption of these new or revised standards did not have a material impact on
the Group results for the six months ended 31 March 2010.
3. Share capital
The following share transactions occurred during the period under review:
Unaudited Audited Year
Six months ended ended
31 March 30 September
2010 2009 2009
Number of listed issued and
fully paid ordinary shares
At beginning and end of 201,183,898.0 201,183,898.0 201,183,898.0
period
Number of treasury shares held
by the share incentive trust
At beginning of period 6,758,105.0 8,570,935.0 8,570,935.0
Shares bought back (1,188,587.0) (151,020.0) (1,812,830.0)
At end of period 5,569,518.0 8,419,915.0 6,758,105.0
Proceeds on the sale of 12,213.0 1,293.0 13,881.0
treasury shares held by the
share incentive trust (R`000)
Number of treasury shares held
by subsidiary
At beginning and end of 17,982,056.0 17,982,056.0 17,982,056.0
period
Number of unlisted class A
ordinary shares
At beginning of period 11,397,190.0 12,619,180.0 12,619,180.0
Shares bought back (549,010.0) (637,560.0) (1,221,990.0)
At end of period 10,848,180.0 11,981,620.0 11,397,190.0
Purchase consideration paid for 2,353.0 9.0 629.0
unlisted class A ordinary
shares bought back (R`000)
4. Borrowings
No new borrowing arrangements were concluded during the period under review.
Changes in borrowings reflect the repayments made in terms of agreements. Short-
term borrowings fluctuate in accordance with changing working capital needs.
5. Post-balance sheet events
There have been no material events requiring disclosure after balance sheet date
and up to the date of approval of these condensed interim consolidated financial
statements.
6. Business combinations
During the period under review the following businesses were acquired and all
assets and liabilities relating to these acquisitions have been accounted for on
an acquisition basis.
Eggland poultry farm
The assets and liabilities of this business were acquired on 1 January 2010 and
can be summarised as follows:
Unaudited
Six months ended
31 March 2010
Fair value (R`m)
Property, plant and equipment 51.0
Inventories 6.0
Trade and other payables (0.1)
Purchase consideration - settled in cash 56.9
Opdiefontein poultry farm
The assets and liabilities of this business were acquired on 1 March 2010 and
can be summarised as follows:
Unaudited
Six months ended
31 March 2010
Fair value (R`m)
Property, plant and equipment 32.8
Inventories 10.5
Trade and other payables (0.1)
Purchase consideration - settled in cash 43.2
Carrying value
As the Group acquired the assets and liabilities of these businesses rather than
the shares of the legal entities that previously owned such assets, it is
impractical to disclose the carrying amounts in the accounting records of the
previous owners prior to the acquisition. In these circumstances the Group does
not have access to such carrying values.
Contribution since acquisition
It is impractical to disclose the revenue and operating profit since acquisition
for these businesses due to the extent of integration into existing businesses.
Operating transactions of these businesses occur with other internal business
units and no external profit can be separately identified.
7.Contingent liabilities
7.1Complaint Referrals by Competition Commission
The Competition Tribunal imposed a R196 million fine in the bread matter in its
ruling on 3 February 2010. The Competition Commission ("Commission") has taken
this ruling on appeal to the Competitions Appeal Court. Pioneer Foods has
opposed the appeal and lodged a cross-appeal. The amount of this penalty may
therefore change.
On 15 March 2010 and 31 March 2010 respectively, Pioneer Foods was notified by
the Commission that it has referred its investigation into the wheat and the
white maize milling matters to the Competition Tribunal. Pioneer Foods was named
as a respondent in these cases together with other industry participants. The
Commission has recommended administrative penalties of R1.6 billion or 10% of
the 2009 annual group revenue of Pioneer Foods in both cases, although the
referrals refer to conduct up to the 2007 financial year.
Pioneer Foods has made a provision for potential administrative penalties from
the Commission totalling R350 million during the period under review. This
provision consists of an amount of R154 million, applying a rate of 8.5% on the
2006 wheat and white maize affected revenue, and an amount of R196 million for
the bread business.
The administrative penalties sought by the Commission in the milling and bread
matters may be adjusted lower depending on the outcome of continuing
negotiations with the Commission. The Company is committed to fully cooperate
with the Commission in all investigations where the Commission seeks its
assistance.
The Company is however, of the opinion, that the 2009 annual group revenue used
by the Commission in determining the administrative penalties in the milling
matters is not the appropriate revenue basis, but that the relevant affected
revenue should be used given the Competition Tribunal`s judgement in the bread
matter as well as the fact that the alleged activities did not take place after
2007. The table below is provided to clarify the various revenue figures.
Affected Affected Total Total Group
revenue revenue affected revenue
wheat white maize milling
revenue
Year ended R`m R`m R`m R`m
30 September
2006 891.0 930.6 1,821.6 9,664.4
2007 1,122.9 1,236.2 2,359.1 11,676.6
2008 1,610.8 1,584.6 3,195.4 14,884.4
2009 1,601.5 1,888.5 3,490.0 16,283.9
The Company has conducted an internal investigation (with the assistance of
external advisors) in respect of all its operations. The investigation is
ongoing.
