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INTEGRATED REPORT

REALISING OUR POTENTIAL

PIONEER FOODS :: INTEGRATED REPORT :: 2014 1

Pioneer Foods has made good progress in establishing a more streamlined and agile business model. The “One Pioneer” model is enabled by the centralisation of select functional capabilities and restructuring at divisional level. The revitalisation of Pioneer Foods’ corporate identity is an expression of this renewal journey.

INTRODUCING THE NEW BUSINESS MODEL

PIONEER FOODS :: INTEGRATED REPORT :: 20142 PIONEER FOODS :: INTEGRATED REPORT :: 2014 3

ABOUT THIS REPORT

Scope and boundary

This integrated report covers the South African and international operations of the Pioneer Food Group Ltd (“Pioneer Foods”) or (“the Group”) for the period from 1 October 2013 to 30 September 2014. The report addresses both financial and non-financial information to enable stakeholders to assess the Group’s ability to create value.

The business divisions have been restructured during the course of the 2014 fiscal year, and therefore the reporting framework has been adapted to show financial performance, sustainability progress and information relating to the operating environment according to the following divisions:

Continuing operations

• Essential Foods (formerly Sasko)

• Groceries (formerly Bokomo Foods and Ceres Beverages)

Joint ventures

Joint ventures were reported as part of Bokomo Foods or Sasko in previous years. In line with the IFRS changes on joint venture reporting, joint ventures are now equity accounted and comparatives have been restated.

Discontinued operation

Quantum Foods was unbundled from the Group and listed as a separate entity on the Johannesburg Stock Exchange (“JSE”) on 6 October 2014. As in the 2013 integrated report, Quantum Foods is treated as an asset held for sale. The Zambian and Ugandan businesses are reported as part of this division.

Pioneer Foods International

Exports have been identified as a key growth vector for the Group. Accordingly, one of the objectives of the restructuring was to position Pioneer Foods International (“PFI”) as a separate business and will be reported as such in the new financial year. PFI will be incorporating all exports and operational responsibility for the dried fruit business. The equity accounted joint ventures of Bowman Ingredients SA, Heinz Foods SA, Bokomo Botswana, Bokomo Namibia, as well as the wholly-owned Bokomo Foods UK will also form part of the international business’s management responsibility.

Reporting approach

This integrated report follows international and South African reporting guidelines and best practices, including:

• The revised King Code on Governance Principles for South Africa (“King III”)

• The JSE Listings Requirements

• International Financial Reporting Standards (“IFRS”)

• The Companies Act, Act 71 of 2008, as amended

• Global Reporting Initiative (“GRI”) G4 Guidelines

The summary consolidated financial statements for the year ended 30 September 2014 can be found on page 104. The integrated report, as well as a complete set of annual financial statements, is available on the Group’s corporate website at www.pioneerfoods.co.za.

The integrated report can be requested in print format from the company secretary and relevant contact information is provided on page 129.

Assurance

The financial statements included in this report were independently audited by PricewaterhouseCoopers Inc. This is the first year that the Group has had certain non-financial data externally assured, and an assurance statement from EY is available on the Group’s corporate website at http://www.pioneerfoods.co.za/investors/financial-results-archive/, along with a full GRI G4 Index. Pioneer Foods’ B-BBEE status was verified by AQRate.

Approval

The Board of Pioneer Foods reviewed the 2014 integrated report on 20 November 2014 and is satisfied that it is a fair and accurate representation of the Group’s performance and prospects.

“ The report addresses both financial and non-financial information to enable stakeholders to assess the Group’s ability to create value.”


CONTENTS

Indicates further information available on the corporate website

Indicates information cross-referenced to other sections within the report

NEW BUSINESS

MODEL

CEO’S

REPORT

OPERATIONAL

REPORTS

SUSTAINABILITY

REPORT

p40

p30IFC

p56

Introducing the new business model IFC

About this report 2

Year at a glance 6

Group at a glance 8

Business model 14

Investment case 15

Strategy overview 16

Performance review 20

Chairman’s report 26

Chief Executive Officer’s report 30

Financial review 34

Operational report: Essential Foods 42

Operational report: Groceries 46

Operational report: Quantum Foods 52

Sustainability report 56

Corporate governance report 78

Value added statement 100

Summary consolidated financial statements 101

Corporate information IBCIFC: Inside front cover IBC: Inside back cover


YEAR AT A GLANCE

Financial performance

* Adjusted for the impact of the Phase I B-BBEE charge.

* Adjusted for the impact of the Phase I B-BBEE charge.

Non-financial milestones

Increased market share

in core categories

Shared Service Centre (“SSC”) for centralised group services created

and operationalised

Restructuring and rightsizing

exercise implemented responsibly

Information technology and application software outsourcing completed

Pioneer Foods received accolades

in the Sunday Times Top Brands Survey 2014, Product of the Year 2014 (White Star Quick and Bokomo Cornflakes) and Icon

brand recognition for Spekko rice

Further centralisation of

the procurement function

implemented

Learning academies initiated for capacity building in key areas

Pioneer Foods Logistics Services established

(“PFLS“), which will allow for the central and joint management of logistics services

Employee recognition

programme launched

Identification and implementation of energy

minimisation opportunities (“EMOs”) with the assistance of external

expertise

New management office and corporate identity

established to underpin the One Pioneer model

High performance culture is being embedded

2013: R16.2bn

Revenue from continuing operations: +9%

Operating profit from continuing operations*: +46%

2013: R1.15bn

Headline earnings*: +46%

2013: R0.85bn

Total dividend per share: +67%

2013: 132 cents

R17.7bn R1.24bn

221 centsR1.68bn


2014

GROUP AT A GLANCE

Pioneer Food Group Ltd(Listed on the Johannesburg Stock

Exchange)Pioneer Foods Holdings Ltd Pioneer Foods (Pty) Ltd

(Operational holding Company)

100% 100%

Geographic footprint

Pioneer Foods operates out of South Africa and exports to 80 countries across the globe. Primary export markets include:

Group operational structurePioneer Foods is a leader in the food and beverages industries in Southern Africa. The Group has operations in South Africa and two other African countries and sells its products around the world. The Group’s core business is the production, distribution, marketing and

selling of a diverse range of food, beverages and related products.

The Group in its current form (after the merger between Sasko and Bokomo) was established in 1997 and listed on the Johannesburg Stock Exchange (“JSE”) in 2008.

ChinaSouth KoreaPhilippines Japan

AlgeriaNigeriaGhanaMozambiqueZimbabweBotswanaNamibiaMauritiusDemocratic Republic of Congo

North America

UK GermanySwitzerland

The Group operates a number of world-class production facilities producing a range of products that are loved in most homes. The Pioneer Foods brand portfolio includes some of the most recognisable and best loved brand names in South Africa, including the seven power brands Weet-Bix, Liqui-Fruit, Ceres, Sasko, Safari, Spekko and White Star.

Sasko was renamed as Essential Foods, while Bokomo Foods and Ceres Beverages were consolidated into a single management structure as Groceries. The international portfolio is a well-

established business with an existing presence and long-standing relationships in core export markets. This business was reorganised as a stand-alone business, Pioneer Foods International (PFI), effective from 1 October 2014. The formation of PFI is indicative of the strategic focus to drive growth outside of South Africa.

Quantum Foods was unbundled from Pioneer Foods in October 2014 and is listed as a separate entity on the JSE.

ESSENTIAL FOODS GROCERIES QUANTUM

FOODS

Revenue R10 928m R7 069m R3 591m

Operating profit R1 075m R735m R22m

Profit margin 9.8% 10.4% 0.6%


Profile

Ceres Beverages produces fruit juices, fruit concentrate mixes, mineral water, ice tea, carbonated soft drinks and fruit-based beverages. The business is one of the largest beverage manufacturers on the African continent.

Production footprint

3 Ceres Beverages facilities

Product categories

Fruit juiceFruit concentrateCarbonated soft drinksIce tea

Power brands

CeresLiqui-Fruit

Other leading brands

Pepsi7UpLipton Ice TeaWild IslandCaribbeanDaly’sFruitree

Divisional overview

Profile

Essential Foods is a leading manufacturer of essential and value-added foods in South Africa. The division prides itself on being a supplier of quality and nutritious foodstuffs that are trusted by millions of consumers daily.


5 wheat mills3 maize mills2 rice and legume plants1 pasta plant15 bakeries

Product categories

Wheaten flourMaize flourRiceBreadPastaBeans and legumes

Power brands

White StarSasko Spekko


Select RiceNice RiceBlue BirdChampionPuccini PastaPasta GrandeImboCrossbow

Number of employees*

5 013

ESSENTIAL FOODS

More detail on the operating environment, performance and prospects of each division can be found in the operational reports beginning on page 40.

Following a change in IFRS requirements on joint venture reporting, the joint ventures are not included in this table. Joint ventures are equity-accounted and comparatives have been restated.

* Permanently employed by wholly-owned South African operations.

Profile

Bokomo Foods manufactures and markets a wide range of branded food products inclusive of some of the most recognisable brands in South Africa. The business’s primary operations are in South Africa, where it sells fast-moving consumer goods to the retail market, as well as bulk packed products to the industrial market.


18 Bokomo Foods facilities

Product categories

Breakfast cerealsDried fruitBaking aids and dessertsBiscuits

Power brands

SafariWeet-Bix


ProNutroMarmiteWellington’s HeinzBovrilMoir’sWerdaPeck’s AnchovetteRedro

GROCERIES

Profile

Quantum Foods comprises three integrated business units, Nulaid (eggs and commercial laying hens); Tydstroom (broilers and chicken products); and Nova Feeds (animal feed). Quantum Foods’ products are distributed to facilities in the Western Cape, Eastern Cape and Gauteng to major retail supermarkets, wholesalers and independent customers. The business also has broiler and layer breeding operations in Zambia and a commercial egg business in Zambia.


28 Nulaid sites 17 Tydstroom sites3 Nova Feeds factoriesBroiler and layer facilities in Zambia and UgandaCommercial egg farm in Zambia

Product categories EggsBroilersAnimal feeds

Leading brands Nulaid Tydstroom Nova Feeds


1 960

QUANTUM FOODS


2 651

The Pioneer Foods brand portfolio includes some of the most recognisable and best loved brand names in South Africa

GROUP AT A GLANCE (CONTINUED)


Segmental results

Segmental revenue (R’bn)

Global context

The global food and beverages industry is characterised by challenges and opportunities consequent to changing consumer behaviour due to globalisation, the environmental crisis, individualisation, the digital effect, demographic change and technical convergence. With local and international agricultural materials as key inputs, the industry is exposed to the interconnected impact

of shifts in weather patterns, commodity demand and supply cycles as well as volatile exchange rates. This combination of variables in a subdued global economy creates an environment of intense competition where companies must manage rising input costs and curtail margin compression, while remaining appealing to the consumer.

Trends Challenges Opportunities

Globalisation • Exchange rate volatility threatening stability in international export and import dynamics

• Growth in consumer activism around social and environmental impact of companies

• Product selection based on topical issues, such as genetically modified organisms (“GMOs”), traceability and food labelling

• Appropriate and flexible protection structures between countries to find mutually beneficial solutions

• Stringent cost management to leverage favourable conditions and limit impact of rising costs

• Lateral collaboration and strategic selection of export growth markets

• Product innovation, industry collaboration and responsible resourcing across the value chain

Individualisation and demographic change

• Socio-economic and political volatility in certain geographies

• Rising cost of living

• Increasing unemployment limiting consumer spending

• Nutritional value and product information of growing importance to health-conscious consumers

• Stringent cost management to expand margins and restrain price increases

• Potential to differentiate based on sustainability performance and improving the lives of consumers

Environmental crisis

• Declining availability of resources such as water, fuel and electricity

• Increased priority to reduce energy usage and carbon footprint

• Increased frequency of extreme weather patterns

• Range of variables causing fluctuating and unpredictable commodity prices

• Management strategies that make environmental and business sense

• Seeking and implementing commercially viable energy reduction initiatives

The digital effect and technical convergence

• Increasing digitisation of product channels, communication and marketing

• Interconnectivity outstripping data protection capability

• Reduced costs associated with e-communications and greater platform for reputational traction

• Investment in IT infrastructure to protect company and customer data

2013

2014

Bokomo Foods

Bokomo Foods

Quantum Foods

Quantum Foods

Ceres Beverages

Ceres Beverages

Essential Foods

Essential Foods

Segmental operating profit (R’m)

GROUP AT A GLANCE (CONTINUED)

10.310

.9

3.03.3

3.13.

7

3.6

3.6

784

1 07

5

329

264 40

7

279

22 (19)


BUSINESS MODEL

Prior to 2013, the Group operated on a decentralised basis with each division responsible for its full value chain with access to a limited suite of centralised services. Over the past 18 months, the Group implemented a new business model with the following rationale:

• Capitalise on the One Pioneer parenting advantage

• Streamline the business and embed an efficient cost structure

• Standardise systems and processes

• Implement best practice

• Develop category and customer focus

• Create a common corporate identity

The new business model comprises the following enabling features:

• The Groceries merger of Bokomo Foods and Ceres Beverages

• The creation of a focused international business

• Centralisation of procurement

• Centralisation of finance and administration in a Shared Service Centre (“SSC”)

• Centralisation of logistics under newly launched Pioneer Foods Logistics Services (“PFLS”)

• Outsourcing of the operational management of information technology (hardware) and application software (SAP)

Pioneer Foods creates value from its core business activities of strategic sourcing, production, distribution, marketing and selling of a diverse range of food, beverages and related products in collaboration with a network of producers, business partners and service providers.

INVESTMENT CASE

• The implementation of a clear and coherent strategy over the past 18 months has resulted in a more streamlined organisation with improved cost management, operational efficiencies and centralised Group services.

• The Group is highly cash generative and has sufficient debt capacity to enable Pioneer Foods to invest in growth – both organic and acquisitive.

• A significant number of the Group’s brands are either number one or two in their respective market categories, with the further potential to strengthen the equity of the seven power brands.

• The Group is well positioned to strengthen its participation in the retail private label segment.

• The Group’s extensive distribution network, significant capital infrastructure and strong brands in core categories present a high barrier to entry for new competitors.

• The conclusion of the capital expenditure programme positions the Group well to take advantage of future market growth opportunities.

• Part of the Group’s strategy has been re-evaluating certain underperforming businesses and brands in the portfolio and progress has already been made in this regard.

• Revenue growth at attractive margins is a strategic imperative and will be further enabled by innovation and expansion into adjacent and new markets.

• The cost and efficiency drive continues to aid and support the Group strategy.

Pioneer Foods operates in key categories in mature industries with its revenues well diversified by product mix, geography and urban and rural spread.


STRATEGY OVERVIEW

Vision

To be a leading FMCG company in Africa with globally trusted brands

SHAPE A WINNINGCORPORATE PORTFOLIO

RESET THE COST BASE

AND STEP UP PRODUCTIVITY

EMBEDSTRATEGIC CUSTOMER

MANAGEMENT

FOCUS ON POWER

BRANDS

BUILD A HIGH-

PERFORMANCE TEAM

Strategic themes

The intensive capital investment cycle of recent years bodes well for future growth and cash generation going forward.

The effective implementation of the strategy is an ongoing and dynamic process. The table below is an overview of the Group’s progress on the five strategic themes, as well as the associated

risks. Going forward, Pioneer Foods is focused on embedding the new business model, thereby enabling the Group to grow to its full potential.

Strategy implementation

Pioneer Foods defined five strategic themes to support the twin objectives of strengthening its brand positions and expanding its margins to ensure the organisation’s long-term sustainability.

Leading means:

Number 1 or 2 in select categories:

• Innovation at the core

• Consumer and category led

• Thought leadership with customers where Group holds the number 1 position

• Global best practice within all functions

FMCG means:

• Branded goods

• Private label products governed by “rules of engagement”

• Food and beverage products

Africa means:

• South Africa

• Southern Africa: Botswana, Namibia, Zambia, Mozambique, Zimbabwe, Mauritius

• East Africa: Uganda, Kenya, Ethiopia

• West Africa: Nigeria, Ghana, Algeria, DRC

Globally means:

• Targeted export destinations or viable acquisitive growth


SHAPING A WINNINGCORPORATE PORTFOLIO

Seed

• Expand into adjacencies

• Fast-track innovation

• Acquisitions

Weed

• Divest of marginal assets

• Stock-keeping unit (“SKU”) rationalisation

Feed

• Step change support levels and strategic direction of power brands

• Economic growth rates:

– Low GDP

– Increased competition

– Few acquisition targets

– Innovation failure

• Concluded evaluation of underperforming assets with appropriate action identified

• Stock-keeping unit rationalisation

• Pioneer Foods International positioned as a growth vector

• Unbundling of Quantum Foods

• Bakeries re-engineering is gaining traction

• Market share increase

• The bottling contract with PepsiCo International will not be renewed in 2015 by mutual agreement

FOCUS ON POWER BRANDS

• Understanding consumer need states

• Brand portfolio strategy

• Innovation and revitalisation focus

• Segmentation modelling

• Enhanced brand investment

• Increased focus on marketing competencies

• Market share loss:

– Private label growth

– Talent retention

– Increased competition

• Increased investment in consumer insights

• Robust category strategies formulated

• 59 new product offerings

• White Star Quick and Bokomo Corn Flakes voted Product of the Year 2014

• Icon brand status awarded to Spekko rice

• Several brands recognised in Sunday Times Top 100 Brands Survey

EMBEDSTRATEGIC CUSTOMER

MANAGEMENT

• Joint business planning

• Customer-centric organisational design

• Trade terms optimisation

• Skills and capacity development

• Optimise channel and customer mix

• Market share loss and competition:

– Constrained consumer spending

– Private label growth

• Product safety and contamination:

– Consumer activism

• Selective joint business planning with retailers

• Customer-centric organisational structure established

• Customer-centric training curriculum developed

• Brand Academy curriculum developed

• Marketing competency calibration and defined competency framework

• Pioneer Foods In-Store merchandising partnership enhanced

• Trade terms structure reviewed

Strategic themes Initiatives Risks 2014 progress Strategic themes Initiatives Risks 2014 progress

RESET THE COST BASE AND STEP UP

PRODUCTIVITY

• Organisational restructuring and streamlining

• Capitalise on parenting advantage and “One Pioneer” business model

– Procurement

– Finance and admin

– Logistics

• Efficiency management focus

– Pricing

– Manufacturing

• Efficiency and cost focus:

– Savings targets not fully realised

– Deployment of full savings to be competitive

• Input cost volatility

• Business interruption

• Rightsizing exercise completed for 2014

• Consolidation of Bokomo Foods and Ceres Beverages completed

• Further centralisation of procurement

• Pioneer Foods Logistics Services (“PFLS”) established

• Year-on-year total operating costs maintained below inflation

• Completed IT outsourcing (hardware and applications support)

• Energy minimisation opportunities (“EMOs”) identified and implemented

BUILD A HIGH-PERFORMANCE

TEAM

• Talent calibration

• Transformation

• Talent management

• Skills development

• Strengthening of employer proposition

• Talent and high performance culture:

– Skills availability

– Slow cultural evolution

• Governance and regulatory compliance

• Technology and innovation

• Transformation

• Talent pool assessment and job grading completed

• Leadership brand design redevelopment completed

• Short and long-term incentive schemes (“STI” and “LTI”) redesigned to align with strategic objectives

• Improved talent management

• Enhanced focus on employee engagement

in progress completed

STRATEGY OVERVIEW (CONTINUED)


PERFORMANCE REVIEW

Financial performance summary

2014 2013 ChangeFinancial results (R’m)Revenue for continuing operations 17 699 16 241 9%Operating profit, before items of a capital nature for continuing operations:

Actual 1 493 1 007 48%Adjusted* 1 680 1 153 46%

Headline earnings:Actual 1 055 707 49%Adjusted* 1 242 853 46%

Headline earnings for continuing operations* 1 169 846 38%Net cash profit from operating activities 2 134 1 556 37%Net cash generated from operations 2 154 1 429 51%Capital and reserves 6 102 6 581 (7%)

Performance per share (cents)Headline earnings:

Actual 576 390 48%Adjusted* 678 470 44%

Headline earnings for continuing operations* 637 467 36%Dividend** 221 132 67%Net asset value 3 318 3 598 (8%)Price at year-end 11 800 8 750 35%

Core ratios (%)Operating profit margin for continuing operations* 9.5 7.1Return on average net assets for continuing operations* 26 18Return on average shareholders’ funds* 20 13Net debt-to-equity 9 22

* Adjusted for the impact of the Phase I B-BBEE charge. ** The dividend for 2014 excludes the dividend in specie declared with the unbundling of Quantum Foods.

Non-financial performance summary

2014 2013Number of employees 9 724 11 058B-BBEE level 4 4CSI spend R31 million R34 millionEnergy consumption (MWh) 692 919 668 513Water withdrawal (m3) 3.1 million 4.7 millionScope 1 and 2 emissions (tCO2e) 380 539 453 495

Group five-year financial review

2014

R’m

2013Restated

R’m

2012*

R’m

2011*

R’m

2010*

R’mConsolidated statement of comprehensive incomeRevenue 21 290.0 19 811.1 18 609.8 16 853.1 15 731.3

Profit before items of a capital nature and income tax 1 541.2 930.9 922.0 1 050.8 629.9 Before adjustments 1 728.5 1 076.8 1 047.1 1 095.8 1 332.1 Competition Commission penalties – – – – (654.2)Broad-based employee share incentive scheme share-based payment charge (187.3) (145.9) 35.6 (45.0) (48.0)Once-off share-based payment charge on B-BBEE equity transaction – – (160.7) – –

Items of a capital nature (123.0) (220.2) (5.4) (0.8) (10.3)Income tax expense (451.9) (210.6) (311.9) (319.9) (383.9)Profit for the year 966.3 500.1 604.7 730.1 235.7 Attributable to:Owners of the parent 965.2 498.6 603.6 728.8 234.5 Non-controlling interest 1.1 1.5 1.1 1.3 1.2

966.3 500.1 604.7 730.1 235.7

Operating profit before items of a capital nature 1 583.6 1 008.0 1 036.8 1 191.3 753.0 Headline earnings for the year 1 055.1 706.7 606.2 726.2 236.4

Consolidated statement of financial positionProperty, plant and equipment, intangible assets and biological assets 6 005.8 5 996.6 5 393.7 4 941.6 4 271.3 Deferred income tax 6.8 77.2 2.7 2.6 2.7 Loans to joint ventures and investment in associates 408.4 350.9 56.9 29.9 35.2 Non-current trade receivables and available-for-sale financial assets 93.4 79.7 73.2 63.6 56.0 Current assets 6 395.8 5 230.0 5 079.6 4 825.3 4 512.1 Total assets 12 910.2 11 734.4 10 606.1 9 863.0 8 877.3

Capital and reserves attributable to owners of the parent 6 102.4 6 581.3 6 184.9 5 488.3 4 751.4 Non-controlling interest 10.4 9.3 8.2 7.5 6.5 Total equity 6 112.8 6 590.6 6 193.1 5 495.8 4 757.9 Non-current borrowings 1 513.5 1 457.3 497.7 849.0 946.2 Provisions, non-current derivative financial instruments and share-based payment liability 362.3 381.0 227.4 259.3 216.9 Non-current liability – accrual for Competition Commission penalties – – – 202.1 391.8 Deferred income tax 644.1 671.9 652.4 580.6 519.1 Current liabilities, excluding accrual for Competition Commission penalties 4 277.5 2 633.6 2 820.0 2 260.7 1 978.7 Current liability – accrual for Competition Commission penalties – – 215.5 215.5 66.7 Total equity and liabilities 12 910.2 11 734.4 10 606.1 9 863.0 8 877.3

Consolidated statement of cash flowsNet cash profit from operating activities 2 133.9 1 556.3 1 514.9 1 563.3 1 609.9

Before Competition Commission penalties paid 2 133.9 1 556.3 1 514.9 1 563.3 1 805.6 Competition Commission penalties paid – – – – (195.7)

Working capital changes 27.5 66.8 (266.2) (446.8) 95.1 Accrual for Competition Commission penalties paid – (216.7) (216.7) (66.7) – Cash effect from hedging activities (7.8) 22.7 (32.2) 14.2 18.7 Income tax paid (386.4) (233.1) (257.7) (261.5) (353.0)Net cash flow from operating activities 1 767.2 1 196.0 742.1 802.5 1 370.7 Net cash flow from investment activities (392.7) (1 287.2) (753.0) (933.4) (805.3)Net cash surplus/(deficit) 1 374.5 (91.2) (10.9) (130.9) 565.4 Net cash flow from financing activities (422.0) (200.2) 44.6 (232.3) (448.6)Net cash and short-term borrowings from business combinations and disposal of subsidiaries – – (11.3) – – Net increase/(decrease) in cash, cash equivalents and bank overdrafts 952.5 (291.4) 22.4 (363.2) 116.8

Note:* Not restated for the impact of IFRS 11 – Joint Arrangements and IAS 19 (revised) – Employee Benefits.


