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Abridged consolidated annual financial statements for the year ended 30 September 2012
Pioneer Food Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1996/017676/06)
(Tax registration number: 9834/695/71/1)
(Share code: PFG)
(ISIN code: ZAE000118279)
("Pioneer Foods" or "the Group" or "the Company")
Abridged consolidated annual financial statements for the year ended 30 September 2012
Pioneer Foods salient features
Revenue R18.6 billion up 10%
Gross final dividend per listed ordinary share (2011: 40 cents) 70 cents up 75%
After the figures for the year were adjusted by R160.7 million for a once-off
share-based payment charge on the B-BBEE equity transaction:
Adjusted headline earnings R767 million up 6%
Adjusted headline earnings per share 426 cents up 5%
Group Managing Director André Hanekom commented:
The year under review continued to be challenged by muted consumer spend in bread, maize, wheaten products and fruit
juices in particular, as price adjustments affected affordability. Breakfast cereals consolidated its market leading
position with Weet-Bix achieving strong volume growth at attractive price points. Raw material pricing remains volatile
and indications are that prices could weaken in the months ahead that should bring some relief to the consumer. Volume
growth at acceptable price points will be key together with judicious cost management and dedicated efficiency drives
to grow and protect operating margins, as new production capacity comes on stream.
Enquiries
Pioneer Foods: +27 21 807 5100
André Hanekom +27 82 808 3549, ahanekom@pioneerfoods.co.za
Leon Cronjé +27 82 801 7772, lcronje@pioneerfoods.co.za
CapitalVoice: Johannes van Niekerk +27 82 921 9110
Group Overview
Group revenue increased by 10% to R18.6 billion with volumes declining by some 5% and selling prices increasing by some 15% on
average over the comparative period.
Results for the reporting period have been substantially impacted by the once-off non-cash flow share-based payment charge of
R161 million in terms of IFRS 2, relating to the implementation of the Phase Two B-BBEE transaction concluded in the reporting
period. Consequently headline earnings declined by 17% to R606 million.
Adjusted headline earnings, excluding the impact of the R161 million,increased by 6% to R767 million or 5% to 426 cents per
share.
Comparisons between the operational performance of the current and previous reporting period have been impacted by the
volatility of the IFRS 2 share-based payment charge for the cash-settled Phase One B-BBEE transaction of 2006, due to the
Pioneer Foods share price increasing by 24% in 2011, but declining by 10% in 2012. Operating profit before items of a capital
nature, adjusted for the impact of the Phase One and Phase Two B-BBEE transactions, declined by 6% to R1 162 million. The
Group's operating profit margin, after these adjustments, consequently declined from 7.3% to 6.2%.
The investment in working capital increased by R266 million, largely the result of increased raw material prices, countered
somewhat by lower inventory volumes, and increased debtor values from higher selling prices. Net cash from operations amounted
to R1 000 million (2011: R1 064 million), impacted by the payment of R217 million in terms of the settlement agreement with
the Competition Commission. A final payment of R217 million will be made in December 2012.
Net cash applied in investment activities amounted to R753 million (2011: R933 million), inclusive of R585 million spent on
new additions and business combinations and R174 million spent on replacement capital. Net interest-bearing debt at year-end
is R994 million (2011: R757 million), representing a debt to equity ratio of 16%. This amount includes R464 million due to the
third-party funding provided to the B-BBEE participants and consolidated as such in terms of IFRS.
Two important milestones were achieved in the 2012 financial year:
- Successful completion of the Phase Two B-BBEE transaction for 13.5% shareholding in the Group. This transaction brought in
new black shareholders and injected cash of R546 million received from the third-party financier and participants as
partial payment for the ordinary shares issued on implementation of the transaction. An important outcome of the transaction
has been the establishment of an education and community trust that will focus and integrate the Group's corporate social
investment spend.
- Progress made towards completion of the South African capital expansion programme of the past number of years. The Bokomo
Foods and Ceres Beverages businesses have completed their capital expansion programmes. Two major projects have been
approved for Sasko, namely a greenfields bakery in KwaZulu-Natal and the consolidation of the Malmesbury and Paarl flour
mills on the existing Malmesbury mill site. The South African capital expansion programme should, therefore, be completed
in 2013, with limited transfers of outstanding capital spend to 2014.
Sasko
Sasko's performance improved compared to the previous year, but fell short of financial targets in the challenging trading
environment. Revenue increased by 10% to R10 002 million and operating profit by 8% to R948 million. The operating profit
margin contracted from 9.7% to 9.5%.
