Wrap Text
Summary Consolidated Financial Statements For The Year Ended 30 September 2016
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")
Summary consolidated financial statements for the year ended 30 September 2016
FINANCIAL HIGHLIGHTS
Continuing operations
Revenue* +12%
Adjusted operating profit** +6%
Adjusted operating profit margin** 11.0%
Adjusted headline earnings per share** +6%
Total dividend per share +10%
Salient features
Continuing operations:
Revenue* R20 600 million +12%
Adjusted operating profit (before items of a capital nature)** R2 273 million +6%
Adjusted headline earnings** R1 637 million +7%
Adjusted headline earnings per share** 883 cents +6%
Group:
Earnings R1 690 million +50%
Earnings per share 912 cents +49%
Diluted earnings per share 847 cents +50%
Headline earnings R1 676 million +37%
Headline earnings per share 904 cents +36%
Diluted headline earnings per share 840 cents +37%
Net asset value per share 4 239 cents +13%
Final gross dividend per listed ordinary share (2015: 237 cents) 260 cents +10%
Total gross dividend per listed ordinary share (2015: 332 cents) 365 cents +10%
Headline earnings ("HE") is calculated based on Circular 2/2015 issued by the South African Institute of Chartered Accountants.
* Excluding biscuits, Pepsi and Maitland Vinegar from the comparatives.
** HE and operating profit (before items of a capital nature) are adjusted for the share-based income/(charge), amounting to a gain of R23 million (2015: loss of R307 million), and the hedge gain, amounting to R22 million, of the
B-BBEE Phase I equity transaction due to the volatility of these transactions.
Pioneer Foods: + 27 21 974 4000
Phil Roux: + 27 73 306 4804 phil.roux@pioneerfoods.co.za
Commentary
INTRODUCTION
Pioneer Foods has managed to deliver a credible set of financial results due to the benefits and resilience of its brand portfolio.
Notwithstanding significant external discontinuities, revenue increased by 12% (excluding Pepsi, Biscuits and Maitland Vinegar which were disposed of in 2015).
The business had to contend with the severe impact of the drought on maize and other crops, exponential increase in the wheat import duty, rand volatility and resultant cost push in a weak consumer environment. Export revenue into the
rest of Africa came under pressure amidst severe currency devaluation to the ZAR, and the deterioration of in-country consumer spending power as a consequence.
The combined strength of the Group's brand portfolio and a sustained focus on cost management and extraction of efficiencies, assisted in mitigating the full effect of the aforementioned vagaries.
Essential Foods managed to improve its full year performance relative to the half year, whilst the Groceries and International Divisions delivered a commendable performance.
FINANCIAL PERFORMANCE
Continuing operations adjusted for:
- the Phase I B-BBEE share-based payment charge and hedge; and
- the impairment of Quantum Foods shares held by the Phase II B-BBEE equity transaction participants.
The Group's gross profit margin decreased from 31.9% to 29.5% whilst the adjusted operating profit (before items of a capital nature) increased by 6% to R2 273 million. The operating profit margin contracted from 11.5% to 11.0% due to
significant raw material inflation and portfolio mix effect.
Profit before tax amounted to R2 319 million after finance costs of R167 million (2015: R142 million). Share of profit from joint ventures and associates increased from R71 million to R100 million, bolstered by excellent performances
by Bokomo Botswana, Bowman Ingredients SA and newly acquired Future Life.
Adjusted headline earnings per share ("HEPS") from continuing operations, before the Phase I B-BBEE share-based payment charge and hedge, increased by 6% to 883 cents per share (2015: 832 cents per share). The exceptionally high base
effect in 2015 where adjusted HEPS grew by 23% should also be borne in mind.
Earnings per share from continuing operations, on an adjusted basis, increased by 9% to 904 cents per share (2015: 831 cents per share).
The obligation of the cash-settled Phase I B-BBEE transaction is remeasured to fair value taking into account the Pioneer Foods share price at each reporting date. During the reporting period the share price decreased from R195.76 to
R173.87 (2015: increase from R118.00 to R195.76) resulting in the recognition of a gain of R23 million (2015: charge of R307 million).
Furthermore, the Group entered into forward purchase contracts utilising its own equity to hedge itself against the upside risk of the Group's share price in terms of the Phase I B-BBEE scheme. A net gain of R16 million was recognised
on the hedge for the year. This net gain, as well as the share-based payment gain/(charge) is added back for all amounts disclosed on an adjusted basis.
Total Group earnings was bolstered by a profit of R20 million on the disposal of the Maitland Vinegar group of companies on 1 October 2015, but negatively impacted by a further impairment of the Quantum Foods shares held by the
consolidated Phase II B-BBEE SPVs amounting to R23 million (2015: R51 million).
Total Group earnings per share increased by 49% to 912 cents per share (2015: 613 cents per share) and total Group HEPS increased by 36% to 904 cents per share (2015: 665 cents per share).
Earnings excludes post-tax losses amounting to R122 million, relating to commodity derivative instruments deferred in equity. These losses are mainly attributable to decreases in commodity prices, which resulted in negative mark to
market adjustments towards the end of the financial year. These contracts were entered into to secure continuous raw material supply given the volatile rand and to preserve the White Star brand leadership position.
