Pioneer Food sounds drought warning as dividend climbs 50%

Pioneer Food Group Ltd. said South Africa’s worst drought in 23 years and a weak currency in its home market will weigh on margins even as the nation’s second-largest food producer increased its annual payout to shareholders by more than half.

The company lifted its final dividend by 52 percent to 2.37 rand ($0.17) a share, raising the payout for the year ended Sept. 30 by 50 percent to 3.32 rand, the Paarl, Western Cape- based company said in a statement Tuesday. Earnings excluding one-time items rose 16 percent to 1.2 billion rand, or 6.65 rand per share.

Pioneer’s profit increased even as South Africa’s worst drought since 1992 prompted local prices for grains such as corn to increase by more than 50 percent this year, weighing on the cost of ingredients. The drought is worsening sluggish growth in the continent’s second-largest economy, which is expanding at its slowest pace since a recession in 2009.

“The low growth and competitive environment, exacerbated by cost push due to rand weakness and drought conditions, will place significant pressure on volumes and margins,” Pioneer said.

The shares fell as much as 9.7 percent, the most since December 2008, to 163.50 rand and traded 8.8 percent lower at 165 rand by 9:41 a.m. in Johannesburg, with about 100,000 shares changing hands, or 16 percent of the three-month daily average.

The rand has weakened 18 percent against the dollar this year, making it 2015’s worst performer among 16 major currencies tracked by Bloomberg after Brazil’s real.

– Bloomberg [Andre Janse van Vuuren]