Sales volumes for the year declined in the wheat, maize and bread product categories. Significant commodity price inflation
during the first half of 2012 contributed to weaker demand with consumers remaining price sensitive. Sales volumes of these
products, however, improved in the last quarter of 2012 on judicious selling price management in a volatile raw material
pricing environment. Results were further impacted by increased promotional spend and higher operating costs.
In the rice category demand continued to benefit from comparatively expensive maize meal pricing as well as the
re-introduction of cheaper Indian rice imports. Volumes remained flat in this environment with Spekko being a premium
branded product.
Pasta sales volumes are improving in a lower price point environment driven by lower priced imported products.
The building of the bakery at Shakaskraal, north of Durban, is progressing well and is expected to be fully operational at the
end of 2013. This bakery will replace a 40 year old bakery in Stanger which currently operates at capacity. It will create
additional capacity and improved efficiencies to enable increased market participation in the growing urban and semi-urban
KZN markets. The budgeted cost for the project is R500 million.
The Board approved R300 million for the expansion of the Malmesbury flour mill. This project will result in the closure of
the Paarl flour mill and create capacity for future volume growth in this category. The project is expected to be completed
in 2014.
The Group's milling, poultry and distribution businesses in the other African countries performed satisfactorily in a
difficult trading environment. Various expansion activities were initiated. In Namibia additional wheat milling and pasta
manufacturing capacity was commissioned. In Botswana approval from regulatory authorities was received for the integration
and expansion into broiler chicken and rearing production. The distribution warehousing capacity in Botswana was furthermore
expanded.
Agri Business
The Agri Business underperformed in the face of challenging trading conditions. Although revenue increased by 12% to R3 036
million, a net operating loss of R49 million was recorded. Both the broiler and egg industries were negatively impacted by
the inability to recover record high raw material prices in a market characterised by oversupply in final product. Feeds
volumes were stable with price increases largely recovering the higher raw material cost. The broiler industry specifically
is experiencing unprecedented price and volume pressure aggravated by imported frozen products. Measures to contain operating
cost increases and improve efficiencies could not protect margins in this constrained environment. In the egg business, good
on-farm performance resulted in increased production. Sales prices, however, remained flat given the current oversupply.
The Board mandated management to consider appropriate actions to realise optimal shareholder value.
Bokomo Foods
Bokomo Foods delivered a good overall performance. Revenue increased by 11% to R3 072 million with operating profit improving
by 18% to R264 million. The operating profit margin improved from 8.1% to 8.6%. The strong improvement in operating profit is
primarily driven by strong growth in retail sales with improved price realisation. This was further boosted with increased
export sales into Africa.
Breakfast cereals performed well with good volume growth at constant selling prices. Volumes in the Moir's biscuits business
responded well to lower price points in a competitive environment. The dried fruit business also performed well given the
lower raisin crop. The resultant lower sales volumes were more than buffered by increased price realisation in the export
markets at more favourable exchange rates.
The new corn flakes plant is completed and commenced production in November 2012.
The business of Heinz Foods SA performed well. The basket of branded products continued to deliver good growth, although at a
slower growth rate during the second half of 2012. Margins came under pressure specifically on the imported product ranges
such as John West.
Ceres Beverages
Financial results for 2012 were disappointing. Revenue increased by 9% to R2 798 million, but operating profit declined by 35%
to R88 million, an operating profit margin contraction from 5.3% to 3.2%.
The inability in a constrained consumer market to recover exceptional increases in raw material input costs was the major
cause. Fruit juice concentrate prices increased by more than 40% due to a global shift in consumption towards fresh fruit.
Volumes of ready-to-drink fruit juices were slightly down during a colder than average winter season exerting further pressure
on margins. International sales volumes, however, increased by double digits. Fierce competition in carbonated soft drinks
negatively affected overall margins with sales volumes largely being maintained.
As consumers turned to more affordable alternatives, volumes in the fruit concentrate mixtures category continued to grow and
this category of the business managed a positive turnaround following the depressed performance in 2011. The iced tea category
continues to show growth and the Lipton brand is well established as the market leader.
Ceres Beverages' new production plant at Wadeville in Gauteng is now fully operational.
Integrated report
The notice and proxy of the annual general meeting and abridged annual financial statements for the year ended 30 September
2012 will be posted during December 2012 to certificated shareholders and those shareholders with dematerialised shares who
have requested a copy of this report through their Central Securities Depository Participants. The integrated report will be
available on the Companys website (www.pioneerfoods.co.za) towards the end of December 2012.
Prospects
The Group remains affected by the constrained consumer environment and pressure on disposable income. Raw material pricing is
volatile and indications are that prices could weaken in the months ahead as supply picks up. Volume growth at acceptable
price points will be key together with judicious cost management and dedicated efficiency drives to grow and protect operating
margins as new production capacity comes on stream.
