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PIONEER FOOD GROUP LIMITED - Summary Consolidated Financial Statements For The Year Ended 30 September 2019 And Dividend Declaration

Release Date: 18/11/2019 07:05
Code(s): PFG     PDF:  
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Summary Consolidated Financial Statements For The Year Ended 30 September 2019 And Dividend Declaration

Pioneer Food Group Ltd
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 2019 AND DIVIDEND DECLARATION

Salient Features

Revenue                                                               +11%                     R22 273  million
Adjusted operating profit*                                            -13%                      R1 392  million
Earnings                                                              -15%                        R910  million
Earnings per share                                                    -17%                         479  cents
Diluted earnings per share                                            -12%                         479  cents
Headline earnings ("HE")                                               -5%                        R971  million
Headline earnings per share                                            -6%                         511  cents
Diluted headline earnings per share                                    -1%                         511  cents
Adjusted headline earnings*                                            -4%                        R992  million
Adjusted headline earnings per share*                                  -6%                         522  cents
Net cash profit from operating activities                              -9%                      R1 895  million
Net asset value per share                                              +3%                       4 615  cents
Total gross dividend per listed ordinary share                        -11%                         324  cents

* HE and operating profit (before items of a capital nature) are adjusted for the impact of the share-based payment charge of the Phase I B-BBEE equity transaction 
  and the related hedge and, for 2019 only, 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 
 

INTRODUCTION

Pioneer Foods delivered acceptable revenue and volume growth in a difficult trading environment, despite enduring weak demand in the general food and beverage
sectors. The major business challenge during this period was the lagging recovery of the significant input inflation in sales pricing, which was, with the exception of the
maize and Wellington's categories, effectively addressed.

FINANCIAL PERFORMANCE

Revenue increased by 11% to R22.3 billion, whereas volumes increased by 2%.

The gross profit margin decreased from 28.8% to 27.6% while adjusted operating profit (before items of a capital nature, the B-BBEE share-based payment charge and
the related hedge costs ("BEE SBP"), as well as once-off merger and acquisition costs) decreased by 13.1% to R1 392 million. Consequently, the operating profit margin
regressed from 8.0% to 6.2%, mainly due to the disappointing performances in maize and Wellingtons. Operating profit for the Group, excluding maize and Wellingtons,
improved by 6.3%.

The share of profit from joint ventures and associates increased from Rnil to R87 million, mainly as a result of the Heinz Foods SA business, which now forms part of
the Groceries division. Group earnings were negatively impacted by items of a capital nature amounting to a net after income tax loss of R61.0 million (2018: R55.2
million net profit after income tax). This loss in the current year relates for the most part to impairment charges on certain assets and trademarks, while the profit of the
previous year relates to profit on the sale of assets and shares.

Adjusted headline earnings after taking into account the above adjustments decreased by 4% to R992 million (2018: R1 032 million).

Adjusted headline earnings per share declined by 6% to 522 cents per share (2018: 553 cents per share). Diluted headline earnings per share, adjusted for the BEE SBP 
and once-off merger and acquisition costs, therefore decreased by 1% to 522 cents per share (2018: 526 cents per share). The reduction in the number of shares in 
issue, as well as the conclusion of the Phase II strategic shareholder B-BBEE transaction, contributed positively to this figure.

DIVISIONAL PERFORMANCE

Segmental review for the year ended 30 September 2019
 
                                                       Segmental                            Segmental
                                                        revenue                          operating profit*
                                                 2019               %               2019                    %
                                                  R'm          Change                R'm               Change
Essential Foods                                13 185              11                743                  (19)
Groceries                                       5 796              13                363                  (13)
International                                   3 292               4                294                    3
Other^                                              -               -                 (8)                  52
Total                                          22 273              11              1 392                  (13)

*   Before items of a capital nature, the BEE SBP and once-off merger and acquisition costs.
^   The unallocated corporate costs relate to the results of the insurance business and the ultimate holding
    company as well as corporate legal costs and costs of BEE socio-economic and enterprise development.

Essential Foods

The wheat milling to baking value chain delivered a solid performance through strong bread volume growth after recent investments in baking capacity and distribution.

As mentioned above, the maize value chain felt the pressure of acute raw material cost increases and this, together with the lower quality of the crop, drove elevated
White Star price premiums relative to price competition in the category. Although White Star super maize meal volume share was retained, the impact of the raw
material dynamics could not be fully recovered in the year under review.

