Wrap Text
Unaudited condensed consolidated interim financial statements for the six months ended 31 March 2013
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)
Unaudited condensed consolidated interim financial statements for the six months ended 31 March 2013
PIONEER FOODS SALIENT FEATURES
- Revenue up 11% to R10 billion
- Interim gross dividend per listed ordinary share 46 cents (2012: 44 cents) up 5%
- Operating profit (before items of a capital nature) up 11% to R517 million
- Adjusted operating profit (before items of a capital nature)* down 7% to R582 million
- Earnings per share up 39% to 181 cents
- Headline earnings per share up 38% to 182 cents
- Adjusted headline earnings* down 0.1% to R393 million
- Adjusted headline earnings per share* down 0.6% to 218 cents
- Net asset value per share up 8% to 3 538 cents
* Headline earnings and operating profit (before items of a capital nature) adjusted for the once-off IFRS 2 share-based payment charge
of R161 million on the Phase II B-BBEE equity transaction (corresponding period only) and the IFRS 2 share-based payment charge of the
Phase I B-BBEE transaction
Phil Roux, CEO of Pioneer Foods, commented:
Today we report on the results for the half year to March, which precede my appointment as chief executive officer from April. Top line
growth has been fair in most categories. Margins compressed as pricing under-recovered input cost pressure; particularly in grains,
broilers and eggs, given that volume preservation was a key consideration amidst constrained consumer spending.
Cost management and efficiency improvements from value chain re-engineering initiatives contained cost-per-unit increases below inflation.
Ceres Beverages and Bokomo Foods achieved pleasing results and improved profitability.
A heightened focus on revenue growth management supported by brand revitalisation and innovation, together with resetting the cost base
and the repositioning of the operating model in the short to medium term, will be key to enhancing the Groups profitability and overall
competitiveness."
Enquiries:
Pioneer Foods: +27 21 807 5100
Phil Roux: +27 73 306 4804, proux@pioneerfoods.co.za
Leon Cronjé: +27 82 801 7772, lcronje@pioneerfoods.co.za
CapitalVoice: Johannes van Niekerk +27 82 921 9110
COMMENTARY
Group overview
Group revenue increased by 11% to R10.2 billion for the six months under review with growth in volumes contributing some 6% and the average
price inflation in the groups product basket the balance of 5%.
Cost of goods sold increased by 13% largely as a consequence of rising raw material prices. Gross margins declined by 1.6% to 27.3%.
Other direct and indirect costs increased by 6% over the comparative period due to effective cost management and improved production
efficiencies, notwithstanding sustained increases in transport, energy and labour.
The financial results have been impacted by the IFRS 2 share-based payment (IFRS 2) charges relating to the Phase I (2006) and Phase II
(2012) broad-based black economic empowerment ("B-BBEE") transactions. The IFRS 2 charge for the cash-settled Phase I B-BBEE transaction
impacts the results due to the movement in the Group's share price in the respective reporting periods, resulting in an increased provision
of R65 million in the statement of comprehensive income for the current reporting period.
The IFRS 2 charge related to the implementation of the Phase II B-BBEE transaction amounted to a once-off, non-cash flow charge of R161
million in the statement of comprehensive income for the comparative period to 31 March 2012.
Results have been adjusted to reflect the performance of the Group, excluding the impact of the IFRS 2 charges in the respective
reporting periods.
Operating profit, before items of a capital nature, and adjusted by R65 million for the IFRS 2 charge, declined by 7% to R582 million due to
the under-recovery of rising input costs in the grains, broiler and egg businesses. The operating profit margin contracted from 6.8% to 5.7%
as a result.
Adjusted headline earnings was unchanged at R393 million which results in a decrease of 0.6% to 218 cents per share.
The investment in working capital increased by R608 million during the six months to 31 March 2013, largely as a result of inventory
increasing by R147 million from seasonal procurement spend and debtors increasing by R366 million from increased selling prices and the later
recognition of certain trade payments.
Capital spend during the period under review amounted to R805 million with R102 million directed at maintenance capital. Expansionary capital
of R703 million was spent of which R231 million accrued to the building of the Shakaskraal bakery in Stanger and the upgrade of the
Malmesbury mill. A sum of R171 million was spent to expand facilities in broilers and eggs to optimise scale and efficiency. Furthermore, an
investment in Africa, through the acquisition of the business of Mega Eggs in Zambia, amounted to R144 million.
Capital spend for the remainder of the financial year will be limited to maintenance capital and progress payments on the expansionary
projects. Total projected capital spend for the 2013 financial year is around R1 100 million and should mark the completion of the current
capital expansion programme.
