2019 - Pioneer Foods

INTEGRATED REPORT

2019

2 About this report

GROUP AT A GLANCE4 Highlights

6 A brief profile

LEADERSHIP REPORT8 Snapshot review

9 Performance overview

10 New manufacturing facilities

10 Investment in “start-ups”

10 Corporate governance

11 Stakeholder engagement

11 Looking ahead

12 Group five-year financial review

CORPORATE GOVERNANCE16 Board of directors

20 Executive management

25 Board committees

30 Group compliance

REMUNERATION REPORT34 Part 1: Letter from the chairman

36 Part 2: Remuneration policy

42 Part 3: Implementation of the remuneration policy

SOCIAL AND ETHICS COMMITTEE REPORT TO SHAREHOLDERS48 Summary of ESG and sustainability

activity & ethics

FINANCIAL STATEMENTS57 Summary consolidated

financial statements

94 NOTICE OF ANNUAL GENERAL MEETING

100 SHAREHOLDER INFORMATION

101 DEFINITIONS

102 CORPORATE INFORMATION

103 FORM OF PROXY

For moms around the world, Pioneer Foods is the food and

beverage company that develops and delivers products that help them

and their families realise their full potential and live better lives through

Pioneer Foods’ quest and purpose to consistently establish new

and enhanced ways of producing, distributing, marketing and

selling products.

CON

TEN

TS

Navigational icons: The following icons are applied throughout the report to improve usability and to highlight integration between relevant content elements:

Pioneer Foods’ website: www.pioneerfoods.co.za

Page reference

ABOUT THIS REPORT

Reporting scope and boundaryThis abridged version of the Integrated Report covers the South African and international operations of Pioneer Food Group Ltd (‘Pioneer Foods’ or ‘the Group’) for the financial year from 1 October 2018 to 30 September 2019.

As jointly announced on 19 July 2019, Pioneer Foods received a proposal from PepsiCo Inc. which, if implemented, will result in significant and material changes to the structure and overall functioning of the Group, including delisting from the JSE.

Details regarding the background and rationale for this proposal are available on our website at https://www.pioneerfoods.co.za/investor-tools/stakeholder-notices/.

This document therefore offers an updated summary of the information contained in previous Pioneer Foods’ integrated annual reports and aims to provide our stakeholders with concise information regarding the Group’s operational, social, environmental and economic performance.

At the time of publication, we remain a listed entity and compliant with the JSE Listings Requirements, as well as those of the Companies Act, no 71 of 2008 (as amended).

The reporting process has therefore been guided by:

• The JSE Listings Requirements and the Companies Act• King IV Report on Corporate Governance™ for South Africa,

2016 (King IV™)• International Financial Reporting Standards (IFRS)

The recommendations contained in the International Integrated Reporting Framework were also considered and applied wherever possible. Under the circumstances, we have refrained from providing detailed and comprehensive future-looking statements and outlooks for the business during this transitory period.

The detailed Annual Financial Statements in respect of the year under review are available on the Company’s website at https://www.pioneerfoods.co.za

WEL

COM

E

2

PION

EER FOO

DS IN

TEGRATED REPORT 2019

Board approvalThe Board, assisted by the audit committee, is responsible for the integrity and completeness of this report. The Board reviewed the 2019 integrated report on 14 November 2019 and is satisfied that it is a fair and accurate representation of the Group’s performance and future prospects.

MaterialityWe have addressed as far as possible material issues that matter to us, our shareholders and other stakeholders, including our business model, most significant business risks and opportunities, and governance processes.

This abridged annual report includes summarised reporting on the performance of the operational divisions, while the most material social and environmental activities during the period under review are reported on by the Social and Ethics committee.

AssurancePioneer Foods follows a combined assurance model to optimise the assurance coverage obtained from management, as well as from internal and external assurance providers. The Group’s combined assurance methodology is used to assess the effectiveness of controls implemented taking into account any mitigating factors. These assessments are used to inform a continuous improvement process.

BUSINESS PROCESS ASSURANCE IN THIS REPORT

Annual financial statements

Nature of assurance: External audit

Provider: PricewaterhouseCoopers Inc.

The scope of this audit is limited to information contained in the annual financial statements.

Internal controls, including food safety

Nature of assurance: External audit and internal audit

Provider: NSF (Food Safety) and Deloitte

Non-financial data Nature of assurance: External assurance

Provider: Deloitte

Non-financial data included in the scope of Deloitte’s limited assurance engagement is indicated with an LA symbol in this report.

B-BBEE Nature of assurance: External verification

Provider: AQRate

Transformation in the SEC report, page 55.

Risk control programme Nature of assurance: External audit

Provider: Marsh

Report of the audit committee on page 60 of the financial statements.

Forward-looking statementsAll statements, other than those of historical facts, included in this report are forward-looking statements. Where the Group expresses or implies an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed, projected or implied by such forward-looking statements. Such risks include, but are not limited to, commodity price volatility, currency fluctuations, increased production costs, political and operational risks in the countries in which the Group operates, governmental regulation and judicial outcomes. Pioneer Foods gives no guarantees or warranties that any of the future events, expectations or results referred to in the forward-looking statements will happen or materialise. The Group is under no obligation to release publicly any revisions to forward-looking statements reflecting events and circumstances after the date of this report, or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.

FEEDBACK

We welcome interaction with all stakeholders. Further information with regard to Pioneer Foods may be found on the Group website at https://www.pioneerfoods.co.za or by emailing [email protected] or [email protected]

Further information regarding this report can also be requested from the company secretary, Jay-Ann Jacobs ([email protected]).

GROUP AT A GLANCE

LEADERSHIP REPORT

CORPORATE GOVERNANCE

REMUNERATION REPORT

SOCIAL AND ETHICS COMMITTEE REPORT

FINANCIAL STATEMENTS

NOTICE OF AGM

SHAREHOLDER INFORMATION

3

4

HIGH

LIGH

TS

R22.3 billion 2018: R20.2 billion

REVENUE

R660 million 2018: R626 million

INFRASTRUCTURE INVESTMENT


INTERNATIONAL OPERATING PROFIT

324 cents2018: 365 cents

TOTAL DIVIDEND PER SHARE

R1.4 billion 2018: R1.6 billion

OPERATING PROFIT


ESSENTIAL FOODS OPERATING PROFIT


GROCERIES OPERATING PROFIT

R992 million 2018: R1.032 billion

ADJUSTED HEADLINE EARNINGS

11% 13%

4% 11%

19% 13%

3% 5%

4

PION

EER FOO

DS IN


R31.3 million 2018: R26.2 million

SKILLS DEVELOPMENT INVESTMENT

500 2018: 308

LEARNERSHIPS AND APPRENTICESHIPS

1.9 million m3 LA 2018: 1.8 million m3LA

WATER CONSUMPTION


CSI SPEND

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM



ENTERPRISE SUPPLIER DEVELOPMENT (ESD) FUNDING

9 504LA

+319 Nigeria+358 UK

2018: 8 531LA

(excl. Heinz and UK/Nigeria)

2018: 8 971(incl. Heinz excl. UK/Nigeria)

PERMANENT EMPLOYEES

10.14% LA TURNOVER RATE

5

Who we are

PIONEER FOODS IS ONE OF THE LARGEST FMCG COMPANIES IN SOUTH AFRICA, WITH A MARKET CAPITALISATION OF R23.5 BILLION AT 30 SEPTEMBER 2019. The Group operates a number of world-class facilities, producing and distributing a range of food and beverage products that include some of the most recognisable and best-loved brand names in South Africa. Pioneer Foods was established in 1997 and listed on the Johannesburg Stock Exchange (JSE) in 2008.

What we do

The group has three main divisions

A BRIEF PROFILE

6

Essential Foods manufactures wheat and maize products, including pasta, packs rice, beans and other dried vegetables, and runs large bakery operations.

ESSENTIAL FOODS

REVENUE

R13.2bn 2018: R11.9bn

OPERATING PROFIT

R743m 2018: R915m

OPERATING MARGIN

5.6% 2018: 7.7%

PRODUCT CATEGORIESWheat flour / Baked goods / Maize meal / Maize porridge / Pasta / Rice / Dried vegetables

POWER BRANDSSasko / White Star / Spekko

OTHER BRANDSSelect Rice / Nice Rice / Blue Bird / Champion / Pasta Grande / lmbo / Crossbow

6

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


INTERNATIONAL

�e International Division consists of Consumer Exports, Fruit Exports, the wholly owned UK subsidiary Pioneer Foods UK (Ltd) as well as the majority owned Nigerian business Food Concepts Pioneer Limited.

REVENUE

R3.3bn 2018: R3.2bn

OPERATING PROFIT

R294m 2018: R285m

OPERATING MARGIN

8.9% 2018: 9.0%

PRODUCT CATEGORIESLong-life juices / Dried fruit / Kids’ fruit snacking / Breakfast cereals / Baking ingredients / Maize meal

EXPORT POWER BRANDSBokomo / Ceres / Safari / White Star / LiquiFruit / Fruitree / Champion / Moir’s / UK BRANDS / Fruit Bowl / Lizi’s

NIGERIA BRANDSButterfield / Yum Yum

GROCERIES

Groceries produces breakfast cereals, baking aids & desserts, snacks, spreads, long-life fruit juices, dilutables, condiments and frozen foods.

REVENUE

R5.8bn 2018: R5.1bn

OPERATING PROFIT

R363m 2018: R419m

OPERATING MARGIN

6.3% 2018: 8.2%

PRODUCT CATEGORIESBreakfast cereals / Rusks / Dried fruit / Baking aids / Desserts / Long life juice / Dilutables / Ice tea / Water / Meals and salads / Spreads / Base flavours / Nuts / Snack bars / Rusks / Canned tuna / Condiments / Frozen foods

POWER BRANDSBokomo / LiquiFruit / Weet-Bix / Ceres / Safari / Wellingtons

OTHER BRANDSProNutro / Otees / Natures Source / Maltabella / Kreemy Meel / Werda / Moir’s / Smash / Marmite / Maizena / Bovril / Fruitree / Redro / Wild Island / Peck’s Anchovette / Daly’s / Lipton / Jungle Yum / Wellingtons / Heinz / John West / HP Sauce / Today’s / Mama’s / Big Jack / Man’s Meal

7

8Snapshot review of FY2019The year under review presented a highly challenging trading environment. We were able to report acceptable top line growth, but not sufficient growth to fully cover input cost increases. Ongoing weak demand in the food and beverage sectors constrained the ability of our market-leading brands to maintain margins during this period characterised by aggressive price competition.

The maize value chain specifically felt the pressure of these cost increases. Combined with a lower quality maize crop, this reduced the profitability of the maize meal category materially.

Other primary factors were an increase in operating costs due to planned investments into additional production and logistic capacity for future growth, as well as in response to regulatory changes affecting our human and environmental capitals.

The business, excluding maize and Wellington’s, grew operating profit by 6.3% to R1.4bn

PepsiCo offerIn July 2019, PepsiCo made an unsolicited bid for Pioneer Foods, stating it intends using the Group to expand throughout sub-Sharan Africa. Our South African base and pan-African footprint makes us an attractive target for PepsiCo’s growth strategy. The deal was approved by shareholders in October 2019 and is currently under review by the competition authorities. It is expected to be finalised early in 2020.

LEADERSHIP REPORT

AS PIONEER FOODS ENTERS THE NEXT PHASE OF ITS CORPORATE JOURNEY, WE

TAKE THIS OPPORTUNITY TO THANK ALL THOSE WHO HAVE WALKED THE ROAD WITH US. WE HAVE MADE SUBSTANTIAL INVESTMENTS IN PLANT CAPACITY, PRODUCTS AND CAPABILITIES IN RECENT YEARS AND LOOK FORWARD TO DEPLOYING THESE ASSETS AS THE FOUNDATION OF THE DRIVE INTO OUR TARGET MARKETS.

SUBSTANTIAL INVESTMENTS IN PLANT CAPACITY, PRODUCTS AND CAPABILITIES

ZL CombiChairman

Tertius CarstensChief executive officer

Felix LombardChief financial officer

ADJUSTED HEADLINE EARNINGS PER SHARE

6%

VOLUMES

2%REVENUE

11%

ADJUSTED OPERATING PROFIT

13%

8

PION

EER FOO

DS IN

TEGRATED REPORT 2019PIO

NEER FO

OD

S INTEGRATED REPORT 2019

9

In an official statement following President Ramaphosa’s Cabinet Meeting on 24 July, the Cabinet referred to the proposed transaction and stated that it welcomed the increased interest in South Africa as a preferred investment decision. The statement hailed PepsiCo’s offer as a clear vote of confidence in our country’s economy.

The Pioneer Foods Board supports the offer, considering the price as attractive in the current circumstances. In addition, the Pioneer Foods and PepsiCo portfolios are highly complementary, on an operational level.

Performance overviewIn brief, we delivered a mixed performance in a difficult trading environment. Volume growth was reasonable, although input inflation outstripped price growth. In this reporting period we tackled the rising input costs of labour and distribution, along with a steep increase in grain prices, compounded by seasonally weak maize quality, which couldn’t be recovered from consumer prices.

How each division performedEssential FoodsOur recent investments in baking capacity and distribution enabled strong growth in bread volumes and a solid performance by our wheat to bread value chain. This operation’s profitability should improve further as our capacity related investments are absorbed through a higher volume base.

Raw material cost inflation and lower milling quality maize caused by new season crop dynamics resulted in our White Star margins being reduced to maintain consumer relevance and this premium brand’s uncompromising quality specifications. White Star instant porridge however strengthened its market leading position through strong volume growth.

Pasta importers are taking advantage of a regulatory misalignment that enables them to import pasta from the European Union (EU) and other Southern African Customs Union (SACU) members at lower prices than local manufacturers can offer. This rise in pasta imports poses a significant risk to locally produced pasta. While we successfully defended our participation in this category, slimmer margins reduced our profitability.

The balance of the Essential Foods portfolio achieved a satisfactory performance, with Spekko rice sustaining sound volume growth and gaining further market share. Excluding maize, the Essential Foods business delivered 11% EBIT growth.

GroceriesGroceries experienced a year of two halves, recovering strongly in the second half from a sluggish first six months. Excluding Pioneer Foods Wellingtons, Groceries managed to lift volumes and despite rising distribution costs, recorded marginal operating profit growth. Input cost inflation was evident across the basket and remains a key challenge.

Our juice business excelled again, thanks to higher prices and a better product mix, delivering outstanding operating profit growth. The upgraded LiquiFruit prisma pack showed a pleasing uptake.

We also performed satisfactorily in the cereals categories, thanks to underlying volume growth. The balance of the portfolio beyond wheat biscuits contributed positively, with corn flakes showing a strong return to profit.

While much improved over the previous year, the Pioneer Foods Wellingtons unit is still performing below management expectations. On a positive note, Wellingtons widened its gross margins in the second half, with its condiments portfolio showing good signs of recovery.

InternationalOur cross-border commercial operations delivered a muted performance. The Nigerian business met its targets and our UK businesses continued making inroads. Exports into the broader African continent were impacted by tough macro economic conditions, currency volatility and trade barriers placed by certain countries to protect local manufacturers. Zimbabwe’s deteriorating economy, in particular, impacted consumer demand for long life juice and other products from our Groceries basket. Despite the backdrop of these tough trading conditions, the Groceries and Beverages export business maintained profitability, with a marginal decline in volumes.

Global dried fruit prices declined sharply after the procurement season due to unexpectedly high previous season stock levels in the US market, which was amplified by an excellent vine fruit harvest in Turkey. In the UK our Lizi’s brand delivered ahead of expectations on the back of innovation and improved distribution, while our private label sales continued making inroads.

Our Nigerian business posted double digit volume growth in the sausage roll category and progressed well in developing its new bread facility, which is scheduled to be fully operational in early 2020.

Finance section Revenue analysisThe Group showed positive revenue and volume growth. This was achieved in a very challenging economic environment. Overall sales inflation growth nearly reached double digit levels.

Margin analysisThe Group’s gross margin declined during the year, mainly as a result of the high double digit increase in the cost of maize that could not be recovered in maize meal and offal (chop) pricing. The gross margin was also impacted by the inclusion for the full year of the Wellington’s business, which operated at a lower gross margin than the overall Group.

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


9

The Group’s operating margin (before items of a capital nature) decreased as a result of cash operating costs growing faster than gross profit. The major above-inflation cost drivers were manpower and logistic costs. Manpower costs related to converting temporary employees to permanent status in line with the labour law changes, as well as building capacity in the bakery business and logistics. Material logistic cost increases were mainly due to creating three strategically located distribution warehouses, as well as expanding the distribution and bread availability of the bakery business.

The business, excluding maize and Wellington’s, grew operating margins in value and percentage terms.

Joint ventures and associatesThis segment has shown a material turnaround in performance as a result of the complete exclusion of the Heinz Foods SA (now Wellington’s) business and improved performances at Bokomo Botswana and Bokomo Namibia.

Headline earnings and group earningsThe Group had to recognise impairment charges on the frozen foods, Werda prepared salads, Fish Paste spreads and quick cooking maize processing and packing cash generating units. Taken together with material capital profits realised in the comparative period on the sale of shares and the sales assets, these led to a material decline between headline and group earnings.

Financial positionCapital investment for the year was kept under the self-imposed internal high water mark of R750 million. The major investments include the completion of the Durban wheat mill as well as new aseptic packaging equipment for beverages. Pioneer Foods Ventures also made a few small investments.

Loans outstanding grew this year as a result of increased working capital investment due to materially higher grain prices. Inventory levels stayed stable from a volume point of view.

The strategic shareholder BEE scheme, which the company initiated in 2012, matured during this year. The net effect was that the company bought back and cancelled 11.5 million shares. The weighted average number of shares in issue for the year increased by 3.2 million shares versus 2018, mainly as a result of this action.

DividendThe board declared a final dividend of R2.19 per share. Although lower than the previous year, it is in line with the maximum dividend agreed with PepsiCo.

ConclusionWhile financial returns have improved from the previous year (excluding the maize and Wellingtons business), they remain below Pioneer Foods targets. Improving our business margins is imperative. Management is implementing strategies aimed at improving margins while, at the same time, maximising the efficiency of the asset base.

New manufacturing facilitiesIn this period, we successfully commissioned our new Durban wheat mill, with the additional capacity fully available in December 2019. The new Tetra Prisma line commissioned in Wadeville, Gauteng enabled the launch of our new LiquiFruit 1L pack, which was well received by consumers.

Investment in “start-ups”The Pioneer Ventures division, created in 2018, actively seeks investment in emerging businesses in categories adjacent to those in which Pioneer Foods currently operates. The strategy is to help develop these start-ups by providing capital, strategic inputs and leveraging operating platform benefits. During this reporting period we successfully added three new businesses to our stable of joint ventures and associates.

FreeSweet is a startup business that has developed a novel natural sugar replacement product. Pioneer Foods bought a 50% stake in October 2018. We believe that the global drive to reduce sugar intake, as well as the introduction of the sugar tax, is creating significant demand for palatable and healthy natural sweeteners.

ButtaNut handcrafts a series of authentic tree-nut spreads, using natural ingredients. Pioneer Foods acquired a 30% shareholding in April 2019. The Group already sources large quantities of nuts for the Safari brand, and while we have a very strong ‘spreads’ capability (with our Marmite, Bovril, Redro and Pecks brands, as well as a Private Label jam business), we haven’t yet introduced a nut-based spread to our portfolio.

Two Green Lemons produces a range of non-alcoholic beverages aimed at the adult and mixer markets. Its flagship brand is Barker and Quin tonic water, crafted using only natural ingredients, quinine and mountain spring water. We believe that this premium mixer range will complement the wide range of beverages already distributed by Pioneer Foods. The deal was finalised in July 2019, with Pioneer holding a 25.9% stake.

Corporate governanceIn this period the major issues dominating Board agendas were the prevailing economic conditions in South Africa and our markets, the PepsiCo offer and the Group’s maturing strategic shareholder B-BBEE scheme.

As the food industry is highly regulated, the Board is required to ensure compliance with various acts of legislation and regulations. We oversaw a substantial upgrading of the Group’s food safety environment and the appointment of qualifying temporary workers to permanent positions. The Board also ensured that all Pioneer Foods products comply with South Africa’s recently promulgated health promotion levy or ‘sugar tax’.

Sound corporate governance is intrinsic to good business, prompting the Board to continually evaluate our internal reporting and communications against best practices. In this period, we accordingly split the Group’s internal compliance and risk functions apart to enhance the controls for each.

LEADERSHIP REPORT continued

10

PION

EER FOO

DS IN


Pioneer Foods is fortunate to have been guided by a skilled, balanced and diverse board, particularly through the recent difficult years. Nevertheless, the time was right to introduce fresh energy and thinking.

Our veteran lead independent director Gerrit Pretorius retired from the Board and was replaced in this role by Norman Thompson, who also fills his position on the nomination committee. Christoff Botha was appointed to the Board in December 2018 and became chairman of the audit committee.

Stakeholder engagementSuccess in modern business means responding swiftly and accurately to fast changing market realities. Staying in contact with key stakeholders and proactively engaging their feedback informs the Board in reviewing risks, challenges and opportunities. In this period, we regularly engaged major stakeholders such as unions, employees, shareholders, communities and regulators.

Our impacts on the environment and societyIn addition to extensive efforts to reduce our water consumption in response to the Western Cape drought, we have refocused on more efficient electricity usage and preparations for the forthcoming carbon tax regime. We have also commenced the journey of re-assessing our usage of plastic.

As the scourge of drought continues across much of southern Africa, including many regions in South Africa, Pioneer Foods is better prepared for a water-scarce future. We are thankful and mindful that the water discipline compelled by the Western Cape drought has become embedded in the business.

The Pioneer Foods school breakfast programme continued expanding across South Africa, with 34 000 learners now fed each weekday morning.

Risks, challenges and opportunitiesOur primary risks during FY19 was South Africa’s continuing dismal economic performance and the real danger of state-owned enterprises (SOEs) in South Africa dropping the ball on primary inputs and enablers such as electricity, water and transport security. The unfortunate consequence is sagging business and consumer confidence, which constrains investment, household spend and growth opportunities. Under these circumstances the often volatile Rand exchange rate becomes a major issue.

We have already discussed the challenges of constrained consumer spending, downtrading, rising maize prices and sharply increased distribution costs. Another challenge was the price-based competition that arose between retailers, resulting in sometimes unreasonable demands and excessive discounting.

South Africa is a net importer of wheat with local wheat generally trading at import parity inclusive of the applicable import duty. As discussed last year, the regulator has been historically erratic in the promulgation of changes to the

wheat import duty, which creates significant uncertainty in respect of procurement decisions and product pricing. The competitiveness of locally produced pasta is also impacted by a regulatory gap that enables pasta to be imported duty-free from the European Union compared to the import duty applicable on wheat in South Africa.

Looking aheadThe immediate future for Pioneer Foods is bright and we are delighted that PepsiCo intends using our group as a springboard into Africa. Getting through the actual nuts and bolts of merging the two businesses will doubtlessly present some challenges, but the potential benefits for both are broad and long term.

Having invested heavily in plant capacity and products in recent years, Pioneer Foods is looking forward to deploying these assets as the foundation for growth in South Africa and a major drive into Africa and our target markets.

Even so, we must remain mindful that South Africa’s economy is unlikely to improve quickly, while global trade is subdued due to conflict over trade and tariffs between dominant economies. The long-drawn-out Brexit political and economic process is also a major factor.

In appreciationAs Pioneer Foods enters the next phase of its corporate journey, we take this opportunity to thank all those who have walked the long and often steep road with us. Our most recent years have been tough, but we’ve collectively pushed through to a bigger and sustainable future.

On behalf of the Board, we thank all customers, employees, shareholders, suppliers, communities and regulators for your loyalty and perseverance through a tough trading period. We are now at the start line of the next lap and look forward to sharing the next phase of this journey with you.

