| Mon 6 Dec 2010, 7:05 | | PFG - Pioneer Food Group Limited - Audited Preliminary Condensed Annual |
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PFG
PFG
PFG - Pioneer Food Group Limited - Audited Preliminary Condensed Annual
Financial Statements for the year ended 30 September 2010
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 Preliminary Condensed Annual Financial Statements for the year ended 30
September 2010
Salient features
Revenue: R16 billion down 3%
Operating profit (before items of a capital nature): R753 million down 35%
Headline earnings: R236 million down 62%
No final dividend
Adjusted for Competition Commission penalties:
Adjusted operating profit (before items of a capital nature): R1 407 million up
21%
Adjusted headline earnings: R891 million up 43%
Group MD Andre Hanekom commented:
"This set of results is substantially impacted by the settlement we reached with
the Competition Commission which brought an end to an unfortunate chapter in our
otherwise proud history. We have faced our responsibilities and implemented
corrective action to ensure ongoing compliance with governing laws and
regulations.
Our sales momentum for the year under review slowed in value terms as
deflationary pressures persisted though volumes improved almost across the
range. All products other than beverages are at substantially lower selling
prices at year-end than the previous year. Recent grain supply shortages and
other cost pressures are fuelling inflation with average selling prices
increasing after year-end.
A largely sustained earnings performance is expected in the current financial
year based on current growth momentum."
Settlement with the Competition Commission ("the CC")
On 2 November 2010 Pioneer Foods and the CC announced they have agreed to a full
and final settlement that concludes the bread and milling matters and all other
investigations and proceedings between the CC and Pioneer Foods relating to any
alleged contraventions by Pioneer Foods of the Competition Act.
The Competition Tribunal ("the Tribunal") confirmed the settlement agreement on
30 November 2010.
Pioneer Foods was fined R500 million. This is in addition to the administrative
penalty of R196 million imposed by the Tribunal in the bread matter, which was
paid by Pioneer Foods in April 2010.
In addition, Pioneer Foods will reduce its gross profit over a defined period in
respect of a selection of defined wheaten flour and bread products. The pricing
commitment shall amount to a reduction of R160 million in gross profit when
benchmarked against an agreed base period. This will benefit the consumer should
the reductions be passed on through the trade.
Pioneer Foods agreed to cooperate fully with the CC in its prosecution of any
other parties who are the subject of its investigations and referrals to the
Tribunal.
Appropriate action has been taken by the board of Pioneer Foods to discipline
employees responsible for the Competition Act transgressions.
The Group has strengthened its governance and compliance protocols, appointed a
compliance and risk officer and implemented on-line compliance training.
Group profile
From the merger of grain millers Sasko and Bokomo in 1997, Pioneer Foods today
is a diversified food company with products ranging from baking, beverages,
cereals, snacks and condiments to eggs, rice, pasta and other wheaten products.
Sasko manufactures a range of affordable grain-based staple foods. In addition
to rice, wheaten and maize products, it also trades beans, lentils and dried
vegetables and has one of South Africa`s largest bakery operations with bakeries
and depots located throughout the country. More than 30 000 bread deliveries
occur daily to customers in urban and the most rural environments. This equates
to more than 1.2 million loaves supplied per day.
Since deregulation Sasko`s bread business was repositioned from only
manufacturing 800 gram "government loaves" to manufacturing a range of more than
50 different value-added, high quality, branded products. The result of this
repositioning, which also applies to all other major South African bakeries, was
bread of a high quality at relative low prices by international standards. This
was confirmed by research done by the International Grains Council that showed
that South African consumers pay between 40 to 60 percent less for comparative
loaves sold in the USA, Europe and Australia. Industry analysts recognised that
Sasko`s margin is at the bottom end of the spectrum in South Africa.
White Star was developed as a new entrant in the super white maize meal market
and now enjoys the market leader position with annual sales in excess of R1.5
billion.
Pioneer Foods entered the pasta market with state of the art technology that
supported strong growth for the company`s own brands and house brands. It
continues to capture market share.