The net debt (excluding third-party funding related to the Phase II B-BBEE transaction) on the reporting date amounted to R1 648 million
(2012: R813 million) or 26% debt to equity. The syndicated loan facility of the past five years terminates in September 2013 and all
outstanding syndicated term debt, inclusive of a bullet loan repayment of R600 million, is therefore included in borrowings of R1 849 million
included in current liabilities. The debt package is in process of being refinanced and all existing syndication members have indicated
their interest in participating in the refinancing structure.
Sasko
Sasko delivered a financial performance below that of the previous year. Revenue grew by 10% to R5 283 million, with volumes
increasing by 4% across the product basket. However, operating profit declined by 19% to R364 million despite the improved volume base as
price realisations fell short in recovering rising input costs. The increase in total operating cost was contained below inflation.
Weak consumer demand and consequent competitor pressure contributed to a challenging price/volume/margin management environment with
resultant weaker profitability in the bread, maize and rice product categories. Performance in the wheat flour and pasta product categories
improved year-on-year.
Profitability contracted in a declining maize category, notwithstanding increased volumes. Marginally lower bread volumes mainly contributed
to the weaker performance in the bread category. Performance in the rice category continues to be negatively impacted by the significant
price spread between rice from Thai and Indian origin.
Bokomo Foods
Bokomo Foods performed well during the first six months, increasing revenue by 14% to R1 673 million and operating profit by 19% to
R142 million. This good performance was driven by volume growth in most categories with some margin sacrifice, given price restraint amid
raw material increases. Costs increases on a per unit basis were negligible given rigorous cost management and improved efficiency.
Cereal volumes increased by 4% which is ahead of the market growth. Corn flakes performed better than expected, with encouraging export
volumes. Biscuits achieved pleasing volume growth of 59% off a low base ahead of category growth. Biscuit profitability remains challenged.
The UK cereals business achieved relatively strong volume growth of 21% in a depressed market with price deflation of some 1%.
Bokomo Foods expects continued volume growth and profit improvement in the second half of the year.
Quantum Foods (formerly Agri Business)
Quantum Foods experienced a very challenging operating environment for the period under review. Although revenue increased by 16% to
R1 770 million, an operating loss of R33 million was recorded. Raw material prices remained high and could not be fully recovered in
sales prices.
Broiler prices remained suppressed by the significant volume of imported chicken, while egg prices were subdued by high layer numbers.
Broiler production is being scaled back in the Western Cape to provide optimal efficiency. The egg market is expected to revert to improved
longer-term profitability over the next six to twelve months as supply volumes contract.
The feeds business performed well. External sales volumes increased by 8% and operating margins were maintained.
The acquisition of Mega Eggs, a leading egg producer in Zambia, in March 2013 will provide a foothold in the lucrative Zambian market.
It is important to note that should the loss-making status of the broiler business remain unchanged in the absence of tariff protection on
the import of chicken by the financial year-end, an impairment of the asset base of the broiler business is likely.
Ceres Beverages
A substantial improvement in profitability was achieved in the reporting period. Revenue increased by 4% to R1 610 million and operating
profit increased by 97% to R169 million. The key contributing factors were price and cost management as well as the benefits of efficiency
gains consequent to the distribution network optimisation and new manufacturing architecture.
Fruit juice volumes in the local market declined in double digits due to cost recovery in price taking precedence. International volumes were
particularly pleasing, growing in double digits.
The carbonated soft drinks category remained under pressure given aggressive competitor activity and pricing. Volumes in total remained
unchanged while Pepsi volumes declined slightly. The ice tea category continues to perform well although competitor activity has increased
with the emergence of new entrants. Fruit concentrate volumes were under pressure in a very competitive environment.
The business will continue to focus on enhancing efficiencies, while recovering lost volume.
Outlook
Trading across the Groups product categories is expected to be challenging for the rest of the year as consumer spend remains constrained.
The judicious management of price points and margins amid volatile input costs will be key. Resetting the cost base, an optimal operating
model and efficiency focus are central to enhancing profitability and competitiveness.
Interim dividend
A gross interim dividend of 46 cents (2012: 44 cents) per share has been approved and declared by the Board. The applicable dates are as follows:
Last date of trading cum dividend Friday, 28 June 2013
Trading ex dividend commences Monday, 1 July 2013
Record date Friday, 5 July 2013
Dividend payable Monday, 8 July 2013
A gross interim dividend of 13.8 cents (2012: 13.2 cents) per class A ordinary share, being 30% of the gross interim dividend payable to
ordinary shareholders in terms of the rules of the relevant employee scheme, will be paid during July 2013.
Share certificates may not be dematerialised or rematerialised between Monday, 1 July 2013 and Friday, 5 July 2013, both days inclusive.
