Johannesburg - JSE-listed Pioneer Foods said, while the drought had impacted on its operations, it was still optimistic about its future in the country.
The group yesterday reported a 6 percent increase in operating profit to R1.24 billion for the six months to end March, up from the R1.17bn reported during the corresponding period last year.
Chief executive Phil Roux said cost management by the company ensured it continued to report a profit despite facing challenges in the economy.
“We would have loved to report a much better profit, but the maize shortage prevented us from achieving the desired results. We use white maize in most of our businesses like bakeries. The costs were very high and we couldn’t hike the prices as the consumers were already struggling with high food prices,” Roux said.
Pioneer owns brands such as Sasko, Weet-Bix and Ceres and produces food such as maize meal, bread and pasta.
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Roux said headline earnings per share rose to 479.3 cents in the six months to end March from 451c a year earlier.
Wandile Sihlobo, an economist at Agricultural Business Chamber (Agbiz) said: “In the previous season (2015 to 2016), South Africa imported 103 176 tons of white maize, and the expectation for the current season is to increase this volume at least ten-fold in order to meet a projected requirement of 1.1 million tons.”
As of Friday, the price of white maize was at R5 101 a ton.
White maize is a key baking ingredient for Pioneer bread.
The group said overall profitability was negatively impacted by volume and adverse raw material dynamics in both maize and wheat.
Weaker rand
The trading environment deteriorated given mounting concerns over the South African consumer in the light of the rising interest rates and significant inflation resulting from a weaker rand.
Pioneer Foods’ revenue went up 9 percent to R10bn, with adjusted headline earnings increasing by 7 percent to R887 million and adjusted headline earnings a share increasing by 6 percent to 479.3c.
Cash generated from operations increased by 39 percent to R690m amid working capital pressure as a consequence of soft commodity inventories.
Read also: Retailers positive about growth despite pinch
The group said the capital expenditure of R349m was R53m higher than the comparative period.
In December, Pioneer Foods acquired a 50 percent shareholding in Future Life for R200m and announced its disposal of interest in Maitland Vinegar, realising a profit of R24.2m from the sale.
The honed groceries portfolio generated significant operating leverage resulting in a 35 percent increase in operating profit from R253m to R343m.
The essential foods division saw its revenue increasing by 8 percent to R6.05bn while operating profit decreased by 8 percent to R645m. This resulted in an operating profit margin of 10.6 percent, against 12.4 percent last year.
The groceries division’s revenue increased by 7 percent to R2.51bn, while operating profit increased by 35 percent to R343m.
The international division saw its revenue increase by 20 percent to R1.45bn, while operating profit increased by 16 percent to R252m with an operating profit margin of 17.4 percent.
Consumer struggle
“We expect the consumer to struggle in the next six months as a rise in interest rates starts to have an effect,” Roux said.
“The country needs political stability and we don’t need another event like the sacking of the previous minister of finance as business needs stability to perform better,” he added.
The board declared a gross interim dividend of 105c a share from income reserves for the period. This was an increase of 11 percent, up from the 95c declared in the previous comparable period.
Pioneer Foods shares traded 4.12 percent higher yesterday on the JSE yesterday to close at R164.60.
BUSINESS REPORT