To view the PDF file, sign up for a MySharenet subscription.

PIONEER FOOD GROUP LIMITED - Summary Consolidated Financial Statements For The Year Ended 30 September 2018

Release Date: 19/11/2018 07:05
Code(s): PFG     PDF:  
 
Wrap Text
Summary Consolidated Financial Statements For The Year Ended 30 September 2018

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 2018


SALIENT FEATURES


Revenue                                                                                                                              +3%              R20 152 million
Adjusted operating profit (before items of a capital nature)*                                                                       +26%               R1 603 million
Earnings                                                                                                                            +48%               R1 073 million
Earnings per share                                                                                                                  +47%                  575 cents
Diluted earnings per share                                                                                                          +49%                  547 cents
Headline earnings ("HE")                                                                                                            +33%               R1 017 million
Headline earnings per share                                                                                                         +33%                  545 cents
Diluted headline earnings per share                                                                                                 +35%                  518 cents
Adjusted headline earnings*                                                                                                         +25%               R1 032 million
Adjusted headline earnings per share*                                                                                               +25%                  553 cents
Net cash profit from operating activities                                                                                           +25%               R2 073 million
Net asset value per share                                                                                                            +5%                4 497 cents
Final gross dividend per listed ordinary share                                                                                        -                   260 cents
Total gross dividend per listed ordinary share                                                                                        -                   365 cents

* HE and operating profit (before items of a capital nature) are adjusted for the impact of the share-based payment charge of the B-BBEE Phase I equity transaction and
  related hedge and (in 2017 only) for once-off merger and acquisition costs.


Pioneer Foods:                   +27 21 974 4000
Tertius Carstens:                +27 83 627 2077; tertius.carstens@pioneerfoods.co.za
Felix Lombard:                   +27 83 635 8278; felix.lombard@pioneerfoods.co.za



COMMENTARY


INTRODUCTION

Pioneer Foods delivered positive volume and revenue growth at supportive price points whilst maintaining cost discipline and efficiency gains to improve margin and
earnings delivery over the weak corresponding period.

Trading conditions reflecting weaker levels of consumer spend, became more challenging in the second semester with rising input costs exacerbated by the weakening
ZAR and steady oil price increases together with weak demand. This required corrective price adjustment on a phased basis across categories which is expected to
continue in the next reporting period.


FINANCIAL PERFORMANCE

Revenue increased by 3% to R20.2 billion and volumes increased by 4%, including acquisitions. Major deflation in maize and constrained price recovery impacted on
value growth.

The gross profit margin increased from 26.3% to 28.8% whilst adjusted operating profit (before items of a capital nature) increased by 26% to R1 603 million. The
operating profit margin expanded from 6.5% to 8.0% due to good profit growth in cereals, maize and the International businesses.

Profit before income tax increased by 50% to R1 476 million after finance costs of R198 million (2017: R197 million). The share of profit from joint ventures and
associates decreased from R60 million to Rnil mainly due to challenges (refer to joint ventures section for further detail) encountered at the Heinz Foods SA
business, whilst being equity accounted for a portion of the year.

Earnings were positively impacted by items of a capital nature amounting to a net after income tax profit of R55.2 million (2017: R36.7 million net after income tax loss).
Earnings per share increased by 47% to 575 cents per share (2017: 390 cents per share).

Headline earnings per share increased by 33% to 545 cents per share (2017: 410 cents per share). Headline earnings per share was negatively impacted by the net
effect of the IFRS 2 share-based payment charge relating to the Phase I (2006) B-BBEE transaction and the effect of the related forward purchase contracts, amounting
on a net-basis to a loss of R14.4 million after income tax (2017: loss of R42.2 million after income tax). The hedge is valued at 100% of the mark-to-market value, whilst
the liability is phased in over the expected period of the transaction as per IFRS 2. An adjustment was also made for specific once-off merger and acquisition costs in
2017. Adjusted headline earnings per share, before the Phase I B-BBEE share-based payment charge and related hedge, therefore increased by 25% to 553 cents per
share (2017: 442 cents per share).


DIVISIONAL PERFORMANCE


Essential Foods

Although an exceptional maize recovery supported year-on-year profit improvement, the milling and baking segments of Essential Foods came under further pressure
in the second semester through intensified competition, consumer down-trading within basic staple categories and increased cost pressure related to a weakening
currency. This was specifically evident in maize meal during the final quarter with White Star trading at an all-time high price premium to other brands in the category.

Whilst the wheaten value chain realised significantly weaker profitability compared to the prior year, bakeries benefited from operational efficiency improvement, quality
enhancement and volume traction in the second semester. Efforts to extend the availability of Sasko bread are bearing fruit and bode well for sustained performance
improvement. Pasta, rice and legumes continued to make a sound and growing contribution.


Groceries

Groceries realised a good set of results, driven by volume growth in the important cereals and long-life fruit juice categories. These categories, along with baking and
spreads, performed well from an operating profit point of view.

The snacking category recorded negative volume growth and a consequent decline in profitability, primarily from dried fruit and rusks. LiquiFruit, Ceres and Fruitree all
gained market share, while Weet-Bix maintained its share. Category declines hampered both Lipton and the dilutables portfolio. Operational efficiency provided further
leverage to overall operating profit performance.

