| Tue 29 Apr 2008, 14:00 | | SOV - Sovereign Food Investments Limited - Audited |
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SOV
SOV
SOV - Sovereign Food Investments Limited - Audited Group Results for the year
ended 29 February 2008
Sovereign Food Investments Limited
Incorporated in the Republic of South Africa
Registration number 1995/003990/06
JSE code: SOV ISIN: ZAE 000009221
("Sovereign" or "the Group" or "the Company")
Audited Group Results
for the year ended 29 February 2008
Highlights
* Turnover up 27%
* R265 million investment in production capacity
* Operational cash flow per share of 265 cps
Income Statement
2008 2007
R`000 R`000
Revenue 581 232 458 652
Operating income 87 546 108 020
Depreciation 13 207 9 267
Net interest paid 10 912 4 004
Profit before taxation 63 427 94 749
Normal and deferred taxation 16 711 27 364
Profit after taxation 46 716 67 385
Retained earnings at beginning of year 196 485 129 100
Retained earnings at end of year 243 201 196 485
Weighted average number of shares in issue
(000`s) 33 003 32 608
Earnings per share (cents) 141,6 206,7
Headline earnings per share (cents) 155,0 207,2
Total capital distribution per share (cents) - 70,0
Reconciliation between earnings and
headline earnings
Profit after taxation 46 716 67 385
Reconciling items:
Disposal of fixed assets 6 168 240
Taxation effect (1 728) (70)
Headline profit after taxation 51 156 67 555
Balance Sheet
2008 2007
R`000 R`000
Assets
Non-current assets
Property, plant and equipment 552 446 269 986
Current assets 259 239 209 564
Inventory 26 259 24 452
Biological assets 63 198 32 687
Trade and other receivables 44 628 34 867
Cash and cash equivalents 125 154 117 558
Total assets 811 685 479 550
Equity and liabilities
Capital and reserves
Share capital and premium 14 892 35 131
Non-distributable reserve 28 848 -
Retained earnings 243 201 196 485
Shareholders` interest 286 941 231 616
Liabilities
Long-term loans 316 740 121 549
Long-term portion 246 565 98 558
Short-term portion 70 175 22 991
Deferred taxation 98 619 75 115
Trade and other payables 109 385 43 798
Provision for taxation - 7 472
Total equity and liabilities 811 685 479 550
Cash Flow Statement
2008 2007
R`000 R`000
Cash generated from operations before working
capital changes 87 546 108 693
Changes in working capital 23 508 (8 300)
Cash generated from operating activities 111 054 100 393
Interest paid (10 912) (4 404)
Taxation paid (8 131) (5 537)
Net cash flow from operating activities 92 011 90 452
Capital distribution paid (20 297) (20 127)
Net cash flow after capital distribution 71 714 70 325
Net cash flows from investing activities (67 574) (80 188)
Shares issued for cash - 549
Fixed assets acquired for cash (67 574) (80 737)
Net debt raised (repaid) 3 456 (19 335)
Net increase (decrease) in cash, cash equivalents
and investments 7 596 (29 198)
Cash, cash equivalents and investments at the
beginning of the year 117 558 146 756
Cash, cash equivalents and investments at the end
of the year 125 154 117 558
Statement of Changes in Equity
Share Share Share Retained
2008 capital premium options NDR earnings Total
Opening
balance 330 34 602 199 - 196 485 231 616
Capital
distribution - (20 297) - - - (20 297)
Share options - - 58 - - 58
Revaluation
land and
buildings - - - 28 848 - 28 848
Net profit for
the year - - - - 46 716 46 716
Closing
balance 330 14 305 257 28 848 243 201 286 941
2007
Opening
balance 325 54 186 446 - 129 100 184 057
New shares
issued 5 543 - - - 548
Capital
distribution - (20 127) - - - (20 127)
Share options - - (247) - - (247)
Net profit for
the year - - - - 67 385 67 385
Closing
balance 330 34 602 199 - 196 485 231 616
Commentary
Results for the period under review
Although the Group traded well in the first nine months of the year under
review, difficult trading conditions arose in the last three months and as a
result the Group showed a decline in headline earnings of 25% for the full year.
The difficult trading conditions in the last three months arose as a result of
temporary problems with the upgrade of the processing plant, lower than expected
market prices due to imports and industry over capacity, delays in building new
farming facilities, which resulted in worse than expected bird performance and
considerably higher than forecast feed raw materials.
The Group saw turnover increase 27% to just under R600 million which was as a
result of a 9% increase in volume and a 18% increase in average selling price.
However, EBITDA margins fell from 23,6% to 15,1% as a result of the issues
outlined above.
The balance sheet of the Group remains strong. Net working capital has fallen to
9% of annual turnover from 11% at the end of the prior year.