Final dividend
A gross final dividend of 70 cents (2011: 40 cents) per share has been approved by the Board. The applicable dates are as
follows:
Last date of trading cum dividend Friday, 25 January 2013
Trading ex dividend commences Monday, 28 January 2013
Record date Friday, 1 February 2013
Dividend payable Monday, 4 February 2013
A gross final dividend of 21 cents (2011: 12 cents) per class A ordinary share, being 30% of the gross final dividend payable
to the other class ordinary shareholders in terms of the rules of the relevant employee scheme, will be paid during February
2013.
Share certificates may not be dematerialised or materialised between Monday, 28 January 2013, and Friday, 1 February 2013,
both days inclusive.
By order of the Board
ZL Combi WA Hanekom
Chairman Managing Director
Paarl, 22 November 2012
Group Statement of Comprehensive Income
Audited Audited
Year ended Year ended
30 September 30 September
2012 2011
R'm R'm
Revenue 18,609.8 16,853.1
Cost of goods sold (13,390.5) (11,804.1)
Gross profit 5,219.3 5,049.0
Other income and gains/(losses) - net 220.2 291.7
Other expenses (4,402.7) (4,149.4)
Excluding once-off share-based payment charge on B-BBEE equity transaction (4,242.0) (4,149.4)
Once-off share-based payment charge on B-BBEE equity transaction (160.7) -
Items of a capital nature (5.4) (0.8)
Operating profit 1,031.4 1,190.5
Investment income 20.5 19.2
Finance costs (136.6) (160.0)
Share of profit of associated companies 1.3 0.3
Profit before income tax 916.6 1,050.0
Income tax expense (311.9) (319.9)
Profit for the year 604.7 730.1
Other comprehensive (loss)/income for the year (5.5) 63.8
Fair value adjustments to cash flow hedging reserve (16.4) 36.7
For the year 43.8 118.6
Current income tax effect (12.1) (40.2)
Deferred income tax effect (0.2) 7.0
Reclassified to profit or loss (66.5) (67.6)
Current income tax effect 21.1 36.2
Deferred income tax effect (2.5) (17.3)
Fair value adjustments on available-for-sale financial assets 5.8 1.9
For the year 8.1 3.9
Deferred income tax effect (1.2) (0.3)
Reclassified to profit or loss (1.1) (1.7)
Movement on foreign currency translation reserve 5.1 25.2
Total comprehensive income for the year 599.2 793.9
Profit for the year attributable to:
Owners of the parent 603.6 728.8
Non-controlling interest 1.1 1.3
604.7 730.1
Total comprehensive income for the year attributable to:
Owners of the parent 598.1 792.6
Non-controlling interest 1.1 1.3
599.2 793.9
Headline Earnings Reconciliation
Audited Audited
Year ended Year ended
30 September 30 September
2012 2011
R'm R'm
Reconciliation between profit attributable to owners of the parent and headline earnings
Profit attributable to owners of the parent 603.6 728.8
Remeasurement of items of a capital nature 5.4 0.8
Net loss/(profit) on disposal of property, plant, equipment and intangible assets 10.4 (5.4)
Net profit on disposal of available-for-sale financial assets (1.1) (1.7)
Remeasurement profit on previously held interest in joint venture (3.9) -
Impairment of property, plant, equipment and intangible assets - 7.9
Tax effect on remeasurement of items of a capital nature (2.8) (3.4)
Headline earnings 606.2 726.2
Once-off share-based payment charge on B-BBEE equity transaction 160.7 -
Adjusted headline earnings 766.9 726.2
Number of issued ordinary shares (million) 230.3 201.2
Number of issued treasury shares:
- held by subsidiary (million) 18.0 18.0
- held by share incentive trust (million) 2.5 3.9
- held by B-BBEE equity transaction participants (million) 18.1 -
- held by BEE trust (million) 10.6 -
Number of issued class A ordinary shares (million) 8.2 9.3
Weighted average number of ordinary shares (million) 179.9 178.4
Earnings per ordinary share (cents):
- basic 335.6 408.4
- diluted 331.0 399.7
- headline 337.0 407.0
- adjusted headline 426.4 407.0
- diluted adjusted headline 420.6 398.3
Gross dividend per ordinary share (cents) 114.0 80.0
Gross dividend per class A ordinary share (cents) 34.2 24.0
Net asset value per ordinary share (cents) 3,415.3 3,059.7
Debt to equity ratio (%) 16.1 13.8
Group Statement of Financial Position
Audited Audited
30 September 30 September
2012 2011
R'm R'm
Assets
Property, plant and equipment 4,641.5 4,192.3
Goodwill 271.9 265.1
Other intangible assets 464.3 467.4