The integration of the former Heinz Foods SA portfolio within Groceries is well advanced. Supply and service levels have responded positively in both the frozen and
condiment categories.


International

The overall divisional performance was pleasing and delivered excellent year-on-year growth in operating profit. Exports into African markets continued to be subject to
volatile socio-economic conditions. The business however delivered as anticipated, as new route-to-market strategies were bedded down. Fruit exports benefited from
improved local fruit availability, strong global demand as well as high USD prices, primarily driven by the lower crop in the USA.

The UK posted a pleasing result despite continued input cost inflation and increasing competitive pricing in the UK breakfast category. The recent acquisition of the Lizi's
brand, continued to support the growth of the branded products within the business. The Nigerian subsidiary performed well and delivered a solid set of results with
noted improvement in year-on-year profitability.


Joint Ventures

The performance of joint ventures as a whole was materially impacted by the once-off write-offs of certain items on the Heinz Foods SA balance sheet together with
a poor operating performance by this entity. Joint ventures excluding Heinz Foods SA delivered a mixed performance. Bowman Ingredients (SA) performed well while
Bokomo Botswana (related to the upgrade of the maize and wheat mills in the first half) and Bokomo Namibia (related to the general economic situation in that country)
delivered below par performances.


FINANCIAL POSITION

Net cash profit from operating activities increased by 25% to R2 073 million (2017: R1 661 million). Prudent working capital management, specifically in
accounts receivable and accounts payable, led to a further release of working capital amounting to R281 million (2017: R752 million released). The improved
operating performance together with the release of working capital contributed to an increase of 12% in net cash flow from operating activities to R1 991 million
(2017: R1 770 million).

Capital expenditure for the year amounted to R626 million (2017: R960 million). Major projects undertaken included the completion of the third line at the Shakaskraal
bakery as well as the upgrade of the Durban wheat mill to be completed early in 2019.

On 11 December 2017 the Group acquired 100% of the shares in The Good Carb Food Company Ltd, a UK based granola manufacturer and owner of the well-known
Lizi's brand, for a net amount of R264 million.

On 1 June 2018 the Group acquired the remaining 50.1% of the shares in Heinz Foods SA (Pty) Ltd for an amount of R50 million. A further R149 million was paid to the
former joint venture partner as consideration for their loan account.

The Group's net interest-bearing debt, excluding third-party debt relating to the Phase II B-BBEE transaction partners, was R442 million (2017: R612 million) at year-end,
with a net debt to equity ratio of 5% (2017: 8%).


PROSPECTS

There is a high probability of inflationary pressure driven by continuing rand weakness and increased international oil prices. We thus anticipate muted consumption
growth to be a short to medium term reality.

In this environment, management will focus in particular on:
- Operating cost growth mitigation;
- Continued improvement in operational efficiencies;
- Improved representation and growth in alternative routes-to-market;
- Sustaining brand relevance; and
- Prudent capital investment in the existing business.

The wheaten value chain, led by bakeries, is expected to sustain the positive volume traction achieved towards the end of the year under review through refined route-
to-market capability, enhanced production efficiencies and improved product quality.

Although demand for maize meal products should remain strong, given ample local raw material supply and relative consumer value, down-trading within the category
is expected to continue. The exceptional maize profit contribution reported in the first half of the 2018 financial year is not expected to be repeated in the next financial
year.

The Groceries and International divisions should be able to deliver an improved performance with the turnaround at Heinz Foods SA, the anticipated higher vine fruit
crop and expectations of a more beneficial ZAR exchange rate for exports.

Joint ventures' performance improved materially in the fourth quarter of the 2018 financial year, partly because of the incorporation of the Heinz Foods SA business into
Groceries and the improved performance of Bokomo Botswana after the major upgrade of the facility. This is expected to continue into 2019.


DIVIDEND

A gross final dividend of 260 cents (2017: 260 cents) per share has been approved and declared by the Board for the year ended 30 September 2018 from income
reserves. The applicable dates for the final dividend are as follows:

Last date to trade cum dividend                                Tuesday, 29 January 2019
Trading ex-dividend commences                                Wednesday, 30 January 2019
Record date                                                     Friday, 1 February 2019
Dividend payable                                                Monday, 4 February 2019

Share certificates may not be dematerialised or materialised between Wednesday, 30 January 2019 and Friday, 1 February 2019, both days inclusive.

The total dividend for the year under review is 365 cents per share, the same as in 2017.

The total amount of the dividend for the year is approximately R820 million (2017: R820 million) and is based on a dividend cover of 1.4 times (2017: 1.1 times). This is
calculated as adjusted headline earnings for the year divided by the total dividend for the year, exclusive of the dividend on treasury shares held by a Group subsidiary.

A gross final dividend of 78 cents (2017: 78 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 2019.