By order of the Board
ZL Combi PM Roux
Chairman CEO
Paarl, 16 May 2013
GROUP STATEMENT OF COMPREHENSIVE INCOME
Unaudited Audited
Six months ended Year ended
31 March 30 September
2013 2012 2012
Rm Rm Rm
Revenue 10 163.4 9 193.2 18 609.8
Cost of goods sold (7 389.7) (6 538.1) (13 390.5)
Gross profit 2 773.7 2 655.1 5 219.3
Other income and gains/(losses) net 95.1 135.6 220.2
Other expenses (2 351.6) (2 323.5) (4 402.7)
Excluding the following share-based payment charges: (2 286.8) (2 166.3) (4 277.6)
Phase I B-BBEE transaction (64.8) 3.5 35.6
Once-off on Phase II B-BBEE equity transaction (160.7) (160.7)
Items of a capital nature (4.4) (2.1) (5.4)
Operating profit 512.8 465.1 1 031.4
Investment income 11.5 9.0 20.5
Finance costs (52.3) (70.4) (136.6)
Share of profit of associated companies 0.8 0.2 1.3
Profit before income tax 472.8 403.9 916.6
Income tax expense (146.2) (169.2) (311.9)
Profit for the period 326.6 234.7 604.7
Other comprehensive income/(loss) for the period
Items that may subsequently be reclassified to profit or loss: 47.9 (13.4) (5.5)
Fair value adjustments to cash flow hedging reserve 16.3 (9.6) (16.4)
For the period (29.9) 37.7 43.8
Current income tax effect 8.5 (10.5) (12.1)
Deferred income tax effect (0.2) (0.1) (0.2)
Reclassified to profit or loss 52.7 (51.0) (66.5)
Current income tax effect (14.9) 16.8 21.1
Deferred income tax effect 0.1 (2.5) (2.5)
Fair value adjustments on available-for-sale financial assets 5.4 5.8 5.8
For the period 10.3 6.3 8.1
Deferred income tax effect (1.5) (0.1) (1.2)
Reclassified to profit or loss (3.4) (0.4) (1.1)
Movement on foreign currency translation reserve 26.2 (9.6) 5.1
Total comprehensive income for the period 374.5 221.3 599.2
Profit for the period attributable to:
Owners of the parent 325.7 233.7 603.6
Non-controlling interest 0.9 1.0 1.1
326.6 234.7 604.7
Total comprehensive income for the period attributable to:
Owners of the parent 373.6 220.3 598.1
Non-controlling interest 0.9 1.0 1.1
374.5 221.3 599.2
HEADLINE EARNINGS RECONCILIATION
Unaudited Audited
Six months ended Year ended
31 March 30 September
2013 2012 2012
Rm Rm Rm
Reconciliation between profit attributable to owners of
the parent and headline earnings
Profit attributable to owners of the parent 325.7 233.7 603.6
Remeasurement of items of a capital nature 4.4 2.1 5.4
Net (profit)/loss on disposal of property, plant, equipment
and intangible assets (6.6) 2.6 10.4
Net profit on disposal of available-for-sale financial assets (3.4) (0.5) (1.1)
Remeasurement profit on previously held interest in joint venture (3.9)
Impairment of property, plant, equipment and intangible assets 14.4
Tax effect on remeasurement of items of a capital nature (2.4) (2.8)
Headline earnings 327.7 235.8 606.2
Phase I B-BBEE transaction share-based payment charge 64.8 (3.5) (35.6)
Phase II B-BBEE equity transaction once-off share-based payment charge 160.7 160.7
Adjusted headline earnings (note 1) 392.5 393.0 731.3
Number of issued ordinary shares (million) 230.8 219.5 230.3
Number of issued treasury shares:
held by subsidiary (million) 18.0 18.0 18.0
held by share incentive trust (million) 1.9 3.2 2.5
held by B-BBEE equity transaction participants (million) 18.1 18.1 18.1
held by BEE trust (million) 10.6 10.6
Number of issued class A ordinary shares (million) 7.8 8.7 8.2
Weighted average number of ordinary shares (million) 180.2 179.4 179.9
Earnings per ordinary share (cents):
basic 180.7 130.2 335.6
diluted 177.9 127.9 331.0
headline 181.8 131.4 337.0
diluted headline 179.1 129.0 332.5
adjusted headline (note 1) 217.8 219.1 406.6
diluted adjusted headline (note 1) 214.5 215.1 401.1
Gross dividend per ordinary share (cents) 46.0 44.0 114.0
Gross dividend per class A ordinary share (cents) 13.8 13.2 34.2
Net asset value per ordinary share (cents) 3 537.5 3 265.5 3 415.3
Debt to equity ratio (%) 32.5 21.5 16.1
Note 1
Headline earnings (HE) is calculated based on Circular 3/2012 issued
by the South African Institute of Chartered Accountants. Adjusted HE is
defined as HE adjusted for material once-off occurrences. During the
2012 reporting period HE was adjusted for the effect of the once-off
share-based payment charge recognised in terms of the Phase II B-BBEE equity
transaction. During the current reporting period management has revised