Divisional Performance
Essential Foods
The Essential Foods Division was impacted the most, given the significant raw material inflation on maize, wheat duty structure, drought and R/$ exchange rate volatility. Profitability contracted by 2% and the operating margin by 160
basis points. This is a creditable performance under the circumstances. The maize category showed demand resilience, in that White Star, the market leader, regained volume in the 2nd half, ending the year down 5% relative to the 14%
contraction at the half year. The White Star Brand also achieved category leadership recognition and accolades in the Sunday Times Top Brand Survey, thereby maintaining its top spot in the maize category.
External wheat flour sales came under pressure due to severe cost push, however Bakeries continued to make progress along its strategic revitalisation journey, generating positive operating leverage. Bread volumes increased modestly
despite capacity constraints during the fiscal. The Sasko Brand also received accolades in the Sunday Times Top Brands Survey, solidifying its number two position in bread. Bakery capital investment initiatives remain firmly on track
in order to sustain volume and profit growth. Rice and legume volume growth was positive and profitable.
Essential Foods remains core to the business and will be diligently managed through this challenging period.
Groceries
The Groceries Division increased volume by 2% (excluding Pepsi, Biscuits & Maitland Vinegar) and operating profit by 25%, whilst expanding margins by 250 basis points. The division had to contend with significant raw material inflation
in the 2nd half due to currency movements and crop shortages in certain instances.
Competition within the long life juice category remained intense. Manufacturing architecture was reorganised as part of an ongoing programme to enhance efficiencies and further reduce fixed costs. The impact of the proposed sugar tax on
long life juice remains uncertain. Exciting innovation in the form of Liqui-Fruit Sparkling was launched to further bolster the product portfolio.
Breakfast Cereals delivered a stellar performance. A particular focus on brand architecture, pack designs and brand communication will further enhance Bokomo as the undisputed category leader. Weet-Bix continues to maintain phenomenal
brand stature and leadership, being South Africa's leading cereal brand by market share, and maintained the No. 1 position in the Sunday Times Top Brand Survey. Capacity expansion plans will come to fruition early in the first quarter,
which bodes well for growth.
Future Life achieved its acquisition hurdle rates and successfully introduced new product innovations. A full innovation pipeline will sustain this growth momentum.
International
The International Division had to contend with a disruptive year given the refurbishment and move of the UK Peterborough operations, as well as the impact of currency devaluation on the African continent. The consequent impact on
consumer demand impeded year on year profit growth. That said, operating profit increased by 9% with the operating margin contracting by 110 basis points. Focused efforts resulted in Food Concepts Pioneer Limited in Nigeria becoming
profitable. The integration of the UK acquisition, Streamfoods, is also progressing well. The vine fruit exports delivered an exceptional performance.
FINANCIAL POSITION
Net cash profit from operating activities improved by 6% to R2 668 million (2015: R2 512 million). The major increases in commodity prices, especially maize and wheat, resulted in a significant incremental investment in working capital
of R775 million (2015: R546 million).
Capital expenditure for the year amounted to R809 million (2015: R652 million). Major projects included the Aeroton bakery expansion, the installation of an additional Weet-Bix line, the White Star Instant project, the plant replacement
and upgrade of Cape Bakeries and the relocation of the Peterborough plant in the UK.
On 1 December 2015 the Group acquired 50% of the shares in Future Life Health Products (Pty) Ltd for an amount of R200 million.
On 1 August 2016 the Group acquired the business of Streamfoods Ltd in the UK for R165 million. This was funded from borrowing facilities in the UK. Streamfoods competes in the fruit snacking category.
The three year syndicated bullet facility of R400 million was repaid in September 2016. The Group's net interest-bearing debt, excluding the third-party debt relating to the Phase II B-BBEE transaction partners, was R501 million at
year-end, with a net debt to equity ratio of 6% (2015: -1%), compared to a net positive position of R97 million at 30 September 2015.
PROSPECTS
The outlook remains challenging in South Africa. Political and market stability is essential in order to restore confidence and stimulate growth in the economy. Pioneer Foods is not immune to the aforementioned. Strategic fixed capital
investments come on stream in the new calendar year, brand strategies are robust, and a cost culture is well embedded within the business. Collectively these will assist in mitigating challenging trading conditions. The precarious
maize position and reduced raisin crop will impact performance in the 1st half of the new financial year, however we remain confident that Pioneer Foods can sustain the momentum of profitable top line growth for the full year. We are
optimistic about recent acquisitions and will continue to deploy capital efficiently to secure long term growth for the company and our shareholders.
DIVIDEND
A gross final dividend of 260 cents (2015: 237 cents) per share has been approved and declared by the Board for the year ended 30 September 2016 from income reserves. The applicable dates for the final dividend are as follows:
Last date to trade cum dividend Tuesday, 24 January 2017
Trading ex dividend commences Wednesday, 25 January 2017
Record date Friday, 27 January 2017
Dividend payable Monday, 30 January 2017
The total dividend for the year under review is 365 cents per share, an increase of 10%.
The total amount of the dividend for the year is approximately R817 million (2015: R744 million) and is based on a dividend cover of 2.0 times (2015: 2.2 times). This is calculated as adjusted headline earnings for the year divided by
the total dividend for the year, inclusive of treasury shares.