Biological assets 16.0 16.8
Investments in associates and loans to joint ventures 56.9 29.9
Available-for-sale financial assets 52.8 43.6
Trade and other receivables 20.4 20.0
Deferred income tax 2.7 2.6
Non-current assets 5,526.5 5,037.7
Current assets 5,079.6 4,825.3
Inventories 2,450.0 2,313.4
Biological assets 228.7 210.1
Derivative financial instruments 6.8 14.1
Trade and other receivables 2,014.3 1,836.1
Current income tax 4.2 11.2
Cash and cash equivalents 375.6 440.4
Total assets 10,606.1 9,863.0
Equity and liabilities
Capital and reserves attributable to owners of the parent 6,184.9 5,488.3
Share capital 23.0 20.1
Share premium 2,171.8 1,186.7
Treasury shares (1,207.5) (220.3)
Other reserves 350.3 115.2
Retained earnings 4,847.3 4,386.6
Non-controlling interest 8.2 7.5
Total equity 6,193.1 5,495.8
Non-current liabilities 1,377.5 1,891.0
Borrowings
B-BBEE equity transaction third-party finance 449.7 -
Other 48.0 849.0
Provisions for other liabilities and charges 119.2 113.3
Accrual for Competition Commission penalties - 202.1
Share-based payment liability 108.2 146.0
Deferred income tax 652.4 580.6
Current liabilities 3,035.5 2,476.2
Trade and other payables 1,933.0 1,871.5
Current income tax 4.7 22.1
Derivative financial instruments 3.1 10.4
Borrowings 871.7 348.4
Loan from joint venture 7.0 7.9
Accrual for Competition Commission penalties 215.5 215.5
Dividends payable 0.5 0.4
Total equity and liabilities 10,606.1 9,863.0
Group Statement of Changes in Equity
Audited Audited
Year ended Year ended
30 September 30 September
2012 2011
R'm R'm
Share capital, share premium and treasury shares 987.3 986.5
Opening balance 986.5 998.6
Cost to issue ordinary shares to participants in B-BBEE equity transaction (4.1) -
Movement in treasury shares 13.1 11.8
Ordinary shares issued - share appreciation rights 22.8 2.6
Employee share scheme - repurchase of shares (31.0) (26.5)
Other reserves 350.3 115.2
Opening balance 115.2 28.3
Contribution by participants to B-BBEE equity transaction 96.4 -
Once-off share-based payment charge on B-BBEE equity transaction 160.7 -
Transfers (to)/from retained earnings (4.5) 0.4
Equity compensation reserve transactions 13.8 15.0
Ordinary shares issued - share appreciation rights (22.8) (2.6)
Deferred income tax on share-based payments (3.0) 10.3
Other comprehensive (loss)/income for the year (5.5) 63.8
Retained earnings 4,847.3 4,386.6
Opening balance 4,386.6 3,724.5
Profit for the year 603.6 728.8
Dividends paid (151.5) (71.6)
Transfers from/(to) other reserves 4.5 (0.4)
Management share incentive scheme - disposal of shares 4.3 5.4
Employee share scheme - transfer tax on share transactions (0.2) (0.1)
Non-controlling interest 8.2 7.5
Opening balance 7.5 6.5
Dividend paid (0.4) (0.3)
Profit for the year 1.1 1.3
Total equity 6,193.1 5,495.8
Group Statement of Cash Flows
Audited Audited
Year ended Year ended
30 September 30 September
2012 2011
R'm R'm
Net cash profit from operating activities 1,514.9 1,563.3
Cash effect from hedging activities (32.2) 14.2
Working capital changes (266.2) (446.8)
Accrual for Competition Commission penalties paid (216.7) (66.7)
Net cash generated from operations 999.8 1,064.0
Income tax paid (257.7) (261.5)
Net cash flow from operating activities 742.1 802.5
Net cash flow from investment activities (753.0) (933.4)
Property, plant, equipment and intangible assets
- additions (559.9) (613.0)
- replacements (174.1) (201.6)
- proceeds on disposal 14.0 33.7
Business combinations (25.5) (171.2)
Proceeds on disposal of and changes in available-for-sale financial assets and loans (28.0) (3.6)
Interest received 19.1 18.1
Dividends received 1.4 1.1
Dividends received from associates - 3.1
Net cash flow from financing activities 44.6 (232.3)
Proceeds from borrowings - third-party finance of B-BBEE equity transaction 449.7 -
Repayments of other borrowings (211.4) (11.9)
Net contribution by participants to B-BBEE equity transaction 92.3 -
Share schemes transactions (14.9) (9.1)
Interest paid (119.7) (139.6)
Dividends paid (151.4) (71.7)
Net cash, cash equivalents and bank overdrafts from business combinations (11.3) -
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 22.4 (363.2)
Net cash, cash equivalents and bank overdrafts at beginning of the year 345.7 708.9