By order of the Board


ZL Combi                                   TA Carstens
Chairman                                   Chief Executive Officer

Tyger Valley
15 November 2018


SUMMARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2018

GROUP STATEMENT OF COMPREHENSIVE INCOME


                                                                                                                                              AUDITED            AUDITED
                                                                                                                                           YEAR ENDED         YEAR ENDED
                                                                                                                                         30 SEPTEMBER       30 SEPTEMBER
                                                                                                                                                 2018               2017
                                                                                                                                                  R'm                R'm

Revenue                                                                                                                                      20 151.9           19 575.0
Cost of goods sold                                                                                                                          (14 356.4)         (14 419.0)

Gross profit                                                                                                                                  5 795.5            5 156.0
Other income and gains/(losses) - net                                                                                                           197.4              142.3
Other expenses                                                                                                                               (4 420.5)          (4 142.1)

 Excluding the following:                                                                                                                    (4 390.4)          (4 021.6)
 Once-off merger and acquisition costs                                                                                                              -              (17.6)
 Phase I B-BBEE transaction share-based payment and related hedge charge                                                                        (30.1)            (102.9)

Items of a capital nature                                                                                                                        73.2              (57.0)

Operating profit                                                                                                                              1 645.6            1 099.2
Investment income                                                                                                                                28.0               22.3
Finance costs                                                                                                                                  (197.5)            (196.8)
Share of profit of investments accounted for applying the equity method                                                                             -               60.3

Profit before income tax                                                                                                                      1 476.1              985.0
Income tax expense                                                                                                                             (399.0)            (258.8)

Profit for the year                                                                                                                           1 077.1              726.2
Other comprehensive income/(loss) for the year
Items that will not subsequently be reclassified to profit or loss:
Remeasurement of post-employment benefit obligations                                                                                              2.2                1.6
Items that may subsequently be reclassified to profit or loss:                                                                                   21.9              143.3

Fair value adjustments to cash flow hedging reserve                                                                                             (12.2)             115.7

 For the year                                                                                                                                     3.6              (60.2)
  Current income tax effect                                                                                                                      (5.7)              17.5
  Deferred income tax effect                                                                                                                      4.6               (0.7)
 Reclassified to profit or loss                                                                                                                 (20.5)             220.9
  Current income tax effect                                                                                                                       5.1              (63.9)
  Deferred income tax effect                                                                                                                      0.7                2.1

Fair value adjustments on available-for-sale financial assets                                                                                     0.6                4.0

 For the year                                                                                                                                    18.8                8.2
  Deferred income tax effect                                                                                                                      6.4                0.6
 Reclassified to profit or loss                                                                                                                 (24.6)              (4.8)

Share of other comprehensive income of investments accounted for applying the equity method                                                       7.4               15.9
Movement on foreign currency translation reserve                                                                                                 26.1                7.7

Total comprehensive income for the year                                                                                                       1 101.2              871.1

Profit for the year attributable to:
Owners of the parent                                                                                                                          1 072.6              726.1
Non-controlling interest                                                                                                                          4.5                0.1

                                                                                                                                              1 077.1              726.2
Total comprehensive income for the year attributable to:
Owners of the parent                                                                                                                          1 090.9              869.7
Non-controlling interest                                                                                                                         10.3                1.4

                                                                                                                                              1 101.2              871.1


HEADLINE EARNINGS RECONCILIATION


                                                                                                                                              AUDITED            AUDITED
                                                                                                                                           YEAR ENDED         YEAR ENDED
                                                                                                                                         30 SEPTEMBER       30 SEPTEMBER
                                                                                                                                                 2018               2017
                                                                                                                                                  R'm                R'm

Reconciliation between profit attributable to owners of the parent and headline earnings
Profit attributable to owners of the parent                                                                                                   1 072.6              726.1
Remeasurements                                                                                                                                  (61.2)              52.7

 Net profit on disposal of property, plant and equipment and intangible assets                                                                  (35.2)              (5.8)
 Net profit on disposal of available-for-sale financial assets                                                                                  (24.6)              (4.8)
 Fair value adjustment of step-up from joint venture to subsidiary                                                                              (13.4)              18.7
 Net loss on disposal of equity-accounted investments                                                                                               -               17.7
 Impairment of intangible assets                                                                                                                    -               21.0
 Impairment of goodwill                                                                                                                             -               10.2

 Before tax                                                                                                                                     (73.2)              57.0
 Tax effect on remeasurements                                                                                                                    12.0               (4.3)

Remeasurements included in equity-accounted results                                                                                               6.0              (16.0)

 Remeasurements                                                                                                                                   7.3              (15.8)
 Tax effect on remeasurements                                                                                                                    (1.3)              (0.2)

Headline earnings                                                                                                                             1 017.4              762.8
Phase I B-BBEE transaction share-based payment and related hedge charge                                                                          14.4               42.2
Once-off merger and acquisition costs                                                                                                               -               17.6

Adjusted headline earnings (Note 1)                                                                                                           1 031.8              822.6

