SALIENT FEATURES 2014
- Revenue for continuing operations – R17.7bn (+9%)
- Adjusted operating profit (before items of a capital nature) for continuing operations*– R1.68bn (+46%)
- Adjusted headline earnings per share for continuing operations*– 637c (+37% )
- Final gross dividend per share – 156c (+81%)
Continuing operations:
- Revenue– R17 699 million (+9%)
- Adjusted operating profit (before items of a capital nature)* – R1 680 million (+46%)
- Adjusted headline earnings* – R1 169 million (+38%)
- Adjusted headline earnings per share* – 637 cents (+37%)
Group:
- Earnings – R965 million ( +93%)
- Earnings per share– 527 cents (+91%)
- Headline earnings – R1 055 million (+49%)
- Headline earnings per share – 576 cents (+48%)
- Adjusted headline earnings* – R1 242 million ( +46%)
- Adjusted headline earnings per share* – 678 cents (+44%)
- Net asset value per share - 3 318 cents ( -8%)
- Final gross dividend per listed ordinary share (2013: 86 cents) – 156 cents (+81%)
- Total gross dividend per listed ordinary share (2013: 132 cents) – 221 cents (+67%)
COMMENTARY
Introduction
2014 has been a defining year for Pioneer Foods in respect of the twin objectives set, namely strengthening of brands and expanding margins. Notwithstanding the difficult trading environment and strong economic headwinds, the business navigated its way with precision, and delivered a pleasing set of results for the 12 months ending 30 September 2014.
The One Pioneer business model has been institutionalised and Pioneer Foods has emerged a more streamlined, agile and resilient business, thereby enhancing its ability to create value on a sustainable basis. The clear and coherent corporate strategy has been embraced throughout the Group yielding positive results within our local, international and joint venture businesses.
The following salient features underpinned the Group’s performance:
- Beverage and cereal volume growth
- Normalisation of maize profitability
- Traction in bakeries across the value chain
- Power brands’ share recovery and gains
- Robust Africa and international performance
- Significant benefits from cost and efficiency efforts
- Quantum Foods’ turnaround and unbundling
Financial
Revenue from continuing operations increased by 9% to R17.7 billion for the period under review. This is largely attributable to increased selling prices, exports and sales mix. There was a strong recovery in both maize and bread sales volume and market shares in the second half. Group, including Quantum Foods, increased by 7.5% to R21.3 billion.
Cost of goods sold from continuing operations increased by 7%. The gross margin expanded from 29.0% to 30.4% as a result of effective procurement and containment of conversion costs. Growth in cash operating expenses was well contained yielding exceptional operating leverage.
The financial results for 2014 and 2013 have been impacted by the non-operational charge relating to the Phase I B-BBEE transaction. The table below provides the results on a statutory and adjusted basis in order to provide clarity on the comparable operating performance.
Summary of performance from continuing operations
- Revenue – R17 699 million (+9%)
- Operating profit (before items of a capital nature) – R1 493 million (+48%)
- Adjusted operating profit* – R1 680 million (+46%)
- Adjusted operating margin* – 9.5% (F13: 7.1%) (+34%)
- Headline earnings – R981 million (+40%)
- Adjusted headline earnings* – R1 169 millioN ( +38%)
- Headline earnings per share – 535 (+39%)
- Adjusted headline earnings per share* – 637 (+37%)
* Operating profit and headline earnings (2014 and 2013) have been adjusted for the effect of the Phase I (2006) B-BBEE transaction. This charge results from the share price movement and number of scheme participants at each reporting date. The current year charge of R187 million (2013: R146 million) was further exacerbated by the accelerated vesting of the Quantum Foods’ participants leaving the Group’s employment in the new financial year.
Adjusted headline earnings for the Group, including Quantum Foods, increased by 46% to R1 242 million and represents 678 cents per share.
Earnings for the Group, including Quantum Foods, increased by 93% to R965 million and represents cents per share, impacted by the year-on-year difference in the level of impairments discussed below.
Net cash profit increased by 37% to R2 134 million and net cash flow from operating activities amounted to R1 767 million, after a decrease in working capital of R28 million and income tax paid of R386 million.
Total capital invested for the Group amounted to R486 million (2013: R1 378 million). Expansion capital for the year was R270 million, with the Malmesbury/Paarl mill consolidation project being the main beneficiary. The balance of R216 million was spent on replacement capital.