Group five-year financial review (continued)

2014

R’m

2013Restated

R’m

2012*

R’m

2011*

R’m

2010*

R’m

Profitability (%)

Revenue growth 7.5 6.5 10.4 7.1 (3.4)

Operating profit margin (Note 1) 7.4 5.1 5.6 7.1 4.8

Operating profit margin (Note 2) 8.3 5.8 6.2 7.3 9.3

Effective tax rate 31.9 29.6 34.0 30.5 62.0

Return on average net assets (Note 1) 19.4 12.9 14.3 19.3 13.3

Return on average net assets (Note 2) 21.7 14.8 16.1 20.0 24.8

Return on average shareholders’ funds (Note 1) 16.6 11.1 10.4 14.2 5.0

Return on average shareholders’ funds (Note 2) 19.6 13.4 12.5 15.1 18.7

Liquidity and solvency

Net debt-to-equity ratio (%) 9.2 21.8 16.1 13.8 8.5

Current ratio (times) 1.5 2.0 1.7 1.9 2.2

Acid test ratio (times) 0.8 0.9 0.8 0.9 1.2

Cash profit interest cover (times) 18.8 15.1 12.9 11.0 12.9

Net interest cover (times) 13.9 9.7 8.8 8.4 6.0

Dividend cover (times) 2.5 2.9 2.9 4.7 –

Performance per share (cents)

Earnings 526.5 275.0 335.6 408.4 132.5

Headline earnings (Note 1) 575.6 389.8 337.1 407.0 133.5

Headline earnings (Note 2) 677.8 470.3 406.6 432.3 530.2

Dividend 221.0 132.0 114.0 80.0 –

Net asset value 3 318.1 3 598.1 3 415.3 3 059.7 2 667.9

Productivity

Revenue to net asset cover (times) 3.5 3.0 3.0 3.1 3.3

Revenue per employee (R’000) 2 066.2 1 703.4 1 494.0 1 349.5 1 255.5

Net assets per employee (R’000) 592.2 565.9 496.5 439.5 379.2

Number of permanent employees 10 304 11 630 12 456 12 488 12 530

Notes:1. Calculated after the accrual for the Competition Commission penalties (only 2010), the once-off share-based payment charge

on the Phase II B-BBEE equity transaction (only 2012) and the annual share-based payment charge on the Phase I B-BBEE equity transaction.

2. Calculated before the accrual for the Competition Commission penalties (only 2010), the once-off share-based payment charge on the Phase II B-BBEE equity transaction (only 2012) and the annual share-based payment charge on the Phase I B-BBEE equity transaction.

* Not restated for the impact of IFRS 11 – Joint Arrangements and IAS 19 (revised) – Employee Benefits.

2014

R’m

2013Restated

R’m

2012*

R’m

2011*

R’m

2010*

R’m

Segments

Revenue

Essential Foods (formerly Sasko) 10 927.5 10 314.4 9 940.4 9 054.6 8 314.1

Quantum Foods 3 591.4 3 575.6 3 097.6 2 714.6 2 453.2

Bokomo Foods 3 728.3 3 148.4 3 071.6 2 760.3 2 683.2

Ceres Beverages 3 340.8 3 021.2 2 798.2 2 577.4 2 483.7

21 588.0 20 059.6 18 907.8 17 106.9 15 934.2

Less: Internal revenue (298.0) (248.5) (298.0) (253.8) (202.9)

21 290.0 19 811.1 18 609.8 16 853.1 15 731.3

Operating profit before items of a capital nature

Essential Foods (formerly Sasko) 1 074.9 784.3 941.6 879.2 350.9

Before accrual for Competition Commission penalties 1 074.9 784.3 941.6 879.2 1 005.1

Accrual for Competition Commission penalties – – – – (654.2)

Quantum Foods 21.6 (18.9) (42.3) 116.0 143.7

Bokomo Foods 406.7 279.0 263.8 223.2 238.1

Ceres Beverages 328.7 263.8 88.3 136.5 169.9

Other (115.7) (154.3) (89.5) (118.6) (101.6)

Adjusted operating profit before items of a capital nature 1 716.2 1 153.9 1 161.9 1 236.3 801.0

Once-off share-based payment charge on B-BBEE equity

transaction – – (160.7) – –

Reversal of depreciation charge in Quantum Foods legal entities (asset held for sale) 54.7 – – – –

Share-based payment charge on Phase I B-BBEE transaction (187.3) (145.9) 35.6 (45.0) (48.0)

Operating profit before items of a capital nature 1 583.6 1 008.0 1 036.8 1 191.3 753.0

Depreciation and amortisation

Essential Foods (formerly Sasko) 155.4 137.7 137.3 121.9 124.9

Quantum Foods – 56.1 44.5 34.9 24.3

Bokomo Foods 76.5 70.5 70.2 61.6 61.6

Ceres Beverages 64.7 62.9 53.6 47.1 60.7

Other 29.4 45.6 39.0 36.0 26.9

326.0 372.8 344.6 301.5 298.4

Note:* Not restated for the impact of IFRS 11 – Joint Arrangements and IAS 19 (revised) – Employee Benefits.

PERFORMANCE REVIEW (CONTINUED)


Share price statistics DefinitionsOperating profit marginOperating profit, before items of a capital nature, as a percentage of revenue.

Effective tax rateIncome tax expense included in profit or loss as a percentage of profit before income tax.

Return on average net assets Operating profit, before items of a capital nature, as a percentage of total assets, excluding any investment in and loans to joint ventures, investments in associates, available-for-sale financial assets, non-current trade and other receivables, cash and cash equivalents, current income tax assets and deferred income tax assets, reduced by trade and other payables, provisions for other liabilities and charges, derivative financial instruments, accruals for Competition Commission penalties and share-based payment liabilities. The average is based on the carrying values as at the beginning and end of the year.

Return on average shareholders’ fundsHeadline earnings as a percentage of average capital and reserves attributable to owners of the parent, as determined at the beginning and end of the year.

Net debt-to-equity ratioBorrowings, net of cash and cash equivalents, as a percentage of capital and reserves attributable to owners of the parent.

Current ratioRatio of current assets to current liabilities.

Acid test ratioRatio of current assets less inventories and current biological assets to current liabilities.

Cash profit interest cover Net cash profit from operating activities plus dividends received, divided by net interest.

Net interest coverOperating profit, before items of a capital nature, plus dividends received, divided by net interest.

Dividend coverHeadline earnings for the year adjusted for the IFRS 2 share-based payment charge on the Phase I B-BBEE transaction, and in 2012 the once- off IFRS 2 share-based payment charge on the Phase II B-BBEE equity transaction, divided by total dividends declared (including dividends on class A ordinary shares).

Net asset value per share Capital and reserves attributable to owners of the parent divided by the total number of issued ordinary shares, excluding treasury shares held by a subsidiary, treasury shares held by the share incentive trust, treasury shares held by the participants to the B-BBEE equity transaction and treasury shares held by the Pioneer Foods Broad-Based BEE Trust.

Revenue to net asset cover Revenue divided by net assets.

Revenue per employeeRevenue divided by permanent employees at year-end.

Net assets per employeeCapital and reserves attributable to owners of the parent divided by permanent employees at year-end.

Market capitalisation Market price per ordinary share at year-end multiplied by the total number of issued ordinary shares.

Dividend yield Dividend per ordinary share divided by the market price per ordinary share at year-end.

Headline earnings yield Headline earnings per ordinary share divided by the market price per ordinary share at year-end.

Earnings yieldEarnings per ordinary share divided by the market price per ordinary share at year-end.

Price earnings ratio Market price per ordinary share at year-end in relation to headline earnings per ordinary share.

Ordinary share/sharesFor the purposes of all the above definitions ordinary share/shares exclude(s) class A ordinary shares.

Impact of Phase I B-BBEE transactionAnnual cash-settled IFRS 2 share-based payment charge on class A ordinary shares issued to employees in terms of a broad-based employee share scheme.

Impact of Phase II B-BBEE transactionOnce-off non-cash flow IFRS 2 share-based payment charge on ordinary shares in terms of a B-BBEE equity transaction.

PERFORMANCE REVIEW (CONTINUED)

GROUP2014 2013

Restated2012* 2011* 2010*

Share trading statistics

Price per share (cents):

At year-end 11 800 8 750 5 300 5 900 4 760

High 12 849 8 860 6 500 6 350 4 995

Low 7 802 5 250 5 150 4 765 3 202

Net number of issued shares (’000):

Total number of issued shares 231 692 231 007 230 314 201 237 201 192

Number of treasury shares – share incentive trust (1 110) (1 422) (2 545) (3 881) (5 112)

Number of treasury shares – subsidiary (17 982) (17 982) (17 982) (17 982) (17 982)

Number of treasury shares – participants to B-BBEE equity transaction (18 092) (18 092) (18 092) – –

Number of treasury shares – BEE Trust (10 600) (10 600) (10 600) – –

183 908 182 911 181 095 179 374 178 098

Market capitalisation (R’000) 27 339 642 20 213 099 12 206 642 11 872 983 9 576 738

Dividend yield (%) 1.9 1.5 2.2 1.4 –

Headline earnings yield (%) (Note 1) 4.9 4.5 6.4 6.9 2.8

Headline earnings yield (%) (Note 2) 5.7 5.4 7.7 7.3 11.1

Earnings yield (%) 4.5 3.1 6.3 6.9 2.8

Price earnings ratio (times) (Note 1) 20.5 22.4 15.7 14.5 35.7

Price earnings ratio (times) (Note 2) 17.4 18.6 13.0 13.6 9.0

Notes:1. Calculated after the accrual for the Competition Commission penalties (only 2010), the once-off share-based payment charge

on the Phase II B-BBEE equity transaction (only 2012) and the annual share-based payment charge on the Phase I B-BBEE equity transaction.

2. Calculated before the accrual for the Competition Commission penalties (only 2010), the once-off share-based payment charge on the Phase II B-BBEE equity transaction (only 2012) and the annual share-based payment charge on the Phase I B-BBEE equity transaction.

* Not restated for the impact of IFRS 11 – Joint Arrangements and IAS 19 (revised) – Employee Benefits.

26 PIONEER FOODS :: INTEGRATED REPORT :: 2014 27

CHAIRMAN'S REPORT

It is imperative that the Group continuously considers its social, environmental and economic impact required to operate a sustainable and ethical business. Pioneer Foods continues to invest in various corporate social investment and sustainability initiatives in the communities surrounding its operations.

Governance and compliance

The Board of Pioneer Foods is committed to the principles of good corporate governance, as articulated in the King Code of Governance for South Africa, 2009 (“King III”). The Board is kept informed on the Group’s progress and performance against the approved strategy and plays a definitive role in assessing all corporate activity and investment decisions.

Pioneer Foods is a listed company involved in the manufacturing and supplying of food, beverages and related products, and is subject to a comprehensive suite of regulatory compliance requirements. The Group has developed a compliance framework that involves

the monitoring of any regulatory changes and assessing the potential impact on the Group, customers and, ultimately, the consumer. This framework is based on the Generally Accepted Compliance Practice (“GACP”), as endorsed by the Compliance Institute of Southern Africa (“CISA”).

Business environment

Pioneer Foods is directly impacted by the lacklustre market conditions that influence South Africa’s current economic, social and political environment. It is critical to the sustainability of the country that South Africa’s brand proposition is improved in the eyes of the global investment community to encourage a growth environment. Without industrial growth and significant infrastructural investment, the current social limitations of unemployment, inadequate education and increased labour unrest will continue to inhibit the country’s progress. Opportunities remain for businesses to collaborate with government on alleviating the burden of policy uncertainty and investing in real growth.

Introduction

Pioneer Foods has made a compelling start to its journey of “creating the future” towards 2018. The organisation has undergone significant change in a challenging operating environment that has enhanced the organisation’s ability to create value on a sustainable basis. The priority going forward is to maintain this momentum, entrench leading practices and to identify opportunities for growth.

ZL CombiChairman

PIONEER FOODS :: INTEGRATED REPORT :: 2014


CHAIRMAN'S REPORT (CONTINUED)

Milestones

Pioneer Foods step-changed its performance in a challenging environment:

• Executive leadership established a robust and agile business model underpinned by a clear and compelling corporate strategy, thereby enhancing the Group’s ability to respond to challenges and opportunities in the market.

• Restructuring at operational and corporate level resulted in improved focus and efficiencies.

• The separate positioning of the international business to drive export sales growth and expansion.

• Quantum Foods was successfully unbundled to existing shareholders and listed on the Johannesburg Stock Exchange on 6 October 2014.

• In terms of human capital, the Group is focused on creating an enabling environment of growth and leadership, and particular emphasis will be placed on driving transformation and equal opportunities within the organisation.

Prospects

Following a year of intense internal focus that produced tangible results, the focus for the coming year will be bedding down the more streamlined

structure and business model to sustain the positive impact of the strategy on the Group’s value creation process.

The Group’s most valued intellectual capital resides in its brands and its people, as both represent the organisation’s competitive edge in the market. Pioneer Foods is focused on leveraging the existing potential in each of its brands to increase penetration through marketing and innovation initiatives, thereby unlocking growth.

Appreciation

I extend my gratitude to all Pioneer Foods stakeholders for their commitment to the Group during this period of internal transformation in a constrained external environment. I would like to thank Phil Roux and the leadership of Pioneer Foods for their tenacity and dedication to the Group strategy which will take this business into the future.

ZL CombiChairman


CHIEF EXECUTIVE OFFICER'S REPORT

PIC TO COME

The good performance is an indication of Pioneer Foods’ resilience and commitment to the new business model and structure, thereby enabling its future sustainability. The achievements to date show a positive start along this necessary journey, and will be maintained with clearly articulated growth strategies and rigorous cost management. The promising part is that, while much has been achieved, numerous value creation opportunities remain.

The implementation of the corporate strategy is progressing well as the Group strives towards its goal of being the reference point for fast-moving consumer goods (“FMCG”) in South Africa. Chapter one, the internal focus of the strategy, is largely complete, and many of the objectives which the Group committed to have been achieved or are in progress. Chapter two relies on sustaining the aforementioned and ingraining a deeper focus on growth in a more granular way.

Challenges

In a constrained consumer market, competition intensifies. The local market comprises a combination of formal and informal trading platforms, marketing and selling of products to a diverse range of consumers across the socio-economic spectrum. This requires a dynamic demand management approach. Cost push and consequent margin compression remain the primary challenges for the industry.

The pedestrian growth of the South African economy in recent years has not shown any signs of improving in the short term, as unemployment remains cripplingly high and labour demands continue to outstrip productivity improvements. Hence the imperative of bolstering the power brands, optimising efficiencies and pursuing opportunities to grow and diversify is of paramount importance.

Introduction

Pioneer Foods is proactively managing current market challenges by focusing on the twin objectives of strengthening the brands and expanding margins. The Group has come through an intense and challenging year defined by difficult external conditions as well as significant internal change.

PM RouxChief Executive Officer


CHIEF EXECUTIVE OFFICER'S REPORT (CONTINUED)

Financial results

In the face of a challenging operating environment, Pioneer Foods delivered a pleasing set of results, with revenue from continuing operations (excluding Quantum Foods) increasing by 9% to R17.7 billion.

Operating profit for continuing operations, adjusted for the impact of the Phase I B-BBEE charge, increased by 46% to R1.680 billion at a margin of 9.5% compared to 7.1% in 2013.

Total Group headline earnings (inclusive of Quantum Foods), as adjusted, grew 46% to R1 242 million, representing 678 cents per share.

A final dividend of 156 cents per share was declared, which brings the total dividend for the year to 221 cents, an increase of 67%.

More information on Pioneer Foods’ financial performance can be found in the Financial Review on page 34.

Strategy implementation

Strategy development involved identifying areas with the potential to unlock value with the requisite changes to the business model. This exercise has provided Pioneer Foods with clear direction for a structured journey of continuous improvement into the future. It is imperative that a culture of high performance becomes ingrained within the organisation. Refer to the strategy overview on page 16 for detail on initiatives and implementation progress during the year.

Non-financial performance

Sustainability imperatives underpin the five themes of the corporate strategy as businesses in the world of today cannot be successful at the expense of society or the environment. The milestones achieved over the past 18 months were accompanied by intensified stakeholder engagement across all channels. The major initiatives associated with the centralisation of Group services and the consolidation of the One Pioneer model required the support of employees and business partners.

Reducing energy usage is a priority for all businesses and presents a particular challenge in the production-intensive FMCG industry. The Group has a responsibility to reduce its energy usage and carbon footprint wherever possible, and energy efficiency represents an important component of cost management. This is not only significant in light of the impending carbon taxation, but is part of a global drive to reduce the negative impact of human activity on the environment. Pioneer Foods participated in the Carbon Disclosure Project for the fourth time and publicly disclosed its performance for the first time during the year. The Group recorded an improvement in its overall score, and appropriate benchmarks and goals have been set to reduce energy usage in the short, medium and long term.

Pioneer Foods provides support to a range of community initiatives primarily focused on education, environment and food security programmes. Investment in social and economic development is important to the longevity of the Group, as the development of the local population will ultimately ensure a sustainable consumer environment in future.

More information on Pioneer Foods’ sustainability approach, performance and prospects can be found on page 56.

“ In the face of a challenging operating environment, Pioneer Foods delivered a pleasing set of results.”

Outlook

The overarching objective for Pioneer Foods is sustaining growth in a difficult market by consistently and diligently aligning operational performance with the corporate strategy. The Group has bolstered its asset base during the capital expenditure cycle of recent years, with 2014 being marked by the full commercialisation of the Shakaskraal bakery and largely completed consolidation of Malmesbury and Paarl mills. Capital expenditure going forward will mainly be linked to asset care and to optimise productivity. Pioneer Foods is geared for growth.

The expansionary focus is not limited to South Africa and opportunities in new geographies will be explored to deleverage the impact of conditions in the local markets. Africa represents opportunities for and challenges to expansionary growth, and the Group is committed to thorough and extensive market research to understand the context of potential markets on the continent. Pioneer Foods International has been positioned as a growth vector to further expand the Group’s sizeable existing international platform, both in terms of exports and in-country business partnerships.

I would like to thank our committed employees who have again proved their resilience in the face of necessary change. Thanks go to the senior teams for their dedication to the implementation of the strategy, and to the Board for its continued support and guidance.

PM RouxChief Executive Officer


FINANCIAL REVIEW

The Group performed well for the year under review generating positive leverage of more than five times given a revenue growth of 9% and adjusted operating profit growth of 46%. The following salient features underpinned this performance:

• Beverage and cereal volume growth

• Normalisation of maize profitability

• Traction in bakeries across the value chain

• Power brands’ share recovery and gains

• Robust Africa and international performance

• Significant benefits from cost and efficiency efforts

• Quantum Foods’ turnaround and unbundling

The financial performance and reporting for the year has been impacted by the treatment of Quantum Foods as a discontinued operation and non-operational costs related to the Phase I (2006) B-BBEE transaction. Statutory results are therefore adjusted in the table below and throughout this report to provide clarity on comparable operational performance.

Unbundling of Quantum Foods and impairments A comprehensive process was followed to ensure the successful unbundling and ultimate listing of Quantum Foods on the JSE on 6 October 2014. This was a key component of “shaping a winning corporate portfolio” given a core focus on building a branded business. As at 30 September 2014, and for the comparative period, Quantum Foods was treated as an “asset held for sale” and treated as a “discontinued operation” in the financial results.

In terms of IFRS 5, the net assets of Quantum Foods have to be valued at each reporting date and recognised at the lower of carrying amount and fair value less costs to sell. An independent valuation, which reflected the continued macro-challenges of the broiler industry, resulted in a further impairment for the year of R57 million after tax (2013: R208 million).

Due to sustained losses, the investment in the Pepsi business was impaired in the reporting period by an after-tax amount of R34 million.

The above impairments are included in items of a capital nature.

Group summary 2014 2013 Change

Total earnings (R’m) 965 499 93%

Earnings per share (cents) 527 275 92%

Plus: Items of a capital nature (after tax) (R’m) 90 208

Headline earnings (R’m) 1 055 707 49%

Headline earnings per share (cents) 576 390 48%

Adjusted for after-tax effect of Phase I B-BBEE transaction 187 146 28%

Adjusted headline earnings (R’m) 1 242 853 46%

Adjusted HEPS (cents) 678 470 44%

Impact of non-operational costs related to the B-BBEE Phase 1 transactionThe 2006 Phase 1 B-BBEE transaction, benefiting more than 11 000 employees at the time, is a cash-settled scheme. The number of participants has declined to 3 218 as at 30 September 2014 as a result of beneficiaries leaving the Group’s

employment. The total pre-tax value paid to such beneficiaries amounts to R185 million since inception of the scheme. The outstanding obligation is remeasured to fair value taking into account the Pioneer Foods share price at each reporting date. For the year under review the share price increased by 35% from R87.50 to R118.00, resulting in a charge to profit or loss of R187.3 million. The charge in 2014

Revenue from continuing operations increased by 9% to R17.7 billion for the period under review. This is largely attributable to increased selling prices, exports and sales mix. There was a strong recovery

in both maize and bread volume and value market shares in the second half.

The operational reports from page 40 to page 55 provide detail on the volume and price performance of all main product categories.

Statement of comprehensive income

Group summary(Continuing operations) 2014 2013 Change

Revenue (R’m) 17 699 16 241 9%

Cost of goods sold (R’m) (12 321) (11 528) 7%

Gross profit (R’m) 5 378 4 713 14%

Gross profit margin (%) 30.4 29.0

Operating profit (R’m)* 1 680 1 153 46%

Operating profit margin (%)* 9.5 7.1

Headline earnings (R’m)* 1 169 846 38%

Headline earnings per share (HEPS) (cents)* 637 467 36%

Diluted HEPS (cents)* 608 455 34%

* Before items of a capital nature and adjusted for the impact of the Phase I B-BBEE transaction

Revenue analysis by region2014R’m

2013R’m Change

South Africa 15 461 14 558 6%

Africa 812 650 25%

Rest of World 1 426 1 033 38%

Continuing operations 17 699 16 241 9%

Discontinued operations: Quantum Foods 3 591 3 569

Group revenue 21 290 19 811 8%

Cost of goods sold increased by 7% despite cost push and exchange rate pressures, resulting in gross margin expanding from 29.0% to 30.4%. The increase in direct conversion costs was contained at 5%, with raw material costs increasing by slightly more than 7%. Growth in cash operating expenses

was well contained at less than 4%, yielding exceptional operating leverage.

Operating profit, before items of a capital nature, and adjusted as described above, increased by 46% to R1 680 million, with operating margin improving to 9.5% (2013: 7.1%).

was exacerbated by the accelerated vesting of the Quantum Foods participants who left the Group’s employment early in the new financial year.

In the 2013 reporting period the share price increased from R53.00 to R87.50, resulting in a charge to profit or loss in that year of R145.9 million.

Due to the fact that Quantum Foods is being treated as a discontinued operation, its results are excluded from current and comparative numbers.


The summarised segmental performance above demonstrates each segment’s contribution to the overall results.

Essential Foods posted good results in a challenging, low-growth environment. Maize profitability improved to normalised levels through judicious price/volume management in a difficult procurement season. Wheat posted pleasing results while bakeries made exceptional progress on clear value drivers, resulting in significantly improved

FINANCIAL REVIEW (CONTINUED)

Revenue analysis by segment2014R’m

2013R’m Change

Essential Foods 10 928 10 314 6%

Groceries 7 069 6 169 15%

Bokomo Foods 3 728 3 148 18%

Ceres Beverages 3 341 3 021 11%

Less: Internal revenue (298) (242)

Continuing operations 17 699 16 241 9%

Discontinued operations: Quantum Foods 3 591 3 570 1%

Group revenue 21 290 19 811 7.5%

profitability. Rice benefited from reduced input costs and Pasta continued to contribute positively.

Bokomo Foods’ performance was bolstered by a larger fruit crop and solid performance from the cereals business. Corn Flakes’ volumes grew significantly given favourable consumer product acceptance. Biscuits achieved targeted volume growth, albeit at lower margins. The beverage business performed well as a result of strong volume growth, both locally and internationally,

Segmental performance

Operating profit analysis by segment2014R’m

2013R’m Change

Essential Foods 1 075 784 37%

Groceries 736 543 36%

Bokomo Foods 407 279 46%

Ceres Beverages 329 264 25%

Other (131) (174)

Continuing Operations* 1 680 1 153 46%

* Before items of a capital nature and adjusted for the charge in respect of the Phase I B-BBEE transaction

Operating margin by segment 2014 2013

Essential Foods 9.8% 7.6%

Groceries 10.4% 8.8%

Bokomo Foods 10.9% 8.9%

Ceres Beverages 9.8% 8.7%

Group continuing operations 9.5% 7.1%

long-life juice market share gains and improved operational efficiencies.

The Groceries merger of Bokomo Foods and Ceres Beverages was successfully concluded and overall costs were particularly well managed throughout the year.

Quantum Foods returned to profitability after significant re-engineering efforts. A good performance from the feeds business, price recovery in the egg category, the downscaling of the Western Cape Broiler operations and pleasing performance from Mega Eggs (Zambia) were the main contributors to the business turnaround.

For more detailed commentary on the divisional performance, refer to the operational reports on pages 40 to 55.

Dividend

A gross final dividend of 156 cents per ordinary share has been declared. With an interim dividend of 65 cents per ordinary share, the total dividend for the year amounts to 221 cents per ordinary share, a 67% increase on 2013 (132 cents per share).

In total the dividend declared for the year represents a 2.5 times dividend cover on an adjusted basis.

Statement of financial position

The good financial performance and capital expenditure limited to R486 million (2013: R1 378 million), resulted in much improved return ratios, as summarised below:

Return on average net assets2014

%2013

%

Essential Foods 35 26

Groceries 21 15

Bokomo Foods 19 13

Ceres Beverages 23 19

Continued operations 26 18

R’m 2014 2013 Change

Expansion capital 270 1 143 (76%)

Replacement capital 216 235 (8%)

Total capital 486 1 378 (65%)

Capital expenditure


FINANCIAL REVIEW (CONTINUED)

The Malmesbury/Paarl mill consolidation project was the main beneficiary of the expansion capital. The balance of R216 million was spent on

replacement of capital where needed to ensure prudent and efficient asset care.

