The food and beverage manufacturer attributed its negative performance
to constrained trading conditions, price hikes and an unfavourable procurement
position in the first half of the financial year, following the severe drought
that hit the region in the 2015-16 season.

The group posted a 49% drop in profit due to high maize prices during
the first part of the year after the drought.

An El Niño-induced drought in southern Africa crippled production of
maize, sugar and other agricultural products.

On Monday, CEO Tertius Carstens said while the company had suffered
setbacks during the trading period, it would see volume recovery in 2018.

Given the maize price deflation of about 30% coupled with increased
maize milling of about 8%, Pioneer Foods was already participating in the
recovery trend experienced by the industry in October.

“We are in a far more competitive position than what we were last
year at this time,” Carstens said. “But it will probably be a
step-by-step recovery … and not an immediate one.”

Vunani Securities analyst Anthony Clark sees a potential recovery in
earnings for Pioneer starting in the first half to March 2018 and accelerating
in the full year ended-September 2018.

He said the stock, which was trading at a historical price: earnings
ratio of 26 times, was “hell of an expensive” but this would quickly
unwind if recovery did start to show in 2018.

“The new CEO has his work cut out for him. However, he is capable,
knows the business inside out and the levers to recovery in 2018 from maize,
beverages, cereals and fruit are all there, he just has to steer the ship into
them,”
Clark said.

Pioneer Foods said revenue declined 5% to R19.6bn due to, among other
things, raw material deflation, volume declines and resistance to price hikes.

Its operating profit margin contracted from 11% to 6.5% due to
unfavourable procurement positions as well as volume declines in material
categories.

Headline earnings per share decreased by 55% to R4.10.

The company said headline earnings per share was negatively affected by
the net effect of a black empowerment scheme, which amounted to a loss of R42m
after tax.

The group experienced disappointing performances in several segments.
Bokomo Botswana was significantly affected by the group’s unfavourable maize
hedge position, while Heinz Foods SA’s volumes lagged expectations.

“Due to the inability to adjust its cost base to this volume
reality, [Heinz] posted a poor profit performance,”
the group said.

Pioneer Foods declared a gross final dividend of R2.60 per share, equal
to the prior year.

Source: Business Day