Net cash, cash equivalents and bank overdrafts at end of the year 368.1 345.7
Group Segment Report
Audited Audited
Year ended Year ended
30 September 30 September
2012 2011
R'm R'm
Segment revenue
Sasko 10,001.6 9,054.6
Agri Business 3,036.4 2,714.6
Bokomo Foods 3,071.6 2,760.3
Ceres Beverages 2,798.2 2,577.4
18,907.8 17,106.9
Less : Internal revenue (298.0) (253.8)
Total 18,609.8 16,853.1
Segment results
Sasko 948.0 879.2
Agri Business (48.7) 116.0
Bokomo Foods 263.8 223.2
Ceres Beverages 88.3 136.5
Other (89.5) (118.6)
1,161.9 1,236.3
Broad-based employee share incentive scheme share-based payment 35.6 (45.0)
Once-off share-based payment charge on B-BBEE equity transaction (160.7) -
Operating profit before items of a capital nature 1,036.8 1,191.3
Reconciliation of operating profit (before items of a capital nature) to profit
before income tax
Operating profit before items of a capital nature 1,036.8 1,191.3
Adjusted for:
Remeasurement of items of a capital nature (5.4) (0.8)
Interest income 19.1 18.1
Dividends received 1.4 1.1
Finance costs (136.6) (160.0)
Share of profit of associated companies 1.3 0.3
Profit before income tax 916.6 1,050.0
The chief operating decision-maker has excluded the share-based payment charge in respect of the broad-based employee share
incentive scheme from segment results since the beginning of the current financial year. This adjustment was made due to the
volatile nature of this cash-settled share-based payment. As a result the previously reported segment results have been
restated. Refer below for the effect of this restatement:
Increase in operating profit before items of a capital nature
Sasko - 21.7
Agri Business - 6.8
Bokomo Foods - 6.8
Ceres Beverages - 4.5
Other - 5.2
Total - 45.0
Notes to the abridged consolidated annual financial statements
1. Basis of preparation
These abridged annual financial statements are derived from the audited annual financial statements of the Group for the
year ended 30 September 2012 which have been prepared in accordance with International Financial Reporting Standards
("IFRS"), the Listings Requirements of the JSE Limited and the Companies Act of South Africa, Act 71 of 2008, as amended.
The abridged annual financial statements comply with the requirements of IAS 34 Interim Financial Reporting.
2. Accounting policies
These abridged annual financial statements incorporate accounting policies that are consistent with those applied in the
Group's annual financial statements for the year ended 30 September 2012 and with those of previous financial years, except
for the adoption of the following amendments to published standards and interpretations that became effective for the
current reporting period beginning on 1 October 2011:
Amendments to IFRS 1 First-time Adoption on Hyperinflation and Fixed Dates
Amendment to IFRS 7 Financial Instruments: Disclosures Transfer of Financial Assets
Amendment to IAS 24 Related Party Disclosures
Improvements to IFRSs (Issued May 2010)
Amendments to IFRIC 14 Pre-payments of a Minimum Funding Requirement
The adoption of these amendments to standards and interpretations did not have any material impact on the Group's results
and cash flows for the year ended 30 September 2012 and the financial position at 30 September 2012.
Audited Audited
Year ended Year ended
30 September 30 September
2012 2011
3. Share capital
During the year under review the following share transactions occurred:
Number of listed issued and fully paid ordinary shares
At beginning of year 201,236,929 201,191,970
Shares issued in terms of employee share appreciation rights scheme 385,908 44,959
Shares issued to participants of the B-BBEE equity transaction 18,091,661 -
Shares issued to the BEE Trust 10,599,988 -
At end of year 230,314,486 201,236,929
385,908 (30 September 2011: 44,959) listed ordinary shares of 10 cents each were issued at an average of R59.20
(30 September 2011: R58.06) per share in terms of the share appreciation rights scheme.
18,091,661 listed ordinary shares of 10 cents each were issued at R55.14 and R58.04 respectively to the BEE
strategic partners and current and former BEE directors in terms of the B-BBEE equity transaction.
10,599,988 listed ordinary shares of 10 cents each were issued to the BEE Trust at R0.10 per share.