With the acquisition of Spekko the Group expanded its presence in the rice
category from a leading contender in the Western Cape to a national brand
competing successfully in the premium category.
A full range of breakfast cereal products was launched to support the market
leader Weet-Bix under the Bokomo brand. The subsequent acquisitions of ProNutro
and Nature`s Source enhanced the portfolio.
A joint venture was formed with HJ Heinz to enter the tomato ketchup market and
broaden the Group`s convenience frozen food range.
Bokomo Foods produces some of South Africa`s best-known breakfast cereals,
rusks, biscuits, cake mixes, baking aids, instant mash potato as well as dried
fruit products, nuts, spreads and processed salads. The Group acquired the SAD
dried fruit business and a range of spreads including household names like
Marmite, Bovril, Peck`s Anchovette and Redro.
The Agri business produces animal feeds, chickens, eggs, processed egg and
processed chicken-based products.
Pioneer Foods entered the juice market with the acquisition of Ceres Fruit
Juices. Significant investments were made to diversify the business into
different packaging formats and product categories. Ceres Beverages enjoys the
market leader position in natural fruit juices in South Africa and a presence in
more than a 100 countries around the world.
Pioneer Foods signed a franchise agreement with PepsiCo International to re-
enter the carbonated soft drinks market in South Africa with Pepsi, Mirinda, 7-
Up and Mountain Dew.
The Group employs more than 12 000 employees in South Africa, Africa and export
destinations in North America and the United Kingdom.
The future holds new opportunities as Pioneer Foods continues to invest in
growth in South Africa and Africa.
Review of Operations
The operational performance for the year marks a new benchmark for the Group`s
earnings ability at an enhanced level, bearing testimony to the resilience of
the Group`s product basket responding even better than the previous year to the
upward and downward cost pressures and still muted consumer behaviour.
Revenue for the year declined by 3% to R15,7 billion. This decline is the result
of sustained deflationary pressures on selling prices, almost across the range
of products. Largely sustained sales volumes, boosted by growth in key
categories such as wheaten products and Weet-Bix, provided some relief.
Headline earnings were severely impacted by R654 million for a penalty of R196
million paid in the bread matter and an accrual of R458 million for settlement
with the CC in the flour and other matters. These penalties resulted in a
decline in headline earnings of 62% to R236 million. Headline earnings per share
declined by 62% to 134 cents per share. Adjusted headline earnings increased by
43% to R891 million, should all penalties relating to the CC matter be excluded,
translating to an adjusted headline earnings per share of 503 cents.
Operating profit before items of a capital nature, and adjusted for the effect
of any CC penalties, increased by 21% to R1 407 million with the Group operating
profit margin consequently improving from 7,1% to 8,9%.
Cash profit of R1 610 million and a further unlocking of R95 million from
working capital contributed to improved average net debt levels. Net interest-
bearing debt at year-end amounted to R406 million and represents 9% of equity.
The improved average debt position and decreased interest rates contributed to
net finance charges further declining from R198 million to R125 million for the
year.
The Group continued to invest for future growth by spending capital of R725
million on expansions. An additional R141 million was spent on maintenance or
replacing of existing fixed assets. An estimated R1 billion will be spent in the
new financial year to complete projects under construction, new expansions and
necessary replacements. This spend is a continuation of the focus on improving
production facilities in the white maize meal, biscuit, rice and non-alcoholic
beverage categories. Capital will be spent, earlier than previously estimated to
expand the capacity of the pasta facility to cater for increased demand, as well
as the strategic expansion of the broiler business through an acquisition in
Gauteng.
Sasko
The Sasko business once again achieved a sound overall performance, posting an
improved profit contribution and operating profit margin.
The business benefited from the continued decline in soft commodity pricing as
well as the strengthening of the rand. Volumes sold remained satisfactory across
the range of products.
Total industry consumption of white maize on an annualised basis continued to
retract from the peak reached during the previous financial year, although it
was still markedly higher than the long-term consumption trend. Total industry
wheat consumption conversely recovered from the recent downward trend and
appears to be re-aligning to the longer-term volume growth trend. Sasko`s own
volumes largely corresponded with industry trends during the reporting period.
