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Higher fuel prices and investments in the business contributed to soaring costs, which rose faster than revenue.
Higher fuel prices and investments in the business contributed to soaring costs, which rose faster than revenue.

Pioneer Foods’ shares plunge to six-year low on earnings decline

RETAILER NEWS

By Nick Hedley - May 20th, 16:24

Shares in Pioneer Foods, which makes Sasko bread and Ceres juice, plunged to a six-year low after the group said it was struggling to pass on higher costs to consumers. 

The group’s stock fell 15% to R70.57 — the worst level since April 2013 — after it said earnings fell in the six months to end-March as costs rose faster than sales.

Pioneer said adjusted headline earnings fell 15% to R506m even as revenue rose 11.5% to R11bn. The cost of goods sold jumped 14%.

“Increased operating costs were driven by the considered investment in future growth capabilities, as well as the higher cost of fuel, impacting distribution and energy-related cost elements,” Pioneer said.

The group kept its interim gross dividend unchanged at R1.05 per ordinary share.

Pioneer said sales volumes were 2.7% higher in the six-month period, but excluding the recently acquired Wellingtons and Lizi’s businesses, revenue grew 7.9% with volumes up 1.3%.

“This represents a credible top-line performance in the significantly constrained local consumer market with consequent competitive pressures,” the group said.

Revenue growth was driven by “sound volume growth” in key product categories, including bread, wheat, rice, beverages, cereals in the UK and sausage rolls in Nigeria.

Total basket inflation of 6.6% was ahead of overall consumer price inflation in SA.

“Volume declines in maize and cereals constrained further revenue growth,” Pioneer said.

The group said it gained market share in SA. The trading environment would remain tough, with pressure on consumer demand and spending, it said.

Cost inflation in key raw materials and other operational input costs “remain present, although it is starting to level off”.

Given that it remains difficult to pass on higher costs to consumers, pressure on operating margins is expected to continue.

“The group will continue efforts to optimise costs and efficiencies while ensuring its brands remain available and relevant to customers and consumers, thus strengthening the base for continued growth,” it said. 

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