Downgrades clip Pioneer's wings

Image source: http://www.pioneerfoods.co.za/

The food and beverage manufacturer withdrew its cautionary announcement on Friday, saying that due to the downgrades and the potential for further ratings action, it would no longer proceed with the material transaction it had been considering. "The parties have decided to discontinue negotiations at this time. Accordingly, caution is no longer required to be exercised by shareholders when dealing in the company's securities," it said.

Zeder also withdrew cautionary announcements it had issued in tandem with Pioneer's. Zeder has a 27.1% stake in the consumer brands giant.

According to Zeder, the Pioneer stake, which is worth R10.3bn, represents about 66% of Zeder's R15.4bn sum-of-theparts valuation. Vunani food producers and agriculture analyst Anthony Clark said the end of the negotiations would have come as a blow to Pioneer, which had little scope to expand in the local market.

"I understand that Pioneer was looking to make its first foray into the European market, into eastern Europe specifically.

"Since the downgrades perhaps they have found it difficult to get access to international capital. Pioneer is hamstrung to grow in SA.

Expansion into Africa and other territories would have allowed for growth. It is rather unfortunate for the company," Clark said.

Investors on the JSE took the news hard and sent the company's share price tumbling more than 7% in intraday trade.

Pioneer bought UK-based Streamfoods for 7.5m in August 2016, which was followed by a 49.89% stake in Weetabix East Africa in November. Pioneer owns brands such as Sasko, Weet-Bix, Ceres and Bokomo.

Earlier in 2017 Pioneer said its 2016-17 financial year would be a tale of two halves.

First-half margin and profitability would be materially affected by nonrecurring raw material vagaries. The second half to September 30 would reflect an improved performance on an expected improvement in maize profitability; a satisfactory raisin crop; new Weet-Bix capacity coming on stream; the commissioning of the Aeroton bakery upgrade; renewed momentum in Western Cape bakeries; and a cost respite on key inputs.

Source: Business Day