The Company wants to resolve these matters through cooperation with the
Commission, and without recourse to proceedings before the Competition Tribunal,
if possible. Pioneer Foods met representatives of the Commission and responded
formally to the Commission`s invitation to engage in discussions and is
cooperating with the Commission with a view to reach a settlement.
7.2 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: Cape Town.
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 due course.
No court date has been set. 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.
7.3 Guarantees
The Group issued guarantees of R113.7 million (30 September 2009:
R156.5 million) at 31 March 2010, primarily for loans by third parties to
contracted suppliers.
8. Audit
These results have not been audited or reviewed by the auditors.
Commentary
Group revenue declined by 5% to R8.0 billion as a result of deflationary
pressures on sales prices, virtually across the product range. An overall sound
volume base was maintained, which to an extent buffered the effect on revenue of
final product price declines.
The company raised a provision in March 2010 for potential administrative
penalties of R350 million following the ruling of the Competition Tribunal on
the bread matter and the receipt of the referrals for the wheaten flour and
white maize flour investigations by the Competition Commission.
This resulted in operating profit declining by 22% to R427 million. Excluding
the provision for administrative penalties, adjusted operating profit increased
by 42% to R777 million with a determined focus on the management of operating
costs and improving efficiencies in the challenging macro environment.
This improved operational performance is largely a continuation of the results
reported in the second half of the 2009 financial year and resulted in the
adjusted operating profit margin for the Group improving to 9.8% (2009: 6.6%)
for the six month period under review.
Headline earnings declined by 51% to R144 million (81.7 cents per share) from
the comparative reporting period. Excluding the provision for potential
administrative penalties, adjusted headline earnings increased by 66% to R494
million or 280 cents per share.
Working capital increased by R531 million as a result of a seasonal build up in
inventories and an increase in trade and other receivables, inflated by late
payments received after the half-year close.
Increased capital spend contributed to net interest bearing debt rising by R218
million to R878 million from 30 September 2009 or 18.9% of equity.
Sasko
Revenue declined by 7% to R4 150 million, while operating profit, adjusted for
the provision for administrative penalties, increased by 42% to R517 million due
to improved production efficiencies and an improved margin of 12.5% (2009:
8.2%).
The Sasko Grain business posted an improved performance based on a marginally
better volume base, effective selling price strategies and rigorous cost
management. Price deflation is evident across the range of products with the
wheat and rice categories posting double digit price declines.
Prices as well as volumes declined in the Sasko Bakeries business. Excluding the
cost of wheat, sustained upward pressure persisted in most costs, including
salaries, wages, fuel and electricity. The Sasko Pasta business achieved
improved and satisfactory results.
Agri Business
The Agri Business division achieved much improved results with better on-farm
performance, although revenue declined by 8% to R1 239 million. Operating profit
increased by 79% to R73 million as the margin improved to 5.9% (2009: 3.0%).
Selling prices decreased in the broiler business with slightly higher sales
volumes. In the egg business sales volumes were lower, though better price
realisation was achieved.
The combination of lower raw material prices, improved efficiencies at the
production facilities in the egg and broiler businesses and increased sales
volumes in the animal feeds business, contributed to this much improved
operating performance.
Bokomo Foods
Revenue declined by 1% to R1 323 million and operating profit declined by 4% to
R121 million for a slightly lower operating profit margin of 9.2% (2009: 9.5%).
The main contributor is the breakfast cereals business which posted an improved
performance with strong volume recovery in especially Weet-Bix, indicating a
prompt utilisation of the recently installed capacity.
However, a substantially lower raisin crop in 2009 along with a stronger rand
had a negative impact on raisin and other dried fruit product exports, resulting
in a weaker performance from this segment as a whole. Rebuilding of the fire
damaged raisin facility in Upington was completed in time to be fully
operational to receive the 2010 raisin crop. Insurance cover limited any
material effect on the financial performance for the period under review and the
insurance claim is expected to be concluded in the current financial year.
The Ceres Beverage Company
The Ceres Beverages business segment achieved satisfying results. Revenue
decreased slightly by 1% to R1 346 million with a mixed performance from the
various product categories.
Improved production and distribution efficiencies, lower input costs and the
largely sustained sales volume base, resulted in a 34% increase in operating
profit to R109 million and an operating profit margin of 8.1% (2009: 6.0%).
Fruit juice and fruit concentrate mixture products recorded a decline in sales
volumes whilst export sales volumes improved. Sales volumes from the Pepsi range
of products increased and delivered a satisfactory performance given the
difficult market conditions.
During November 2009, the shelving for finished products at the Ceres factory
collapsed, resulting in a finished product write-off of R20 million. It is
expected that the insurance cover will limit any material effect on the
business`s results for the full year.
Competition Commission issues
In this regard shareholders are referred to previous SENS and cautionary
announcements.
