| Thu 23 Sep 2010, 15:57 | | Sov - Sovereign Food Investments Limited - Unaudited group results for the six |
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SOV
SOV
Sov - Sovereign Food Investments Limited - Unaudited group results for the six
months ended 31 August 2010
SOVEREIGN FOOD INVESTMENTS LIMITED
Incorporated in the Republic of South Africa
Registration Number 1995/003990/06
JSE Code: SOV ISIN: ZAE000009221
("Sovereign" or "the Group")
Unaudited group results for the six months ended 31 August 2010
Highlights:
Significant improvement in operating performance resulting in:
8% increase in total sales volume from an improvement in farming performance
3% improvement in feed conversion ratio ("FCR")
13% decline in feed costs per kg sold
Statement of Comprehensive Income
Unaudited Audited
six months
ended 31 August
year ended
28 February
2010 2009 2010
R`000 R`000 R`000
Revenue 527 601 544 968 1 056 203
Operating income 43 259 77 637 104 622
Depreciation 15 772 12 022 26 696
Profit before interest and taxation 27 487 65 615 77 926
Net interest paid 25 730 33 375 62 866
Net operating income 1 757 32 240 15 060
Deferred taxation 492 8 991 3 991
Retained earnings for the period 1 265 23 249 11 069
Weighted average number of shares in
issue (000`s) 47 817 33 003 36 087
Earnings per share (cents) 2,7 70,5 30,7
Headline earnings per share (cents) 2,7 70,5 32,3
Diluted earnings per share (cents) 2,6 70,3 30,3
Diluted headline earnings per share
(cents) 2,6 70,3 31,9
Reconciliation between earnings and
headline earnings
Earnings after taxation 1 265 23 249 11 069
Reconciling items - - 589
Headline earnings after taxation 1 265 23 249 11 658
Statement of Financial Position
Unaudited Audited
six months
ended 31 August
year ended
28 February
2010 2009 2010
R`000 R`000 R`000
Assets
Non-current assets
Property, plant and equipment 823 105 813 587 814 262
Current assets 333 126 313 345 299 337
Inventory and biological assets 140 547 121 015 138 554
Trade and other receivables 115 094 87 820 106 555
Cash and cash equivalents 77 485 104 510 54 228
Total assets 1 156 231 1 126 932 1 113 599
Equity and liabilities
Capital and reserves
Equity 419 161 309 503 417 896
Non-current liabilities 438 273 552 460 461 726
Long term portion of interest
bearing debt 336 729 446 406 360 673
Deferred taxation 101 544 106 054 101 053
Current liabilities 298 797 264 969 233 977
Short term portion of interest
bearing debt 47 320 90 424 76 709
Trade, other payables and
provisions 171 888 174 545 157 268
Overdraft 79 589 - -
Total equity and liabilities 1 156 231 1 126 932 1 113 599
Statement of Cash Flows
Unaudited Audited
six months
ended 31 August
year ended
28 February
2010 2009 2010
R`000 R`000 R`000
Cash generated from operations
before working capital changes 43 259 77 637 105 940
Changes in working capital (25 973) 35 422 (18 129)
Cash generated from operating
activities 17 286 113 059 87 811
Net interest paid (25 730) (33 375) (62 866)
Net cash flows from operating
activities (8 444) 79 684 24 945
Net cash flows from investing in
property, plant and equipment (24 615) (45 479) (61 552)
Net cash flows from debt
(repaid)/raised (23 333) (12 374) 8 156
Net increase/(decrease) in cash and
cash equivalents (56 392) 21 831 (28 451)
Net cash and cash equivalents at
beginning of the period 54 288 82 679 82 679
Net cash and cash equivalents at
end of the period (2 104) 104 510 54 228
Statement of changes in equity
Share
Share Share based
31 August 2010 capital premium payments
R`000 R`000 R`000
Opening balance 478 133 897 895
Net profit for the period - - -
Closing balance 478 133 897 895
31 August 2009
Opening balance 330 14 305 301
Net profit for the period - - -
Share based payments - - (239)
Closing balance 330 14 305 62
Revaluation Retained
31 August 2010 reserve earnings Total
R`000 R`000 R`000
Opening balance 28 848 253 778 417 896
Net profit for the period - 1 265 1 265
Closing balance 28 848 255 043 419 161
31 August 2009
Opening balance 28 848 242 709 286 493
Net profit for the period - 23 249 23 249
Share based payments - - (239)
Closing balance 28 848 265 958 309 503