R’m 2014 2013 Change

Third-party debt 501 482 4%

Own debt 1 273 1 357 (6%)

Total debt 1 774 1 839 (4%)

Less: Cash 1 108 379 192%

Net debt 666 1 460 (45%)

Net debt-to-equity ratio (%) 11 22

EBITDA 2 006 1 499 36%

Net debt-to-EBITDA ratio (%) 33 97

Debt and financing facilities – continuing operations

Cash flow analysis2014R’m

2013R’m Change

Net cash profit from operating activities 2 134 1 556 37%

Competition Commission penalty – (217)

Change in working capital 28 67

Inventory (19) (276)

Debtors (334) 30

Creditors 417 353

Other (36) (40)

Cash effect from commodity hedging (8) 23

Cash generated from operations 2 154 1 429 51%

Statement of cash flows

Cash generated from operations increased by 51% to R2 154 million largely as a result of the growth in operating profit and a R28 million release from net working capital. Inventory increased by R19 million and debtors increased in line with increased trade and export sales in the latter two months of the financial year and a late non-trade

related receipt. Improving the Group’s cash flow from operations remains a key focus area.

Income tax of R386 million (2013: R233 million) was paid during the year. Income tax for the year amounted to R452 million at an effective tax rate of 32%.

Net debt for continuing operations decreased by R794 million to R666 million, yielding a net debt-to-equity ratio of 11% (2013: 22%). Net debt, excluding the third-party debt of R501 million relating to the 2012 Phase II B-BBEE transaction results in a net debt-to-equity ratio of 3% (2013: 15%). The Group’s total net debt to EBITDA ratio of 33% is well within borrowing covenant limits.

The Group’s total debt facilities amount to R3.5 billion, which is contracted with a syndicate of five financial institutions. This quantum caters sufficiently for the Group’s long-term and working capital requirements.

The structure of the facility is as follows:

• R600 million bullet loan repayable in September 2018

• R400 million bullet loan repayable in September 2016

• R500 million revolving facility, currently undrawn

• R2 billion in general banking facilities, inclusive of specific raw material facilities to cost-effectively cater for the peak periods in working capital needs in the more active commodity trading months.

The Group is comfortable that the healthy cash flows generated from normal operating activities, and the above secured facilities, will be adequate to meet the working capital requirements and expansion plans of the foreseeable future.

The table below indicates that the excellent performance for 2014, achieved under challenging circumstances as the new business was embedded, has created a solid base for sustained performance in future.

Key ratios 2014 2013

Gross margin* 30.4% 29.0%

Operating profit margin* 9.5% 7.1%

Dividend cover 2.5 2.9

Return on average net assets* 26% 19%

Return on equity 20% 13%

Net debt to equity (excluding third-party debt) 3% 15%

EBITDA* interest cover 13 times 10 times

* Continuing operations adjusted for the Phase I B-BBEE charge

Financial health indicators

PIONEER FOODS :: INTEGRATED REPORT :: 201440 SECTION TITLE

PIONEER FOODS :: INTEGRATED REPORT :: 2014 41SECTION TITLE

MINI CONTENTSP42: ESSENTIAL FOODS

P46: GROCERIES

P52: QUANTUM FOODS

OPERATIONAL REPORTS


OPERATIONAL REPORT

Revenue

R10 928m+6%2013: R10 314m

Essential Foods is a leading manufacturer of essential and value-added foods in South Africa and comprises two business units – Grains and Bakeries.Business environment

Prices of soft commodities remain driven by supply and demand dynamics currently characterised by good global inventory levels. Exchange rate volatility continues to impact local prices. The latter part of the fiscal year witnessed a sharp fall in maize pricing with a concomitant increase in competition. Consumption levels at an industry level were notably suppressed within most essential foods categories.

ESSENTIALFOODS

Performance overviewEssential Foods delivered satisfactory overall year- on-year operating revenue growth, with particularly strong second-half performance in the bread category. Operating profit increased significantly despite a challenging business environment, with value creation initiatives such as further rationalisation of the bakery footprint, manpower reduction and overall prudent operating cost management contributing to expanded operating margins.

The major capital expenditure projects of recent years were completed in 2014. The state-of-the-art Shakaskraal bakery in KwaZulu-Natal achieved planned hurdle rates post commissioning and has resulted in improved market penetration. The consolidation of the Malmesbury and Paarl mills will reach completion in the first quarter of the new financial year.

New brand campaigns were developed for both Sasko bread and White Star maize meal which are expected to have a positive impact on the market position.

Operating profit

R1 075m+37%2013: R784m

Operating profit margin

9.8%

2013: 7.6%

Capital spend

R323m

2013: R690m

FINANCIAL PERFORMANCE

CategoryPrice

changeVolumechange Performance*

Wheaten flour products

A large portion of flour produced is transferred to the Group’s bread bakeries and pasta plant, and the remainder contributes to a variety of branded and industrial flour products under the Sasko brand.

+8% -1%

Total industry

• Industry milling volume up by 4.0%

• Total top-end grocer (TEG) volume declined by 4.9%

• Increased private label growth

Essential Foods

• Short-term TEG market share gain

Maize products

Maize is manufactured into a variety of staple foods, including maize meal, samp, maize flour and instant porridge, with White Star super maize meal as the flagship brand.

+6% -5%

Total industry

• Industry milling volume up by 2.8%

• Total TEG volume up by 3.5%

• Maize price decrease following exceptional crop

Essential Foods

• Margin precision in procurement and price modelling

• Enhanced the competitiveness of White Star in TEG sector in the second half

Rice

The Group imports rice products to South Africa which it markets through its extensive distribution footprint, with Spekko as the flagship brand.

+6% +1%

Total industry


• Price spreads at origin increased private label competition

Essential Foods

• Improvements in performance with scope for future expansion

• Continued improvement in Spekko exposure

• Acceptance of the Select brand across trade channels provided portfolio strength

Bread

The Group supplies fresh bread to the South African market via more than 35 000 delivery points every day.

+6% +3%

Total industry

• Total TEG plant bread volume declined by 0.2%

• Aggressive regional price competition

• Increased in-store baked bread promotions and participation

Essential Foods

• Operating profit increase of 54%

• Second-half volume and TEG share turnaround

• Robust volume gains in traditional markets

• Marketing, communication and revitalisation of Sasko brand

Pasta

A range of wheat-based pasta products are manufactured using local and imported ingredients. The Group produces South Africa’s first pasta made from white maize.

+1% +1%

Total industry


• High level of private label participation

Essential Foods

• Marginal share gains on private label

• Continued pressure from imports limits pricing power

Beans and legumes

The Group is a major supplier of South Africa’s branded beans and legumes.

+12% +12%

Total industry

• Total TEG volume declined by 3.4%

Essential Foods

• Short-term TEG market share gain

* Industry information as of September 2014. Source: Aztec and SAGIS


OPERATIONAL REPORT (CONTINUED)

5 Wheat mills (as of December 2014)

3 Maize mills

2 Rice and legume plants

PRODUCTION FOOTPRINT

1 Pasta plant

REVENUE CONTRIBUTION

15 Bakeries

1352 SASKO Logo FA 3/11/09 4:30 PM Page 1

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PANTONE 485 CV0c 100m 100y 20k

100c 80m 0y 0k

CMYK PANTONE

PANTONE 297 CV55c 0m 0y 0k

Eat well feel good

Eat well feel good

Western Cape

Eastern Cape

Free StateKwaZulu-Natal

Gauteng

Limpopo

North West

SUSTAINABILITY PROGRESS

• Distribution fleet for bakeries on track to be replaced by more fuel-efficient vehicles by the end of 2016

• All product information, including full genetically modified organisms (“GMOs”), responsibly disclosed on product labels

• Voluntary elimination of legal, but objectionable, substance (ADA) from all bread recipes

• Product life cycle assessment performed on White Star super maize meal

• Woodchip boiler at Shakaskraal and Claremont bakeries using sustainable heat energy commissioned


INNOVATION

Revitalising the much loved Sasko bread brand, and accompanying marketing campaign.

OUTLOOK

The focus for 2015 will be to maintain the levels of operational discipline, cost management and margin precision achieved during the year. The rationalisation of the bakeries’ manufacturing footprint, value creation plans, added contribution of the consolidated Malmesbury and Paarl mill and closure of Polokwane mill are all expected to have a positive impact on operating efficiency.

The Group will continue to invest in supporting power brands to drive performance in search of market share in a low-growth environment. Priority will be given to bedding down the new management structure and maintaining the execution of the Group strategy.

84% Baking and milling

16% Other grains



Revenue

R3 728m+18%2013: R3 148m

The Groceries division manufactures, markets and sells a range of food and beverage products, of which cereals and long-life juices are the primary categories, to both local and international markets.Business environment

Inflationary increases in raw materials and packaging, exacerbated by reduced spending power of consumers, had an adverse effect on the local market. Rand depreciation was the major contributor to raw and packaging material inflation. Cereals, long-life juice and ice tea achieved strong

GROCERIES

volume growth in the local market while the rest of the basket remained flat.

South Africa is one of a handful of major fruit-producing regions in the world and is well positioned to market a range of fruit-based products to the international retail, industrial and catering sectors. A substantial dried fruit crop on the back of the previous season’s bumper crop, coupled with favourable pricing conditions, led to value and volume growth in international markets.

The African market was buoyant with very good volume growth, specifically in the juice category.

Performance overview

The Groceries division delivered overall revenue growth of 15% through healthy volume growth in cereals, fruit and beverage (domestic and international). The Groceries merger of Bokomo Foods and Ceres Beverages resulted in overall synergies, which together with stringent cost management and conversion efficiencies, resulted in operating profit increasing by 36% to R736 million (2013: R543 million). Operating profit margins expanded from 8.8% to 10.4%.

Operating profit

R407m+46%2013: R279m


10.9%

2013: 8.9%

Capital spend

R38m

2013: R84m

FINANCIAL PERFORMANCE: BOKOMO FOODS

CategoryPrice


Breakfast cereals

The business produces a range of leading cereal brands to South African and international markets, including Weet-Bix, Nature’s Source, ProNutro and Bokomo.

South Africa

+5%

UK

-9%

South Africa

+5%

UK

+36%

Total industry

• Top-end grocer (TEG) volume up by 0.3%

• Increased competitiveness of smaller brands

Bokomo Foods

• Short-term TEG volume up by 4.1%

• Significant second-half turnaround with volume growth ahead of the market

• Strong performances from flagship Weet-Bix and Bokomo Corn Flakes brands

• Health and wellness consumer trends led to product innovation opportunities

Dried fruit and nut products

Dried fruit products are produced and marketed to retail, industrial and catering sectors. The Safari brand is a leading brand in the South African market while a range of dried fruits and nuts are exported across the globe.

+0% +29%

Total industry

• TEG volume down by 2.5%

• Increased local vine and tree fruit crop supply increased international demand

Bokomo Foods

• TEG volume declined by 3.7%, made up by gains in industrial market

• Material increase in export volumes

Desserts

A variety of value-added dessert products, including jelly, instant pudding, cake mixes and baking aids, forms part of the Moir’s branded range.

+5% -4%

Total industry


Bokomo Foods

• TEG volume up by 1.3%

• Strong first half performance from custard


PRODUCT CATEGORIES: BOKOMO FOODS



CategoryPrice


Fruit juice

The business produces a range of long-life fruit juice products, catering to the still and sparkling markets. Liqui-Fruit and Ceres brands form the bulk of products and Ceres is the major export brand, particularly into African markets.

South Africa

+3%

Inter-national

+14%

South Africa

+5%

Inter-national

+10%

Total industry

• Top-end grocer (TEG) volume down by 3.3%

Ceres Beverages

• TEG volume up by 5%

• Significant export volume growth

• Satisfactory local value market share growth

• Good volume growth in the African markets

Dilutables

A range of dairy-based and fruit-based concentrate mixes are produced and marketed to the local and international market. -4% +4%

Total industry


• Dairy fruit blends declining, while squashes are growing

Ceres Beverages

• TEG volumes down by 0.8%

• Significant cost saving initiatives implemented

• Growth of Caribbean economy label provides portfolio strength

Carbonated soft drinks

The Group has the sole franchise rights in South Africa to bottle, sell and distribute (under licence from PepsiCo International) the well-known international brands Pepsi, Miranda, 7Up and Mountain Dew.

+1% -7%

Total industry


Ceres Beverages

• TEG volume declined by 6.6%

• Volumes declined as a result of limited pricing power and market penetration

• Strategic review of business is nearing completion

Ice tea

Lipton Ice Tea is a leader in the international ice tea category and is bottled by Ceres Beverages by agreement with the Pepsi Lipton International joint venture.

-1% +18%

Total industry


Ceres Beverages


• Significant volume and share growth achieved

• Improved production output and increased trade activations yielding good results


PRODUCT CATEGORIES: CERES BEVERAGES

Revenue

R3 341m+11%2013: R3 021m

Operating profit

R329m+25%2013: R264m


9.8%

2013: 8.7%

Capital spend

R49m

2013: R56m

FINANCIAL PERFORMANCE: CERES BEVERAGES

18 Bokomo Foods facilities

3 Ceres Beverages facilities



51% Breakfast cereals

22% Dried fruit products

7% Baking aids and desserts

20% Other

Bokomo Foods Ceres Beverages

Western Cape

Free State KwaZulu-Natal

Gauteng

40% Domestic juices

28% Export juices

12% Dilutables

14% Carbonated soft drinks

5% Ice tea

1% Other

Northern Cape




Bokomo Foods

• Installed systems to reduce electricity consumption.

• Reduced water consumption by installing water efficiency systems.

Ceres Beverages

• Water recovery pasteurisation systems to reduce water consumption.

• Upgraded effluent treatment plant.

• Lightweighting of plastic bottles.

Warehouses

• Installed energy-saving lights with day/night switches to reduce electricity consumption.


INNOVATION

• Oat-Bix: Ready-to-eat breakfast biscuits made from oats for the discerning consumer looking for a high-protein, oats-based breakfast cereal.

• Oat pops: A ready-to-eat oats-based chocolate cereal for children.

• Protein Oats: South Africa’s first whole grain, high-protein oats product, responding to high-end consumer preferences for hot breakfasts and protein-rich, high-fibre food.

• Premiumising of Ceres fruit juices with new sophisticated packaging and the inclusion of fruit cells.

• A new chocolate flavour to expand the popular Bokomo Corn Flakes range.

• Fruitree Squash: A new orange flavour squash product was introduced to the market.

OUTLOOK

Prospects in the local market remain subdued while export conditions into various geographies continue to offer higher growth opportunities. Domestically, growth and share gains are an imperative while relentlessly targeting cost and efficiency opportunities.

Underperforming products are being assessed with the objective of honing the overall Groceries product portfolio. The optimisation of manufacturing plants, as well as the support provided by centralised logistics services, will enable further implementation of the corporate strategy.


Revenue

R3 591m

2013: R3 576m


Quantum Foods comprises three integrated business units: Nulaid (eggs and layer livestock); Tydstroom (broilers) and Nova Feeds (animal feed). The business also has broiler, layer breeding and commercial egg operations in Zambia and Uganda. Quantum Foods has, subsequent to year-end, been unbundled to shareholders and listed on the JSE as a separate entity.

Business environment

The business environment in both the broiler and egg industries suffered from record high feed prices driven by high maize and soybean meal prices, negatively impacting cost push. Broiler prices were negatively impacted by imports and high levels of domestic supply, coupled to muted consumer demand.

QUANTUMFOODS

Performance overview

The business returned to profitability this year with operating profit of R22 million. Contribution from the African operations increased 55% year on year as a result of favourable market conditions in those geographies. The newly acquired egg business in Zambia, Mega Eggs, performed very well.

A decision was taken to change the business model in the Western Cape in that Quantum Foods has discontinued its abattoir operations and instead has contracted the sale of live broilers to a third party.

Operating profit

R22m

2013: (R19m)


0.61%

2013: (0.53%)

Capital spend*

R45m

2013: R484m

FINANCIAL PERFORMANCE

* Including business combinations

CategoryPrice


Eggs (Layers)

The fully integrated commercial egg business comprises facilities for rearing laying hens, several laying farms and egg packaging and processing facilities. Eggs are distributed nationally in the retail, wholesale and informal markets under the established Nulaid brand.

+9% -8%

Total industry

• Industry supply declined by 4.9%

• Favourable turn in the local egg pricing cycle

Quantum Foods

• Deliberate volume decrease

• Continued strong penetration of Nulaid, which remains an icon brand in the local market

Broilers

The Tydstroom business processes and markets a variety of fresh and frozen chicken meat products. +4% -10%

Total industry

• Industry supply increased by 0.7%

• Consolidation trend across the industry in the face of industry challenges

Quantum Foods

• Industry under pressure from price increases led to a volume decline

• Executed the decision to exit abattoir business in the Western Cape

Animal feeds

A range of value-added animal feed products is supplied to various agricultural industries. +9% +6%

Total industry

• Industry growth of 3.6%

Quantum Foods

• Effective cost management led to decreased production cost per ton

African operations

Quantum Foods operates broiler and layer breeder businesses in Zambia and Uganda, as well as a commercial egg business in Zambia.

N/A N/A

Quantum Foods

• Positive performance in Zambia and strong full-year contribution from Mega Eggs

• Good performance in Uganda

• Ongoing investment in facilities to increase capacity

Source: SAPA (September 2014) and AFMA (March 2014)

PRODUCT CATEGORIES



29 Nulaid sites

17 Tydstroom sites



31% Eggs

35% Broilers

30% Animal feeds

4% African operations

3 Nova Feeds factories

Western Cape

Eastern Cape

Free StateKwaZulu-Natal

GautengNorth West


• Engagement with the NSPCA over animal treatment concerns at one of the cull depots led to improved systems and the establishment of a regular audit of all Nulaid facilities by the organisation.


OUTLOOK

The business will focus on entrenching itself as a separate entity following the unbundling from Pioneer Foods and separate listing on the JSE.


SUSTAINABILITYREPORT

“ Sustainability principles are aligned with the five themes of the corporate strategy. This means that Pioneer Foods considers the social and environmental impact of its daily business activities and is continuously seeking opportunities to share and create stakeholder value.”


Sustainability approach

Pioneer Foods’ long-term success requires sustainable business practices in three fundamental ways:

1. The Group is reliant on agriculture, therefore environmental issues such as climate change, energy consumption and water management have a direct impact on operations and profitability

2. The Group depends on the current and future availability of human capital and skills

3. The Group produces food for general consumption and therefore has a responsibility to ensure its product offerings are beneficial and nutritious

Parallel to these three fundamental business drivers, the Group maintains its commitment to the broader community through several corporate social investment (“CSI”) initiatives. It is in the Group’s interest to develop the consumers of tomorrow.

Pioneer Foods benefits from a thriving economy. The Group’s future success is therefore directly connected with its contribution to socio-economic development. Driving transformation across all levels of the business is a key consideration for the Group.

The governance of sustainability

The social and ethics committee is responsible for the monitoring of sustainability on behalf of the Board. Its mandate is to oversee the implementation and management of sustainability items by the executive team. Formal reporting to the committee follows quarterly reports to the executive committee. Data is collected on a monthly basis according to defined procedures. The implementation of a formal management reporting mechanism has been put on hold in the medium term. Currently, sustainability champions in each division are accountable for data collection and accuracy according to the sustainability strategies that are in place at a divisional, business unit or site level where accountability lies.

Highlights

10 energy minimisation opportunities (“EMOs”) implemented with savings estimated at R2.2 million

Provided funding for permaculture gardens at a further 57 schools to the amount of R2 million

4th year participation in the Carbon Disclosure Project (“CDP”) with an improved score of 82 in 2014 (2013: 74)

Achieved 72% rating according to CSI project Impact Assessment Study which considered the outcomes realised through the Group’s contribution

Product life cycle assessments (“LCAs”) performed on apple Liqui-Fruit, Weet-Bix and White Star super maize meal

Supported 15 university students through The Pioneer Foods Education and Community Trust (“PFECT”) bursary programme

SUSTAINABILITY REPORT

Executive team

Executive: Corporate Affairs and Sustainability

Social and ethics committee

THE BOARD OF DIRECTORS

Corporate Affairs and Sustainability Team

GOVERNANCE COMMUNICATIONS

ENVIRONMENT SOCIAL

This is the first year that the Group has opted to report the core sustainability indicators in accordance with the new Global Reporting Initiative (“GRI”) G4 Guidelines. The full GRI table is available online at www.pioneerfoods.co.za.

Sustainability assurance

EY has been contracted to provide limited assurance on the following key performance indicators (“KPIs”) and these have been denoted with an LA in the report:

• Lost time injury frequency rate (“LTIFR”)

• Fatalities

• Number of permanent employees

• Permanent employee turnover

• Scope 1 carbon emissions

• Scope 2 carbon emissions

• Water consumption

The assurance statement from EY, along with a breakdown of the basis for measurement of each indicator, is available online at http://www.pioneerfoods.co.za/investors/financial-results-archive/.

Compliance

Pioneer Foods’ licence to operate depends on its ability to produce products for consumption by humans and animals that adhere to the necessary quality, consistency, safety and traceability standards. External audits of Group facilities are conducted regularly to maintain certification and align with best practice. The divisions subscribe to the following health and safety standards:

• HACCP (Hazard analysis and critical control points)

• ISO 14001 (Environmental management)

• ISO 18001 (Occupational health and safety)

• ISO 9001 (Quality management) – selected elements

• OSP 22000 (Food safety management) – Essential Foods

• NOSA (National Occupational Safety Association) – certain sites

A formal compliance framework ensures that the impact and applicability of compliance standards requirements are understood and managed within the Group. The Group’s formal approach to regulatory compliance is described on page 84.


SUSTAINABILITY REPORT (CONTINUED)

Strategic themes

Sustainability material issues Progress in 2014 More detail

Shape

a winning corporate portfolio

B-BBEE: preferential procurement

Supplier engagements continue to improve, with a shift from a cost focus approach to a TVO (total value of ownership) approach, with a special emphasis on value-added transformation.

Preferential procurement – page 67

Focus on

power brands

Healthy, affordable products

Product and food safety

Genetically modified organisms (“GMOs”)

Responsible sourcing

Life cycle assessments (“LCAs”) were conducted on three flagship products to establish environmental impacts of production from source to distribution.

Notable events during the year:

• Sustainable palm oil procurement

• Animal treatment concern and solution

• GMO product labelling

• Voluntary removal of objectionable substance from all bread products

These required intensified engagement with affected stakeholders. In each case, the Group was provided with an opportunity to improve its approach to operational and product responsibility.

Operational and product responsibility – page 71

Stakeholder engagement – Online

Embed

strategic customer

management

Complaints

B-BBEE: Socio-economic development and enterprise development

The Group has a formalised complaints management guideline in place to ensure the highest level of service in the handling of complaints.

As part of its corporate social responsibility, Pioneer Foods provides support to a range of socio-economic development projects, which are aimed at improving education, the environment and food security. In 2014, almost R11 million was distributed to these projects.

The Group also assists in the development of primary agriculture and supported eight commercial farming operations whose beneficiaries are mentored by external commercial farmers as well as by Pioneer Foods employees.

As a JSE-listed entity, Pioneer Foods was automatically selected to participate in the 2014 index.

Operational and product responsibility – page 71

Socio-economic development – page 68

Enterprise development – page 70

Strategic alignment

Sustainability principles are aligned with the five themes of the corporate strategy. This means that Pioneer Foods considers the social and environmental impact of its daily business activities and is continuously seeking opportunities to share and create stakeholder value.

Material issues are regularly reviewed at executive level to identify threats as well as new value

creation and innovation opportunities. Material issues constitute those items that have a direct impact on short-term performance or have the potential to develop into directly impactful issues in the medium to long term if left unmitigated. Stakeholder concerns – including the perceptions of internal role players – inform the process of identifying material issues.

Strategic themes

Sustainability material issues Progress in 2014 More detail

Reset the cost base

and step up productivity

Climate change

Energy costs

Energy consumption

Carbon costs

Water management

Transport and logistics

The Group participated in the Carbon Disclosure Project for the 4th year and published its results for the first time in 2014. The Group improved its score from 74 in 2013 to 82 in 2014.

The year-on-year scope 1 and 2 carbon emissions and energy consumption increased by 3% and 6% respectively.

Pioneer Foods’ corporate offices received a R213 000 Eskom rebate for a light replacement project in 2014.

The Group’s partnership with the National Cleaner Production Centre of South Africa (“NCPC-SA”) resulted in the identification of a number of energy minimisation opportunities (“EMOs”). During the year, 10 EMOs were successfully implemented at four facilities. The estimated saving is R2.2 million per year.

Energy Partners was appointed as the provider of the Group’s energy optimisation solutions.

Water usage metres were installed at Bokomo Foods plants to improve measurement and management accuracy.

The Group is in the process of replacing the entire distribution fleet in the bakeries business unit with smaller and more fuel-efficient vehicles. The targeted completion date is 2016.

Energy efficiency – page 75

Water management – page 76

Logistics – page 74

Build a high-performance

team

B-BBEE: transformation

Employee relations

Organisational development

Diversity

Skills development

Training

Occupational health and safety

Human rights

Ethics

The Group retained its level 4 B-BBEE accreditation.