the definition of adjusted HE to also exclude the impact of the share-based
payment B-BBEE Phase I transaction on profit or loss due to the volatility
of this share-based payment charge. As a result the previously reported
adjusted HE and diluted adjusted HE have been restated. The adjusted HE
and diluted adjusted HE (cents per ordinary share) were previously reported
as:
adjusted headline earnings 221.0 426.4
diluted adjusted headline earnings 217.0 420.6
GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Audited
31 March 30 September
2013 2012 2012
Rm Rm Rm
Assets
Property, plant and equipment 5 234.6 4 372.0 4 641.5
Goodwill 301.0 264.5 271.9
Other intangible assets 474.1 464.7 464.3
Biological assets 16.0 16.8 16.0
Investments in associates and loans to joint ventures 52.9 27.8 56.9
Available-for-sale financial assets 61.2 50.4 52.8
Trade and other receivables 21.0 19.8 20.4
Deferred income tax 4.7 2.6 2.7
Non-current assets 6 165.5 5 218.6 5 526.5
Current assets 5 527.7 5 156.5 5 079.6
Inventories 2 597.5 2 430.7 2 450.0
Biological assets 295.8 223.5 228.7
Derivative financial instruments 8.3 9.8 6.8
Trade and other receivables 2 386.5 1 951.5 2 014.3
Current income tax 1.0 8.9 4.2
Cash and cash equivalents 238.6 532.1 375.6
Total assets 11 693.2 10 375.1 10 606.1
Equity and liabilities
Capital and reserves attributable to owners of the parent 6 447.5 5 884.5 6 184.9
Share capital 23.1 21.9 23.0
Share premium 2 195.2 2 170.3 2 171.8
Treasury shares (1 199.3) (1 212.9) (1 207.5)
Other reserves 382.0 356.3 350.3
Retained earnings 5 046.5 4 548.9 4 847.3
Non-controlling interest 9.1 8.5 8.2
Total equity 6 456.6 5 893.0 6 193.1
Non-current liabilities 1 486.4 2 080.5 1 377.5
Borrowings
B-BBEE equity transaction third-party finance 449.7 449.7 449.7
Other 37.0 745.3 48.0
Provisions for other liabilities and charges 123.3 117.2 119.2
Share-based payment liability 171.4 141.4 108.2
Deferred income tax 705.0 626.9 652.4
Current liabilities 3 750.2 2 401.6 3 035.5
Trade and other payables 1 870.2 1 581.8 1 933.0
Current income tax 15.6 5.9 4.7
Derivative financial instruments 9.1 0.2 3.1
Borrowings 1 849.3 599.8 871.7
Loan from joint venture 5.6 3.5 7.0
Accrual for Competition Commission penalties 209.9 215.5
Dividends payable 0.4 0.5 0.5
Total equity and liabilities 11 693.2 10 375.1 10 606.1
GROUP STATEMENT OF CASH FLOWS
Unaudited Audited
Six months ended Year ended
31 March 30 September
2013 2012 2012
Rm Rm Rm
Net cash profit from operating activities 770.1 786.6 1 514.9
Cash effect from hedging activities 22.8 (22.6) (32.2)
Working capital changes (607.5) (510.6) (266.2)
Accrual for Competition Commission penalties paid (216.7) (216.7) (216.7)
Net cash generated from operations (31.3) 36.7 999.8
Income tax paid (106.9) (135.7) (257.7)
Net cash flow from operating activities (138.2) (99.0) 742.1
Net cash flow from investment activities (770.7) (324.4) (753.0)
Property, plant, equipment and intangible assets
additions (387.4) (233.4) (559.9)
replacements (102.2) (95.1) (174.1)
proceeds on disposal 17.6 7.0 14.0
Business combinations (315.0) (10.0) (25.5)
Proceeds on disposal of and changes in available-for-sale
financial assets and loans 4.4 (1.9) (28.0)
Interest received 10.7 8.4 19.1
Dividends received 0.8 0.6 1.4
Dividends received from associates 0.4
Net cash flow from financing activities (318.8) 286.8 44.6
Proceeds from borrowings third-party finance of
B-BBEE equity transaction 449.7 449.7
Repayments of other borrowings (124.1) (109.7) (211.4)
Net contribution by participants to B-BBEE equity transaction 93.2 92.3
Share schemes transactions (4.7) (10.5) (14.9)
Interest paid (62.3) (64.0) (119.7)
Dividends paid (127.7) (71.9) (151.4)
Net cash, cash equivalents and bank overdrafts from business combinations (11.3) (11.3)
Net (decrease)/increase in cash, cash equivalents and bank overdrafts (1 227.7) (147.9) 22.4
Net cash, cash equivalents and bank overdrafts at beginning of period 368.1 345.7 345.7
Net cash, cash equivalents and bank overdrafts at end of period (859.6) 197.8 368.1
GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited Audited
Six months ended Year ended
31 March 30 September
2013 2012 2012
Rm Rm Rm
Share capital, share premium and treasury shares 1 019.0 979.3 987.3