White Star Instant porridge however sustained strong volume growth at competitive pricing levels and strengthened its market leading position. Lower cost pasta
imports continued to grow and posed significant risk to locally produced pasta. The balance of the portfolio delivered a satisfactory performance with Spekko rice
sustaining sound volume and market share growth.

Groceries

The Groceries division recovered strongly in the latter part of the year due to higher prices and firmer margins. Whilst this improvement could not fully address the
earnings regression in the first half, the resulting performance of the like-for-like business was reasonable for the full year.

The long life fruit juice business excelled once again, recording volume growth of 7% on slightly higher prices, and delivered strong operating profit growth in the
process. Cereals also showed strong underlying volume growth, with inflation around 3%. The balance of the portfolio beyond Weet-Bix contributed positively, with
corn flakes in particular showing a strong return to profitability. The Wellingtons business is showing signs of improvement, albeit off a low performance base, with the
condiments portfolio in particular recording a good recovery.

International

Export volumes into the rest of Africa continued to be dampened by volatile currencies and constrained consumer markets. Trade barriers also impeded progress as
foreign governments adopted a protectionist approach towards local manufacturing in order to mitigate the consequences of the constrained macro-economic backdrop.

The export of long life fruit juice and related groceries products into Zimbabwe in particular was hampered by the challenging and demanding economic conditions in
that country.

Dried fruit exports experienced a significant decline in global pricing due to the US market's higher than anticipated stock levels from the previous season. This was
further exacerbated by the better harvest of vine fruit in Turkey.

The UK business continued to make inroads with growth in private label sales as well as the Lizi's brand exceeding expectations due to innovation and increased
numeric listings. The Nigerian business delivered to expectation with the sausage roll category posting double digit volume growth. The new Nigerian bread plant was
commissioned during November 2019 and the focus is on delivering against this investment case.

Joint ventures

Joint ventures posted a marked improvement, helped by the exclusion of Heinz Foods SA (read Wellingtons) from this reporting line as well as a material improved
performance from Bokomo Botswana and Bokomo Namibia. Bokomo Botswana's performance benefited from the milling upgrade in the prior comparative period.

FINANCIAL POSITION

Net cash profit from operating activities decreased by 9% to R1 895 million (2018: R2 073 million). The material grain inflation led to an investment in working capital
amounting to R527 million (2018: R281 million released). Stock levels year on year remained flat in terms of volume, while the inventory value increased by 11% related
to inflation. Debtors days outstanding remained flat. The weaker operating performance together with the increased investment in working capital contributed to a decrease 
in net cash flow from operating activities of 43.7% to R1 121 million (2018: R1 991 million).

Capital expenditure for the year amounted to R660 million (2018: R626 million). Major investments include the completion of the new Durban wheat mill as well as the
new packaging equipment for beverages. Pioneer Foods Ventures invested limited capital into innovative start-up food and beverage businesses.

The Group's net interest-bearing debt amounted to R927 million (2018: R893 million) at year-end, with a net debt to equity ratio of 10.4% (2018: 10.7%). During the
year, the strategic shareholder Phase II B-BBEE equity transaction concluded and Pioneer Foods repurchased and cancelled 11 563 013 ordinary shares. The outstanding
Phase II third-party finance of R428 million was also repaid.

PROSPECTS

We anticipate inflationary cost pressure to continue with weak demand and muted consumer spending. Recovering the underlying cost inflation from market pricing
remains key in this low volume growth environment. Efforts to optimise costs and improve efficiencies remain a priority.

UPDATE ON THE PEPSICO OFFER AND MATERIAL ADVERSE EVENT CONDITION

Shareholders are referred to the combined circular to Pioneer Foods shareholders distributed to shareholders on 29 August 2019 ("Circular") as well as the SENS
announcement on the 14th of October 2019.

Progress to date

On 15 October 2019, at a Special General Meeting, nearly 100% of shareholders voted in support of the transaction. As the transaction is subject to
regulatory approval from the South African Competition Commission, our joint submission, together with PepsiCo was filed in early September. Adjudication from the
SA Competition Commission and thereafter the Competition Tribunal is expected in the new year.

There have also been competition commission filings in other jurisdictions - such as Namibia, Botswana, Nigeria, Kenya, Germany, COMESA and some others.

We anticipate the transaction to be finalised early in 2020.

Material adverse event condition

Capitalised terms used below and that are not otherwise defined, bear the meaning ascribed to them in the Circular.