The Group has improved its talent and performance management framework through the establishment of new STIs and LTIs (short and long-term incentives) to recognise performance in areas directly connected with delivery of the corporate strategy.

During 2014, the Group launched a curriculum for a new Brand Academy as part of its strategic drive to focus on power brands and build a high-performance team. The Group was able to offer a greater number of bursaries after adapting its policy and reducing the size of bursaries. Pioneer Foods supported 161 employee bursary holders in 2014 (2013: 81).

The Group has a responsibility to ensure that the individuals employed at its various manufacturing facilities are safe at work. The LTIFR for the year was 2.47LA (2013: 0.96). TwoLA fatalities were reported during the period. More information on the Group’s operational health and safety is available online.

Ethics and human rights underpin the Group’s approach to corporate governance.

Employee engagement – page 62

Transformation – page 64

Skills development – page 65

Occupational health and safety – Online

Ethics – Corporate governance – page 88

Human rights – Corporate governance – page 88



Employee engagementStrategic alignment: Build a high-performance team

Employee engagement plays a pivotal role in the success of the business. The rightsizing exercise of the past 18 months has affected workforce dynamics as the Group sought to achieve optimal human capital investment.

Employee statisticsTotal employee numbers, including permanent employees and contracted employees, reduced by 12% to 9 859 at 30 September 2014, of whom 9 724LA are permanent and 135 contracted employees. Employee turnover of permanent staff increased to 2 130, a rate of 21%LA.

The significant decrease in employee numbers and consequent increase in turnover rate are the direct result of the rightsizing exercise in 2013. Many of the job losses occurred in the poultry business that underwent considerable downturn. This process was undertaken in an ethical and responsible manner to protect the rights of all Pioneer Foods employees, and the organisation has emerged a leaner, more agile business, better positioned to compete in a volatile and competitive market. Efforts were made to place as many affected employees elsewhere within the Group.

11 5

9120

10

11 4

7920

11

11 3

6420

12

11 0

5820

13

9 72

4 L

A20

14

10%

2010

11%

2011

13%

2012

15%

2013

21%

LA

2014

Total workforce*

Employee turnover

62%

2013

Organised labour

The Group supports its employees’ rights to collective bargaining, and employees are free to associate with the labour union of their choice to negotiate their terms of employment. Total union membership for 2014 was approximately 86% (2013: 86%) of the bargaining unit and approximately 58% (2013: 62%) of permanent employees.

There were 2 cases of industrial action during the year and these were within the Essential Foods business.

53%

2010

53%

2011

53%

2012

58%

2014

Organised labour

Organisational development

Leadership alignment was prioritised as a key enabler of building high-performance teams and sustaining the organisation’s transformation. The executive team embarked on a journey to build leadership coherence and inculcate shared responsibility through a series of facilitated workshops which culminated in the development of a revitalised leadership brand. This blueprint outlines the differentiating capabilities that the organisation seeks to nurture and embed to create a high performance culture.

As part of its strategic focus on talent management, the Group took steps to stimulate a renewed sense of pride among employees and launched an integrated reward and recognition scheme in the form of STIs and LTIs (short and long-term incentives). Pioneer Foods employees were invited to nominate colleagues for achievements in areas directly connected with the five strategic themes. A total of 819 nominations were received, indicating a positive response.

In memoriam

The Group mourns two employeesLA who lost their lives in road accidents while on duty. Lindokuhle Eliot Malevu was shot while driving and passed away on 13 November 2013. Ralton Alphonso Manuel was involved in a fatal accident on 17 March 2014. Pioneer Foods is committed to the safety of all employees and strives towards a zero fatality target.

* Permanently employed by wholly-owned South African operations.



TransformationStrategic alignment: Build a high-performance team

Pioneer Foods is focused on building a high-performance team that is diverse and representative of South African demographics.

Broad-based black economic empowerment (“B-BBEE”)

Improvements in the Group’s B-BBEE score in certain categories can be attributed to Pioneer Foods’ continuous aim to provide previously disadvantaged candidates with opportunities. The Group was rated according to the Agricultural B-BBEE Sector Scorecard (“AgriBEE”) and retained its level 4 B-BBEE accreditation.

2014 2013

B-BBEE elementWeighting

(AgriBEE codes)Unaudited score (AgriBEE codes)

Audited score (AgriBEE codes)

Ownership 20 15.3 15.3

Management control 10 5.4 5.2

Employment equity 10 3.2 3.0

Skills development 20 8.8 11.5

Preferential procurement 20 12.5 11.1

Enterprise development 10 10.0 10.0

Socio-economic development 10 10.0 10.0

Total 100 65.2 66.1

Level 4 4

B-BBEE scorecard

Ownership

Of the economic interest of the Group 17% (2013: 17%) is held by black people, largely the result of the Phase II B-BBEE transaction in March 2012.

Management control and employment equity

Management control is 36% black (2013: 36%) at the Board level and black females represent 29% (2013: 25%) at top management level.

The Group improved its employment equity score at senior and top management levels. This is the outcome of the shift away from multifarious equity planning and delivery processes at the operating level, in favour of fewer, more coherent equity plans at each business unit. This has improved leadership line of sight and accountability for the broad transformation objectives.

Designated employees per level*

Designated employees per level 2014 2013 2012 2011 2010

Junior/unskilled 97% 97% 97% 93% 93%

Senior management 40% 35% 34% 33% 32%

Top management 50% 38% 40% 40% 36%

Mid management 60% 62% 60% 59% 57%

* Excludes fixed-term employees and other nationalities

Skills developmentStrategic alignment: Build a high-performance team

Skills development is integral to the Group’s focus on enhancing its human capital for the future sustainability of Pioneer Foods. This is entrenched by the various capability building initiatives directly related to the five strategic themes.

Customer-centric approach

To transform the organisation into a customer-centric business, skills development initiatives in marketing, innovation and customer management are emphasised. A highlight was the development

of the Pioneer Brand Academy curriculum. In addition, a customised Key Account Management course was launched and 14 customer and key account managers were enrolled on the pilot programme.

Pioneer Foods Academy of Learning

Leadership development forms a key part of the Group’s talent retention plan and is offered through two formal programmes – the Advanced Leadership Development Programme (“ALDP”) and the Foundational Leadership Development Programme (“FLDP”). A total of 26 employees were enrolled on the two leadership programmes in the Academy in 2014. A high percentage of students on the courses are from designated groups and in the FLDP more than 50% are female.



ALDP representation

ALDP designated

ALDP female

FLDP representation

ALDP designated

Percentage spent on designated employees

ALDP female

Skills pipeline

The Group invests in future skills through apprenticeships, graduate programmes (internships and in-service), learnerships and employee bursaries. In 2014, there were 40 apprenticeships (2013: 48), 13 graduate programmes (2013: 22) and 161 employee bursaries (2013: 81) in place. There were also 201 (2013: 341) learnerships provided through the different divisions of the Group.

The significant increase in bursaries is the result of lowering the amounts provided, thereby increasing

the number of bursaries available. The Group has seen a decline in apprenticeship and graduate programme numbers over the past few years as a result of stricter forecasting being applied to the recruitment of students to ensure there is sufficient capacity to place every individual. Additionally, the reorganisation of the business has focused primarily on building and developing employees internally.

The Group will focus on apprenticeships, learnerships and graduate programmes in the coming year, with specific emphasis on engineering fields.

2014

10%

70%

44%

2011

31%

16

2012

31%

58%

26

2013

33%

50%

2410

2011

24

2012

43%

52%

44

2013

29%

60%

52

2014

69%

63%

16

2014

161

13 40

Skills pipeline

2011

20 30 103

2013

81 22 48

Bursars Graduate programmes Apprenticeships

2012

57 32 93

2014

Learnerships (Total 187)

72 87 28

Essential Foods

Groceries

Quantum Foods

Total skills development spend for the year to September 2014 was R12.3 million (2013: R17.5 million). Of the total spend, R10.3 million (84%) was spent on designated employees.

Skills development spend (R’m)

2010

2011

2012

2013

2014

24.0

63%

28.3

69%

18.8

75%

17.5

77%

12.3

84%

The reduced allocation for skills development is the direct result of the organisational restructuring, cost management and rightsizing exercise. As the organisation settles into the new operating model, more focus will be placed on this aspect of the business.

Preferential procurementStrategic alignment: Shape a winning corporate portfolio

In the agricultural sector there is a particular need to support farmers from historically disadvantaged backgrounds by creating markets that will result in economic empowerment in rural areas.

Supplier verification

Pioneer Foods improved its approach to supplier engagements by shifting to a total value of ownership (“TVO”) approach. This resulted in more emphasis on transformation, leading to a number of high-value contracts being allocated to a vendor base with level 4 or higher B-BBEE credentials. The Group is currently sourcing a partner to assist in enhancing supplier development efforts.

The Group considers preferential procurement a core aspect of its strategic objective to shape a winning corporate portfolio.



Corporate social investment (“CSI”)Strategic alignment: Shape a winning corporate portfolio

Food security remains a major concern in South Africa. The Group channels its corporate social investment towards addressing the key causes of societal underdevelopment that lead to hunger and poverty. Through its partnerships, the Group is involved in a variety of community projects in education, environment and food security. These projects – which focus on vulnerable groups such as women and children primarily in rural contexts – receive 90% of funds distributed by the Group, while the remaining 10% is allocated to feeding schemes. Pioneer Foods distributed almost R11 million to beneficiaries.

Pioneer Foods commissioned an impact assessment in partnership with an external service provider during 2014. The aim was to identify areas where the Group’s contribution is making a significant impact and where to provide more meaningful development opportunities. The results showed a 72% project impact achievement.

EducationThe Pioneer Foods Education and Community Trust (“PFECT”)

In FY2014 the trust activities were mainly in three areas:

• Provision of bursaries

• Support to deserving projects

• Development of Mbekweni Youth Centre

Mbekweni Youth Centre

The trust decided in the previous financial year to develop a youth centre in Mbekweni township. The trust will refurbish and extend an existing building with a provisional budget of approximately R12 million, comprising capital and operations expenditure, allocated for 2015. Building has already commenced.

Bursaries

The PFECT bursary programme continues to support students in the fields of accounting, engineering and marketing. In 2014 R1.4 million was allocated to 17 students. In 2015, the number of students will increase to approximately 30. For the new cohort, beneficiaries of Pioneer Foods employees were also invited to apply.

EnvironmentWorld Wildlife Fund South Africa (“WWF SA”)

An enterprise development and conservation model (“People Working for their Environment”) has been established in the Nelson Mandela Bay Metropole (“NMBM”) in the Eastern Cape, following the success of a three-year pilot programme with the Table Mountain Fund funded in collaboration with the Western Cape government. The project was launched in February 2014. This model aims to develop a sustainable small land management business in the peri-urban context of the NMBM, and to provide natural resource management services to key conservation sites.

Paardeberg Sustainability Initiative (“PSI”)

The Paardeberg Sustainability Initiative (PSI) recognises the threats to the biodiversity and natural resources in the Western Cape Boland area of South Africa. The primary threat is economic pressure facing some farmers and land users of the mountaintops and surrounding areas. The PSI has continued to grow in capacity and now supports land users to protect natural resources through the PSI National Resources Management (“PSI NatReM”) Land Users Incentive Scheme. In this project, the PSI has created 90 sustainable jobs to fulfil its mandate and address economic aspects of sustainability.

The sale of woodchips to the Group’s relevant bakeries as a coal replacement remains the most promising option to pursue to ensure the jobs created become sustainable.

Food securityFoodpods Kayamandi

Foodpods Kayamandi is a Women’s Development Programme in Kayamandi township, in Stellenbosch in the Western Cape, focusing on agriculture, food security and entrepreneurship. Over the past year, the project has transformed an unused, inaccessible and arid piece of land at the Kayamandi High School into a large-scale agricultural hub, with the capacity to produce 76 800 vegetable bunches every year, making it the largest township-based, container-grown, agricultural hub in South Africa.

Foodpods Kayamandi provides full-time employment to a group of horticulturalists and site keepers, as well as a number of female growers from the community. Local and international interns and volunteers also contribute to the project, providing business and management support. By investing in the Foodpods project, Pioneer Foods is helping local women to develop the skills and resources to provide for their own food in a model that can be replicated in underresourced communities across South Africa.

Limani: Towards Food Security for Communities

Limani, a permaculture food gardening project implemented by Food & Trees for Africa (“FTFA”), was launched at Shikhati Primary School near Tzaneen, Limpopo Province, in June 2012. The school has since been developed as a resource centre for other schools in the area. As part of their training, schools are encouraged and equipped to harvest rain water and to use mulch to preserve soil moisture, while garden infrastructure and equipment were also upgraded and donated to the schools.

Commercial earthworm farms have been established to produce high-quality compost soil for vegetable gardens. Schools have been equipped with solar cooking kits. All schools are able to supplement their feeding programmes with fresh vegetables and many learners and other community members have started individual gardens following the success of the school gardens.

The project received a R6.9 million grant from the European Union in 2013. Pioneer Foods has agreed to match the funding needed to implement permaculture food gardens at an additional 57 schools.

Feeding schemesThe African Children’s Feeding Scheme (“ACFS”)

ACFS receives co-funding from Pioneer Foods to purchase milk to support 13 feeding centres in Soweto and the surrounding informal settlements. About 31 000 children benefited from this support during 2014. As part of the programme, the parents and guardians of the assisted children are empowered with skills that should eventually make them independent and able to exit the programme.



The following skills were provided to 1 200 direct beneficiaries during the year:

• Food gardening for food security (for survival as well as for commercial purposes)

• Sewing, beadwork, woodwork and baking (to start small businesses and provide employment opportunities)

• Health education

The organisation also runs school holiday programmes that focus on life-skills training and educational games and activities to keep children occupied and away from abusive home environments.

Stellenbosch Community Development Programme (“SCDP”)

SCDP’s focus is on nutrition and health by fighting malnutrition, preventing stunted growth and addressing obesity in Kayamandi, at Stellenbosch, by providing more than 1 800 children (including 750 crèche children under the age of five) with a meal every school day and most school holidays.

Pioneer Foods’ co-support extends towards the provision of a cup of milk per day for every child who is part of SCDP’s programme. Pioneer Foods also sponsors the salary of a Sustainable Livelihoods mentor.

Enterprise developmentStrategic alignment: Shape a winning corporate portfolio

Pioneer Foods retained full points for the enterprise development aspect of the B-BBEE scorecard for the third year in a row. The Group encompasses an extensive value chain, which includes farmers and producers across the country, and therefore focuses its enterprise development activities on the development of primary agriculture in South Africa.

Primary agriculture

The Group provided R1.7 million (2013: R3.5 million) to enterprise development projects in 2014, of which 76% (2013: 74%) was allocated to primary agriculture projects. During the year, Pioneer Foods supported eight commercial farming operations whose beneficiaries are all mentored by external commercial farmers and by internal Pioneer Foods employees.

The majority of the Group’s production footprint remains biased towards the Western Cape, with 75% (2012: 69%) of spend going towards projects in the province.

Operational and product responsibilityStrategic alignment: Focus on power brands

Embed strategic customer management

Product life cycle assessment (“LCA”)

The Group concluded life cycle assessments by an external service provider on three flagship products – apple Liqui-Fruit, Weet-Bix and White Star maize meal. Undertaking a life cycle assessment allows the Group to consider emissions impacts when deciding on supplier selection, materials sourcing, product design and manufacturing processes. It highlights cost-saving opportunities while demonstrating environmental responsibility leadership.

Apple Liqui-FruitTotal product carbon footprint for 1 litre box: 1 062 grams CO2e

• Farming: 22% total greenhouse gas emissions

• Apple storage: 17% total greenhouse gas emissions

• Concentrate processing: 31% greenhouse gas emissions

• Apple Liqui-Fruit production: 30% greenhouse gas emissions

Weet-BixTotal product carbon footprint for 450 gram box: 572 grams CO2e


• Storage and cleaning: 3% total greenhouse gas emissions

• Weet-Bix production: 62% total greenhouse gas emissions

White Star super maize meal

Total product carbon footprint for 1 kilogram bag: 176 grams CO2e


• White Star production: 31% total greenhouse gas emissions

Pioneer Foods’ social and legal licences to operate require that it provides products and services of a consistently high quality to a broad range of stakeholders.



Customer service and complaints

Pioneer Foods has a robust complaints management system. While some business units outsource this function, responsibility and reputational risk

Business unit Unit of measurement

Number of complaints

2014

Number of complaints

2013

Essential Foods – Grains per 1 000 000 units sold 14.18 6.59

Essential Foods – Bakeries per 1 000 000 units sold 4.98 5.74

Groceries – Beverages per 1 000 litres 0.16 0.09

Groceries – ex-Bokomo per 100 000 units 0.0016 0.0013

Groceries – ex-Bokomo SAD per 1 000 tonnes 0.025 0.017

Quantum Foods – Nova per 1 000 tonnes 0.19 0.25

Quantum Foods – Tydstroom per 1 000 tonnes 0.001 0.003

Quantum Foods – Nulaid per 1 000 doz 0.02 0.02

ultimately lie with Pioneer Foods, and formal Group procedures are therefore rigorously implemented. A 15-day turnaround target is in place for the resolution of complaints.

Key event Stakeholder concerns Pioneer Foods’ response

Sustainable palm oil procurement

As a versatile and highly efficient food ingredient, palm oil is in huge global demand, resulting in the deforestation of surrounding rainforests.

By procuring palm oil from these plantations, businesses indirectly support this unsustainable practice and are exposed to the associated reputational risk.

Consumers expect companies to source raw material from sustainable suppliers and increasingly make their product selection based on whether the producer is socially responsible.

This is of material concern to retailers trying to mitigate their environmental impact and maintain the patronage of discerning consumers.

Pioneer Foods is a member of the roundtable for sustainable palm oil sourcing and has drawn up a two-year plan whereby only 100% certified suppliers of this product will be considered.

Palm oil is an ingredient in raisins and this will be replaced by March 2015. Small amounts are found in the mixtures used for biscuits and rusks.

Pioneer Foods participated in the Carbon Disclosure Project Forests programme for the first time in 2014.

Animal treatment concern and solution

A regrettable incident occurred at a Nulaid cull depot in Phokeng, Rustenburg, where layer chickens ready for culling were not being treated in line with Nulaid’s animal welfare standards.

The NSPCA raised concerns about the treatment of chickens at the culling depot, which received attention in the media.

A court order was received and, within two days, Nulaid had complied with the directives of the court order. The NSPCA again visited the depot and was satisfied that there were no other animal welfare issues.

Disciplinary action was taken against the responsible employees at Nulaid and awareness training on safe handling was rolled out at other sites.

Improved systems and the establishment of a regular audit of all Nulaid facilities by the organisation.

GMO product labelling

Genetically modified organisms (“GMOs”) are a growing global consumer issue. The debate features advocates of the technology and those who maintain that the environmental and other impacts of GMOs remain unproven.

Food labelling regulation R146 contains regulatory requirements that all products comprising more than 5% GM ingredients be clearly labelled for the benefit of the consumer.

Consumers expect to be able to make an informed choice about their nutrition and trust that the food they buy in stores is thoroughly labelled.

All Pioneer Foods products are clearly labelled and GMO data fully disclosed, thereby enabling customers and consumers to make informed choices for themselves.

Environmental fines

No environmental fines were paid in the financial year.

Operational and product responsibility key events

The table on the next page provides a summary of notable events for the year and how Pioneer Foods is responding. A breakdown of Pioneer Foods’ overall approach to stakeholder engagement, including stakeholder groups, concerns and Group response, is available online at www.pioneerfoods.co.za.



Key event Stakeholder concerns Pioneer Foods’ response

Voluntary removal of objectionable substance from all bread products

In the first half of the year, a substance used in commercial baking, namely azodicarbonamide (“ADA”), was removed from all Essential Foods products.

This formed part of the Group’s bread quality improvement drive to revitalise the Sasko brand and establish Pioneer Foods as a responsible producer.

The ingredient is objectionable to consumer activists for its use in other commercial products not for human consumption.

From a regulatory perspective, ADA is approved safe by the Department of Health and other international regulatory authorities applying Codex Alimentarius, the international standard adopted in health regulations across the globe.

Prior to the emergence of consumer action, Group leadership launched a project to remove ADA from all products in which it had previously been used, namely white and brown wheaten flour and bread produced in the Eastern and Western Cape.

Mainstream retail products such as self-raising and cake flour have never contained ADA and were therefore unaffected.

The Group has invested in dedicated research and development involving scanning all Essential Foods products down to micro ingredient level for content with potential negative consumer connotation, irrespective of regulatory allowance and compliance.

LogisticsStrategic alignment: Reset the cost base and step up productivity

Logistics services were centralised as part of the strategic drive towards cost efficiency and streamlining the business.

Replacing bakeries fleet

The Group is in the process of replacing the entire distribution fleet of the bakeries business unit by the end of 2016. The new vehicles will be smaller and more fuel efficient.

Energy management is considered as a priority issue by the Group, due to uncertainty of supply, rising cost of energy and the impending carbon taxation proposed for 2016. Scope 1 or direct emissions were 116 715 tCO2e

LA (tons of CO2 equivalent) and total scope 2 or indirect emissions were 263 824 tCO2e

LA, bringing total combined emissions to 380 539 tCO2e.

Energy efficiencyStrategic alignment: Reset the cost base and step up productivity

In 2014, 692 919 MWh of energy was consumed (2013: 668 513 MWh, excluding Quantum Foods). Of this, 62% (426 747 MWh) relates to direct energy and the remainder to indirect or purchased electricity and steam. This is an increase of 3% (direct) and 6% (indirect) of energy consumed over 2013.

Carbon Disclosure Project (“CDP”)

The CDP challenges companies to measure and report their carbon emissions to create transparency between investors and other stakeholders. Pioneer Foods has participated in the CDP for four years and has made it results public for the first time in 2014. The Group improved its score from 74 in 2013 to 82 in 2014.

2014 2013

Score Band Score Band

82/100 D 74/100 D

Emission reduction opportunities (“EMOs”)

Over the past 18 months, the Group partnered with the National Cleaner Production Centre of South Africa (“NCPC-SA”) in conducting energy efficiency assessments at its production facilities. As a result, 10 identified EMOs are in the process

of being implemented. Associated savings are expected to amount to R2.2 million. There are a number of EMOs currently undergoing feasibility studies or are in planning phase.

A summary of EMOs identified, planned or in progress per site is available online at www.pioneerfoods.co.za.



Water managementStrategic alignment: Reset the cost base and step up productivity

Water is one of the key resources used in agriculture and production, and is therefore a vital component of Pioneer Foods’ business. The Group is on a journey to better understand its water usage to successfully implement management strategies that contribute to the sustainable supply of this resource. In the medium term, this is expected to result in suitable long-term adaptation plans for water usage across the Group’s value chain.

During the year, water usage metres were installed at Bokomo Foods plants to improve the accuracy of consumption data collection and usage management.

Usage

Water usage and quality is monitored at all business units, as well as the quality of the water used in the production process. On-site water treatment facilities at certain Ceres Beverages and Quantum Foods sites are used to treat water before and after use at the sites. In 2014, 3.1 million m3,LA of water was withdrawn (2013: 4.7 million3), which is a reduction of 33%. This was a result of the purchase of water meters at one of the Group’s largest water-consuming sites. The actual monthly consumption was far less than the amount calculated in the previous year.

Year-to-date progress on five-year target 2014 2013

Annual usage (m3/’000) 1.20 1.79

Percentage reduction in water usage 33% 7%

Year-to-date progress on five-year target (water m3/ton of production ’000)

Woodchip boiler

At the end of the financial year, Pioneer Foods partnered with an external service provider to install a woodchip boiler at the Claremont bakery in the Western Cape, following the successful installation of the first boiler at the newly commissioned Shakaskraal bakery in KwaZulu-Natal. The wood comes from waste from sawmills, pallet manufacturers and other industrial enterprises and is used as a sustainable heating fuel to generate

steam at the bakery. Investigations are under way to integrate the wood sourcing with other projects, for example from the WWF land management clearing sites and the PSI sustainability initiative.

Electrical consumption to run the required machinery to generate the woodchips is as low as 6.8 kWh and wood is considered a carbon- neutral fuel as the carbon emitted through the chimney stack is reintegrated in the soil by the cultured forests.

Future sustainability goals

B-BBEE 2015 targets

The Revised B-BBEE Codes of Practice were gazetted on 11 October 2013 and with the transition period ending in the first part of 2015, Pioneer Foods switched from the Agri-Codes to the revised codes on 1 October 2014. Compliance levels have

been redefined and the new 40% hurdle rates on the elements (ownership, skills development and enterprise and supplier development) will result in many companies, including Pioneer Foods, dropping a few levels. Focus in 2015 will be on enterprise and supplier development. A women’s development flagship programme is already being developed.

B-BBEE Scorecard Element Weightings 2015 target

Ownership 25 12.9

Management control 15 (+4) 11.0

Skills development 20 (+5) 6.0

Enterprise and supplier development (“ESD”) 40 (+4) 14.0

Socio-economic development (“SED”) 5 2.0

TOTAL 100 + 13 bonus points 45.9

Level 8

Carbon emission targets

• Direct energy: 10% reduction

• Indirect energy: 8% reduction

• Water: 5% reduction

Water management

Recent studies have demonstrated the interconnection between food, energy and water – meaning that one drives the demand of another in this triangular relationship. In the context of climate change, these studies have emphasised the food and water link. Within the Group’s upstream value chain, this pressure is increasing. Partnerships with academic institutions and organisations such as WWF are being explored.

