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Rainbow Chicken Limited - Abridged Audited Group Results for the year ended 31
March 2003
Rainbow Chicken Limited
(Registration number 1966/004972/06)
JSE Share code: RBW
ISIN: ZAE000019063
Abridged Audited Group Results for the year ended 31 March 2003
Financial Highlights
R"million 2003 2002 % Change
Revenue 3 763,7 3 040,2 23,8
Operating profit BIT 246,0 156,8 56,9
Headline earnings 275,2 154,7 77,9
cents per share 106,2 60,3 76,1
cents per share, fully diluted 99,2 56,8 74,6
Attributable profit 253,6 153,9 64,8
Total dividends declared (cents per 24,0 14,0 71,4
share)
Cash generated from operations 361,6 102,9 251,4
Consolidated Balance Sheet
31 March 31 March
2003 2002
R"000 R"000
ASSETS
Non-current assets
Trademarks, property, plant and equipment 570 783 556 107
Current assets
Deferred taxation 8 907 -
Loans 162 434
Inventories 421 838 313 518
Trade and other receivables 361 798 329 744
Taxation 662 -
Cash and cash equivalents 290 758 70 406
Total current assets 1 084 125 714 102
Total assets 1 654 908 1 270 209
EQUITY AND LIABILITIES
Capital and reserves 1 073 180 857 300
Preference share capital 500 500
Total shareholders" equity 1 073 680 857 800
Non-current liabilities
Interest bearing debt - long-term 3 469 4 848
Post-retirement medical obligation 30 131 28 960
Deferred taxation - 5 591
Total non-current liabilities 33 600 39 399
Current liabilities
Trade and other payables 463 382 319 648
Provisions 80 673 49 495
Taxation - 815
Interest bearing debt - short-term 3 573 3 052
Total current liabilities 547 628 373 010
Total equity and liabilities 1 654 908 1 270 209
Supplementary Information
Year ended Year ended
31 March 31 March
2003 2002
R"000 R"000
Capital expenditure contracted and 30 568 24 496
committed
Capital expenditure approved but not 18 162 15 140
contracted
Contingent liabilities 18 027 62 726
Consolidated Income Statement
Revenue 3 763 659 3 040 231
Operating profit before depreciation
and amortisation 326 260 208 825
Depreciation and amortisation (59 159) (51 997)
Trade mark impairment (21 064) -
Operating profit before interest 246 037 156 828
Interest paid (1 585) (3 567)
Profit before taxation 244 452 153 261
Taxation 9 230 653
Profit after taxation 253 682 153 914
Preference dividends (62) (62)
Attributable profit 253 620 153 852
Headline Earnings
Profit attributable to ordinary 253 620 153 852
shareholders
Loss on disposal of property, plant and 3 712 2 061
equipment
Net asset impairment provision 17 883 (1 258)
raised/(released)
Headline earnings 275 215 154 655
Consolidated Cash Flow Information
Operating profit before working capital 326 791 209 628
requirements
Working capital requirements 34 810 (106 742)
Cash generated by operations 361 601 102 886
Interest and taxation paid (8 330) (4 864)
Dividends paid (44 117) (10 336)
Net cash flows from operating activities 309 154 87 686
Net cash flows from investing activities (95 430) (47 377)
Net cash flows from financing activities 6 107 20 842
Net increase in cash and cash equivalents 219 831 61 151
Cash and cash equivalents at the 67 354 6 203
beginning of the year
Cash and cash equivalents at the end of 287 185 67 354
the year
Cash and cash equivalents per balance 290 758 70 406
sheet
Interest bearing debt - short-term (3 573) (3 052)
Statement of Changes in Equity
Stated Accumulated Consolidated
Capital Loss Total
R"000 R"000 R"000
Balance at 1 April 2001 1 082 853 (370 386) 712 467
Retained income for the year 143 578 143 578
Issue of shares 1 255 1 255
Balance at 1 April 2002 1 084 108 (226 808) 857 300
Retained income for the year 209 565 209 565
Profit after taxation 253 682 253 682
Preference dividends paid (62) (62)
Attributable profit 253 620 253 620
Ordinary dividends paid (44 055) (44 055)
Issue of shares 6 315 6 315
Balance at 31 March 2003 1 090 423 (17 243) 1 073 180
Statistics
Year ended Year ended
31 March 31 March
2003 2002