ZL CombiChairman

Tertius CarstensChief executive officer

Felix LombardChief financial officer

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


11

GROUP FIVE-YEAR FINANCIAL REVIEW2019R’m

2018R’m

2017R’m

2016R’m

2015R’m

Consolidated statement of comprehensive incomeRevenue 22 272.6 20 151.9 19 575.0 20 599.7 18 748.2Profit before items of a capital nature and income tax 1 298.2 1 402.9 1 042.0 2 297.9 1 814.5

Before adjustments 1 308.5 1 433.0 1 162.5 2 253.1 2 121.3Broad-based employee share incentive scheme share-based payment charge (37.4) 26.0 113.9 22.9 (306.8)Broad-based employee share incentive scheme hedge 37.1 (56.1) (216.8) 21.9 –Once-off merger and acquisition costs (10.0) – (17.6) – –

Items of a capital nature (80.5) 73.2 (57.0) 21.3 (75.9)Income tax expense (302.0) (399.0) (258.8) (629.0) (606.3)Profit for the year 915.7 1 077.1 726.2 1 690.2 1 132.3Attributable to:Owners of the parent 909.8 1 072.6 726.1 1 690.2 1 130.4Non-controlling interest 5.9 4.5 0.1 – 1.9 915.7 1 077.1 726.2 1 690.2 1 132.3Operating profit before items of a capital nature 1 381.5 1 572.4 1 156.2 2 318.0 1 845.9Headline earnings for the year 970.8 1 017.4 762.8 1 675.7 1 227.3

Consolidated statement of financial position Property, plant and equipment, intangible assets and biological assets 6 973.9 6 853.9 6 186.7 5 561.8 5 087.7Deferred income tax 76.1 55.8 12.5 3.9 0.2Investments in and loans to associates and joint ventures 869.0 791.3 906.7 861.2 574.0Non-current trade receivables and equity investments at fair value through OCI (prior years: available-for-sale financial assets) 52.8 123.7 153.5 145.1 166.1Non-current derivative financial instruments 141.4 128.7 203.1 439.7 –Current assets 6 550.4 6 587.7 5 509.8 6 518.8 6 343.0Total assets 14 663.6 14 541.1 12 972.3 13 530.5 12 171.0Capital and reserves attributable to owners of the parent 8 912.0 8 379.7 8 027.2 7 867.3 6 958.7Non-controlling interest 44.3 35.3 25.0 – 12.3Total equity 8 956.3 8 415.0 8 052.2 7 867.3 6 971.0Non-current borrowings 1 283.3 1 405.1 698.7 1 333.3 1 300.2Provisions, non-current derivative financial instruments and share-based payment liability 246.9 225.0 272.2 429.1 506.2Deferred income tax 824.4 766.1 674.4 582.4 471.8Current liabilities, excluding accruals for forward purchase contracts on own equity 3 352.7 3 729.9 3 274.8 2 825.1 2 921.8Current liability – accrual for forward purchase contracts on own equity – – – 493.3 –Total equity and liabilities 14 663.6 14 541.1 12 972.3 13 530.5 12 171.0

LEADERSHIP REPORT continued

12

PION

EER FOO

DS IN


2019R’m

2018R’m

2017R’m

2016R’m

2015R’m

Consolidated statement of cash flows Net cash profit from operating activities 1 894.8 2 072.5 1 661.4 2 667.9 2 512.2Working capital changes (527.2) 281.1 751.7 (774.5) (546.4)Cash effect from hedging activities (5.0) 2.1 165.8 (174.6) 16.2Settlement of share-based payment liability (12.4) (26.3) (69.2) (69.2) (189.4)Cash effect of forward purchase contracts related to share-based payments 19.3 25.5 41.8 25.2 –Settlement of accrual for forward purchase contracts on own equity – – (493.3) – –Income tax paid (248.0) (364.4) (288.1) (451.1) (475.5)Net cash flow from operating activities 1 121.5 1 990.5 1 770.1 1 223.7 1 317.1Net cash flow from investment activities (606.9) (866.6) (957.5) (982.9) (422.7)Net cash surplus 514.6 1 123.9 812.6 240.8 894.4Net cash flow from financing activities (1 067.5) (395.8) (932.7) (1 204.9) (414.1)Net cash, cash equivalents and bank overdrafts on unbundling of Quantum Foods – – – – (105.6)Effect of exchange rate changes on cash and cash equivalents 2.2 3.0 0.9 (7.1) –Net (decrease)/increase in cash, cash equivalents and bank overdrafts (550.7) 731.1 (119.2) (971.2) 374.7

Segments RevenueEssential Foods 13 184.9 11 859.3 12 469.8 12 854.8 11 334.5Groceries 5 795.4 5 119.6 4 402.7 4 695.1 4 797.4International 3 292.3 3 173.0 2 702.5 3 049.8 2 616.3 22 272.6 20 151.9 19 575.0 20 599.7 18 748.2

Operating profit before items of a capital nature Essential Foods 742.9 915.3 800.2 1 249.5 1 278.5Groceries 362.7 419.3 357.0 541.6 434.5International 294.4 285.0 121.5 484.2 444.5Other (8.2) (17.1) (2.0) (2.1) (4.8)Adjusted operating profit before items of a capital nature 1 391.8 1 602.5 1 276.7 2 273.2 2 152.7

Once-off merger and acquisition costs (10.0) – (17.6) – –Share-based payment charge on Phase I B-BBEE transaction (37.4) 26.0 113.9 22.9 (306.8)Phase I B-BBEE transaction hedge 37.1 (56.1) (216.8) 21.9 –

Operating profit before items of a capital nature 1 381.5 1 572.4 1 156.2 2 318.0 1 845.9

Depreciation and amortisation Essential Foods 272.8 260.5 236.1 203.8 191.9Groceries 146.5 130.5 112.8 106.2 120.3International 47.3 46.7 37.8 31.6 23.4 466.6 437.7 386.7 341.6 335.6

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


13

2019 2018 2017 2016 2015

Profitability (%)Revenue growth 10.5 2.9 (5.0) 9.9 (11.9)Operating profit margin (Note 1) 6.2 7.8 5.9 11.3 9.8Operating profit margin (Note 2) 6.2 8.0 6.5 11.0 11.5Effective tax rate 24.8 27.0 26.3 27.1 34.9Return on average net assets (Note 1) 14.6 17.6 13.4 29.7 24.2Return on average net assets (Note 2) 14.7 17.9 14.8 29.1 28.3Return on average shareholders’ funds (Note 1) 11.2 12.4 9.6 22.6 18.8Return on average shareholders’ funds (Note 2) 11.5 12.6 10.4 22.1 23.5

Liquidity and solvencyNet debt to equity ratio (%) 10.4 10.7 13.4 12.5 5.7Current ratio (times) 2.0 1.8 1.7 2.0 2.2Acid test ratio (times) 0.9 0.9 0.8 1.0 1.2Cash profit interest cover (times) 10.6 11.9 9.8 21.6 24.2Net interest cover (times) 7.6 8.8 6.5 18.6 17.6Dividend cover (times) 1.6 1.4 1.1 2.2 2.2

Performance per share (cents) Earnings 479.0 574.6 390.3 912.1 612.8Headline earnings (Note 1) 511.1 545.0 410.1 904.3 665.3Headline earnings (Note 2) 522.0 552.8 442.2 883.4 831.6Dividend 324.0 365.0 365.0 365.0 332.0Net asset value 4 615.2 4 496.6 4 302.8 4 238.7 3 757.5

ProductivityRevenue to net asset cover (times) 2.5 2.4 2.4 2.6 2.7Revenue per employee (R’000) 2 187.7 2 087.2 2 118.7 2 371.1 2 314.9Net assets per employee (R’000) 875.4 867.9 868.8 905.5 859.2Number of permanent employees 10 181 9 655 9 239 8 688 8 099

Share trading statisticsPrice per share (cents):

At year-end 10 601 9 200 11 275 17 387 19 576High 10 725 14 550 18 800 21 164 20 799Low 6 800 9 200 11 250 12 538 11 149

Net number of issued shares (’000): Total number of issued shares 221 828 233 177 233 379 232 473 232 739Number of treasury shares – share incentive trust – – – (48) (730)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) (18 092)Number of treasury shares – BEE Trust (10 745) (10 745) (10 745) (10 745) (10 745)

193 101 186 358 186 560 185 606 185 190

Market capitalisation (R’000) 23 516 018 21 452 290 26 313 532 40 420 065 45 561 051Dividend yield (%) 3.1 4.0 3.2 2.1 1.7Headline earnings yield (%) (Note 1) 4.8 5.9 3.6 5.2 3.4Headline earnings yield (%) (Note 2) 4.9 6.0 3.9 5.1 4.2Earnings yield (%) 4.5 6.2 3.5 5.2 3.1Price earnings ratio (times) (Note 1) 20.7 16.9 27.5 19.2 29.4Price earnings ratio (times) (Note 2) 20.3 16.6 25.5 19.7 23.5

Notes: 1. Calculated after the once-off merger and acquisition costs (2017 and 2019 only), the annual share-based payment charge on the Phase I

B-BBEE equity transaction and the impact of the Phase I B-BBEE equity transaction hedge (for 2016, 2017, 2018 and 2019).2. Calculated before the once-off merger and acquisition costs (2017 and 2019 only), the annual share-based payment charge on the Phase I

B-BBEE equity transaction and the impact of the Phase I B-BBEE equity transaction hedge (for 2016, 2017, 2018 and 2019).

Refer to definitions on page 104.

LEADERSHIP REPORT | GROUP FIVEYEAR FINANCIAL REVIEW continued

14

PION

EER FOO

DS IN


PIONEER FOODS VIEWS CORPORATE GOVERNANCE AS AN ESSENTIAL ELEMENT IN CREATING SUSTAINABLE VALUE AMONG ALL STAKEHOLDERS. The Board of Directors functions as the accountable custodian of corporate governance and strives to ensure that sound governance principles are fully integrated and adhered to across all aspects of the business. The Group’s corporate governance policies and procedures are housed within a structured and formal system, which serves in maintaining a balance between business objectives and stakeholder interests.


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


15

BOARD OF DIRECTORS

ZL (KK) COMBI (67)Independent non-executive chairman

Diploma in Public Relations

Appointment date:29 March 2010

Member of the human capital committee and chairman of the nomination committee

Mr Combi was the executive chairman of Thembeka Capital Ltd, until its unbundling. 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.

NW (NORMAN) THOMSON (68)Lead independent non-executive director

BCom, CA(SA)

Appointment date:19 November 2015

Chairman of the human capital committee, member of the audit committee, risk committee and nomination committee

Mr Thomson worked for Woolworths for 22 years, serving in various senior positions in food, store operations and supply chain. He was appointed to the Woolworths group board in 2000 and held the position of group finance director from 2001 until his retirement in 2013. He also served as a director on the board of Country Road in Australia and was chairman of the Woolworths group subsidiaries in Kenya, Tanzania, Uganda, Nigeria and Zambia until 2014.

C (CHRISTOFF) BOTHA (58)Independent non-executive director

BCom Law, LLB, (Hons) CTA, Qualified Chartered Accountant

Appointment date:11 December 2018

Chairman of the audit committee

Mr Botha has a background in auditing, management consulting, corporate finance, investment management and private equity investment. He has served on numerous boards spanning a number of industries. Mr Botha currently serves on the boards of Novus Holdings, WebAfrica and New Seasons Investment Fund.

NON-EXECUTIVE DIRECTORS

CORPORATE GOVERNANCE continued

16

PION

EER FOO

DS IN


PROF ASM (MOHAMMAD) KARAAN (51)Non-executive director

BSc Agric, BSc Agric (Hons), MSc Agric, PhD (Agric)

Appointment date:29 March 2010

Chairman of the social and ethics committee

Prof Karaan joined the Development Bank of Southern Africa as an economist and was later recruited by the Rural Foundation as Head of Research. In 1996 he joined Stellenbosch University as a lecturer in the Faculty of Agriculture. In October 2008 he became Dean of the Faculty of AgriSciences at Stellenbosch University and was reappointed in November 2013 for a second term. From 1 May 2014 until 31 May 2015, Prof Karaan served as Acting Vice-Rector. Prof Karaan is currently a professor in Agricultural Economics at Stellenbosch University and is also a member of the National Planning Commission.

NS (NONHLANHLA) MJOLI-MNCUBE (60)Independent non-executive director

MA (City and Regional Planning), Executive leadership qualifications (Harvard and Wharton, USA), Postgraduate Certificate: Technology Management (Warwick, UK)


Member of the social and ethics committee

Ms Mjoli-Mncube is a fellow of the Massachusetts Institute of Technology and Aspen Global Leadership Institute, USA. While in the USA, Ms Mjoli-Mncube served in executive roles for close to ten years. 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 has held executive positions. She is a recipient of the SABC Businesswoman of the Year Award and currently manages her own construction company, as well as a diversified investment company.

LE (LINDIWE) MTHIMUNYE (45)Independent non-executive director

BCom, Postgraduate Diploma: Accounting, Postgraduate Diploma: Tax Law, MCom, CA(SA)


Member of the audit committee

Ms Mthimunye is a CA (SA) and has extensive governance, finance and business experience, having worked in investment banking and as CFO, and served on the boards of various listed and unlisted companies including; Woolworths, Group 5, Sea Harvest, PetroSA and Hyundai Automotive South Africa.

N (NORMAN) CELLIERS (46)Non-executive director

BEng (Civil), DipSoc (Oxon), MBA (Oxon)

Appointment date:1 October 2012

Member of the risk committee, nomination committee and human capital committee

Mr Celliers’ professional experience includes engineering, management consulting and private equity in South Africa and abroad. He has been the CEO of Zeder Investments Ltd since 2012 and serves on numerous boards, including Capespan Group Ltd (chairman) and Quantum Foods Holdings Ltd.

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


17

SS (SANGO) NTSALUBA (59)Independent non-executive director

BCom, BCompt (Hons), CTA, CA(SA), HDip Tax Law, Masters of Commerce in Development Finance.


Member of the audit committee, risk committee, human capital committee and nomination committee

Mr Ntsaluba is a founding member and Executive Chairman of NMT Capital. He represents NMT Capital on various boards which include Goldplat Recovery and ELCB. He has vast experience as a businessman and senior executive and has been involved in the auditing profession for over 30 years.

Mr Ntsaluba also serves as a board member and chairman of the respective audit committees of Barloworld Limited, Kumba Iron Ore and various public sector boards such as the National Housing Finance Corporation.

He also sits on various board committees which include the risk committee, remuneration committee and governance committee. He founded Sizwe Ntsaluba Gobodo, one of the largest auditing and accounting firms in South Africa.

AH (ANDILE) SANGQU (52)Independent non-executive director

BCom (Acc), BCompt (Hons), CTA, Higher Dipl Tax Law, MBL

Appointment date:24 February 2006

Chairman of the risk committee

Mr Sangqu was previously group executive of sustainability and risk at Impala Platinum. Prior to his role at Impala Platinum, he was executive director for Glencore Xstrata South Africa, served on the Chamber of Mines’ National Development Plan Committee and held executive and non-executive roles at Kagiso Trust Investments.

Since 1 June 2015, Mr Sangqu has held the position of executive head for Anglo American in South Africa. He currently serves as a director of Business Leadership SA, deputy chairman of NEPAD Business Foundation and is the vice president of the Minerals Council South Africa.

Among his other qualifications, Mr Sangqu completed an Advanced Management Programme (AMP) at Insead Business School.

G (GERRIT) PRETORIUS (70)Previous lead independent non-executive director

BSc, BEng, LLB, PMD

Appointment date:17 February 2012 (Retired from the Board effective 15 February 2019)

Former chairman of the human capital committee and member of the 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. He has served as a non-executive director on the boards of various companies.

CORPORATE GOVERNANCE | BOARD OF DIRECTORS continued

PJ (PIET) MOUTON (43)Non-executive director

BCom (Mathematics)


Member of the risk committee

Mr Mouton is the chief executive officer of the PSG Group. He serves as a director on the boards of various PSG Group companies.

18

PION

EER FOO

DS IN


TA (TERTIUS) CARSTENS (56)Chief executive officer

BEng (Chem), MBA



Mr Carstens has been with the Group for 25 years, commencing in 1994. He was initially involved in the engineering and technical components of the business, gaining intensive strategic experience through being appointed to managerial and executive roles in the Groceries and Essential Foods divisions. He was actively involved in a number of the Group’s joint ventures, many of them since inception.

F (FELIX) LOMBARD (50)Chief financial officer

MCom (Tax), CA(SA)

Appointment date:1 July 2017


Mr Lombard started his career with the Group in 1995 as head of information systems at Bokomo and then Pioneer Foods. He was the executive responsible for the Groceries division prior to being appointed as CFO and executive director of the Group. In addition to his finance responsibilities, he is accountable for information technology, investor relations, and mergers and acquisitions.

EXECUTIVE DIRECTORS

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


19


E (ELROY) GOLIATH (47)Group executive: supply chain

PhD (Chemical Engineering), MBA


Member of the social and ethics committee

Dr Goliath has a comprehensive background in chemical engineering, business management and strategy, with over 15 years’ senior management experience in various operational, supply chain and business roles. Twelve of those were spent in the wine industry in roles including product and process development, engineering, operations, sales and as group supply chain executive at KWV. He authored an environmental management guide for the wine sector during this time, which was underwritten by the Department of Water Affairs and other stakeholders for implementation. His career at Pioneer Foods includes general manager of strategic services, managing executive and supply chain executive for Essential Foods (Grains). He joined Pioneer Foods in June 2008.

T (THUSHEN) GOVENDER (43)Business executive: International

BCom (Hons), CA(SA), MBA (UK)


Mr Govender joined the Group from Tiger Brands, where he served as the executive: business development, strategy and investor relations. His career commenced at Deloitte South Africa. He later transferred to the United States to gain international experience. Prior to joining Pioneer Foods, he was involved in business development and strategy within various emerging markets while working for Stanbic Africa and Tiger Brands, respectively.

R (RIAAN) HEYL (44)Business executive: Essential Foods

BCom (Hons), CA(SA)


Mr Heyl has been with the Group since 2000 and has held financial management positions at both corporate and divisional level before being promoted to general manager of the Essential Foods Grains division in 2007. He was appointed as managing executive of the Bakeries division in 2013, and was responsible for the wheaten value chain of Essential Foods.

EXECUTIVE MANAGEMENT

20

PION

EER FOO

DS IN


J (JAY-ANN) JACOBS (47)Group executive: legal, compliance and Group company secretary

BA LLB, LLM (UCT), Postgraduate Diploma: Environmental Law (UCT)

Appointment date:1 August 2011

Ms Jacobs practised as a corporate and commercial attorney for 12 years prior to joining Pioneer Foods in 2010. She spent time at Mallinicks Inc., thereafter joining Cliffe Dekker Hofmeyr Inc. as a director in Cape Town.

N (NICO) MOLOTO (38)Group executive: sustainability, CSI and stakeholders

BCom (Financial Accounting), PGDip Development Finance


Mr Moloto has a strong financial background with over 10 years’ experience in the financial services sector, having begun his career at RMB Asset Management. He moved to Standard Bank and, during his tenure there, was responsible for financial reporting and black economic empowerment lending, as well as for structuring corporate enterprise development lending schemes. Upon joining Pioneer Foods, his portfolio expanded to include CSI, enterprise and supplier development, sustainability and stakeholder management, in addition to managing the Pioneer Foods Education and Community Trust (PFECT). He joined the Group in May 2015.

M (MARTIN) NEETHLING (55)Business executive: Groceries

BSocSci (Economics, Politics, Bus Admin), MBA


Mr Neethling has extensive strategic marketing and management experience gained during a career spanning 30 years. During this time he held various directorships and senior management roles in the retail, advertising and fast-moving consumer goods (FMCG) sectors. Most notably, he was previously the managing director of Berry Bush BBDO, marketing and financial services director at the Ackermans group and chairman of Jay Jays. He joined Pioneer Foods in 2015 and served as chief marketing officer until 1 July 2017, following which he was appointed executive of the Groceries division. As an Associate at the UCT Unilever Institute of Strategic Marketing, he has amassed significant insight and understanding of the South African consumer landscape. He joined the Group in October 2015.

N (NANDIPHA) NGUMBELA (44)Group executive: human resources

BA (Communications and Psychology), Master of Business Leadership

Appointment date:2 January 2018

Ms Ngumbela has extensive experience as a human resources professional with a career spanning 20 years. She has occupied various senior roles at corporates including Old Mutual, Engen, Liberty Health, Chevron and Clicks. She has specialist capabilities in transformation and employment equity as well as talent and performance management. Ms Ngumbela joined the Group in January 2018.

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


21


Board of directorsThe Board exercises ultimate control over the Group and its subsidiaries. It is, however, structured so that no individual director has unfettered powers of decision-making. In line with the Board’s charter, which is reviewed annually, the Board is responsible for ensuring that an enabling environment is in place for the Group to achieve its business objectives in a sustainable and ethical manner.

The Board provides management with guidance on formulating strategy, setting targets and developing commercial plans, while remaining cognisant of the business’ impact on its triple-bottom line.

Composition and sizeThe Board consisted of 12 members at year-end, of whom 10 are non-executive members. The Board’s composition is aligned to the requirements of the Companies Act and the Group’s memorandum of incorporation (MOI). The nomination committee assists the Board to continuously assess the requisite skill of its members. The appointment of new members is informed by the Group’s MOI, the nomination policy and the gender and diversity policy. This is a formal and transparent process which is subject to final approval by shareholders at the Annual General Meeting (AGM).

During the year, Mr Botha was appointed as an independent non-executive director, which was approved by shareholders at the 2019 AGM. Mr Pretorius, having reached the mandatory retirement age prescribed in the MOI, retired from the Board.

Roles and responsibilitiesThe Board oversees that members discharge their duties according to the principles of good governance.

The Board’s charter, the lead independent director’s charter and the committees’ terms of reference are available on the website at www.pioneerfoods.co.za.

Mr Combi was appointed to the Board in 2010 and was elected as chairman in the same year. In the event that the chairman is conflicted on any matter for discussion at Board meetings, he is assisted by the lead independent director.

Non-executive directorsThe Board consists of members from diverse backgrounds and careers, each of whom contribute a broad spectrum of skills and expertise to the decision-making process. In terms of the MOI, a third of the non-executive directors are required to rotate by retiring after a three-year period, but may avail themselves for re-election.

Executive directorsThe executive directors are appointed by the Board and are responsible for:

• leading the implementation of the Group’s strategy• agreeing to operational and capital budgets in consultation

with the Board• ensuring the Group’s overall financial health and effectiveness• overseeing operational results, effective leadership of the

organisation, and effective risk and compliance management.

King IV™ PrinciplesIn accordance with the JSE Listings Requirements, the Group is substantially applying the principles outlined in King IV™.

Pioneer Foods’ King IV™ compliance report is available online at www.pioneerfoods.co.za, a summary of which is provided below.

Pioneer Foods’ decision-making framework was benchmarked against market best practices. The recommendations arising therefrom were reviewed by the audit committee as part of their annual review process and based on their recommendation, approved by the Board. Director training was continued to keep the Board abreast of topical issues affecting the business, as well as related developments in the regulatory and compliance sphere

The audit committee reviewed the services of Pioneer Foods’ internal and external auditors to ensure both independence and objectivity

To enhance focus and oversight, the risk and compliance functions were separated

2019 GOVERNANCE MILESTONESKey governance milestones achieved during the year:

22

PION

EER FOO

DS IN


King IV™ compliance 2019

KING IV™ PRINCIPLE AND DESCRIPTION

NO. OF RECOMMENDED

PRACTICES

PIONEER FOODS’ APPLICATION

SATI

SFAC

TORI

LY

APPL

IED

NOT

APPL

IED

(MAN

DATO

RY)

NOT

APPL

IED

(VOL

UNTA

RY)

NOT

APPL

ICAB

LE

PRINCIPLE 1 The governing body should lead ethically and effectively.

17 17

PRINCIPLE 2 The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture. 16 16

PRINCIPLE 3 The governing body should ensure that the organisation is and is seen to be a responsible corporate citizen. 10 10

PRINCIPLE 4 The governing body should appreciate that the organisation's core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process.

13 13

PRINCIPLE 5 The governing body should ensure that reports issued by the organisation enable stakeholders to make informed assessments of the organisation's performance, and its short, medium and long term prospects.

9 9

PRINCIPLE 6 The governing body should serve as the focal point and custodian of corporate governance in the organisation. 9 9

PRINCIPLE 7 The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.

67 66 1

PRINCIPLE 8 The governing body should ensure that its arrangements for delegation within its own structures promote independent judgement, and assist with balance of power and the effective discharge of its duties.

58 58

PRINCIPLE 9 The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness.

7 7

PRINCIPLE 10 The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities.

27 27

PRINCIPLE 11 The governing body should govern risk in a way that supports the organisation in setting and achieving strategic objectives. 19 19

PRINCIPLE 12 The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives. 24 24

PRINCIPLE 13 The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that supports the organisation being ethical and a good corporate citizen.

13 13

PRINCIPLE 14 The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term.

46 43 1 2

PRINCIPLE 15 The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of the organisation's external reports.

33 31 2

PRINCIPLE 16 In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.

24 23 1

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


23


Statement of compliance• Appointment of directors: This is aligned with the Group’s

MOI, nomination policy and the gender and diversity policy.• Balance of power: There is a clear balance of power and

authority at Board level which ensures that no single director has unlimited or unfettered powers of decision-making.

• In line with best practices, the CEO and the chairman are two separately appointed positions. The Board has a designated lead independent director who chairs Board meetings in the event that the chairman is conflicted on any matter for discussion or is unavailable to attend Board meetings.

• At its meeting held on 13 November 2019, the audit committee satisfied itself of the appropriateness and adequacy of the expertise and experience of the CFO and the finance function.

• Based on their daily interactions with the company secretary, the CEO and the chairman of the Board assessed her performance through a detailed questionnaire. The outcome highlighted no areas of concern and the Board satisfied itself of the competence, qualifications and experience of the company secretary.

• The company secretary has an arm’s-length relationship with the Board, is not a director of the Company, and is not involved in the day-to-day operations of the Group other than through the provision of legal, company secretarial and compliance services to the Group. Reference is made to section 3.84(h) of the JSE Listings Requirements. The company secretary does, however, serve as a director on the following subsidiaries within the Group: Pioneer Foods Holdings Ltd and Pioneer Foods (Pty) Ltd.

• The remuneration policy and implementation report, which can be found on page 33, is subject to non-binding advisory votes by shareholders at the AGM. Should 25% or more of shareholders vote against either or both the remuneration policy and/or implementation report, the appropriate procedures will be initiated to engage dissenting shareholders. The precise method of shareholder engagement in this regard will be decided by the Group’s human capital committee.

�e company secretaryThe company secretary, Ms Jay-Ann Jacobs, was appointed in August 2011. All directors have unrestricted access to the company secretary who, among other things, ensures proper Board governance and provides guidance, both individually and collectively, on the duties, responsibilities and power of the Board. As the company secretary, Ms Jacobs is responsible and accountable for regulatory compliance and is the delegated information officer of the Group in terms of the Promotion of Access to Information Act, Act 2 of 2000 (PAIA).

24

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


BOARD COMMITTEES

THE BOARD DELEGATES SOME OF ITS FUNCTIONAL RESPONSIBILITIES TO ITS COMMITTEES BY MEANS OF CLEARLY DEFINED MANDATES. THE COMMITTEES REPORT ON A CONTINUOUS BASIS TO THE BOARD AS A COLLECTIVE ON THEIR RESPECTIVE DIRECTIVES AND DELIVERABLES IN ACCORDANCE WITH EACH COMMITTEE’S BOARD-APPROVED COMMITTEE CHARTER. THE RESPECTIVE COMMITTEE CHARTERS AND WORK PLANS ARE REVIEWED ANNUALLY.The Board is satisfied that the Board committees have fulfilled their responsibilities in accordance with their respective charters.

The Board committee mandates are outlined in more detail below:

AUDIT COMMITTEE

CHAIRMAN COMPOSITION FREQUENCY OF MEETINGS BOARD-APPROVED CHARTERCG Botha independent non-executive

Four independent non-executive directors 4 per annum

Yes

PERMANENT INVITEES OTHER INVITEES• CEO• CFO• company secretary

(statutory invitee)

• external auditor• internal auditor • Group finance manager• Group compliance manager

Relevant members of senior management and/or assurance providers attend the committee meetings by invitation only, with no voting rights whatsoever.

Core responsibilities• Recommends external auditors to be appointed and oversees

annual financial audit process• Oversees integrated reporting and ensures the integrity of the

report• Reviews the annual financial statements, interim reports,

preliminary or provisional result announcements, summarised integrated information, trading statements and similar documents

• Reviews disclosure of sustainability issues to ensure reliability and accuracy

• Ensures that a combined assurance model is applied to provide a coordinated approach to all assurance activities

• Reviews the expertise, resources and experience of the Group’s finance function

• Oversees the internal audit function• Oversees financial reporting risks, internal financial controls,

fraud risks (as it relates to financial reporting) and IT-related risks

Access• The members of the committee have reasonable

access to the Group’s records, facilities and any other resources necessary to fulfil its role and/or discharge its duties and responsibilities.

• In addition, all auditors and assurance providers have unlimited access to the members of the audit committee, thereby ensuring that their independence is not compromised in any way.

• At every committee meeting, both the internal and external auditors are afforded an opportunity to have a closed session with the members of the committee in the absence of management. Closed meetings are held separately between the committee, the internal and external auditors and management at half-year and at year-end.

25

RISK COMMITTEE

CHAIRMAN COMPOSITION FREQUENCY OF MEETINGS BOARD-APPROVED CHARTERAH Sangqu independent non-executive

Five non-executive directors, the CEO and CFO 2 per annum

Yes

PERMANENT INVITEES OTHER INVITEES• company secretary

(statutory invitee)• external auditor• internal auditor

• Group finance manager • Group compliance manager• Group risk manager• business executives


Core responsibilities• Oversees development and annual review of a policy and plan for risk management, which is

recommended to the Board for approval• Monitors the implementation of above for risk management • Makes recommendations to the Board concerning the levels of tolerance and appetite and

monitors that risks are managed within these levels • Oversees that the risk management plan is widely disseminated throughout the business

and integrated in the day-to-day activities of the Group• Ensures that risk management assessments are performed • Ensures that frameworks and methodologies are implemented to increase the likelihood of

anticipating unforeseen risks• Provides a formal opinion to the Board on the effectiveness of the system and process of

risk management

AccessThe members of the committee have reasonable access to the Group’s records, facilities and any other resources necessary to fulfil its role and discharge its duties and responsibilities.

SOCIAL AND ETHICS COMMITTEE

CHAIRMAN COMPOSITION FREQUENCY OF MEETINGS BOARD-APPROVED CHARTERProf ASM Karaan non-executive director

Two non-executive directors and an executive manager 2 per annum

Yes

PERMANENT INVITEES OTHER INVITEES• CEO• company secretary

(statutory invitee)

• executive: human resources• executive: sustainability and

stakeholders


Core responsibilitiesMonitors the sustainable development and non-financial performance of the Group, specifically relating to:• Stakeholder management, engagement and reporting• Health and public safety, including occupational health and safety and the quality of the

Group’s products and services• B-BBEE and Diversity management• Labour relations and working conditions• Training and skills development• The management and monitoring of the Group’s environmental impact• Ethics management• Corporate social investments• Sustainability

AccessThe members of the committee have reasonable access to the Group’s records, facilities and any other resouraces necessary to fulfil its role and discharge its duties and responsibilities.