Waste management

Waste management provides further opportunities towards the creation of value, and an extension of the Group’s engagement with the NCPC through the Western Cape Industrial Symbiosis Programme (WISP) demands closer investigation.


CORPORATE GOVERNANCE

Creating value for all stakeholders is a priority for Pioneer Foods.The Group’s corporate governance procedures are controlled and executed according to a structured and formal system. This involves creating a balance in the course of doing business among the expectations of all stakeholders, including:

• those who are affected by the business and/or its operations;

• those who could potentially influence the business; and

• those who have an interest in the Group’s actions and how these are performed.

The board of directors (“the Board”) is the custodian of corporate governance. It is committed to ensuring, collectively and individually, that sound governance principles are fully integrated into all aspects of the business.

Non-executive directors Executive directors

1. ZL (KK) COMBI (62)Diploma in Public Relations Chairperson of the Board, independent non-executive director, member of human capital committee and chairperson of the nomination committee

Mr Combi is the executive chairman of Thembeka Capital Ltd. He holds a diploma in public relations and was awarded the EY South African of the Year award in 2000, as well as the World Entrepreneur of the Year in Managing Change award in 2001. Mr Combi is a member of the Institute of Directors and serves on various listed and unlisted companies’ boards, including PSG Group, IQuad Group and the JSE, as well as the Absa Bank Advisory Committee (Western Cape).

Director since 29 March 2010.

6. G (GERRIT) PRETORIUS (66)BSc, BEng, LLB, PMDLead independent non-executive director, member of human capital and nomination committee

Mr Pretorius is an electrical engineer by qualification and profession. He was an executive director and CEO of Reunert Ltd until retiring in August 2010 after 37 years of service. Since his retirement, he has been appointed as a non-executive director on the boards of various companies.

Director since 17 February 2012.

2. NORMAN CELLIERS (41)BEng (Civil) (Stell), MBA (Oxford)Non-executive director, member of social and ethics committee

Mr Celliers’ professional experience includes engineering, management consulting and private equity in South Africa and abroad. Currently he is the CEO of Zeder Investments Ltd.

Director since 1 October 2012..3.

3. MM (THYS) DU TOIT (55)BSc, MBANon-executive director, chairman of human capital committee

Mr du Toit has been actively involved in financial and investment markets for 29 years. He was a founding member of Coronation Fund Managers and CEO for 10 years. Mr du Toit currently runs Rootstock Investment Management and is a director of companies, three of which are listed on the JSE.


4. PROF ASM (MOHAMMAD) KARAAN (46)BSc Agric, BSc Agric (Hons), MSc Agric, PhDIndependent non-executive director, chairman of social and ethics committee

Prof Karaan joined the Development Bank of Southern Africa as an economist and later returned to Stellenbosch to join the Rural Foundation as Head of Research. In 1997, he joined the University of Stellenbosch as a lecturer in Agricultural Economics. In October 2008, he became Dean of the Faculty of Agri Sciences at Stellenbosch University. He is a member of the National Planning Commission and holds other directorships in the agribusiness sector.


5. NS (NONHLANHLA) MJOLI-MNCUBE (55)MA (City and Regional Planning), Executive leadership qualifications (Harvard and Wharton, USA), Postgraduate Certificate: Technology Management (Warwick, UK)Independent non-executive director

Ms Mjoli-Mncube is a fellow of the Massachusetts Institute of Technology and Aspen Global Leadership Institute, USA. She is the former economic advisor to the Presidency and former deputy chair of the Construction Industry Development Board. Ms Mjoli-Mncube serves on the boards of several listed companies and held executive positions. She is also a recipient of the SABC Businesswoman of the Year Award and currently manages her own construction company.

Director since 25 November 2004.

8. LP (LAMBERT) RETIEF (61)BCom (Hons), CA(SA), OPM (HBS)Independent non-executive director

Mr Retief is a qualified chartered accountant and a former director of Naspers and Zeder Investments. He is the chairperson and former CEO of the Paarl Media Group.


7. AH (ANDILE) SANGQU (48)BCom (Acc) (Rhodes), BCompt (Hons), CTA (WSU), H Dip Tax Law (UJ), MBL (Unisa SBL), Advanced Management Programme (AMP) (INSEAD)Independent non-executive director, chairman of audit and risk committee

Drawing on 14 years of financial management experience at some of South Africa’s revered corporations, Mr Sangqu has garnered a deep understanding of the commercial market and business landscape. He has completed a High Performance Board (HPB) programme at IMD Lausanne campus in Switzerland in October 2013. Mr Sangqu served as deputy director-general (Finance and Corporate Services) of the National Department of Public Works. He currently serves as executive director of Glencore South Africa, having been the former CEO of Prodigy-Coris Asset Management and managing director of Budget Foods (Pty) Ltd.


9. PM (PHIL) ROUX (49)BCom (Hons), MBAChief Executive Officer

Mr Roux joined Pioneer Foods from Tiger Brands where he held the position of business executive: consumer brands as well as serving as an executive director. He has 25 years’ experience in the fast-moving consumer goods industry in various senior positions, including that of chief operating officer: Africa for Coca Cola SABCO and as a non-executive director of Oceana Group Ltd.

Director since 1 April 2013.

10. LR (LEON) CRONJÉ (57)BCompt (Hons), CA(SA)Chief Financial Officer

Mr Cronjé initially joined Sasko and was the executive: finance before the merger of Sasko and Bokomo in 1997. He was appointed in the same role for Pioneer Foods before becoming a director in 1999.

Director since 28 April 1999.

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CORPORATE GOVERNANCE

Executive management

1. PHIL ROUX (49)BCom (Hons), MBAChief Executive Officer

Mr Roux joined Pioneer Foods from Tiger Brands where he held the position of business executive: consumer brands as well as serving as an executive director. He has 25 years’ experience in the fast-moving consumer goods industry in various senior positions, including that of chief operating officer: Africa for Coca Cola SABCO and as a non-executive director of Oceana Group Ltd.

He has been with the Group since April 2013.

2. LEON CRONJÉ (57)BCompt (Hons), CA(SA) Chief Financial Officer

Mr Cronjé initially joined Sasko and was the executive: finance before the merger of Sasko and Bokomo in 1997. He was appointed in the same role for Pioneer Foods before becoming a director in 1999.

He has been with the Group for 27 years.

6. CINDY HESS (38)BCom (UWC), PGDA (UCT), CA(SA) Chief Financial Officer Designate

Ms Hess joined the Group from Sea Harvest where she held the position of financial director for seven years. She started her career at KPMG in 1999 and has since held executive positions at Woolworths and within the Transnet Group.

She joined the Group in March 2014.

3. TERTIUS CARSTENS (51)BEng (Chem), MBAExecutive: Essential Foods

Mr Carstens has 20 years’ experience within the Group, before and after the merger, in managerial and executive capacities. He is the executive responsible for the Essential Foods division.


4. MKUSELI DLIKILILI (50)BAdmin (Hons), MAExecutive: Human Resources

Mr Dlikilili held various HR roles in the utilities, beverages and chemical sectors before joining the Group in 2001.

Subsequent to year-end, Mr Dlikilili left the Group on 31 October 2014.

5. THUSHEN GOVENDER (38)BCom (Hons), CA(SA), MBA (UK) Executive: International, Joint Ventures, Mergers and Acquisitions

Mr Govender joined the Group in 2013 from Tiger Brands where he served as the executive: business development, strategy and investor relations. His career commenced with Deloitte South Africa and he later transferred to the United States to gain international experience. Over the past 10 years he has been involved in business development and strategy within various emerging markets while working for Stanbic Africa and Tiger Brands respectively.

He joined the Group in October 2013.

7. JAY-ANN JACOBS (42)BA LLB, LLM, Postgraduate Diploma: Environmental Law Group Legal and Company Secretary

Ms Jacobs practised as a corporate and commercial attorney for 12 years prior to joining Pioneer Foods, four of which were as a director at Cliffe Dekker Hofmeyr Inc. in Cape Town.

She has been with the Group for four years.

8. LULU KHUMALO (48)BA (Hons), HDE, Postgraduate Diploma in Sustainable BusinessExecutive: Corporate Affairs and Sustainability

Ms Khumalo started her career as an academic at Rhodes University after which she entered the corporate world in communications and CSI roles and later in transformation and corporate affairs roles, mainly in the resources industry. She joined the Group in 2010.

Subsequent to year-end, Ms Khumalo left the Group on 30 November 2014.

9. FELIX LOMBARD (45)MCom (Tax), CA(SA) Executive: Groceries

Mr Lombard started his career with the Group in 1995 as head of information systems at Bokomo and then Pioneer Foods. He then acted as financial manager for Sasko Maize Mills and in 1999 was promoted to executive: agri business and packaging. He is currently executive responsible for the Groceries division.


11. ANTON VAN ZYL (45)BEcon Marketing Executive

Mr van Zyl joined the Pioneer Foods business in 2013 with over 20 years’ multi-national FMCG experience. He has experience across multiple categories, both locally and internationally, having lived and worked in Africa, the Middle East and Russia with the likes of Unilever, Mars Inc. and the Added Value Group, in a variety of senior marketing and general management positions.

He joined the Group in November 2013.

10. HENNIE LOURENS (51)BCom (Hons), MCom, BProcExecutive: Quantum Foods

Mr Lourens joined the Group as human resources manager for Bokomo Foods in 1996 from Transnet where he was human resources manager. Before being appointed as executive: agri business in 2007, Mr Lourens was general manager for the Sasko Grain business of the Group.


Subsequent to year-end, Mr Lourens left the Group’s service as the CEO of the unbundled and newly listed Quantum Foods.

View online:www.pioneerfoods.co.za

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CORPORATE GOVERNANCE (CONTINUED)


Board of directors

The Board exercises overriding control over the Group and all its subsidiaries. In line with the Board charter, which is reviewed on an annual basis, the Board is responsible for ensuring that the necessary systems and processes are in place to enable the Group to achieve its objectives in a sustainable manner. During the year under review, the Board provided guidance in the rigorous restructure undertaken by the Group, in particular the unbundling and listing of Quantum Foods.

The Board provided guidance to management in formulating the corporate strategy, setting targets and developing plans, while being mindful of the business’s impact on the triple bottom line, being stakeholders (people), financial performance (profit) and the environment (planet). The Board is structured such that no individual director has unfettered powers of decision-making.

Composition and size

The Board consisted of 10 members at year-end, of whom the majority are non-executive members, including the chairman, in accordance with the requirements of the Companies Act and the Group’s memorandum of incorporation (“MOI”). The Board as a whole assesses the requisite skill of its members and, when appropriate, recommends the appointment of new members in terms of the MOI, for approval by the shareholders at the following annual general meeting (“AGM”).

Roles and responsibilities

The Board’s terms of reference govern and regulate how the members of the Board, collectively and individually, discharge their duties according to the principles of good governance. Both the Board and the lead independent director charters are available on the website at www.pioneerfoods.co.za.

The chairman

Mr Combi was appointed to the Board in 2010 and was elected as chairman in the same year. He has since been re-elected twice as chairman of the Board. The chairman is an independent non-executive director and is the chairman of the nomination committee. In the event that the chairman is conflicted on any matter for discussion at Board meetings, he is assisted by the lead independent director, Mr Pretorius.

Non-executive directors

The Board consists of members from diverse backgrounds and careers who bring a broad spectrum of skills and expertise to the decision-making process. They provide insight, guidance and judgement on progress in terms of the corporate strategy, risk management, resource management and stakeholder relations.

In terms of the MOI, non-executive directors are appointed for a three-year period and rotate by retirement and may avail themselves for re-election.

Executive directors

The executive directors are appointed by the Board and are responsible for leading strategy, agreeing operational and capital budgets with the Board, ensuring the Group’s overall financial health and effectiveness, operational results, effective risk and compliance management and effective leadership of the organisation.

Statement of compliance

In accordance with the JSE Listings Requirements, the Group has applied the all of the principles of the King III recommendations.

• Appointment of directors: Together with the MOI, which details the appointments of members of the Board, the Group has a nomination policy which out the procedure for such appointments which is formal and transparent. The nomination committee, chaired by Mr Combi, assists the Board in such deliberations. The nomination policy was adopted by the committee in 2012.

• Balance of power: The Board Charter evidences a clear balancing of power and authority at Board level, ensuring that no one director has unfettered powers of decision-making.

• The Chief Executive Officer and the Chairman are two separate appointed positions. Even though the Chairman is an independent non-executive director, the Board has also appointed a lead independent director. The lead independent director chairs Board meetings in the event that the Chairman is conflicted on any matter for discussion at meetings.


• The audit committee (which includes the risk committee) and the human capital committee (or remuneration committee) has been appointed since the Group was listed on the stock exchange. The mandates of all committees are available online at www.pioneerfoods.co.za. The attendance register of all committees can be found on page 86.

• The independence of each director has been confirmed by the Board and can be found on page 81.

• During the year under review, the Group had a full-time executive financial director.

• At its meeting held on 19 November 2014, the audit committee satisfied itself of the appropriateness of the expertise and experience of the financial director, including the finance function, after due debate.

• The Board adopted a different approach to the conventional manner in which to assess the company secretary. This was done via a self-assessment whereby the CEO and Chairman of the Board assessed the competence, qualifications and experience of the company secretary as a direct consequence of their daily interactions with her. The assessment was based on a questionnaire obtained from the Institute of Directors with input from Deloitte. The assessment results were circulated to the Board for information. The results delivered no areas for concern and the Board is satisfied that the company secretary is competent.

• The company secretary has an arm’s length relationship with the Board and is not a director of the Board. She is, however, a director on various subsidiaries within the Group.

The full interactive King III Governance report is available online at www.pioneerfoods.co.za.

The company secretary

The company secretary, Ms Jay-Ann Jacobs, was appointed in August 2011.

All the directors have access to the company secretary, who in turn ensures that the Board procedures and applicable rules and regulations

are fully observed and implemented. The company secretary is responsible for the administration of shareholders and the direct interface between the transfer secretaries, Computershare and Strate. In addition, she is the custodian of governance with regard to compliance with the JSE Listings Requirements and insider trading. The company secretary is responsible for compliance and is the delegated information officer of the Group in terms of its Promotion of Access to Information Act (“PAIA”) Manual, and is responsible for the execution of all statutory requirements applicable to those responsibilities.

As required by the JSE Listings Requirements, the Board evaluated and satisfied itself of the competence, qualifications and experience of the company secretary at the Board meeting that was held on 20 November 2014. Refer to the Statement of Compliance on the process followed for assessment.

The Board is satisfied that an arm’s length relationship exists between it and the company secretary as she is not a member of the Board, nor involved in day-to-day operations of the Group other than the provision of legal services to the Group. Refer to section 3.84(j) of the Listings Requirements in this regard.

Board committees

The Board delegates some of its functional responsibilities to its committees by means of clearly defined mandates. These committees were:

• the audit and risk committee;

• the social and ethics committee;

• the human capital committee; and

• the nomination committee.

The committees report to the Board on their respective directives and deliverables on a continuous basis in accordance with their respective committee charters. An overview of the committee charters is available online at www.pioneerfoods.co.za.


Group regulatory compliance

The Group’s approach to regulatory compliance is based on the Generally Accepted Compliance Practice (“GACP”), as endorsed by the Compliance Institute of Southern Africa (“CISA”).

Pioneer Foods, including its subsidiaries, is a responsible manufacturer and supplier of trusted brands and high-quality food, beverages and related products for both human and animal consumption.

As a listed company on the Johannesburg Stock Exchange (“JSE”) and a corporation duly incorporated in South Africa under the provisions of the Companies Act, Act 71 of 2008, as amended,

as well as the Regulations thereto (“the Companies Act”), Pioneer Foods is subject to a comprehensive set of regulatory compliance requirements.

The heightened focus on corporate governance and sustainable business practices continues to be a pivotal component of the Group’s approach to creating value for all stakeholders.

Compliance with applicable regulatory requirements, therefore, forms an integral part of the business’s overall strategy. The Group strives to keep abreast of regulatory changes and the impact of these on business activities, the products and services rendered to customers and, ultimately, the consumer.


Board and committee meeting attendance

The table below provides a snapshot of the attendance of members serving on the Board and its subcommittees during the year under review.

Board of directors

Board meetings (scheduled)

6

Audit and risk committee meetings

4

Social and ethics committee meetings

2

Human capital committee meetings

4

ZL Combi (Chairman) 5 3

G Pretorius (Lead independent director) 6 4

N Celliers 6 2

LR Cronjé (Chief Financial Officer) 6 4

MM du Toit 6 4

AE Jacobs* 2 1

Prof ASM Karaan 4 2

NS Mjoli-Mncube 6 4

LP Retief 6 4

PM Roux (Chief Executive Officer) 6 4 2 4

AH Sangqu 6 4

Dates of meetings held

17/10/2013 20/11/2013 13/03/2014 17/11/2013

21/11/2013 12/03/2014 21/08/2014 13/02/2014

13/02/2014 14/05/2014 15/05/2014

15/05/2014 30/07/2014 17/09/2014

31/07/2014 09/05/2013

19/09/2014 05/09/2013

* AE Jacobs stepped down as a member of the Board and audit and risk committee, effective 13 February 2014.

Non-compliance

The Board herewith confirms that, to the best of its knowledge, the Group was not involved in and/or associated with any material transgression or non-compliance incident that relates to an applicable regulatory requirement during the year under review.

Focus areas for 2014

The Group is committed to continuously reviewing its compliance risk analysis and its associated compliance universe, to ensure that it remains current and relevant.

Further to the aforementioned, the material pieces of legislation currently affecting the Group are, among others:

• Foodstuffs, Cosmetics and Disinfectant Act

• Agricultural Products Standards Act

• Food Labelling Regulations R146, as well as R429 which is still in draft format

• POPI Act

• Employment Equity Amendment Act

The various stages of the Group’s risk-based practice concerning regulatory compliance can be illustrated as follows:

RISK IDENTIFICATION

COMPLIANCERISK

ASSESSMENT

COMPLIANCERISK

MANAGEMENT

COMPLIANCEMONITORING

COMPLIANCE REPORTING

The Group sets expectations that each employee, as a brand ambassador and representative of Pioneer Foods, complies with all applicable laws and regulations that govern the business.

Any violation of laws, rules or regulations that could potentially jeopardise the organisation’s integrity is not tolerated. It is for this reason that Pioneer Foods aims to engage, and ultimately influence, its critical business partners in complying with laws and regulations applicable in its operating context.

The Group’s implementation and adherence to the recently promulgated Protection of Personal Information Act (“POPI Act”) is a notable example of its commitment to the highest standards of compliance. This involved extensive preparation in the previous year, including conducting a risk-based gap analysis and creating awareness among employees.

The Group operates according to a compliance universe which is incorporated in its revised enterprise risk management framework and consists of the following criteria:

• Mandatory compliance requirements, i.e. laws and regulations that influence and/or affect the Company’s business operations

• Voluntary compliance requirements, i.e. a combination of industry and customer requirements, non-binding rules, best practices, codes and standards

• Internal ‘Pioneer Foods-specific’ compliance requirements, i.e. Company policies and procedures, standard operating protocols and business-specific standards.



• The new Labour Law amendments

• Consumer Protection Act

• Competition Act

• Solvency and Asset Management (“SAM”)

• A suite of applicable environmental management laws and regulations

IT governance report

Pioneer Foods’ IT (Information technology) governance framework and reporting system provides the Board with a clear view of the IT procedures within the business. The framework enables the Board to verify that Pioneer Foods is deriving value through the appropriate use of IT in line with the business strategy and at acceptable levels of risk.

The Pioneer Foods IT charter is based on the principles of IT governance described in King III and guides the Board in discharging its IT responsibilities. The Board is responsible for IT governance and has the ultimate responsibility to ensure that information and IT strategies are aligned with the strategies of the business. The audit and risk committee assists the Board in carrying out these responsibilities. The Board has satisfied itself that, based on reports received from this committee, an appropriate IT governance framework exists and is functioning effectively.

Pioneer Foods recognises the strategic role that IT governance plays in conducting business in a highly competitive environment, given IT being regarded as a strategic asset which is deeply entrenched in the way the Group conducts its business.

Ethics

The Group’s code of ethics guides the application of business ethics in the organisation by defining and communicating expected behavioural standards for Pioneer Foods. By providing guidelines, the code

empowers each employee to make decisions based on core values. The purpose of the code is therefore to guide the Group in the way it conducts business and enhances its reputation with its stakeholders. In line with the new business model, the code of ethics was reviewed and aligned with the dti’s Business Practice Guidelines.

Following the 2013 KPMG ethics risk assessment, Group internal audit conducted an internal assessment early in the financial year. To improve the Group’s ethical culture, HR management has been appointed as ethics champions.

Themed monthly awareness campaigns delivered through the internal portal, screensavers, and at premises, as well as a modular ethics training programme via the SAP Productivity Tool, are parts of an established continuous programme. The programme has been approved and is monitored by both the social and ethics and the audit and risk committees of the Board.

Tip-offs Anonymous

During the financial year, 58 tip-off reports were received through the anonymous hotline. All of these were investigated. Of the 52 investigations that have been completed, two led to dismissals and control improvement recommendations were implemented in response to 14 allegations. The remaining 36 were regarded as unfounded allegations.

Human rights

Pioneer Foods respects the human rights of its employees, suppliers and everyone else it interacts with. Human rights requirements are included in the code of ethics and all suppliers are expected to ensure they are not implicit in any form of human rights abuse and that they support, respect and protect internationally proclaimed human rights.

The Group’s procurement policy contains a section that covers this important aspect and the expected behaviour of suppliers. The Group is constantly

monitoring supplier operations for ethical practices. There were no incidents of human rights violations, child labour, forced or compulsory labour that were brought to the Group’s attention during the period under review.

Procurement controls review

Stringent anti-corruption measures have been put in place to help drive adherence to the procurement governance principles as well as promote anti-corruption legislative compliance:

• Supplier vetting and ongoing monitoring: Central Procurement is in the process of sourcing a supplier vetting tool to enable vetting of both current and prospective suppliers.

• Anti-corruption compliance questionnaire: Suppliers are required to complete a questionnaire before being awarded the contract, which is then incorporated into the agreement to ensure accountability.

• RFP (Request for Proposals) document enhancement: Various clauses highlighting anti-corruption governance principles have been added to the RFP document as recommended by internal audit and senior counsel.

• Procurement Policy enhancement: The Procurement Policy has been updated to reflect the anti-corruption compliance requirements to be fulfilled by Pioneer Foods employees.

Going concern

The Board is of the view that, after considering and scrutinising factual and substantiated information, the business will continue as a going concern in the new financial year. The Board, under the auspices and recommendations of the Group’s audit and risk committee, considered this aspect at both the interim reporting stage as well as at the end of September 2014. Reference is made to the statement in this regard, as per the report of the chairman of the audit and risk committee on page 2 of the annual financial statements.

Business risk management and continuityBusiness risk management and continuity is a core element of Pioneer Foods’ sustainability agenda. During the year, in line with the shift to the One Pioneer business model, management engaged in a rigorous top-down and bottom-up business risk assessment. The results of this assessment, and its subsequent reviews, are reported to the audit and risk committee on a regular basis. The 2014 strategic business risk register is reflected below:

Principal risk Specific risks Mitigation of risk Link to strategy

1 Economy and growth

Lack of growth initiatives and slow extraction from marginal assets, within an environment of poor economic growth and increased competition.

Failing to participate in value-adding transactions

Paying too much to acquire new business

Slower-than-expected extraction from marginal assets and uneconomical SKUs

Continued high levels of unemployment in South Africa

Insufficient volume growth from constrained local market

Formalised process to pursue value-adding transactions domestically, in Africa and abroad

Structured plans to divest from marginal assets and uneconomical SKUs

Cost reduction and efficiency focus to support investment in growth opportunities

Shape a winning portfolio:

Expand into adjacent countries

Enable growth via acquisitions in domestic, African and international markets

Divest from marginal assets

Aggressive SK rationalisation

Focus on power:

Step-change support levels and strategic direction of power brands



2 Market share loss and competition

Market share loss due to not keeping pace with competitor activities, consumer shifts and changes in preferences.

Failure to adapt, leading to brands and products losing relevance with consumers and customers

Competitors grow current and new categories faster and more profitably, offering better value and growing their customer and consumer base

Evaluate and understand market and category trends, changes in consumer needs and industry dynamics

Ongoing evaluation of brand portfolios in every category and market

Grow the brand equity by investing in innovation, renovation and relevance

Joint business planning processes implemented

Measure channel optimisation and customer profitability

Focus on power brands:

Brand portfolio and brand strategy

Innovation and renovation focus

Segmentation modelling

Enhanced brand investment

Embed strategic customer management

Customer-centric organisational design

Joint business planning

Optimal channel and customer mix

3 Efficiency and cost focus

Not fully realise planned savings, improved productivity and margin disciplines to compete successfully.

Burden on business and infrastructure to keep marginal assets and non-performing product offerings

The process of rightsizing could impact the focus of the day-to-day management of the business

Risk of unsuccessful completion of significant projects undertaken in the next 18 months

Measure savings against targets

Diligent measurement of key performance indicators against agreed targets and benchmarks

Applicable management information

Craft strong project management and technical skills

Corporate strategic planning alignment with prioritisation of projects

Lower production costs (waste and efficiency targets defined, measured and managed)

Reset the cost base and step up productivity:

Rightsizing the organisation

Merge Bokomo Foods and Ceres Beverages

Capitalise on “parenting advantage” – One Pioneer business model

Manufacturing efficiencies/price/volume/margin disciplines

Shaping a winning portfolio

Build a high performance culture



4 Talent and high performance culture

Not succeeding in building a high performance culture and loss of key talent.

