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RBW
RBW
RBW - Rainbow Chicken Limited - Abridged audited results for the year ended 31
March 2008 and cash dividend declaration
RAINBOW CHICKEN LIMITED
("Rainbow" or "the Group")
(Registration number 1966/004972/06)
JSE share code: RBW ISIN: ZAE000019063
ABRIDGED AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2008 AND CASH DIVIDEND
DECLARATION
SALIENT FEATURES
Revenue up 25.9%
Operating profit up 19.2%
Headline earnings per share as reported up 7.8%
Headline earnings per share excluding non-recurring items up 12.1%
Dividend per share maintained 68.0c
CONSOLIDATED INCOME STATEMENT
Year ended Year ended
31 March 31 March
R`000 2008 2007
Revenue 5 955 327 4 730 363
Operating profit before non-recurring items,
depreciation and amortisation 925 808 772 315
Feed claim recovery 40 000
BEE expense (49 368)
Operating profit before depreciation
and amortisation 916 440 772 315
Depreciation and amortisation (136 426) (118 181)
Operating profit 780 014 654 134
Finance costs (2 566) (2 714)
Finance income 34 248 25 179
Profit before taxation 811 696 676 599
Taxation (272 730) (202 354)
Profit for the year attributable to the equity
holders of the company 538 966 474 245
HEADLINE EARNINGS
Profit for the year attributable to the equity
holders of the company 538 966 474 245
Loss on disposal of property, plant and equipment 269 2 759
Net asset impairment provision release (11 170)
Headline earnings 528 065 477 004
Feed claim recovery (28 400)
BEE expense 49 368
Adjusted headline earnings 549 033 477 004
CONSOLIDATED BALANCE SHEET
31 March 31 March
R`000 2008 2007
ASSETS
Non-current assets
Property, plant and equipment 1 243 670 1 054 124
Goodwill 287 444 287 444
Deferred taxation 15 285
1 531 114 1 356 853
Current assets
Inventories 521 945 409 356
Biological assets 369 224 269 278
Trade and other receivables 862 591 464 539
Derivative financial instruments 16 768 2 969
Taxation receivable 21 688 2 246
Cash and cash equivalents 509 894 590 336
2 302 110 1 738 724
Total assets 3 833 224 3 095 577
EQUITY
Capital and reserves 2 337 130 1 920 889
LIABILITIES
Non-current liabilities
Deferred taxation 240 041 179 606
Post-retirement medical obligation 80 862 75 535
320 903 255 141
Current liabilities
Trade and other payables 1 126 210 834 153
Provisions 43 251 40 687
Finance lease liability 177 389
Derivative financial instruments 1 394 16 970
Taxation payable 4 159 27 348
1 175 191 919 547
Total liabilities 1 496 094 1 174 688
Total equity and liabilities 3 833 224 3 095 577
STATEMENT OF CHANGES IN EQUITY
Stated Share-based Retained
R`000 capital payments earnings Total
Balance at 1 April
2006 1 115 747 14 226 465 928 1 595 901
Profit for the year
attributable
to the equity holders
of the
company 474 245 474 245
Ordinary dividends
paid (168 817) (168 817)
Employee share option
scheme:
Proceeds from shares
issued 11 538 11 538
Value of employee
services 8 022 8 022
Balance at 31 March
2007 1 127 285 22 248 771 356 1 920 889
Profit for the year
attributable
to the equity holders
of the
company 538 966 538 966
Ordinary dividends
paid (208 803) (208 803)
BEE share-based
payments charge 45 468 45 468
Employee share option
scheme:
Proceeds from shares
issued 29 807 29 807
Value of employee
services 10 803 10 803
Balance at 31 March
2008 1 157 092 78 519 1 101 519 2 337 130
CONSOLIDATED CASH FLOW INFORMATION
Year ended Year ended
31 March 31 March
R`000 2008 2007
Operating profit 780 014 654 134
Non-cash items 185 125 144 730
Operating profit before working
capital requirements 965 139 798 864
Working capital requirements (347 905) 22 630
Cash generated by operations 617 234 821 494
Net finance income 31 682 22 465
Taxation paid (239 641) (277 836)