Number of treasury shares held by the share incentive trust
At beginning of year 3,881,401 5,111,905
Movement in shares (1,335,468) (1,230,504)
At end of year 2,545,933 3,881,401
Proceeds on the sale of treasury shares by the share incentive trust (R'000) 18,536 18,661
Number of treasury shares held by broad-based BEE transaction participants
Shares issued to participants of the B-BBEE equity transaction 18,091,661 -
At end of year 18,091,661 -
Number of treasury shares held by BEE Trust
Shares issued to BEE Trust in terms of the B-BBEE equity transaction 10,599,988 -
At end of year 10,599,988 -
Number of treasury shares held by a subsidiary
At beginning and end of year 17,982,056 17,982,056
Number of unlisted class A ordinary shares
At beginning of year 9,294,530 10,408,650
Shares bought back and cancelled (1,096,410) (1,114,120)
At end of year 8,198,120 9,294,530
Purchase consideration paid for unlisted class A ordinary shares bought
back (R'000) 30,967 26,526
4. Broad-based black economic empowerment ("B-BBEE") equity transaction
The Company concluded a B-BBEE transaction with its employees in 2006 which effectively equated to 10% black ownership
of the Group at the time. During December 2011 Pioneer Foods announced the second phase of its B-BBEE strategy and
proposed to broaden black ownership in the Group by means of a specific issue of ordinary shares to strategic BEE
partners, current and former black directors (collectively, "BEE Investors") and a perpetual BEE Trust ("BEE Trust")
founded by the Company.
In terms of the transaction 18,091,661 Pioneer Foods ordinary shares were issued to the BEE Investors and listed on
19 March 2012 on the JSE. A further 10,599,988 Pioneer Foods ordinary shares were issued to the BEE Trust and listed
on the JSE on 26 April 2012. Following the implementation of the transaction the BEE Investors and the BEE Trust held
direct equity interests in the Group of approximately 8.5% and 5.0% respectively, after adjusting for the treasury
shares (17,982,056) held by a Group subsidiary.
In terms of the transaction 17,488,631 ordinary shares were issued to strategic BEE partners at a subscription price
of R55.14 per share and 603,030 ordinary shares to current and former black directors of the Company at a subscription
price of R58.04 per share. The subscription price for these share issues was mainly financed by Pioneer Foods' wholly
owned subsidiary, Pioneer Foods (Pty) Ltd, and by third-party funding from Rand Merchant Bank, a division of FirstRand
Bank Ltd ("RMB"). The strategic BEE partners contributed 10% of the subscription price. The current and former black
directors of the Company did not contribute to the subscription price.
As a result Pioneer Foods received net cash of R546 million after the initial contribution for the subscription price
from the strategic BEE partners and the financiers of the transaction. For the first seven years these newly listed
shares will be treated as treasury shares in terms of IFRS accounting principles, with a minimal impact on earnings
except for the impact of dilution on earnings per share. The exception is the recognition of the once-off non-cash flow
share-based payment charge in terms of IFRS that amounted to R161 million.
For further detail relating to the transaction, stakeholders are referred to the Company's circular to shareholders dated
19 January 2012 and to the Company's subsequent SENS announcements regarding the transaction.
5. Borrowings
RMB provided the third-party funding amounting to R449,679,606 for the specific issue of ordinary shares to BEE Investors
as part of the B-BBEE equity transaction. This financial assistance occurred via separate BEE special purpose vehicles
("SPVs") for each BEE investor. In order to give effect to the financial assistance provided, these SPVs issued variable
rate cumulative A preference shares to RMB at a dividend rate of 82.5% of the prime interest rate. Preference shares are
treated as borrowings and the related dividends as interest in terms of IFRS accounting principles.
The results and financial positions of these SPVs are consolidated with those of the Group in terms of IFRS. The Group's
non-current borrowings therefore increased with the amount of the third-party funding.
No other material new borrowings were concluded during the period under review. Other changes in borrowings mainly reflect
repayments made in terms of agreements. Short-term borrowings fluctuate in accordance with changing working capital needs.
6. Events after the reporting date
6.1 Dividend
The Board approved a gross final dividend of 70.0 cents (2012: gross interim dividend of 44.0 cents and 2011: gross final
dividend of 40.0 cents) per ordinary share. This will approximately amount to R153,800,149 (2012: interim of R96,632,257
and 2011: final of R80,517,477) depending on the exact number of ordinary shares issued at the record date. In addition,
the 10,599,988 Pioneer Foods shares issued to the BEE Trust during April 2012, will receive 20% of the dividend payable,
i.e. 14.0 cents (2012: interim of 8.8 cents) per share, amounting to R1,483,998 (2012: interim of R932,799).
