FOOD & BEVERAGES: Spending Still Fine At Pioneer
Recent Western Cape Business News
PIONEER Foods, the R16 billion a year consumer brands conglomerate with its roots in the Swartland, hardly looks like a corporation that has been slapped into submission by huge fines imposed recently by the competition authorities.
Understandably, with huge settlements pending, Pioneer prudently skipped dividends in the year to end September 2010. But company chairman KK Combi stresses, in his annual review, that Pioneer will not reduce its committed capital expenditure of over R1.23 billion from 2010 to 2013 as a result of the settlement agreement.
In fact, Combi points out, Pioneer has further committed itself to increasing its capital expenditure by an additional R150 million.
In the year to end September Combi says Pioneer spent R725 million on expansions for future growth, while an additional R141 million was spent on maintenance and replacing of existing fixed assets.
He says roughly R1 billion will be spent in the new financial year to finish up projects still under construction, new expansions and necessary replacements.
Combi says the not insubstantial capital expenditure is a continuation of the focus of improving production facilities in the white maize meal, biscuit, rice and non-alcoholic beverage categories (see accompanying box on Pepsi).
This is not surprising since Pioneer’s earnings profile is still dominated by bread business Sasko, and bottom line diversity has been a key focus for the business over the last five years.
Combi disclosed that capital will be spent earlier than previously estimated to expand the capacity of the pasta facility to cater for increased demand - as well as the strategic expansion of the Cape-based broiler business (Tydstroom) through an acquisition in Gauteng (Tonko Chickens, for R130 million).
Combi says during the last financial year the planned improvement in the financial performance of the muesli business was realised with the relocation of the plant from KwaZulu-Natal to the cereal factory in Atlantis, Western Cape.
He stresses that the overall strategy to rationalise the manufacturing sites and product ranges and reduce overhead cost was successful with a much improved financial performance from the desserts and baking aids categories.
Pioneer’s new biscuit factory is scheduled for commissioning in May this year. Combi says products from the new factory will be available by the third quarter of 2011.
He says the focus will be to reposition the biscuit product range by improving the quality and introducing innovative new lines.
Combi also disclosed that the biscuit product range – which comes up against the formidable range offered by SA’s biscuit king AVI - will be launched under a new brand.
Some success was also notched up at egg business Nu-Laid. Combi reports this was due to the increases in efficiencies in the value chain and lower raw material prices.
He says a number of capital projects were completed during the reporting period as part of the strategy to reposition the egg business for optimal performance that should limit the impact of the down cycles.
Most important was the commissioning of Rondevlei farm which gave Nu-laid its first own egg-laying facility in the Western Cape.
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