A gross final dividend of 78.0 cents (2015: 71.1 cents) per class A ordinary share, being 30% of the gross final dividend payable to ordinary shareholders in terms of the rules of the relevant employee scheme, will be paid during
February 2017.
Share certificates may not be dematerialised or materialised between Wednesday, 25 January 2017 and Friday, 27 January 2017, both days inclusive.
By order of the Board
ZL Combi PM Roux
Chairman Chief Executive Officer
Tyger Valley
21 November 2016
PIONEER FOOD GROUP LIMITED
Summary consolidated financial statements for the year ended 30 September 2016
Group statement of comprehensive income
Audited Audited
Year ended Year ended
30 September 30 September
2016 2015
R'm R'm
Continuing operations
Revenue 20 599.7 18 748.2
Cost of goods sold (14 516.7) (12 773.7)
Gross profit 6 083.0 5 974.5
Other income and gains/(losses) - net 169.8 184.7
Other expenses (3 934.8) (4 313.3)
Excluding the following: (3 979.6) (4 006.5)
Phase I B-BBEE transaction share-based payment income/(charge) and related hedge 44.8 (306.8)
Items of a capital nature 21.3 (48.5)
Operating profit 2 339.3 1 797.4
Investment income 46.8 39.3
Finance costs (167.3) (142.1)
Share of profit of investments accounted for using the equity method 100.4 71.4
Profit before income tax 2 319.2 1 766.0
Income tax expense (629.0) (588.7)
Profit for the year from continuing operations 1 690.2 1 177.3
Loss for the year from discontinued operations (attributable to owners of the parent) - (45.0)
Profit for the year 1 690.2 1 132.3
Other comprehensive income/(loss) for the year
Items that will not subsequently be reclassified to profit or loss:
Remeasurement of post-employment benefit obligations 0.9 (1.0)
Items that may subsequently be reclassified to profit or loss: (203.4) 70.3
Fair value adjustments to cash flow hedging reserve (118.3) 12.3
For the year 134.7 86.9
Current income tax effect (36.7) (31.0)
Deferred income tax effect (1.0) 6.6
Reclassified to profit or loss (299.0) (69.8)
Current income tax effect 85.6 26.4
Deferred income tax effect (1.9) (6.8)
Fair value adjustments on available-for-sale financial assets (1.2) (4.6)
For the year 7.0 (0.6)
Deferred income tax effect 0.1 (0.2)
Reclassified to profit or loss (8.3) (3.8)
Share of other comprehensive income of investments accounted for using the equity method (28.7) 22.7
Movement on foreign currency translation reserve (55.2) 39.9
Total comprehensive income for the year 1 487.7 1 201.6
Profit/(loss) for the year attributable to:
Owners of the parent
For continuing operations 1 690.2 1 175.4
For discontinued operations - (45.0)
Non-controlling interest
For continuing operations - 1.9
1 690.2 1 132.3
Total comprehensive income/(loss) for the year attributable to:
Owners of the parent
For continuing operations 1 487.7 1 244.7
For discontinued operations - (45.0)
Non-controlling interest
For continuing operations - 1.9
1 487.7 1 201.6
Headline earnings reconciliation
Audited Audited
Year ended Year ended
30 September 30 September
2016 2015
R'm R'm
Reconciliation between profit/(loss) attributable to owners of the parent and headline earnings
Profit/(loss) attributable to owners of the parent 1 690.2 1 130.4
For continuing operations 1 690.2 1 175.4
For discontinued operations - (45.0)
Remeasurement of items of a capital nature - continuing operations (13.4) 50.8
Net (profit)/loss on disposal of property, plant and equipment and intangible assets (12.1) 1.7
Net profit on disposal of available-for-sale financial assets (8.3) (3.8)
Net profit on disposal of subsidiary (24.2) -
Impairment of available-for-sale financial assets 23.3 50.6
Before tax (21.3) 48.5
Tax effect on remeasurement of items of a capital nature 7.9 2.3
Remeasurement of items of a capital nature - discontinued operations - 45.0
Net loss on unbundling of Quantum Foods and disposal of Quantum Foods shares - 27.4
Tax effect on remeasurement of items of a capital nature - 17.6
Remeasurement of items of a capital nature included in equity-accounted results (1.1) 1.1
Effect on remeasurement of items of a capital nature (1.3) 1.5
Tax effect on remeasurement of items of a capital nature 0.2 (0.4)
Headline earnings 1 675.7 1 227.3
For continuing operations 1 675.7 1 227.3
For discontinued operations - -
Phase I B-BBEE transaction share-based payment (income)/charge and related hedge (38.7) 306.8
Adjusted headline earnings (Note 1) 1 637.0 1 534.1
For continuing operations 1 637.0 1 534.1
For discontinued operations - -
Number of issued ordinary shares (million) 232.5 232.7
Number of issued treasury shares:
- held by subsidiary (million) 18.0 18.0
- held by share incentive trust (million) - 0.7
- held by B-BBEE equity transaction participants (million) 18.1 18.1
- held by BEE trust (million) 10.7 10.7
Number of issued class A ordinary shares (million) 3.7 4.2
Weighted average number of ordinary shares (million) 185.3 184.5
Weighted average number of ordinary shares - diluted (million) 199.6 200.1
Earnings per ordinary share (cents):
- basic 912.1 612.8
- diluted 846.9 564.9
- headline 904.3 665.3
- diluted headline 839.6 613.4
- adjusted headline (Note 1) 883.4 831.6
- diluted adjusted headline (Note 1) 820.2 766.7
Gross dividend per ordinary share (cents) 365.0 332.0
Gross dividend per class A ordinary share (cents) 109.5 99.6
Net asset value per ordinary share (cents) 4 238.7 3 757.6
Debt to equity ratio (%) 12.5 5.8
Note 1:
Headline earnings ("HE") is calculated based on Circular 2/2015 issued by the South African Institute of Chartered Accountants. Adjusted HE is defined as HE adjusted for the impact of the share-based payment income/(charge) on the
B-BBEE Phase I transaction on profit or loss (and the impact of the related hedge) due to the volatility of these items.