Cash available from operating activities 409 275 566 123
Dividends paid (208 803) (168 817)
Net cash flows from investing activities (310 509) (212 466)
Net cash flows from financing activities 29 595 11 113
Net (decrease)/increase in cash and
cash equivalents (80 442) 195 953
Cash and cash equivalents at the
beginning of the year 590 336 394 383
Cash and cash equivalents at the end
of the year 509 894 590 336
SUPPLEMENTARY INFORMATION
Capital expenditure contracted and committed 94 165 76 008
Capital expenditure approved but not contracted 119 258 81 685
Contingencies 50 078 56 950
STATISTICS
Ordinary shares in issue (000`s) 290 004 282 712
Weighted average ordinary
shares in issue (000`s) 288 951 281 393
Fully diluted weighted
average ordinary shares in issue (000`s) 292 028 290 118
Basic earnings per share (cents) 186.5 168.5
Basic earnings per share - diluted (cents) 184.6 163.5
Headline earnings per share (cents) 182.8 169.5
Headline earning s per share - diluted (cents) 180.8 164.4
Adjusted headline earnings per share (cents) 190.0 169.5
Adjusted headline earnings per share
- diluted (cents) 188.0 164.4
Net asset value per share (cents) 805.9 679.5
Ordinary dividends:
Interim dividend paid (cents) 24.0 20.0
Final dividend declared/paid (cents) 44.0 48.0
Total dividends (cents) 68.0 68.0
BASIS OF PREPARATION
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS), including IAS34 (Interim Financial
Reporting) and in compliance with the Companies Act of South Africa of 1973 as
amended and the Listings Requirements of the JSE Limited.
The accounting policies are consistent with those of the previous financial
year, however they have been updated to include the following new standards,
interpretations and amendments which the Group adopted from 1 April 2007 - IFRS
7 (Financial Instruments: Disclosures), AC503 (Accounting for Black Economic
Empowerment (BEE) Transactions), International Financial Reporting
Interpretations Committee (IFRIC) 8 (Scope of IFRS 2), IFRIC 9 (Reassessment of
Embedded Derivatives), IFRIC 10 (Interim Financial Reporting and Impairment),
IFRIC 11 (IFRS 2 - Group and Treasury Share Transactions) and IAS 1 (Capital
Disclosures). The only impact on the results for the current period as a
consequence of adopting these new standards, interpretations and amendments was
in respect of the BEE transaction. There was no impact on prior year results.
The remaining new standards, interpretations and amendments impact only on
disclosures.
OVERVIEW AND MARKET CONDITIONS
The Group`s results for the year ended 31 March 2008 reflect headline earnings
growth of 10.7% and adjusted headline earnings growth excluding non-recurring
items of 15.1%.
South Africa enjoyed robust growth in calendar 2007, supported by still
healthy, if somewhat dampened consumer demand and a marked acceleration in
fixed investment spending. While private sector spending remained strong the
most rapid acceleration was in the public sector. Despite these positive
developments and after four years of expanding at a rate in excess of 5%, GDP
growth is expected to slow to around 4% in the 2008 calendar year.
Inflation impacts are being felt by virtue of the continuing higher food and
energy prices which resulted in the Monetary Policy Committee imposing further
interest rate hikes to contain inflationary pressures. Although higher interest
rates and a weaker currency should dampen local demand for imports, growth will
probably still exceed exports with the result that net external trade should
continue to detract from overall economic activity this year. A further
deterioration in the near-term inflation outlook is expected. Consumer demand
will be impacted by these factors.
