Pioneer Foods posted revenue growth of 11.5% to R11.039 billion with volumes 2.7% higher for the six months ended 31 March 2019. Excluding the acquired Wellingtons and Lizi's businesses revenue grew by 7.9% with volumes up by 1.3%. This represents a credible topline performance in the significantly constrained local consumer market with consequent competitive pressures.

Revenue expansion was driven by sound volume growth in key product categories such as bread, wheat, rice, beverages (long life fruit juice), cereals in the UK and sausage rolls in Nigeria. Total basket inflation of 6.6% (ahead of overall SA CPI) was fueled by price inflation in the Essential Foods, International fruit and some smaller Groceries product categories.

Volume declines in maize and cereals constrained further revenue growth. Beverage exports into nearby African countries held its own despite the constrained trading environment with increased credit risk.

The Group gained overall market share in South Africa across participating categories during the six months under review (Nielsen's Trade Desk).

Financial Performance

Gross profit increased by 5% to R3.1 billion. The gross margin decreased from 29.6% to 27.9%, mainly as a result of insufficient price inflation to compensate for increased raw material costs and operating cost growth.

Increased operating costs were driven by the considered investment in future growth capabilities (e.g. bread production and availability and distribution network expansion) as well as the higher cost of fuel, impacting distribution and energy related cost elements.

Total trade investment required (promotional activity and incentives) to maintain volume momentum and category participation, increased materially on the comparative period. This was caused mainly by intensified retailer competition and demands for promotional support.

Operating profit, before items of a capital nature, adjusted for the Phase I B-BBEE equity transaction ("BEE") share-based payment income/charge and related hedge ("SBP"), decreased by 23% to R729 million. In turn, the adjusted operating profit margin decreased from 9.6% to 6.6%. The Wellingtons business made a loss of R40 million before income tax (2018: R150 million on a 100% interest basis) for the 6 months. The operating profit margin would have been 7.2% if the Wellingtons business is excluded.

Profit for the period, after finance costs of R97.3 million (2018: R88.9 million) and the share of profit of joint ventures and associates of R38.7 million (2018: R21.6 million loss), decreased by 17.7% to R512.1 million.

Earnings per share ("EPS") decreased by 18% to 272.3 cents and headline earnings per share ("HEPS") decreased by 14% to 272.4 cents per share. HEPS, adjusted for the BEE SBP net charge/gain, decreased by 15% to 270.9 cents per share.

During the period, the strategic shareholder Phase II B-BBEE equity transaction matured and Pioneer Foods repurchased and cancelled 11 563 013 ordinary shares.


Essential Foods

The business, excluding maize, delivered an improved performance on the comparative period, but not enough to counter the material maize shortfall. The recovery in the wheaten value chain performance was led by strong bread volume growth following investments in manufacturing capacity during the past two years augmented by the route-to-market and availability growth strategy.
Investment in operating cost to deliver the planned bread volume growth has accelerated, specifically in respect of distribution and manpower. The bread category experienced some price inflation during the reporting period following an extended deflationary cycle since the end of 2016. Sound rice volume and profitability expansion were achieved, with the pasta performance further constrained through competitively priced imports. Bread and rice posted market share gains for the reporting period in the Top End Retail market.

The year-on-year regression in the performance of the maize category, off the strong comparative period base, was more than expected given sustained selling price deflation despite raw material cost inflation, and a weaker milling performance. The latter was impacted by weaker milling yields to sustain uncompromised White Star quality despite regression in maize quality and lower overall milling volumes. Although total White Star volumes sold were maintained compared to the comparative period, some share loss is reported given underlying category growth. White Star Instant maize porridge continues to outgrow a fast expanding product category with leading Top End Retail share reported during recent months.


The major contributor to the decline in Groceries’ profitability was the newly integrated Wellingtons business. Though overall negative profitability in the Wellingtons business is materially better than the comparative period, the performance of the business was impaired mainly by claims and costs associated with third party sales and distribution, which has now been addressed.

The integration of the Wellingtons business is completed with key category participation improving through share gains in Top End Retail. The product and brand offerings together with accelerated innovation, portfolio maintenance, improved procurement and further operating performance enhancements, enabled through the Pioneer Foods integration, portends further improvement and upside.

Within the rest of Groceries, the beverage business posted a good performance. Regression in cereals (negative product mix and pricing recovery lag) and some smaller categories contributed to the lower year-on-year profit in the business, excluding Wellingtons. Material growth in trade investment to hold volume shares and increased distribution costs contributed negatively, whilst the remainder of operating and conversion costs were well contained. Long life fruit juice delivered an excellent performance given sound volume growth supported by pack format and product innovation and posted share expansion in a growing category.


International delivered an improvement on the comparative period in the face of challenging trading conditions in neighbouring export markets and rand/dollar volatility. Higher export fruit pricing delivered solid revenue and profit growth. As a consequence, the 2019 vine fruit procurement prices experienced double-digit inflation which was further exacerbated by increased local competition. The UK subsidiary delivered an excellent performance driven by the core business, as well as the Lizi’s product range that was acquired in the prior year. The Nigerian business performed well with the construction of the new bakery in Lagos progressing to plan.

Joint Ventures

Joint ventures posted a marked improvement, helped by the exclusion of Heinz Foods SA from this reporting line, with this positive trend expected to continue. Bowman Ingredients and Bokomo Botswana contributed materially to the year-on-year growth

Read more in the condensed consolidated Interim Financial Statements:

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