SOUTH AFRICA – Pioneer Food Group will try to sell its Pepsi bottling plants if they cannot be used elsewhere in the group, CEO Phil Roux said on Monday after Pioneer announced that it would stop producing Pepsi by the middle of next year.

Pioneer impaired its Pepsi bottling business by R34m in its year to end-September, after incurring further losses from the unit as a result of insufficient volumes.

Mr Roux said on Monday that by mutual agreement, Pioneer’s partnership with Pepsico “will be coming to an end by no later than July — we’ve been taking serious losses for a long time now”.

Pioneer acquired various assets to support its Pepsi bottling unit, and would either use the manufacturing assets elsewhere in its business or try sell them. “The coolers, from an agreement perspective, do get transferred — at a value of course — to the new bottler,” Mr Roux said.

Pioneer will still maintain a separate relationship with Pepsico through its rights to sell Lipton’s ice tea brands.

Lipton, which grew market share in SA in the past year, is a joint venture globally between Unilever and Pepsico.

“We see significant upside from a per capita growth perspective in SA for iced tea,” Mr Roux said.

As part of Pioneer’s portfolio adjustment strategy, it had completed a strategic review of its biscuits business, though Mr Roux said the decision was yet to be announced.

“There are a few others (units).… We’re either shelving them because of poor strategic fit — they don’t meet our portfolio requirements — or we see no way forward to fix or optimise them. Our one strategic pillar is to shape a winning portfolio, where we would seed, weed or feed. This is part of the weeding.”

Pioneer on Monday reported a 9% improvement in revenue from continuing operations for the year to September, to R17.7bn.

This excludes poultry business Quantum Foods, which was unbundled and separately listed a week after the financial year ended. Pioneer’s adjusted headline earnings were 38% higher at R1.17bn.

It hiked its final dividend 81% to 156c after reviewing its dividend policy, following the completion of a “peak capital investment period”, Mr Roux said.

It had lowered its dividend cover to 2.5-times earnings, which is still behind some of its competitors. Pioneer spent R486m on capital investments in the year, down from R1.38bn in 2013.

Mr Roux said Pioneer was “moving into a cash generation cycle”, though it would not neglect its assets and still had “firepower” for any acquisitions.

Meanwhile, he said Pioneer had made strong progress on its strategy to centralise various business functions and use of its parenting advantage.

“All of our accounts receivable and accounts payable are now located in Paarl in the shared service centre for finance and admin. That’s embryonic — we’ve just got it going.

“We’ve created Pioneer Foods Logistics Services (and) it’s starting to pay dividends.

“Our IT relationship that we outsource to BCX is now firmly in place, and that’s going well,” Mr Roux said. “Then we’re starting to make good strides in the (centralised) procurement front — we had McKinsey assisting us in the initial phases and now we’re starting to see some benefits.”

He declined to disclose expected savings from the programme as savings would be partially redeployed elsewhere in the business.

Vestact said in a research note on Monday that while Pioneer was a “well-run, good business”, the share price was slightly expensive and, as such, its preferred sector stock was Tiger Brands.

November 26, 2014;