The Board approved a gross final dividend of 21.0 cents (2012: gross interim dividend of 13.2 cents and 2011: gross final
dividend of 12.0 cents) per class A ordinary share, being 30% of the dividend payable to the other class ordinary
shareholders in terms of the rules of the relevant employee scheme. This will approximately amount to R1,721,605 (2012:
interim of R1,113,817 and 2011: final of R1,063,566) depending on the exact number of class A ordinary shares issued at
the record date.
Additional information disclosed:
These dividends are declared from income reserves and qualify as a dividend as defined in the Income Tax Act, Act 58 of
1962.
Dividends will be paid net of dividend tax of 15%, to be withheld and paid to the South African Revenue Services by the
Company. Such tax must be withheld unless beneficial owners of the dividend have provided the necessary documentary proof
to the relevant regulated intermediary that they are exempt therefrom, or entitled to a reduced rate as result of the
double taxation agreement between South Africa and the country of domicile of such owner.
The total credits for secondary tax on companies utilised as part of this declaration amount to Rnil. The net dividend
amounts to 59.50 cents per ordinary share and 17.85 cents per class A ordinary share for shareholders liable to pay
dividend tax. The net dividend amounts to 70.0 cents per ordinary share and 21.0 cents per class A ordinary share for
shareholders exempt from paying dividend tax.
The number of issued ordinary shares and issued class A shares is 230,341,006 and 8,127,280 respectively as at the date
of this declaration.
6.2 Other material events
The following transactions to acquire businesses are in progress at the date of approval of the annual financial
statements by the Board:
· Lemoenkloof Layer Farm assets and liabilities for an amount of R44 million plus the carrying values of biological
assets and inventories.
· DFC Breeders Farm assets and liabilities for an amount of R40 million plus the carrying values of biological assets
and inventories.
· DFC Broilers Farm assets and liabilities for an amount of R77.5 million plus the carrying values of biological assets
and inventories.
The Board approved the transactions as indicated above. The acquisition dates still have to be finalised as not all
suspensive conditions have been met.
There have been no other material events requiring disclosure after the reporting date and up to the date of approval of
abridged annual financial statements by the Board.
7. Business combinations
During the year under review the following businesses were acquired and all assets and liabilities relating to these
acquisitions have been accounted for on an acquisition basis:
Audited
year ended
30 September
2012
Philadelphia Chick Breeders (Pty) Ltd (on 29 February 2012)
Purchase consideration settled in cash (R'm) 10.0
Reason for acquisition
Enhance the value chain by acquisition of broiler egg production capacity
Lohmann Breeding SA (Pty) Ltd (on 1 August 2012)
Purchase consideration settled in cash (R'm) 4.2
Fair value of previously held interest in joint venture (R'm) 4.2
8.4
Reason for acquisition
Expand interest in the breeding of layer parent stock
Hartebeestpoort Rearing and Hatchery (on 1 August 2012)
Purchase consideration settled in cash (R'm) 11.3
Outstanding purchase consideration (R'm) 22.0
33.3
Reason for acquisition
Extending the rearing and hatchery business to Gauteng
Reason for goodwill paid
Goodwill resulted from the recognition of deferred income tax on property, plant and equipment due to the
business combination
The assets and liabilities acquired of these businesses can be summarised as follows:
Fair value (R'm)
Property, plant and equipment 70.3
Goodwill 5.6
Inventories 0.9
Current biological assets 13.6
Trade and other receivables 5.5
Non-current borrowings (20.8)
Cash and cash equivalents (11.3)
Trade and other payables (3.5)
Deferred income tax (8.6)
51.7
Purchase consideration settled in cash (R'm) 25.5
Fair value of previously held interest in joint venture (R'm) 4.2
Outstanding purchase consideration (R'm) 22.0
51.7
Carrying value
As the Group acquired the assets and liabilities of the Hartebeestpoort Rearing and Hatchery business rather than the
shares of the legal entity that previously owned such assets and liabilities, it is impracticable to disclose the
carrying amounts in the accounting records of the previous owners prior to the acquisition. In these circumstances the
Group does not have access to such carrying values.
The carrying amounts of the assets and liabilities in the accounting records of the Philadelphia Chick Breeders (Pty) Ltd
and Lohmann Breeding SA (Pty) Ltd legal entities acquired are equal to the fair values except for property, plant and
equipment. The fair values exceed the carrying values by R21.1 million and as a result a deferred income tax credit of
R4.8 million has been provided for on this excess.