Number of issued ordinary shares (million)                                                                                                      233.2              233.4
Number of issued treasury shares:
- held by subsidiary (million)                                                                                                                   18.0               18.0
- 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)                                                                                                2.9                3.2
Weighted average number of ordinary shares (million)                                                                                            186.7              186.0
Weighted average number of ordinary shares - diluted (million)                                                                                  196.3              198.4
Earnings per ordinary share (cents):
- basic                                                                                                                                         574.6              390.3
- diluted                                                                                                                                       546.5              366.0
- headline                                                                                                                                      545.0              410.1
- diluted headline                                                                                                                              518.4              384.5
- adjusted headline (Note 1)                                                                                                                    552.8              442.2
- diluted adjusted headline (Note 1)                                                                                                            525.7              414.6
Gross dividend per ordinary share (cents)                                                                                                       365.0              365.0
Gross dividend per class A ordinary share (cents)                                                                                               109.5              109.5
Net asset value per ordinary share (cents)                                                                                                    4 496.6            4 302.8
Debt to equity ratio (%)                                                                                                                         10.7               13.4

Note 1:
Headline earnings ("HE") is calculated based on Circular 4/2018 issued by the South African Institute of Chartered Accountants. Adjusted HE is defined as HE adjusted
for the impact of:
- share-based payment charge on the Phase I B-BBEE transaction on profit or loss (and the impact of the related hedge); and
- for 2017 only, once-off merger and acquisition costs.


GROUP STATEMENT OF FINANCIAL POSITION


                                                                                                                                              AUDITED            AUDITED
                                                                                                                                         30 SEPTEMBER       30 SEPTEMBER
                                                                                                                                                 2018               2017
                                                                                                                                                  R'm                R'm

Assets
Property, plant and equipment                                                                                                                 5 653.9            5 357.0
Goodwill                                                                                                                                        434.0              331.3
Other intangible assets                                                                                                                         766.0              483.6
Investments in and loans to associates and joint ventures                                                                                       791.3              906.7
Derivative financial instruments                                                                                                                128.7              203.1
Available-for-sale financial assets                                                                                                              77.9              138.1
Trade and other receivables                                                                                                                      45.8               15.4
Deferred income tax                                                                                                                              55.8               12.5

Non-current assets                                                                                                                            7 953.4            7 447.7
Current assets                                                                                                                                6 587.7            5 504.6

Inventories                                                                                                                                   3 176.6            3 033.1
Derivative financial instruments                                                                                                                 28.0               51.0
Trade and other receivables                                                                                                                   2 244.1            1 981.8
Current income tax                                                                                                                               10.2                7.9
Cash and cash equivalents                                                                                                                     1 128.8              430.8

Assets of disposal group classified as held for sale                                                                                                -               20.0

Total assets                                                                                                                                 14 541.1           12 972.3

Equity and liabilities
Capital and reserves attributable to owners of the parent                                                                                     8 379.7            8 027.2

Share capital                                                                                                                                    23.3               23.3
Share premium                                                                                                                                 2 538.0            2 554.3
Treasury shares                                                                                                                              (1 186.4)          (1 186.4)
Other reserves                                                                                                                                  188.9              213.1
Retained earnings                                                                                                                             6 815.9            6 422.9

Non-controlling interest                                                                                                                         35.3               25.0

Total equity                                                                                                                                  8 415.0            8 052.2

Non-current liabilities                                                                                                                       2 396.2            1 645.3

Borrowings
 B-BBEE equity transaction third-party finance                                                                                                      -              433.1
 Syndicated and other                                                                                                                         1 405.1              265.6
Provisions for other liabilities and charges                                                                                                    112.2              112.4
Share-based payment liability                                                                                                                   112.8              159.8
Deferred income tax                                                                                                                             766.1              674.4

Current liabilities                                                                                                                           3 729.9            3 274.8

Trade and other payables                                                                                                                      3 018.5            2 388.9
Current income tax                                                                                                                               15.2               24.7
Derivative financial instruments                                                                                                                 32.8                2.6
Borrowings
 B-BBEE equity transaction third-party finance                                                                                                  451.5               33.7
 Syndicated and other                                                                                                                           165.5              777.5
Loan from joint venture                                                                                                                          21.0               14.5
Dividends payable                                                                                                                                 1.6                0.6
Share-based payment liability                                                                                                                    23.8               32.3

Total equity and liabilities                                                                                                                 14 541.1           12 972.3


GROUP STATEMENT OF CHANGES IN EQUITY


                                                                                                                                              AUDITED            AUDITED
                                                                                                                                           YEAR ENDED         YEAR ENDED
                                                                                                                                         30 SEPTEMBER       30 SEPTEMBER
                                                                                                                                                 2018               2017
                                                                                                                                                  R'm                R'm

Share capital, share premium and treasury shares                                                                                              1 374.9            1 391.2

Opening balance                                                                                                                               1 391.2            1 241.7
Movement in treasury shares                                                                                                                         -                1.4
Ordinary shares issued - share appreciation rights                                                                                               51.5              148.2
Ordinary shares bought back and cancelled                                                                                                       (67.8)                 -
Employee share scheme - repurchase of shares                                                                                                        -               (0.1)

Other reserves                                                                                                                                  188.9              213.1

Opening balance                                                                                                                                 213.1              253.3
Equity compensation reserve transactions                                                                                                         26.6               23.4
Ordinary shares issued - share appreciation rights                                                                                              (51.5)            (148.1)
Deferred income tax on share-based payments                                                                                                     (15.4)             (57.6)
Share of other comprehensive income of investments accounted for applying the equity method                                                       7.4               16.0
Other comprehensive income for the year                                                                                                           8.7              126.1