Opening balance 987.3 986.5 986.5
Cost to issue ordinary shares to participants in B-BBEE equity transaction (3.2) (4.1)
Movement in treasury shares 8.3 6.7 13.1
Ordinary shares issued share appreciation rights 36.6 7.9 22.8
Employee share scheme repurchase of shares (13.2) (18.6) (31.0)
Other reserves 382.0 356.3 350.3
Opening balance 350.3 115.2 115.2
Contribution by participants to B-BBEE equity transaction 96.4 96.4
Once-off share-based payment charge on B-BBEE equity transaction 160.7 160.7
Transfers from/(to) retained earnings 1.3 (4.5)
Equity compensation reserve transactions 6.7 5.5 13.8
Ordinary shares issued share appreciation rights (36.6) (7.9) (22.8)
Deferred income tax on share-based payments 13.7 (1.5) (3.0)
Other comprehensive income/(loss) for the period 47.9 (13.4) (5.5)
Retained earnings 5 046.5 4 548.9 4 847.3
Opening balance 4 847.3 4 386.6 4 386.6
Profit for the period 325.7 233.7 603.6
Dividends paid (127.5) (72.0) (151.5)
Transfers (to)/from other reserves (1.3) 4.5
Management share incentive scheme disposal of shares 1.1 2.0 4.3
Employee share scheme transfer tax on share transactions (0.1) (0.1) (0.2)
Non-controlling interest 9.1 8.5 8.2
Opening balance 8.2 7.5 7.5
Dividend paid (0.4)
Profit for the period 0.9 1.0 1.1
Total equity 6 456.6 5 893.0 6 193.1
GROUP SEGMENT REPORT
Unaudited Audited
Six months ended Year ended
31 March 30 September
2013 2012 2012
Rm Rm Rm
Restated Restated
Segment revenue
Sasko 5 283.4 4 796.3 9 940.4
Quantum Foods 1 769.5 1 526.5 3 097.6
Bokomo Foods 1 672.9 1 468.3 3 071.6
Ceres Beverages 1 610.2 1 549.0 2 798.2
10 336.0 9 340.1 18 907.8
Less: Internal revenue (172.6) (146.9) (298.0)
Total 10 163.4 9 193.2 18 609.8
Segment results
Sasko 363.8 451.5 941.6
Quantum Foods (32.6) 16.8 (42.3)
Bokomo Foods 141.5 118.9 263.8
Ceres Beverages 169.0 85.7 88.3
Other (59.7) (48.5) (89.5)
582.0 624.4 1 161.9
Phase I B-BBEE transaction share-based payment charge (64.8) 3.5 35.6
Phase II B-BBEE equity transaction once-off share-based payment charge (160.7) (160.7)
Operating profit before items of a capital nature 517.2 467.2 1 036.8
Reconciliation of operating profit (before items of a capital nature)
to profit before income tax
Operating profit before items of a capital nature 517.2 467.2 1 036.8
Adjusted for:
Remeasurement of items of a capital nature (4.4) (2.1) (5.4)
Interest income 10.7 8.4 19.1
Dividends received 0.8 0.6 1.4
Finance costs (52.3) (70.4) (136.6)
Share of profit of associated companies 0.8 0.2 1.3
Profit before income tax 472.8 403.9 916.6
The chief operating decision-maker has excluded the share-based payment
charge in respect of the Phase I broad-based employee share incentive
scheme from segment results since the first half of the previous
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:
Decrease in operating profit before items of a capital nature
Sasko (2.0)
Quantum Foods (0.6)
Bokomo Foods (0.6)
Other (0.3)
Total (3.5)
From the beginning of the current reporting period the chief operating
decision-maker reviewed the operating results of the Bokomo Zambia and
Bokomo Uganda businesses as part of the Quantum Foods segment. The nature
of these businesses are more aligned with the Quantum Foods segment as
their operations predominantly include the production of animal feeds
and the production and sale of commercial eggs and day-old chicks. As a
result the previously reported segment revenue and results have been
restated. Refer below for the effect of this restatement:
(Decrease)/increase in segment revenue
Sasko (27.8) (61.2)
Quantum Foods 27.8 61.2
Total
(Decrease)/increase in operating profit before items of a capital nature
Sasko (3.1) (6.4)
Quantum Foods 3.1 6.4
Total
The Agri Business segment has been renamed as Quantum Foods since the
previous reporting period.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
These unaudited interim results of the Group for the six months ended 31 March 2013 have been prepared in accordance with International
Financial Reporting Standards (IFRS), the Listings Requirements of the JSE Ltd and the Companies Act of South Africa, Act 71 of 2008,
as amended. These condensed consolidated interim financial statements comply with the requirements of IAS 34 Interim Financial
Reporting.