For a second year in a row feed raw material prices have escalated and are
currently at record levels. Increased demand with production lagging behind has
resulted in low international and local stock levels, especially for maize. The
usage of maize in ethanol production increased, placing additional pressure on
stock levels. The low stock levels and hence high prices for maize and wheat
forced soya prices to their current high levels as the crops all compete for
the same land. A similar situation exists with plant oils where demand is
outstripping supply. These factors coupled with the increase in crude oil
prices resulted in record prices for most commodities.
Local yellow maize prices of R1 877 per ton at 31 March 2008 are 4.2% (2007:
79.5%) higher than last year despite the good crop expectation of at least
11 million tons (2007: 7 million). Soyabean meal prices have increased
substantially to R4 128 per ton being 88.8% higher than March 2007
(2007: 39.7%).
The local chicken market is estimated to have grown by 17.7% in calendar 2007
to R16.1 billion (6.0% volume and 11.7% realisation growth).
Total chicken imports (excluding turkey and mechanically deboned meat) have
only increased by 0.3% to March 2008, largely due to the weakening of the rand
and speculative trading by exporters into other more profitable markets.
Chicken imports currently represent 13.2% of the local market.
The poultry industry has submitted a petition to oppose ITAC`s proposed
scrapping of the US anti-dumping tariff. This issue arose unexpectedly
following judgement in a Supreme Court case of similar protection in the
printing industry. It is uncertain what the likely ruling will be but by virtue
of its potential devastating impact on the local industry, it is being treated
as a high priority.
Rainbow and the local poultry industry remain on high alert for Avian
Influenza.
REVIEW OF OPERATIONS
Rainbow remains focused on key strategic initiatives centred on its
consumers and customers. The benefit of this clear and consistent strategic
focus is evidenced in the results for the year and has contributed to
alleviating the impact of the significant feed raw material cost increase.
Integration of the supply chain to drive efficiencies remains a focus area for
the business.
Rainbow has continued to support and invest in its brands via TV advertising
and various consumer activations. The Farmer Brown brand was reintroduced to
consumers on national TV for the first time in 20 years with a new TV ad that
has refreshed the brand`s image while still maintaining the heritage of the
original Farmer Brown campaign.
Rainbow`s focus on innovation, differentiation and communication continues to
prove successful. Rainbow now has a reasonable sized value added portfolio with
a credible base among consumers and our customers. This will provide a strong
platform for future value added growth. The level of innovation is planned to
step up in calendar 2008, with focus on upper and middle income consumer
brackets and consequently, three new ranges were launched in March 2008. These
are the Farmer Brown Tenderbreasts range of frozen breasts, a Farmer Brown
Fully Cooked range of flavoured frozen drums and thighs and a range of
flavoured frozen chicken pieces, called Grill & Braai under the Rainbow brand.
Rainbow FoodSolutions leads the "Out of Home Consumption" category through
strong customer relationships, product innovation and the implementation of a
Customer Service Excellence initiative.
Vector`s Multi-Temperature Contract Distribution model with Spur and Nando`s
and the Vector Cold Storage facilities are performing well. The new business
unit, Vector Primary Transport, was launched in August 2007 following the award
of the McCain primary transport contract. Vector has since also successfully
taken over the management of Rainbow`s primary transport service. The primary
transport model is operating effectively and is a growth opportunity for Vector
in the future.
Agriculture experienced some challenges this year, particularly in the winter
months. Despite this and the higher than normal incidence of disease in the
industry, agricultural performance was improved on last year. This can be
attributed to the continued investment in upgrading facilities, good husbandry
and bio-security practices.
The feed operation has performed well during the period despite significant
cost increases in all commodities. Operating costs have been well managed and
external business through the Epol brand has grown over last year. The year
ahead poses a significant challenge in sourcing reasonably priced raw materials
with prices of most commodities at record levels. Despite the forecast of a
good crop locally, with the current state of the international market, it is
unlikely that local prices will ease meaningfully in the near-term, which will
place additional pressure on Rainbow`s cost of production.
Processing`s performance was a highlight of the year with an improved mix
delivered and costs well contained.