Retained earnings                                                                                                                             6 815.9            6 422.9

Opening balance                                                                                                                               6 422.9            6 372.3
Profit for the year                                                                                                                           1 072.6              726.1
Other comprehensive income for the year                                                                                                           2.2                1.6
Dividends paid                                                                                                                                 (681.4)            (678.5)
Management share incentive scheme - disposal of shares                                                                                              -                1.7
Transaction cost on shares bought back - transfer tax on share transactions                                                                      (0.4)              (0.3)

Non-controlling interest                                                                                                                         35.3               25.0

Opening balance                                                                                                                                  25.0                  -
Profit for the year                                                                                                                               4.5                0.1
Share of other comprehensive income                                                                                                               5.8                1.2
Non-controlling interest acquired - business combination                                                                                            -               23.7

Total equity                                                                                                                                  8 415.0            8 052.2


GROUP STATEMENT OF CASH FLOWS


                                                                                                                                              AUDITED            AUDITED
                                                                                                                                           YEAR ENDED         YEAR ENDED
                                                                                                                                         30 SEPTEMBER       30 SEPTEMBER
                                                                                                                                                 2018               2017
                                                                                                                                                  R'm                R'm

Net cash profit from operating activities                                                                                                     2 072.5            1 661.4
Cash effect from hedging activities                                                                                                               2.1              165.8
Working capital changes                                                                                                                         281.1              751.7

Net cash generated from operations                                                                                                            2 355.7            2 578.9
Settlement of share-based payment liability                                                                                                     (26.3)             (69.2)
Cash effect of forward purchase contracts related to share-based payments                                                                        25.5               41.8
Settlement of accrual for forward purchase contracts on own equity                                                                                  -             (493.3)
Income tax paid                                                                                                                                (364.4)            (288.1)

Net cash flow from operating activities                                                                                                       1 990.5            1 770.1
Net cash flow from investment activities                                                                                                       (866.6)            (957.5)

Property, plant and equipment and intangible assets
- additions                                                                                                                                    (297.9)            (612.4)
- replacements                                                                                                                                 (328.4)            (347.5)
- proceeds on disposal                                                                                                                          106.6               71.4
Business combinations                                                                                                                          (511.4)              (8.7)
Proceeds on disposal of and changes in available-for-sale financial assets and loans                                                             79.3               18.8
Proceeds on disposal of joint venture                                                                                                               -                5.8
Investment in joint venture                                                                                                                     (15.0)                 -
Investment in associate                                                                                                                             -             (191.5)
Interest received                                                                                                                                16.1               18.7
Dividends received                                                                                                                               11.4                3.2
Dividends received from joint ventures                                                                                                           52.1               84.7
Dividends received from associate                                                                                                                20.6                  -
Net cash flow from financing activities                                                                                                        (395.8)            (932.7)

Proceeds from borrowings - new syndicated and other borrowings                                                                                1 207.0                  -
Repayment of syndicated bullet loans                                                                                                           (600.0)                 -
Repayments of other borrowings                                                                                                                  (61.7)             (52.7)
Ordinary shares bought back                                                                                                                     (67.8)                 -
Other share scheme transactions                                                                                                                  (3.7)              (0.9)
Interest paid                                                                                                                                  (189.2)            (200.6)
Dividends paid                                                                                                                                 (680.4)            (678.5)

Effect of exchange rate changes on cash and cash equivalents                                                                                      3.0                0.9
Net cash, cash equivalents and bank overdrafts at beginning of year                                                                             302.4              421.6

Net cash, cash equivalents and bank overdrafts at end of year                                                                                 1 033.5              302.4

Disclosed as:
 Cash and cash equivalents                                                                                                                    1 128.8              430.8
 Bank overdrafts and call loans (included in current borrowings)                                                                                (95.3)            (128.4)

                                                                                                                                              1 033.5              302.4


GROUP SEGMENT REPORT


                                                                                                                                              AUDITED            AUDITED
                                                                                                                                           YEAR ENDED         YEAR ENDED
                                                                                                                                         30 SEPTEMBER       30 SEPTEMBER
                                                                                                                                                 2018               2017
                                                                                                                                                  R'm                R'm

Segment revenue
Essential Foods                                                                                                                              11 859.3           12 469.8
Groceries                                                                                                                                     5 119.6            4 402.7
International                                                                                                                                 3 173.0            2 702.5

Total                                                                                                                                        20 151.9           19 575.0

Segment results
Essential Foods                                                                                                                                 915.3              800.2
Groceries                                                                                                                                       419.3              357.0
International                                                                                                                                   285.0              121.5
Other                                                                                                                                           (17.1)              (2.0)

                                                                                                                                              1 602.5            1 276.7
Once-off merger and acquisition costs                                                                                                               -              (17.6)
Phase I B-BBEE transaction share-based payment and related hedge charge                                                                         (30.1)            (102.9)

Operating profit before items of a capital nature                                                                                             1 572.4            1 156.2

