Operational review

Grains

Noel Doyle

Chief operating officer

Salient features
  • Strong performance despite trying conditions
  • Market leadership restored in bread category
  • Jungle Ultra launched in fast-growing energy segment of breakfast market
Segment overview

The Grains division recorded a 7% rise in operating profit for the year to R2,1 billion, with operating margins of 18,1%.

Strategy

In line with the group’s strategic objective to profitably defend and grow our market share, the Grains division increased its marketing investment by 24% after a 25% increase in the prior year to support the sustainable performances of businesses in this division.

Performance
Rm 2015 2014 %
change
Turnover 11 375,4 10 948,6 4
Operating income* 2 060,8 1 918,9 7
Operating margin (%) 18,1 17,5  

*Before abnormal items

Milling and Baking

The bakeries business reported a modest increase in operating income, despite competition intensifying significantly. Volumes declined 3% in the first half, but recovered to growth in the second half, reflecting a measured response focused on the attributes of the Albany brand and supported by tactical pricing initiatives. In the second half, Albany regained its volume and value market share leadership.

International wheat prices declined during the year. However, this has been offset by the increase in the local wheat tariff, which was introduced in October 2014 and has subsequently increased by 480% from R157 per ton to R911 per ton. This, together with the impact of a weaker rand, has resulted in a significant increase in local wheat prices. Despite these developments, the wheat milling business delivered another solid performance, growing operating income and volumes. Margins improved modestly.

The maize price increased by 65% from January to September, reflecting drought in many producing regions. Despite this, maize milling reported strong growth in operating income and revenue. This performance was supported by ongoing product enhancements after upgrading the Randfontein mill in the prior period.

The performance of the sorghum and maize breakfast and beverage business was affected by delays in a capacity expansion capital project.

Other grains

A strong performance from the rice business is reflected in high single-digit volume growth that underscores the strength of our Tastic and Aunt Caroline brands. Lower international prices offset rand weakness to some extent.

The pasta business, which was incorporated into this division in the prior year, recorded a strong increase in operating income after another year of good volume growth.

The oats business generated strong top-line growth, driven by the resilience of the core Jungle offering and boosted by significant innovation, including the group’s entry to the fast-growing energy segment with Jungle Ultra. Operating profit growth was modest due to margin pressure from higher oat prices.

Outlook

With currency weakness expected to be a feature of the economic landscape for some time, and adverse weather conditions forcing significant increases in soft commodity prices, the focus will remain on driving operating efficiencies.


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