Hearings no bar to capex at Pioneer

The group, which turned over R11,7bn in the year to September, has already approved a capital expenditure programme of R1,2bn, of which about R800m will be spent in the current financial year.

Financial director Leon Cronje said Pioneer, which will go to the market in the next few weeks, generated 5% of revenue from exports and another 5% from production outside SA.

Pioneer was also keeping an eye open for bolt-on acquisitions, but faced several challenges, including increasing capacity, Cronje said. The group would raise R500m after listing, the first injection of capital from shareholders since 1920, to focus on priority expansion plans. The capital could be used to fund near-term capacity expansion in the baking, milling, cereal and Pepsi businesses.

The balance of the expansion would be funded through debt. Previously, the group, which has trebled in size in the past five or six years, had funded expansion through cash and debt. Its debt would now be restructured within the next two months “to the tune of R3bn”.

In the next two to three years, R600m-R900m was expected to be spent each year on capital before tapering off, Cronje said. The capital, higher than the company's usual spend of about R500m each year, includes its usual capital replacement requirements.

Hanekom previously said the bulk of the R1,2bn approved expenditure would go on baking, milling and pasta plants. A Weetbix plant would also get a fair share of spend, but the cash would be spread across the country and include other items such as logistics.

The group has been investigated by the Competition Commission for its alleged role in a bread price-fixing cartel. Tiger Brands recently agreed to pay a R99m fine for its role in the cartel, which has also implicated Foodcorp and Premier Foods. Premier has received immunity in return for testimony.

Cronje said the group had been referred to the Competition Tribunal for the Western Cape cartel, but had yet to be referred regarding the national cartel.

National revenue from its baking and milling business was R3,4bn for the year to September, the year affected by the investigation, and the potential fine could be up to 10% of this. Pioneer has not commented on its potential liability as no referral complaint has yet been received.

Its Western Cape liability could be up to 10% of R384m in revenue for that division, but the group has not provided for a fine as it feels it could successfully defend all or some of the charges in the complaint.

Cronje said the group could not postpone its plans to grow the company because of the hearings.

The group is expected to put the price of bread up again on June 1 by about 50c, following a flour increase on May 1 of 18%. Last year, bread increased about 40% as the price of wheat doubled in the past year.

Consumption had grown about 6% in the first half of this year, Hanekom said.

Source: Business Day

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