Reconciliation of operating profit (before items of a capital nature) to profit before income tax
Operating profit before items of a capital nature                                                                                             1 572.4            1 156.2
Adjusted for:
 Remeasurement of items of a capital nature                                                                                                      73.2              (57.0)
 Interest income                                                                                                                                 16.6               19.1
 Dividends received                                                                                                                              11.4                3.2
 Finance costs                                                                                                                                 (197.5)            (196.8)
 Share of profit of investments accounted for applying the equity method                                                                            -               60.3

Profit before income tax                                                                                                                      1 476.1              985.0



NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2018

1.    Basis of preparation

      The summary consolidated financial statements of the Group for the year ended 30 September 2018 have been prepared in accordance with the requirements
      of the JSE Ltd ("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 JSE Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and
      the measurement and recognition requirements of International Financial Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the
      Accounting Practices Committee, 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 were the same as those that applied to the consolidated financial statements for the year ended 30 September 2017.


3.    Share capital
                                                                                                                                              AUDITED              AUDITED
                                                                                                                                           YEAR ENDED           YEAR ENDED
                                                                                                                                         30 SEPTEMBER         30 SEPTEMBER
                                                                                                                                                 2018                 2017
    

      During the period under review, the following share transactions occurred:

      Number of listed issued and fully paid ordinary shares
       At beginning of year                                                                                                               233 379 445          232 472 909
       Shares issued in terms of employee share appreciation rights scheme                                                                    423 880              906 536
       Shares bought back and cancelled                                                                                                      (626 258)                   -

       At end of year                                                                                                                     233 177 067          233 379 445

       423,880 (30 September 2017: 906,536) listed ordinary shares of 10 cents each were issued at an average of
       R121.54 (30 September 2017: R163.49) per share in terms of the share appreciation rights scheme.

       626,258 (30 September 2017: Nil) listed ordinary shares of 10 cents each were repurchased at an average of
       R108.34 (30 September 2017: Rnil) per share.

       Purchase consideration paid for ordinary shares bought back (R'000)                                                                     67 846                    -

      Number of treasury shares held by the share incentive trust
       At beginning of year                                                                                                                         -               47 620
       Movement in shares                                                                                                                           -              (47 620)

       At end of year                                                                                                                               -                    -

       Proceeds on the sale of treasury shares by the share incentive trust (R'000)                                                                 -                3 193

      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 and end of year                                                                                                        10 745 350           10 745 350

      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                                                                                                                 3 174 920            3 707 830
       Shares bought back and cancelled                                                                                                      (296 240)            (532 910)

       At end of year                                                                                                                       2 878 680            3 174 920

       Purchase consideration paid for unlisted class A ordinary shares bought back (R'000)                                                    26 316               69 235



4.    Borrowings

      The Group's syndicated financing facilities matured in September 2018 and new syndicated facility agreements were entered into. These agreements allow for
      bullet term facilities with three and five year terms of R500 million each, as well as a three year revolving credit facility of R250 million and a three year term 
      bullet facility of GBP10 million. General working capital facilities amounting to a base of R1 billion, and a seasonal increase for a part of a year of a further 
      R600 million, were obtained. Five year structured trade and headroom facilities (both for R500 million) were also entered into.

      These borrowings were obtained to refinance existing borrowings (including the matured R600 million bullet loan), to fund working capital and to fund expansions
      at Group legal entities.

      The syndicated facilities are secured by pledges over inventory and trade receivables of Pioneer Foods (Pty) Ltd, Pioneer Foods Groceries (Pty) Ltd and Ceres
      Fruit Juices (Pty) Ltd. Bank accounts of these entities were also ceded in favour of the security SPV. Bonds and notarial bonds are also registered over specific
      immovable properties and specific movable assets of these entities.

      Foods Concepts Pioneer Ltd entered into a new six year funding arrangement amounting to NGN570 million with the Bank of Industry Ltd in Nigeria. Monthly
      repayments will only commence after the first year. The funding acquired will be used to finance the construction of a new bakery plant in Lagos. This loan is
      secured by a bank guarantee from First City Monument Bank PLC. The bakery equipment to be acquired will be encumbered up to an amount of NGN570 million.

      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.


5.    Events after the reporting date


5.1   Dividend

      The Board approved and declared a gross final dividend of 260.0 cents for the financial year ended 30 September 2018 (2018: gross interim dividend of 105.0
      cents and 2017: gross final dividend of 260.0 cents) per ordinary share. This will amount to approximately R578,322,464 (2018: interim of R234,130,426 and
      2017: final of R578,915,990) depending on the exact number of ordinary shares in issue at the record date. In addition, the 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 (2018: gross interim of 21.0 cents and 2017: gross
      final dividend of 52.0 cents) per share, amounting to R5,587,582 (2018: interim of R2,256,524 and 2017: final of R5,587,582).

      The Board approved a gross final dividend of 78.0 cents for the financial year ended 30 September 2018 (2018: gross interim dividend of 31.5 cents and 2017:
      gross final dividend of 78.0 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 amount to approximately R2,245,370 (2018: interim of R927,577 and 2017: final of R2,373,462) 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 20%, 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 208.0 cents per ordinary share and 62.4 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 233,177,067 and 2,859,360 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 summary consolidated financial
      statements by the Board.