Total rice and legume sales volumes sustained its growth momentum with a
continued sound performance of the Spekko rice brand. Sourcing options remained
limited with the Indian export embargo for non-basmati rice remaining in place.
The bakery business maintained its satisfactory performance on a sustained
volume base. Likewise, the pasta business posted sound results although the
competitive environment was impacted by an increase in the level of imported
products supported by the strength of the rand.
Agri Business
The Agri business benefited from lower raw material prices compared to the
previous year. This, as well as a marked improvement in on-farm production,
contributed to the increase in profits.
The prices of the major raw materials, maize and soya, declined, giving Nova
Feeds the opportunity to reduce selling prices. This resulted in a decrease in
revenue, but volumes increased compared to 2009. Nova Feeds also focused on
improving the product mix and sold higher-value and higher-margin feed in
comparison to the previous year.
Although volumes were down and prices decreased, the profitability of Nulaid
continued to improve. This was due to the increases in efficiencies in the value
chain and lower raw material prices. A number of capital projects were completed
during the reporting period as part of the strategy to reposition the egg
business for optimal performance that should limit the impact of the down
cycles.
The profitability of the broiler business Tydstroom continued to improve
compared to the previous year. Lower feed prices contributed to this
improvement, but the major driver was the increase in efficiencies from
grandparent level through the value chain to the abattoir. Costs were diligently
managed and kept under control. Volumes increased due to better on-farm
efficiencies and the commissioning of new facilities.
Subsequent to the financial year-end an agreement was entered into with Tonko
Chicks for the acquisition of an abattoir and related assets of this business as
a going concern for an amount of R130 million. This business is situated in
Gauteng and the transaction is an execution of the strategy to geographically
expand the Group`s involvement in the broiler industry to the north of the
country. Regulatory approval is still outstanding.
Bokomo Foods
A considerable improvement in the overall business performance was achieved.
With the exception of dried fruit, the profitability of all categories improved.
Although volumes were up marginally, the improved profitability was mainly the
result of improved efficiencies, strict cost control and better price
realisations in certain categories.
Breakfast cereals performed well during the reporting period with improved
production efficiencies, increased volumes from the leading brands and some raw
material cost deflation. Weet-Bix achieved good volume growth for the second
consecutive year. The planned improvement in the financial performance of the
muesli business was realised with the relocation of the plant from KwaZulu-Natal
to the cereal factory in Atlantis, Western Cape.
The overall strategy to rationalise the manufacturing sites and product ranges,
and reduce overhead cost, coupled with an increase in realisations, was
successful with a much improved financial performance from the desserts and
baking aids categories.
The new biscuit factory is scheduled for commissioning in May 2011 and products
from the new factory will be available by the third quarter of 2011. The focus
will be to re-position the biscuit product range by improving the quality and
introducing innovative new lines. The biscuit product range will be launched
under a new brand.
Performance from dried fruit products improved in the second half of the
financial year with particularly good raisin volumes.
The insurance claim for the fire at the Upington factory has largely been
settled with more than 90% of the R130 million claim already paid. The
accounting treatment of the insurance proceeds resulted in a non-recurring
profit of R19 million for the reporting period.
Ceres Beverages
The beverages segment performed satisfactorily. Revenue increased, with sales
volumes slightly up for the total business. The increase in profitability was
driven by increased production and distribution efficiencies as well as
effective cost management for the period.
The fruit juices category performed well although volumes on the local market
for the period under review were slightly down compared to the previous year.
Volumes started to improve during the last quarter of the reporting period, with
consumer spending improving.
Fruit juice products on the international market performed well and Ceres
Beverages managed to increase export volumes compared to the previous year.
The fruit concentrate mixtures category was under pressure due to a decline in
sales volumes and margins.
The carbonated soft drink sales volumes grew in difficult market conditions. In
the period leading up to and during the 2010 FIFA World CupTrade Mark,
competitor activity increased substantially. Irrespective of difficult market
conditions, Pepsi volumes performed well and achieved good growth. The
profitability in this category improved compared to the previous year and
contributed to the improved financial performance of the segment.
