Western Cape Business News

Send  Share  RSS  Twitter  24 Jul 2011

FOOD & BEVERAGES: Ceres Is Still 'Juicing It' For Pioneer Foods


Recent Western Cape Business News

IT’S hard to believe that just six years ago Pioneer Foods took control of a loss-making Ceres Beverages.

Readers may remember that the sellers of Ceres included liquor groups SABMiller and KWV. KWV – which ironically rebuffed Pioneer’s recent attempts to merge it into Ceres – sold its 25% stake in the beverages business for R74 million in early 2005.

With hindsight, it’s even harder to believe that more than a few observers initially doubted whether Pioneer could extract meaningful returns from a ‘difficult’ Ceres business.

Since 2005 Pioneer has not only expanded Ceres’ traditional fruit drink brands (which include Ceres, Liqui-Fruit, Fruitree, Wild Island, Daly’s and SuperFruit), but also added mineral water, carbonated soft-drinks (Pepsi, Mirinda, Mountain Dew) and more recently specialist beverages like Lipton Ice Tea.

The result of these efforts is that Pioneer is sitting with a nearly R3 billion a year business, and more importantly a business that is highly profitable and cash generative. When KWV sold its stake in Ceres, the business had an inferred value of less than R300 million. CBN would respectfully submit that valuation has grown substantially over the last six years…

Pioneer’s recent six months results showed Ceres Beverages increasing revenue by 6% to R1.4 billion – not a bad achievement considering that the company managed to increase sales volumes in all product categories despite wet and cold summer conditions.

More impressive is that Ceres’ operating profit jumped 12% to R122 million, which indicates that management did not sacrifice margins to push sales. In fact, Pioneer CEO Andre Hanekom hints that Ceres has more than a little flexibility in pricing, noting that “effective price management was entrenched by the strength of the brands in the portfolio”.

Hanekom highlights the fruit juice product category as the star performer during the interim period with double digit sales volume growth achieved in the local market.

He says the international fruit juice business managed to achieve sales volume growth in a “very competitive environment” despite the relatively strong rand.

There is also encouraging news at Pepsi. Hanekom says higher sales volumes in the Pepsi range of products contributed to the improved profitability of the segment.

Hanekom says Lipton Ice Tea – which was acquired from consumer brands giant Unilever in 2010 - achieved excellent volume growth. Not much other detail was given on Lipton’s performance. But CBN reckons this new category may well provide some added impetus to Ceres’ bottom line in the next three years.

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