Rainbow has made good progress with the implementation of it s IT and
Enterprise Resource Planning strategy. A significant focus has been placed on
supply chain excellence and customer service initiatives. Effective Sales and
Operational Planning processes will provide the framework for supporting these
strategies. The leveraging of our information systems remains a key enabler
within the business.
BEE TRANSACTION
On 18 March 2008, shareholders approved a broad-based BEE transaction. The
participants in the BEE transaction are Imbewu Consortium, Ikamva Labantu
Empowerment Trust (a Corporate and Social Investment Community Trust), the
Rainbow employee trust and Mrs M Nhlanhla, a non-executive director of Rainbow
(collectively the BEE partners).
The BEE partners acquired an effective 15% of Rainbow`s entire issued share
capital for R915.6 million. The purchase price will be settled by issuing
variable rate (CPIX plus 6%) cumulative redeemable preference shares in BEECo
to Rainbow. Dividends received by BEECo on its investment in Rainbow will be
used to fund the preference dividend, service the debt and repay the principal
sum over a ten-year life of the transaction.
The BEE shares will be subject to restrictions on alienation and encumbrance
for a period of 10 years commencing on the subscription date of the BEECo
preference shares. Should BEECo be unable to pay the full redemption amount
payable upon redemption of the preference shares, Rainbow is entitled to effect
a buy-back in terms of Section 85 of the Companies Act of the number of shares
equalling the outstanding redemption amount.
The BEE shares will be issued during June 2008, after the payment of the final
dividend to existing Rainbow shareholders. For accounting purposes, the
effective date of the transaction is 18 March 2008 which is the date of
shareholder approval.
FINANCIAL REVIEW
Revenue - Rm 2008 2007 %
Chicken 4 578.5 3 767.2 21.5
External sales - Cobb, Epol and Vector 1 376.8 963.2 42.9
Reported revenue 5 955.3 4 730.4 25.9
Chicken revenue for the year was 21.5% higher than the previous year. Rainbow`s
average price realisation, including mix improvement, increased by 15.0%.
Overall chicken volumes increased by 6.5%, including 5 extra trading days
(2.0% impact), with the Quick Service Restaurants sector, targeted customers
and branded products all showing pleasing growth.
Group revenue increased by 25.9% to R6.0 billion (2007: R4.7 billion) largely a
function of the higher chicken and feed realisations and Vector`s higher
external volumes.
The table below depicts headline EBIT from a statutory perspective and
adjusted for the effects of the non-recurring feed claim recovery and BEE
expense. As disclosed previously, the impact of applying IAS39 (Financial
Instruments: Recognition and Measurement) is also reflected.
During the current period, the feed contamination claim against the
responsible supplier was settled and R40.0 million was paid to Rainbow.
The cost of the BEE transaction to Rainbow`s shareholders, calculated using an
option pricing model, is R79.3 million. The current year expense of R49.4
million comprises R45.5 million in respect of the BEE partners and R3.9 million
of transaction costs. The portion relating to the Rainbow employee share trust
will be expensed over 10 years commencing 1 April 2008.
Reporting the financial effects of certain financial instruments used in the
feed raw material procurement strategy in accordance with IAS39 introduces
volatility to the Group`s financial results. For this reporting period the
pre-taxation impact of applying IAS39 on the Group`s results is a positive
R34.4 million (2007: R14.2 million negative).
The decline in headline EBIT margin is in line with the forecast made at the
previous year end and reflects the higher feed raw material costs not being
entirely recovered in chicken pricing.
2008 2007 %
Headline EBIT (Rm)
- statutory 764.6 656.9 16.4
- adjusted for non-recurring items 774.0 656.9 17.8
- adjusted pre IAS 39 739.6 671.1 10.2
Headline EBIT margin (%)
- statutory 12.8 13.9 (1.1)
- adjusted for non-recurring items 13.0 13.9 (0.9)
- adjusted pre IAS 39 12.4 14.2 (1.8)
The effective taxation rate of 33.6% (2007: 29.9%) was impacted by the non-
deductible BEE expense and higher STC charge, offset by the impact of the
reduction in the tax rate on the closing deferred taxation balance (29% vs.
