Stable food prices to boost Pioneer

Earlier, the group reported diluted headline earnings per share of 349.8c for the year ended September 2009 from 285.3c a year ago. Headline earnings per ordinary share at 355c were up 22%.

A final dividend of 89c per share was declared, up 35% from a year ago. The total dividend declared for the year amounted to 125.0c, up 30% from last year's 96.0c.

Revenue at R16.3-billion was up 9% and operating profit before items of a capital nature was up 34% at R1.2-billion.

"We achieved this satisfactory set of results in a deflationary environment where in the second half of the year, selling prices in key categories either stabilised or contracted," said CEO Andre Hanekom.

"Our earnings growth for the year, though relatively strong, basically brings us back to even keel, after the slow or declining growth we showed in recent reporting periods," he added.

Operational review

In an operational review, the group noted that Sasko delivered a sound overall performance for the year, posting an improved profit contribution and margin.

"The demand for staple food products remained resilient, despite the overall decline in economic activity.

"The various government grant support programmes supported this trend, especially in the rural areas where Sasko is well represented."

"An excellent performance from Sasko improved our capacity utilisation with increased sales volumes in maize products in particular, which led to margin growth," said Hanekom.

Pioneer Foods said average selling prices in the key categories of bread, wheaten products, pasta and rice are lower than the comparative period.

"Upward and downward pressures on input costs continued during the year with increasing electricity, labour and rail costs weighing down the benefit of lower grain and fuel prices.

"White Star super maize meal made a superb contribution, generating R1.5-billion of revenue in its tenth anniversary year. The continued expansion and upgrading of the white maize milling facilities and White Star's increasing market presence underpinned this satisfactory performance," said Pioneer Foods.

In the Agri business, the group said the business recovered somewhat with Nulaid and Nova Feeds performing adequately and Tydstroom remaining under pressure with a number of poultry disease challenges.

"On-farm performance improved in the last two months of the year and a recovery in performance levels is expected in 2010," it said.

Slow year for Bokomo

Performance by Bokomo Foods was disappointing and down compared to the previous year, it noted, pointing out that the major challenge was volume related and consumers traded down to lower margin products.

The group noted that Weet-Bix still achieved good volume growth with its value-for-money offering.

The production capacity expansion was successfully commissioned during the year and improved production efficiencies unlocked further capacity, it said.

"The performance of the dried fruit business deteriorated in the second half of the year.

"A poor sultana crop in the Orange River region led to lower production volumes and increased producer prices not recovered from the market, which together with the strengthening rand, impacted negatively on earnings.

"A fire destroyed part of the Upington raisin factory at the end of August. Insurance cover is expected to limit any material impact on performance in the new year due to the fire."

Hard times for beverage market

The non-alcoholic beverage category was under pressure in the past year in South Africa and the international market, said Pioneer Foods.

"The decline in consumer spending reduced sales volumes. Operating profit increased, but profit margins were under pressure from continuous cost increases in raw material and packaging.

"The fruit juice category achieved volume growth on the back of double-digit growth in export sales volumes. Construction of a fruit juice factory in Wadeville has commenced and will provide growth capacity and reduce distribution cost between the Western Cape and the interior.

"In the fruit concentrate mixture category profitability was restored in line with previous years," it said.

The carbonated soft drinks category was under pressure.

Pepsi sales volumes remained satisfactory, but with no contribution to earnings.

"In light of the more challenging trading environment, forecasts for the Pepsi venture were adjusted to reflect a longer establishment phase to position the brand for long-term sustainable growth," said Pioneer Foods.

Looking ahead, the group said that the next reporting period would be influenced by the volatility in raw material prices, cost increases and particularly salaries, wages, electricity and transport costs, sales volumes driven by changing consumer spending patterns as well as by deflationary pressures on selling prices.

Sasko's growth

Pioneer Group said Sasko had experienced strong growth in this and previous reporting periods and was well positioned for further growth albeit at a slower rate given the relatively high comparative base.

"The other businesses of the group should further unlock their potential to improve contributions to earnings.

"Group earnings should benefit from decreased finance costs given the improved debt position," said Pioneer Foods.

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