Group Statement of Financial Position
Audited Audited
30 September 30 September
2016 2015
R'm R'm
Assets
Property, plant and equipment 4 763.4 4 328.9
Goodwill 302.8 224.4
Other intangible assets 479.6 475.1
Biological assets 16.0 16.0
Investments in and loans to associates and joint ventures 861.2 574.0
Derivative financial instruments 439.7 -
Available-for-sale financial assets 128.3 141.8
Trade and other receivables 16.8 24.3
Deferred income tax 3.9 0.2
Non-current assets 7 011.7 5 784.7
Current assets 6 518.8 6 298.2
Inventories 3 212.5 2 678.9
Derivative financial instruments 57.6 20.6
Trade and other receivables 2 245.9 2 148.6
Current income tax 2.0 1.3
Cash and cash equivalents 1 000.8 1 448.8
Assets of disposal group classified as held for sale - 88.1
Total assets 13 530.5 12 171.0
Equity and liabilities
Capital and reserves attributable to owners of the parent 7 867.3 6 958.7
Share capital 23.2 23.3
Share premium 2 406.3 2 430.5
Treasury shares (1 187.8) (1 204.1)
Other reserves 253.3 460.5
Retained earnings 6 372.3 5 248.5
Non-controlling interest - 12.3
Total equity 7 867.3 6 971.0
Non-current liabilities 2 344.8 2 273.4
Borrowings
B-BBEE equity transaction third-party finance 449.6 449.7
Other 883.7 850.5
Provisions for other liabilities and charges 111.2 110.4
Share-based payment liability 317.9 395.8
Deferred income tax 582.4 467.0
Current liabilities 3 318.4 2 901.0
Trade and other payables 2 037.6 2 210.0
Current income tax 30.3 21.0
Derivative financial instruments 16.1 15.8
Borrowings 653.5 553.9
Loan from joint venture 26.0 20.5
Accrual for forward purchase contract on own equity 493.3 -
Dividends payable 0.6 0.5
Share-based payment liability 61.0 79.3
Liabilities of disposal group classified as held for sale - 25.6
Total equity and liabilities 13 530.5 12 171.0
Group Statement of Changes in Equity
Audited Audited
Year ended Year ended
30 September 30 September
2016 2015
R'm R'm
Share capital, share premium and treasury shares 1 241.7 1 249.7
Opening balance 1 249.7 1 091.9
Movement in treasury shares 16.4 5.3
Ordinary shares acquired by BEE trust - (22.9)
Ordinary shares issued - share appreciation rights 57.8 175.6
Ordinary shares bought back from management share incentive trust and cancelled (82.1) -
Employee share scheme - repurchase of shares (0.1) (0.2)
Other reserves 253.3 460.5
Opening balance 460.5 428.5
Equity compensation reserve transactions 49.5 38.9
Ordinary shares issued - share appreciation rights (57.8) (175.6)
Deferred income tax on share-based payments 4.5 105.9
Share of other comprehensive income of investments accounted for using the equity method (28.7) 22.7
Unbundling of Quantum Foods - (7.5)
Other comprehensive income for the year (174.7) 47.6
Retained earnings 6 372.3 5 248.5
Opening balance 5 248.5 4 582.0
Profit for the year 1 690.2 1 130.4
Other comprehensive income/(loss) for the year 0.9 (1.0)
Dividends paid (634.0) (463.3)
Management share incentive scheme - disposal of shares 67.2 1.4
Employee share scheme - transfer tax on share transactions (0.5) (1.0)
Non-controlling interest - 12.3
Opening balance 12.3 10.4
Disposal of subsidiary (12.3) -
Profit for the year - 1.9
Total equity 7 867.3 6 971.0
Group Statement of Cash Flows
Audited Audited
Year ended Year ended
30 September 30 September
2016 2015
Restated
R'm R'm
Net cash profit from operating activities 2 667.9 2 512.2
Cash effect from hedging activities (174.6) 16.2
Working capital changes (774.5) (546.4)
Net cash generated from operations 1 718.8 1 982.0
Settlement of share-based payment liability (69.2) (189.4)
Cash effect of forward purchase contract related to share-based payments 25.2 -
Income tax paid (451.1) (475.5)
Net cash flow from operating activities (Note 1) 1 223.7 1 317.1
Net cash flow from investment activities (982.9) (422.7)
Property, plant and equipment and intangible assets
- additions (469.2) (186.3)
- replacements (339.9) (465.5)
- proceeds on disposal 69.3 176.3
Business combinations (146.9) -
Proceeds on disposal of and changes in available-for-sale financial assets and loans (29.0) 117.6
Proceeds on disposal of subsidiary 62.3 -
Investment in joint ventures (200.5) (126.3)
Interest received 42.7 37.2
Dividends received 4.1 2.1
Dividends received from joint ventures 24.2 22.2
Net cash flow from financing activities (Note 1) (1 204.9) (414.1)
Repayment of syndicated bullet loans (400.0) -
Proceeds from other borrowings 2.1 207.1
Treasury shares acquired by BEE trust - (22.9)
Other share scheme transactions (3.0) 2.3
Interest paid (170.1) (137.4)
Dividends paid (633.9) (463.2)