CORPORATE GOVERNANCE | BOARD COMMITTEES continued

26

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


NOMINATION COMMITTEE

CHAIRMAN COMPOSITION FREQUENCY OF MEETINGS BOARD-APPROVED CHARTERZL Combi independent non-executive director

Four non-executive directors (majority of whom are independent) 4 per annum (minimum)

Yes

PERMANENT INVITEES OTHER INVITEES• CEO • company secretary

(statutory invitee)Relevant members of senior management and/or assurance providers attend the committee meetings by invitation only, with no voting rights whatsoever.

Core responsibilities• Ensures that the Board has an appropriate composition• Identifies and recommends for appointment suitable members to the Board, when required, for

approval by shareholders at the AGM• Oversees the development of a formal induction programme for new directors• Ensures that formal succession plans for the Board, CEO and executive management are

developed and implemented• Considers the performance of directors and takes the necessary steps to remove directors who

do not make an appropriate contribution• Makes recommendations for the re-appointment of directors with regard to retirements due

to rotation• Oversees the development and implementation of continuing professional development

programmes• Evaluates the performance of the chairman of the Board, the Board as a collective, as well as

the individual directors• Considers proposals for the appointment and removal of the company secretary

AccessThe members of the committee have reasonable access to the Group’s records, facilities and any other resources necessary to fulfil its role and discharge its duties and responsibilities.

HUMAN CAPITAL COMMITTEE

CHAIRMAN COMPOSITION FREQUENCY OF MEETINGS BOARD-APPROVED CHARTERN Thomson independent non-executive director

Four non-executive directors (majority of whom are independent) 4 per annum (minimum)

Yes

PERMANENT INVITEES OTHER INVITEES• CEO• CFO

• company secretary (statutory invitee)

• executive: human resources


Core responsibilities • Maintains and approves human resources policies• Enables succession planning of the CEO and executive management team• Monitors the impact and implementation of applicable labour legislation• Reviews the remuneration packages of directors and executive management • Ensures that all remuneration packages are fair, market-related and responsible • Enables the Group to attract, engage and retain talent• Ensures that directors’ remuneration is disclosed and reported on in a manner that is

accurate, complete and transparent• Establishes the criteria to evaluate the performance of the executive management team and

executive directors• Evaluates and recommends the Group’s remuneration philosophy, strategy and policy• Ensures that the remuneration policy and implementation report are put to a non-binding

advisory vote at the AGM

Access The members of the committee have reasonable access to the Group’s records, facilities and any other resources necessary to fulfil its role and discharge its duties and responsibilities.

27

CORPORATE GOVERNANCE | BOARD COMMITTEES continued

Board and committee meeting attendanceThe table below provides a synopsis of the attendance of members serving on the Board and its committees during the year:

BOAR

D

SPEC

IAL

BOAR

D

INDE

PEN

DEN

T BO

ARD

NON

-CON

FLIC

TED

BOAR

D

AUDI

T CO

MM

ITTE

E

RISK

COM

MIT

TEE

SOCI

AL A

ND

ETHI

CSCO

MM

ITTE

E

HUM

AN C

APIT

ALCO

MM

ITTE

E

NOM

INAT

ION

COM

MIT

TEE

SPEC

IAL

NOM

INAT

ION

COM

MIT

TEE

No. of meetings held for the year 5 3 6 2 4 2 2 4 2 2

ZL Combi (Chairman) 5 3 4 2 2N Celliers* 5 3 2 2 3 1 1Prof ASM Karaan 3 3 2NS Mjoli-Mncube 4 3 2PJ Mouton 4 3 1L Mthimunye 5 3 5 1 4SS Ntsaluba* 3 0 3 1 3 1 1 1 1G Pretorius* 2 – 2 1AH Sangqu 4 3 2CG Botha* 2 2 4 1 1NW Thomson (LID)* 5 3 6 2 4 2 4 1 2T Carstens (CEO) 5 3 Invitee Invitee Invitee 2 Invitee Invitee Invitee InviteeF Lombard (CFO) 5 2 Invitee Invitee Invitee 2 Invitee

Meeting Dates 15/11/18 23/04/19 24/04/19 24/05/19 13/11/18 13/11/18 14/11/18 14/11/18 14/11/1814/02/19 24/06/19 07/05/19 21/06/19 14/02/19 16/05/18 15/05/19 13/02/19 14/05/19 25/03/1916/05/19 17/07/19 13/06/19 15/05/19 14/05/19 23/04/1925/07/19 21/06/19 24/07/19 18/09/1919/09/19 09/07/19

17/07/19

* With effect from 15 February 2019, the following changes were made to the composition of the Board and respective committees:• Messrs N Celliers and N Thomson were appointed as members of the nomination committee.• Mr S Ntsaluba was appointed as a member of the human capital committee.• Mr G Pretorius retired as non-executive director and from his role as LID. As a consequence, Mr N Thomson was elected as LID and

appointed as chairman of the human capital committee. Mr Thomson stepped down as chairman of the audit committee, but continues to serve as a member.

• Mr C Botha, who was appointed as a non-executive director on 12 December 2018, was appointed as chairman of the audit committee.

28

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


ETHICS MANAGEMENTPIONEER FOODS ASPIRES TO BE REGARDED AS AN ETHICAL AND RESPONSIBLE CORPORATE CITIZEN BY ALL ITS STAKEHOLDERS AND, THEREFORE, SUBSCRIBES TO THE HIGHEST ETHICAL STANDARDS OF BUSINESS PRACTICES. Its corporate values and the Company’s code of ethics (the code) are aligned to the Company’s business model and the DTI’s Guidelines for Good Business Practice.

The group’s ethical management policies and practices are outlined in the Social and Ethics Committee report included in this abridged integrated report, commencing from page 48.

29

GROUP COMPLIANCE

LEGAL AND REGULATORY COMPLIANCE

NON-REGULATORY COMPLIANCE

ORGANISATIONAL COMPLIANCE REQUIREMENTS

Legislative and regulatory requirements (national, provincial and applicable bylaws), enforceable codes and/or guidelines, licences, permits and contractual obligations applicable to the Group and relevant in the countries in which the Group operates

Industry requirements, customer requirements, as well as best practices adopted by the Group by choice

The Group’s internal policies and procedures

THE BOARD ENSURES COMPLIANCE WITH APPLICABLE LAWS, REGULATIONS, RULES, STANDARDS AND CODES. THIS COMMITMENT IS REGARDED AS A KEY, NON-NEGOTIABLE DELIVERABLE WHICH INVOLVES AND AFFECTS ALL STAKEHOLDERS ACROSS THE ORGANISATION.The Group maintains a risk-based approach to regulatory compliance that is aligned to best practice. The methodology employed is predominantly guided by the principles outlined in King IV™ and the Generally Accepted Compliance Practice (GACP) framework of the Compliance Institute of Southern Africa.

Pioneer Foods’ compliance strategyPioneer Foods has a Board-approved compliance strategy, which underpins and supports the Group’s strategic intent and business objectives. Fundamental aspects of the compliance strategy are implemented to ensure continuous improvement and are summarised in the diagram below.

Pioneer Foods’ compliance policyThe Group is subject to a wide range of compliance obligations which are influenced by the interests of stakeholders and increased regulatory supervision. The Group’s compliance policy is, therefore, reviewed annually to keep abreast of the aforementioned and to guide the Group’s approach to managing its compliance requirements. The policy makes provision for the following criteria, among others:


30

PION

EER FOO

DS IN


Pioneer Foods’ approach and commitment to compliancePioneer Foods remains committed to promoting integrity, ethical behaviour, accountability, transparency and fair dealing in the conduct of its business. In support of its commitment to compliance while meeting its core values, vision and strategic objectives, the Group’s attitude towards compliance management is shaped by the following key objectives:

an enterprise-wide approach by integrating compliance management processes in business strategy, general governance frameworks, risk and audit.

and foster a compliance culture within the business by:

• defining enterprise-wide roles and responsibilities• providing adequate resources to discharge the Group’s

agreed compliance management obligations• adopting proactive and accountable management of

the compliance framework• developing effective formal reporting lines for the

Group’s compliance-related risks.

relevant compliance risks, assess the likelihood and materiality of potential non-compliance, monitor and report on controls (i.e. agreed effectiveness and adequacy levels of breaches) and allocate the necessary resources for correcting breaches of controls.

and acknowledge that compliance risks are embedded in all business activities, taking into account the Group’s compliance risk appetite in decision making processes.

the level of awareness of the Group’s compliance obligations throughout the business by providing relevant compliance-related training, education and guidance on an ongoing basis.

the design and implementation of compliance systems, processes and controls, which:

• are adequately structured to effectively realise Group objectives

• aid in monitoring and reporting enterprise-wide agreed compliance criteria

• are suitable for the Group’s operational model• provide appropriate assurance to management and

the Board.

that timely and accurate monitoring, review, communication and reporting on compliance are critical to effectively mitigate, manage and address compliance-related risks.

To promote

To develop

To identify

To recognise

To raise

To enable

To recognise

Pioneer Foods’ compliance universe and risk profileThe Group frequently reviews its compliance universe to ensure that content remains relevant, and the Group’s limited resources are allocated in an effective and appropriate manner.

King IV™The Group continues its journey to apply the principles set out in King IV™. Pioneer Foods’ level of adherence with King IV™ (at the date of publication of its integrated report) is outlined on page 23 of this governance report.

Breach reporting and complaints handlingThe Group actively encourages all internal and external stakeholders to proactively report compliance-related complaints, breaches and incidents through established channels. One such channel is the Group’s Tip-offs Anonymous facility, which is managed by an independent service provider who is contractually obligated to treat every incident reported as confidential. In addition, each reported incident via Tip-offs Anonymous is shared with the Group’s external forensic investigators to assess its merit and to possibly identify trends.

Non-complianceThe Board of directors and the management of Pioneer Foods are committed to the principle of sound governance and strive for the highest standards of ethical conduct, integrity and values-based leadership. For this reason, Pioneer Foods adopts a zero-tolerance approach to any violation of applicable laws, rules or regulations that could potentially place the Group’s integrity or reputation at risk. To its knowledge, the Board, risk committee and management herewith confirm that the Group was not involved in and/or associated with any material transgression or non-compliance penalty during the year.

Consumer Goods and Services Ombud and CodeOf the few consumer complaints that have been referred to the Ombudsman, to date, none have resulted in an unfavourable outcome against the Group. This is testament that the Group has efficient and effective consumer care protocols.

Procurement controls reviewStringent anti-corruption measures, as well as contract management controls, have been put in place to help drive adherence to the procurement governance principles aimed at promoting anti-corruption legislative compliance. This includes, but is not limited to, enhancement to the Procurement Policy to promote adherence to anti-corruption requirements, the addition of an anti-corruption declaration statement in supplier agreements, enhanced provisions of Request for Proposals (RFP) and the requirements to be upheld by Pioneer Foods employees.

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


31

CORPORATE GOVERNANCE | GROUP COMPLIANCE continued

32

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


REMUNERATION REPORT

33

We are pleased to present the remuneration report for the year ended 30 September 2019. This report complies with all applicable regulations and is aligned to King IV™, read

with the JSE Listings Requirements.

This year presented a number of external challenges which affected Pioneer Foods’ performance. The Group experienced major input cost inflation, mainly related to grains and logistics. These increases could not all be passed on to our consumers and this had a negative impact on our results. Despite this tough operating environment, the group managed to achieve turnover growth (volumes and price inflation) and limit the profit regression on a comprehensive basis.

The process following the offer from PepsiCo is progressing per schedule. Assuming the transaction is completed, Pioneer Foods will delist from the Johannesburg Stock Exchange. The rules of the Long-Term Share Incentive Scheme determine that all options vest on the effective date in the case of a delisting. This is relevant to the section in Part 3 of this REM Report, which deals with the allocation of LTIs.

This year, we bid farewell to Mr Gerrit Pretorius, who retired as an independent non-executive director of the Board on 15 February 2019. We thank him for his long-standing contribution to the Board and the HCC through the years. We welcome Mr Christoff Botha to the Board, who joined as an independent non-executive director in December 2018 and is now the Chairperson of the Audit Committee. There were no changes to the executive team during the year under review.

of the human capital committee (HCC) to the shareholders

PART 1

LETTER FROM THE CHAIRMAN

Activities of the HCCIn 2019, the HCC was, among others, responsible for:

• investigating and analysing income differentials• approving all wage and salary increases• ensuring equal pay for work of equal value• ensuring adherence to the short-term incentive (STI)

and long-term incentive (LTI) schemes• reviewing the quantity of SARs (share appreciation

rights) to be awarded, and the factor at which SARs are granted to qualifying employees

• adjusting the weightings of certain performance measures for the STI, including volume growth, and employment equity

• adjusting the performance measure of the LTI to diluted headline earnings per share (HEPS)

• recommending increases for non-executive director (NED) fees, including representative NEDs, for review by the Board of directors and approval by shareholders at the 2020 annual general meeting (AGM)

• reviewing and approving the HCC report as it relates to remuneration

• conducting an analysis of the performance assessment scores for executives and senior management during the 2018/2019 period

• evaluating progress against the implementation of minimum shareholding requirements for executives and key employees (the parameters of which are set out in part 2 of this report)

• updating the HCC Charter to ensure alignment to the King IV™ Code of Corporate Governance

• considering and proposing an indicative wage mandate to the Board for approval

• reviewing talent and succession planning of senior roles.

34

PION

EER FOO

DS IN


The SAR performance condition is HEPS growth per annum. The weighted average number of shares increased in 2019, with the termination of the Phase 2 BEE deal (18.1 million shares became unrestricted). This had a consequent negative effect on the actual HEPS figure for 2019 and for subsequent years. Therefore, the HCC is of the view that the base HEPS figure for the SAR allocations for 2015, 2016, 2017 and 2018 should be adjusted to take this effect into account. Going forward, growth in diluted HEPS will be used as a means of measuring prospective performance and this will be reflected in the LTI plan rules.

Shareholder feedbackThe remuneration policy and implementation report were tabled for two separate non-binding votes at the AGM on 15 February 2019, with 79.91% (84.28% in FY2018) of our shareholders endorsing the remuneration policy and 81.64% (84.82% in FY2018) endorsing the implementation report. Our investors provided us with the following feedback on our remuneration policy and/or implementation report:

SHAREHOLDER FEEDBACK RESPONSE FROM HCC

The SAR scheme contains elements that are not performance-related

The LTI is a SAR, which (in addition to the prospective HEPS performance condition over 50% of the award) creates an inherent share price performance underpin, as no value is realised unless the share price increases over the performance period. 50% of the annual award also has a further performance hurdle in HEPS growth. We believe that these combined factors create true shareholder alignment in that they comprise a retention and a performance element.

The share usage limit exceeds recommended limits The dilution limit was approximately 7.5% of the issued ordinary shares at the date of approval of the scheme by shareholders in 2006 which, due to movements in issued share capital, has reduced to 6.3%. This is below the 10% dilution limit which we have seen used by other companies in the market.

As HCC members, we are satisfied that we have executed our duties during the year in accordance with our terms of reference, relevant legislation, regulation and governance standards. Furthermore, we are satisfied that the remuneration policy achieved its stated objectives in 2019. We made use of external consultants, including PwC and Deloitte, to obtain independent advice on remuneration trends and best practice governance standards to consider for our remuneration policy and implementation report. We are satisfied that their services were independent and objective. The remuneration policy and the implementation report will be tabled for two separate non-binding advisory votes at the AGM to be held on 27 March 2020.

Yours sincerely

Norman ThomsonChairman of the human capital committee

12 November 2019

The notice of the AGM is available from page 94 of this document and on our website at www.pioneerfoods.co.za.

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


35

Remuneration governance

THE HCC IS CONSTITUTED AS A COMMITTEE OF THE BOARD OF DIRECTORS AND IS RESPONSIBLE FOR OVERSEEING THE FORMULATION AND IMPLEMENTATION OF THE GROUP’S REMUNERATION POLICY. ALL THE MEMBERS OF THE HCC ARE NEDS. The NEDs serving on the HCC take recommendations on their own fees from the executive committee, based on a benchmarking exercise, which are then tabled before the Board and, thereafter, submitted for shareholder approval at the AGM.

The members of the HCC, and their attendance at HCC meetings in the 2019 financial year, are set out in the corporate governance report on page 28 of the report.

The CEO, CFO and other members of the executive committee attend HCC meetings by invitation. However, they may not vote on any matters arising at the HCC and are not present when their remuneration is discussed. The company secretary is the secretary for the HCC.

Duties and activities of the HCCThe duties of the HCC are set out in its terms of reference, which is available on Pioneer Foods’ website.

The activities of the HCC in FY2019 are summarised in part 1 of this report.

PART 2

REMUNERATION POLICY

36

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Introduction: remuneration policyThe remuneration policy largely addresses the principles and policies affecting the CEO, executive management and senior management of the Group. The remuneration policy provides high-level insight on the remuneration principles and policies affecting the wider staff of the Group. 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 brand positions• expanding margins.

The alignment and execution of the strategic focus areas, as well as the rewards made to this team, are essential to the overall performance of the Group.

Group strategy alignmentAlignment 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 HCC.

The total remuneration approach is reviewed by the HCC to ensure that the relative percentage of guaranteed and variable pay is market-related and supportive of the Group’s strategic objectives.

A summarised table of each remuneration element for executive directors and executive management is included. This is presented together with a link between each element of remuneration and Pioneer Foods’ value drivers and long-term strategy, as well as the value created by the outcomes of the performance conditions across one or more of the six integrated reporting capitals that Pioneer Foods uses or affects.

On-target policy remuneration mixThe remuneration policy is prepared and implemented on a Group-wide basis (excluding employees falling within collective bargaining units who are subject to separate wage agreements). Where certain fixed or variable components of the policy are only available to executive directors or key employees, this is made clear. Recognition is viewed as critical to long-term sustainability, and the Group has financial and non-financial methods of rewarding employees.

Fair and responsible remunerationPioneer Foods is committed to the principle of fair and responsible remuneration. To this end, it constantly monitors pay levels between employees doing work that is the same, or substantially the same, or that is of equal value. Where internal pay disparities are identified, and where the HCC concludes that these are unjustifiable, the HCC is committed to addressing these disparities progressively over time.

CEO, executive team and senior management remunerationThe remuneration mix of the CEO, executive management and senior management is differentiated to attract, retain and reward exceptional talent. The pay mix at more senior levels places an emphasis on variable pay, making it more ‘at risk’. For employees at more junior levels, the mix is weighted towards total guaranteed pay (TGP).

The on-target policy remuneration mix for the prescribed officers for the forthcoming year is set out below. This mix is generally aligned with best market practice. There have been no amendments to the package structure for executives from FY2018.

SUPPORT THE ATTAINMENT OF

THE GROUP’S BUSINESS

STRATEGIES

ATTRACT, RETAIN AND MOTIVATE

KEY AND TALENTED PEOPLE

COMPETE IN THE MARKETPLACE TO BE AN EMPLOYER

OF CHOICE

REWARD INDIVIDUAL, TEAM AND BUSINESS PERFORMANCE AND

ENCOURAGE SUPERIOR PERFORMANCE

SUPPORT THE KEY VALUES OF THE

GROUP

The strategic objectives of the remuneration policy are to:

CFO Target CompanySecretary

TGP STI

100%

26% 31%39%

39% 37%32%

35% 32% 29%

CEO Target

LTI

37

Summary of 2020 remuneration policy

FIXED PAY VARIABLE PAY

BASE SALARY RETIREMENT, MEDICAL AID AND OTHER BENEFITS SHORT-TERM INCENTIVE (STI) LONG-TERM INCENTIVE (LTI)SHARE APPRECIATION RIGHTS (SAR)

PUR

POS

E

AN

D

LIN

K T

O

STR

ATE

GY

Assists in the retention of employees and contributes to Pioneer Foods’ overall employee value proposition.

• Incentivise an increase in revenue• Maximise short- to mid-term profits• Retain key talent

• Increase the market capitalisation of the Company• Retain key talent and align the interests of executives and

shareholders

DE

SIG

N

• Total Guaranteed Package (TGP) comprises a base salary, and benefits such as a retirement fund, medical aid and travel allowances

• Annual review of TGP benchmarks are conducted by job family through the use of PwC REMChannel® and Deloitte Salary Survey to ensure the retention of scarce skills

• The Company payscale is in line with the FMCG sector

As a guide, annual remuneration reviews are informed by:

• income differential analyses as per the Employment Equity Act

• projected inflation• internal equity• the external market• performance of the individual• affordability

The Company has benefit schemes that all employees participate in. These are:• Provident and retirement schemes – membership is

compulsory for permanent employees. The employer contributes between 8% to 20% and the employee may select to contribute either 2%, 5% or 7%

• 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• Travel allowances are also made available in accordance

with the South African Revenue Service regulations, where applicable

The Group reimburses costs incurred by employees on behalf of the Group and has issued separate guidelines on this practice.

• STIs are based on a percentage of TGP and dependent on the achievement of agreed hurdle rates, triggering at an entry target point and capped at an agreed targeted growth point. This is applicable to senior management and employees at Paterson Grade D band and above

• STI payments are made annually on 15 December after audited confirmation of the financial business results for the year ending 30 September

• The STI pool accrues based on economic profit and growth in economic profit year-on-year, both of which are measured for each division and at Group level

• If there is no growth in economic profit, no bonus is payable. For executive management and Group employees, this refers to the Group pool. For divisional employees, this refers to the divisional pool.

Consists of an equity-settled SAR award. Allocations are largely limited to E band and above.• If performance conditions for any specific period are not met,

the relevant SAR allocation is forfeited• Vesting of one-third in years three, four and five

The time allowed to exercise the SARs is six months after each respective vesting date (per tranche). If performance vesting conditions are not met at the vesting date, the relevant portion of the SAR allocation, subject to financial performance, is forfeited.

Dilution limit• The total number of ordinary shares that may be transferred

to employees under the SAR scheme is limited to 14.5 million shares (approximately 7.5% of the issued ordinary shares at the date of approval of the scheme by shareholders in 2006 which, due to movements in issued share capital, has reduced to 6.3%). No qualifying employee can be allocated more than 1 million ordinary shares cumulatively once converted.

• Upon vesting of the SARs, the Group issues ordinary shares to settle its liability to employees concerned. Pioneer Foods, bought a similar amount of shares back in the market to eliminate any dilution in issued shares.

OP

PO

RT

UN

ITY

AN

D

MA

XIM

UM

LIM

IT

Not applicable The earning potentials are set out below.

ROLEALLOCATION LEVEL (AS A % OF TGP)

CEO 150%CFO and business executives 100% – 120%Divisional executives 50% – 80%

• Payment at achieving the entry target point (based on TGP) is 15%. Payment is capped varying between 15% (the threshold participation level for all employees) and 150% of TGP (for the CEO) on achieving the maximum target for growth

• The maximum bonus pool is calculated as a percentage of economic profit and growth in economic profit annually

The Company refers to a set multiple of TGP when awarding SARs to participants, such that in any given year, the cumulative face value of the unvested SARs is equal to that of the multiple.

In determining the annual top-up calculations, the unvested value allocated in the past is taken into account.

ROLEFACE VALUE ALLOCATION LEVEL (AS A MULTIPLE OF TGP)

CEO 9 timesCFO and executive management 5 to 7 timesDivisional executives 1 to 4 times

The Board decided on the recommendation of the HCC to issue special SARs in February of this year, as most SARs issued in previous years had no retention or motivation value as they were out of the money.

PE

RFO

RM

AN

CE

CO

ND

ITIO

NS

Performance feedback (that influences salary increases) is determined by the performance management system

Higher increases can be given to high-performing individuals, based on performance feedback

The annual increases to TGP after these have been reviewed are effective 1 January

Not applicable Performance conditions (weightings)• Growth in revenue year-on-year: 12.5% weighting, excluding

Essential Foods, for which it is zero• Growth in volume: 12.5% weighting, excluding Essential

Foods, for which it is 25%• Growth in headline earnings before interest and tax (HEBT)

for Group performance and operating profit (EBIT) for divisional performance: 65% weighting for all participants

• Employment equity: 5% (5% – 2018) weighting• Gender employment: 5% (5% – 2018) weighting• Employee engagement score: 0% (0% – 2018) weighting.

For the growth in HEBT measure, the growth calculation is based on an audited and agreed comparative base for the previous financial year.

For the EP calculation, applicable EBIT will be tax adjusted and compared to the Group’s WACC for the year as applied to the average net asset base of the Group or the relevant division.

50% of the award is subject to continued employment, and 50% of the award is subject to prospective performance conditions. The performance conditions from FY2019 onwards are set out below.

PERFORMANCE CONDITION WEIGHTING

THRESHOLD (15% VESTING)

STRETCH (100% VESTING)

CAGR in diluted HEPS 100%

CPI plus 1% real growth


OT

HE

R

The Group uses the Task and Hay Chart job grading systems, as well as external benchmarking and survey data as is deemed necessary. The Group will select appropriate peer companies for benchmarking based on industry, organisation size, the 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.

Not applicable DiscretionThe HCC has the discretion to take into account various financial and economic factors when applying the provisions of the STI.

Minimum shareholding requirementsParticipants are encouraged to hold shares equal to 50% of the shares that vest in each year after the payment of tax for a period of five years. Each year’s 50% must be added to the minimum shareholding requirement on a rolling five-year basis. To the extent that participants do not adhere to the annual 50% retention requirement, the HCC may decide not to make any additional LTI allocations to those participants in a given year.

REMUNERATION REPORT | PART 2: REMUNERATION POLICY continued

38

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Summary of 2020 remuneration policy

FIXED PAY VARIABLE PAY

BASE SALARY RETIREMENT, MEDICAL AID AND OTHER BENEFITS SHORT-TERM INCENTIVE (STI) LONG-TERM INCENTIVE (LTI)SHARE APPRECIATION RIGHTS (SAR)

PUR

POS

E

AN

D

LIN

K T

O

STR

ATE

GY

Assists in the retention of employees and contributes to Pioneer Foods’ overall employee value proposition.

• Incentivise an increase in revenue• Maximise short- to mid-term profits• Retain key talent

• Increase the market capitalisation of the Company• Retain key talent and align the interests of executives and

shareholders

DE

SIG

N

• Total Guaranteed Package (TGP) comprises a base salary, and benefits such as a retirement fund, medical aid and travel allowances

• Annual review of TGP benchmarks are conducted by job family through the use of PwC REMChannel® and Deloitte Salary Survey to ensure the retention of scarce skills

• The Company payscale is in line with the FMCG sector

As a guide, annual remuneration reviews are informed by:

• income differential analyses as per the Employment Equity Act

• projected inflation• internal equity• the external market• performance of the individual• affordability

The Company has benefit schemes that all employees participate in. These are:• Provident and retirement schemes – membership is

compulsory for permanent employees. The employer contributes between 8% to 20% and the employee may select to contribute either 2%, 5% or 7%

• 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• Travel allowances are also made available in accordance

with the South African Revenue Service regulations, where applicable

The Group reimburses costs incurred by employees on behalf of the Group and has issued separate guidelines on this practice.

• STIs are based on a percentage of TGP and dependent on the achievement of agreed hurdle rates, triggering at an entry target point and capped at an agreed targeted growth point. This is applicable to senior management and employees at Paterson Grade D band and above

• STI payments are made annually on 15 December after audited confirmation of the financial business results for the year ending 30 September

• The STI pool accrues based on economic profit and growth in economic profit year-on-year, both of which are measured for each division and at Group level

• If there is no growth in economic profit, no bonus is payable. For executive management and Group employees, this refers to the Group pool. For divisional employees, this refers to the divisional pool.

Consists of an equity-settled SAR award. Allocations are largely limited to E band and above.• If performance conditions for any specific period are not met,

the relevant SAR allocation is forfeited• Vesting of one-third in years three, four and five

The time allowed to exercise the SARs is six months after each respective vesting date (per tranche). If performance vesting conditions are not met at the vesting date, the relevant portion of the SAR allocation, subject to financial performance, is forfeited.