Number of ordinary shares in (000"s) 262 709 256 837
issue
Weighted average number of
ordinary shares in issue
(000"s) 259 106 256 299
Fully diluted weighted
average ordinary shares in
issue $
(000"s) 282 702 278 449
Basic earnings per share # (cents) 97.9 60.0
Basic earnings per share - (cents) 91.5 56.5
diluted
Headline earnings per share # (cents) 106.2 60.3
Headline earnings per share - (cents) 99.2 56.8
diluted
Net asset value per share (cents) 408.5 333.8
Ordinary dividends:
Interim dividend paid (cents) 7.0 4.0
Final dividend declared (cents) 17.0 10.0
$ The dilution is attributed to share options issued to the Rainbow Share
Incentive Trust. The notional benefit of the share options is R5,110 million.
# Calculated using the weighted average number of ordinary shares in issue.
Comments
ACCOUNTING POLICIES
The financial statements for the period under review are prepared on the
historical cost basis, in accordance with the South African Statements of
Generally Accepted Accounting Practice and incorporates accounting policies
which are consistent in all respects with those of the previous financial
period.
AUDIT REPORT
The financial information has been audited by Deloitte & Touche whose
unqualified audit opinion is available for inspection at the Company"s
registered office.
INDUSTRY OPERATING ENVIRONMENT
The financial year commenced with the industry under severe margin pressure
arising from earlier substantial input cost increases, mainly feed related,
which the industry had not up to that point been able to recover through higher
selling prices. Chicken production costs remained high for most of the period
under review.
Despite high interest rates during the year, consumer confidence and spending
remained relatively buoyant. This buoyancy was tested by a marked increase in
consumer price inflation, which, in excess of 12%, was at the highest level
since 1994. In addition, very high beef, lamb and pork price increases resulted
in protein product substitution, providing a platform for the poultry industry
from around mid-year to respond to its own cost pressures and regain modest
margins. Chicken prices, driven mainly by an annualised feed cost increase of
38,2%, rose by an estimated year on year average of 15,5%.
Under the pressures of high costs and low chicken realisations in the first six
months, several smaller chicken industry members were not able to survive, and
some had to realign themselves with other producers, while others were forced
into judicial management or insolvency.
A total recovery of realisations relative to production cost increases was,
however, inhibited by substantially increased levels of imports towards the end
of the calendar year, facilitated by trading conditions favourable to importers.
The Rand strengthened by 24,1% against the US$ in the second half of the period,
from R10,56 to R8,01 at the financial year-end, making imports far more
competitive.
Although the SAFEX spot price for yellow maize eased by 44,3%, from R1 531 per
ton to R852 per ton due to optimistic domestic maize crop expectations, feed
producers, who have to make extensive use of forward positions to procure maize,
were tied in to higher procurement pricing levels until well after feed raw
material prices started softening. Their ability to respond to the strengthening
Rand was accordingly limited.
Importers were thus able to capitalise on the very unusual co-incidence of
higher domestic chicken realisation levels and a significantly stronger Rand
prevailing at the same time.
In the last-quarter of the calendar year, imports consequently rose to record
heights, but fell off as chicken prices softened seasonally in January 2003.
Over the festive season, strong consumer demand levels and the competitive
position of chicken as the cheapest meat protein available produced a supply and
demand relationship which enabled producers to recover better margins and to
avoid significant stock builds.