The addition of the Lipton ice tea brand and the signing of a franchise
agreement with Pepsi Lipton International are of strategic importance. The
Lipton brand is the market leader in the ice tea category with huge growth
potential. We are excited about this new addition to the business as from 1
September 2010.
During November 2009 shelving at the Ceres factory warehouse collapsed,
resulting in a R20 million finished product write-off. The insurance claim has
not been settled in total yet, but payments received from the insurer limited
any material effect on results for the reporting period.
Acquisition of KWV
Subsequent to the financial year-end the board approved an offer to buy the
business of KWV, owner of iconic brands such as KWV brandy and Roodeberg wines,
amongst others. Pioneer Foods has engaged with KWV as per the SENS announcement
dated 2 December 2010.
Prospects
Performance for the new year is expected to be influenced by:
- the gradual upward trend in raw material prices,
- cost increase above inflation, e.g. salaries and wages, electricity and
transport,
- sustainability of sales volumes given shifting consumer spending patterns and
- inflationary pressures on selling prices.
Though the continuing growth of Sasko remains key to the Group`s future
performance, the other three business segments all have the potential for
further positive turnarounds in a number of their focus areas which are expected
to provide growing profit contributions in time.
A largely sustained earnings performance is expected in the current financial
year.
The Group`s auditors have not reviewed nor reported on any of the comments
relating to future prospects.
Dividend
Given the board`s prudent approach to capital management no final or interim
dividend was declared (2009 total dividend: 125 cents per share). In doing so
the board acted responsibly in ensuring that none of the covenants governing
dividend payments as imposed by the Group`s syndicated loan facility could
potentially be breached. Given the certainty regarding the payments remaining in
terms of the CC settlement, future dividend payments can and will be considered
at the appropriate time.
By order of the board.
ZL Combi WA Hanekom
Chairman Managing Director
Paarl, 1 December 2010
Preliminary Condensed Group Statement of Comprehensive Income
Audited Audited
Year ended Year ended
30 September 30 September
2010 2009
R`m R`m
Revenue 15 731.3 16 283.9
Cost of goods sold (10 720.4) (11 732.9)
Gross profit 5 010.9 4 551.0
Other income and gains/(losses) 281.6 285.4
Other expenses (4 539.5) (3 676.4)
Excluding Competition Commission penalties (3 885.3) (3 676.4)
Competition Commission penalties (654.2) -
Items of a capital nature (10.3) (68.0)
Operating profit 742.7 1 092.0
Investment income 33.4 28.7
Finance costs (156.6) (224.5)
Share of profit of associated companies 0.1 0.4
Profit before income tax 619.6 896.6
Income tax expense (383.9) (334.9)
Profit for the year 235.7 561.7
Other comprehensive income/(loss) for the year 17.6 (34.6)
Movement in cash flow hedging reserve 31.5 (9.2)
Fair value adjustments:
For the year (44.1) (209.3)
Current income tax effect 4.6 41.2
Deferred income tax effect 7.7 12.6
Reclassified to profit or loss 87.9 196.5
Current income tax effect (9.8) (47.3)
Deferred income tax effect (14.8) (2.9)
Net fair value adjustment on available-for-sale 3.3 (0.2)
financial assets
Fair value adjustments:
For the year 5.8 1.2
Deferred income tax effect (0.7) 0.3
Reclassified to profit or loss (1.8) (1.7)
Movement on foreign currency translation reserve (17.2) (25.2)
Total comprehensive income for the year 253.3 527.1
Profit for the year attributable to:
Owners of the parent 234.5 560.5
Non-controlling interest 1.2 1.2
235.7 561.7
