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ProNutro

New-shape Pioneer Foods looking ready for growth?

Many shareholders in Pioneer Foods may need to pluck up their courage to participate in the unbundling and separate listing of its poultry and egg business, Quantum Foods, later this year. The poultry industry is not having a good time. On the other hand, the recent merger of Pioneer’s consumer brands segments, Bokomo Foods and Ceres Beverages (CB), should fatten margins.

As an enlarged brands basket, reports the Financial Mail, the new segment looks compelling, even if there are (currently) a number of products in it that are not category leaders.

Bokomo’s brands include its well-known breakfast cereals and rusks as well as additional brands like Weet-Bix, Moir’s, ProNutro, Safari, Marmite, Bovril, Peck’s and Redro. CB’s brands include fruit juice brands Ceres, Liqui-Fruit, Fruitree and Wild Island, as well as soft drinks Pepsi and Lipton.

While Quantum’s prelisting bulking-up will be a fascinating process, the combining of Bokomo and CB into a broader consumer brands division could provide the growth ingredient Pioneer has been missing to push beyond its core foods business, Sasko.

In the group’s recently released annual report, CE Phil Roux makes two key observations. First, many of its brands are number one or two in their respective markets and could grow their value. He also notes Pioneer is well positioned to strengthen its participation in the “no name” products in supermarkets.

This suggests there could be developments at the newly-formed consumer brands division in 2014. Certainly it would balance the operational profile if the Sasko (bread and milling) division were not quite as dominant as it has been in recent years.

At the end of September 2013 Sasko churned R11bn in revenue for R808m in operating profits. The new consumer brands division should generate more than R8bn in revenue and perhaps as much as R650m in operating profits. In the year to September, Ceres turned R3bn of sales into operating profits of R264m – a bubbly margin of close to 9%. Bokomo earned R289m in operating profits from R3,5bn of sales – also a fairly decent margin of just over 8%, considering the array of brands.

The margins in the two components of the consumer brands division are higher than the 7,6% earned by Sasko. It seems reasonable to assume that the merged entity will achieve fatter margins as new efficiencies take effect (would 10% be a realistic medium-term target?).

The consumer brands division is already operating under a single management structure. Roux says the merger will result in a more efficient cost structure and a more focused approach to brand and customer management.

Reassuringly, he says revenue growth at acceptable margins is possible, enhanced by innovation and expansion into adjacent and new markets. Aside from new product launches and brand adaptations, both Bokomo and Ceres (particularly on the fruit juices side) made strong advances into African markets.

What might also enhance margins is Roux’s admission that Pioneer Foods’ portfolio includes certain underperforming businesses and brands “that are under scrutiny to be revitalised, rationalised or exited”…..

Financial Mail: Read the full article

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