Pioneer to Boost its Broiler Business

SOUTH AFRICA - Pioneer Foods has announced its intention to become a national player in the chicken business, as it has already in the egg sector.
calendar icon 26 May 2009
clock icon 4 minute read

Swartland food giant, Pioneer Foods, which fattened its net trading margins considerably in the six months to end-March 2009, declared its ambitions to grow its Western Cape-based poultry business into a national player.

Speaking at a conference call yesterday, Pioneer's managing director, André Hanekom told Fin24 that the group's Tydstroom broiler business could go national in the longer term. "Either we'd build this presence from scratch, or look to acquiring a small player."

He pointed out that Pioneer already operated its egg business on a national basis.

Expansion for Pioneer's poultry division would make sense in the light of recent developments (involving Sovereign Food Investments, Afgri and Country Bird Holdings), which point to a consolidation in the local chicken industry.

Pioneer also needs to build on food businesses and brands outside its traditional staple food areas in cereals (Bokomo) and milling (Sasko), which account for about 70 per cent of the group's turnover and operating profit.

But Mr Hanekom stressed the immediate focus was on increasing profitability in the poultry business' key Western Cape market. He said there are plans under way to increase capacity in the Cape Town plant, with another broiler farm expected to come on stream shortly.

Ironically, the broiler business was the laggard in the interim period to end-March 2009. Pioneer's Agri Business segment – which includes chickens, eggs and feed – increased revenue 10 per cent to 1.34 billion rand (ZAR) but saw operating profit up only eight per cent to ZAR 41 million.

Mr Hanekom told Fin24 that stronger performance from the egg business was offset by a disappointing performance from the broiler business.

He explained that challenging trading conditions in the broiler business prevented a proper recovery of increased costs, and that certain on-farm performance measures were disappointing.

As a whole, Pioneer continued to benefit from strong performances from its Sasko and Bokomo businesses, with group revenue up 20 per cent to ZAR 8.4 billion.

While gross margins were squeezed slightly to just under 26 per cent, Pioneer pushed its net trading margin to 6.6 per cent (previously 5.6 per cent) by effective cost-cutting – especially, according to Mr Hanekom, on the distribution side of the business.

Cash profits from operating activities rose 32 per cent to ZAR 711 million with earnings coming in at 170 cents per share.

The quality of Pioneer's interim earnings was emphasised by reassuring net cash flows of ZAR 595 million.

Gearing was pegged at around the 32 per cent mark, with finance costs lopping ZAR 125 million off the income statement. However, Mr Hanekom said Pioneer was comfortable hiking the interim pay-out 20 per cent to 36 cents per share.

Addressing the gearing issue, Mr Hanekom said the increased interim dividend signalled that Pioneer's board was comfortable with the level of debt measured against cash flows.

He said Pioneer hoped to bring its gearing down to 25 per cent but stressed that current levels of gearing (32 per cent) are not a worry.

Looking ahead, Mr Hanekom believed Pioneer could sustain its solid profit performance over the second half of the financial year, pointing out that volumes in April and May were encouraging.

Pioneer's shares were up 0.56 per cent to 2,700 cents, in early trading yesterday, concludes the Fin24 report.

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