2. Accounting policies
These condensed consolidated interim financial statements incorporate accounting policies that are consistent with those applied in
the Groups 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 2012:
Amendment to IAS 1 Presentation of Financial Statements
Amendment to IAS 12 Amendment to IAS 12: Deferred tax: Recovery of Underlying Assets
The adoption of these amendments to standards and interpretations did not have any material impact on the Groups results and cash flows
for the six months ended 31 March 2013 and the financial position at 31 March 2013.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying
the Groups accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated
financial statements for the year ended 30 September 2012, with the exception of those relating to the possible impairment of the
Quantum Foods segment:
The results of the broiler business as reported in the Quantum Foods segment have for a sustained period been negatively impacted by high
levels of cheap imports, impacting on local sales prices of chickens to the extent that this business was loss making in the reporting
period. In terms of IFRS this is a trigger event to assess the possibility of an impairment of this cash-generating unit. The recoverable
amount of a cash-generating unit is the higher of its fair value less costs to sell and its value-in-use. Determining whether goodwill is
impaired requires an estimation of the value-in-use of the cash-generating units to which goodwill has been allocated. The value-in-use
calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount
rate in order to calculate the present value of future cash flows. The South African Poultry Association (SAPA) continues with efforts in
tackling unfair trade practices surrounding the high levels of poultry imports by applying for import tariff protection at the regulatory
authorities. It is expected that clarity regarding potential import tariffs will be obtained later this year. Management is of the
opinion that if these import tariffs are imposed it will result in a positive impact on the operating results for Quantum Foods,
supporting a positive net present value.
To the contrary, should import tariffs not be approved in the near future, an impairment of this business is likely in the remainder of
the current reporting period ending 30 September 2013.
Unaudited Audited
Six months ended Year ended
31 March 30 September
2013 2012 2012
3. Share capital
During the period under review the following share
transactions occurred:
Number of listed issued and fully paid ordinary shares
At beginning of period 230 314 486 201 236 929 201 236 929
Shares issued in terms of employee share appreciation
rights scheme 526 261 129 480 385 908
Shares issued to participants of the B-BBEE equity transaction 18 091 661 18 091 661
Shares issued to the BEE Trust 10 599 988
At end of period 230 840 747 219 458 070 230 314 486
526,261 (30 September 2012: 385,908 and 31 March 2012: 129,480)
listed ordinary shares of 10 cents each were issued at an average
of R69.46 (30 September 2012: R59.20 and 31 March 2012: R61.11)
per share in terms of the share appreciation rights scheme.
Number of treasury shares held by the share incentive trust
At beginning of period 2 545 933 3 881 401 3 881 401
Movement in shares (640 916) (688 189) (1 335 468)
At end of period 1 905 017 3 193 212 2 545 933
Proceeds on the sale of treasury shares by the share
incentive trust (R000) 10 267 9 222 18 536
Number of treasury shares held by B-BBEE transaction participants
At beginning of period 18 091 661
Shares issued to participants of the B-BBEE equity transaction 18 091 661 18 091 661
At end of period 18 091 661 18 091 661 18 091 661
Number of treasury shares held by BEE Trust
At beginning of period 10 599 988
Shares issued to BEE Trust in terms of the B-BBEE
equity transaction 10 599 988
At end of period 10 599 988 10 599 988
Number of treasury shares held by a subsidiary
At beginning and end of period 17 982 056 17 982 056 17 982 056
Number of unlisted class A ordinary shares
At beginning of period 8 198 120 9 294 530 9 294 530
Shares bought back and cancelled (400 890) (631 120) (1 096 410)
At end of period 7 797 230 8 663 410 8 198 120
Purchase consideration paid for unlisted class A ordinary
shares bought back (R000) 13 199 18 649 30 967
4. Borrowings
No material new borrowings were concluded during the period under review. Changes in borrowings mainly reflect repayments made in terms
of agreements. Short-term borrowings fluctuate in accordance with changing working capital needs.
