Bokomo Foods

The major challenge was volume related in that sales goals were not achieved due to a reduction in demand, aggressive pricing by competitors, a relatively small raisin crop and limited export volumes of dried fruit products.

The single biggest challenge in the Bokomo Foods division during the last few years was the production pressures due to capacity constraints and inefficiencies. Following the consolidation of Bokomo Foods and SAD in 2008, the management team’s main focus is on addressing production-related issues and positive progress has been made.

Bokomo Foods operates in the following categories:

Breakfast cereals

Mixed performances were achieved from the products in this category during the year. The flagship brand, Weet-Bix, achieved good volume growth driven by its value for money offering to consumers, and the growth made possible by increased production efficiencies that unlocked capacity. The Weet-Bix production capacity expansion was successfully commissioned during the year and multi-grain cereals like Otees and Corn Flakes also achieved good volume growth.

In executing the strategy to reduce the number of production sites, the muesli factory in Durban was relocated to the existing cereal factory in Atlantis in the Western Cape. Although the once-off relocation and retrenchment costs negatively affected this reporting period, future cost of production will benefit from the change.

A much improved performance is expected from this category in 2010 on the back of focused promoting of the Weet-Bix brand and improved efficiencies.

Baking aids

New launches and focused marketing campaigns stimulated volume growth in the dessert, instant meals and baking powder subcategories. However, profitability is still not at an acceptable level. The major cost drivers are the manufacturing on multiple sites and the smaller subcategories that increase complexity. A rationalisation exercise to reduce the number of product lines as well as consolidation of facilities is currently in process. An improved financial performance from this business is expected in 2010.

Biscuits

This category’s performance was in line with the previous year. The current biscuit plant in Ekandustria near Bronkhorstspruit is not suited to adequately support the future biscuit strategy. The building of a new plant in the Gauteng region has already begun and should be completed by the end of 2010. This new facility will increase current production capacity and product quality. It will also create the opportunity to re-position the biscuit brands on the back of improved quality and to introduce innovative new products and brands.

Dried fruit

Results in this category were good for the first six months, but decreased significantly for the second half of the year. The first six months was characterised by a continuation of the good sales volumes of the past year and a weaker rand, while the next six months was exactly the opposite with lower volumes and a strong rand. The low volumes were the result of a very low sultana crop in the Orange River region. This resulted in substantially increased producer prices and it was not possible to fully recover the increased cost from the market.

A fire destroyed part of the Upington raisin factory at the end of August, but this had a limited financial effect in the 2009 year. It is expected that the insurance cover will limit any material effect on performance due to the fire, in the new year.

The first six months of the new financial year will still be negatively impacted by the small raisin crop of the previous season. However, early indications are that the 2010 raisin crop will be considerably larger and that the tree fruit crop should at least be similar to that of 2009. This improved crop size should support an improved contribution from the export business and lead to an improved performance during the second half of the financial year.

Other products

The spreads category struggled in the first half of 2009 due to limited availability of raw materials, specifically fish and yeast. The situation improved in the latter half of the year as the supply of fish and especially yeast improved.

The nut and vinegar categories continued their good performance of the previous year, although the industrial nuts business saw a drop in volumes due to a reduction in demand from industrial customers.

The salads business addressed raw material supply-related issues and fully supplied the market during the peak season. However, it was not possible to recover the total cost inflation in the market and earnings contributed by this business was negative.

Bokomo Foods UK

The business performed well during the year, driven by a very good turnaround in the muesli business. The economic crisis in the United Kingdom in particular, had a positive effect on Bokomo Foods UK due to a general trading down by the consumer from higher-priced branded products to the lower-priced private label products. Further volume growth will be tough to achieve in the new financial year but margin growth from further optimisation in factories is expected.

Heinz Foods SA

The business achieved good revenue growth and improved margins, but results were below expectations.

The acquisition of Papillon Foods was completed in February 2009 and will create a Gauteng manufacturing base for chilled and frozen food products. Although the facility is of exceptional quality, additional capital expenditure will further enhance capabilities and improve efficiencies.

The Heinz brand continued to deliver strong volume growth which confirms consumer acceptance of the product basket. Product innovation should continue to deliver further growth.

The recession directly impacted on pie volumes, and declined consumer spending has put frozen food sales under pressure. This category is expected to remain under pressure for some time. The Today and Mama’s brands performed well under the difficult economic circumstances.

The Wellington’s branded range of products delivered strong growth during the year, following increased marketing spend and product innovation.