Total comprehensive income for the year
attributable to:
Owners of the parent 252.1 525.9
Non-controlling interest 1.2 1.2
253.3 527.1
Headline Earnings Reconciliation
Audited Audited
Year ended Year ended
30 September 30 September
2010 2009
R`m R`m
Reconciliation between profit attributable to
owners of the parent and headline earnings
Profit attributable to owners of the parent 234.5 560.5
Items of a capital nature 10.3 68.0
Net (profit)/loss on disposal of property, (11.8) 16.3
plant, equipment and intangible assets
Net profit on disposal of available-for-sale (2.1) (1.7)
financial assets and subsidiaries
Impairment of property, plant, equipment and 24.2 53.4
intangible assets
Tax effect on items of a capital nature (8.4) (7.6)
Headline earnings 236.4 620.9
Competition Commission penalties 654.2 -
Adjusted headline earnings 890.6 620.9
Number of issued ordinary shares (million) 201.2 201.2
Number of issued treasury shares:
- held by subsidiary (million) 18.0 18.0
- held by share incentive trust (million) 5.1 6.8
Number of issued class A ordinary shares 10.4 11.4
(million)
Weighted average number of ordinary shares 177.0 174.7
(million)
Earnings per ordinary share (cents):
- basic 132.5 320.8
- diluted 130.2 315.7
- headline 133.5 355.4
- adjusted headline 503.0 355.4
- diluted headline 131.2 349.8
Dividend per ordinary share (cents) - 125.0
Dividend per class A ordinary share (cents) - 37.5
Net asset value per ordinary share (cents) 2 667.9 2 622.9
Debt to equity ratio (%) 8.5 14.3
Preliminary Condensed Group Statement of Financial Position
Audited Audited
30 September 30 September
2010 2009
R`m R`m
Assets
Property, plant and equipment 3 565.0 3 098.7
Goodwill 221.1 222.6
Other intangible assets 468.4 426.3
Biological assets 16.8 14.0
Investments in associates and loans to joint 35.2 38.5
ventures
Available-for-sale financial assets 39.1 31.7
Trade and other receivables 16.9 16.9
Deferred income tax 2.7 2.7
Non-current assets 4 365.2 3 851.4
Current assets 4 512.1 4 250.1
Inventories 1 936.6 1 950.3
Biological assets 187.6 151.7
Derivative financial instruments 5.2 0.1
Trade and other receivables 1 669.3 1 537.8
Current income tax 3.5 12.7
Cash and cash equivalents 709.9 597.5
Total assets 8 877.3 8 101.5
Equity and liabilities
Capital and reserves attributable to owners of 4 751.4 4 628.0
the parent
Share capital 20.1 20.1
Share premium 1 210.6 1 215.9
Treasury shares (232.1) (246.5)
Other reserves 28.3 (7.0)
Retained earnings 3 724.5 3 645.5
Non-controlling interest 6.5 5.8
Total equity 4 757.9 4 633.8
Non-current liabilities 2 074.0 1 753.6
Borrowings 946.2 1 096.6
Provisions for other liabilities and charges 109.1 82.3
Accrual for Competition Commission penalties 391.8 -
Share-based payment liability 102.2 57.1
Derivative financial instruments 5.6 26.4
Deferred income tax 519.1 491.2
Current liabilities 2 045.4 1 714.1
Trade and other payables 1 732.6 1 494.1
Current income tax 8.4 5.2
Derivative financial instruments 57.4 53.6
Borrowings 169.5 161.1
Loan from joint venture 10.3 -
Accrual for Competition Commission penalties 66.7 -
Dividends payable 0.5 0.1
Total equity and liabilities 8 877.3 8 101.5
Preliminary Condensed Group Statement of Cash Flows
Audited Audited
Year ended Year ended
30 September 30 September
2010 2009
R`m R`m
Net cash profit from operating activities 1 609.9 1 509.7
Excluding Competition Commission penalties paid 1 805.6 1 509.7
Competition Commission penalties paid (195.7) -
Cash effect from hedging activities 18.7 21.7
Working capital changes 95.1 356.6
Net cash generated from operations 1 723.7 1 888.0
Income tax paid (353.0) (234.4)
Net cash flow from operating activities 1 370.7 1 653.6
Net cash flow from investment activities (805.3) (465.0)
Property, plant, equipment and intangible assets