Dilution limit• The total number of ordinary shares that may be transferred

to employees under the SAR scheme is limited to 14.5 million shares (approximately 7.5% of the issued ordinary shares at the date of approval of the scheme by shareholders in 2006 which, due to movements in issued share capital, has reduced to 6.3%). No qualifying employee can be allocated more than 1 million ordinary shares cumulatively once converted.

• Upon vesting of the SARs, the Group issues ordinary shares to settle its liability to employees concerned. Pioneer Foods, bought a similar amount of shares back in the market to eliminate any dilution in issued shares.

OP

PO

RT

UN

ITY

AN

D

MA

XIM

UM

LIM

IT

Not applicable The earning potentials are set out below.

ROLEALLOCATION LEVEL (AS A % OF TGP)

CEO 150%CFO and business executives 100% – 120%Divisional executives 50% – 80%

• Payment at achieving the entry target point (based on TGP) is 15%. Payment is capped varying between 15% (the threshold participation level for all employees) and 150% of TGP (for the CEO) on achieving the maximum target for growth

• The maximum bonus pool is calculated as a percentage of economic profit and growth in economic profit annually

The Company refers to a set multiple of TGP when awarding SARs to participants, such that in any given year, the cumulative face value of the unvested SARs is equal to that of the multiple.

In determining the annual top-up calculations, the unvested value allocated in the past is taken into account.

ROLEFACE VALUE ALLOCATION LEVEL (AS A MULTIPLE OF TGP)

CEO 9 timesCFO and executive management 5 to 7 timesDivisional executives 1 to 4 times

The Board decided on the recommendation of the HCC to issue special SARs in February of this year, as most SARs issued in previous years had no retention or motivation value as they were out of the money.

PE

RFO

RM

AN

CE

CO

ND

ITIO

NS

Performance feedback (that influences salary increases) is determined by the performance management system

Higher increases can be given to high-performing individuals, based on performance feedback

The annual increases to TGP after these have been reviewed are effective 1 January

Not applicable Performance conditions (weightings)• Growth in revenue year-on-year: 12.5% weighting, excluding

Essential Foods, for which it is zero• Growth in volume: 12.5% weighting, excluding Essential

Foods, for which it is 25%• Growth in headline earnings before interest and tax (HEBT)

for Group performance and operating profit (EBIT) for divisional performance: 65% weighting for all participants

• Employment equity: 5% (5% – 2018) weighting• Gender employment: 5% (5% – 2018) weighting• Employee engagement score: 0% (0% – 2018) weighting.

For the growth in HEBT measure, the growth calculation is based on an audited and agreed comparative base for the previous financial year.

For the EP calculation, applicable EBIT will be tax adjusted and compared to the Group’s WACC for the year as applied to the average net asset base of the Group or the relevant division.

50% of the award is subject to continued employment, and 50% of the award is subject to prospective performance conditions. The performance conditions from FY2019 onwards are set out below.

PERFORMANCE CONDITION WEIGHTING

THRESHOLD (15% VESTING)

STRETCH (100% VESTING)

CAGR in diluted HEPS 100%



OT

HE

R

The Group uses the Task and Hay Chart job grading systems, as well as external benchmarking and survey data as is deemed necessary. The Group will select appropriate peer companies for benchmarking based on industry, organisation size, the 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.

Not applicable DiscretionThe HCC has the discretion to take into account various financial and economic factors when applying the provisions of the STI.

Minimum shareholding requirementsParticipants are encouraged to hold shares equal to 50% of the shares that vest in each year after the payment of tax for a period of five years. Each year’s 50% must be added to the minimum shareholding requirement on a rolling five-year basis. To the extent that participants do not adhere to the annual 50% retention requirement, the HCC may decide not to make any additional LTI allocations to those participants in a given year.

39

Executive contractsThe average notice period for the CEO, executive management and senior management is three months. Pioneer Foods is not contractually bound to make gratuitous payments if an executive or senior manager leaves the Group due to underperformance. The vesting of STIs and LTIs on termination of employment is governed by the relevant plan rules.

Change of controlIn terms of the amended SAR plan rules, in the event of a reconstruction or takeover which will result in the Company’s shares being delisted from the JSE, then all SARs that have not been exercised (vested and unvested) will become immediately exercisable. In the event of a reconstruction or

REMUNERATION REPORT | PART 2: REMUNERATION POLICY continued

takeover which will result in the Company’s shares not being delisted from the JSE, the vesting date and exercise period will remain unchanged as set out in the SAR plan rules.

Restraints of tradeWhen warranted by circumstances that could not reasonably have been foreseen, the HCC will exercise its discretionary powers to safeguard the interests of Pioneer Foods by entering into restraints of trade with executives and other key talent within the Group.

Non-executive directorsThe remuneration policy, as it relates to non-executive directors, is set out below:

NON-EXECUTIVE DIRECTOR FEES

CHAIRMAN BOARD AND COMMITTEE FEES SUPPLEMENTARY FEES

PurposeThe overriding principle governing the payment of fees to NEDs 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.

If required, the NEDs may be requested to perform work outside of their standard duties. Standard duties include, inter alia, attending board and board committee meetings, the AGM and annual/interim results presentations. For work outside of their standard duties, NEDs will be reimbursed based upon the time spent and their level of expertise.

Design

The fees paid to different roles, such as that of the chairman of the Board, may vary from the fees paid to other NEDs. Variation shall be based on market benchmarks applicable to that role.

NEDs serving on the Board and on committees are paid a retainer fee for their respective roles and are not paid per meeting.

Benchmarking

An adjustment to fees will be made in the 2019/2020 financial year. Increase levels will be in line with increases made to members of the executive management and across the Company (see below). Where appropriate, independent benchmark advice is sought regarding the levels of remuneration for NEDs.

40

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


The table below sets out the approved NED fees in respect of the period 1 April 2019 to 31 March 2020, and the proposed NED fees in respect of the period 1 April 2020 – 31 March 2021 (excluding VAT):

NED ROLE

FEES FROM1 APRIL 2019 –

31 MARCH 2020RAND

FEES FROM1 APRIL 2020 –

31 MARCH 2021RAND

INCREASE %

Board-level fees

Chairman 912 660 967 420 6

Lead independent director 472 049 500 372 6

Member 258 000 273 480 6

Audit committee chairman 214 048 226 891 6

Audit committee member 151 347 160 428 6

Risk committee chairman 214 048 226 891 6

Risk committee member 83 471 88 479 6

Human capital committee chairman 214 048 226 891 6

Human capital committee member 83 471 88 479 6

Nomination committee chairman (per meeting fee) 20 104 21 310 6

Nomination committee member (per meeting fee) 14 263 15 119 6

Social and ethics committee chairman 200 984 213 043 6

Social and ethics committee member 83 471 88 479 6

Special ad-hoc meetings: chairman 20 104 21 310 6

Special ad-hoc meetings: member 14 263 15 119 6

Shareholder engagementPioneer Foods is committed to engaging shareholders on its remuneration policy, as well as the consistent implementation of its remuneration policy, on an annual basis.

At the AGM on 27 March 2020 (relating to the 2019 financial year), Pioneer Foods will once again put the remuneration policy and implementation report to two separate, non-binding advisory votes. In the event that 25% or more of the shareholders vote against either or both the remuneration policy and/or implementation report, Pioneer Foods will include a note in its SENS announcement for the AGM results inviting dissenting shareholders to engage with the Group on their reasons for voting against either or both of these resolutions. The precise method of shareholder engagement will be decided by the HCC, and these will include:

• E-mails and teleconferences• Investor roadshows (where feasible)• One-on-one meetings with shareholders.

The results of these shareholder engagements, and the HCC’s response to shareholder concerns, will thereafter be published in part 1 of the remuneration report at the end of the following financial year.

41

Compliance with the 2019 remuneration policyThe HCC is satisfied that Pioneer Foods substantially complied with its remuneration policy in the 2019 financial year.

Total guaranteed pay – 2019 increases grantedThe average increase in salaries for all employees below executive management level was 5.98%. For executive management, the salary increase level was 6.31%

We charted the value that we delivered to shareholders (measured in headline earnings and return on equity) versus the average increase in total remuneration paid to executive directors over the past four financial years:

PART 3

IMPLEMENTATION OF THE REMUNERATION POLICYin the 2019 financial year

YEAR

ADJUSTED HEADLINE EARNINGS

R’M

INCREASE(DECREASE)

%

TOTAL EXECUTIVE

DIRECTORS’ REMUNERATION

R’000*

INCREASE (DECREASE)

%

RETURN ON EQUITY

%

2019 992 (4) 13 420 (29) 11

2018 1 032 25 18 921 (51) 122017 823 (50) 38 536 189 102016 1 637 7 13 352 (84) 22* Includes TGP, STI and LTIs exercised in that financial year, as well as restraint of trade payments.

42

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


STI performance outcomesThe STI pool/s only accrue if there is growth in economic profit. This gatekeeper ensures that the STI is self-funding and acts as a protection mechanism for shareholders.

Given the negative growth in economic profit in 2019, no STI is payable.

LTIs awardedThe following section sets out the awards that were granted to executive directors under the SAR plan during the 2019 financial year, as well as the performance conditions applicable to the awards:

NAMENUMBER OF

SARs AWARDED

INDICATIVE VALUEOF AWARDS**

R

TA Carstens 384 808 8 958 330F Lombard 273 871 6 375 717** Number of awards multiplied by the actuarial fair value of R23.28 per SAR.

The performance conditions applicable to 50% of the SAR awards granted in the 2019 financial year are set out below. Diluted adjusted headline earnings per share is a more accurate reflection of economic reality by taking into account the conversion effect of any dilutive potential ordinary shares:

PERFORMANCE CONDITION AND WEIGHTING VESTING SCHEDULE PERFORMANCE PERIOD

Compounded annual growth rate in diluted adjusted headline earnings per share

100% weighting

• CPI plus 1% real growth (threshold)• CPI plus 5% real growth (stretch)• Linear vesting between threshold

and stretch levels

1 October 2018 to 30 September 2023. Measured over three, four and five years, respectively.

LTI performance outcomesThe performance hurdle for the portion of SARs that were exercisable during the year was not met for any of the tranches. These SARs have thus lapsed. Some of the time-based SARs were, however, in the money and were redeemed.

The following section sets out the achievement of the performance conditions for the SAR awards vesting during 2019:

Targets PERFORMANCE MEASURE THRESHOLD STRETCH ACTUAL* VESTING %**

Compounded annual growth in adjusted headline earnings per share

CPI plus 1%real growth

CPI plus 5%real growth 522 zero

* The threshold and stretch actual targets were:– For the 2015 allocation, R8.57 and R10.31 respectively– For the 2016 allocation, R10.57 and R12.26 respectively.– For the 2017 allocation, R10.51 and R11.74 respectively.

** Actual vesting is dependent on the employee being in service on the date of vesting.

43

REMUNERATION REPORT | PART 3: IMPLEMENTATION OF THE REMUNERATION POLICY continued

The following table sets out the SARs (granted, vested, exercised, lapsed and not redeemed) for each executive director in 2019:

PARTICIPANT

NUMBEROF SARs

INITIALLYALLOCATED

DATEAWARDED

EXERCISABLEUP TO DATE

STRIKEPRICE

(CENTS)

FAIR VALUE PER SAR

AT GRANT DATE

(CURRENT YEAR

GRANTS)CENTS

FAIR VALUE OF TOTAL

SARs GRANTED

DURINGTHE YEAR

RAND

NUMBER OF SARs

REDEEMED CUMULATIVE

NUMBER OF SARs

REDEEMED IN CURRENT

YEAR

NUMBER OF SARs

FORFEITED CUMULATIVE

NUMBER OF SARs

FORFEITED IN CURRENT

YEAR

SHAREPRICE AT DATE OF

REDEMPTION CENTS

VALUEINCREASE

FROM STRIKE PRICE TO PRICE AT

REDEMPTION RAND

CHANGE INDIRECTOR-

SHIP: NUMBER OF SARs

NUMBER OF SARs

NOT REDEEMED

Executives

Tertius Carstens 160 392 2014/02/28 2019/08/31 8 155 – – 80 196 40 098 80 196 40 098 10 350 880 151 – –

150 000 2015/09/21 2021/03/21 19 871 – – – – 50 000 50 000 – – – 100 000

42 362 2015/02/13 2020/08/13 15 419 – – – – 28 240 21 180 – – – 14 122

17 624 2016/02/15 2021/08/15 13 021 – – – – 5 875 5 875 – – – 11 749

52 782 2017/02/22 2022/08/22 16 620 – – – – – – – – – 52 782

237 394 2018/02/14 2023/08/14 13 496 – – – – – – – – – 237 394

384 808 2019/02/22 2024/08/22 8 011 2 328 8 958 330 – – – – – – – 384 808

Felix Lombard 186 900 2014/02/28 2019/08/31 8 155 – – 93 451 46 726 93 449 46 724 10 350 1 025 636 – –

150 000 2015/09/21 2021/03/21 19 871 – – – – 50 000 50 000 – – – 100 000

25 845 2015/02/13 2020/08/13 15 419 – – – – 17 230 12 922 – – – 8 615

17 226 2016/02/15 2021/08/15 13 021 – – – – 5 742 5 742 – – – 11 484

60 776 2017/02/22 2022/08/22 16 620 – – – – – – – – – 60 776

89 810 2018/02/14 2023/08/14 13 496 – – – – – – – – – 89 810

273 871 2019/02/22 2024/08/22 8 011 2 328 6 375 717 – – – – – – – 273 871

44

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


The following table sets out the SARs (granted, vested, exercised, lapsed and not redeemed) for each executive director in 2019:

PARTICIPANT

NUMBEROF SARs

INITIALLYALLOCATED

DATEAWARDED

EXERCISABLEUP TO DATE

STRIKEPRICE

(CENTS)

FAIR VALUE PER SAR

AT GRANT DATE

(CURRENT YEAR

GRANTS)CENTS

FAIR VALUE OF TOTAL

SARs GRANTED

DURINGTHE YEAR

RAND

NUMBER OF SARs

REDEEMED CUMULATIVE

NUMBER OF SARs

REDEEMED IN CURRENT

YEAR

NUMBER OF SARs

FORFEITED CUMULATIVE

NUMBER OF SARs

FORFEITED IN CURRENT

YEAR

SHAREPRICE AT DATE OF

REDEMPTION CENTS

VALUEINCREASE

FROM STRIKE PRICE TO PRICE AT

REDEMPTION RAND

CHANGE INDIRECTOR-

SHIP: NUMBER OF SARs

NUMBER OF SARs

NOT REDEEMED

Executives

Tertius Carstens 160 392 2014/02/28 2019/08/31 8 155 – – 80 196 40 098 80 196 40 098 10 350 880 151 – –

150 000 2015/09/21 2021/03/21 19 871 – – – – 50 000 50 000 – – – 100 000

42 362 2015/02/13 2020/08/13 15 419 – – – – 28 240 21 180 – – – 14 122

17 624 2016/02/15 2021/08/15 13 021 – – – – 5 875 5 875 – – – 11 749

52 782 2017/02/22 2022/08/22 16 620 – – – – – – – – – 52 782

237 394 2018/02/14 2023/08/14 13 496 – – – – – – – – – 237 394

384 808 2019/02/22 2024/08/22 8 011 2 328 8 958 330 – – – – – – – 384 808

Felix Lombard 186 900 2014/02/28 2019/08/31 8 155 – – 93 451 46 726 93 449 46 724 10 350 1 025 636 – –

150 000 2015/09/21 2021/03/21 19 871 – – – – 50 000 50 000 – – – 100 000

25 845 2015/02/13 2020/08/13 15 419 – – – – 17 230 12 922 – – – 8 615

17 226 2016/02/15 2021/08/15 13 021 – – – – 5 742 5 742 – – – 11 484

60 776 2017/02/22 2022/08/22 16 620 – – – – – – – – – 60 776

89 810 2018/02/14 2023/08/14 13 496 – – – – – – – – – 89 810

273 871 2019/02/22 2024/08/22 8 011 2 328 6 375 717 – – – – – – – 273 871

45

The table below sets out the usage of the dilution limit for Pioneer Foods’ LTI as at 30 September 2019:

NUMBER OF ISSUED SHARES

’000

PERCENTAGE OF TOTAL ORDINARY

ISSUED SHARE CAPITAL

%**

Number of shares that may be transferred 14 500 000 6.5Issued in previous years 4 580 010 2.1Opening balance available 9 919 990 4.5Issued in current year 249 660 0.1Closing balance available 9 670 330 4.4‘In the money portion’ in shares * 1 193 049 0.5Closing balance available taking into account ‘in the money portion’ 8 477 281 3.8* Converted ‘in the money’ value of SARs not redeemed at year-end share price.** Percentage calculated on year-end shares in issue.

Single figure remuneration – 30 September 2019In line with the requirements of King IV™, the following table sets out the remuneration paid to executive directors and the prescribed officer on a single figure basis for 2018 and 2019:

30 SEPTEMBER 2019

BASICSALARY

R’000

TRAVELALLOWANCES

R’000

BONUSESAND

INCENTIVESR’000

RETIREMENTFUND

CONTRIBUTIONSR’000

LTI*R’000

TOTAL R’000

Executive directorsTA Carstens 5 163 148 – 1 011 880 7 202F Lombard 4 677 183 – 332 1 026 6 218Total 9 840 331 – 1 343 1 906 13 420* The value in the LTI column is based on the value of the number of SAR awards redeemed during the 2019 financial year, using the strike

price at redemption less the strike price of the SAR award.

30 SEPTEMBER 2018

BASICSALARY

R’000

TRAVEL ALLOWANCES

R’000

BONUSESAND

INCENTIVESR’000

RETIREMENT FUND

CONTRIBUTIONSR’000

LTI*R’000

TOTAL R’000

Executive directorsTA Carstens 4 892 148 1 512 960 2 195 9 707F Lombard 4 421 183 1 001 315 2 558 8 478Total 9 313 331 2 513 1 275 4 753 18 185 * The value in the LTI column is based on the value of the number of SAR awards redeemed during the 2018 financial year, using the strike

price at redemption less the strike price of the SAR award.

REMUNERATION REPORT | PART 3: IMPLEMENTATION OF THE REMUNERATION POLICY continued

46

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Non-executive directorsThe table below sets out the NED fees paid to each NED in the 2019 financial year:

NAME OF NEDDIRECTORS’ FEES

R’000

ZL Combi (chairman) 1 179N Celliers 573Prof ASM Karaan 562NS Mjoli-Mncube 431G Pretorius (lead independent director)* 387PJ Mouton 431SS Ntsaluba 695AH Sangqu 577LE Mthimunye-Bakoro 605NW Thomson 1 136CG Botha** 423* Retired from the Board on 15 February 2019.** Appointed to the Board on 12 December 2018.

ApprovalThis report was approved by Pioneer Foods’ human capital committee on 12 November 2019.

Yours sincerely

Norman ThomsonChairman of the human capital committee

Non-binding approval of the remuneration policyKing IV™ recommends and the amended JSE Listings Requirements require that the Board (with the assistance of the remuneration committee) table the remuneration policy and the implementation report every year for separate non-binding advisory votes by shareholders at the AGM. The Company’s remuneration policy is set out from page 36 of the 2019 integrated report, to be read in conjunction with the remuneration policy in Pioneer Foods’ Notice of AGM. In accordance with the provisions of the JSE Listings Requirements, the Company shall give shareholders the right to express their views on the remuneration policy and its implementation by casting a non-binding advisory vote.

47

Values

IN 2018 PIONEER FOODS DECIDED TO REVIEW OUR VALUES AND BEHAVIOURS. TO GATHER A DIVERSE RANGE OF VIEWS WE INTERVIEWED EXECUTIVES AND SENIOR LEADERSHIP, WHILE CONDUCTING FOCUS GROUPS AND SURVEYS.

SOCIAL AND ETHICS COMMITTEE REPORT TO SHAREHOLDERS

The results which were consolidated in 2019, showed that our existing values remained largely relevant, although the Respect value was missing. Employees wanted to be more empowered to step up and take ownership of business results. We therefore included Respect and Ownership (replacing Accountability and Passion) into our new set of values, and collectively defined the behaviours that go with these.

Following the roll-out of our newly refreshed values, we launched and aligned a new Employee Value Proposition with these values. Our Employee Value Proposition defines what Pioneer Foods stands for and expresses our commitment to its unique attributes.

48

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


All personnel are required to display integrity, honesty, mutual respect and openness when conducting business in the Pioneer Foods name. Our procurement team is tasked with driving ethical and procedural awareness for buyers.

Human resource personnel across the business act as divisional ethics champions, to embed ethics management as a business practice. This approach is supported by fraud and ethics training provided by an external service provider. The Group’s ethics programme is monitored by the social and ethics committee and the audit committee.

Even though the Board is accountable for overseeing risk management processes within the Group, the actual management of risks, as well as conducting business in an ethical manner, remains the responsibility of each employee.

Tip-offs AnonymousAs per section 159(7) of the Companies Act, Pioneer Foods has a whistleblowing policy, which is reviewed annually. Together with the Tip-offs Anonymous hotline, the Group’s whistleblowing function is available to suppliers and customers, who can also make confidential disclosures.

12 tip-off reports

During the financial year

were received, of which four proved founded 2018: 9

2018: 27

All four cases resulted in formal disciplinary action instituted against the relevant parties.

Each of the reports submitted via Tip-offs Anonymous is reviewed and considered by an independent forensic investigator. Employees found guilty of ethical breaches are disciplined in accordance with the Group’s disciplinary code. Pioneer Food takes legal action in the event of criminal behaviour.

The committee decided to again highlight the anonymity of tip-offs, in case the declining number of tip-offs is due to a lack of awareness.

Human rightsPioneer Foods respects the human rights of all stakeholders, and everyone else it interacts with. Human rights requirements are embodied in the code of ethics. All suppliers are expected to ensure they are not complicit in any form of abuse, but that they support, respect and protect internationally proclaimed human rights.

The Group constantly monitors supplier operations for ethical practices. No incidents of human rights violations were brought to the Board’s attention during the year.

PIONEER FOODS HAS UNRESERVEDLY COMMITTED TO THE HIGHEST ETHICAL STANDARDS OF BUSINESS PRACTICES.Our corporate values and code of ethics are aligned to the Pioneer Foods business model and the dti’s Guidelines for Good Business Practice.

Recognising that ethical business conduct ensures the sustainability of the Group’s business, we are actively reinforcing a culture committed to ethical business, which is continually embedded by:

• Limiting exposure to lawsuits, financial losses, sanctions and fines, while complying with applicable laws, regulations, rules, codes and standards

• Instructing applicable King IV™ recommendations

• Ensuring integrity in our corporate reporting

• Preventing, detecting and reporting misconduct

• Allocating adequate resources to governance controls

• Protecting the Pioneer Foods brand, reputation and assets.

Ethics management

49

Stakeholder engagement

OUR RELATIONSHIPS WITH PEOPLE, SUPPLIERS AND COMMUNITIES ARE STRATEGIC DIFFERENTIATORS.

CUSTOMERS AND CONSUMERS

Pioneer Foods communicates with customers and consumers through forums, one-on-one interaction, advertising, corporate and brand websites, social media platforms, the customer care centre and shopper marketing. Consumer trust is shown by the take-up of our brands and products.

COMMUNITIES

Pioneer Foods helps empower communities through food security, education, youth and community related initiatives. As the South African economic situation worsens, we increasingly receive requests for assistance from our communities, and help where we can.

EMPLOYEES

Pioneer Foods has approximately 9 504LA full time employees in South Africa, 319 in Nigeria and another 358 in the UK. Employee-related focus areas cover remuneration, training and safety initiatives. Engagement platforms include intranet, email and desktop screensavers, newsletters, surveys, face-to-face briefings, management presentations, conferences, forums, performance appraisals and bulletin boards.

SHAREHOLDERS AND INVESTORS

We facilitate regular engagement and consistent communication with shareholders, investors and analysts. Most shareholder/investor engagement occurs around the time the financial results are released to the market. The PepsiCo offer and its consequent acceptance by the shareholders required intensive consultation with various shareholder groups.

SOCIAL AND ETHICS COMMITTEE REPORT TO SHAREHOLDERS continued

GOVERNMENT AND REGULATORS

The Group constantly monitors its regulatory landscape for any changes. We comment on proposed legislation directly and through industry bodies. We get involved in addressing pertinent industry issues.

SUPPLIERS

We value and care for our local and international supplier relationships, which are critical to the continued success of Pioneer Foods.

Read more about our supplier code of conduct on www.pioneerfoods.co.za

BUSINESS PARTNERS

Pioneer Foods continues to shape its corporate portfolio through strategic partnerships. We engage predominantly through collaboration and negotiation at executive management level.

MEDIA

Pioneer Foods endeavours to respond to media questions and enquiries effectively, accurately and timeously to help promote public understanding of the business and its realities

INDUSTRY AND BUSINESS ASSOCIATIONS

Pioneer Foods is a participant in key industry and business associations that influence and impact society in terms of food choices and supply

Meetings with unions remain cordial and constructive. Face to face meetings have taken place as well as regular written communication.

The quality of these relationships and the issues raised by stakeholders inform the board’s assessment of risks and opportunities. We are committed to the stakeholder inclusive approach recommended by King IV™.

Our key stakeholders are:

50

PION

EER FOO

DS IN


Social responsibility

Contributing to society

PIONEER FOODS ALIGNS ITS EMPOWERMENT AND COMMUNITY UPLIFTMENT PROJECTS TO THE NATIONAL DEVELOPMENT GOALS, WITH A SPECIFIC FOCUS ON POVERTY, INEQUALITY, UNEMPLOYMENT AND SKILLS DEVELOPMENT. Through these focus areas the group contributes to social, economic and cultural transformation.

The group financially supports, and is actively involved in various community projects within the areas of poverty-alleviation and food security, education, and the environment.

Schools Breakfast Nutrition ProgrammeDuring the reporting period, the schools breakfast nutrition programme was expanded to Gauteng, adding five new schools in Tembisa. In addition to Gauteng, the programme is now active in 35 primary schools across Limpopo, KwaZulu-Natal, Northwest Province, Free State, Northern Cape. It provides a healthy and nutritious start to the day for more than 34 000 disadvantaged children (2018: 26 000).

R7 099 356 The group spent

on the breakfast program in FY2019 and a further

R4 111 684 for other donations during the financial period.

These allocations funded Non-Profit organisations as well as contributing food items to areas affected by drought and fire disasters. Over and above the financial commitment, there is a dedicated staff member who co-ordinates all deliveries of the breakfast materials, as well as recruitment and management of the local co-ordinators and foodhandlers.

The Group Executive for Sustainability and Stakeholders, together with the Sustainability Manager oversee this process. Regular site visits are undertaken to ensure the smooth operation of the programme.

The local co-ordinators provide a very important link between Pioneer Foods and the schools. Their monthly feedback reports allow the team to draw insights for improving the Breakfast occasion for the children in terms of nutrition and healthy eating habits.

The flagship Breakfast Nutrition programme is supported by the Board and management as an important and strategic Group project.

Education and Community Trust (PFECT)PFECT was established in 2012 as part of the Group’s Phase II B-BBEE initiative (a beneficiary of the Pioneer Foods B-BBEE Trust) to support community and education-related programmes. Our flagship programmes are the Mbekweni Youth Centre and our bursary programme. The Mbekweni Youth Centre offers programmes to improve academic performance, career guidance courses and life skills. PFECT continued funding 46 bursary students during FY2019.

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


51


Caring for employees

Acknowledging and recognising employeesPioneer Foods acclaims employees who portray outstanding ethical values. The ‘spot recognition’ process encourages employees to nominate colleagues for executing and living Pioneer Foods’ values in an outstanding and admirable way.

In addition, the Group’s annual Excellence Awards honour key employees who have displayed exceptional ethical values in fulfilling their respective mandates. Various categories exist to recognise enhanced performance for individual excellence, community-based initiatives and ambassador criteria.