Shareholders are hereby advised of the fulfilment of items (i) and (iii) of the Pioneer Foods Group Material Adverse Event Condition as set out in the Circular. Accordingly
Pioneer Foods hereby advises that in respect of:

- item (i) of the Pioneer Foods Group Material Adverse Event, based on the fact no restatement has been required, this item of the Pioneer Foods Group Material
  Adverse Event Condition has been fulfilled; and
- in respect of item (iii) of the Pioneer Foods Group Material Adverse Event, the Pioneer Foods consolidated EBITDA (including Wider Group Consolidation) for the
  financial year ended 30 September 2019 is R2 021 million compared to the agreed measurement number of R2 055 million (which is well within the 90% range as
  stipulated in the Circular). Accordingly this item of the Pioneer Foods Group Material Adverse Event condition has been fulfilled.

Shareholders are reminded that item (ii) of the Pioneer Foods Group Material Adverse Event will be measured at the end of the month preceding the date in which it is
determined that all other Conditions, save for those set out in the Circular, have been fulfilled or waived.

Shareholders are further reminded that the transaction remains subject to additional conditions, the details of which are set out in the Circular.

DIVIDEND

A gross final dividend of 219 cents (2018: 260 cents) per share has been approved and declared by the Board for the year ended 30 September 2019 from income
reserves. This is the maximum allowable dividend per the Implementation Agreement with PepsiCo. The applicable dates for the final dividend are as follows:

Last date to trade cum dividend              Tuesday, 28 January 2020
Trading ex-dividend commences                Wednesday, 29 January 2020
Record date                                  Friday, 31 January 2020
Payment date                                 Monday, 3 February 2020

The total dividend for the year under review is 324 cents (2018: 365 cents) per share which is a reduction of 11%.

The total amount of the dividend for the year is approximately R691 million (2018: R820 million) and is based on a dividend cover of 1.6 times (2018: 1.4 times). This is
calculated as adjusted headline earnings for the year divided by the total dividend for the year, excluding the dividend on treasury shares held by a Group subsidiary.

A gross final dividend of 65.7 cents (2018: 78.0 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 2020.

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 175.20 cents per ordinary share and 52.56 cents per class A ordinary share for shareholders liable to pay dividends tax. The dividend amounts 
to 219.0 cents per ordinary share and 65.7 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 221,841,328 and 2,604,980 respectively, as at the date of this declaration.

Share certificates may not be dematerialised or rematerialised between Wednesday, 29 January 2020 and Friday, 31 January 2020, both days inclusive.

NOTE TO SHAREHOLDERS

The above-mentioned proposed acquisition by PepsiCo of Pioneer Foods, if implemented, will result in significant and material changes to the
structure and overall functioning of the Group, including delisting from the JSE Limited ("JSE"). As a result, the Group will publish the Annual Financial Statements,
Notice of AGM and the Integrated Annual Report on or before 31 January 2020. This is in line with paragraph 3.19 of the Listings Requirements of the JSE.

ZL Combi     TA Carstens
Chairman     Chief Executive Officer

Tyger Valley
14 November 2019

The short-form announcement is the responsibility of the directors and is only a summary of the information in the full announcement and does not contain full or
complete details. Shareholders are advised that investment decisions should be based on consideration of the full announcement available for viewing at 
https://senspdf.jse.co.za/documents/2019/JSE/ISSE/PFG/PFGFY19.pdf. Copies of the full announcement may also be requested from the Company's registered office or 
the offices of our Sponsor during office hours at no charge. The summary consolidated annual financial statements is also available on the Company's website at 
https://pioneerfoods.co.za/wp-content/uploads/Pioneer-Foods-Annual-Financial-Statements-Nov-2019.pdf. The integrated report and full annual financial statements 
will be available on the Company's website before the end of January 2020.

For more information visit our website at www.pioneerfoods.co.za

Directors:

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

The following changes occurred to the Pioneer Foods Board during the year under review.

-  Mr G Pretorius retired as independent non-executive director with effect from 15 February 2019.
-  As a consequence of Mr Pretorius' retirement, the Board appointed Mr NW Thomson as lead independent director and chairperson of the human capital committee 
   with effect from 15 February 2019.
-  Mr Thomson stepped down as chairperson of the audit committee with effect 15 February 2019, but continues to serve as a member of the audit committee.
-  Mr CG Botha was appointed as an independent non-executive director with effect from 12 December 2018 and subsequently appointed as chairperson of the audit 
   committee with effect from 15 February 2019.

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: 18 November 2019

Date: 18/11/2019 07:05:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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