Expansion
In May 2007 the Group announced its plan to double the size of the business to
800 000 birds per week by February 2010. The year under review has been a
foundational year wherein the Group has expanded the farming assets of the
business by 30%. A further 37% expansion of the farming assets will be completed
in the forthcoming year and the balance in the year thereafter.
The new equipment in the processing plant is now installed and fully
commissioned and the Group now has the most modern slaughtering equipment,
evisceration line and freezing plant in the country.
Production capacity at the feedmill is currently being doubled to ensure that
the Group remains self-sufficient in respect of feed production. In addition, by
mid-year, the Group will commission a
R62 million new state-of-the-art hatchery which will increase the Group`s Day
Old Chick production capacity to 900 000 birds per week. This is the first phase
of a planned R100 million hatchery expansion which will take the Group`s
production capacity to 2 000 000 birds per week.
Due to the ongoing skills shortage in the country, the Group has embarked on an
aggressive recruitment campaign and has increased its skills base considerably
which will be fully utilised in the coming year.
In the year under review, the Group spent R265 million as part of the three-year
expansion, however a substantial portion of this capex was completed shortly
before year-end or is still in the construction phase and therefore the full
benefit will only be felt in the coming year. The Group funded R67 million of
this capex out of operational cash. As a result of this expansion the Group
ended the period with net gearing of 67%.
The Group will spend a further R310 million in the coming year to bring its
planned expansion near to completion. This expansion will be financed via debt,
operational cash and cash reserves.
Industry conditions
Trading conditions since January 2008 have been adversely affected by the surge
in international commodity prices and the slowdown in consumer spending.
The international price of maize and soya has more than doubled over the last
two years. These increases have largely resulted from the use of basic food
staples for ethanol production in the USA and other regions.
This, coupled with the 25% devaluation in the Rand to the USD since November
2007, has resulted in the South African poultry industry having to absorb
substantial cost increases. However, South Africa is expecting a record maize
harvest in 2008 and this could result in the stabilisation of the price of
maize.
The weaker Rand exchange rate has led to lower imports which are supporting
poultry prices. Although supply and demand goes through seasonal variations,
production in the South African poultry industry has expanded by approximately
6% per annum over the past 2 years which is in line with increased consumer
demand. The international price of poultry is expected to continue to firm in
the coming year.
Prospects
Despite the challenges of the year under review, the Group remains very positive
about the prospects for the years ahead. The expansion program has positioned
the Group to deal with the tighter conditions facing the South African economy.
These include electricity disruptions, high raw material prices, a significant
skills shortage and pressured consumer spending.
The expansion program is well on track and a production increase of more than
60% is expected in the coming year compared to the year under review.
These expected volume increases will mitigate against the conditions outlined
above.
Directorate
During the period under review Bruce Spanjaard resigned as a non-executive
director. The board wishes to thank Bruce for his service to the Group.
Annual general meeting
Notice is hereby given that the annual general meeting of the Company will be
held at 09:00 on Wednesday, 2 July 2008 at Uitenhage, Eastern Cape.
Dividend
The Group has made a substantial investment in productive capacity in the year
under review and this will continue until 2010. This expansion is expected to
enhance the earnings of the Group in the future.
Due to this expansion the Group considers it prudent not to declare a dividend
for the year under review.
Accounting policies
The condensed consolidated audited annual financial statements have been
prepared in accordance with International Financial Reporting Standards ("IFRS")
and are consistent with those applied in previous years unless otherwise stated.
Change in accounting policy
During the year, the Group changed its accounting policy with regard to
borrowing costs to facilitate the early adoption of the new standard on
borrowing costs. Borrowing costs are now capitalised to qualifying assets in
accordance with IAS 23 - Borrowing costs. The estimated impact on the period
under review is as follows:
Effect on income statement R`000
Decreased interest charge (10 955)
Increased depreciation charge 77
Increased deferred tax charge 3 046
Net effect 7 832
Effect on the balance sheet R`000
Increase in property, plant and equipment 10 878
Decrease in deferred tax balance (3 046)
Net effect (increase in retained income) 7 832
These results have been audited by the Group`s independent auditors, PKF (PE)
Inc. Their unqualified audit report, dated 24 April 2008, is available for
inspection at the registered offices of the Company.
By order of the board
CP Davies MJB Davis
Non-executive Chairman Chief Executive Officer
29 April 2007
Email: info@sovfoods.co.za
Transfer secretaries
Computershare Investor Services (Pty) Limited, PO Box 61051, Marshalltown 2107,
Gauteng
Sponsor
Barnard Jacobs Mellet Corporate Finance (Pty) Limited
Directorate
CP Davies* (Non-executive Chairman), MJB Davis (Chief Executive Officer), C
Coombes, MJ Hankinson*, KT Kweyama*, Prof PM Madi*, MP Manley, LM Nyhonyha*, BJ
van Rensburg
(*Non-executive)
www.sovfoods.co.za
Date: 29/04/2008 14:00:01 Produced by the JSE SENS Department.
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