Learning and DevelopmentPioneer Foods supports an integrated approach to development, in which learning interventions are fit-for-purpose and aligned to the Group’s strategic priorities.

A total of R31 331 million was invested in learning and development programmes in FY2019, with 3 401 employees taking part in various leadership development, skills programmes, bursaries and learnerships.

A total of 500 learners completed learnerships and apprenticeship programmes this year (2018: 308). These programmes are considered key to the Group as they support our skills development objectives by improving the skills of our existing employees and build capability to offer employment to our learners.

R31 331 million The total skills development spend for 2019

which constitutes 1.48% of the skills leviable amount of

R2 122 billion

2018: R26 222 million

87% Approximately

was spent on Black employees and2018: 83%

27.6% 2018: 24.1%on Black females.

A total of 30 delegates were enrolled on the disability learnership this year, of which 100% are African and 50% female. The first and second intakes have successfully graduated and the third intake is currently underway. We continue to prioritise our disability practices to promote a culture of inclusivity, as well as to raise the skills levels and employability of persons with disabilities.

FORMAL LEARNING PROGRAMMES

NUMBER OF DELEGATES ON BURSARY PROGRAMMES 80

(2018: 98)

NUMBER OF DELEGATES ON LEADERSHIP PROGRAMMES 49

(2018: 48)

NUMBER OF DELEGATES ON SKILLS PROGRAMMES

412(2018: 1 009)

NUMBER OF DELEGATES ON LEARNERSHIPS AND APPRENTICESHIPS

500(2018: 308)

TOTAL NUMBER OF EMPLOYEES PARTICIPATING IN FORMAL LEARNING PROGRAMMES

1 041(2018: 1 463)

Top EmployerPioneer Foods participated for the first time in the Top Employer Global Survey and we are proud to have been certified as a Top Employer 2020 by the Top Employer Institute. This is confirmation that our HR Practises and conditions are aligned to HR Global Best Practice.

52

PION

EER FOO

DS IN


Employee Wellness ProgrammeThe Employee Wellness Programme was launched in February 2019, in which Pioneer Foods partnered with ICAS, an independent counselling and advisory service. With a national footprint, multi-disciplinary team and extensive experience in mitigating human capital risk, ICAS was deemed a suitable partner for providing a comprehensive employee wellness service.

The overarching objectives of the programme are to:

• Enable employees to effectively manage their own wellbeing

• Create an environment where employees feel supported and empowered

• Enable a productive work environment where employees are fully engaged and committed

• Provide managers with a platform to effectively manage the performance of their teams.

Health and SafetyTo embed a culture of health and safety, Pioneer Foods maintains and continuously improves robust health and safety systems and programmes. Unfortunately the group’s collective performance (number of incidents and LTIFR) has not improved year on year. This is indeed disappointing given the effort, systems and management oversight deployed. The safety of our people remains a top priority and is embedded in our performance management systems.

1.12

The Group's Lost Time Injury Frequency Rate (LTIFR) in FY2019 was

excluding hijacking and robbery-related incidents2018: 0.96

Rosslyn Depot (Olifansfontein Bakery): Whilst on a routine delivery in Rosslyn, the distribution vehicle was involved in a head-on collision with another truck. The driver of our vehicle regrettably passed away as a result of his injuries.

Ladysmith Bakery: Whilst on route to Warden in the early morning, the driver and his assistant were involved in a head on collision with a minibus taxi. The van assistant unfortunately succumbed to his injuries and passed away in hospital.

Hijackings and robberies continue to rise around the country with heightening violence associated with such attacks. In the Essential Foods division, a total of 82 incidents were reported during the period under review.

One such violent incident unfortunately occurred near our Epping Bakery on 8 July 2019 when a Distribution Driver and Van Assistant were shot at close range outside a customer’s store in Delft during an attempted robbery. The driver sadly passed away as a result of his injuries.

We deeply regret the passing of these employees.

In order to address the rising number of incidents, the Bakeries business unit formed a Vehicle Hijacking and Road Accident management forum in 2015. The Forum is tasked with reviewing any hijacking or robbery incidents, as well as other road accident related matters, and then implement various initiatives based on route and incident classification assessments. Initiatives include liaising with local police authorities, additional security surveillance and third party vehicle escorts, protective clothing, additional delivery staff and rescheduling of routes. When such measures prove ineffective, certain bread distribution routes were discontinued.

The underlying risk associated with bread deliveries is the large quantities of cash involved with transacting in the informal sector. Although the business has made sound progress in enabling cashless transactions, where possible, the reality remains that much of the informal sector is presently unable to access digital and other cashless solutions.

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


53


PIONEER FOODS UNDERSTANDS THAT MINIMISING OUR ENVIRONMENTAL IMPACT IS VITAL. THE ENVIRONMENTAL IMPACT OF THE BUSINESS IS CATEGORISED AND MANAGED UNDER THE CATEGORIES OF ENERGY (INCLUDING GREENHOUSE GAS EMISSIONS), WATER AND WASTE.

EnergyOur business operations require the use of various fuels as well as electricity to run our manufacturing sites. We are however mindful of the adverse impact of certain energy sources. The Group has a long standing relationship with an energy service provider that assists in identifying and implementing energy saving initiatives.

Energy portfolio cost savings were mainly achieved through these continued initiatives:

The Carbon Tax came into effect 1 June 2019. The Group has experienced a very minor financial impact from this legislation during the period under review, with the annual effect expected to be less than R10 million with the applied 60% basic allowance.

WaterThe recent and near catastrophic water shortages in the Western Cape undergone during the previous financial year resulted in Pioneer Foods implementing continual water savings throughout the business. The overall water consumption for the year under review was 1 889 987 kilolitres even though two new sites (formerly Heinz SA) were included in this reporting period. There has been no substantial increase in water usage as all sites have maintained or improved their water savings initiatives. Water scarcity remains a focus as the widespread drought shows no sign of abating.

WasteManufacturing sites are required to have a Waste Management Plan that ensure all waste streams are identified and managed as per the Waste Act. All the Pioneer Foods manufacturing sites measure and record the amount of waste they produce. Waste is separated, sorted and recycled. The Group is committed to diverting waste from landfill and has also begun looking at our product packaging with a view to reducing waste. The journey is still in its infancy and we are working with suppliers and other stakeholders to create more sustainable packaging.

Environmental responsibility

Greenhouse Gas (GHG) EmissionsEffectively managing our energy usage is imperative as the causes of greenhouse gas emissions are intricately linked.

In the 2018/19 financial year:

226 094 tCO2eLA

(tonnes of CO2 equivalent)

(2017/18: 284 873 tCO2e)

88 094 tCO2eLA

(tonnes of CO2 equivalent)

(2017/18: 109 328 tCO2e)

TOTAL COMBINED EMISSIONS

315 059 tCO2eLA

(2017/18: 393 201 tCO2e)

Steam and boiler optimisation SolarTariffsLighting

R43.5 millionsince inception 2014 2018: R30.1 million




Scope 1 (direct) emissions

Scope 2 (indirect) emissions, including

electricity and steam purchased

54

PION

EER FOO

DS IN


PIONEER FOODS’ GROUP-WIDE COMMITMENT TO SUSTAINABLE VALUE CREATION IS FOUNDED ON UNDERSTANDING AND LEVERAGING THE INTERDEPENDENCIES BETWEEN ECONOMIC VIABILITY AND SOCIAL AND ENVIRONMENTAL RESPONSIBILITY, RATHER THAN ATTEMPTING TO TRADE THESE SUSTAINABILITY COMPONENTS OFF AGAINST EACH OTHER.We believe that contributing to a sustainable world is, in effect, contributing to a sustainable and successful business. For this reason, the organisation’s sustainability approach is closely aligned to its business strategy.

B-BBEEB-BBEE ELEMENT WEIGHTING SCORE

Ownership 25 12.23

Management control 19 8.66

Skills development 20 13.33

Enterprise and supplier development 40 27.44

Socio-economic development 15 15.00

Total 76.66

LEVEL 6

The Group’s supplier selection process is based on preferential procurement policies, including a strong leaning towards B-BBEE as a key selection requirement.

Enterprise and supplier development (ESD)The Group continues to invest in Enterprise and Supplier Development initiatives specifically in primary agriculture and distribution services. We provide medium to long term loans with favourable terms, along with business development support from experts and our internal business representatives. These beneficiaries are selected for their potential to grow in our targeted enterprise development categories. The outstanding loan balance for the ESD portfolio, at the end of the reporting period, is R 40.8 million.

Independent distribution contractorsFor several years Pioneer Foods has supported Independent Distribution Contractors (IDCs) who provide distribution services to the Bakeries division. This funding is used to

Economic responsibility

cover operational costs, to procure vehicles as well as general business development. This model enables these distributors to grow their businesses and remain viable,while enabling our bakeries division to be able to sell more bread, especially in the local, traditional and rural markets. Since the start of the programme the IDCs have directly created 306 employment opportunities.

In a non-financial sense this opportunity provides access for the IDC to the Bakery manager as well as the knowledge and expertise of his/her team in terms of mentorship, assistance with route planning, and access to loan vehicles in situations where breakdowns have occurred.

Eight IDCs remain on the programme, with a total outstanding loan balance of R20.1 million at 30 September 2019.

Employment equity and transformationPioneer Foods is committed to embedding a culture of transformation across the Group so that employment demographics reflect the society in which the company operates. This commitment to diversity not only creates shared value across the business, but it also supports the government’s national transformation agenda.

To promote equal opportunities and fair treatment to all in the workplace, Pioneer Foods advertises all positions internally to provide equal opportunities to employees. In addition to this, Employment Equity Forums are in place to monitor progress and discuss related matters.

BLACK PEOPLE AT C- LEVEL AND ABOVE ARE

70%as at end September 2019 (Target: 70%)

AFRICAN

31%COLOURED

32%INDIAN

8%

FEMALE AT C- LEVEL AND ABOVE

28%as at end July 2019 (Target: 29%)

Employment Equity Targets

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


55

56

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


for the year ended 30 September 2019

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

58 Directors’ responsibility

59 Preparation and presentation of summary consolidated financial statements

59 Secretarial certification

60 Report of the audit committee (“the report”)

64 Independent auditor’s report on the summary consolidated financial statements

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS65 Group statement of comprehensive income

66 Headline earnings reconciliation

67 Group statement of financial position

68 Group statement of changes in equity

69 Group statement of cash flows

70 Group segment report

71 Notes to the summary consolidated financial statements

89 Directors’ interest in shares

90 Share capital

92 Independent auditor’s report on the Assurance Engagement on the Compilation of Pro Forma Financial Information by Pioneer Food Group Ltd

CON

TEN

TS 57

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2019 continued

In accordance with the requirements of the Companies Act, Act 71 of 2008, as amended from time to time, the Board of directors (“the Board”) is responsible for the preparation of the annual financial statements as well as the consolidated annual financial statements of Pioneer Food Group Ltd (“Pioneer Foods”). The aforementioned comply with International Financial Reporting Standards and fairly present the state of affairs of Pioneer Foods and its subsidiaries (“the Group”) at the end of the financial year, and the financial performance and cash flows for the stated period.

The Board is responsible for the information in the annual financial statements. It is also responsible for the information in the annual integrated report, for both its accuracy and 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 accountable for the Group’s governance practices which include, amongst other, internal control processes. Management enables the Board to meet its responsibilities in this regard. Applicable 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 committed to adequately safeguard, verify and maintain 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 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 in their respective capacity as assurance providers, the Board is of the view that the financial reporting controls are sufficient for the purposes required 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 at the publication date of this report, nothing has come to the Board’s and/or management’s attention that indicates or implies a breakdown in the functioning of the said 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 operating in the foreseeable future and continue to adopt the going concern basis in preparing the financial statements.

The annual financial statements were approved by the Board on 14 November 2019 and are herewith signed on its behalf by:

ZL Combi TA CarstensChairman Chief Executive Officer

Directors’ responsibility

58

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


These summary consolidated annual financial statements have been prepared under the supervision of F Lombard, CA(SA), Group chief financial officer. The full set of annual financial statements is published on the Group’s website at www.pioneerfoods.co.za.

In accordance with section 88 of the Companies Act, Act 71 of 2008, as amended from time to time, for the year ended 30 September 2019, it is hereby certified that the Group has 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

Preparation and presentation of summary consolidated financial statements

Secretarial certification

59


The audit committee (“the committee”) is pleased to present its report in terms of section 94(7)(f) of the Companies Act, Act 71 of 2008, as amended from time to time (“the Companies Act”). This report sets out how the committee discharged its statutory and Board assigned duties in respect of the financial year ended 30 September 2019.

As a statutory body, the committee is accountable to the Board and to the shareholders of Pioneer Food Group Ltd (“the Group”). This committee is the audit committee for all companies in the Group. For the year ended 30 September 2018, Sasguard Insurance Company Ltd had its own audit committee, however this committee also acted as audit committee for this entity for the year ended 30 September 2019 as it is now dormant.

The committee’s role and responsibilities are governed by a Board approved charter which is reviewed annually in order to ensure that the content remains relevant, complete and compliant with the applicable legislative requirements. The committee’s charter complies with the Companies Act, King IV and the JSE Listings Requirements.

The Board also approves an annual work plan which complements the committee’s structured approach and guides the agenda of each committee meeting to ensure that all key deliverables are attended to.

Members of the audit committeeMr Christoff Botha, who was appointed as a non-executive director on 12 December 2018, was subsequently appointed as chairman of the audit committee with effect from 15 February 2019.

The committee currently comprises of four members, all of which are independent, non-executive directors who were appointed at the Group’s annual general meeting on recommendation of the Board.

Each of the committee members is required to act objectively and independently.

The committee members possess the necessary financial literacy, skills and experience to execute their duties effectively. An abridged curriculum vitae of each of the members is included in the integrated report.

Meeting attendanceDuring the year, four meetings took place. The chairman provided feedback to the Board after each meeting in respect of the committee’s activities and Board approval was obtained on specific issues recommended by the committee.

Committee meetings and attendance for the year are summarised as follows:

NAME OF COMMITTEE MEMBER

NUMBER OF MEETINGS ATTENDED

13 NOVEMBER 2018

14 FEBRUARY 2019

15 MAY 2019

24 JULY 2019

CG Botha (chairman)* 1 Not applicable Not applicable Present ApologiesNW Thomson** 4 Present Present Present PresentLE Mthimunye 4 Present Present Present PresentSS Ntsaluba 3 Apologies Present Present Present

* Elected as chairman. Meeting held on 15 May 2019 was chaired by Mr CG Botha.** Other meetings were chaired by Mr NW Thomson, former chairman of the committee.

The external auditors, internal auditors and management representatives attend committee meetings as standing invitees with no voting rights. The company secretary is the secretary of the meeting.

The chairperson has regular one-on-one meetings with the internal and external auditors as well as the chief financial officer. Further closed sessions are held with these parties by the committee as a whole.

Report of the audit committee (“the report”)

60

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Roles and responsibilities of the audit committeeIn fulfilling its responsibilities the committee specifically considered the following matters:

• It reviewed the interim, preliminary and summary results, as well as the year-end financial statements, and recommended these to the Board for approval. During the year under review, the committee satisfied itself that the Group complied, in all material respects, with the requirements of the Companies Act, the International Financial Reporting Standards, the SAICA Financial Reporting Guides and applicable legislation.

• The committee reviewed the external audit reports on the Group’s annual financial statements and afforded specific attention to the following material matters: – Derivative financial instruments – forward purchase contracts on own equity; – Commodity hedge accounting; – Annual assessment of useful lives and residual values of items of property, plant and equipment and intangible assets; – Share-based payment charges in terms of IFRS 2; – The conclusion of the Phase II B-BBEE equity transaction and the consequential derecognition of the previously consolidated special-purpose vehicle companies;

– Hedge accounting applied in respect of the interest rate swap agreements entered into; – The key assumptions used in determining the recoverable amounts of cash-generating units for purposes of the Group’s impairment testing and the resulting impairment provisions recognised on items of property, plant and equipment and intangible assets;

– The application of changes in accounting policies due to changes necessitated by new accounting standards, IFRS 9 – Financial Instruments and IFRS 15 – Revenue from Contracts with Customers and the preparation for the implementation of IFRS 16 – Leases which will be applicable to the Group from 1 October 2019; and

– The disclosure consequent to the offer by PepsiCo to acquire all the shares of Pioneer Food Group Ltd.• The committee was satisfied with the disclosure and accounting treatment of all these matters.• The committee reviewed the representation made by the external auditors and satisfied itself that the external auditor is

independent of the Group, as set out in section 94(8) of the Companies Act, and suitable for re-appointment by considering, inter alia, the information stated in paragraph 22.15(h) of the JSE Ltd Listings Requirements.

• In considering the recommendation for the appointment of external auditors for the 2019 financial year, the committee noted that the current auditors were re-appointed after a comprehensive competitive bidding process in 2016. The committee is planning to recommend audit firm rotation before the end of 2023. For the 2020 financial year, the committee is recommending the re-appointment of PwC.

• Consideration was given to the rotation requirement of the designated lead external audit partner, Mr Duncan Adriaans. His final audit as partner will be 2020 and succession plans are in place for his replacement.

• The committee determined and approved the audit fees and the terms of engagement of the external auditors.• The committee satisfied itself that the provision of non-audit services rendered by the external auditor complied with Group policy

in this regard. The committee also approved the contractual terms for the provision of all non-audit services rendered by the external auditors.

• The committee is structured to deal appropriately with concerns and complaints relating to: – the Group’s accounting practices and internal audit; – the content and auditing of the Group’s financial statements; – the Group’s internal financial controls; and – any other related matter.

However, no complaints were received.• The committee had oversight of the financial reporting process, including the integrated report and the annual financial statements

and at its meeting held on 13 November 2019, has recommended the integrated report and the annual financial statements for approval by the Board.

• The committee considered the Group’s information pertaining to its non-financial performance as disclosed in the integrated report, to ensure consistency with other known information. The committee was satisfied that the sustainability related information presented is reliable and consistent with the Group’s financial results.

• The committee received and considered the JSE‘s report on proactive monitoring of financial statements in 2018 for compliance with IFRS. These proposals were implemented where appropriate and practical. The requisite information was sent to the JSE.

• The committee ensured that the Group established appropriate financial reporting procedures and that these procedures are operating.

61


Internal auditIn carrying out its duty to provide an oversight role in respect of the Group’s system of internal controls, the committee ensured that the Group’s internal audit function remained independent and had the necessary resources, standing and authority to enable it to discharge its duties.

The committee reviewed and approved the internal audit work plan to ensure adequate assurance and coverage of the key risks identified. The planned reviews conducted during the year were aimed at providing the necessary assurance in respect of key internal controls throughout the Group. Based on the results of these reviews, the committee is of the opinion that the internal controls formed a sound basis for the preparation of reliable financial statements.

The committee performed an evaluation of the effectiveness of the internal audit function as well as that of the chief audit executive. The committee is pleased to report that the internal audit function under leadership of the chief audit executive continued to operate efficiently and with the necessary independence and stature within the Group. In 2018, the committee approved the extension of the outsourced internal auditors’ service agreement to 30 September 2020.

Combined assurancePioneer Foods has adopted a combined assurance approach to ensure adequate assurance coverage, whilst at the same time minimising duplication of effort by focusing on cost effectiveness and efficiency.

In alignment with the Group’s risk based approach, the committee continues to ensure the effective liaison between the internal and external auditors while creating a balance between assurances provided.

Two members of the audit committee are also members of the risk committee and this helps to ensure an integrated approach in the development of the combined assurance model.

For the year under review, the committee was satisfied that sufficient assurance was obtained, particularly in relation to those risks ranked as material.

Expertise and experience of the chief financial officer and the adequacy of the financial functionThe abbreviated curriculum vitae of the chief financial officer, Mr F Lombard, appears in the integrated report. The committee satisfied itself in terms of paragraph 3.84(g)(i) of the JSE Ltd Listings Requirements that the Group chief financial officer, as well as the Group finance function, has the appropriate expertise and experience.

Internal controlsThe internal auditors provided the committee with a written assessment of the effectiveness of the Group’s system of internal controls and risk management, including internal financial controls. This assessment conducted by internal audit as well as input from management and external audit, formed the basis of the committee’s recommendation in this regard to the Board, in order for the Board to report thereon.

The Board’s report on the effectiveness of the system of internal controls is included under the directors’ responsibility report on page 58. The committee’s recommendation assisted the Board in its opinion expressed in this regard.

62

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


ComplianceThe committee considered the adequacy and appropriateness of the controls in place to prevent, detect and monitor the occurrence of non-compliance of applicable laws and regulations. The committee is pleased to report that there have been no material incidents relating to non-compliance of stated regulatory requirements during the financial period. The committee is also satisfied that, to the best of its knowledge, the Group has complied with all applicable material legal and statutory requirements during the year under review.

Going concernThe committee considered and reviewed management’s short- to medium-term plans and the Group’s associated projections. It has thus satisfied itself of the going concern status of the Group, in alignment with the applicable requirements outlined in the Companies Act. The committee also reviewed the solvency and liquidity test and is satisfied that there are adequate resources to support the proposed dividend.

Consistent with the committee’s recommendation herein, the Board’s statement regarding the going concern status of the Group is included in the directors’ responsibility report on page 58.

NW ThomsonActing chairman: audit committee

Tyger Valley13 November 2019

63


Independent auditor’s report on the summary consolidated financial statements

To the Shareholders of Pioneer Food Group Ltd

OpinionThe summary consolidated financial statements of Pioneer Food Group Ltd, set out on pages 65 to 91 of the Integrated Report 2019, which comprise the summary group statement of financial position as at 30 September 2019, the summary group 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 2019.

In our opinion, the accompanying summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements, in accordance with the JSE Limited’s (JSE) requirements for summary financial statements, as 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.

Summary Consolidated Financial StatementsThe 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 and the auditor’s report thereon, therefore, is not a substitute for reading the audited consolidated financial statements and the auditor’s report thereon.

�e Audited Consolidated Financial Statements and Our Report �ereonWe expressed an unmodified audit opinion on the audited consolidated financial statements in our report dated 15 November 2019. That report also includes communication of key audit matters. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period.

Director’s Responsibility for the Summary Consolidated Financial StatementsThe directors are responsible for the preparation of the summary 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.

Auditor’s ResponsibilityOur responsibility is to express an opinion on whether the summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 (Revised), Engagements to Report on Summary Financial Statements.

PricewaterhouseCoopers Inc.Director: D AdriaansRegistered Auditor

Stellenbosch15 November 2019

64

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Summary consolidated financial statementsfor the year ended 30 September 2019

PIONEER FOOD GROUP LTD

Group statement of comprehensive income AUDITED

YEAR ENDED 30 SEPTEMBER

2019 R’m

AUDITED YEAR ENDED

30 SEPTEMBER 2018 R’m

Revenue 22 272.6 20 151.9 Cost of goods sold (16 134.5) (14 356.4)

Gross profit 6 138.1 5 795.5 Other income and gains/(losses) – net 129.9 197.4 Other expenses (4 886.5) (4 420.5)

Excluding the following: (4 876.2) (4 390.4) Once-off merger and acquisition costs (10.0) – Phase I B-BBEE transaction share-based payment

and related hedge charge (0.3) (30.1)

Items of a capital nature (80.5) 73.2

Operating profit 1 301.0 1 645.6 Investment income 30.3 28.0 Finance costs (200.8) (197.5)Share of profit of investments accounted for applying the equity method 87.2 –

Profit before income tax 1 217.7 1 476.1 Income tax expense (302.0) (399.0)

Profit for the year 915.7 1 077.1 Other comprehensive income/(loss) for the yearItems that will not subsequently be reclassified to profit or loss:Remeasurement of post-employment benefit obligations (1.6) 2.2 Items that may subsequently be reclassified to profit or loss: 9.5 21.9

Fair value adjustments to cash flow hedging reserve 4.1 (12.2)

For the year (16.5) 3.6 Current income tax effect 3.0 (5.7) Deferred income tax effect 1.6 4.6 Reclassified to profit or loss 22.2 (20.5) Current income tax effect (1.6) 5.1 Deferred income tax effect (4.6) 0.7

Fair value adjustments on equity investments through other comprehensive income (2018: available-for-sale financial assets) (17.2) 0.6

For the year (17.2) 18.8 Deferred income tax effect – 6.4 Reclassified to profit or loss – (24.6)

Share of other comprehensive income of investments accounted for applying the equity method 8.1 7.4 Movement on foreign currency translation reserve 14.5 26.1

Total comprehensive income for the year 923.6 1 101.2

Profit for the year attributable to:Owners of the parent 909.8 1 072.6 Non-controlling interest 5.9 4.5

915.7 1 077.1

Total comprehensive income for the year attributable to:Owners of the parent 914.6 1 090.9 Non-controlling interest 9.0 10.3

923.6 1 101.2

65


Headline earnings reconciliation AUDITED


2019 R’m

AUDITED YEAR ENDED


Reconciliation between profit attributable to owners of the parent and headline earningsProfit attributable to owners of the parent 909.8 1 072.6 Remeasurements 58.9 (61.2)

Net loss/(profit) on disposal of property, plant and equipment and intangible assets 9.3 (35.2)

Net profit on disposal of equity investments through other comprehensive income (2018: available-for-sale financial assets) – (24.6)

Fair value adjustment of step-up from joint venture to subsidiary – (13.4) Impairment of property, plant and equipment 36.8 – Impairment of intangible assets 34.4 –

Before tax 80.5 (73.2) Tax effect on remeasurements (21.6) 12.0

Remeasurements included in equity-accounted results 2.1 6.0

Remeasurements 2.3 7.3 Tax effect on remeasurements (0.2) (1.3)

Headline earnings 970.8 1 017.4 Phase I B-BBEE transaction share-based payment and related hedge charge 10.7 14.4 Once-off merger and acquisition costs 10.0 –

Adjusted headline earnings (Note 1) 991.5 1 031.8

Number of issued ordinary shares (million) 221.8 233.2 Number of issued treasury shares:– held by subsidiary (million) 18.0 18.0 – held by B-BBEE equity transaction participants (million) – 18.1 – held by BEE trust (million) 10.7 10.7 Number of issued class A ordinary shares (million) 2.7 2.9 Weighted average number of ordinary shares (million) 189.9 186.7 Weighted average number of ordinary shares – diluted (million) 190.0 196.3 Earnings per ordinary share (cents):– basic 479.0 574.6 – diluted 479.0 546.5 – headline 511.1 545.0 – diluted headline 511.1 518.4 – adjusted headline (Note 1) 522.0 552.8 – diluted adjusted headline (Note 1) 522.0 525.7 Gross dividend per ordinary share (cents) 324.0 365.0 Gross dividend per class A ordinary share (cents) 97.2 109.5 Net asset value per ordinary share (cents) 4 615.2 4 496.6 Debt to equity ratio (%) 10.4 10.7

Note 1:Headline earnings (“HE”) is calculated based on Circular 4/2018 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 Phase I B-BBEE transaction on profit or loss (and the impact of the related hedge) and, for 2019 only, significant once-off merger and acquisition costs.