The ability of personnel to adapt and align with the change required

Failing to identify, develop and retain appropriate talent

The availability of key skills at an appropriate cost

Not meeting transformation and diversity targets

The rightsizing of the business could lead to loss of key talent

Learning agility programmes

Talent and skills management initiatives

Reward systems, including short and long-term incentive schemes

Transformation and diversity measurements

Change management programmes

More focus on training and development

Increased employee engagement and job satisfaction surveys


Talent calibration

Speed to market and innovation

Transformation

Talent management

Skills development

Strengthen employer/employee proposition

5 Input cost volatility

Commodity price and exchange rate volatility impacting costs.

The lack of or low availability of agricultural commodities that impacts the supply chain and results in major raw material price volatility

Exchange rate volatility, risk and uncertainties associated with the importation of raw materials and equipment and with the export of products may impact overall competitiveness and profitability

Inadequate vine fruit crop to service the market

Unanticipated exposure to product input costs due to the exchange rate

Risk of lost margin due to volatile soft commodity market

Appropriate resource allocation to procurement and exchange rate transaction responsibility with clear financial controls and review

External input in terms of commodity supply and demand on an international basis

Foreign exchange risk policies are applied, combined with external inputs on rate management

Create additional growing areas – spread planting areas with farmers

Focus on new cultivars harvested over longer periods

Optimal carry over stockholding

Determine stock positions ahead of pricing increase expectation

Ensure hedging strategy is followed

Reset the cost base and step up productivity




6 Governance and regulatory compliance

The Group has to be able to operate according to a comprehensive suite of compliance requirements.

The inability to manage compliance with ongoing regulatory changes

Reputational and financial risk as a result of non-compliance

Failure of governance controls making insider trading possible

Training and awareness are continuously provided on a targeted basis across the business

Self-governance backed by appropriate policies, systems, procedures and reporting

Appointment of skilled technical resources to inform and govern this exposure

Monitor and report application/maturity levels and response to applicable regulatory requirements

Ensure interpretation and application of decision-making framework at operational level

Controlled access to information



7 Transformation

Transformation and diversity is key in sustaining and growing the business.

Slow progress could result in potential penalties

Uneconomical labour cost

Lagging B-BBEE employment

Transformation plan and targets directed and measured from the centre

Ensure manning levels are correct

HR policy that regulates key compliance aspects, planning tool and business unit planning forums

Identification of key skills required

Intensive focus on training internal staff



8 Technology and innovation

The consumer environment is increasingly shaped by technology, requiring innovative solutions.

Non-adoption may result in efficiency losses and market share decline

Leakage and/or exposure of company confidential information

Increased risk of cybercrime

Product innovation strategy and plan directed by executive

Manufacturing and procurement forums focus on technology advancement

Regular governance review of information and systems security

Annual review of IT strategy (structure, skills, technology, hardware, software and systems)





9 Business interruption

Unplanned interruption may lead to production and supply inefficiencies.

Risk of industrial action

Dissatisfied and unproductive workforce

Fire damage and/or water shortage preventing business activities

Decreasing quality of municipal water quality

Shortage in key raw material supply

Inconsistent electricity supply

Annual negotiation planning:

• Environmental scan

• Strategic mandate to HR

• Ongoing monitoring

Staff engagement

Recognition and reward programmes

Talent attraction and retention

Culture of discipline, accountability and recognising high performance

Disaster recovery plans and testing

Quarterly risk management forums

Logistics planning and stockholding strategy

Continuous staff training on safety, health, environment and quality (“SHEQ”) – fire drills and procedures

Installation of backup generators

Ensure adequate water supply at all sites in case of fire



10 Product safety and contamination

As a producer of food and beverage products for human and animal consumption, the Group must ensure that all products are safe.

Food safety risk resulting from product contamination

Product contamination impact on consumer health, leading to reputational damage

Failure in ingredient risk management

Supplier specifications and food and safety standards, with regular evaluations

Quality controls, systems and procedures

Compliance with legislation

Proactive participation in lobby groups

Closer partnership with government bodies

Third-party auditing

Continuous monitoring of processes, controls and products




GOVERNANCE AND ASSURANCE PROCESSES

Audit and risk committee (ARC) Responsibility: Oversight and governance

Assurance will be supplied to the ARC as follows:

Board of directors Responsibility: Oversight and governance

• Monitoring and evaluating the governance of risks and effectiveness of the risk management process• Setting the risk appetite of the Group• Align the risk management process with King III • Align the risk management process with the strategic objectives, management priorities, material issues,

reputational risks and stakeholders’ expectations

• Review and approve risk management policy and plan• Review and consider the list of strategic, high and critical risks and related systems of mitigation controls• Review and consider the operational and corporate risk, mitigation and incident reports and assess against

Board’s established risk appetite• Review business continuity capability, disaster management plans and Insurance cover

• Business and the corporate management teams by identifying and mitigating risks daily through the implementation of preventative and detective systems, structures and controls

• Internal audit team through risk-based internal audits• External assurance providers, regulatory and legislative audits, as well as independent reports• Risk management process and reporting (refer summarised processes and reporting)


Management has partnered with Marsh Risk Services to review all risk control programmes throughout the business. The Risk Control Forum, comprising the necessary business representation and divisional executives, meets quarterly to review these findings and evaluate progress. The results of the programmes are reported to the audit and risk committee on a regular basis.

The Group is committed to effective risk management and recognises that the management of business risk is an imperative cornerstone and an enabler in achieving the Group’s vision of being a leading fast-moving consumer goods company in Africa with globally trusted brands. An integrated risk management culture is endorsed by undertaking a structured and comprehensive approach to the effective management of risks at operational and

corporate level. Risk categories include strategic, operational, financial and compliance risks. Overarching these is reputational risk.

The risk management model aligns with the strategic objectives and directions, management priorities, material issues, shareholders’ expectations and reputational risk, while assisting critical decision-making processes as well as information management decisions.

The Group contextualised and summarised its risk management as follows:

• Governance and assurance processes

• Risk management and reporting processes

RISK MANAGEMENT AND REPORTING PROCESSES

The operational and corporate management teams:

Reporting by management to the ARC includes the following:

Alignment of risk management processes with:

• Strategic objectives and direction provided by the Board and the executives• Management priorities• Material issues • Stakeholders’ expectations• Reputational risk

• Compile a functional risk register– Defining the risks– Assessing the impact of the risks on the organisation, should they happen, and assessing the likelihood of

the risks happening– Classify the risks– Indicate mitigation factors and controls implemented

• Manage the risk mitigation and control activities on a daily basis through the implementation of preventative and detective systems, structures and controls

• Monitor and report on the risk management and incident reports

• Risk management processes and policy application• Strategic, high and critical risks and related system of mitigation controls• Risk controls and assurance monitoring• High-risk incidents and decision to treat, tolerate, terminate or transfer the risk• External assurance and internal audit


Internal audit

During the year, Pioneer Foods successfully outsourced its internal audit function to Deloitte. Internal audit has regular and unrestricted access to the chairman of the audit and risk committee and Chief Executive Officer.

The internal audit function strives to assist the business in accomplishing its objectives by applying a risk-based approach to evaluate and improve the effectiveness of risk management, integrated systems, internal controls and governance processes across the Group.

The role and responsibilities of internal audit are contained in its terms of reference, which is reviewed and approved by the audit and risk committee on an annual basis. Internal audit’s mandate can be summarised as follows:

• Review systems and operations to assess the extent to which the Group’s objectives are achieved, including the adequacy of controls over activities leading to such achievement.

• Evaluate the relevance, reliability and integrity of management and financial information.

• Appraise the utilisation of resources with regard to economy, efficiency and effectiveness.

• Assess the means of safeguarding resources and, at the same time, verifying its existence.

• Ascertain the degree of compliance with established Company policies, standards, procedures, instructions and applicable laws and regulations.

• Evaluate and recommend improvements in procedures and systems to prevent waste, extravagance and fraud.

• Advise on appropriate systems of controls and other accounting and operational matters.

• Draw attention to any failure and recommend remedial/corrective actions.

• Perform ad hoc investigations, inspections, appraisals, examinations or reviews as requested by management and/or the audit and risk committee.

Findings and recommendations of all internal audit processes are reported to management and the audit and risk committee. The assurance services required for specialised information technology and the SAP ERP system environment is outsourced to the Group’s external auditors, i.e. other than the division that has been appointed to fulfil the external financial auditing function as per the JSE Listings Requirements and the Companies Act.

Pioneer Foods’ internal audit is formalising the combined assurance model to drive assurance coverage and audit efficiencies. The combined assurance model focuses on the key principal risk areas identified through the enterprise-wide risk assessment process. Internal audit is the custodian of the combined assurance process within Pioneer Foods.


Remuneration reportRemuneration principles and policy

Introduction

The remuneration report largely addresses the principles and policies affecting the CEO, Group executive management, and senior management of the organisation. This stakeholder group has a clear line of sight of the key strategic themes of Pioneer Foods that drive the twin objectives of:

• strengthening the brands; and

• expanding margins.

The alignment of strategic focus, execution, and reward of this team is essential to the overall performance of the Group.

Group strategy alignment

Alignment of Pioneer Foods’ strategic direction, specific value drivers and the remuneration of the CEO, Group Executive management and senior management members is ensured by the human capital committee (HCC).

The total remuneration approach is reviewed frequently by the HCC to ensure the relative percentage of guaranteed and variable pay is market related and supportive of the strategic objectives. To this end, total remuneration incorporates elements of guaranteed and performance incentive pay, focused on retaining talent and rewarding the achievement of both short and long-term objectives. This is expressed, as follows:

• Annual review of guaranteed pay taking into account factors such as CPI, industry performance, business performance and affordability. Benchmarks are conducted by job family to ensure the retention of scarce skills. Higher increases can be given to high-performing individuals, based on performance feedback. Annual review of guaranteed pay is effective 1 January.

• Payments of short-term incentives (STIs) are based on a percentage of guaranteed pay and dependent on the achievement of agreed hurdle rates, triggering at an entry target point, and capped at an agreed targeted growth point. STI payments are made annually on 15 December after confirmation of the financial results for the year ending 30 September.

• Long-term incentives (LTIs), in the form of share appreciation rights (SARs), are allocated annually. Vesting takes place in years 3, 4, and 5 after allocation, and 50% of the vesting thereof is time dependent and 50% performance dependent. Specific hurdle rates must be achieved for vesting on the performance-based allocation. If performance conditions for any specific period are not met, the relevant SAR allocation is forfeited.

CEO, executive team and senior management remuneration

The remuneration mix of the CEO, Group executive management and senior management is differentiated to attract, retain and reward exceptional talent. These elements are explained in more detail below.

Guaranteed remuneration

The Company applies a total guaranteed package (TGP) structure to guaranteed remuneration. The strategy is that the Company will strive to pay on average at the median for all positions. Jobs with the same grade can earn different amounts as determined by market factors, such as shortage of skills, which can result in a premium being paid for those skills in short supply. TGP structuring rules include the following:

• Membership of Group Retirement Fund is compulsory

• Membership of medical aid is voluntary

• Travel allowance in accordance with the South African Revenue Service regulations, where applicable


TGP surveys/Benchmarking

The Company will from time to time use external benchmarking and survey data as is deemed necessary. The organisation will select appropriate peer organisations for benchmarking based upon industry, organisation size, specific job that is being benchmarked (some roles are industry specific whereas other roles are generic to business) and any other parameters that are considered valid. As a rule, the benchmarking will be by job family.

Variable remuneration

Variable remuneration refers to the STI and LTI schemes.

STI 2014

The STI is based on two elements of performance measurement:

• Growth in headline earnings before tax (HEBT) for Group performance and operating profit (EBIT) for business unit performance (50% potential)

• Growth on previous year’s economic profit (EP) for Group and business unit performance respectively (50% potential)

The bonus payment is dependent on the following hurdle rates:

• HEBT or EBIT growth element: CPI plus percentage growth in GDP; and,

• EP element: the hurdle rate is to match the previous year’s EP.

A maximum bonus pool (cap) will be calculated as a percentage of economic profit and growth in economic profit annually to govern the total amount of STI payments. A key principle is that if there is no growth in EP, no bonus is payable and the pool is zero.

Depending on seniority, payment at achieving the entry target point (based on TGP) is between 0% and 20%, and payment is capped, varying between 15% and 150% of TGP, on achieving the maximum targeted growth.

LTI 2014

The HCC determines the share allocation to qualifying managers annually for the SAR scheme. Multiples of TGP determine the annual allocation of SARs to qualifying employees varying from 1 to 9 times of TGP. In determining the annual top-up calculations, the unvested value allocated in the past is taken into account. No qualifying employee can be allocated more than 1 million ordinary shares cumulatively, once converted.

Vesting conditions of the SARs:

• Compounded average growth rate (CAGR) in headline earnings per share (HEPS) of CPI plus 1% real growth will trigger vesting of 1/3 of the allocation at each of the 3rd, 4th and 5th anniversary dates of allocation.

• Hundred per cent vesting will be achieved at CAGR growth of CPI plus 5% real growth for each relevant period.

The time allowed to exercise the SARs will be six months after each and every respective vesting date. If performance vesting conditions are not met at vesting date, the relevant SAR allocation is forfeited.

The total value of ordinary shares that may be transferred to employees under the SAR is limited to 14.5 million shares and represented approximately 7.5% of the issued ordinary shares at the date of approval of the scheme by shareholders granted in 2006.

An additional allocation is made annually to senior black management, and any exercise of these allocations will only be possible after five years of the date of allocation. Depending on seniority, the cumulative value of these additional allocations varies between 75% and 100% of a year’s TGP.


Group benefits

The Company has benefit schemes that everyone qualifies for participation in. These are:

• Provident and retirement schemes: membership is compulsory for permanent employees

• Insured risk benefits: minimum cover of 1 times TGP up to 4 times (provident fund) or 7 times (retirement fund), by choice of the member

• Medical aid scheme: membership is not compulsory

Other remuneration points

Average notice period for CEO, Group executive management, and senior management is three months.

Non-executive directors

The overriding principle governing payment to non-executive directors is that they will be made in the context of good governance. The amounts will be determined by the HCC and approved by the Board.

Non-executive remuneration will primarily be based upon a fee that reflects expertise, contribution of the directors and attendance.

Where appropriate, independent benchmark advice will be sought as to levels of remuneration for non-executive directors.

If required, the directors may be requested to perform work outside of their standard duties, which standard duties would include annual general meeting and annual/interim results presentations, and for this they will be reimbursed based upon the time spent and their level of expertise.

The fees paid to different roles, such as that of chairman, may vary from the fees paid to other non-executive directors.

Non-executive directors will not participate in any share-based incentive scheme or any other incentive scheme that the Group may implement, to avoid any potential conflict of interest.


VALUE ADDED STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2014

GROUP 2014

R’000

2013Restated

R’000 Revenue 21 289 950 19 811 062Cost of production and services (16 606 708) (15 563 760)Value added by operating activities 4 683 242 4 247 302Interest received 24 308 22 523Dividends received 1 644 1 651Wealth created 4 709 194 4 271 476

Distributed as follows:

EmployeesSalaries, wages and employee benefits 2 714 275 2 741 714

Providers of capital 475 252 384 011Interest paid 138 723 126 258Dividend to shareholders (note 1) 336 529 257 753

Income tax expenseIncome tax paid in respect of profits earned 378 213 254 694

Retained for future investment 1 141 454 891 057Depreciation and impairments 451 446 604 845Retained earnings (note 1) 690 008 286 212

Wealth distributed and retained 4 709 194 4 271 476

Note 1: Excludes the dividend in specie due to the unbundling of Quantum Foods.

DISTRIBUTION OF WEALTH

58% Employees

10% Providers of capital

8% Income tax expense

24% Retained for future investment

2014 2013

64% Employees

9% Providers of capital

6% Income tax expense

21% Retained for future investment

PIONEER FOOD GROUP LTD

SUMMARY CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 SEPTEMBER 2014

CONTENTS

Directors’ responsibility 102

Preparation and presentation of summary consolidated financial statements 102

Secretarial certification 102

Independent auditor’s report on summary consolidated financial statements 103

Summary consolidated financial statements 104

In accordance with section 88 of the Companies Act, Act 71 of 2008, as amended (“the Act”), for the year ended 30 September 2014, it is hereby certified that the Company and its subsidiaries have lodged with the Companies and Intellectual Property Commission all such returns that are required of a public company in terms of the Act and that such returns are true, correct and up to date.

J JacobsCompany Secretary

The preparation of the summary consolidated financial statements have been prepared under the supervision of LR Cronjé, CA(SA), Group financial director. The full set of annual financial statements is published on the Group’s website at www.pioneerfoods.co.za or can be requested from the company secretary.


DIRECTORS’ RESPONSIBILITY

PREPARATION AND PRESENTATION OF SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

SECRETARIAL CERTIFICATION

In accordance with the requirements of the Companies Act, Act 71 of 2008, the Board of directors (“the Board”) is responsible for the preparation of the annual financial statements and the consolidated annual financial statements of Pioneer Food Group Ltd which conform to International Financial Reporting Standards (“IFRS”) and which fairly present the state of affairs of Pioneer Food Group Ltd and its subsidiaries (“the Group”) at the end of the financial year, and the net profit and cash flows for that period. The Board is also responsible for the information other than that of the annual statutory financial statements that are included in the annual integrated report for both its accuracy and its consistency with the financial statements.

It is the responsibility of the independent external auditors to report on the fair presentation of the financial statements.

The Board is ultimately responsible for the internal control processes. Management enables the Board to meet its responsibilities in this regard. Standards and systems of internal control are designed and implemented by management to provide reasonable assurance as to the integrity and reliability of the Group’s financial records and its financial statements. The Board and management are, furthermore, also committed to adequately safeguarding, verifying and maintaining accountability for the Group’s assets. Appropriate accounting policies, supported by reasonable and prudent judgements and estimates, are applied on a consistent and going concern basis. Systems and controls include the proper delegation of responsibilities, effective accounting procedures and adequate segregation of duties.

Based on the information and reasoning provided by management as well as the internal and external auditors, the Board is of the opinion that the accounting controls are sufficient and that the financial records may be relied upon for preparing the financial statements and maintaining accountability for the Group’s assets and liabilities. During the year under review, and up to the date of this report, nothing has come to the Board’s attention that indicates or implies a breakdown in the functioning of these controls, resulting in a material loss to the Group. The Board has a reasonable expectation that the Group and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future and continue to adopt the going concern basis in preparing the financial statements.

The annual financial statements, which appear in the integrated report, were approved by the Board on 20 November 2014 and are herewith signed on behalf of the Board by:

ZL Combi PM RouxChairman Chief Executive Officer

Bellville 20 November 2014

The summary consolidated financial statements of Pioneer Food Group Ltd, set out on pages 104 to 123 of the integrated report for the year ended 30 September 2014, which comprise the summary consolidated statement of financial position as at 30 September 2014, and the summary consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and related notes, are derived from the audited consolidated financial statements of Pioneer Food Group Ltd for the year ended 30 September 2014. We expressed an unmodified audit opinion on those consolidated financial statements in our report dated 20 November 2014. Our auditor’s report on the audited consolidated financial statements contained an Other Matter paragraph: “Other Reports Required by the Companies Act” (refer below).

The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards and the requirements of the Companies Act of South Africa as applicable to annual financial statements. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated financial statements of Pioneer Food Group Ltd.

Directors’ responsibility for the summary consolidated financial statements

The directors are responsible for the preparation of a summary of the audited consolidated financial statements in accordance with the JSE Limited’s (JSE) requirements for summary financial statements, set out in note 1 to the summary consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summary financial statements, and for such internal control as the directors determine is necessary to enable the preparation of summary consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on the summary consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810, “Engagements to Report on Summary Financial Statements”.

Opinion

In our opinion, the summary consolidated financial statements derived from the audited consolidated financial statements of Pioneer Food Group Ltd for the year ended 30 September 2014 are consistent, in all material respects, with those consolidated financial statements, in accordance with the JSE’s requirements for summary financial statements, set out in note 1 to the summary consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summary financial statements.

Other Reports Required by the Companies Act

The “Other Reports Required by the Companies Act” paragraph in our audit report dated 20 November 2014 states that as part of our audit of the consolidated financial statements for the year ended 30 September 2014, we have read the Directors’ Report, the Report of the Audit and Risk Committee and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated financial statements. These reports are the responsibility of the respective preparers. The paragraph also states that, based on reading these reports, we have not identified material inconsistencies between these reports and the audited consolidated financial statements. The paragraph furthermore states that we have not audited these reports and accordingly do not express an opinion on these reports. The paragraph does not have an effect on the summary consolidated financial statements or our opinion thereon.

PricewaterhouseCoopers Inc. Director: R JacobsRegistered Auditor Paarl20 November 2014

INDEPENDENT AUDITOR’S REPORT ON SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS


Group statement of comprehensive income

Audited Audited Year ended Year ended

30 September 30 September 2014 2013

Restated R’m R’m

Continuing operationsRevenue 17 698.6 16 240.9 Cost of goods sold (12 321.2) (11 527.5)Gross profit 5 377.4 4 713.4 Other income and gains/(losses) – net 115.9 135.8 Other expenses (4 000.5) (3 842.5)

Excluding the following: (3 813.2) (3 696.6)Phase I B-BBEE transaction share-based payment charge (187.3) (145.9)

Items of a capital nature (47.0) 10.7 Operating profit 1 445.8 1 017.4 Investment income 22.3 22.6 Finance costs (138.0) (125.5)Share of profit of investments accounted for using the equity method 69.8 24.7 Profit before income tax 1 399.9 939.2 Income tax expense (451.8) (238.7)Profit for the year from continuing operations 948.1 700.5 Profit/(loss) for the year from discontinued operations (attributable to owners of the parent) 18.2 (200.4)Profit for the year 966.3 500.1 Other comprehensive income/(loss) for the yearItems that will not subsequently be reclassified to profit or loss:Remeasurement of post-employment benefit obligations 0.6 (1.5)Items that may subsequently be reclassified to profit or loss: 10.8 80.3 Fair value adjustments to cash flow hedging reserve (9.3) 17.3

For the year 62.8 (13.7)Current income tax effect (18.4) 4.4 Deferred income tax effect 1.7 (0.5)

Reclassified to profit or loss (75.8) 37.7 Current income tax effect 20.7 (10.7)Deferred income tax effect (0.3) 0.1

Fair value adjustments on available-for-sale financial assets 4.9 0.8 For the year 9.9 18.8

Deferred income tax effect (1.2) (1.7)Reclassified to profit or loss (3.8) (16.3)

Share of other comprehensive income of investments accounted for using the equity method 3.1 6.5 Movement on foreign currency translation reserve 12.1 55.7 Total comprehensive income for the year 977.7 578.9 Profit/(loss) for the year attributable to:Owners of the parent

For continuing operations 947.0 699.0For discontinued operations 18.2 (200.4)

Non-controlling interestFor continuing operations 1.1 1.5

966.3 500.1Total comprehensive income/(loss) for the year attributable to:Owners of the parent

For continuing operations 973.7 752.5For discontinued operations 2.9 (175.1)

Non-controlling interestFor continuing operations 1.1 1.5

977.7 578.9

Headline earnings reconciliation


30 September 30 September2014 2013

RestatedR’m R’m

Reconciliation between profit/(loss) attributable to owners of the parent and headline earningsProfit/(loss) attributable to owners of the parent

For continuing operations 947.0 699.0 For discontinued operations 18.2 (200.4)

965.2 498.6 Remeasurement of items of a capital nature – continuing operations 47.0 (10.7)

Net loss on disposal of property, plant and equipment and intangible assets 1.3 4.9 Net profit on disposal of available-for-sale financial assets (3.7) (16.4)Impairment of property, plant and equipment and intangible assets 49.4 0.8 Tax effect on remeasurement of items of a capital nature (12.9) 1.7

34.1 (9.0)

Remeasurement of items of a capital nature – discontinued operations 76.0 230.9 Net profit on disposal of property, plant and equipment and intangible assets (1.7) (1.1)Impairment of property, plant and equipment and intangible assets 77.7 232.0 Tax effect on remeasurement of items of a capital nature (20.3) (23.7)

55.7 207.2

Remeasurement of items of a capital nature included in equity-accounted resultsEffect on remeasurement of items of a capital nature 0.1 13.0 Tax effect on remeasurement of items of a capital nature – (3.1)

0.1 9.9

Headline earnings 1 055.1 706.7 For continuing operations 981.2 699.9 For discontinued operations 73.9 6.8

Phase I B-BBEE transaction share-based payment charge 187.3 145.9 Adjusted headline earnings (Note 1) 1 242.4 852.6

For continuing operations 1 168.5 845.8 For discontinued operations 73.9 6.8

Number of issued ordinary shares (million) 231.7 231.0 Number of issued treasury shares:– held by subsidiary (million) 18.0 18.0 – held by share incentive trust (million) 1.1 1.4 – held by B-BBEE equity transaction participants (million) 18.1 18.1 – held by BEE trust (million) 10.6 10.6 Number of issued class A ordinary shares (million) 6.0 7.4 Weighted average number of ordinary shares (million) 183.3 181.3 Weighted average number of ordinary shares – diluted (million) 192.1 185.8 Earnings per ordinary share (cents):– basic 526.5 275.0 – diluted 502.4 268.4 – headline 575.6 389.8 – diluted headline 549.2 380.4 – adjusted headline (Note 1) 677.8 470.3 – diluted adjusted headline (Note 1) 646.7 458.9 – adjusted headline for continuing operations (Note 1) 637.4 466.5 – diluted adjusted headline for continuing operations (Note 1) 608.2 455.2 Gross dividend per ordinary share (cents) 221.0 132.0 Gross dividend per class A ordinary share (cents) 66.3 39.6 Net asset value per ordinary share (cents) 3 318.2 3 598.1 Debt to equity ratio (%) 10.9 22.2 Note 1:Headline earnings (“HE”) is calculated based on Circular 2/2013 issued by the South African Institute of Chartered Accountants. Adjusted HE is defined as HE adjusted for the impact of the share-based payment charge on the B-BBEE Phase I transaction on profit or loss due to the volatility of this share-based payment charge.


