PFG - Pioneer Food Group  - Chairman's statement at annual general meeting,
business update and competition issues
PIONEER FOOD GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1996/017676/06)
JSE share code: PFG
ISIN: ZAE000118279
("the Company" or "Pioneer Foods")
Chairman's statement at annual general meeting, business update and competition
issues
Chairman's statement
Shareholders are advised that at the annual general meeting of Pioneer Foods,
held this morning, the Chairman reported that the improvement in profit for the
year was largely due to the price and volume growth seen in the first half of
the year with price and volume levels remaining static in the second half. Food
price inflation in the Pioneer Foods basket of products moderated sharply during
the second half of the year to September 2009 from around 16% to a mere 1%.
Shifting production and consumption patterns and the strengthening rand
complicated the refinement of procurement strategies and the setting of short-
to medium-term price points.
The Company is concerned about the plight of the consumer and as such won't
hesitate to adjust prices lower when it is in a position to do so.
At year-end the rand had strengthened by more than 30% to the US dollar from
October 2008 which, together with slower capital spend and lower debtor and
inventory values, unlocked R357 million from working capital for the year, which
is pleasing.
The Group's debt to equity ratio is 14% at year-end which is a significant
improvement from 34% the previous year and is well within the acceptable longer-
term goal of 20% - 25%.
Pioneer Foods continues to invest capital for future growth to facilitate the
next level of earnings ability with committed capital expenditure of R1.1
billion of which we expect to spend R900 million in the current financial year.
The main focus is on expanding and improving production facilities in the white
maize meal, biscuit, rice and non-alcoholic beverage categories. Some capital is
also allocated to the egg and broiler businesses to optimally position these
businesses for sustained profitability.
The Board approved a 35% increase in the final dividend to 89 cents per share,
given its positive view of the Group's sustainable profit growth and cash
generation ability in the longer term.
In turn the total dividend for the year increased by 30% to 125 cents per share,
amounting to some R251 million being returned to shareholders for this financial
year.
Business update
Volume growth recovered satisfactorily in most categories in the first four
months of the current financial year, though beverages remained weaker. Weet-Bix
benefited from larger production capacity in the run-up to the festive season.
Selling prices have contracted in most categories as commodity prices weakened
but upward pressures persist in energy, distribution and payroll costs.
Significant price decreases occurred in wheaten products (down 24%) and rice
(down 24%).
The price of bread reduced by 2% in the first four months of this year compared
to last year, as commodity prices weakened but the substantial upward cost
pressures mentioned remain, contributing more than 70% of the production cost of
bread.
Improving cost efficiency and continuing cost rationalisation has succeeded in
protecting margin in a muted growth environment.
Lower raw material prices and selling prices on average are reducing working
capital requirements and improving operational cash flow.
Comparative earnings growth for the six months to March 2010 over the
corresponding period is expected to be positive but to what extent is uncertain
at this early stage, further guidance will be issued in due course.
The information provided in this paragraph has not been reviewed or reported on
by the company's auditors.
Competition Issues
On 3 February 2010 the Competition Tribunal released its findings in the bread
matter.
The Board considered the findings and instructed management to bring the matter
to a swift close.
The Company regrets that its handling of the complaint referral created the
impression of being obstructive. It has never and will never knowingly condone
anti-competitive behaviour. The Board sincerely apologises if its actions
created impressions to the contrary.
The Board will take whatever actions are required to rectify the company's
position, including taking disciplinary action where appropriate.
On-going monitoring with the involvement of independent agencies will measure
the actions of management and staff to ensure continued compliance with the
provisions of the Competition Act.
At the end of 2009 Pioneer Foods was informed by the Commission that it had
concluded its investigation into the maize and wheat milling industries and
would soon be referring the matter, in which Pioneer Foods was named as a
respondent, to the Competition Tribunal for adjudication.
Although the Commission has not to date issued a complaint referral with regard
to the milling matter, it has invited Pioneer Foods to discuss the settlement of
the matter.  The Company has met representatives of the Commission in this
regard.
Should settlement discussions be successful, it is anticipated that Pioneer
Foods could pay an administrative penalty in accordance with the provisions of
the Competition Act, in addition to the bread case penalty.
The Company is committed to fully cooperate with the Commission in all
investigations where the Commission seeks its assistance resolving any other
competition related matters.
Conclusion
The Chairman would like to express a sincere word of appreciation to his fellow
directors and the management and staff of Pioneer Foods for their dedication to
the company and their achievements to place Pioneer Foods on a sound growth
footing for the long term.
In conclusion, the Chairman said that Pioneer Foods is well positioned to
capitalise on the exciting growth opportunities that exist for its ever
expanding product range as the Company continues its proud track record of
providing the consumer with choice and quality.
Paarl
19 February 2010
Sponsor
BJM Corporate Finance (Proprietary) Limited
Date: 19/02/2010 09:24:01 Produced by the JSE SENS Department.
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