6.    Contingent liabilities - Guarantees

      The Group had guarantees in issue of R30.9 million (30 September 2017: R28.8 million) as at 30 September 2018, primarily for loans by third parties to contracted
      suppliers.

      As part of the funding 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.


7.    Future capital commitments
                                                                                                                                              AUDITED             AUDITED
                                                                                                                                         30 SEPTEMBER        30 SEPTEMBER
                                                                                                                                                 2018                2017
                                                                                                                                                  R'm                 R'm
    
      Contractually committed
      - For next financial year                                                                                                                 156.7               218.9

      Approved by the Board, but not contractually committed yet                                                                              1 068.3               943.7

      - For next financial year                                                                                                                 614.4               626.6
      - For year following next financial year                                                                                                  453.9               317.1

      Share of items of joint ventures and associate                                                                                             56.7                43.4
                                                                                                                                              1 281.7             1 206.0



8.    Business combinations

8.1   The Good Carb Food Company Ltd

      During the year under review the Group acquired a 100% interest in The Good Carb Food Company Ltd (UK).

                                                                                                                                                                  AUDITED
                                                                                                                                                               YEAR ENDED
                                                                                                                                                             30 SEPTEMBER
                                                                                                                                                                     2018
                                                                                                                                                                      R'm

      The Good Carb Food Company Ltd (UK) - 100% (effective 11 December 2017)
      Purchase consideration - settled in cash                                                                                                                      283.3


      Reason for acquisition of interest

      The Group acquired 100% of the equity of this fast-growing breakfast cereal entity in the UK, which is in line with its international expansion strategy. This is a
      complementary bolt-on acquisition enlarging the Group's footprint in the UK's breakfast cereal market, providing access to a strong branded proposition in this
      space.

      Reason for goodwill recognised on acquisition

      The premium paid to acquire control resulted in the recognition of goodwill amounting to R99.5 million. This reflects the Group's belief in the future growth
      prospects of this business, as well as those of the health and wellness category in the UK.

      The assets and liabilities acquired of this business can be summarised as follows:

                                                                                                                                                                  AUDITED
                                                                                                                                                              ACQUISITION
                                                                                                                                                                     DATE
                                                                                                                                                               FAIR VALUE
                                                                                                                                                                      R'm

      Property, plant and equipment                                                                                                                                   0.1
      Intangible assets - trademarks                                                                                                                                189.4
      Intangible assets - customer lists                                                                                                                             17.5
      Goodwill                                                                                                                                                       99.5
      Inventories                                                                                                                                                     8.5
      Trade and other receivables                                                                                                                                    11.9
      Cash and cash equivalents                                                                                                                                      19.6
      Trade and other payables                                                                                                                                      (23.9)
      Deferred income tax                                                                                                                                           (39.3)

      Purchase consideration - settled in cash                                                                                                                      283.3
      Cash and cash equivalents acquired                                                                                                                            (19.6)
      
                                                                                                                                                                    263.7
      The contribution of this business since acquisition
      Revenue                                                                                                                                                       116.9
      Operating profit before finance cost and income tax                                                                                                            23.4

      The pro forma contribution of this business assuming the acquisition was at the beginning of the year
      Revenue                                                                                                                                                       147.6
      Operating profit before finance cost and income tax                                                                                                            29.6

8.2   Heinz Foods SA (Pty) Ltd

      During the year under review the Group acquired the remaining 50.1% equity in Heinz Foods SA (Pty) Ltd. The name of the company was subsequently
      changed to Pioneer Foods Wellingtons (Pty) Ltd.

                                                                                                                                                                  AUDITED
                                                                                                                                                               YEAR ENDED
                                                                                                                                                             30 SEPTEMBER
                                                                                                                                                                     2018
                                                                                                                                                                      R'm

      Pioneer Foods Wellingtons (Pty) Ltd - 50.1% (effective 1 June 2018)
      Purchase consideration - settled in cash                                                                                                                       50.0


      Reason for acquisition of interest

      The Group acquired the remaining equity in an existing joint venture. This change is an excellent opportunity for the Group to leverage its existing scale and
      platform in South Africa to grow the business in line with its expansion strategy.

      The assets and liabilities acquired of this business can be summarised as follows:


                                                                                                                                                                  AUDITED
                                                                                                                                                              ACQUISITION
                                                                                                                                                                     DATE
                                                                                                                                                               FAIR VALUE
                                                                                                                                                                      R'm

      Property, plant and equipment                                                                                                                                 174.2
      Intangible assets - trademarks                                                                                                                                 52.0
      Inventories                                                                                                                                                    91.5
      Trade and other receivables                                                                                                                                   220.9
      Cash and cash equivalents                                                                                                                                     (16.0)
      Trade and other payables                                                                                                                                     (284.4)
      Deferred income tax                                                                                                                                            36.5
      Current income tax                                                                                                                                              6.8
      Borrowings                                                                                                                                                   (148.9)
      Loan joint venture                                                                                                                                            (32.8)

