PIONEER FOODS: Shake-up spooks the market
As the food group faces a tough second half, uncertainty around the CEO’s sudden resignation has also taken a toll
To say the news that Phil Roux will vacate his position as Pioneer Foods group CEO at the end of the month caught the market completely off guard would be an understatement.
It sent the food group’s price crashing and provided a field day for rumour-mongers. They contrived a myriad possible reasons and, in the process, created what is a potentially outstanding opportunity to buy Pioneer stock.
Some asked whether Roux, the highly respected CEO since April 2013, had been given the boot by the board. Or was there an impasse on strategy between Roux and the board, which is heavily influenced by PSG? PSG’s influence is through its 34.6% in Zeder, which has a 27% stake in Pioneer.
There are sound reasons to support both possibilities.
For one, Pioneer’s headline EPS, hit by losses on maize futures, slumped 56% in the six months to March. The same or worse is set to come in the second half.
The other possibility was a fallout with PSG over what, in March, had been termed a "material [offshore] transaction" that Roux had been pursuing. Negotiations were called off in May.
"I believe PSG blocked the deal," says a fund manager who requested anonymity.
I am sorry to tell those who believe otherwise, but there are no spooks or sensational revelations in my resignation.
Whatever the reason, news of Roux’s imminent departure sparked aggressive selling, driving Pioneer’s share price 15% lower in the week after his September 1 resignation announcement.
"The market has seriously lost the plot," says Warren Jervis, manager of the Old Mutual Mid and Small-Cap fund. "I am using the price setback to buy Pioneer."
Roux pours water on the aspersions: "I am sorry to tell those who believe otherwise, but there are no spooks or sensational revelations in my resignation.
"That I had a fall-out with the board is just so much BS. My resignation is entirely my own decision."
Of the aborted potential offshore deal, which Roux reveals was with a US group, he says he had worked on it for 10 months with the full support of Pioneer’s board.
The US group walked away from the deal because it got scared of what it saw happening in SA, says Roux.
There has been speculation that the group was PepsiCo.
Zeder CEO Norman Celliers puts any doubts that may still exist about Roux’s departure firmly to rest.
"[Roux] has done a great job," says Celliers. "There are definitely no ill feelings between us. There is nothing more to read into it."
Roux explains that the real reason for his resignation is "quite simple". With the huge transformation of Pioneer, which he has driven relentlessly, and what he calls "a year from bloody hell" behind him, he says he is worn out and needs to step back and take a break.
He is not severing his ties with Pioneer completely, and will serve as strategic adviser to the group until November 2019.
Roux says his biggest regret is that he would have preferred to leave Pioneer next year. "But the board decided it wanted to get all the bad news out of the way this financial year," he says.
On the results front, it will be really bad news. Beyond stalling sales volumes and margin pressure, the second half of the year will also bring with it the final winding down of maize futures contracts that were bought at a time when drought fears had driven the maize price sky high.
The futures losses will be substantial, says Roux. But they will be a one-off cost.
Confidently, incoming Pioneer CEO Tertius Carstens says: "The company will be back on track in the 2018 financial year."
The market’s negative reaction to Roux’s resignation is all the more strange given the depth of experience Carstens brings with him.
A 23-year veteran with Pioneer, Carstens currently heads the group’s biggest division, Essential Foods.
"The transition from me to [Carstens] will be completely seamless," says Roux. "It will be business as usual."
In a big vote of confidence in Pioneer’s future, Roux bought almost R1m of Pioneer shares in the days following his resignation announcement. He was joined by CFO Felix Lombard, who scooped up R916,000 of Pioneer shares in the same week.
Jervis welcomes Carstens’ appointment, saying: "He knows the business inside out."
Roux himself is now looking forward to a well-earned break. But it will not be permanent retirement.
"I am only 52 and still have lot of tread on my tyres," he says. "But I am not sure I will want to be CEO of a large company again. I may take positions on some boards, go into private equity or even do some teaching. I have yet to decide."
Whatever direction Roux opts to take, it is unlikely that we have heard the last of him.