- additions and replacements (751.0) (465.6)
- proceeds on disposal 41.6 18.2
Business combinations (144.7) (33.6)
Proceeds on disposal of and changes in available- 11.8 (11.6)
for-sale financial assets and loans
Disposal of subsidiaries and additional interest 3.6 (1.1)
acquired in existing subsidiary
Interest received 31.4 27.0
Dividends received 2.0 1.7
Net cash flow from financing activities (448.6) (517.5)
Repayments of borrowings (137.6) (123.7)
Treasury shares - share incentive trust 14.4 13.5
Share schemes transactions (4.8) (4.0)
Interest paid (163.0) (224.5)
Dividends paid (157.6) (178.8)
Net increase in cash, cash equivalents and bank 116.8 671.1
overdrafts
Net cash, cash equivalents and bank overdrafts 592.1 (79.0)
at beginning of year
Net cash, cash equivalents and bank overdrafts 708.9 592.1
at end of year
Preliminary Condensed Group Statement of Changes in Equity
Audited Audited
Year ended Year ended
30 September 30 September
2010 2009
R`m R`m
Share capital, share premium and treasury shares 998.6 989.5
Opening balance 989.5 976.6
Movement in treasury shares 14.4 13.5
Ordinary shares issued - share appreciation 0.3 -
rights
Employee share scheme - repurchase of shares (5.6) (0.6)
Other reserves 28.3 (7.0)
Opening balance (7.0) 16.6
Transfers (to)/from retained earnings (0.4) 0.5
Equity compensation reserve transactions 13.2 10.0
Ordinary shares issued - share appreciation (0.3) -
rights
Deferred income tax on share-based payments 5.2 0.5
Other comprehensive income/(loss) for the year 17.6 (34.6)
Retained earnings 3 724.5 3 645.5
Opening balance 3 645.5 3 263.6
Profit for the year 234.5 560.5
Dividends paid (157.9) (178.8)
Transfers from/(to) other reserves 0.4 (0.5)
Profit with increase in interest in subsidiary - 0.4
Management share incentive scheme - disposal of 2.1 0.4
shares
Employee share scheme - transfer tax on share (0.1) (0.1)
transactions
Non-controlling interest 6.5 5.8
Opening balance 5.8 6.0
Dividend paid (0.5) -
Non-controlling interest acquired - (1.4)
Profit for the year 1.2 1.2
Total equity 4 757.9 4 633.8
Preliminary Condensed Group Segment Report
Audited Audited
Year ended Year ended
30 September 30 September
2010 2009
R`m R`m
Segment revenue
Sasko 8 314.1 8 876.7
Agri Business 2 453.2 2 599.4
Bokomo Foods 2 683.2 2 625.0
Ceres Beverages 2 483.7 2 410.1
15 934.2 16 511.2
Less: Internal revenue (202.9) (227.3)
Total 15 731.3 16 283.9
Segment results (operating profit before items
of a capital nature)
Sasko 327.5 926.3
Excluding Competition Commission penalties 981.7 926.3
Competition Commission penalties (654.2) -
Agri Business 136.9 80.3
Bokomo Foods 230.7 195.4
Ceres Beverages 165.2 98.6
Unallocated (107.3) (140.6)
Total 753.0 1 160.0
Excluding Competition Commission penalties 1 407.2 1 160.0
Competition Commission penalties (654.2) -
Reconciliation of operating profit (before items
of a capital nature) to profit before income tax
Operating profit before items of a capital 753.0 1 160.0
nature
Adjusted for:
Items of a capital nature (10.3) (68.0)
Interest income 31.4 27.0
Dividends received 2.0 1.7
Finance costs (156.6) (224.5)
Share of profit of associated companies 0.1 0.4
Profit before income tax 619.6 896.6
Notes to the preliminary condensed annual financial statements
1. Basis of preparation
These preliminary condensed annual financial statements are
derived from the audited annual financial statements of the
Group for the year ended 30 September 2010 which have been
prepared in accordance with International Financial Reporting
Standards ("IFRS"), the Listings Requirements of the JSE
Limited and the Companies Act of South Africa (1973), as
amended. The preliminary condensed annual financial statements
comply with the requirements of IAS 34 - Interim Financial
Reporting.