Pro forma information (in order to illustrate financial performance over the
last 3 half yearly reporting periods)
Pro forma
6 months for the 6 6 months
ended Year ended months ended ended
31 August 28 February 28 February 31 August
2009 (3) 2010 (4) 2010 (5) 2010 (6)
R`000 R`000 R`000 R`000
Revenue 544 968 1 056 203 511 235 527 601
Operating income 77 637 104 622 26 985 43 259
Depreciation 12 022 26 696 14 674 15 772
Profit before
interest and
taxation 65 615 77 926 12 311 27 487
Net interest paid 33 375 62 866 29 491 25 730
Net operating
income/(loss) 32 240 15 060 (17 180) 1 757
Deferred taxation 8 991 3 991 (5 000) 492
Retained earnings
for the period 23 249 11 069 (12 180) 1 265
Headline earnings 23 249 11 658 (11 591) 1 265
for the period
Notes
1. The pro forma information has been prepared for illustrative purposes only
and because of its nature may not give a fair presentation of the Group`s
financial position for the 6 months ended 28 February 2010.
2. The pro forma information is the responsibility of the Group`s directors.
3. As extracted from the published unaudited consolidated interim results for
the 6 months ended 31 August 2009.
4. As extracted from the published audited consolidated results for the year
ended 28 February 2010.
5. The pro forma information was calculated by subtracting the results for the 6
months ended 31 August 2009 from the results for the year ended 28 February
2010.
6. As extracted from the published unaudited consolidated interim results for
the 6 months ended 31 August 2010.
Results for the period under review
During the period under review the Group experienced very difficult trading
conditions. This was as a result of national poultry prices declining by 13,9%
compared to the same period last year. During the six months ended 31 August
2010 pricing was placed under severe pressure due to oversupply of poultry in
the market. Producers and importers had increased volumes in anticipation of
additional demand for the 2010 World Cup.
As a result, the Group`s poultry prices declined by 10,4% compared to the six
months ended 31 August 2009 ("comparative period") and this had the effect of
reducing revenues for the period under review by R61 million. As a result of
this, EBITDA margins declined from 14,3% in the comparative period to 8,2%.
The trading results for the period under review must however also be compared to
the pro forma results for the 6 month period ended 28 February 2010 ("H210"). In
terms of this comparison, average poultry prices declined by 6,8% whilst
operating income increased by 60% from R27,0 million to R43,3 million, EBITDA
margins increased by 60% from 5,1% to 8,2% and net profit before taxation
increased by 110% from a loss of R17,2 million to a profit of R1,8 million.
The Group has had a strong period operationally. Improvements have been achieved
in all key performance indicators ("KPI`s"). The substantial investment the
Group has made over the last three years in high quality poultry production
assets has begun to show benefits. Key highlights have been:
significant improvement in FCR resulting in a 13% reduction in the feed cost
per kg sold;
improved bird health and a considerable decline in farm mortalities;
poultry performance ahead of breed standards;
improved product quality standards;
30% decline in frozen transport costs; and
reduction in the cost of feed-milling.
These improvements have been achieved over the period under review with each
month reflecting a continually improving trend. The expectation is that these
trends will continue and provide a strong underpin for improved business
performance into the future. Despite the previous period of intense corporate
action, levels of staff motivation inside the business remains extremely strong
as a result of the improving business performance in each of the KPI areas.
As a result of the outsourcing of the frozen transport division undertaken in
April 2010 and staff restructuring carried out in August 2010, the Group
incurred once off costs in the amount of R6,5 million. Partly as a result of
this, non-feed costs increased by 7,6%.