Net cash, cash equivalents and bank overdrafts on unbundling of Quantum Foods - (105.6)
Effect of exchange rate changes on cash and cash equivalents (7.1) -
Net (decrease)/increase in cash, cash equivalents and bank overdrafts (971.2) 374.7
Net cash, cash equivalents and bank overdrafts at beginning of year 1 392.8 1 018.1
Net cash, cash equivalents and bank overdrafts at end of year 421.6 1 392.8
Disclosed as continuing operations 421.6 1 380.9
Disclosed as disposal group held for sale - 11.9
Note 1:
Refer to note 14 of the notes to the summary consolidated financial statements for further detail regarding this restatement.
Group Segment Report
Audited Audited
Year ended Year ended
30 September 30 September
2016 2015
Restated
R'm R'm
Segment revenue (Note 1)
Essential Foods 12 854.8 11 334.5
Groceries 4 695.1 4 797.4
International 3 049.8 2 616.3
Total 20 599.7 18 748.2
Segment results (Note 1)
Essential Foods 1 249.5 1 278.5
Groceries 541.6 434.5
International 484.2 444.5
Other (2.1) (4.8)
2 273.2 2 152.7
Phase I B-BBEE transaction share-based payment income/(charge) and related hedge 44.8 (306.8)
Operating profit before items of a capital nature 2 318.0 1 845.9
Reconciliation of operating profit (before items of a capital nature) to profit before income tax
Operating profit before items of a capital nature 2 318.0 1 845.9
Adjusted for:
Remeasurement of items of a capital nature 21.3 (75.9)
Interest income 42.7 37.2
Dividends received 4.1 2.1
Finance costs (167.3) (142.1)
Share of profit of investments accounted for using the equity method 100.4 71.4
Profit before income tax (including discontinued operations) 2 319.2 1 738.6
Note 1:
Refer to note 14 of the notes to the summary consolidated financial statements for further detail regarding this restatement.
Notes to the summary consolidated financial statements
1. Basis of preparation
The summary consolidated financial statements of the Group for the year ended 30 September 2016 have been prepared in accordance with the requirements of the JSE Limited ("JSE") for preliminary reports, and the requirements
of the Companies Act of South Africa, Act 71 of 2008, as amended, applicable to summary financial statements. The Listings Requirements of the JSE require preliminary reports to be prepared in accordance with the framework
concepts and the measurement and recognition requirements of International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the Financial Pronouncements
as issued by the Financial Reporting Standards Council and also, as a minimum, to contain the information required by IAS 34 - Interim Financial Reporting. This summary report is an extract from audited information, but this summary
report has not been audited.
The directors take full responsibility for the preparation of the summary consolidated financial statements and that the financial information has been correctly extracted from the underlying financial records.
2. Accounting policies
The accounting policies applied in the preparation of the consolidated financial statements from which the summary consolidated financial statements were derived, are in terms of IFRS and are consistent with those accounting policies
applied in the preparation of the previous consolidated annual financial statements.
In preparing these summary consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty, other than the judgement exercised
in classifying the forward purchase contracts on own equity as explained below, were the same as those that applied to the consolidated financial statements for the year ended 30 September 2015.
Derivative financial instruments - forward purchase contracts on own equity
The Group entered into forward purchase contracts on its own equity to hedge against the upside price risk of the Pioneer Food Group Ltd share price that the Group is exposed to in respect of the Phase I cash-settled broad-based
employee share scheme.
The forward purchase contracts on own equity have been classified as derivative financial instruments. One of the characteristics of a derivative is that it has no initial net investment, or one that is smaller than would be required
for other types of contracts that would be expected to have a similar response to changes in market factors.
An amount of R493.3 million accrued to the counterparty at inception of the respective contracts on 8 July 2016 and is payable on 3 October 2016. This amount represented 79% of the market value of the shares at inception.
The Group is of the opinion that it meets the initial net investment criteria as this amount is smaller than, and does not approximate, the market price of the shares.