SUMMARY CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Group statement of financial position

Audited Audited 30 September 30 September

2014 2013 Restated

R’m R’m AssetsProperty, plant and equipment 4 229.1 4 162.6 Goodwill 220.8 217.7 Other intangible assets 457.2 470.7 Biological assets 16.0 16.0 Investments in and loans to associates and joint ventures 402.3 344.1 Available-for-sale financial assets 70.0 59.0 Trade and other receivables 23.4 20.7 Deferred income tax 3.7 74.1 Non-current assets 5 422.5 5 364.9 Current assets 5 420.9 4 416.1 Inventories 2 423.3 2 401.2 Derivative financial instruments 14.9 10.6 Trade and other receivables 1 873.8 1 624.6 Current income tax 1.3 0.7 Cash and cash equivalents 1 107.6 379.0 Assets of disposal group classified as held for sale 2 066.8 1 953.4 Total assets 12 910.2 11 734.4

Equity and liabilitiesCapital and reserves attributable to owners of the parent 6 102.4 6 581.3 Share capital 23.2 23.1 Share premium 2 255.2 2 188.6 Treasury shares (1 186.5) (1 190.9)Other reserves 428.5 426.2 Retained earnings 4 582.0 5 134.3 Non-controlling interest 10.4 9.3 Total equity 6 112.8 6 590.6 Non-current liabilities 2 308.6 2 304.6 Borrowings

B-BBEE equity transaction third-party finance 449.7 449.7 Other 1 063.8 1 007.6

Provisions for other liabilities and charges 101.5 120.3 Share-based payment liability 245.2 251.4 Deferred income tax 448.4 475.6

Current liabilities 3 920.7 2 357.2 Trade and other payables 2 258.2 1 926.1 Current income tax 18.1 28.1 Derivative financial instruments 9.7 6.2 Borrowings 260.7 381.8 Loan from joint venture 15.7 14.7 Share-based payment liability 115.8 –Dividends payable 1 242.5 0.3 Liabilities of disposal group classified as held for sale 568.1 482.0 Total equity and liabilities 12 910.2 11 734.4

Group statement of changes in equity




Share capital, share premium and treasury shares 1 091.9 1 020.8 Opening balance 1 020.8 987.3 Movement in treasury shares 4.4 16.7 Ordinary shares issued – share appreciation rights 66.8 49.6 Employee share scheme – repurchase of shares (0.1) (32.8)Other reserves 428.5 426.2 Opening balance 426.2 350.3 Equity compensation reserve transactions 26.5 15.2 Ordinary shares issued – share appreciation rights (66.8) (49.6)Deferred income tax on share-based payments 31.8 30.0 Share of other comprehensive income of investments accounted for using the equity method 3.1 6.5 Other comprehensive income for the year 7.7 73.8 Retained earnings 4 582.0 5 134.3 Opening balance 5 133.2 4 847.3 Effect of changes in accounting policies 1.1 0.7 Restated opening balance 5 134.3 4 848.0 Profit for the year 965.2 498.6 Other comprehensive income/(loss) for the year 0.6 (1.5)Dividends paid (1 519.2) (211.3)Management share incentive scheme – disposal of shares 1.7 0.8 Employee share scheme – transfer tax on share transactions (0.6) (0.3)Non-controlling interest 10.4 9.3 Opening balance 9.3 8.2 Dividend paid – (0.4)Profit for the year 1.1 1.5

Total equity 6 112.8 6 590.6



Group statement of cash flows




Net cash profit from operating activities 2 133.9 1 556.3 Cash effect from hedging activities (7.8) 22.7 Working capital changes 27.5 66.8 Accrual for Competition Commission penalties paid – (216.7)Net cash generated from operations 2 153.6 1 429.1 Income tax paid (386.4) (233.1)Net cash flow from operating activities 1 767.2 1 196.0 Net cash flow from investment activities (392.7) (1 287.2)Property, plant and equipment and intangible assets– additions (269.7) (828.1)– replacements (216.3) (235.0)– proceeds on disposal 55.7 26.7 Business combinations – (315.0)Proceeds on disposal of and changes in available-for-sale financial assets and loans (1.1) 26.4 Interest received 24.3 22.5 Dividends received 1.6 1.7 Dividends received from joint ventures 12.8 13.3Dividends received from associates – 0.3Net cash flow from financing activities (422.0) (200.2)Proceeds from syndicated borrowings – 1 870.0 Proceeds/(repayments) of other borrowings 78.1 (1 698.8)Share schemes transactions (72.3) (17.1)Interest paid (150.8) (142.8)Dividends paid (277.0) (211.5)

Net increase/(decrease) in cash, cash equivalents and bank overdrafts 952.5 (291.4)Net cash, cash equivalents and bank overdrafts at beginning of year 65.6 357.0 Net cash, cash equivalents and bank overdrafts at end of year 1 018.1 65.6

For continuing operations 912.5 41.0 For discontinued operations 105.6 24.6

Group segment report




Segment revenue (Note 1)

Essential Foods (formerly Sasko) 10 927.5 10 314.4

Quantum Foods 3 591.4 3 575.6

Bokomo Foods 3 728.3 3 148.4

Ceres Beverages 3 340.8 3 021.2

21 588.0 20 059.6

Less : Internal revenue (298.0) (248.5)

Total 21 290.0 19 811.1

Segment results (Note 1)

Essential Foods (formerly Sasko) 1 074.9 784.3

Quantum Foods 21.6 (18.9)

Bokomo Foods 406.7 279.0

Ceres Beverages 328.7 263.8

Other (115.7) (154.3)

1 716.2 1 153.9

Reversal of depreciation charge in Quantum Foods legal entities (asset held for sale) 54.7 –

Phase I B-BBEE transaction share-based payment charge (187.3) (145.9)

Operating profit before items of a capital nature 1 583.6 1 008.0

Reconciliation of operating profit (before items of a capital nature) to profit before income tax

Operating profit before items of a capital nature 1 583.6 1 008.0

Adjusted for:

Remeasurement of items of a capital nature (123.0) (220.2)

Interest income 24.3 22.5

Dividends received 1.6 1.7

Finance costs (138.7) (126.3)

Share of profit of investments accounted for using the equity method 70.4 24.8

Profit before income tax (including discontinued operations) 1 418.2 710.5

Note 1:Includes discontinued operations.

1. Basis of preparation The summary consolidated financial statements of the Group for the year ended 30 September 2014

have been prepared in accordance with the requirements of the JSE for summary financial statements, and the requirements of the Companies Act of South Africa, Act 71 of 2008, as amended, applicable to summary financial statements. The Listings Requirements of the JSE require summary financial statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (“IFRS”) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the Financial Pronouncements as issued by the Financial Reporting Standards Council and also, as a minimum, to contain the information required by IAS 34 – Interim Financial Reporting. This summary report is an extract from audited information, but this summary report has not been audited.

The directors take full responsibility for the preparation of the summary consolidated financial statements and that the financial information has been correctly extracted from the underlying finan-cial records.

2. Accounting policies The accounting policies applied in the preparation of the consolidated financial statements from

which the summary consolidated financial statements were derived, are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements, except for the adoption of the following new standards, amendments to published standards and interpretations that became effective for the current reporting period beginning on 1 October 2013:

IAS 19 – (revised) Employee Benefits IAS 19 (revised) amends the accounting for employment benefits. The Group has applied the standard

retrospectively in accordance with the transitional provisions of the standard. The amended standard impacted the Group’s treatment of the provision for post-retirement medical benefits. The financial effect thereof has been disclosed in Note 11.

IFRS 10 – Consolidated Financial Statements Under IFRS 10, subsidiaries are all entities (including structured entities) over which the Group has

control. The Group controls an entity when the Group has power over an entity, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group has applied IFRS 10 retrospectively in accordance with the transitional provisions of IFRS 10. The adoption of this new standard did not have an effect on the financial position or results of the Group.

IFRS 11 – Joint Arrangements Under IFRS 11, investments in joint arrangements are classified either as joint operations or joint

ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. Before 1 October 2013, the Group’s interest in its jointly controlled entities was accounted for using proportionate consolidation. Under IFRS 11, these jointly controlled entities have been classified as joint ventures and have been accounted for using the equity method. The Group has applied the new policy for its interest in the joint ventures in accordance with the transitional provisions of IFRS 11. The financial effects of this change have been disclosed in Note 11.

IFRS 13 – Fair Value Measurement IFRS 13 measurement and disclosure requirements are applicable for the 30 September 2014 financial

year-end. The Group has included the disclosures required by IAS 34 paragraph 16A(j) in the summary consolidated financial statements (refer to Note 10). The adoption of this new standard did not have any material impact on the Group’s results and cash flows for the year ended 30 September 2014 and the financial position at 30 September 2014.

In preparing these summary consolidated financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 September 2013.



30 September 30 September 2014 2013 R’m R’m

3. Share capitalDuring the period under review the following share transactions occurred:Number of listed issued and fully paid ordinary shares

At beginning of year 231 006 847 230 314 486Shares issued in terms of employee share appreciation rights scheme 685 034 692 361At end of year 231 691 881 231 006 847

685,034 (30 September 2013: 692,361) listed ordinary shares of 10 cents each were issued at an average of R97.47 (30 September 2013: R71.64) per share in terms of the share appreciation rights scheme. Number of treasury shares held by the share incentive trust

At beginning of year 1 422 116 2 545 933Movement in shares (311 903) (1 123 817)At end of year 1 110 213 1 422 116Proceeds on the sale of treasury shares by the share incentive trust (R’000) 6 262 18 662

Number of treasury shares held by B-BBEE transaction participantsAt beginning and end of year 18 091 661 18 091 661

Number of treasury shares held by Pioneer Foods Broad-Based BEE TrustAt beginning and end of year 10 599 988 10 599 988

Number of treasury shares held by a subsidiaryAt beginning and end of year 17 982 056 17 982 056

Number of unlisted class A ordinary sharesAt beginning of year 7 367 360 8 198 120Shares bought back and cancelled (1 323 420) (830 760)At end of year 6 043 940 7 367 360Purchase consideration paid for unlisted class A ordinary shares bought back (R’000) 74 988 32 736

4. Impairment of property, plant and equipment and goodwill4.1 Impairment losses due to the treatment of Quantum Foods as an asset held for sale Shareholders were advised on SENS on 5 September 2013 of the Board’s intent to restructure the

Company’s interest in the Quantum Foods segment, which includes the South African subsidiaries and two foreign African subsidiaries (Bokomo Uganda (Pty) Ltd and Quantum Foods Zambia Ltd) that produce and sell eggs, chicken products, animal feeds and commercial laying hens. Further announcements on SENS in this regard were issued on 5 September 2014 and 18 September 2014.

Pioneer Foods unbundled its interests in Quantum Foods to its shareholders and subsequently listed Quantum Foods as a separate legal entity on the JSE on 6 October 2014. Accordingly, Quantum Foods has been presented as an “asset held for sale” and as “discontinued operations” in terms of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations for the year ended 30 September 2014 and the year ended 30 September 2013.

In terms of IFRS 5, an entity shall measure a non-current disposal group classified as held for sale at the lower of its carrying amount and fair value less costs to sell. The fair value less costs to sell was determined using the average results of an income valuation approach and different scenarios for a market valuation approach. These valuations were performed at 30 September 2013 and updated at 31 March 2014 and 30 September 2014.

In addition to the impairment charge of R232.0 million recognised in the results for the year ended 30 September 2013, a further impairment charge of R77.7 million is recognised in the line item


Notes to the summary consolidated financial statementsfor the year ended 30 September 2014

“Items of a capital nature” for discontinued operations in the statement of comprehensive income for the year ended 30 September 2014. This impairment charge attributable to property, plant and equipment is as follows:



Nature R’m R’m Property, plant and equipment and other intangible assets 77.7 155.1Goodwill – 76.9

77.7 232.0Income tax effect (20.6) (23.9)After income tax effect 57.1 208.1

4.2 Carbonated soft drinks business During the current reporting period, the results of the carbonated soft drinks business of the Ceres

Beverages segment were lower than expected with continued losses being incurred. Consequently, the carrying amounts of the related assets were impaired. The impairment loss for these assets was calculated by comparing the carrying amount of the assets to the fair value less costs to sell of the assets. The fair value less costs to sell was determined by an independent valuator with reference to the market value of similar used equipment.

The impairment charge of R47.8 million is recognised in the line item “Items of a capital nature” in the statement of comprehensive income. This impairment charge attributable to property, plant and equipment is as follows:



Nature R’m R’m Property, plant and equipment 47.8 –Income tax effect (13.4) –After income tax effect 34.4 –

5. Borrowings Pioneer Foods obtained a R300 million vehicle and asset finance facility during the year. This facility

will be used to finance the replacement of the Group’s bakery delivery vehicle fleet. The vehicles are acquired in terms of instalment sale agreements. These borrowings are secured by the vehicles acquired in terms of these agreements. At 30 September 2014, new borrowings obtained in terms of these facilities amounted to R40.7 million.

No other material new borrowings were concluded during the period under review. Changes in borrowings mainly reflect repayments made in terms of agreements. Short-term borrowings fluctuate in accordance with changing working capital needs.

6. Events after the reporting date6.1 Dividend The Board approved and declared a gross final dividend of 156.0 cents (2014: gross interim dividend

of 65.0 cents and 2013: gross final dividend of 86.0 cents) per ordinary share. This will amount to approximately R344,903,353 (2014: interim of R143,601,201 and 2013: final of R189,727,441), depending on the exact number of ordinary shares issued at the record date. In addition, the 10,599,988 Pioneer

4. Impairment of property, plant and equipment and goodwill (continued)4.1 Impairment losses due to the treatment of Quantum Foods as an asset held for sale (continued)


Foods shares issued to the Pioneer Foods Broad-based BEE Trust will receive 20% of the dividend payable, i.e. 31.2 cents (2014: gross interim of 13.0 cents and 2013: gross final dividend of 17.2 cents) per share, amounting to R3,307,196 (2014: interim of R1,377,998 and 2013: final of R1,823,198).

The Board approved a gross final dividend of 46.8 cents (2014: gross interim dividend of 19.5 cents and 2013: gross final dividend of 25.8 cents) per class A ordinary share, being 30% of the dividend payable to the other class ordinary shareholders in terms of the rules of the relevant employee scheme. This will amount to approximately R2,828,564 (2014: interim of R1,204,213 and 2013: final of R1,729,642), depending on the exact number of class A ordinary shares issued at the record date.

Additional information disclosed: These dividends are declared from income reserves and qualify as a dividend as defined in the Income

Tax Act, Act 58 of 1962.

Dividends will be paid net of dividends tax of 15%, to be withheld and paid to the South African Revenue Service by the Company. Such tax must be withheld unless beneficial owners of the dividend have provided the necessary documentary proof to the relevant regulated intermediary that they are exempt therefrom, or entitled to a reduced rate as a result of the double taxation agreement between South Africa and the country of domicile of such owner.

The total credits for secondary tax on companies utilised as part of this declaration amount to Rnil. The net dividend amounts to 132.60 cents per ordinary share and 39.78 cents per class A ordinary share for shareholders liable to pay dividends tax. The dividend amounts to 156.0 cents per ordinary share and 46.8 cents per class A ordinary share for shareholders exempt from paying dividends tax.

The number of issued ordinary shares and issued class A ordinary shares is 231,691,881 and 5,702,620 respectively as at the date of this declaration.

6.2 Unbundling of interest in Quantum Foods Shareholders were advised on SENS on 5 September 2014 and 18 September 2014 that the Board

resolved to proceed with the unbundling of its interest in Quantum Foods and to list Quantum Foods as a separate entity on the JSE. Quantum Foods was subsequently listed on the JSE on 6 October 2014.

6.3 Other material events There have been no other material events requiring disclosure after the reporting date and up to the date

of approval of the summary consolidated financial statements by the Board.

7. Contingent liabilities7.1 Dispute with egg contract producers – discontinued operations Pioneer Foods is defending contractual claims from its privatised egg contract producers. The matters

were set down for arbitration during 2012. Since the hearings commenced in 2012, settlements were negotiated with the two egg contract producers that had the largest claims. These settlements had no adverse financial impact on Pioneer Foods.

The claims of the remaining three contract egg producers (being Flinkwink Properties (Pty) Ltd, KwaZulu Egg Producers (Pty) Ltd and Moerasrivier Boerdery (Pty) Ltd) are still unresolved. Pioneer Foods filed pleas to all these claims and, in respect of two of these claims, counterclaims have been filed to recover damages suffered by Pioneer Foods as a result of breach of contract by the contract producers.

No further legal action has been taken during the year under review. Based on legal opinion obtained, management is satisfied that these unresolved matters are low risk and pose no material financial risk to the Group.

Pioneer Foods unbundled its interests in Quantum Foods to its shareholders and, subsequently, Quantum Foods was listed on the JSE on 6 October 2014. Quantum Foods indemnified Pioneer Foods from any potential financial exposure to the claims from the egg contract producers.

6. Events after the reporting date (continued)6.1 Dividend (continued)


7. Contingent liabilities (continued)7.2 Dispute with breeder farms and broiler farms – discontinued operations Several breeder farms (being Bergsig Breeders (Pty) Ltd and Mountainview Breeders CC) and broiler

farms (being Claudewil Broilers (Pty) Ltd and Dassenberg Broilers (Pty) Ltd) (four in total) also filed claims against Pioneer Foods for the alleged breach of the terms of their supply agreements with Pioneer Foods. Claudewil Broilers (Pty) Ltd withdrew its claim in 2014.

No further action has transpired in the year under review. Based on legal opinion obtained, management is satisfied that these unresolved matters are low risk and pose no material financial risk to the Group.

Pioneer Foods unbundled its interests in Quantum Foods to its shareholders and, subsequently, Quantum Foods was listed on the JSE on 6 October 2014. Quantum Foods indemnified Pioneer Foods from any potential financial exposure to the claims from the breeder and broiler farms.

7.3 Guarantees The Group had guarantees in issue of R50.2 million (30 September 2013: R48.5 million) as at

30 September 2014, primarily for loans by third parties to contracted suppliers.

As part of the financial assistance provided by Rand Merchant Bank, a division of FirstRand Bank Ltd (“RMB”), to BEE investors in terms of the B-BBEE equity transaction concluded during 2012, Pioneer Foods (Pty) Ltd provided RMB with a guarantee amounting to R100 million.

8. Future capital commitments Capital expenditure approved by the Board and contracted for amounts to R299.8 million

(30 September 2013: R265.0 million). Capital expenditure approved by the Board, but not contracted for yet, amounts to R351.6 million (30 September 2013: R242.4 million).

9. Non-current assets held for sale and discontinued operations The assets and liabilities related to the Quantum Foods segment, which include the equity interests held

in the wholly-owned subsidiaries Quantum Foods Holdings Ltd, Quantum Foods (Pty) Ltd, Philadelphia Chick Breeders (Pty) Ltd, Lohmann Breeders SA (Pty) Ltd, Bokomo Uganda (Pty) Ltd, Quantum Foods Zambia Ltd and Bokomo Zambia Ltd (included with Quantum Foods until 31 July 2014), have been presented as an “asset held for sale” and as “discontinued operations” in terms of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations for the year ended 30 September 2014 and the year ended 30 September 2013, following the approval of the Board in September 2013 to restructure the Company’s interest in the Quantum Foods segment.

Shareholders were advised on SENS on 5 September 2014 and 18 September 2014 that the Board resolved to proceed with the unbundling of its interest in Quantum Foods and to list Quantum Foods as a separate entity on the JSE. Quantum Foods was subsequently listed on the JSE on 6 October 2014.

The unbundling has been accounted for as a dividend in specie at fair value in accordance with IFRIC 17 – Distributions of Non-cash Assets to Owners. IFRIC 17 requires distributions within its scope to be measured at the fair value of the assets to be distributed at the date when the dividend is appropriately authorised and is no longer at the entity’s discretion. Consequently, an amount of R1,242,220,000, representing the fair value of the interest in Quantum Foods attributable to external shareholders, has been accounted for as a dividend payable to shareholders at 30 September 2014. Refer to Note 10 for the methods and assumptions used to determine the fair value.


Audited Audited 30 September 30 September

2014 2013 Restated

R’m R’m Assets of the disposal group classified as held for sale:

Property, plant and equipment 1 075.5 1 129.6Intangible assets 7.2 –Investment in associates 6.1 6.8Inventories 232.5 235.9Biological assets 292.4 276.7Trade and other receivables 343.5 275.3Deferred income tax 3.1 3.1Derivative financial instruments 0.9 0.9Current income tax – 0.5Cash and cash equivalents 105.6 24.6

2 066.8 1 953.4

Liabilities of the disposal group classified as held for sale:Deferred income tax 195.7 196.3Provision for other liabilities and charges 15.6 9.3Trade and other payables 355.3 274.8Current income tax 1.5 1.6

568.1 482.0

Hedging reserve 0.2 –

Currency translation reserve 7.3 22.9

The results of discontinued operations and the results recognised on the remeasurement of the Quantum Foods disposal group are as follows:

Audited Audited year ended year ended



Revenue 3 591.3 3 570.1

Operating profit before items of a capital nature 90.8 1.3Items of a capital nature 1.7 1.1Investment income 3.6 1.6Finance costs (0.7) (0.8)Share of profit of associated companies 0.6 0.3Profit before income tax 96.0 3.5Income tax (20.7) 4.2Profit after income tax 75.3 7.7Loss after income tax recognised on the remeasurement of assets of the disposal group (57.1) (208.1)

Before income tax (77.7) (232.0)Income tax 20.6 23.9

Profit/(loss) for the year from discontinued operations 18.2 (200.4)Other comprehensive income/(loss) for the year from discontinued operations

Fair value adjustments to cash flow hedging reserveFor the year 0.3 –Deferred income tax effect (0.1) –

Currency translation differences (15.5) 25.3Total comprehensive profit/(loss) for the year from discontinued operations 2.9 (175.1)

9. Non-current assets held for sale and discontinued operations (continued)


9. Non-current assets held for sale and discontinued operations (continued)

Audited Audited year ended year ended



Cash flows of the disposal group classified as held for sale:Net cash flow from operating activities 93.0 90.8Net cash flow from investment activities (37.8) (469.6)Net cash flow from financing activities 25.8 391.3Net increase in cash, cash equivalents and bank overdrafts 81.0 12.5Net cash, cash equivalents and bank overdrafts at beginning of year 24.6 12.1Net cash, cash equivalents and bank overdrafts at end of year 105.6 24.6

10. Fair value measurement The information below analyses assets and liabilities that are carried at fair value at each reporting

period, by level of hierarchy as required by IFRS 7 and IFRS 13.

Audited fair value measurements at30 September 2014 using:

Quoted prices in

active markets for

identical assets and liabilities

(Level 1)R’m

Significant other

observable input

(Level 2)R’m

Significant unobservable

input(Level 3)

R’mAssets measured at fair valueAvailable-for-sale financial assets– Listed securities 68.6 – –– Unlisted securities – 1.4 –Derivative financial instruments– Foreign exchange contracts – 14.3 –– Embedded derivative – 0.7 –Biological assets– Vineyards – – 16.0Assets of disposal group classified as held for sale – – 2 066.8

Liabilities measured at fair valueDerivative financial instruments– Foreign exchange contracts – 9.7 –Liabilities of disposal group classified as held for sale – – 568.1Dividend in specie – unbundling of Quantum Foods – – 1 242.2

There have been no transfers between level one, two or three during the period, nor were there any significant changes to the valuation techniques and inputs used to determine fair values.

Financial assets and liabilities The fair values of financial instruments traded in active markets (such as publicly traded derivatives

and available-for-sale securities) are based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Group is the current bid price. The appropriate quoted market price for financial liabilities is the current ask price. These instruments are included in level 1. Instruments included in level 1 comprise primarily JSE-listed equity investments classified as available-for-sale.


10. Fair value measurement (continued) Financial assets and liabilities (continued) The fair values of financial instruments that are not traded in an active market are determined by using

valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant input required to fair value an instrument were observable, the instrument is included in level 2.

The Group uses a variety of methods that makes assumptions that are based on market conditions existing at the reporting date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments. Other techniques, such as estimated discounted cash flows, are used to determine the fair value for the remaining financial instruments. The fair value of foreign exchange contracts is determined using quoted forward exchange rates at the reporting date.

The carrying amounts of cash, trade and other receivables less provision for impairment, trade and other payables and short-term borrowings are assumed to approximate their fair values due to the short term until maturity of these assets and liabilities.