The Group was also challenged by high electricity cost increases during the
period under review with the local municipality imposing a 22% tariff increase
with effect from 1 July 2010.
Notwithstanding the cost challenges outlined above, the Group was able to
decrease its total cost of production per kg sold by 3,4% compared to the
comparative period. After accounting for the once off costs of R6,5 million, the
decrease in total cost of production per kg sold would have been 4,6%.
As a result of the Rights Offer concluded in December 2009 and the lower prime
interest rate, finance charges declined by 22,9% compared to the comparative
period.
Gearing and cash management remains a focus area for management and the Board of
Directors of Sovereign ("the Board") and despite the difficult trading
conditions, the Group managed to keep net gearing at 92% which is the same as at
28 February 2010. As a result of this focus, net working capital declined by R4
million from the end of the previous financial year.
As at 31 August 2010, the Group changed the classification of its overdraft
facilities to a separate line item under current liabilities on the Statement of
Financial Position. Previously, the overdraft facilities were classified in the
short term portion of the long term liabilities line item. The overdraft
facilities in the short term portion of the long term liabilities as at 28
February 2010 and 31 August 2009 were R30 million at each reporting date.
Prospects
The key challenges that the Group face`s in the coming 6 months are a continued
weakness in poultry prices and higher volatility in feed raw material markets.
Whilst poultry prices have already strengthened in accordance with seasonal
norms, further plans are in place to secure higher poultry prices. These
include:
- Finalising an enhancement to its processing facilities. This will allow the
production of a range of key poultry products that cannot currently be
produced. It is anticipated that this product range will allow the group to
move a significant portion of its production into key products that will
provide a substantial buffer against the current weak poultry pricing. The
new production facilities are scheduled to come on stream at the end of
November 2010.
- The completion of a larger cold storage facility will allow increased
flexibility in satisfying customer demand.
To mitigate the higher volatility in feed raw material prices, the Group has a
procurement practice that has resulted in 75% of the maize requirement for the
coming six months being secured at prices at the same level of current SAFEX
December 2010 white maize futures. In addition, 40% of the Group`s soya
requirement for the period has also been secured.
The Group is also pleased to announce that a new contract grower will come on
stream by mid December 2010 who will add 5% to the Group`s dedicated farming
facilities.
In order to address the challenge of land redistribution, the Group is in the
process of transferring ownership of one of its farms into broad based black
economic empowerment ownership. This transaction, which is subject to certain
conditions, will have the effect of reducing debt by R36 million.
Directorate
During the period under review, Mr Mike Hankinson and Ms Khanya Kweyama
resigned. Mike resigned due to a potential conflict of interest in his role as
the Chairman of Spar and Khanya resigned due to other work commitments. The
Group wishes to thank Mike and Khanya for their valuable contribution to the
Group.
Accounting Policies
The condensed consolidated interim financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS") with the
date of transition to IFRS for the Group being 1 March 2005 and comply with the
requirements of International Accounting Standard 34 - Interim Financial
Reporting and the AC500 standards as issued by the Accounting Practices Board.
The accounting policies are consistent with those applied by the Group for the
year ended 28 February 2010.
Interim Dividend
In accordance with the Group`s intention to improve its gearing position, the
Board considers it prudent not to declare an interim dividend for the period
under review.
By order of the Board
CP Davies Non-executive Chairman
MJB Davis Chief Executive Officer
23 September 2010
Sovereign Food Investments Limited
E-mail: info@sovfoods.co.za
Website: www.sovereignfoods.co.za
Transfer secretaries
Computershare Investor Services (Pty) Limited
PO Box 61051
Marshalltown 2107
Gauteng
Sponsor
One Capital
Directorate
CP Davies* (Chairman), PM Madi*, LM Nyhonyha*, MJB Davis, C Coombes, BJ Van
Rensburg, GG Walter (* Non-executive)
Date: 23/09/2010 15:57:01 Produced by the JSE SENS Department.
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