28%) and last year`s Strategic Investment Program allowance of R21.8 million
granted on the new Further Processed plant.
Net finance income increased by R9.2 million due to the higher cash balances
During the year.
Headline earnings increased by 10.7% to R528.1 million (2007:
R477.0 million) with diluted headline earnings per share improving by 10.0% to
180.8 cents per share (2007: 164.4 cents per share).
Cash generated by operations decreased by 24.9% to R617.2 million (2007:
R821.5 million) due to increased working capital requirements largely as a
result of higher trade receivables in line with increased trading and the
valuation of inventories which is impacted by the higher feed costs.
Capital expenditure was R315.5 million (2007: R214.1 million). A further
amount of R94.2 million (2007: R76.0 million) has been contracted and
committed, but not spent, whilst a further R119.3 million (2007: R81.7 million)
has been approved, but not contracted. Depreciation has increased by 15.4% to
R136.4 million as a result of the additional capital expenditure.
Return on equity decreased to 25.3% (2007: 27.0%).
PROSPECTS
Consumer spending is expected to soften over the next six months as a
consequence of the higher inflation and interest rate environment.
Maize and soya prices are likely to remain at the current higher levels
translating into significantly higher feed input costs than the 2008 financial
year.
Other costs like fuel, gas, coal, electricity and packaging have also been
significantly impacted by inflationary and supply pressures. As in 2008, sales
realisations are unlikely to fully recover all the anticipated production cost
pressures.
As a result earnings for the 2009 financial year on a pre-and post-IAS39
basis are likely to be lower than 2008.
In light of the above and the difficult trading environment anticipated for the
year ahead, the Board has decided to maintain the current year dividend at the
prior year level.
DIRECTORATE
There have been no changes to the directorate since the last reporting date,
however with effect from 1 August 2007 John Maher was appointed as Company
Secretary.
AUDIT OPINION
The annual financial statements, from which the abridged Group Results
contained herein are derived, have been audited by PricewaterhouseCoopers Inc.
Their unqualified Audit Reports on the annual financial statements and the
abridged Group Results are available for inspection at the company`s
registered office.
CASH DIVIDEND DECLARATION
Notice is hereby given that on 21 May 2008 the Board declared a final dividend
(number 70) of 44.0 cents per ordinary share in respect of the twelve months
ended 31 March 2008 (2007: 48.0 cents). The total dividend for the year is
2.7 times covered by fully diluted headline earnings per share (2007: 2.4
times).
The salient dates of the declaration and payment of this dividend are as
follows:
Last date to trade ordinary shares cum dividend Friday, 6 June 2008
Ordinary shares trade ex dividend Monday, 9 June 2008
Record date Friday, 13 June 2008
Payment date Tuesday, 17 June 2008
Share certificates may not be dematerialised or rematerialised between Monday,
9 June 2008 and Friday, 13 June 2008 (both dates inclusive).
For and on behalf of the Board
M H Visser M Dally
Non-executive Chairman Chief Executive Officer
Durban
21 May 2008
Directors: MH Visser (Non-executive Chairman), M Dally (CEO)*, RH Field*,
M Griessel, JB Magwaza, M Nhlanhla, DW Vale, DG Zwiegelaar
* Executive Directors
Company secretary: JMJ Maher
Registered office: Rainbow Chicken Limited, One the Boulevard, Westway Office
Park, Westville, 3629
Transfer secretaries: Computershare Investor Services (Proprietary) Limited,
70 Marshall Street, Johannesburg 2001
Auditors: PricewaterhouseCoopers Inc
Sponsor: RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Bankers: ABSA Bank Limited
Website: www.rainbowchicken.co.za
Date: 21/05/2008 17:10:01 Produced by the JSE SENS Department.
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