Net interest-bearing debt (excluding third-party funding relating to the 2012 Phase II B-BBEE transaction) decreased by R812 million to R166 million, yielding a net debt to equity ratio of 3% (2013: 15%).
Essential Foods (Sasko)
Essential Foods posted good results in a challenging, low-growth environment. Maize profitability improved to normalised levels through judicious price/volume management in a difficult procurement season. Wheat posted pleasing results, while bakeries made exceptional progress on clear value drivers, resulting in significantly improved profitability. Rice profitability improved and pasta continued to contribute positively.
Groceries (Bokomo Foods and Ceres Beverages)
Bokomo Foods’ performance was bolstered by a large fruit crop and solid performance from the cereals business. Corn flake volumes grew significantly, given favourable product acceptance by consumers. Biscuits achieved targeted volume growth, albeit at lower margins. The beverage business performed well as a result of strong volume growth, both locally and internationally, and improved operational efficiencies.
The merger of Bokomo Foods and Ceres Beverages was successfully concluded, and overall costs were particularly well managed throughout the year.
Quantum Foods
The business returned to profitability after significant re-engineering efforts. A good performance from the feeds business, price recovery in the egg category, the downscaling of the Western Cape broiler operations and a pleasing performance from Mega Eggs (Zambia) were the main contributors to the business turnaround.
Unbundling of Quantum Foods, impairments, joint venture accounting and other restatements
In September 2013, Pioneer Foods announced its intention to unbundle Quantum Foods and to list the business as a separate legal entity on the JSE Ltd (‘JSE’) during 2014. The listing was successfully completed on 6 October 2014. Accordingly, as at 30 September 2014 and for the comparative period, Quantum Foods has been accounted for as an “asset held for sale” and treated as a “discontinued operation” in terms of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations.
The net assets of Quantum Foods therefore have to be recognised at the lower of its carrying value or fair value less costs to sell. An independent valuation reflected the continued macro challenges in the broiler industry and resulted in a further impairment of R57 million after tax (2013: R208 million).
By mutual agreement between Pioneer Foods and PepsiCo Inc., the Pepsi bottling agreement will not be renewed. The Pepsi brand portfolio will however remain in South Africa. A controlled exit by Pioneer Foods will take place by no later than July 2015. Due to sustained losses, the investment in the Pepsi business was impaired in the year under review by an after tax amount of R34 million. These impairments are included in items of a capital nature.
In terms of IFRS 11 – Joint Arrangements and IAS 28 – Investments in Associates and Joint Ventures, results from joint ventures are now equity accounted and no longer proportionately consolidated as in previous reporting periods. The revised requirements of IAS 19 – (revised) Employee Benefits were applied during the year under review, with a marginal effect on the results. Comparative numbers in this respect have been restated accordingly.
Prospects
Whilst the South African economy remains vulnerable and is unlikely to recover in the short term, Pioneer Foods has been competitively repositioned to defend and grow its brands. The corporate portfolio will continue to be honed in an effort to sharpen the focus, appropriately direct capital allocations and, in so doing, enhance shareholder returns.
Dividend
Shareholders’ attention should be drawn to the fact that, consequent to the unbundling of Quantum Foods, a dividend in specie of one Quantum Foods’ share for every Pioneer Foods’ share was declared. The resulting dividend is reflected as a dividend payable to shareholders as at 30 September 2014.
Furthermore, a gross final dividend of 156 cents (2013: 86 cents) per share has been approved and declared by the Board for the year ended 30 September 2014 from income reserves. The applicable dates for the final dividend are as follows:
- Last date of trading cum dividend – Friday, 23 January 2015
- Trading ex dividend commences– Monday, 26 January 2015
- Record date – Friday, 30 January 2015
- Dividend payable – Monday, 2 February 2015
The total dividend for the year under review, excluding the above dividend in specie, ncreased to 221 cents per share, up 67% from 132 cents per share in the prior year.
A gross final dividend of 46.8 cents (2013: 25.8 cents) per class A ordinary share, being 30% of the gross final dividend payable to ordinary shareholders in terms of the rules of the relevant employee scheme, will be paid during February 2015.
It is the stated intention of the Company to move towards a dividend cover which is more reflective of fast-moving consumer goods (“FMCG”) industry norms.
Share certificates may not be dematerialised or materialised between Monday, 26 January 2015 and Friday, 30 January 2015, both days inclusive.
By order of the Board
ZL Combi – Chairman
PM Roux – Chief Executive Officer
The full financial results can be viewed on the financial results page of the investor section.
Bellville – 24 November 2014