2. Accounting policies
These preliminary condensed annual financial statements
incorporate accounting policies that are consistent with those
applied in the Group`s annual financial statements and with
those of previous financial years, except for the adoption of
the following interpretations and amendments to published
standards that became effective for the current reporting
period beginning on 1 October 2009:
Amendment to IFRS 1 - First-time Adoption of International
Financial Reporting Standards and IAS 27 - Consolidated and
Separate Financial Statements
Amendment to IFRS 2 - Share-based Payments
IFRS 3 - Business Combinations - Revised
Amendment to IFRS 7 - Financial Instruments: Disclosures
IFRS 8 - Operating Segments
IAS 1 - Presentation of Financial Statements - Revised
IAS 23 - Borrowing Costs - Revised
IAS 27 - Consolidated and Separate Financial Statements -
Revised
Amendment to IAS 32 - Financial Instruments: Presentation and
IAS 1 - Presentation of Financial Statements
Amendment to IAS 39 - Financial Instruments: Recognition and
Measurement
IFRIC Interpretation 17 - Distribution of Non-cash Assets to
Owners
IFRIC Interpretation 18 - Transfers of Assets from Customers
AC 503 - Accounting for Black Economic Empowerment Transactions
- Revised
AC 504: IAS 19 - Employee Benefits: The Limit on a Defined
Benefit Asset, Minimum Funding Requirements and their
Interaction in the South African Pension Fund Environment
The adoption of these amendments to standards and
interpretations did not have any material impact on the Group`s
results and cash flows for the year ended 30 September 2010 and
the financial position at 30 September 2010.
Audited Audited
Year ended Year ended
30 September 30 September
2010 2009
3 Share capital
During the year under review the
following share transactions
occurred:
Number of listed issued and fully
paid ordinary shares
At beginning of year 201 183 898 201 183 898
Shares issued in terms of employee 8 072 -
share appreciation rights scheme
At end of year 201 191 970 201 183 898
8,072 (2009: Nil) listed ordinary
shares of 10 cents each were
issued at R42.58 per share
Number of treasury shares held by
the share incentive trust
At beginning of year 6 758 105 8 570 935
Shares bought back (1 646 200) (1 812 830)
At end of year 5 111 905 6 758 105
Proceeds on the sale of treasury 18 061 13 881
shares by the share incentive
trust (R`000)
Number of treasury shares held by
a subsidiary
At beginning and at end of year 17 982 056 17 982 056
Number of unlisted class A
ordinary shares
At beginning of year 11 397 190 12 619 180
Shares bought back (988 540) (1 221 990)
At end of year 10 408 650 11 397 190
Purchase consideration paid for 5 497 629
unlisted class A ordinary shares
bought back (R`000)
4. Borrowings
No material new borrowings were concluded during the year 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.Impairment
The Group re-assessed and impaired the carrying values of the
underlying assets of the Werda, Hooch and Kwality businesses
and in 2009 of the Moir`s and Kwality businesses with after-tax
amounts of R17,421,898 (2009: R50,913,156). These impairment
losses, with the exception of the calculations for Kwality,
were calculated by comparing the carrying amount of the cash-
generating unit (CGU) to the value-in-use of these CGUs. The
calculations for the Kwality business were done by comparing
the carrying value of this CGU to the fair value less cost to
sell.
6. Events after the reporting date
6.1 Dividend
Given the board`s prudent approach to capital management, no
final or interim dividend was declared for 2010. A final
dividend of R179,053,669 was declared for 2009, representing
89.0 cents per ordinary share. The total dividend for 2009 was
R251,479,873 representing 125.0 cents per share.
6.2 Competition Commission penalties
Pioneer Foods and the Competition Commission ("the Commission")
agreed on 2 November 2010 to a full and final settlement on the
bread, milling and other investigations conducted by the
Commission.