The contribution of these businesses since acquisition (R'm):
Revenue 28.5
Operating profit before finance cost and income tax 0.2
The pro forma contributions of these businesses assuming the acquisitions were at the beginning
of the year (R'm):
Revenue 71.2
Operating profit before finance cost and income tax 2.7
8. Contingent liabilities
8.1 Land claims
Regional Land Claim Commissioners acknowledged claims against the land of a Group company in terms of the provisions of
sections 2 and 11 of the Restitution of Land Rights Act of 1994 (as amended), during 2007.
The valuations of the Commissioners were accepted for the two farms involved and negotiations with the Commissioners
regarding the proposed sale for R10.5 million are ongoing. The impact of discontinuing production at these two units is
immaterial.
It is not anticipated that any material transactions will arise from these land claims.
8.2 Dispute with egg contract producers
Since the previous reporting period, settlements were negotiated with the two egg contract producers that had the largest
claims. These settlements had no adverse financial impact on the Group.
The claims from the remaining four contract egg producers are still unresolved.
Pioneer Foods filed pleas to all these claims and in two of these claims counterclaims have been filed to recover damages
suffered by Pioneer Foods as a result of breach of contract by the contract producers.
Management remains convinced, based on legal advice regarding the merits of the claims against the Group, that the Group
will not incur any material liability in respect of this matter.
8.3 Dispute with broiler farms and breeder farms
Several breeder farms and broiler farms (four in total) also filed claims against Pioneer Foods for the alleged breach of
the terms of their supply agreements with Pioneer Foods.
Only letters of demand have been received thus far and these claims should eventually be finalised by means of
arbitration. No date has been set for the arbitration proceedings.
Based on legal advice regarding the merits of this claim and at this early stage of the proceedings, management is
convinced that the Group will not incur any material liability in respect of these matters.
8.4 Class action
The Supreme Court of Appeal ("SCA") held hearings on 6 November 2012 on the distributor matter and on 7 November 2012
on the consumer matter. These proceedings are a result of the appeals launched by the distributors and the consumers
in their applications for class certification.
The certification applications are a preliminary means for instituting class actions for damages against Pioneer Foods
(Pty) Ltd, Tiger Brands Ltd and Premier Foods (Pty) Ltd relating to previous conduct of these firms in relation to bread,
in contravention of the Competition Act, 1998.
The SCA must still deliver judgement in this matter. Based on legal advice, no provision has been raised for potential
damages in these matters as management is convinced that no material liability will arise from these claims.
8.5 Guarantees
The Group had guarantees in issue of R50.0 million (30 September 2011: R75.9 million) as at 30 September 2012, primarily
for loans by third parties to contracted suppliers.
As part of the financial assistance provided by RMB to BEE Investors in terms of the B-BBEE equity transaction, Pioneer
Foods (Pty) Ltd provided RMB with a guarantee amounting to R100 million.
9. Future capital commitments
Capital expenditure approved by the Board and contracted for amount to R818.4 million (30 September 2011: R608.0 million).
Capital expenditure approved by the Board, but not contracted for yet, amounts to R471.0 million (30 September 2011:
R163.9 million). Capital commitments of joint ventures amount to R45.3 million (30 September 2011: R29.2 million).
10. Preparation of financial statements
These abridged annual financial statements have been prepared under the supervision of LR Cronjé, CA(SA), Group financial
director.
11. Audit
The external auditors, PricewaterhouseCoopers Inc., have audited the Group's annual financial statements for the year
ended 30 September 2012 and their unqualified auditor's report is available for inspection at the registered office of
the Company.
The Groups auditors have not reviewed nor reported on any of the comments relating to prospects.
Directors:
ZL Combi (Chairman), WA Hanekom (Managing)*, TA Carstens*, LR Cronjé*, N Celliers, MM du Toit, AE Jacobs, Prof ASM Karaan,
NS Mjoli-Mncube, G Pretorius, LP Retief, AH Sangqu, (* Executive)
Company secretary: J Jacobs E-mail: jjacobs3@pioneerfoods.co.za
Registered address: 32 Market Street, Paarl, 7646, PO Box 20, Huguenot, 7645, South Africa
Tel: 021 807 5100 Fax: 021 807 5280 E-mail: info@pioneerfoods.co.za
Transfer secretaries: Computershare Investor Services (Pty) Ltd, PO Box 61051, Marshalltown, 2107, South Africa
Tel: 011 370 5000 Fax: 011 688 5209
Sponsor: PSG Capital (Pty) Ltd, PO Box 7403, Stellenbosch, 7599, South Africa
Tel: 021 887 9602 Fax: 021 887 9624
Date: 26/11/2012 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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