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Slowdown in spending hits Pioneer Foods
Slowdown in spending hits Pioneer Foods

Slowdown in spending hits Pioneer Foods


Business Day - Mar 19th 2012, 08:53

Pioneer Foods said in a trading update on Friday that revenue rose 13% in the five months to the end of February, but volumes fell by an average 4%-6% in the group’s product basket on lower consumer spending. 

It said that price inflation on the product basket was estimated at about 18% for the period, ahead of the group’s interim results to end-March.

Substantial increases in operating costs were continuing, notably electricity, payroll and transport costs, the group said.

"What we are seeing is two things — fairly high inflation, mostly the cost of maize — and cost increases in terms of fuel, electricity and employment costs," CEO Andre Hanekom said.

The group said that its 13,5% empowerment transaction was close to conclusion, and would have a minimal effect on earnings, with the exception of a once-off charge estimated at R154m in the period. This would drag down headline earnings per share by 45%-55% from the same period last year.

But adjusted headline earnings per share, excluding the charge, were expected to fall 9%-19%.

"The trading update was obviously disappointing — there appears to be some margin pressure in Pioneer Foods," Marlo Scholtz, an analyst at Sanlam Investment Management, said.

He said that a Competition Commission settlement for price-fixing, including a R195m fine, hit results. Also, R170m worth of profit reductions in the price of wheaten flour and bread, hit margins in the group’s Sasko unit.

"Volumes were expected to be under pressure, but it seems they were under more pressure than expected, and there is more margin pressure in the group," Mr Scholtz said.

Mr Hanekom said that all costs related to the commission’s findings had been provisioned for in the previous year.

The group said although maize prices retreated from historical highs in the period, overall grain raw material prices were still significantly higher than in the comparative period last year.

It said that margin maintenance was driven by managing selling prices and stringent cost controls.

Pioneer said it lost some share of the standard bread market, but gained share in the growing premium bread market, albeit off a low base.

The group said national maize meal consumption had generally been weaker, though was still off a relatively high base.

Rice and pasta volumes increased despite competition from cheaper imports. Although rice prices rose, pasta prices remained constant.

Broiler and egg markets remained under pressure as a result of cheaper imports, systemic oversupply and historically high maize prices.

In the Bokomo Foods unit, breakfast cereals performed.  

Read more about: wheat | rice | pioneer foods | packaging | maize | logistics

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