The salient provisions of the settlement agreement, which was
approved by the Competition Tribunal ("the Tribunal") on 30
November 2010, are as follows:
- Pioneer Foods will pay administrative penalties of R500
million to the Commission. The Commission will pay this sum to
the National Revenue Fund.
- Pioneer Foods has furthermore committed to a reduction in its
gross profit, amounting to R160 million when benchmarked
against an agreed base period, in respect of a selection of
defined wheaten flour and bread products.
- These figures exclude the administrative penalty of
R195,718,614 imposed by the Tribunal in the bread matter which
was paid by Pioneer Foods in April 2010.
- The settlement amounts of R500 million were provided for in
the 2010 financial year and will become payable as follows:
R66,666,667 within five days of confirmation of the settlement
agreement as an order of the Tribunal ("the first payment
date"), R216,666,667 on the first anniversary of the first
payment date and R216,666,667 on the second anniversary of the
first payment date. Payments have been discounted at a rate of
6,6%.
- Pioneer Foods furthermore undertook not to reduce its
committed cumulative capital expenditure from 2010 to 2013 as a
result of the settlement agreement and commits to increase its
capital expenditure by R150 million over the same period. This
R150 million commitment is included in the capital commitments
as disclosed in note 9.
6.3 Business combinations subsequent to year-end
The assets and liabilities of Mynsar Eggs were acquired on 1
November 2010 and can be summarised as follows:
Fair value (R`m)
Property, plant and equipment 21.8
Inventories 5.2
Trade and other payables (0.3)
Deferred income tax (3.1)
Goodwill 11.3
Purchase consideration - settled in cash 34.9
6.4 Other material events
There have been no other material events requiring disclosure
after the reporting date and up to the date of approval of the
annual financial statements by the board.
7. 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:
Audited
Year ended
30 September
2010
Purchase considerations - settled in cash (R`m)
Eggland Poultry farm (on 1 January 2010) 56.9
Opdiefontein Poultry farm (on 1 March 2010) 43.2
Liptons (on 1 September 2010) 36.0
Richmark Poultry (on 1 April 2010) 8.3
Maize in Minute (on 10 May 2010) 0.3
144.7
The combined assets and liabilities acquired of
these businesses can be summarised as follows:
Fair value (R`m)
Property, plant and equipment 100.4
Intangible assets 14.5
Inventories 30.3
Trade and other payables (0.5)
144.7
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 and liabilities, it is impracticable to
disclose the carrying amounts in the accounting
records of the previous owners prior to these
acquisitions. In these circumstances the Group
does not have access to such carrying values.
The combined contribution of these businesses
since acquisition (R`m):
Revenue 91.8
Operating profit before finance cost and income 4.5
tax
The combined pro forma contribution of these
businesses assuming the acquisitions were at the
beginning of the year (R`m):
Revenue 187.5
Operating profit before finance cost and income 12.3
tax
8. Contingent liabilities
8.1 Dispute with egg contract producers
As previously reported, claims were received from some contract
producers for the alleged breach of the terms of specific
supply agreements. The claimants withdrew these claims in
arbitration proceedings and 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.
The Court is unlikely to hear these matters in the foreseeable
future. 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.
8.2 Guarantees
The Group issued guarantees of R106.7 million (2009: R156.5
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 for
amount to R627.4 million (2009: R376.7 million). Capital
expenditure approved by the board, but not contracted for yet,
amount to R324.7 million and R349.7 million for 2011 and 2012
respectively (2009: R486.3 million and R211.8 million for 2010
and 2011 respectively). Capital commitments of joint ventures
amount to R47.9 million (2009: R39.0 million).
10. Audit report
The external auditors, PricewaterhouseCoopers Inc., have
audited the Group`s annual financial statements for the year
ended 30 September 2010 and their unqualified auditor`s report
is available for inspection at the registered office of the
Company.
Directors: ZL Combi (Chairman), Dr MI Surve (Vice-chairman), WA
Hanekom (Managing)*, LR Cronje*, TA Carstens*, MM du Toit, GD
Eksteen, AE Jacobs,
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: 06/12/2010 07:05:03 Produced by the JSE SENS Department.
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