66

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Group statement of financial position AUDITED


AUDITED 30 SEPTEMBER

2018 R’m

AssetsProperty, plant and equipment 5 710.2 5 653.9 Goodwill 436.0 434.0 Other intangible assets 827.7 766.0 Investments in and loans to associates and joint ventures 869.0 791.3 Derivative financial instruments 141.4 128.7 Equity investments at fair value through other comprehensive income 4.0 – Available-for-sale financial assets – 77.9 Trade and other receivables 48.8 45.8 Deferred income tax 76.1 55.8

Non-current assets 8 113.2 7 953.4 Current assets 6 550.4 6 587.7

Inventories 3 536.7 3 176.6 Derivative financial instruments 42.8 28.0 Trade and other receivables 2 459.4 2 244.1 Current income tax 0.2 10.2 Cash and cash equivalents 511.3 1 128.8

Total assets 14 663.6 14 541.1

Equity and liabilitiesCapital and reserves attributable to owners of the parent 8 912.0 8 379.7

Share capital 22.2 23.3 Share premium 1 657.1 2 538.0 Treasury shares (187.1) (1 186.4)Other reserves 192.6 188.9 Retained earnings 7 227.2 6 815.9

Non-controlling interest 44.3 35.3

Total equity 8 956.3 8 415.0 Non-current liabilities 2 354.6 2 396.2

Borrowings 1 283.3 1 405.1 Provisions for other liabilities and charges 115.2 112.2 Share-based payment liability 128.4 112.8 Derivative financial instruments 3.3 – Deferred income tax 824.4 766.1

Current liabilities 3 352.7 3 729.9

Trade and other payables 3 116.6 3 018.5 Current income tax 15.3 15.2 Derivative financial instruments 12.7 32.8 Borrowings B-BBEE equity transaction third-party finance – 451.5 Other 154.8 165.5 Loan from joint venture 21.5 21.0 Dividends payable 1.6 1.6 Share-based payment liability 30.2 23.8

Total equity and liabilities 14 663.6 14 541.1

67


Group statement of changes in equity AUDITED


2019 R’m

AUDITED YEAR ENDED


Share capital, share premium and treasury shares 1 492.2 1 374.9

Opening balance 1 374.9 1 391.2 Movement in treasury shares – derecognition of previously consolidated Phase II BEE equity transaction participants 999.3 – Ordinary shares issued – share appreciation rights 24.9 51.5 Ordinary shares bought back and cancelled (2.7) (67.8)Shares bought back from Phase II BEE equity transaction participants and cancelled (904.2) –

Other reserves 192.6 188.9

Opening balance 188.9 213.1 Equity compensation reserve transactions 28.2 26.6 Ordinary shares issued – share appreciation rights (24.9) (51.5)Deferred income tax on share-based payments 6.5 (15.4)Share of other comprehensive income of investments accounted for applying the equity method 8.1 7.4 Treasury shares derecognised (12.5) – Other comprehensive (loss)/income for the year (1.7) 8.7

Retained earnings 7 227.2 6 815.9

Opening balance 6 815.9 6 422.9 Effect of changes in accounting policies (2.3) –

Restated opening balance 6 813.6 6 422.9 Profit for the year 909.8 1 072.6 Other comprehensive (loss)/income for the year (1.6) 2.2 Dividends paid (687.1) (681.4)Profit on disposal of Group treasury shares by Phase II BEE equity transaction participants and derecognition of these previously consolidated entities 202.6 – Transaction cost on shares bought back (10.1) (0.4)

Non-controlling interest 44.3 35.3

Opening balance 35.3 25.0 Profit for the year 5.9 4.5 Share of other comprehensive income 3.1 5.8

Total equity 8 956.3 8 415.0

68

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Group statement of cash flows AUDITED


2019 R’m

AUDITED YEAR ENDED


Net cash profit from operating activities 1 894.8 2 072.5 Cash effect from hedging activities (5.0) 2.1 Working capital changes (527.2) 281.1

Net cash generated from operations 1 362.6 2 355.7 Settlement of share-based payment liability (12.4) (26.3)Cash effect of forward purchase contracts related to share-based payments 19.3 25.5 Income tax paid (248.0) (364.4)

Net cash flow from operating activities 1 121.5 1 990.5 Net cash flow from investment activities (606.9) (866.6)

Property, plant and equipment and intangible assets– additions (609.8) (297.9)– replacements (50.4) (328.4)– proceeds on disposal 14.3 106.6 Business combinations – (511.4)Proceeds on disposal of and changes in loans and equity investments at fair value through other comprehensive income (2018: available-for-sale financial assets) (2.0) 79.3 Investment in joint venture – (15.0)Investment in associates (23.9) – Interest received 17.2 16.1 Dividends received 12.7 11.4 Dividends received from joint ventures 35.0 52.1 Dividends received from associate – 20.6

Net cash flow from financing activities (1 067.5) (395.8)

Proceeds from borrowings – new syndicated and other borrowings – 1 207.0 Repayment of syndicated bullet loans – (600.0)Repayment of Phase II BEE equity transaction third-party finance (427.8) – Repayments of other borrowings (89.5) (61.7)External funding to Phase II BEE equity transaction participant 429.3 – Derecognition of cash and cash equivalents of previously consolidated Phase II BEE equity transaction participants (77.3) – Ordinary shares bought back (2.7) (67.8)Other share scheme transactions (13.1) (3.7)Interest paid (199.3) (189.2)Dividends paid (687.1) (680.4)

Effect of exchange rate changes on cash and cash equivalents 2.2 3.0 Net cash, cash equivalents and bank overdrafts at beginning of year 1 033.5 302.4

Net cash, cash equivalents and bank overdrafts at end of year 482.8 1 033.5

Disclosed as:Cash and cash equivalents 511.3 1 128.8 Bank overdrafts and call loans (included in current borrowings) (28.5) (95.3)

482.8 1 033.5

69


Group segment report AUDITED


2019 R’m

AUDITED YEAR ENDED


Segment revenue Essential Foods 13 184.9 11 859.3 Groceries 5 795.4 5 119.6 International 3 292.3 3 173.0

Total 22 272.6 20 151.9

Segment results Essential Foods 742.9 915.3 Groceries 362.7 419.3 International 294.4 285.0 Other (8.2) (17.1)

1 391.8 1 602.5 Once-off merger and acquisition costs (10.0) – Phase I B-BBEE transaction share-based payment and related hedge charge (0.3) (30.1)

Operating profit before items of a capital nature 1 381.5 1 572.4 Reconciliation of operating profit (before items of a capital nature) to profit before income tax Operating profit before items of a capital nature 1 381.5 1 572.4 Adjusted for: Remeasurement of items of a capital nature (80.5) 73.2 Interest income 17.6 16.6 Dividends received 12.7 11.4 Finance costs (200.8) (197.5) Share of profit of investments accounted for applying the equity method 87.2 –

Profit before income tax 1 217.7 1 476.1

70

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Notes to the summary consolidated financial statementsfor the year ended 30 September 2019

1. Basis of preparation The summary consolidated financial statements of the Group for the year ended 30 September 2019 have been prepared

in accordance with the requirements of the JSE Limited (“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 JSE requires summary financial statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (“IFRS”), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, 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.

The directors take full responsibility for the preparation of the summary financial statements and that the financial information has been correctly extracted from the underlying financial 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 on 1 October 2018:

IFRS 9 – Financial Instruments; and IFRS 15 – Revenue from Contracts with Customers

The impact of the adoption of the new accounting standards is disclosed in note 3.

The Group adopted all new as well as amended accounting pronouncements issued by the International Accounting Standards Board (“IASB”) that are effective for financial years commencing 1 October 2018, however none of the other new or amended accounting pronouncements had a material impact on the consolidated results of the Group.

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 2018 except where impacted by the adoption of the new accounting standards as indicated above.

71


3. Changes in accounting policies The quantitative impact of the initial application of the new accounting standards is summarised below:

30 SEPTEMBER2018

PREVIOUSLYDISCLOSED

R’m

IFRS 15IMPACT

R’m

IFRS 9IMPACT

R’m

1 OCTOBER2018

RESTATED FORIFRS 9 AND 15

R’m NOTE

STATEMENT OF FINANCIAL POSITION

ASSETSNon-current assetsAvailable-for-sale financial assets 77.9 – (77.9) – 3.1.2 (i)Equity investments at fair value through other comprehensive income – – 77.9 77.9 3.1.2 (i)

Current assetsTrade and other receivables 2 244.1 9.9 (3.2) 2 250.8

3.1.2 (ii)& 3.2.2 (ii)

Inventories 3 176.6 33.1 – 3 209.7 3.2.2 (ii)

EQUITY AND LIABILITIESCapital and reservesRetained earnings 6 815.9 – (2.3) 6 813.6 3.1.2 (ii)

Non-current liabilities Deferred income tax 766.1 – (0.9) 765.2 3.1.2 (ii)

Current liabilitiesTrade and other payables 3 018.5 43.0 – 3 061.5 3.2.2 (ii)

Comparative information has not been restated. The impact of initial application was applied retrospectively as an adjustment to opening retained earnings. Refer to notes 3.1 and 3.2 for further detail.

3.1 IFRS 9 – Financial Instruments3.1.1 Nature of the change

IFRS 9 replaces IAS 39 and addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

In terms of IFRS 9 the classification of a financial asset depends on the entity’s business model for managing the asset and the characteristics of the cash flows related to the financial asset as opposed to the ‘specified-criteria’ approach in terms of IAS 39.

IFRS 9 introduces a new impairment model in terms of which impairment losses are based on expected credit losses (“ECLs”) as opposed to incurred credit losses under IAS 39.

3.1.2 Impact on initial application

The Group adopted IFRS 9 from 1 October 2018 which resulted in changes to accounting policies and adjustments to amounts recognised in the financial statements. The Group also adopted the consequential amendments to IFRS 7 – Financial Instruments: Disclosure.

In accordance with the transitional provisions in IFRS 9, the Group elected not to restate comparative information. The impact of the initial application was applied retrospectively as an adjustment to opening retained earnings as at 1 October 2018 and amounted to R2,288,501, representing an increase in the provision for impairment of trade receivables of R3,183,527 and a resulting decrease in deferred income tax of R895,026.

72

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


3. Changes in accounting policies continued

3.1 IFRS 9 – Financial Instruments continued3.1.2 Impact on initial application continued

(i) Classification and measurement On the date of initial application management assessed which business models apply to the financial assets held by the Group

and classified its financial instruments into the appropriate categories as illustrated in the table below:

30 SEPTEMBER 2018IAS 39

R’m

1 OCTOBER 2018IFRS 9

R’m

LOANS ANDRECEIVABLES

(AT AMORTISEDCOST)

AT FAIRVALUE

THROUGH PROFIT/LOSS

AVAILABLE-FOR-SALE TOTAL

ATAMORTISED

COST

AT FAIRVALUE

THROUGHPROFIT/LOSS

AT FAIRVALUE

THROUGHOTHER

COMPRE-HENSIVEINCOME TOTAL

Non-current assets Derivative financial

assets – 128.7 – 128.7 – 128.7 – 128.7 Available-for-sale

financial assets – – 77.9 77.9 – – – – Equity

investments at fair value through other comprehensive income – – – – – – 77.9 77.9

Trade and other receivables 45.8 – – 45.8 45.8 – – 45.8

Loans to joint ventures 14.4 – – 14.4 14.4 – – 14.4

Current assets Derivative

financial assets – 28.0 – 28.0 – 28.0 – 28.0 Trade and other

receivables 2 117.1 – – 2 117.1 2 117.1 – – 2 117.1 Cash and cash

equivalents 1 128.8 – – 1 128.8 1 128.8 – – 1 128.8

Total financial assets 3 306.1 156.7 77.9 3 540.7 3 306.1 156.7 77.9 3 540.7

Non-current liabilities Borrowings 1 405.1 – – 1 405.1 1 405.1 – – 1 405.1

Current liabilities Trade and other

payables 2 675.8 – – 2 675.8 2 675.8 – – 2 675.8 Borrowings 617.0 – – 617.0 617.0 – – 617.0 Loan from joint

venture 21.0 – – 21.0 21.0 – – 21.0 Derivative

financial liabilities – 32.8 – 32.8 – 32.8 – 32.8 Dividends payable 1.6 – – 1.6 1.6 – – 1.6

Total financial liabilities 4 720.5 32.8 – 4 753.3 4 720.5 32.8 – 4 753.3

73




(i) Classification and measurement continued

Changes in classifications did not have any impact on the measurement of the underlying financial instruments.

The Group has reclassified listed and unlisted investments with a carrying value of R77.9 million from available-for-sale financial assets to equity investments carried at fair value and elected to present changes in the fair value in other comprehensive income (“OCI”). These investments are held as long-term investments rather than for short-term trading. In terms of the new classification, the recycling of accumulated amounts from the fair value reserve to profit or loss on the disposal of these investments will no longer be allowed.

(ii) Impairment The Group has the following financial assets that are subject to the expected credit loss impairment model in terms of IFRS 9:

• Trade and other receivables• Loans receivable• Cash and cash equivalents

The Group determines impairment provisions by taking into account available forward looking information which could adversely impact a debtor’s ability to pay. This includes an assessment of the local short- to medium-term economic outlook, the specific industry the counter party operates in as well as the regulatory and economic environment of the country it operates in.

ECLs are determined on an individual basis for credit impaired financial assets as the risk profiles relating to these customers are different to the categories identified in the collective assessment.

A financial asset is considered to be credit impaired (non-performing) when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired include observable data about the following events: significant financial difficulty of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments.

Financial assets subject to impairment are written off when there is no reasonable expectation of recovery and the amount is recognised in profit or loss within ‘other operating expenses’. Subsequent recoveries of amounts previously written off are credited against the same line item.

Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, all the Group’s recovery actions have been exhausted and once legal actions have been unsuccessful.

Trade receivables The Group adopted the simplified approach for measuring impairment provisions for trade receivables. In terms of this approach,

the impairment provisions are calculated with reference to lifetime ECLs. The Group determines impairment provisions both on an individual and a collective basis.

ECLs are determined on an individual basis for credit impaired financial assets as the risk profiles relating to these customers are different to the categories identified in the collective assessment.

The ECL on a collective basis is calculated using a formula incorporating the following parameters: Exposure at Default (“EAD”), Probability of Default (“PD”) and Loss Given Default (“LGD”) (i.e. PD x LGD x EAD = ECL). To determine the PD, exposures are segmented by customer type (e.g. multi-national, listed or private company etc.), whether collateral is held and the primary economic environment in which the customer operates. This is done to allow for risk differentiation. The Standard & Poor’s (“S&P”) credit rating for the country in which the customer operates, is assigned to a category and adjusted to take into account specific risk factors identified based on the information included above.

74

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM




(ii) Impairment continued Trade receivables continued

On this basis, the adjustment to opening retained earnings resulting from the initial application of IFRS 9 is summarised below:

30 SEPTEMBER2018

AS PREVIOUSLYREPORTED

R’m

IFRS 9IMPACT

R’m

1 OCTOBER2018

RESTATEDFOR IFRS 9

R’m

Total provision for impairment (14.6) (3.2) (17.8)

Gross carrying amount of trade receivables 2 090.7 – 2 090.7

The impact of the initial application was applied retrospectively as an adjustment to opening retained earnings as at 1 October 2018 and amounted to R2,288,501, representing an increase in the provision for impairment of trade receivables of R3,183,527 and a resulting decrease in deferred income tax of R895,026.

Impairment provisions for trade receivables are deducted from the gross carrying amount of the assets with the corresponding movement in the provision presented as ‘other operating expenses’ in profit or loss.

Other financial assets Impairment provisions relating to loans receivable and cash and cash equivalents are determined in terms of the general

expected credit loss model.

In terms of this model the Group considers the PD upon initial recognition of an asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk, the Group compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwarding-looking information that could be indicative of a deterioration in the counterparty’s ability to pay and includes the following indicators:

• credit ratings (as far as available)• actual and expected defaults on contractual payments• significant changes in the actual or expected operating results of the counterparty (to the extent available)• actual or expected adverse changes in the industry, financial or economic environment the counterparty operates in that are

expected to affect its ability to pay• significant changes in the value of the collateral supporting the obligation• macro-economic indicators such as market interest rates and growth rates of the relevant country in which the counterparty

operates

The Group presumes that the credit risk of a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due. A default on a financial asset occurs when the counterparty fails to make contractual payments within 60 days of the due date for payment.

75




(ii) Impairment continued

Other financial assets continued

The Group uses three categories for loans which reflect their credit risk and how the loan loss provision is determined for each of those categories. These internal credit risk ratings are aligned to external credit rating companies, such as S&P. A summary of the assumptions underpinning the company’s expected credit loss model is as follows:

CATEGORY DEFINITION OF CATEGORY BASIS FOR RECOGNITION OF ECL PROVISION

Performing Loans whose credit risk is in line with original expectations.

12 month expected losses. Where the expected lifetime of an asset is less than 12 months, expected losses are measured at its expected lifetime (stage 1).

Underperforming Loans for which a significant increase in credit risk has occurred compared to original expectations; a significant increase in credit risk is presumed if interest and/or principal repayments are up to 30 days past due (see above for more detail).

Lifetime expected losses (stage 2).

Non-performing (credit impaired)

Interest and/or principal repayments are more than 30 days and up to 60 days past due or it becomes probable a customer will enter bankruptcy.

Lifetime expected losses (stage 3).

Write-off Interest and/or principal repayments are more than 60 days past due, failure of a debtor to engage in a repayment plan, all recovery actions have been exhausted and legal actions have been unsuccessful.

Assets are written off.

Loans receivable consist mainly of enterprise development loans extended to qualifying recipients as well as loans to associates and joint ventures.

Over the term of the loans, the Group accounts for its credit risk by appropriately providing for expected credit losses on a timely basis. In calculating the expected credit loss rates, the Group considers historical loss rates for each category of counterparty and adjusts these for forward-looking macroeconomic data.

The risk ratings of the counterparties where cash and cash equivalents and restricted cash are held, are taken into account in determining the likelihood that a counterparty will fail to meet its obligations. For counterparties with the following risk ratings management does not expect the counterparty to fail to meet its obligations: long-term (local) credit rating of BBB/A or higher and a short-term (local) credit rating of A-2/P-2 or higher in terms of the S&P or Moody’s credit rating scales respectively. Cash and cash equivalents are considered to have minimal credit risk due to low probability of default for the financial institutions where the Group’s cash is held.

Impairment provisions relating to loans receivable and cash and cash equivalents are deducted from the gross carrying amount of the assets with the corresponding movements in the provisions presented as ‘other operating expenses’ in profit or loss.

(iii) Derivatives and hedging activities The Group elected to retain the hedge accounting requirements of IAS 39 on adoption of IFRS 9.

76

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM



3.2 IFRS 15 – Revenue from Contracts with Customers3.2.1 Nature of the change

The International Accounting and Standards Board issued IFRS 15 which replaces IAS 18 – Revenue.

The core principle of IFRS 15 is that revenue is recognised when control of goods or services is transferred to a customer for an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services.

In terms of IAS 18, the timing of revenue recognition from the sale of goods was based primarily on the transfer of risks and rewards.

3.2.2 Impact on initial application

The Group adopted IFRS 15 from 1 October 2018 which resulted in changes in accounting policies, adjustments to amounts recognised in the financial statements (refer to the table in note 3) and additional disclosure (refer to note 5).

In accordance with the transitional provisions in IFRS 15, the Group adopted the modified retrospective application option in terms of which certain adjustments were made to amounts recognised in the financial statements at the date of initial application (1 October 2018). Comparative information was not restated.

The new accounting policies are set out below.

(i) Sale of goods Timing of recognition The Group manufactures and sells a range of fast moving consumer goods to retailers and wholesalers. Contracts with the

Group’s customers contain a single performance obligation to deliver the goods ordered by the customer.

Revenue is recognised when control of the products has transferred, being when the products are delivered to the customer, the customer has accepted inventory risk related to the products and there is no unfulfilled obligation that could affect the customer’s acceptance of the products and the Group has a present right to payment.

Delivery occurs when the products have been shipped to or delivered at the specific location, the risks of obsolescence and loss have been transferred to the customer and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed or the Group has objective evidence that all criteria for acceptance have been satisfied.

The adoption of IFRS 15 did not impact the Group’s timing of revenue recognition since the point in time at which the control of goods are transferred (IFRS 15) agrees with the point in time at which the relevant risks and rewards (IAS 18) were transferred to the customer.

Measurement of revenue Revenue reflects the listed sales price net of value-added tax, rebates and discounts, other incentives, adjustments for expected

returns of good stock, stock write-offs and price differences. Accumulated experience is used to estimate and provide for discounts and rebates, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. No element of financing is deemed present as sales are made with short-term credit terms, which is consistent with market practice.

The adoption of IFRS 15 did not impact the Group’s measurement of revenue except for the accounting treatment of rights of return provided to customers. Refer to (ii) (Accounting for credit notes – good stock) immediately below for further detail.

(ii) Accounting for credit notes – good stock When the customer has a right to return the product within a given period, the Group is obliged to refund the purchase price.

The Group previously recognised a provision for returns which was measured on a net basis at the margin on the sale. The provision was accounted for as an adjustment to trade receivables and a corresponding adjustment to allowance for outstanding credit notes in profit or loss.

In terms of IFRS 15, a refund liability (trade and other payables) for the expected refunds to customers is recognised as an adjustment to revenue. At the same time, the Group has the right to recover the product from the customer where the customer exercises their right of return and the Group then recognises an asset (inventory) and a corresponding adjustment to cost of sales. The asset is measured with reference to the former carrying value of the product. The refund liability is determined with reference to historic experience of actual returns.

The costs to recover the products are not material as the products are usually returned during the normal distribution process.

Refer to the table in note 3 for the impact of the initial application of IFRS 15.

77



3.2 IFRS 15 – Revenue from Contracts with Customers continued3.2.2 Impact on initial application continued

(iii) Variable consideration Goods are often sold with retrospective growth incentives payable to customers and are typically based on aggregate sales over

a 12-month period. A provision is recognised for expected growth incentives payable to customers in relation to sales made until the end of the reporting period with a corresponding adjustment to revenue. Historic experience is used to estimate and provide for the growth incentives, using the expected value method.

The accounting treatment under IFRS 15 is in line with the Group’s previous accounting treatment for growth incentives and as a result had no impact on the Group’s results and financial position.

(iv) Accounting for loyalty programmes The Group makes payments to customers linked to a loyalty programme. These payments are not considered as payments

for distinct goods or services received from the customer and as a result the amounts payable are recognised as adjustments to revenue. A contract liability is recognised for loyalty awards payable based on actual sales volumes adjusted with historical experience of non-redemptions. Revenue is recognised when the points are redeemed or when they expire.

The accounting treatment under IFRS 15 is in line with the Group’s previous accounting treatment for the loyalty programme and as a result had no impact on the Group’s results and financial position.

4. New accounting standards not yet effective and not early adopted IFRS 16 – Leases replaces IAS 17 – Leases and will be effective for the Group’s financial year commencing 1 October 2019.

IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise an asset representing the right to use the leased item and a related liability to pay rentals. The only exceptions are short-term and low-value leases and the Group will elect to adopt these exemptions.

The Group will consider a lease agreement with a non-cancellable period of 12 months or less (after due consideration of an option to extend, or an option to terminate, if the Group is reasonably certain to exercise the extension option, or not to exercise the termination option) as a short-term lease. A lease agreement of which the underlying asset’s value is R100,000 or less will be considered a low-value lease.

The Group’s implementation project is being finalised and includes the development of an IT solution to capture and maintain data for reporting purposes. The nature of leases within the Group that qualify for capitalisation in terms of IFRS 16 mainly relates to distribution warehouses, production and administration buildings, computer equipment and forklifts.

In accordance with the transitional provisions of IFRS 16, the Group will adopt the modified retrospective application option on adoption of the new standard with the cumulative impact recognised as an adjustment to opening retained earnings at the date of initial application. The measurement of the right-of-use asset was done retrospectively or at an amount equal to the lease liability, adjusted by the amount of prepaid or accrued lease payments recognised immediately before the date of initial application. This selection was made on a lease by lease basis. As a result, comparative information will not be restated. The Group has re-assessed all leases under the requirements of IFRS 16 and the assessment of which contracts contain a lease will not be grandfathered.

78

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


4. New accounting standards not yet effective and not early adopted continued The expected quantitative impact of the initial application of the new accounting standard is illustrated below:

30 SEPTEMBER 2019AS DISCLOSED

R’m

ESTIMATEDIFRS 16 IMPACT

R’m

1 OCTOBER 2019ON INITIAL

APPLICATIONR’m

Statement of financial positionASSETSNon-current and current assetsProperty, plant and equipment 5 710.2 748.9 6 459.1

– Right-of-use assets – 748.9 748.9

Trade and other receivables 2 508.2 (12.9) 2 495.3

– Prepayments 101.9 (12.9) 89.0

Total assets 8 218.4 736.0 8 954.4

EQUITY AND LIABILITIESCapital and reservesRetained earnings 7 227.2 (17.9) 7 209.3

Total capital and reserves 7 227.2 (17.9) 7 209.3

Non-current and current liabilitiesBorrowings 1 438.1 793.1 2 231.2

– Lease agreements 62.8 793.1 855.9

Deferred income tax 824.4 (3.8) 820.6Trade and other payables 3 116.6 (35.4) 3 081.2

– Deferred income 37.7 (32.0) 5.7– Other: operating leases straight-lining liability 57.8 (3.4) 54.4

Total liabilities 5 379.1 753.9 6 133.0

Total equity and liabilities 12 606.3 736.0 13 342.3

Apart from the expected impact on the statement of financial position as illustrated above, the adoption of the standard will also result in a reduction in the operating lease expense in profit or loss and an increase in depreciation charges (on the right-of-use assets) and finance costs (interest expense on the lease liability) in future periods.

The Group’s activities as a lessor are not material and hence a significant impact on the financial statements is not expected from these activities other than additional disclosures in this regard.

The impact of other pronouncements that are not yet effective is not expected to be material to the Group in the current or future reporting periods.

79


5. Revenue In terms of IFRS 15, revenue can be disaggregated into the following major product lines:

YEAR ENDED 30 SEPTEMBER 2019

R’m

YEAR ENDED30 SEPTEMBER 2018

R’m

SOUTH AFRICA INTERNATIONAL SOUTH AFRICA INTERNATIONAL

Essential Foods 13 184.9 253.4 11 859.3 209.0

Milling and baking 10 892.4 250.8 9 678.2 205.3Other grains 2 292.5 2.6 2 181.1 3.7

Groceries 5 795.4 3 038.9 5 119.6 2 964.0

Cereals 1 609.0 1 488.2 1 524.8 1 340.2Beverages 2 536.1 735.3 2 346.0 769.2Snacks and other groceries 1 650.3 815.4 1 248.8 854.6

Sub total 18 980.3 3 292.3 16 978.9 3 173.0

Total 22 272.6 20 151.9

Geographically revenue is disaggregated as follows:

YEAR ENDED30 SEPTEMBER

2019R’m


2018R’m

South Africa 20 444.4 18 557.9Foreign countries 1 828.2 1 594.0

Total 22 272.6 20 151.9

Foreign countries represent the activities of Group subsidiaries in largely the United Kingdom (mainly cereals) and in Nigeria (milling and baking). South Africa includes exports from manufacturing sites in South Africa.

80

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


6. Conclusion of Phase II B-BBEE equity transaction During 2012, the Company issued 18,091,661 ordinary shares to the value of R999 million to strategic BEE partners, former

and current black directors of the Company (hereafter collectively referred to as “BEE investors”) in terms of a B-BBEE equity transaction. The subscription price of these shares was mainly financed by Pioneer Foods’ wholly owned subsidiary, Pioneer Foods (Pty) Ltd, and by third-party funding from Rand Merchant Bank Ltd (“RMB”) in the form of redeemable preference shares.

The funding structure of this transaction resulted in the establishment of a number of special-purpose vehicle companies (“SPVs”) for the BEE investors. From inception of the Phase II B-BBEE equity transaction, the results and financial positions of these SPVs have been consolidated with those of the Group in terms of IFRS.

In October 2014, the Group unbundled its investment in Quantum Foods Holdings Ltd and the entity was subsequently listed on the JSE. As a result, the consolidated SPVs received 18,091,661 shares in Quantum Foods Holdings Ltd due to their shareholding in Pioneer Foods.