In February 2010 the Competition Tribunal issued its finding on the bread matter
following the hearing in the 2009 financial year. The order was the payment of
an administrative penalty of R196 million, based on affected revenue from the
bakery business for the 2006 financial year.
The Commission appealed against the finding by the Competition Tribunal to the
Competition Appeal Court with regard to the criteria used to determine the
revenue on which the penalty was based, which, if successful, may have the
effect of the penalty being increased.
Pioneer Foods has opposed the appeal by the Commission and lodged a cross appeal
against certain elements of the finding by the Competition Tribunal, which, if
successful, may have the effect of the penalty being reduced.
A hearing date has been set for 21 September 2010.
In March 2010 the Commission issued referrals, as anticipated, for its
investigation into the wheat and white maize milling markets for adjudication by
the Competition Tribunal.
In both referrals the Commission recommended an administrative penalty of R1.6
billion, being 10% of the 2009 Group annual revenue, despite the alleged anti-
competitive conduct being committed up to and including the 2007 financial year.
A provision of R350 million was raised for potential penalties in the reporting
period. This represents R196 million for the penalty as ordered by the
Competition Tribunal in the bread matter and R154 million for the referrals in
the wheat and white maize milling matters. In determining the provision,
approximately the same approach as applied by the Competition Tribunal in the
bread matter was followed.
The R196 million has been paid in April 2010, pending the outcome of the appeal
hearing.
Pioneer Foods is committed to resolve the outstanding matters through co-
operation with the Commission in a swift and amicable way, and if possible,
without recourse to proceedings currently before the Competition Tribunal and
has already met with the Commission in this regard.
The penalties sought by the Commission may be adjusted lower, depending on the
outcome of the continuing negotiation with the Commission.
Education and training programmes throughout the Group promotes the ongoing
compliance with the provisions of the Competition Act and is being monitored
with the assistance of independent agencies. Disciplinary action is being taken
against employees implicated in anti-competitive behaviour.
Prospects
The defensive nature of the Group`s product basket remains well positioned to
cater for the needs of the consumer in the constrained spending environment.
Given the solid operational performance for the reporting period, an improved
operational performance for the full year is likely although at a lower growth
rate than in the first half of the year.
Headline earnings, however, is expected to decline due to the provision for the
potential administrative penalties.
Continuing efforts to manage volume and margin will be key. All the businesses
in the Group will be challenged by increasing production costs, that include:
1) Substantial electricity price hikes throughout the value chain,
2) constant upward trend in the oil price,
3) above inflation wage and salary increases and
4) the uncertain direction of the rand relative to other currencies.
These cost factors and the recently introduced wheat import tariff have the
potential to place slight upward pressure on selling prices.
Shareholders are hereby advised that as far as the prospects commentary is
construed as a general profit forecast as contemplated in terms of the Listings
Requirements of the JSE, it has not been reviewed and reported on by the
auditors of the Company.
Board changes
During the six months under review, the following members retired or resigned
from the Board:
WA Agenbach, AW Bester, HE Blanckenberg, AE Jacobs, JA Louw, AC Singleton, Dr FA
Sonn, MT Swanepoel and JH van Niekerk.
The following new members joined the Board:
ZL Combi, MM du Toit and Prof ASM Karaan
Interim dividend
Against the background that the Competition Tribunal issued an order for the
payment of an administrative penalty of R196 million as well as potential
further or increased penalties depending upon the outcome of investigations and
negotiations regarding alleged transgressions of the Competitions Act, the Board
deemed it prudent not to declare an interim dividend.
The Board also needs to act responsible in ensuring that the prescribed covenant
in terms of the syndicated loan facility of the Group which governs dividend
payments, is not put at risk of being breached by declaring a dividend under the
uncertain circumstances.
Once there is more certainty on the monetary effect of potential penalties,
dividend payments will be reconsidered.
The interim dividend for 2009 was 36.0 cents per ordinary share and 10.8 cents
per class A ordinary share.
Renewal of cautionary
Shareholders are further referred to the cautionary announcement dated 8 April
2010 and are advised to continue to exercise caution when dealing in their
Pioneer Foods shares until a further announcement is made. Pioneer Foods will
revert to shareholders on further progress in respect of this and other matters
once more certainty exists.
By order of the Board.
ZL Combi WA Hanekom
Chairman Managing Director
Paarl, 20 May 2010
Directors: ZL Combi (Chairman), Dr MI Surve (Vice-chairman), WA Hanekom
(Managing)*, LR Cronje*, TA Carstens*, MM du Toit, GD Eksteen, Prof ASM Karaan,
NS Mjoli-Mncube, JF Mouton, AH Sangqu (* Executive)
Company secretary: TF Hendrickse E-mail: thendri2@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: PSG Capital (Pty) Limited, PO Box 7403, Stellenbosch, 7599, South
Africa Tel: 021 887 9602, Fax: 021 887 9624
Date: 24/05/2010 07:05:27 Produced by the JSE SENS Department.
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