Audited Audited
Year ended Year ended
30 September 30 September
2016 2015
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 year 232 739 331 231 691 881
Shares issued in terms of employee share appreciation rights scheme 345 578 1 047 450
Shares repurchased from management share incentive trust and cancelled (612 000) -
At end of year 232 472 909 232 739 331
345,578 (30 September 2015: 1,047,450) listed ordinary shares
of 10 cents each were issued at an average of R167.24 (30 September 2015: R167.71)
per share in terms of the share appreciation rights scheme.
612 000 shares were repurchased at an average price of R134.11 per share and subsequently cancelled.
Number of treasury shares held by the share incentive trust
At beginning of year 729 612 1 110 213
Movement in shares (69 992) (380 601)
Repurchased by the Company and cancelled (612 000) -
At end of year 47 620 729 612
Proceeds on the sale of treasury shares by the share incentive trust (R'000) 1 630 6 660
Proceeds on the repurchase of treasury shares from the share incentive trust by the Company (R'000) 82 075 -
Number of treasury shares held by B-BBEE transaction participants
At beginning and end of year 18 091 661 18 091 661
Number of treasury shares held by Pioneer Foods Broad-Based BEE Trust
At beginning of year 10 745 350 10 599 988
Shares acquired - 145 362
At end of year 10 745 350 10 745 350
Purchase consideration for shares acquired by BEE Trust (R'000) - 22 940
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 4 234 300 6 043 940
Shares bought back and cancelled (526 470) (1 809 640)
At end of year 3 707 830 4 234 300
Purchase consideration paid for unlisted class A ordinary shares bought back (R'000) 69 244 189 405
4. Borrowings
Pioneer Foods obtained a R300 million vehicle and asset finance facility during the 2014 financial year. This facility is used to finance the replacement of the Group's bakery delivery vehicle fleet. The vehicles are acquired in terms
of instalment sales agreements. These borrowings are secured by the vehicles acquired in terms of these agreements. At 30 September 2016, further borrowings obtained during the year in terms of these facilities amounted to R25.9 million.
The three year syndicated bullet facility of R400 million matured in September 2016 and was repaid.
Bokomo Foods UK Ltd obtained a revolving credit asset backed finance facility from the Royal Bank of Scotland during the year. This facility was mainly used to provide funding for the acquisition of Streamfoods Ltd. The funding is
secured primarily against the trade and other receivables and inventories of Bokomo Foods UK Ltd, however, does include security against the other assets of this entity should this be insufficient. The initial funding was for GBP7.84m,
however at 30 September 2016 the draw down amounted to GBP6.70m. A similar facility was obtained by Streamfoods Ltd to provide for future cash flows, however, at 30 September 2016 no draw down was made against this facility.
No other material new borrowings were concluded during the year 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 final dividend of 260.0 cents (2016: gross interim dividend of 105.0 cents and 2015: gross final dividend of 237.0 cents) per ordinary share. This will amount to approximately R576,491,653
(2016: interim of R232,727,851 and 2015: final of R526,332,444) depending on the exact number of ordinary shares issued at the record date. In addition, the 10,745,350 (2016 interim: 10,745,350 and 2015 final: 10,745,350) Pioneer
Foods shares issued to the Pioneer Foods Broad-Based BEE Trust, will receive 20% of the dividend payable, i.e. 52.0 cents (2016: gross interim of 21.0 cents and 2015: gross final dividend of 47.4 cents) per share, amounting to
R5,587,582 (2016: interim of R2,256,524 and 2015: final of R5,093,296).
The Board approved a gross final dividend of 78.0 cents (2016: gross interim dividend of 31.5 cents and 2015: gross final dividend of 71.1 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 amount to approximately R2,892,107 (2016: interim of R1,185,210 and 2015: final of R2,862,920) 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 dividends tax of 15%, to be withheld and paid to the South African Revenue Service 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 net dividend amounts to 221.0 cents per ordinary share and 66.3 cents per class A ordinary share for shareholders liable to pay dividends tax. The dividend amounts to 260.0 cents per ordinary share and 78.0 cents per class
A ordinary share for shareholders exempt from paying dividends tax.
The number of issued ordinary shares and issued class A ordinary shares is 232,472,909 and 3,662,750 respectively as at the date of this declaration.
5.2 Acquisition of a 49.89% equity interest in Weetabix East Africa
As announced on SENS on 16 November 2016, Pioneer Foods entered into an agreement to acquire a 49.89% shareholding in Weetabix East Africa Ltd. The agreement is subject to Kenyan regulatory approval.
5.3 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 summary consolidated financial statements by the Board.
6. Contingent liabilities - Guarantees
The Group had guarantees in issue of R32.7 million (30 September 2015: R36.5 million) as at 30 September 2016, 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.
Audited Audited
30 September 30 September
2016 2015
R'm R'm
7. Future capital commitments
Contractually committed
- For next financial year 307.6 492.0
Approved by the Board, but not yet contractually committed 1 085.5 867.3
- For next financial year 989.7 372.7
- For year following next financial year 95.8 494.6
Share of items of joint ventures 74.1 137.8
1 467.2 1 497.1
8. Impairment of Quantum Foods shares
The 18,091,661 Quantum Foods Holdings Ltd shares held by the Phase II B-BBEE transaction participants are accounted for as available-for-sale financial assets. As at 30 September 2016, the market value of the Quantum Foods Holdings Ltd
shares was significantly lower than the original cost price and market value at 30 September 2015. Consequently, an impairment loss of R23.3 million (30 September 2015: R50.6 million) has been recognised. The loss has been included
in the line item "Items of a capital nature" in the statement of comprehensive income for the year ended 30 September 2016.