The terms of the financing provided to the BEE investors matured on 15 March 2019 which resulted in the conclusion of the Phase II B-BBEE equity transaction. Pioneer Food Group Ltd repurchased 11,563,013 ordinary shares from the BEE investors for a total consideration of R904 million in terms of its pre-emptive right under the B-BBEE equity transaction. The proceeds from the repurchase was utilised towards settling the outstanding preference share funding due to both Pioneer Foods and RMB.

The total amount of RMB redeemable preference share funding outstanding as at 15 March 2019 amounted to R428 million (30 September 2018: R451 million).

As from the conclusion date, the SPVs are no longer required to be consolidated in terms of IFRS. Quantum Foods Holdings Ltd has also repurchased its ordinary shares from the BEE investors in terms of its pre-emptive right under the B-BBEE equity transaction in May 2019.

Shareholders are further referred to the SENS announcements on 6 March 2019 and 12 March 2019 respectively for more detail on the share repurchase by Pioneer Foods.

The conclusion of the Phase II B-BBEE equity transaction and the subsequent derecognition of the SPVs on 15 March 2019 had the following impact:


2019R’m

Derecognition of previously consolidated Phase II B-BBEE equity transaction participantsEquity investments at fair value through other comprehensive income (59.7)External funding to Phase II BEE equity transaction participant 429.3Fair value reserve 12.5Derecognition of treasury shares (999.3)Consideration in repect of shares bought back and cancelled 904.2Loans written off (7.1)

279.9Profit on disposal of Group treasury shares by Phase II BEE equity transaction participants and derecognition of these previously consolidated entities (202.6)

Cash and cash equivalents derecognised 77.3

81



2019


2018

7. Share capitalDuring the period under review, the following share transactions occurred:Number of listed issued and fully paid ordinary shares At beginning of year 233 177 067 233 379 445 Shares issued in terms of employee share appreciation rights scheme 249 660 423 880 Shares bought back and cancelled (11 598 429) (626 258)

At end of year 221 828 298 233 177 067

249,660 (30 September 2018: 423,880) listed ordinary shares of 10 cents each were issued at an average price of R99.89 (30 September 2018: R121.54) per share in terms of the share appreciation rights scheme.

35,416 (30 September 2018: 626,258) listed ordinary shares of 10 cents each were repurchased at an average price of R77.38 (30 September 2018: R108.34) per share. This excludes shares repurchased as part of the conclusion of the Phase II B-BBEE equity transaction.

Purchase consideration paid for these ordinary shares bought back (R’000) In addition, 11,563,013 listed ordinary shares of 10 cents each were

repurchased at an average price of R78.19 per share from the B-BBEE equity transaction participants as part of the conclusion of the Phase II B-BBEE equity transaction.

2 741 67 846

Purchase consideration paid for these ordinary shares bought back (R’000) 904 112 –

Number of treasury shares held by B-BBEE transaction participants At beginning of year 18 091 661 18 091 661 Shares bought back and cancelled by the Group (11 563 013) – Derecognition of previously consolidated B-BBEE equity transaction participants (6 528 648) –

At end of year – 18 091 661

Number of treasury shares held by Pioneer Foods Broad-Based BEE Trust At beginning and end of year 10 745 350 10 745 350

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

Number of unlisted class A ordinary shares At beginning of year 2 878 680 3 174 920 Shares bought back and cancelled (228 620) (296 240)

At end of year 2 650 060 2 878 680

Purchase consideration paid for unlisted class A ordinary shares bought back (R’000) 12 373 26 316

82

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


8. Borrowings The funding term of the redeemable preference share funding provided by RMB to BEE investors in terms of the Phase II

B-BBEE equity transaction expired on 15 March 2019. The proceeds from the repurchase of Pioneer Foods shares by the Company was utilised by the participants to this transaction towards settling the outstanding preference share funding due to RMB. Refer to note 6 for more detail.

The total amount of RMB redeemable preference shares funding outstanding as at 15 March 2019 amounted to R428 million (30 September 2018: R451 million).

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

The Group is exposed to interest rate risk largely through its variable-rate syndicated bullet loans. As part of its overall risk management strategy the Group decided to hedge against a possible increase in interest rates by entering into a 2-year and 3-year interest rate swap agreement (“swaps”) with a nominal value of R250 million each. The swaps became effective on 1 July 2019. Interest payments are linked to the 3-month Jibar and are settled quarterly.

The swaps have the economic effect of converting floating-rate interest payments into fixed-rate interest payments on R500 million of the Group’s variable-rate term borrowings. The Group has elected to apply hedge accounting and as a result the movement in the fair value of the swaps are accounted for in other comprehensive income. As at 30 September 2019 the fair value of the swaps amounted to a liability of R6.2 million with a corresponding adjustment to the cash-flow hedging reserve.

9. Impairment of property, plant and equipment and intangible assets During the current reporting period the Group impaired property, plant and equipment and trademarks of the following cash-

generating units (“CGUs”):

CASH-GENERATING UNITS

NATURE OF ASSETS IMPAIRED

AMOUNT OFIMPAIRMENT

(PRE-TAX)R’m

INCOME TAXEFFECT

R’m

RECOVERABLEAMOUNT OF CGU

R’m

RECOVERABLEAMOUNTBASED ON:

GroceriesFrozen Foods Intangible assets 21.9 (6.1) 84.4 Value-in-useFish Paste spreads Intangible assets 12.5 (3.5) 7.8 Value-in-useWerda prepared salads

Property, plant and equipment 13.8 (2.5) 10.0

Fair value less costs to sell

Essential FoodsQuick cooking maize processing and packing

Property, plant and equipment 23.0 (6.4) 30.1 Value-in-use

Total 71.2 (18.5)

Key assumptions used for value-in-use calculations Growth rate of 5.3% Discount rates from 16.3% to 21.6%

The growth rates used represent the long-term growth rate based on a medium-term outlook on forecasted inflation rates. The discount rates represent a pre-tax rate based on the weighted average cost of capital.

83


9. Impairment of property, plant and equipment and intangible assets continued

Frozen Foods business The trademarks of the Frozen Foods business were fully impaired as a longer period is required to grow its profitability to the

Group’s target profitability in the current constrained South African economic environment. Only the intangible assets of this CGU were impaired.

The impairment loss was limited to the fair value less costs to sell of the individual items of property, plant and equipment comprising the CGU. In determining the fair value less costs to sell on these individual items, independent market-related valuations were obtained. The valuation inputs comprise of these valuations and the costs associated with the disposal thereof to assess the price at which the assets could be sold in orderly transactions between market participants. Market values obtained were specific to the assets of the entity and thus along with the costs of disposal are considered unobservable inputs. The fair value is thus classified as a level 3 fair value.

Fish Paste spreads business The Redro and Peck’s trademarks were fully impaired following the Group’s ongoing portfolio analysis and category optimisation

processes. This assessment was impacted by slow growth, reflective of continued pressure on consumer income, as well as changes in consumer preferences.

Werda prepared salads An impairment loss was recognised on the property, plant, machinery and equipment of the Werda prepared salads business

following management’s firm commitment to dispose of this business. The Group intends to retain the distribution and sales rights attached to products of this business.

The recoverable amount of the CGU was determined with reference to its fair value less costs to sell based on the indicative terms of a draft sales agreement, representing management’s assessment of the highest value and best use of the related assets. The fair value along with the costs of disposal are considered unobservable inputs. The fair value is thus classified as a level 3 fair value.

The assets of this CGU have not been reclassified as “non-current assets held-for-sale” and its performance not disclosed as “discontinued operations” since this CGU is not significant from the Group’s perspective.

Quick cooking maize processing and packing business An impairment loss was recognised on the plant, machinery and equipment associated with this processing and packing product

line due to lower than expected demand for this innovative super maize meal offering with profitability below expectations given price support required to sustain growth.

84

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


10. Events after the reporting date10.1 Dividend The Board approved and declared a gross final dividend of 219.0 cents for the financial year ended 30 September 2019

(2019: gross interim dividend of 105.0 cents and 2018: gross final dividend of 260.0 cents) per ordinary share. This will amount to approximately R462,271,656 (2019: interim of R221,420,463 and 2018: final of R578,366,682) depending on the exact number of ordinary shares in issue at the record date. In addition, the 10,745,350 Pioneer Foods shares issued to the Pioneer Foods Broad-Based BEE Trust will receive 20% of the dividend payable, i.e. 43.8 cents (2019: gross interim of 21.0 cents and 2018: gross final dividend of 52.0 cents) per share, amounting to approximately R4,706,463 (2019: interim of R2,256,524 and 2018: final of R5,587,582).

The Board approved a gross final dividend of 65.7 cents for the financial year ended 30 September 2019 (2019: gross interim dividend of 31.5 cents and 2018: gross final dividend of 78.0 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 R1,741,089 (2019: interim of R852,519 and 2018: final of R2,177,557) depending on the exact number of class A ordinary shares in issue 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 20%, 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 result of the double taxation agreement between South Africa and the country of domicile of such owner.

The net dividend amounts to 175.20 cents per ordinary share and 52.56 cents per class A ordinary share for shareholders liable to pay dividends tax. The dividend amounts to 219.0 cents per ordinary share and 65.7 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 221,841,328 and 2,604,980 respectively, as at the date of this declaration.

10.2 PepsiCo offer On 15 October 2019 nearly 100% of shareholders voted in favour of the PepsiCo Offer to acquire the ordinary shares of Pioneer

Foods. The terms of the offer is detailed in the combined circular distributed to Pioneer Foods shareholders on 29 August 2019. The effective date of the transaction is still subject to various conditions precedent.

Further to the approval of the PepsiCo offer, ordinary resolutions passed will give effect to an amendment to the Phantom Share Plan as well as a payment to certain direct or indirect participants in the 2012 Phase II BEE Transaction that elected to sell their Pioneer Foods ordinary shares, held directly or indirectly, to Pioneer Foods during March 2019. This payment will amount to R7.50 per share for the 11,563,013 Pioneer Foods ordinary shares repurchased from such Phase II B-BBEE equity transaction participants in terms of the March BEE Repurchase, totalling R86.7 million.

10.3 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.

85


11. Future capital commitments30 SEPTEMBER

2019R’m

30 SEPTEMBER2018R’m

Contractually committed– For next financial year 169.9 156.7

Approved by the Board, but not contractually committed yet 617.6 1 068.3

– For next financial year 547.0 614.4– For year following next financial year 70.6 453.9

Share of items of joint ventures and associates 67.8 56.7

855.3 1 281.7

12. 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.FAIR VALUE MEASUREMENTS AT 30 SEPTEMBER 2019 USING:

QUOTED PRICESIN ACTIVE

MARKETS FORIDENTICAL

ASSETS ANDLIABILITIES

(LEVEL 1)R’m

SIGNIFICANTOTHER

OBSERVABLEINPUT

(LEVEL 2)R’m

SIGNIFICANTUNOBSERVABLE

INPUT(LEVEL 3)

R’m

Financial assets measured at fair valueEquity investments at fair value through other other comprehensive income– Unlisted securities – 4.0 –Derivative financial instruments– Foreign exchange contracts – 16.6 –– Forward purchase contracts on own equity – 167.6 –

Financial liabilities measured at fair valueDerivative financial instruments– Interest rate swaps – 6.2 –– Foreign exchange contracts – 9.7 –– Embedded derivatives – 0.1 –

86

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


12. Fair value measurement continued

FAIR VALUE MEASUREMENTSAT 30 SEPTEMBER 2018 USING:

QUOTED PRICESIN ACTIVE

MARKETS FORIDENTICAL

ASSETS ANDLIABILITIES

(LEVEL 1)R’m

SIGNIFICANTOTHER

OBSERVABLEINPUT

(LEVEL 2)R’m

SIGNIFICANTUNOBSERVABLE

INPUT(LEVEL 3)

R’m

Financial assets measured at fair valueAvailable-for-sale financial assets– Listed securities 76.9 – –– Unlisted securities – 1.0 –Derivative financial instruments– Foreign exchange contracts – 7.0 –– Forward purchase contracts on own equity – 149.7 –

Financial liabilities measured at fair valueDerivative financial instruments– Foreign exchange contracts – 31.4 –– Embedded derivatives – 1.4 –

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 input 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 equity 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 measured at fair value through other comprehensive income.

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 inputs required to fair value an instrument were observable, the instrument is included in level 2.

The fair values of the forward purchase contracts on own equity are determined at each reporting date and any changes in the values are recognised in profit or loss. The fair values of the forward purchase contracts have been determined by an independent external professional financial instruments specialist by using a discounted cash flow model. The inputs to this valuation method include the risk free rate, dividend yield, contractual forward price and the spot price at the reporting date.

The fair value of foreign exchange contracts is determined using quoted forward exchange rates at the reporting date. The fair values of the interest rate swaps are calculated as the present value of the estimated future cash flows based on observable swap rates. These observable inputs represent the swap rate of an instrument with a similar remaining maturity as at year-end and was obtained from the relevant derivative dealers.

87


12. Fair value measurement continued

Financial assets and liabilities continued

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.

Non-financial assets and liabilities During the current year impairments were recognised on non-financial assets as disclosed in note 9. The recoverable amounts

of certain of the CGUs in respect of which impairments were recognised were determined with reference to fair value less costs to sell and further information regarding the determination of these fair values was included in note 9.

13. Preparation of financial statements These summary consolidated financial statements have been prepared under the supervision of F Lombard, CA(SA), CFO.

14. Audit The external auditors, PricewaterhouseCoopers Inc., have audited the Group’s financial statements for the year ended

30 September 2019, from which these summary consolidated financial statements have been extracted, and their unqualified auditor’s report is available for inspection at the registered office of the Company.

The Group’s auditors have not reviewed nor reported on any of the comments relating to prospects.

15. Pro forma financial information Any pro forma financial information contained in this announcement has been prepared for illustrative purposes only, in order

to provide shareholders with comparable results. Because of its nature, it may not fairly present the Group’s financial position, changes in equity, results of operations or cash flows.

The pro forma financial information is provided in accordance with the JSE Listings Requirements and the Guide on Pro Forma Financial Information issued by SAICA and is the responsibility of the directors.

An assurance report (in terms of ISAE 3420: Assurance Engagement to report on compilation of Pro Forma Financial Information) has been issued by the Group’s auditors in respect of the pro forma financial information included in this summary report. The assurance report is available for inspection at the registered offices of the Company and is included in the 2019 Integrated Report.

88

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Directors’ interest in sharesAs at 30 September 2019 the aggregate of the direct and beneficial interest of directors was 0.20% (2018: 0.39%) of the issued share capital of the Company. Indirect interest through listed public companies has 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 the date of the annual financial statements there were no changes in the interest of directors.

The direct and indirect interests of the directors in the issued share capital of the Company are reflected in the table below:

NUMBER OF SHARES# % OF ISSUED

ORDINARY SHARE

CAPITALDIRECT INDIRECT* TOTAL

30 September 2019TA Carstens 363 688 – 363 688 0.16F Lombard 83 947 11 208 95 155 0.04

447 635 11 208 458 843 0.20

30 September 2018TA Carstens (1 October 2017)** 363 688 – 363 688 0.15F Lombard 83 947 11 208 95 155 0.04ZL Combi – 172 295 172 295 0.07Prof ASM Karaan – 86 147 86 147 0.04NS Mjoli-Mncube – 86 147 86 147 0.04G Pretorius – 30 000 30 000 0.01AH Sangqu – 86 147 86 147 0.04

447 635 471 944 919 579 0.39

Note:# 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.* Include shares issued during a previous year to SPVs, wholly owned by BEE directors, in terms of the Phase II B-BBEE equity transaction.** Appointed as director.

89

Share capitalYEAR ENDED

30 SEPTEMBER 2019R’000


R’000

Share capitalAuthorised – ordinary shares of 10 cents each

400,000,000 (2018: 400,000,000) ordinary shares 40 000 40 000

Authorised – class A ordinary shares of 10 cents each18,130,000 (2018: 18,130,000) class A ordinary shares 1 813 1 813

Total issued and fully paid – ordinary shares of 10 cents eachAt beginning of year: 233,177,067 (2018: 233,379,445) ordinary shares 23 319 23 340Issued to management in terms of share appreciation rights scheme: 249,660 (2018: 423,880) ordinary shares 25 42Shares bought back and cancelled: 11,598,429 (2018: 626,258) ordinary shares (1 160) (63)At end of year: 221,828,298 (2018: 233,177,067) ordinary shares 22 184 23 319

Shares issued in terms of share appreciation rights schemeDuring the year, the Company issued 249,660 (2018: 423,880) ordinary shares of 10 cents each at an average of R99.89 (2018: R121.54) 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 ("BEE Trust") at a subscription price of R0.10 per share. The BEE Trust also acquired a further 145,362 listed ordinary shares in 2015.

These SPVs were consolidated as wholly owned subsidiaries in terms of IFRS and these issued shares of the Company were 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 from time to time.

Following the conclusion of this Phase II B-BBEE equity transaction these SPVs, that were previously consolidated, are no longer consolidated.

Shares bought back and cancelledDuring the year, the Company bought back and cancelled 35,416 (2018: 626,258) listed ordinary shares at R77.38 (2018: R108.34) per share. In addition, 11,563,013 listed ordinary shares of 10 cents each were repurchased at an average of R78.19 per share from the B-BBEE transaction participants as part of the conclusion of the Phase II B-BBEE equity transaction. The purchase consideration paid for these ordinary shares bought back was R904,111,986. This represents a total of 11,598,429 ordinary shares repurchased at an average price of R78.19.

90

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM



R’000


R’000

Share capital continuedTreasury shares of 10 cents each – nominal valueTreasury shares held by B-BBEE equity transaction participants

At beginning of year: 18,091,661 (2018: 18,091,661) ordinary shares 1 809 1 809Shares bought back and cancelled by the Group: 11,563,013 (2018: Nil) (1 156) –Derecognition of previously consolidated B-BBEE transaction participants: 6,528,648 (2018: Nil) (653) –At end of year: Nil (2018: 18,091,661) ordinary shares – 1 809

Treasury shares held by Pioneer Foods Broad-Based BEE TrustAt beginning and at end of year: 10,745,350 (2018: 10,745,350) ordinary shares 1 075 1 075

Treasury shares held by subsidiaryAt beginning and at end of year: 17,982,056 (2018: 17,982,056) ordinary shares 1 798 1 798

Total treasury shares – nominal valueAt beginning of year 4 682 4 682Shares of B-BBEE equity transaction participants bought back and cancelled (1 156) –Derecognition of previously consolidated B-BBEE transaction participants (653) –At end of year 2 873 4 682

Net listed ordinary share capital – nominal valueTotal issued and fully paid ordinary shares 22 184 23 319Treasury shares held by B-BBEE equity transaction participants – (1 809)Treasury shares held by Pioneer Foods Broad-Based BEE Trust (1 075) (1 075)Treasury shares held by subsidiary (1 798) (1 798)

19 311 18 637

The unissued ordinary shares in the Company, limited to 5% of the ordinary shares in issue at the last year-end date, are placed under the control of the directors until the next annual general meeting and they are authorised to issue any such shares as they may deem fit, subject to some restraints relating to the issue price.

Treasury shares – carrying amountConsist of:

Treasury shares held by B-BBEE equity transaction participants – 999 288Treasury shares held by Pioneer Foods Broad-Based BEE Trust 24 000 24 000Treasury shares held by subsidiary 163 113 163 113

187 113 1 186 401

Issued and fully paid – unlisted class A ordinary shares of 10 cents each held by employee share scheme trust

At beginning of year: 2,878,680 (2018: 3,174,920) class A ordinary shares 288 318Bought back and cancelled: 228,620 (2018: 296,240) class A ordinary shares (23) (30)At end of year: 2,650,060 (2018: 2,878,680) class A ordinary shares 265 288

Class A ordinary shares are not listed on the JSE. These shares have full voting rights, similar to those of ordinary shares.

91

To the directors of Pioneer Food Group Ltd

IntroductionPioneer Food Group Ltd (the “Company”) is presenting adjusted headline earnings to indicate the impact on the financial results of abnormal and non-recurring transactions.

These adjusted measures consist of:

• Adjusted operating profit (before items of a capital nature)• Adjusted headline earnings• Adjusted headline earnings per share

We have completed our assurance engagement to report on the compilation of the pro forma financial information of Pioneer Food Group Ltd by the directors. The pro forma financial information is set out in the SENS announcement, Summary Financial Statements and the Integrated Report (the “2019 Financial Reports”). The applicable criteria on the basis of which the directors have compiled the pro forma financial information are specified in the JSE Limited (JSE) Listings Requirements and described in the 2019 Financial Reports.

The pro forma financial information has been compiled by the directors to illustrate the adjustments made to headline earnings per share as well as operating profit. As part of this process, information about the Company’s financial position and financial performance has been extracted by the directors from the Company’s financial statements for the year ended 30 September 2019, on which an audit report has been published.

Directors' responsibilityThe directors of the Company are responsible for compiling the pro forma financial information on the basis of the applicable criteria specified in the JSE Listings Requirements and described in the 2019 Financial Reports.

Our independence and quality controlWe have complied with the independence and other ethical requirements of the Code of Professional Conduct for Registered Auditors issued by the Independent Regulatory Board for Auditors (IRBA Code), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Part A and B).

The firm applies International Standard on Quality Control 1 and, accordingly, maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Independent auditor’s report on the Assurance Engagement on the Compilation of Pro Forma Financial Information by Pioneer Food Group Ltdfor the year ended 30 September 2019

92

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


Reporting accountant’s responsibilityOur responsibility is to express an opinion about whether the pro forma financial information has been compiled, in all material respects, by the directors on the basis of the applicable criteria specified in the JSE Listings Requirements and described in the 2019 Financial Reports based on our procedures performed.

We conducted our engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3420, Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the International Auditing and Assurance Standards Board. This standard requires that we plan and perform our procedures to obtain reasonable assurance about whether the pro forma financial information has been compiled, in all material respects, on the basis specified in the JSE Listings Requirements.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information is solely to illustrate the impact on the financial results of abnormal or non-recurring transactions. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction would have been as presented.

A reasonable assurance engagement to report on whether the pro forma financial information has been compiled, in all material respects, on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

• The related pro forma adjustments give appropriate effect to those criteria; and • The pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on our judgment, having regard to our understanding of the nature of the Company, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

Our engagement also involves evaluating the overall presentation of the pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

OpinionIn our opinion, the pro forma financial information has been compiled, in all material respects, on the basis of the applicable criteria specified by the JSE Listings Requirements and described in the 2019 Financial Reports.

PricewaterhouseCoopers Inc. Director: D AdriaansRegistered Auditor

Stellenbosch15 November 2019

93

Notice is hereby given to all shareholders recorded in the securities register of Pioneer Foods Group Limited (“Pioneer” or “the Company”) as at 24 January 2020, of the annual general meeting (“Annual General Meeting”) of Pioneer Foods to be held at Santam Head Office Sportica Road Tyger Valley, Bellville (Ground floor Auditorium) on 27 March 2020 at 10h00.

PurposeThe purpose of the Annual General Meeting is to transact the business set out in the agenda below.

Agenda• Presentation of the audited annual financial statements of

the Company, including the remuneration report and the reports of the directors and the audit and risk committee for the year ended 30 September 2019. The annual report, of which this notice forms part, contains the summary consolidated financial statements and the aforementioned reports. The annual financial statements, including the unmodified audit opinion, are available on Pioneer’s website at www.pioneerfoods.co.za, or may be requested and obtained in person, at no charge, at the registered office of Pioneer during office hours.

• To deal with such business at the Annual General Meeting with which the Company may lawfully deal; and

• consider, and if deemed fit, pass, with or without modification, the ordinary and special resolutions set out hereunder in the manner required by the Companies Act, 71 of 2008 (as amended) (“the Act”), as read with the Company’s memorandum of incorporation (“MOI”) and the Listings Requirements of the JSE Limited (“JSE Listings Requirements”).

Ordinary resolutionsTo consider and, if deemed fit, pass, with or without modification, the following ordinary resolutions:

1. Ordinary Resolution Number 1Re-appointment of auditor“Resolved that, PricewaterhouseCoopers Incorporated, together with their respective designated audit partner, Mr Duncan Adriaans, be and is hereby re-appointed as the Company’s external auditors to hold office until the conclusion of the next annual general meeting.

Reason for Ordinary Resolution Number 1In terms of section 90(1) of the Companies Act, each year at its annual general meeting, a public company must appoint an auditor who complies with the requirements of section 90(2) by way of an ordinary resolution of the

shareholders entitled to exercise voting rights on that resolution. As contemplated in section 90(3) of the Companies Act, the names of the designated individual auditors form part of the resolution.

The JSE Listings Requirements require audit firms and individual auditors, prior to being appointed or re- appointed by listed companies, to be accredited. Such accreditation is subject to set criteria (including a firm-wide independent quality control of the audit firm and an engagement inspection of the individual auditor) and registration of the audit firm and individual auditor by the Independent Regulatory Board for Auditors (IRBA). The audit committee of the committee (“Audit Committee”) has confirmed that PricewaterhouseCoopers Incorporated together with their respective designated audit partner are duly accredited. In accordance with paragraph 3.84(iii) of the JSE Listings Requirements, the Audit Committee also confirms it has obtained all the required certification from the audit firms in respect of the information required under paragraph 22.15(h), which information is in respect of the roles and responsibilities of the audit firm.”

2. Ordinary Resolution Number 2 General authority to issue ordinary shares for cash“Resolved that, the directors of the Company be and are hereby authorised, by way of a general authority, to allot and issue any of the Company’s unissued shares for cash as they in their discretion may deem fit, without restriction, subject to the provisions of the JSE Listings Requirements, and subject to the proviso that the aggregate number of ordinary shares able to be allotted and issued in terms of this resolution, shall be limited to 5% of the issued share capital as at the date of this notice of annual general meeting, provided that:

• The approval shall be valid until the date of the next annual general meeting of the Company, provided it shall not extend beyond 15 months from the date of this resolution.

• The general issues of shares for cash in any one financial year may not exceed in the aggregate 5% of the Company’s issued share capital (number of securities) of that class as at the date of this notice of Annual General Meeting. As at the date of this notice of Annual General Meeting, 5% of the Company’s issued ordinary share capital amounts to 11 093 291 ordinary shares.

• In determining the price at which an issue of shares will be made in terms of this authority, the maximum discount permitted will be 10% of the weighted average traded price of such shares, as determined

for the year ended September

NOTICE OF THE 2019 ANNUAL GENERAL MEETING


94

PION

EER FOO

DS IN


GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


over the 30 business days prior to the date that the price of the issue is agreed between the issuer and the party subscribing for the securities. The JSE will be consulted for a ruling if the securities have not traded in such 30 business day period.

• Any such issue will only be made to public shareholders as defined in paragraphs 4.25 to 4.27 of the JSE Listings Requirements and not to related parties.

• Any such issue will only be in respect of securities of a class already in issue or, if this is not the case, will be limited to such securities or rights that are convertible into a class already in issue.”

• In the event that the securities issued represent, on a cumulative basis, 5% or more of the number of securities in issue prior to that issue announcement containing the full details of such issue shall be published on the stock exchange news service of the JSE.

Reason for Ordinary Resolution Number 2The reason for Ordinary Resolution Number 2 is accordingly to obtain a general authority from shareholders to issue shares for cash in compliance with the JSE Listings Requirements and the MOI of the Company.

In terms of the JSE Listings Requirements, in order for Ordinary Resolution Number 2 to be adopted, the support of at least 75% of the total number of votes exercisable by shareholders on the applicable resolution, present in person or by proxy, is required to pass this resolution.

