Pioneer Food releases rich value flavour

Phil Roux

Image: Pioneer Foods

Since April 2013, when Roux joined Pioneer, the consumer brands conglomerate has seen its share price more than double.

Having Pioneer on a sounder operational footing should keep the market interested in the bottom line (especially if the pressure on consumers eases), but investor attention will soon turn to whether Roux intends to "move and shake" in the next two years.

Harvesting out

Aside from introducing operational efficiencies, Roux has also weeded out assets that might have choked operating margins. The commodity business Quantum Foods (poultry, eggs and feeds) was unbundled last year, an exit from the unprofitable Pepsi bottling venture is under way and it seems likely that Pioneer will soon be offering around its Moir's biscuit business.

Roux says the "harvesting out" is 90% complete. There might be one more disposal - a profitable business unit that is not a major portion of the operational platter - in the first half.

With the restructuring largely behind it, Pioneer's focus will be on strengthening its "power" brand positions (Sasko, White Star, Weetbix, Ceres, Liquifruit, Safari and Spekko) and expanding margins.

Trading update

In a trading update covering the three months to December, Roux noted an uptick in consumer demand in select categories, where the company had picked up market share.

But he did warn of price deflation in a few categories, particularly maize, which had constrained revenue growth. Still, Pioneer's revenue was up 7% and there was "pleasing" volume growth in major categories, barring wheat and rice.

No doubt Roux's efforts to tweak the operational structure and sharpen brand focus provide a solid grounding for Pioneer. But no sooner has the market appreciated the leaner and meaner Pioneer than the first speculative murmurings around Roux's plans to flesh out specific operational nodes have become audible.

The chances of Pioneer clinching a big deal in SA seem slim at this point. There are not too many assets that could move the needle at Pioneer, and there are other hunters in the market, like Brait-controlled Premier Group and Remgro-controlled RCL Foods.

There will always be talk of a large, transformational deal involving either RCL, Premier Group or Pioneer. But it seems unlikely that the companies, all at critical points in their growth, would contemplate a transaction that would require a strenuous reworking of overlapping assets to appease the competition authorities.

Small acquisitions pipeline

Roux says Pioneer is working on a few potential deals in SA, but these are likely to be small, bolt-on acquisitions. He says the company is already working on bringing "something small, but of strategic importance" on board.

Africa seems an obvious new growth thrust for Pioneer, which generates only 5% of its revenue north of SA's borders. But Roux is circumspect. "I don't believe that with the vagaries you have to contend with in Africa you can be too brazen in your approach. Small, less than optimised assets with expandable components that can be branded over time is probably the way to go."

Pioneer will take a 10-15 year view on any opportunities in Africa. "Big or small businesses in Africa take time to develop. I'm not spending four days a week in Africa hunting down assets."

Pioneer does have the balance sheet - and an opportunistic controlling shareholder in PSG affiliate Zeder Investments - to take a strategic minority position in a large African consumer brands player.

But Roux says "taking a minority stake in a big offshore company at a huge multiple is not something I feel like doing".

Deals elsewhere in the world might be more appealing. "We are not scared to look beyond Africa. And we don't necessarily have to think small, but rather look at where we can add value, especially in a market that is 'culturally familiar'."

Source: Financial Mail via I-Net Bridge