This impairment charge attributable to available-for-sale financial assets is as follows:
Audited Audited
Year ended Year ended
30 September 30 September
2016 2015
Nature R'm R'm
Available-for-sale financial assets 23.3 50.6
Income tax effect - -
After income tax effect 23.3 50.6
9. Acquisition of a 50% equity interest in Future Life Health Products (Pty) Ltd ("Future Life")
Pioneer Foods acquired a 50% shareholding in Future Life for an amount of R200 million. As announced on SENS on 9 November 2015, The Competition Tribunal of South Africa granted conditional approval of this transaction. These
conditions will have no negative impact on the commercial prospects for this venture.
The effective date of this transaction was 1 December 2015.
10. Disposal of interest in Maitland Vinegar Works (Pty) Ltd
As at 1 October 2015, all conditions precedent for the disposal of the Group's interests in Maitland Vinegar Works (Pty) Ltd were met. Consequently, the assets and liabilities related to Maitland Vinegar were presented as a "disposal
group held for sale" in terms of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations for the year ended 30 September 2015.
A profit of R24.2 million was recognised on this sale and has been included in the line item "Items of a capital nature" in the statement of comprehensive income for the year ended 30 September 2016.
11. Business combinations
During the year under review the following business was acquired and all assets and liabilities relating to the acquisition have been accounted for on an acquisition basis:
Audited
Year ended
30 September
2016
R'm
Streamfoods Ltd - 100% (UK - 29 July 2016)
Purchase consideration - settled in cash 164.9
Reason for acquisition
The acquisition of Streamfoods continues the Group's international expansion strategy and provides a bolt-on business for Bokomo Foods UK. The acquisition provides growth prospects in the fruit snacking category and diversifies the
risk of the company's private label dominated portfolio.
Reason for goodwill recognised on acquisitions
The price paid for Streamfoods is competitive in the context of other food brands sold within the UK FMCG environment, with much higher price earnings multiples paid for similar businesses. The business combination presents
synergistic opportunities for Streamfoods, expected to increase its competitiveness and market penetration and provides further exposure to the growing health-snacking category.
The assets and liabilities acquired of this business can be summarised as follows:
Carrying value Fair value
R'm R'm
Property, plant and equipment 27.5 27.5
Goodwill - 85.8
Inventories 43.3 43.3
Trade receivables 40.5 40.5
Cash and cash equivalents 18.0 18.0
Trade and other payables (55.7) (55.7)
Deferred income tax 5.5 5.5
Total 79.1 164.9
Purchase consideration - settled in cash 164.9
Less: Cash and cash equivalents acquired (18.0)
Net cash flow due to business combination 146.9
At 30 September 2016, the fair values of the acquired assets, liabilities and goodwill for this business have been determined on a provisional basis as this business was acquired in close proximity to the reporting date, pending
finalisation of the post-acquisition review of the fair values of the acquired net assets.
The contribution of this business since acquisition:
Revenue 57.5
Operating profit before finance cost and income tax 1.1
The pro forma contribution of this business assuming the acquisition was at the beginning of the period:
Revenue 296.7
Operating profit before finance cost and income tax 6.6
12. Derivative financial instrument - forward purchase contracts on own equity
The Group entered into forward purchase contracts on its own equity to hedge against the upside price risk of the Pioneer Food Group Ltd share price that the Group is exposed to in respect of the Phase I cash-settled broad-based
employee share scheme.
The forward purchase contracts will be settled semi-annually during March and September in 21 tranches to coincide with the expected settlement of the share-based payment scheme. The last settlement will take place on 25 September 2026.
An amount of R493.3 million has accrued on the trade date (8 July 2016) and is payable to Investec Bank Limited (the counterparty) on 3 October 2016. Interest to the amount of R9.5 million has accrued up to 30 September 2016 and is
included in trade and other payables.
The forward purchase contracts will be settled in cash on the respective settlement dates. The amounts to be settled are calculated as the difference between a volume-weighted average price ("VWAP") of the Pioneer Food Group Ltd share
price on the settlement date and the forward price. In the event that this difference is positive, the counterparty will settle this difference with the Group; should the difference be negative, the Group is required to settle this
difference with the counterparty. Any differences between the projected dividend as per the contract and the actual dividend paid is to be settled in cash between the parties.
13. Fair value measurement
The information below analyses assets and liabilities that are carried at fair value at each reporting period, by level of hierarchy as required by IFRS 7 and IFRS 13.