      Total identifiable net assets                                                                                                                                  99.8
      Fair value adjustment of step-up from joint venture to subsidiary                                                                                             (13.4)
      De-recognition of investment in joint venture                                                                                                                 (36.4)

      Purchase consideration - settled in cash                                                                                                                       50.0
      Cash and cash equivalents acquired                                                                                                                             16.0
      Borrowings acquired                                                                                                                                           148.9
      Loan joint venture acquired                                                                                                                                    32.8
                                                                                                                                                                    247.7
      The contribution of this business since acquisition
      Revenue                                                                                                                                                       196.6
      Operating loss before finance cost and income tax                                                                                                             (11.7)

      The pro forma contribution of this business assuming the acquisition was at the beginning of the year
      Revenue                                                                                                                                                       589.7
      Operating loss before finance cost and income tax                                                                                                             (23.4)



9.    Non-current assets held for sale

      The assets related to the fish paste spreads business were presented as "assets of a disposal group classified as held for sale" in terms of IFRS 5 - Non-current
      Assets Held for Sale and Discontinued Operations at 30 September 2017, following the Board's decision to dispose of this business.

      During the current financial year the Board revoked its decision to dispose of the assets related to the fish paste spreads business and its intention is to recover
      the carrying amounts of the related assets through continuing use. The Group believes that value remains to be unlocked and is committed to implementing
      operating efficiencies. Consequently, the assets related to this business have not been presented as "assets of a disposal group classified as held for sale" in
      terms of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations at 30 September 2018.


10.   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 2018 USING:

                                                                                                                       Quoted prices
                                                                                                                           in active         Significant
                                                                                                                         markets for               other        Significant
                                                                                                                    identical assets          observable       unobservable
                                                                                                                     and 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                                                                                                       76.9                   -                  -
      - Unlisted securities                                                                                                        -                 1.0                  -
      Derivative financial instruments
      - Foreign exchange contracts                                                                                                 -                 7.0                  -
      - Forward purchase contracts on own equity                                                                                   -               149.7                  -

      Liabilities measured at fair value
      Derivative financial instruments
      - Foreign exchange contracts                                                                                                 -                31.4                  -
      - Embedded derivatives                                                                                                       -                 1.4                  -



                                                                                                                           AUDITED FAIR VALUE MEASUREMENTS
                                                                                                                              AT 30 SEPTEMBER 2017 USING:

                                                                                                                      Quoted prices
                                                                                                                          in active          Significant
                                                                                                                        markets for                other        Significant
                                                                                                                   identical assets           observable       unobservable
                                                                                                                    and 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                                                                                                      136.7                   -                  -
      - Unlisted securities                                                                                                        -                 1.4                  -
      Derivative financial instruments
      - Foreign exchange contracts                                                                                                 -                22.1                  -
      - Forward purchase contracts on own equity                                                                                   -               231.3                  -
      - Embedded derivatives                                                                                                       -                 0.6                  -
      Assets of disposal group classified as held for sale                                                                         -                   -               12.5

      Liabilities measured at fair value
      Derivative financial instruments
      - Foreign exchange contracts                                                                                                 -                 2.6                  -

      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 the
      reporting date.

      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 for 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.


      Assets of a disposal group classified as held for sale

      The assets related to the fish paste spreads business were presented as "assets of a disposal group classified as held for sale" in terms of IFRS 5 - Non-current
      Assets Held for Sale and Discontinued Operations for the year ended 30 September 2017.

      During the current financial year the Board revoked its decision to dispose of the assets related to the fish paste spreads business and its intention is to recover
      the carrying amounts of the related assets through continuing use. The Group believes that value remains to be unlocked and is committed to implementing
      operating efficiencies. Consequently, the assets related to this business have not been presented as "assets of a disposal group classified as held for sale" in
      terms of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations at 30 September 2018.


11.   Preparation of financial statements

      These summary consolidated financial statements have been prepared under the supervision of F Lombard, CA(SA), CFO.


12.   Audit

      The external auditors, PricewaterhouseCoopers Inc., have audited the Group's financial statements for the year ended 30 September 2018, from which these
      summary consolidated financial statements have been extracted, 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.

13.   Pro forma financial information
      
      Any pro forma financial information contained in this announcement have been prepared for illustrative purposes only, in order to provide shareholders with 
      comparable results. Because of its nature, it may not fairly present the Group's financial position, changes in equity, results of operations or cash flows.

      The pro forma financial information are provided in accordance with the JSE Listings Requirements and the Guide on Pro Forma Financial Information issued by 
      SAICA and are the responsibility of the directors.

      
      Directors

      ZL Combi (Chairman), TA Carstens (CEO)*, N Celliers, Prof ASM Karaan, F Lombard*, NS Mjoli-Mncube, PJ Mouton, LE Mthimunye, SS Ntsaluba, G Pretorius,
      AH Sangqu, NW Thomson (* Executive)

      There were no changes to the Pioneer Foods Board during the year under review.


      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, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196, South Africa, 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
      
      Released on SENS: 19 November 2018

Date: 19/11/2018 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.

Email this JSE Sens Item to a Friend.

Share This Story