5. Events after the reporting date
5.1 Dividend
The Board approved and declared a gross interim dividend of 46.0 cents (2012: gross interim dividend of 44.0 cents and 2012: gross
final dividend of 70.0 cents) per ordinary share. This will approximately amount to R101,320,804 (2012: interim of R96,632,257
and 2012: final of R153,941,885) depending on the exact number of ordinary shares in issue at the record date. In addition, the
10,599,988 Pioneer Foods shares issued to the Pioneer Foods Broad-Based BEE Trust, will receive 20% of the dividend payable, i.e.
9.2 cents (2012: gross interim of 8.8 cents and 2012: gross final dividend of 14.0 cents) per share, amounting to R975,199 (2012:
interim of R932,799 and 2012: final of R1,483,998).
The Board approved a gross final dividend of 13.8 cents (2012: gross interim dividend of 13.2 cents and 2012: gross final dividend of
21.0 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 R1,066,464 (2012: interim of R1,113,817 and 2012: final of R1,665,819)
depending on the exact number of class A ordinary shares in issue 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 dividends 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 a 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
39.10 cents per ordinary share and 11.73 cents per class A ordinary share for shareholders liable to pay dividends tax. The net dividend
amounts to 46.0 cents per ordinary share and 13.8 cents per class A ordinary share for shareholders exempt from paying dividends tax.
The number of issued ordinary shares and issued class A shares is 230,862,605 and 7,728,000 respectively as at the date of this
declaration.
5.2 Other material events
There have been no other material events requiring disclosure after the reporting date and up to the date of approval of the condensed
consolidated interim financial statements by the Board.
6. Business combinations
During the period under review the following businesses were acquired and all assets and liabilities relating to these acquisitions have
been accounted for on an acquisition basis:
Unaudited
Six months
ended
31 March 2013
Darling Fresh Chickens Kikoesvlei Broiler Farm (on 8 January 2013)
Purchase consideration settled in cash (Rm) 75.8
Reason for acquisition
To increase own production capacity and to increase abattoir throughput.
Darling Fresh Chickens Langspruit Breeder Farm (on 23 October 2012)
Purchase consideration settled in cash (Rm) 44.3
Reason for acquisition
To increase own production capacity and to increase abattoir throughput.
Lemoenkloof Layer Farm (on 1 February 2013)
Purchase consideration settled in cash (Rm) 51.1
Reason for acquisition
Additional laying capacity in the Western Cape region.
Mega Eggs (on 20 March 2013)
Purchase consideration settled in cash (Rm) 143.8
Reason for acquisition
Expansion of Zambian business to extend the value chain from day-old-chicks to rearing of commercial layers to produce
commercial eggs for sale.
Reason for goodwill recognised on acquisitions
The purchase price paid for the businesses corresponded to the fair value of the tangible and intangible assets acquired.
However, in terms of the requirements of IAS 12 Income Taxes, deferred income tax was raised on the difference between
the fair values of individual assets and liabilities and the tax bases of those assets and liabilities recognised on
acquisition date of the business combinations. Consequently, the recognition of deferred income tax liabilities resulted
in a corresponding amount of R30.0 million accounted for as goodwill.
The assets and liabilities acquired of these businesses can be summarised as follows:
Fair value (Rm)
Property, plant and equipment 293.4
Goodwill 30.0
Inventories 1.1
Current biological assets 22.5
Trade and other payables (2.0)
Deferred income tax (30.0)
Purchase consideration settled in cash (Rm) 315.0
Carrying value
As the Group acquired the assets and liabilities of the businesses rather than the shares of the legal entities 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 contributions of these businesses since acquisition (Rm):
Revenue 53.8
Operating loss before finance cost and income tax (0.2)
The pro forma contributions of these businesses assuming the acquisitions were at the beginning of the period (Rm):
Revenue 151.6
Operating profit before finance cost and income tax 10.3
7. Contingent liabilities
7.1 Land claims
Regional Land Claim Commissioners acknowledged claims against two farms 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.
During the current reporting period one of the farms was sold for R3.4 million. As required by the Restitution of Land Rights Act,
30 days notice of the proposed sale was given to the Minister. The notice period expired early in May 2013 and the normal transfer
process has commenced.
For the remaining farm the valuation of the Commissioner was accepted and negotiations with the Commissioner are ongoing. The impact of
discontinuing production at this farm is immaterial.
It is not anticipated that any material transactions will arise from these land claims.
7.2 Dispute with egg contract producers
As previously reported, the claims from four contract egg producers are still unresolved.
Pioneer Foods filed pleas to all these claims and in two of these claims counter claims have been filed to recover damages suffered by
Pioneer Foods as a result of breach of contract by the contract producers. These matters are now proceeding to court for adjudication.
Management is of the view, 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.
7.3 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.
A further breeder farm has filed a claim against Pioneer Foods for the alleged breach of the terms of a shareholder agreement.
A preliminary hearing on the matter was held in March 2013 and the court case has been postponed until August 2013.