3. Ordinary Resolutions Numbers 3 – 5 (inclusive) Retirement and re-election of directors“Resolved that, the following directors, who retire by rotation in terms of the MOI of the Company and, being eligible, and offering themselves for re-election, be and are hereby re-elected as directors:

3.1 Ordinary Resolution Number 3Re-election of non-executive director: Mr Norman Celliers

3.2 Ordinary Resolution Number 4Re-election of independent non-executive director: Mr Andile Hesperus Sangqu

3.3 Ordinary Resolution Number 5Re-election of non-executive director: Prof. Abdus Salam Mohammad Karaan

Reason for Ordinary Resolutions Numbers 3 – 5 (inclusive)The reason for Ordinary Resolutions Numbers 3 – 5 (inclusive) is that these directors will retire at the Annual General Meeting by rotation in terms of clause 29.3.4 of the Company’s MOI and being eligible, have availed themselves for re-election. A brief profile of each of the directors up for re-election to the Board appears on page 16.

4. Ordinary Resolutions Numbers 6 – 9 (inclusive) Appointment and re-appointment of members of the Audit Committee“Resolved that, the following members being eligible and availing themselves for appointment or re-appointment as the case may be and are hereby appointed or re-appointed as members of the Audit Committee of the Company, as recommended by the Board until the next annual general meeting of the Company to be held in 2021.”

4.1 Ordinary Resolution Number 6Confirmation of appointment of member of the Audit Committee: Mr Christoffel Gerhardus Botha

4.2 Ordinary Resolution Number 7Re-appointment of member of the Audit Committee: Mr Norman William Thomson

4.3 Ordinary Resolution Number 8Re-appointment of member of the Audit Committee: Mr Sango Siviwe Ntsaluba

4.4 Ordinary Resolution Number 9Re-appointment of member of the Audit Committee: Ms Lindiwe Evarista Mthimunye

Reason for Ordinary Resolutions Numbers 6 – 9 (inclusive)In terms of the provisions of section 94(2) of the Companies Act, a company shall at every annual general meeting elect an audit committee comprising of at least three members. A brief profile of each of the independent non-executive directors proposed to be appointed or re-appointed to the Audit Committee appears on page 16. All the aforementioned directors have been found to possess the requisite academic qualifications and experience.

5. Ordinary Resolution Number 10 Non-binding endorsement of Pioneer Foods’ remuneration policy“Resolved that the Company’s remuneration policy, as set out on pages 36 to 41 of the annual report to which this notice of annual general meeting is annexed, be and is hereby endorsed by way of a non-binding advisory vote.”

Reason for Ordinary Resolution Number 10The reason for Ordinary Resolution Number 10 is that King IV™ recommends and the JSE Listings Requirements require that the remuneration policy of the Company be endorsed through a non-binding advisory vote by shareholders. If the remuneration policy is voted against by 25% or more of the votes exercised at the Annual General Meeting, Pioneer Foods shall, in its voting results announcement, extend an invitation to dissenting shareholders to engage with the Company. The manner and timing of such engagement will be specified in the voting results announcement.

95

SHAREHOLDER INFORMATION | NOTICE OF THE 2019 ANNUAL GENERAL MEETING continued

6. Ordinary Resolution Number 11Non-binding endorsement of Pioneer Foods’ implementation report“Resolved that the Company’s implementation report in respect of its remuneration policy, as set out on pages 42 to 47 of the annual report to which this notice of annual general meeting is annexed, be and is hereby endorsed by way of a non-binding vote.”

Reason for Ordinary Resolution Number 11The reason for Ordinary Resolution Number 11 is that King IV™ recommends and the JSE Listings Requirements require that the implementation report in respect of the remuneration policy of the Company be endorsed through a non-binding advisory vote by shareholders. If the implementation report is voted against by 25% or more of the votes exercised at the Annual General Meeting, Pioneer Foods will, in its voting results announcement, extend an invitation to dissenting shareholders to engage with the Company. The manner and timing of such engagement will be specified in the voting results announcement.

Special resolutionsTo consider, and if deemed fit, pass, with or without modification, the following special resolutions:

7. Special Resolution Number 1Approval of the non-executive directors’ remuneration“Resolved in terms of section 66(9) of the Companies Act, that the Company be and is hereby authorised to remunerate its non-executive directors for their services rendered as directors which includes serving on various sub-committees, as from 1 April 2020 until 31 March 2021, on the basis set out below:

FEES FROM 1 APRIL 2019 –

31 MARCH 2020

RAND

FEES FROM 1 APRIL 2020 –

31 MARCH 2021

RAND**

BoardChairman 912 660 967 420 Lead independent director 472 049 500 372 Non-executive director (base fee) 258 000 273 480

Committee membersAudit CommitteeChairman 214 048 226 891 Member 151 347 160 428 Risk CommitteeChairman 214 048 226 891 Member 83 471 88 479 Human Capital CommitteeChairman 214 048 226 891 Member 83 471 88 479 Social and Ethics CommitteeChairman 200 984 213 043 Member 83 471 88 479 Nomination Committee*Chairman 20 104 21 310 Member 14 263 15 119 Special Ad-hoc MeetingsChairman 20 104 21 310 Member 14 263 15 119 * Rates applicable to Nomination Committee will be paid per meeting.** Excluding value-added tax.

Reason for and effect of Special Resolution Number 1The reason for Special Resolution Number 1 is to approve the remuneration payable by the Company to its non-executive directors for their services as directors of the Company for the period as from 1 April 2020 until 31 March 2021.

The effect of Special Resolution Number 1, if passed, is that the Company will be able to remunerate its non-executive directors for the services they render to the Company as directors without requiring further shareholder approval until the next annual general meeting of the Company to be held in 2021.

8. Special Resolution Number 2General authority to provide financial assistance to related and inter-related companies“Resolved that, the Board be and is hereby authorised in terms of section 45(3)(a)(ii) of the Companies Act, as a general approval (which approval will be in place for a period of two years from the date of adoption of this Special Resolution Number 2), to authorise the Company to provide any direct or indirect financial assistance (“financial assistance”) will herein have the meaning attributed to such term in section 45(1) of the Companies Act) that the Board may deem fit to any related or inter-related company of the Company (“related” and “inter-related” will herein have the meanings attributed to those terms in section 2 of the Companies Act), on the terms and conditions and for the amounts that the Board may determine.”

The main purpose for this resolution is to empower the Board to authorise the Company to provide inter-group loans and other financial assistance for purposes of funding the activities of the Company and its Group. The Board undertakes that:

• it will not adopt a resolution to authorise such financial assistance, unless the Board is satisfied that –

– immediately after providing the financial assistance, the Company would satisfy the solvency and liquidity test as contemplated in the Companies Act; and

– the terms under which the financial assistance is proposed to be given are fair and reasonable to the Company; and

• written notice of any such resolution by the Board shall be given to all shareholders of the Company and any trade union representing its employees: – within 10 business days after the Board adopted the resolution, if the total value of the financial assistance contemplated in that resolution, together with any previous financial assistance during the financial year, exceeds 0.1% of the Company’s net worth at the time of the resolution; or

– within 30 business days after the end of the financial year, in any other case.

96

PION

EER FOO

DS IN


Reason for and effect of Special Resolution Number 2The reason for and the effect of Special Resolution Number 2, if passed, is to provide a general authority to the Board for the Company to grant direct or indirect financial assistance to any company forming part of the Company’s Group, including in the form of loans or the guaranteeing of their debts.

Notice to shareholders of the Company in terms of section 45(5) of the Companies Act of a resolution adopted by the Board authorising the Company to provide direct or indirect financial assistance to related and inter-related companies

Prior to the Annual General Meeting, the Board will have adopted a resolution (“Section 45 Board Resolution”) authorising the Company to provide, at any time and from time to time during the period commencing on the date on which Special Resolution Number 2 is adopted until the date of the next annual general meeting of the Company, any direct or indirect financial assistance as contemplated in section 45 of the Companies Act to any one or more related or inter-related companies of the Company. The financial assistance will entail loans and other financial assistance to subsidiaries of the Company (being related or inter-related companies of the Company) for purposes of funding the activities of the Company and its Group.

The Section 45 Board Resolution will be effective only if and to the extent that Special Resolution Number 2 is adopted by the shareholders and the provision of any such financial assistance by the Company, pursuant to such resolution, will always be subject to the Board being satisfied that (1) immediately after providing such financial assistance, the Company will satisfy the solvency and liquidity test as referred to in section 45(3)(b)(i) of the Companies Act; and that (2) the terms under which such financial assistance is to be given are fair and reasonable to the Company as referred to in section 45(3)(b)(ii) of the Companies Act.

In as much as the Section 45 Board Resolution contemplates that such financial assistance will, in aggregate, exceed one-tenth of one percent of the Company’s net worth at the date of adoption of such resolution, the Company hereby provides notice of the Section 45 Board Resolution to shareholders. The Company does not have any employees represented by a trade union.

9. Special Resolution Number 3Financial assistance for the subscription of or the acquisition of securities in the Company and in related and inter-related companies“Resolved that, the Board be and is hereby authorised in terms of section 44(3)(a)(ii) of the Companies Act, as a general approval (which approval will be in place for a period of two years from the date of adoption of this Special Resolution Number 3), to authorise the Company to provide financial assistance by way of a loan, guarantee, the provision of security or otherwise to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to

be issued by the Company or a related or inter-related company (“related” and “inter-related” will herein have the meanings attributed to those terms in section 2 of the Companies Act), or for the purchase of any securities of the Company or a related or inter-related company, on the terms and conditions and for the amounts that the Board may determine.”

The main purpose for this authority is to grant the Board the authority to provide financial assistance to any person for the subscription of or the purchase of any securities in the Company and in related or inter-related companies.

The Board undertakes that:

• it will not adopt a resolution to authorise such financial assistance, unless the Board is satisfied that – – immediately after providing the financial assistance, the Company would satisfy the solvency and liquidity test as contemplated in the Companies Act; and

– the terms under which the financial assistance is proposed to be given are fair and reasonable to the Company.

Reason for and effect of Special Resolution Number 3The reason for and the effect of Special Resolution Number 3, if passed, is to provide a general authority to the Board for the Company to grant financial assistance to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the Company or a related or inter- related company, or for the purchase of any securities of the Company or a related or inter-related company.

10. Special Resolution Number 4General authority to repurchase shares“Resolved, as a special resolution, that the Company and the subsidiaries of the Company be and are hereby authorised, as a general approval, to repurchase any of the shares issued by the Company, upon such terms and conditions and in such amounts as the directors may from time to time determine, but subject to the provisions of section 46 and 48 of the Companies Act, the MOI of the Company, the JSE Listings Requirements and the requirements of any other stock exchange on which the shares of the Company may be quoted or listed, including, inter alia, that:

• the general repurchase of the shares may only be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the Company and the counterparty;

• this general authority shall only be valid until the next annual general meeting of the Company, provided that it shall not extend beyond 15 months from the date of this resolution;

• an announcement must be published as soon as the Company and/or the subsidiaries of the Company has acquired shares constituting, on a cumulative basis, 3% of the number of shares in issue, on the date that this authority is granted (“initial number”), containing full details thereof, as well as for each 3% in aggregate of the initial number of shares acquired thereafter;

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


97

SHAREHOLDER INFORMATION | NOTICE OF THE 2019 ANNUAL GENERAL MEETING continued

• the general authority to repurchase is limited to a maximum of 20% in the aggregate in any one financial year of the Company’s issued share capital at the time the authority is granted;

• if a resolution has been passed by the Board approving the re-purchase, that the Company has satisfied the solvency and liquidity test as defined in the Companies Act and that since the solvency and liquidity test was applied there have been no material changes to the financial position of the Group;

• the general repurchase is authorised by the Company’s MOI;

• repurchases must not be made at a price more than 10% above the weighted average of the market value of the shares for five business days immediately preceding the date that the transaction is effected. The JSE will be consulted for a ruling if the Company’s securities have not traded in such five business day period;

• the Company may at any point in time only appoint one agent to effect any repurchase(s) on the Company’s behalf; and

• the Company may not effect a repurchase during any prohibited period as defined in terms of the JSE Listings Requirements unless there is a repurchase programme in place that has been submitted to the JSE in writing and executed by an independent third party as contemplated in terms of paragraph 5.72(h) of the JSE Listing Requirements.”

Reason for and effect of Special Resolution Number 4The reason for and effect of Special Resolution Number 4, if passed, is to grant the directors a general authority in terms of the Company’s MOI and the JSE Listings Requirements for the acquisition by the Company or by a subsidiary of the Company of shares issued by the Company on the basis reflected in this special resolution.

In terms of the JSE Listings Requirements, any general repurchase by the Company must, inter alia, be limited to a maximum of 20% of the Company’s issued share capital of that class in any one financial year at the time the authority is granted. Furthermore, in terms of section 48(2)(b)(i) of the Companies Act, subsidiaries may not hold more than 10%, in aggregate, of the number of the issued shares of a Company. For the avoidance of doubt, a pro rata repurchase by the Company from all its shareholders will not require shareholder approval, save to the extent as may be required by the Companies Act.

Additional information relating to Special Resolution Number 41. The directors of the Company or its subsidiaries will

only utilise the general authority to repurchase shares of the Company as set out in special resolution number 4 to the extent that the directors, after considering the maximum number of shares to be repurchased, are of the opinion that the position of the Company and its subsidiaries (“Group”) would not be compromised as to the following:

• the Group’s ability in the ordinary course of business to pay its debts for a period of 12 months after the date of the notice of this Annual General Meeting and for a period of 12 months after the purchase;

• the consolidated assets of the Group will at the time of the Annual General Meeting and at the time of making such determination be in excess of the consolidated liabilities of the Group and for 12 months thereafter. The assets and liabilities should be recognised and measured in accordance with the accounting policies used in the latest audited annual financial statements of the Group;

• the ordinary share capital and reserves of the Group will remain adequate for ordinary business purposes for a period of 12 months after the date of the Annual General Meeting and the repurchase; and

• the working capital available to the Group, after the repurchase, will be sufficient for the Group’s ordinary business purposes for a period of 12 months after the date of the notice of the Annual General Meeting and for a period of twelve months after the date of the share re-purchase.

General Information in respect of major shareholders, material changes and the share capital of the company is contained in the annual report of which this notice forms part, as well as the full set of financial statements being available on Pioneer Foods’ website at www.pioneerfoods.co.za or which may be requested and obtained in person, at no charge, at the registered office of Pioneer during office hours.

2. Prior to the commencing of any repurchase the Board shall take a resolution confirming that it has authorised the repurchase, that the Group has passed the solvency and liquidity test and that, since it was performed, there have been no material changes to the financial position of the Group.

3. The directors of the Company whose names appear on pages 16 to 19 of the annual report of which this notice forms part, collectively and individually accept full responsibility for the accuracy of the information given and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this notice of Annual General Meeting contains all information required by the JSE Listings Requirements.

12. To transact any other business that may be transacted at an Annual General Meeting of the CompanyRecord datesThe record date in terms of section 59 of the Companies Act for shareholders to be recorded in the securities register of the Company in order to receive notice of the Annual General Meeting is Friday, 24 January 2020.

The record date in terms of section 59 of the Companies Act for shareholders to be recorded in the securities register of the Company in order to be able to attend, participate and vote at the Annual General Meeting is Friday, 20 March 2020, and the last day to trade in the Company’s shares in order to be recorded in the securities register of the Company in order to be able to attend, participate and vote at the Annual General Meeting is Tuesday, 17 March 2020.

98

PION

EER FOO

DS IN


Approvals required for Ordinary and Special ResolutionsThe Ordinary Resolutions, with the exception of Ordinary Resolution Number 2, contained in this notice of Annual General Meeting require the approval by more than 50% of the votes exercised on the resolutions by shareholders present or represented by proxy and entitled to vote at the Annual General Meeting, subject to the provisions of the Companies Act, the MOI of the Company and the JSE Listings Requirements.

Special Resolutions Numbers 1 to 4 (inclusive) and Ordinary Resolution Number 2 contained in this notice of Annual General Meeting require the approval by at least 75% of the votes exercised on the resolutions by shareholders present or represented by proxy at the Annual General Meeting, subject to the provisions of the Companies Act, the MOI of the Company and the JSE Listings Requirements.

Attendance and voting by shareholders or proxiesShareholders who have not dematerialised their shares or who have dematerialised their shares with “own name” registration are entitled to attend, speak and vote at the Annual General Meeting and are entitled to appoint a proxy or proxies (for which purpose a form of proxy is attached hereto) to attend, speak and vote in their stead. The person so appointed as proxy need not be a shareholder of the Company.

Completed proxy forms must be lodged with, posted or emailed to The Meeting Specialist Proprietary Limited (TMS), at the addresses listed below:

The Meeting Specialist Proprietary Limited The JSE BuildingOne Exchange Square Gwen LaneSandown Johannesburg, 2196(PO Box 62043, Marshalltown 2107)[email protected]

to be received by no later than 10h00 (South African time) on Wednesday, 25 March 2020 for administrative purposes, provided that any form of proxy not delivered to TMS by this time may be handed to the chairperson of the Annual General Meeting or TMS at any time before the appointed proxy exercises any shareholder rights at the Annual General Meeting.

Proxy forms must only be completed by shareholders who have not dematerialised their shares or who have dematerialised their shares with “own name” registration.

Shareholders or their proxies or representatives may participate in (but not vote at) the meeting by way of telephone conference call, and if they wish to do so:

• must contact the Company Secretary (by email at the address [email protected]) by no later than five business days prior to the Annual General Meeting in order to obtain a pin number and dial-in details for that conference call;

• will be required to provide reasonably satisfactory identification; and

• will be billed separately by their own telephone service providers for their telephone call to participate in the annual general meeting. Shareholders and their proxies or their representatives will not be able to vote telephonically at the annual general meeting and will still need to appoint a proxy or representative to vote on their behalf at the annual general meeting.

The Company reserves the right not to provide for electronic participation at the Annual General Meeting in the event that it determines that it is not practical to do so.

On a show of hands, every person present and entitled to exercise voting rights shall be entitled to one vote only. On a poll, every shareholder shall be entitled to that proportion of the total votes in the Company which the aggregate amount of the nominal value of the shares held by such shareholder bears to the aggregate amount of the nominal value of all the shares issued by the Company.

Shareholders who have dematerialised their shares, other than those shareholders who have dematerialised their shares with “own name” registration, should contact their Central Securities Depository Participant (“CSDP”) or broker in the manner and time stipulated in their agreement:

• to furnish them with their voting instructions; or• in the event that they wish to attend the annual

general meeting, to obtain the necessary letter of representation in order to do so.

The Company’s Social and Ethics Committee (SEC) is required to report to the shareholders at the Annual General Meeting on the matters within its mandate. The report of the SEC can be found on page 48. Any specific questions to the SEC may be emailed to the Company Secretary to be received no later than 48 hours prior to the Annual General Meeting.

Proof of identification requiredIn terms of the Companies Act, any shareholder or proxy who intends to attend or participate at the Annual General Meeting must be able to present reasonably satisfactory identification at the annual general meeting for such shareholder or proxy to attend, participate and vote at the annual general meeting. Any formal identification document or card issued by the South African Department of Home Affairs, a valid driver’s licence or passport will be accepted at the Annual General Meeting as sufficient identification.

By order of the Board

J Jacobs (Ms) Company SecretaryPioneer Food Group Ltd

30 January 2020

GROUP AT A GLANCE

LEADERSHIP REPORT


REMUNERATION REPORT



NOTICE OF AGM


99

FINANCIAL YEAR-END 30 September 2020

FINAL RESULTS PUBLISHED November 2020

ANNUAL REPORT January 2021

INTERIM REPORT PUBLISHED May 2020

ANNUAL GENERAL MEETING March 2020

DIVIDENDS

INTERIM – ANNOUNCEMENT May 2020

INTERIM – PAYMENT July 2020

FINAL – ANNOUNCEMENT November 2020

FINAL – PAYMENT February 2021


INVESTOR CALENDAR

100

PION

EER FOO

DS IN


DEFINITIONS

Acid test ratio Ratio 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 (including from joint ventures and associates), divided by net interest.

Current ratio Ratio of current assets to current liabilities.

Dividend cover Headline earnings for the year adjusted for the annual IFRS 2 share-based payment charge on the Phase I B-BBEE transaction and, for 2016, 2017, 2018 and 2019, the impact of the Phase I B-BBEE equity transaction hedge and, for 2017 and 2019 only, once-off merger and acquisition costs, divided by total dividends declared (including dividends on class A ordinary shares), excluding the dividend on treasury shares held by a Group subsidiary.

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

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

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

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

Impact of Phase I B-BBEE transaction

Annual 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.

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

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

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 in the B-BBEE equity transaction and treasury shares held by the Pioneer Foods Broad-Based BEE Trust.

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

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

Operating profit margin Operating profit, before items of a capital nature, as a percentage of revenue.

Ordinary share(s) For the purposes of all these definitions, ordinary share(s) excludes class A ordinary shares.

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

Return on average net assets

Operating profit, before items of a capital nature, as a percentage of total assets, excluding investments in and loans to joint ventures, investments in and loans to associates, equity investments at fair value through other comprehensive income (prior years: 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, accrual for forward purchase contracts on own equity 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’ funds

Headline 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.

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

Revenue to net asset cover Revenue divided by net assets.

101

Holding companyPioneer Food Group LtdRegistration 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 4000Fax: +27 86 407 0044E-mail: [email protected]: [email protected]

Transfer secretaryComputershare Investor Services (Pty) LtdRosebank Towers, 15 Biermann Avenue, Rosebank, 2196PO Box 61051, Marshalltown, 2107Tel: +27 11 370 5000Fax: +27 11 688 5209

CORPORATE INFORMATION

AuditorsPricewaterhouseCoopers Inc.(Registration number: 1998/012055/21)PricewaterhouseCoopers BuildingCapital Place15 – 21 Neutron Avenue, Techno ParkStellenbosch, 7600

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 Building35 Kerk Street, Stellenbosch, 7600PO Box 7403, Stellenbosch, 7599Tel: +27 21 887 9602Fax: +27 21 887 9624

and

2nd Floor, Building 3 11 Alice Lane, Sandhurst, Sandton, 2196 PO Box 650957, Benmore 2010

102

PION

EER FOO

DS IN


PROXY FORM

Annexure to the Notice of the Annual General Meeting

I/We, the undersigned (print) (name of shareholder)

of (address), being a shareholder of the Company,

do hereby appoint (name of proxy)

of (address) or, failing him/her

(name of proxy)

of (address) or, failing him/her

the chairperson of the Annual General Meeting as my/our proxy to represent me/us, to talk and to vote on my/our behalf at the Annual General Meeting of the Company to be held on Friday, 27 March 2020, at the Ground Floor Auditorium, Santam Head Office, Sportica Road, Tyger Valley at 10:00 or at any adjournment thereof:

IN FAVOUR OF AGAINSTABSTAIN

FROM VOTING

1 Ordinary Resolution Number 1: To confirm the re-appointment of PricewaterhouseCoopers Inc. as auditor for the ensuing year on the recommendation of the Audit Committee

2 Ordinary Resolution Number 2: General authority to issue shares for cash

3 Ordinary Resolution Number 3: To re-elect director: Mr Norman Celliers

4 Ordinary Resolution Number 4: To re-elect director: Mr Andille Hesperus Sangqu

5 Ordinary Resolution Number 5: To re-elect director: Prof. Abdus Salam Mohammad Karaan

6 Ordinary Resolution Number 6: Confirmation of appointment of member of the Audit Committee: Mr Christoffel Gerhardus Botha

7 Ordinary Resolution Number 7: Re-appointment of member of the Audit Committee: Mr Norman William Thomson

8 Ordinary Resolution Number 8: Re-appointment of member of the Audit Committee: Mr Sango Siviwe Ntsaluba

9 Ordinary Resolution Number 9: Re-appointment of member of the Audit Committee: Ms Lindiwe Evarista Mthimunye

10 Ordinary Resolution Number 10: Non-binding endorsement of Pioneer Foods’ remuneration policy

11 Ordinary Resolution Number 11: Non-binding endorsement of Pioneer Foods’ implementation report

12 Special Resolution Number 1: Approval of non-executive directors’ remuneration

13 Special Resolution Number 2: General authority to grant financial assistance to related and inter-related companies

14 Special Resolution Number 3: Financial assistance for the acquisition of securities in the Company and in related and inter-related companies

15 Special Resolution Number 4: General authority to repurchase shares

Please indicate instructions to proxy by way of a cross in the relevant space provided.

Signed at __________________________________________________ on the _______________ day of _____________________________ 2020.

Signature

PIONEER FOOD GROUP LIMITED Incorporated in the Republic of South Africa

Registration number: 1996/017676/06 Share code: PFG

ISIN: ZAE000118279 (“Pioneer Foods” or “the Company”)

103

Notes1. A shareholder entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more proxies to attend,

speak and vote in his/her stead. A proxy need not be a registered shareholder of the Company.

2. Every shareholder present in person or by proxy and entitled to vote at the Annual General Meeting of the Company shall, on a show of hands, have one vote only, irrespective of the number of shares such shareholder holds. In the event of a poll, every shareholder shall be entitled to that proportion of the total votes in the Company which the aggregate amount of the nominal value of the shares held by such shareholder bears to the aggregate amount of the nominal value of all the shares issued by the Company.

3. Shareholders who have dematerialised their shares with a CSDP or broker, other than own-name registrations, must arrange with the CSDP or broker concerned to provide them with the necessary authorisation to attend the meeting or the shareholders concerned must instruct their CSDP or broker as to how they wish to vote in this regard. This must be done in terms of the agreement entered into between the shareholder and the CSDP or broker concerned.

Instructions on signing and lodging the form of proxy1. A shareholder may insert the name of a proxy or the names of two alternative proxies of the shareholder’s choice in the space/s

provided overleaf, with or without deleting “the chairperson of the Annual General Meeting”, but any such deletion must be initialled by the shareholder. Should this space/s be left blank, the proxy will be exercised by the chairperson of the Annual General Meeting. The person whose name appears first on the form of proxy and who is present at the Annual General Meeting will be entitled to act as proxy to the exclusion of those whose names follow.

2. A shareholder’s voting instructions to the proxy must be indicated by the insertion of an “X”, or the number of votes which that shareholder wishes to exercise, in the appropriate spaces provided overleaf. Failure to do so will be deemed to authorise the proxy to vote or to abstain from voting at the Annual General Meeting as he/she thinks fit in respect of all the shareholder’s exercisable votes. A shareholder or his/her proxy is not obliged to use all the votes exercisable by him/her or by his/her proxy, but the total number of votes cast, or those in respect of which abstention is recorded, may not exceed the total number of votes exercisable by the shareholder or by his/her proxy.

3. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the transfer secretaries of the Company.

4. Completed proxy forms must be lodged (posted or emailed) to The Meeting Specialist Proprietary Ltd (TMS) at: The Meeting Specialist Proprietary Ltd, The JSE Building, One Exchange Square, Gwen Lane, Sandown, Johannesburg (P.O. Box 62043, Marshalltown, 2107) or [email protected] to be received by them not later than Wednesday, 25 March 2020, at 10:00 am (South African time) for administrative purposes, provided that any form of proxy not delivered to TMS by this time may be handed to the chairperson of the Annual General Meeting at any time before the appointed proxy exercises any shareholder rights at the Annual General Meeting.

5. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the transfer secretaries or waived by the chairperson of the Annual General Meeting.

6. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so.

7. The appointment of a proxy in terms of this form of proxy is revocable in terms of the provisions of section 58(4)(c) read with section 58(5) of the Companies Act, and accordingly a shareholder may revoke the proxy appointment by cancelling it in writing, or making a later inconsistent appointment of a proxy, and delivering a copy of the revocation instrument to the proxy and to the Company.

8. The completion of any blank spaces overleaf need not be initialled. Any alterations or corrections to this form of proxy must be initialled by the signatory/ies.

9. The chairperson of the Annual General Meeting may accept any form of proxy which is completed other than in accordance with these instructions provided that he/she is satisfied as to the manner in which a shareholder wishes to vote.

104

www.pioneerfoods.co.za

INTEG

RATED REPO

RTPIO

NEER FO

OD

S

Documents

2019 - Pioneer Foods