Audited fair value measurements at
30 September 2016 using:
Quoted prices
in active
markets for Significant
identical other Significant
assets and observable unobservable
liabilities input input
(Level 1) (Level 2) (Level 3)
R'm R'm R'm
Assets measured at fair value
Available-for-sale financial assets
- Listed securities 126.8 - -
- Unlisted securities - 1.5 -
Derivative financial instruments
- Foreign exchange contracts - 6.6 -
- Forward contract on own equity - 489.9 -
- Embedded derivatives - 0.8 -
Biological assets
- Vineyards - - 16.0
Liabilities measured at fair value
Derivative financial instruments
- Foreign exchange contracts - 16.1 -
Audited fair value measurements at
30 September 2015 using:
Quoted prices
in active
markets for Significant
identical other Significant
assets and observable unobservable
liabilities input input
(Level 1) (Level 2) (Level 3)
R'm R'm R'm
Assets measured at fair value
Available-for-sale financial assets
- Listed securities 141.6 - -
- Unlisted securities - 0.2 -
Derivative financial instruments
- Foreign exchange contracts - 20.4 -
- Futures - fair value hedges - 0.2 -
Biological assets
- Vineyards - - 16.0
Liabilities measured at fair value
Derivative financial instruments
- Foreign exchange contracts - 15.1 -
- Embedded derivative - 0.7 -
There have been no transfers between level one, two or three during the period, nor were there any significant changes to the valuation techniques and input used to determine fair values.
Financial assets and liabilities
The fair values of financial instruments traded in active markets (such as publicly traded derivatives and available-for-sale securities) are based on quoted market prices at the reporting date. A market is regarded as active if
quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length
basis. The quoted market price used for financial assets held by the Group is the current bid price. The appropriate quoted market price for financial liabilities is the current ask price. These instruments are included in level 1.
Instruments included in level 1 comprise primarily JSE-listed equity investments classified as available-for-sale.
The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as
little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument were observable, the instrument is included in level 2.
The fair values of the forward purchase contracts on own equity are determined at each reporting date and any changes in the values are recognised in profit or loss. The fair values of the forward purchase contracts have been
determined by an independent external professional financial instruments specialist by using a discounted cash flow model. The inputs to this valuation method include the risk free rate, dividend yield, contractual forward price and
the spot price at year-end.
The Group uses a variety of methods that makes assumptions that are based on market conditions existing at the reporting date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments.
Other techniques, such as estimated discounted cash flows, are used to determine the fair value of the remaining financial instruments. The fair value of foreign exchange contracts is determined using quoted forward exchange rates at
the reporting date.
The carrying amounts of cash, trade and other receivables less provision for impairment, trade and other payables and short-term borrowings are assumed to approximate their fair values due to the short term until maturity of these
assets and liabilities.
The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The
fair values of long-term investments and long-term borrowings are not materially different from the carrying amounts.
Biological assets
The fair value of vineyards is calculated as the future expected net cash flows from the asset, discounted at a current market-determined rate, over the remaining useful lives of the vineyards.
14. Restatement of information for comparative periods
14.1 Restatement of segment results
Segment revenue and segment results were restated to consolidate the Groceries: Cereals and other and Groceries: Beverages segments into a single Groceries segment.
Audited
Year ended
30 September
2015
R'm
Increase/(decrease) in revenue
Groceries 4 797.4
Groceries: Cereals and other (2 420.3)
Groceries: Beverages (2 377.1)
Total -
Increase/(decrease) in operating profit before items of a capital nature
Groceries 434.5
Groceries: Cereals and other (252.0)
Groceries: Beverages (182.5)
Total -
14.2 Reclassification of line items in the statement of cash flows
During the current year Pioneer Foods reclassified the cash payments to employees under the BEE Phase I employee share scheme from "net cash flow from financing activities" to "net cash flow from operating activities".
The impact on the comparative figures of the statement of cash flows is as follows:
Audited
Year ended
30 September
2015
R'm
Net cash flow from operating activities (189.4)
Net cash flow from financing activities 189.4
15. Preparation of financial statements
These summary consolidated financial statements have been prepared under the supervision of CR Lamprecht, CA(SA), Acting Chief Financial Officer.
16. Audit
The external auditors, PricewaterhouseCoopers Inc., have audited the Group's financial statements for the year ended 30 September 2016 and their unqualified auditor's report is available for inspection at the registered office of the
Company.
The Group's auditors have not reviewed nor reported on any of the comments relating to prospects.
Directors
ZL Combi (Chairman), PM Roux (CEO)*, N Celliers, Prof ASM Karaan, NS Mjoli-Mncube, LE Mthimunye-Bakoro, PJ Mouton, SS Ntsaluba, G Pretorius, AH Sangqu, NW Thomson (* Executive)
The following changes to the Pioneer Foods Board occurred during the period under review:
- Ms LE Mthimunye-Bakoro was appointed as an independent non-executive director with effect from 1 November 2016.
- Ms CJ Hess resigned as Chief Financial Officer with effect from 31 October 2016.
- Mr LP Retief resigned as an independent non-executive director with effect from 12 July 2016.
- Mr MM du Toit resigned as non-executive director with effect from 12 February 2016.
- Messrs SS Ntsaluba and NW Thomson were appointed as independent non-executive directors and Mr PJ Mouton as non-executive director with effect from 19 November 2015.
Company secretary: J Jacobs, E-mail: Jay-Ann.Jacobs@pioneerfoods.co.za
Registered address: Glacier Place, 1 Sportica Crescent, Tyger Valley, 7530, South Africa. Tel: 021 974 4000 Fax: 086 407 0044. 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: 21/11/2016 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
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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