The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The fair values of long-term investments and long-term borrowings are not materially different from the carrying amounts.

Biological assets The fair value of vineyards is calculated as the future expected net cash flows from the asset, discounted

at a current market-determined rate, over the remaining useful lives of the vineyards.

Assets and liabilities of disposal group classified as held for sale The assets and liabilities related to the Quantum Foods segment have been presented as an “asset held

for sale” and as “discontinued operations” in terms of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations for the year ended 30 September 2014 and the year ended 30 September 2013. Refer to Note 9 for further detail.

In terms of IFRS 5, an entity shall measure a non-current disposal group classified as held for sale at the lower of its carrying amount and fair value less costs to sell. The fair value less costs to sell was determined using the average results of an income valuation approach and different scenarios for a market valuation approach.

In terms of the income approach, the discounted cash flow method is used to determine the present value of projected future cash flows for a cash-generating unit (“CGU”) using a rate of return that is commensurate with the risk associated with the business and the time value of money. This approach requires assumptions about revenue growth rates, operating margins, tax rates and discount rates. The assumptions regarding growth are based on the CGUs’ internal forecasts for revenue, operating margins and cash flows for a period of five years and by application of a perpetual long-term growth rate thereafter. Past experience, economic trends as well as market and industry trends were taken into consideration. The discount rate used to arrive at the present value of future cash flows represents the weighted average cost of capital (“WACC”) for comparable companies operating in similar industries as the applicable CGU, based on publicly available information. The WACC is an estimate of the overall required rate of return on an investment for both debt and equity owners. Its determination requires separate analysis of the cost of equity and debt and considers a risk premium based on an assessment of risks related to the projected cash flows of the CGU.

The South African businesses consist of a number of CGUs. Bokomo Uganda (Pty) Ltd and Quantum Foods Zambia Ltd are two separate CGUs. The market approach assumes that companies operating in the same industry will share similar characteristics and that company values will correlate to these characteristics. The publicly available financial information of similar listed entities have been used to estimate two scenarios of fair value based on EBITDA multiples of these benchmark entities.



10. Fair value measurement (continued) Assets and liabilities of disposal group classified as held for sale (continued) The key assumptions used in performing the impairment tests, by CGU, were as follows:

30 September 2014 31 March 2014 30 September 2013Discount rateSouth Africa 17.4% 17.0% 17.6%Uganda 27.1% 28.6% 28.6%Zambia 25.1% 23.1% 23.1%

Perpetual growth rateSouth Africa 5.5% 5.5% 5.5%Uganda 5.5% 5.5% 5.5%Zambia 6.5% 6.5% 6.5%

Income tax rateSouth Africa 28.0% 28.0% 28.0%Uganda 30.0% 30.0% 30.0%Zambia 12.5% 12.5% 12.5%

11. Restatement of financial information for comparative periods11.1 Impact of the application of IFRS 11 In terms of IFRS 11 – Joint Arrangements, the Group ceased proportionate consolidation of its investments

in joint ventures and now accounts for these investments using the equity method in accordance with IAS 28 – Investments in Associates and Joint Ventures.

The Group applied the change in accounting policy in accordance with the transitional provisions of IFRS 11 from the beginning of the earliest period presented (1 October 2012). The Group recognised the investment in joint ventures as at 1 October 2012 as the aggregate of the carrying amounts of the assets and liabilities that were previously proportionately consolidated. This is the deemed cost of the Group’s investment in its joint ventures at initial recognition for purposes of applying equity accounting.

As per the requirements of IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, the relevant comparative information has been restated.

11.2 Impact of the application of IAS 19 (revised) IAS 19 (revised) makes a number of changes to the accounting for employee benefits, the most

significant relating to defined benefit plans.

IAS 19 (revised):• eliminates the “corridor method” and requires the recognition of remeasurements (including

actuarial gains and losses) arising in the reporting period in other comprehensive income;• changes the measurement and presentation of certain components of the defined benefit cost.

The net amount in profit or loss is affected by the removal of the expected return on plan assets and interest cost components and their replacement by a net interest cost based on the net defined benefit asset or liability;

• enhances disclosures, including more information about the characteristics of defined benefit plans and related risks.

IAS 19 (revised) has been applied retrospectively in accordance with its transitional provisions. Consequently, the Group has restated its reported results throughout the comparative periods presented and reported the cumulative effect as at 1 October 2012 as an adjustment to opening equity.

The effects of the application of IFRS 11 and IAS 19 (revised) are reflected below.

11.3 Reclassification of line items of statement of comprehensive income During the current year, the Group has reallocated certain customer advertising expenditure from

marketing costs to revenue. The reason for the reclassification is to reflect more appropriately the way in which economic benefits are derived from customer advertising expenditure.

Group statement of comprehensive incomeYear ended 30 September 2013

Previously reported

R’m

Change in accounting

policyIFRS 11

R’m

Change in accounting

policy IAS 19

R’m

Discon-tinued

OperationsIFRS 5

R’m

Reclassi-fication

R’m Restated

R’mContinuing operationsRevenue 16 992.3 (675.0) – (11.2) (65.2) 16 240.9 Cost of goods sold (11 985.8) 447.1 – 11.2 – (11 527.5)Gross profit 5 006.5 (227.9) – – (65.2) 4 713.4 Other income and gains/(losses) – net 139.5 (3.7) – – – 135.8 Other expenses (4 090.7) 180.9 2.1 – 65.2 (3 842.5)

Excluding the following: (3 944.8) 180.9 2.1 – 65.2 (3 696.6)Phase I B-BBEE transaction share-based payment charge (145.9) – – – – (145.9)

Items of a capital nature (2.2) 12.9 – – – 10.7 Operating profit 1 053.1 (37.8) 2.1 – – 1 017.4 Investment income 18.3 4.3 – – – 22.6 Finance costs (128.6) 3.1 – – – (125.5)Share of profit of investments accounted for using the equity method 1.0 23.7 – – – 24.7 Profit before income tax 943.8 (6.7) 2.1 – – 939.2 Income tax expense (245.2) 6.7 (0.2) – – (238.7)Profit for the year from continuing operations 698.6 – 1.9 – – 700.5 Loss for the year from discontinued operations (attributable to owners of the parent) (200.4) – – – – (200.4)Profit for the year 498.2 – 1.9 – – 500.1 Other comprehensive income/(loss) for the yearItems that will not subsequently be reclassified to profit or loss:Remeasurement of post-employment benefit obligations – – (1.5) – – (1.5)Items that may subsequently be reclassified to profit or loss: 80.3 – – – – 80.3 Fair value adjustments to cash flow hedging reserve 17.3 – – – – 17.3

For the year (13.7) – – – – (13.7)Current income tax effect 4.4 – – – – 4.4 Deferred income tax effect (0.5) – – – – (0.5)

Reclassified to profit or loss 37.7 – – – – 37.7 Current income tax effect (10.7) – – – – (10.7)Deferred income tax effect 0.1 – – – – 0.1

Fair value adjustments on available-for-sale financial assets 0.8 – – – – 0.8

For the year 18.8 – – – – 18.8 Deferred income tax effect (1.7) – – – – (1.7)

Reclassified to profit or loss (16.3) – – – – (16.3)Share of other comprehensive income of investments accounted for using the equity method – 6.5 – – – 6.5 Movement on foreign currency translation reserve 62.2 (6.5) – – – 55.7

Total comprehensive income for the year 578.5 – 0.4 – – 578.9 Profit for the year attributable to:Owners of the parent

For continuing operations 697.1 – 1.9 – – 699.0 For discontinued operations (200.4) – – – – (200.4)

Non-controlling interestFor continuing operations 1.5 – – – – 1.5

498.2 – 1.9 – – 500.1 Total comprehensive income for the year attributable to:Owners of the parent

For continuing operations 752.1 – 0.4 – – 752.5 For discontinued operations (175.1) – – – – (175.1)

Non-controlling interestFor continuing operations 1.5 – – – – 1.5

578.5 – 0.4 – – 578.9


Group statement of financial positionAs at 30 September 2013

Change in Change in accounting accounting

Previously policy policy reported IFRS 11 IAS 19 Restated

R’m R’m R’m R’m AssetsProperty, plant and equipment 4 363.1 (200.5) – 4 162.6Goodwill 227.7 (10.0) – 217.7Other intangible assets 470.8 (0.1) – 470.7Biological assets 16.0 – – 16.0Investments in associates and joint ventures 44.0 300.1 – 344.1Available-for-sale financial assets 59.0 – – 59.0Trade and other receivables 20.9 (0.2) – 20.7Deferred income tax 74.3 (0.2) – 74.1Non-current assets 5 275.8 89.1 – 5 364.9 Current assets 4 641.4 (225.3) – 4 416.1 Inventories 2 491.2 (90.0) – 2 401.2 Biological assets 8.4 (8.4) – – Derivative financial instruments 11.0 (0.4) – 10.6 Trade and other receivables 1 730.9 (106.3) – 1 624.6 Current income tax 1.3 (0.6) – 0.7 Cash and cash equivalents 398.6 (19.6) – 379.0 Assets of disposal group classified as held for sale 1 953.4 – – 1 953.4 Total assets 11 870.6 (136.2) – 11 734.4

Equity and liabilitiesCapital and reserves attributable to owners of the parent 6 580.2 – 1.1 6 581.3 Share capital 23.1 – – 23.1 Share premium 2 188.6 – – 2 188.6 Treasury shares (1 190.9) – – (1 190.9)Other reserves 426.2 – – 426.2 Retained earnings 5 133.2 – 1.1 5 134.3 Non-controlling interest 9.3 – – 9.3 Total equity 6 589.5 – 1.1 6 590.6 Non-current liabilities 2 344.2 (38.5) (1.1) 2 304.6 Borrowings

B-BBEE equity transaction third-party finance 449.7 – – 449.7 Other 1 034.4 (26.8) – 1 007.6

Provisions for other liabilities and charges 121.8 – (1.5) 120.3 Share-based payment liability 251.4 – – 251.4 Deferred income tax 486.9 (11.7) 0.4 475.6

Current liabilities 2 454.9 (97.7) – 2 357.2 Trade and other payables 2 010.3 (84.2) – 1 926.1 Current income tax 29.4 (1.3) – 28.1 Derivative financial instruments 6.2 – – 6.2 Borrowings 401.3 (19.5) – 381.8 Loan from joint venture 7.4 7.3 – 14.7 Dividends payable 0.3 – – 0.3 Liabilities of disposal group classified as held for sale 482.0 – – 482.0 Total equity and liabilities 11 870.6 (136.2) – 11 734.4


Group statement of cash flowsYear ended 30 September 2013

Change in

accounting

Previously policy

reported IFRS 11 Restated

R’m R’m R’m

Net cash profit from operating activities 1 623.3 (67.0) 1 556.3

Cash effect from hedging activities 22.7 – 22.7

Working capital changes 53.1 13.7 66.8

Accrual for Competition Commission penalties paid (216.7) – (216.7)

Net cash generated from operations 1 482.4 (53.3) 1 429.1

Income tax paid (243.1) 10.0 (233.1)

Net cash flow from operating activities 1 239.3 (43.3) 1 196.0

Net cash flow from investment activities (1 333.0) 45.8 (1 287.2)

Property, plant and equipment and intangible assets

– additions (842.6) 14.5 (828.1)

– replacements (242.5) 7.5 (235.0)

– proceeds on disposal 28.4 (1.7) 26.7

Business combinations (315.0) – (315.0)

Proceeds on disposal of and changes in available-for-sale financial assets and loans 18.5 7.9 26.4

Interest received 18.2 4.3 22.5

Dividends received 1.7 – 1.7

Dividends received from joint ventures – 13.3 13.3

Dividends received from associates 0.3 – 0.3

Net cash flow from financing activities (204.6) 4.4 (200.2)

Proceeds from new syndicated borrowings 1 870.0 – 1 870.0

Repayments of other borrowings (1 700.0) 1.2 (1 698.8)

Share schemes transactions (17.1) – (17.1)

Interest paid (146.0) 3.2 (142.8)

Dividends paid (211.5) – (211.5)

Net (decrease)/increase in cash, cash equivalents and bank overdrafts (298.3) 6.9 (291.4)

Net cash, cash equivalents and bank overdrafts at beginning of year 368.1 (11.1) 357.0

Net cash, cash equivalents and bank overdrafts at end of year 69.8 (4.2) 65.6

For continuing operations 45.2 (4.2) 41.0

For discontinued operations 24.6 – 24.6


Group statement of financial positionAs at 30 September 2012

Change in Change in accounting accounting

Previously policy policy reported IFRS 11 IAS 19 Restated

R’m R’m R’m R’m AssetsProperty, plant and equipment 4 641.5 (201.3) – 4 440.2 Goodwill 271.9 (11.9) – 260.0 Other intangible assets 464.3 (0.2) – 464.1 Biological assets 16.0 – – 16.0 Investments in associates and joint ventures 56.9 290.8 – 347.7 Available-for-sale financial assets 52.8 – – 52.8 Trade and other receivables 20.4 (0.1) – 20.3 Deferred income tax 2.7 – – 2.7 Non-current assets 5 526.5 77.3 – 5 603.8 Current assets 5 079.6 (193.9) – 4 885.7 Inventories 2 450.0 (89.9) – 2 360.1 Biological assets 228.7 (7.1) – 221.6 Derivative financial instruments 6.8 (0.5) – 6.3 Trade and other receivables 2 014.3 (77.6) – 1 936.7 Current income tax 4.2 (0.2) – 4.0 Cash and cash equivalents 375.6 (18.6) – 357.0

Total assets 10 606.1 (116.6) – 10 489.5 Equity and liabilitiesCapital and reserves attributable to owners of the parent 6 184.9 – 0.7 6 185.6 Share capital 23.0 – – 23.0 Share premium 2 171.8 – – 2 171.8 Treasury shares (1 207.5) – – (1 207.5)Other reserves 350.3 0.1 – 350.4 Retained earnings 4 847.3 (0.1) 0.7 4 847.9 Non-controlling interest 8.2 – – 8.2 Total equity 6 193.1 – 0.7 6 193.8 Non-current liabilities 1 377.5 (34.1) (0.7) 1 342.7 Borrowings

B-BBEE equity transaction third-party finance 449.7 – – 449.7 Other 48.0 (19.8) – 28.2

Provisions for other liabilities and charges 119.2 – (1.0) 118.2 Share-based payment liability 108.2 – – 108.2 Deferred income tax 652.4 (14.3) 0.3 638.4 Current liabilities 3 035.5 (82.5) – 2 953.0 Trade and other payables 1 933.0 (68.6) – 1 864.4 Current income tax 4.7 (1.2) – 3.5 Derivative financial instruments 3.1 – – 3.1 Borrowings 871.7 (19.7) – 852.0 Loan from joint venture 7.0 7.0 – 14.0 Accrual for Competition Commission penalties 215.5 – – 215.5 Dividends payable 0.5 – – 0.5

Total equity and liabilities 10 606.1 (116.6) – 10 489.5


12. Preparation of financial statements These summary consolidated financial statements have been prepared under the supervision of

LR Cronjé, CA(SA), Group financial director.

13. Audit The external auditors, PricewaterhouseCoopers Inc., have audited the Group’s financial statements

for the year ended 30 September 2014 and their unqualified auditor’s report is available for inspection at the registered office of the Company.


GROUPShareholder spread

Category

Numberof ordinary

shareholders% of

shareholders

Numberof ordinary

shares

% of total ordinary

sharesOrdinary sharesIndividuals 3 865 75.4 21 200 833 9.2Nominees and trusts 659 12.8 12 917 687 5.6Investment companies and corporate bodies 607 11.8 197 573 361 85.2

5 131 100.0 231 691 881 100.0

Non-public/public shareholdersPursuant to the JSE Listings Require ments and to the best knowledge of the directors, after reasonable enquiry, the spread of shareholders at 30 September 2014, is as follows:

Analysis of shareholding – ordinary sharesPublic shareholdingMajor shareholdersGovernment Employees Pension Fund 1 – 22 990 261 9.9Thembeka Capital Ltd 1 – 9 326 640 4.0Other shareholders 5 119 99.9 113 194 280 48.8

Non-public shareholdingMajor shareholdersZeder Investments Ltd (note) 1 – 55 627 707 24.0Pioneer Foods (Pty) Ltd 1 – 17 982 056 7.8Other shareholdersPioneer Foods Broad-Based BEE Trust 1 – 10 599 988 4.6Pioneer Foods Share Incentive Trust 1 – 1 110 213 0.5Directors (including subsidiary directors) 6 0.1 860 736 0.4

5 131 100.0 231 691 881 100.0

Distribution of ordinary shareholdersNumber of shares1 – 1 000 shares 2 668 52.0 873 718 0.41 001 – 10 000 shares 1 583 30.9 5 902 879 2.510 001 – 50 000 shares 580 11.3 13 303 803 5.750 001 – 100 000 shares 120 2.3 8 607 739 3.7100 001 – 500 000 shares 130 2.5 28 087 491 12.1500 001 shares and over 50 1.0 174 916 251 75.6

5 131 100.0 231 691 881 100.0

Note: The ultimate holding company, after the Agri Voedsel transaction was approved in September 2014 and finally implemented in October 2014.


Shareholder analysis Directors’ interest in sharesAs at 30 September 2014 the aggregate of the direct and beneficial interest of directors was 0.38% (2013: 0.37%) of the issued share capital of the Company. Indirect interest through listed public companies have not been taken into account. Individual directors’ interest in the issued share capital of the Company is reflected below.

Since the end of the financial year and until the date of the annual report there were no changes in the interest of the directors.

GROUPNumber of shares # % of issued

ordinary share capitalDirect Indirect ◊ Total

30 September 2014PM Roux 9 631 – 9 631 –LR Cronjé 345 000 55 000 400 000 0.17ZL Combi – 172 295 172 295 0.08N Celliers – – – –MM du Toit – – – –AE Jacobs (13 February 2014)* – – – –Prof ASM Karaan – 86 147 86 147 0.04NS Mjoli-Mncube – 86 147 86 147 0.04G Pretorius – 30 000 30 000 0.01LP Retief – – – –AH Sangqu – 86 147 86 147 0.04

354 631 515 736 870 367 0.38

30 September 2013PM Roux (1 April 2013)** – – – –WA Hanekom (31 March 2013)*** – – – –LR Cronjé 345 000 55 000 400 000 0.17TA Carstens (16 May 2013)**** – – – –ZL Combi – 172 295 172 295 0.07N Celliers (1 October 2012)** – – – –MM du Toit – – – –AE Jacobs – – – –Prof ASM Karaan – 86 147 86 147 0.04NS Mjoli-Mncube – 86 147 86 147 0.04G Pretorius – 30 000 30 000 0.01LP Retief – – – –AH Sangqu – 86 147 86 147 0.04

345 000 515 736 860 736 0.37

Notes:◊ Include shares issued during a previous year to SPVs, wholly owned by BEE directors, in terms of the B-BBEE equity transaction.

* Resigned during the year.** Appointed during the year.*** Retired during the year**** Stepped down as director during the year.

# There has been no change in the directors’ interest in shares from the end of the financial year to the date of the approval of the annual financial statements.



Share capital

GROUP2014

R’000

2013Restated

R’000

Share capital

Authorised – ordinary shares of 10 cents each

400,000,000 (2013: 400,000,000) ordinary shares 40 000 40 000

Authorised – class A ordinary shares of 10 cents each

18,130,000 (2013: 18,130,000) class A ordinary shares 1 813 1 813

Total issued and fully paid – ordinary shares of 10 cents each

At beginning of year: 231,006,847 (2013: 230,314,486) ordinary shares 23 101 23 031

Issued to management in terms of share appreciation rights scheme: 685,034 (2013: 692,361) ordinary shares 69 70

At end of year: 231,691,881 (2013: 231,006,847) ordinary shares 23 170 23 101

Shares issued in terms of share appreciation rights schemeDuring the year the Company issued 685,034 (2013: 692,361) ordinary shares of 10 cents each at an average of R97.47 (2013: R71.64) per share in terms of the share appreciation rights scheme.

Shares issued in terms of the B-BBEE equity transactionDuring 2012 the Company issued 28,691,649 shares to the value of R1,000,347,998 to special purpose vehicles (“SPVs”) that were formed in terms of a B-BBEE equity transaction. In terms of the transaction 17,488,631 ordinary shares were issued to strategic BEE partners at a subscription price of R55.14 per share and 603,030 ordinary shares to current and former black directors of the Company at a subscription price of R58.04 per share. A further 10,599,988 shares were issued to the Pioneer Foods Broad-Based BEE Trust at a subscription price of R0.10 per share.

These SPVs are consolidated as wholly-owned subsidiaries in terms of IFRS and these issued shares of the Company are consequently treated as treasury shares of the Group. The B-BBEE equity transaction was in accordance with the Company’s memorandum of incorporation and the Companies Act, Act 71 of 2008, as amended.

Treasury shares of 10 cents each – nominal value

Treasury shares held by management share incentive trustAt beginning of year: 1,422,116 (2013: 2,545,933) ordinary shares 142 255

Net treasury shares sold: 311,903 (2013: 1,123,817) ordinary shares (31) (113)

At end of year: 1,110,213 (2013: 1,422,116) ordinary shares 111 142

GROUP2014

R’000

2013Restated

R’000

Share capital (continued)Treasury shares of 10 cents each – nominal value (continued)Treasury shares held by B-BBEE equity transaction participants

At beginning and end of year: 18,091,661 (2013: 18,091,661) ordinary shares 1 809 1 809

Treasury shares held by Pioneer Foods Broad-Based BEE TrustAt beginning and end of year: 10,599,988 (2013: 10,599,988) ordinary shares 1 060 1 060

Treasury shares held by subsidiaryAt beginning and at end of year: 17,982,056 (2013: 17,982,056) ordinary shares 1 798 1 798

Total treasury shares – nominal valueAt beginning of year 4 809 4 922Ordinary shares sold by management share incentive trust (at strike price) (31) (113)At end of year 4 778 4 809

Net listed ordinary share capital – nominal valueTotal issued and fully paid ordinary shares 23 170 23 101Treasury shares held by management share incentive trust (111) (142)Treasury shares held by B-BBEE equity transaction participants (1 809) (1 809)Treasury shares held by Pioneer Foods Broad-Based BEE Trust (1 060) (1 060)Treasury shares held by subsidiary (1 798) (1 798)

18 392 18 292

20,000,000 (2013: 20,000,000) unissued ordinary shares are under control of the directors until the next annual general meeting.

Treasury shares – carrying amountConsist of:

Treasury shares held by management share incentive trust 23 036 27 391Treasury shares held by B-BBEE equity transaction participants 999 288 999 288Treasury shares held by Pioneer Foods Broad-Based BEE Trust 1 060 1 060Treasury shares held by subsidiary 163 113 163 113

1 186 497 1 190 852


GROUP2014

R’000

2013Restated

R’000

Share capital (continued)

Issued and fully paid – unlisted class A ordinary shares of 10 cents each held by employee share scheme trust

At beginning of year: 7,367,360 (2013: 8,198,120) class A ordinary shares 737 820

Bought back and cancelled: 1,323,420 (2013: 830,760) class A ordinary shares (132) (83)

At end of year: 6,043,940 (2013: 7,367,360) class A ordinary shares held by employee share scheme trust 605 737

During the year the Company issued Nil (2013: Nil) class A ordinary shares.

Class A ordinary shares are not listed on the JSE. These shares have full voting rights, similar to those of ordinary shares.


Share capital (continued)

Key facts and dates

Holding companyPioneer Food Group Ltd Registration number: 1996/017676/06JSE Securities Exchange Code: PFGJSE Securities Exchange Sector: Food & Beverage

Country of incorporationSouth Africa

Date of incorporation11 December 1996

ISIN codeZAE000118279

Company secretary and registered officeJay-Ann JacobsGlacier Place, 1 Sportica CrescentTyger Valley, 7530, South AfricaTel: +27 21 974 4000 Fax: +27 86 407 0044email: [email protected]: [email protected]

Transfer secretaryComputershare Investor Services (Pty) Ltd70 Marshall Street, Johannesburg, 2001PO Box 61051, Marshalltown, 2107Tel: +27 11 370 5000Fax: +27 11 688 5209

AuditorsPricewaterhouseCoopers Inc.(Registration number: 1998/012055/21)PricewaterhouseCoopers BuildingZomerlust EstateBerg River BoulevardPaarl, 7646

BankersThe Standard Bank of South Africa LtdAbsa Bank LtdNedbank LtdFirstRand Bank LtdOld Mutual Specialised Finance (Pty) Ltd

SponsorPSG Capital (Pty) Ltd(Registration number: 2006/015817/07) 1st Floor, Ou Kollege, 35 Kerk StreetStellenbosch, 7600PO Box 7403, Stellenbosch, 7599Tel: +27 21 887 9602Fax: +27 21 887 9624

Financial calendar

Financial year-end 30 September Annual general meeting 13 February 2015

ReportsInterim report for the six months ended 31 March 2015 May 2015Announcement of results for the year ended 30 September 2015 November 2015Integrated report for the year ended 30 September 2015 December 2015

DividendsInterim – Announcement May 2015 – Payment July 2015

Final – Announcement November 2015 – Payment February 2016

PIONEER FOODS :: INTEGRATED REPORT :: 2014128

CORPORATE INFORMATION

GREYMATTER & FINCH # 8702

WWW.PIONEERFOODS.CO.ZA

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