Based on legal advice regarding the merits of these claims management is of the view that the Group will not incur any material liability
in respect of these matters.
7.4 Class action
The Supreme Court of Appeal (SCA) held hearings on 6 November 2012 on the distributors matter and on 7 November 2012 on the consumer
matter, where a full bench had initially dismissed the appeal of the distributors and considerably narrowed the consumers' basis for a
class action.
Consumer matter:
The SCA held that certification is a prerequisite for the commencement of any class action and as a result, dismissed the appeal by the
consumers for a national class and the only remaining issue that was remitted back to the Western Cape High Court was whether the
consumers would be able to argue for a Western Cape Class. As a result, the SCA instructed the consumers to substantially amend their
papers in an attempt to seek certification anew before the Western Cape High Court and supplement their original High Court papers, based
on the guidelines set by the SCA.
The consumers have subsequently amended their papers and filed same in accordance with the judgement passed down by the SCA. Pioneer
Foods has elected not to oppose the supplemented application brought by the consumers and subsequently filed a notice indicating that
while the Group has made no admission of any facts or legal propositions in the amended certification application, Pioneer Foods would
not oppose the certification proceedings, but reserved its rights to defend the matter at trial. The other respondents (being Premier
Foods (Pty) Ltd and Tiger Brands Ltd) have filed their opposing papers on or about 30 April 2013 and consumers had to file any reply
to the opposition of the respondents by 14 May 2013. At the reporting date they have not filed same.
At the reporting date, the pleadings had as yet not closed and the matter is currently pending before the Western Cape High Court.
A date for hearing will only be confirmed once pleadings have closed.
Distributors matter:
As specified above, a full bench of the SCA dismissed the case of the distributors in November 2012. However, despite the unanimous
ruling of the SCA, the distributors had lodged an appeal with the Constitutional Court which was argued on 7 May 2013.
Seven pertinent points were argued by counsel for the applicants and respondents before the Justices presiding on the day. One of the
averments made by council was that the application for leave to appeal was irregular, and the distributors have subsequently submitted
their amended papers in an attempt to rectify the application for leave to appeal which the court advised was irregular.
At the time of reporting, the respondents in this matter have not responded to the amended papers which have been submitted by the
applicants. The Constitutional Court has reserved judgement in this matter.
Based on legal advice, no provision has been raised for potential damages in these matters as management is of the view that no material
liability will arise from these claims.
7.5 Guarantees
The Group had guarantees in issue of R41.3 million (30 September 2012: R50.0 million) as at 31 March 2013, primarily for loans by third
parties to contracted suppliers.
As part of the financial assistance provided by Rand Merchant Bank, a division of FirstRand Bank Ltd (RMB), to BEE Investors in
terms of the B-BBEE equity transaction concluded during 2012, Pioneer Foods (Pty) Ltd provided RMB with a guarantee amounting to
R100 million.
8. Impairment
During the reporting period Heinz Foods SA (Pty) Ltd, a joint venture of the Group, initiated formal consultation with Spartan Factory
employees regarding the contemplated closure of this factory. Although no final decision has been made, the contemplated closure of the
factory is an indicator of impairment. The recoverable amount of a cash-generating unit is the higher of its fair value less costs to sell
and value-in-use. As a result the carrying values of the goodwill and property, plant and equipment attributable to the Spartan factory
were impaired. The final decision regarding the closure of the factory will only take place after full and proper consultation with the
factory employees. The impairment charge of R11.1 million is recognised in the line item Items of a capital nature in the statement of
comprehensive income. The impairment charge attributable to property, plant and equipment and goodwill is as follows:
Nature Rm
Property, plant and equipment 12.4
Goodwill 2.0
Subtotal 14.4
Tax effect (3.3)
After tax effect 11.1
9. Future capital commitments
Capital expenditure approved by the Board and contracted for amount to R809.3 million (30 September 2012: R818.4 million).
Capital expenditure approved by the Board, but not contracted for yet, amount to R8.3 million (30 September 2012: R471.0 million).
Capital commitments of joint ventures amount to R10.0 million (30 September 2012: R45.3 million).
10. Preparation of financial statements
These condensed consolidated interim financial statements have been prepared under the supervision of LR Cronjé, CA(SA), Group
financial director.
11. Audit
These results have not been audited or reviewed by the external auditors.
Directors:
ZL Combi (Chairman), PM Roux (CEO)*, TA Carstens*#, LR Cronjé*, N Celliers, MM du Toit, AE Jacobs, Prof ASM Karaan, NS Mjoli-Mncube,
G Pretorius, LP Retief, AH Sangqu (* Executive) (# Stepped down as director on 16 May 2013)
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
20 May 2013
Date: 20/05/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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