Pioneer Foods: releases results for the first half year 2008

Paarl / ZA. (pfg) South African Pioneer Foods published its «Unaudited interim report for the six months ended 31 March 2008». Headline earnings increased by 10,0 percent to 222 million ZAR (South African Rand) on the back of a 25,0 percent growth in revenue to seven billion ZAR for the six months ended 31 March 2008. This earnings growth is moderate if compared to rather weak results in the comparative reporting period. If the once off deferred tax effect due to the lower income tax rate is reversed, headline earnings grew by only 3,0 percent.

Growth in revenue was driven predominantly by increased sales prices, as well as sustained volume growth in wheaten products, bread, pasta, rice, Pepsi and Weet-Bix. The higher selling prices were necessitated by substantially increased cost of raw materials, specifically wheat, and other costs.

Cash profit from operating activities increased by 11,6 percent to 540 million ZAR, whereas operating profit before items of a capital nature increased with 11,7 percent to 395 million ZAR. This lower growth rate in relation to revenue growth resulted in the operating profit margin declining from 6,3 percent to 5,7 percent due to the lagged recovery of steep increases in raw material and other costs. Pleasing though is the increase of the branded products margin from 6,9 percent to 7,4 percent mainly due to improved results from cereals.

Total debt increased to almost two billion ZAR, mainly as a result of an investment in working capital of 604 million ZAR together with 370 million ZAR invested in fixed capital. The increased debt, along with increased interest rates, resulted in an increase in net finance cost by 36 million ZAR for the reporting period. The substantial increase in working capital changes by 604 million ZAR (2007: 328 million ZAR) is largely the result of the abnormal increase in the cost of wheat, as well as increased debtors following the increased selling prices. Cash profit from operations was insufficient to fund the increased working capital needs for the period under review.

The fixed capital expenditure is in line with the approved capital expansion programme to address capacity constraints in the milling, baking, Weet-Bix and Pepsi businesses (source).