GROUP TRADING RESULTS
The results for the year are pleasing. Headline earnings grew by 77,9% from
R154,7 million to R275,2 million on Group revenue which, including the impact of
volume and mix improvements in feedmilling, breeding and broiler operations,
increased by 23,8 %, from R3,0 billion to R3,8 billion. The significant increase
in revenue is, however, predominantly attributable to the recovery of higher
feed raw material input costs in sales prices.
The benefits of a vertically integrated supply chain, spanning several elements
of potential procurement risk, were realised during the past year. Due to the
extent of this integration and its resultant cost efficiency, the Group was able
to reduce its exposure to the consequences of the market realities faced by the
chicken industry as outlined earlier.
The Group"s Optimisation Strategy, although in its early stages, is progressing
as planned and benefits are already beginning to be realised in terms of both
cost efficiencies and better realisations as a result of an enhanced product
mix.
The Group operating profit before interest and before recognition of a net
trademark impairment of R17,9 million amounted to R 263,9 million (2002 : R156,8
million), an increase of 68,3 %. The Group reviewed its valuation of trademarks
and recognised impairment losses amounting to a total of R21,1 million (2002 :
Nil), while releasing R3,2 million of asset impairment charge provisions
following the sale of certain assets, resulting in a net asset impairment charge
of R17,9 million (2002: release of R1,3 million). After absorbtion of this net
asset impairment, the Group operating profit before interest amounted to R246,0
million (2002 : R156,8 million) for the year to 31 March 2003, an improvement of
56,9 %.
Headline earnings amounted to R275,2 million (2002: R154,7 million), an
improvement of 77,9%. It should, however, be noted that headline earnings for
the year included a non-recurring benefit of R14,5 million representing a
reversal of a deferred tax liability amounting to R5,6 million and the creation
of a deferred tax asset of R8,9 million.
Despite higher interest rates, the reduction of interest bearing debt levels
reduced the interest charge to R1,6 million (2002: R3,6 million). Attributable
profit amounted to R253,6 million (2002: R153,9 million), an increase of 64,8 %.
While these improvements are significant, both the operating margin (before
interest and trademark impairment) of 7,0% (2002: 5,2 %) and headline earnings
of R275,2 million, on a total asset base of R1 654,9 million, are at levels
which indicate that further improvement is necessary before acceptable levels of
return are achieved.
BALANCE SHEET
The Group committed a total of R144,8 million (2002: R78,1 million) to capital
expenditure during the year and expended a total of R114,2 million (2002: R53,6
million). The expenditure was incurred largely to facilitate volume growth and
to improve efficiencies across the whole supply chain.
Rainbow continued to operate with fluctuating short-term core borrowings for the
period. Net cash generated during the period from operating profit before
working capital requirements amounted to R326,8 million (2002: R209,6 million)
representing an improvement of 55,9% on the comparative period. Cash generated
by operations increased by R258,7 million, from R102,9 million in 2002 to R361,6
million in the current year. At year-end cash and cash equivalents amounted to
R287,2 million (2002: R67,4 million).
OPERATING PERFORMANCE
The Group"s feed raw material procurement strategy, particularly regarding
forward purchase contracts, has been a significant factor in hedging the Group
against the dramatic volatility in feed raw material prices during the period
under review. In so doing, the Group was able to offer its customers greater
pricing stability at very competitive levels.
Notwithstanding the challenging trading conditions, Epol produced an excellent
performance.
The Cobb breeding facilities continue to do well and have surpassed
expectations. The performance of the breed has greatly contributed to Group
results. Significant benefits have also been experienced by the industry due to
the introduction of the Cobb breed into the local market.
Rainbow"s initial turnaround focus was mainly directed at streamlining its
supply chain and improving productivity. This process has dramatically improved
the Group"s cost efficiencies, and many performance levels are now of a world
class standard.
The second phase of the Group strategy comprised a further optimisation of
performance through market repositioning, a change in mix to produce more value
added products, customer centered new product development and the improvement of
customer service levels. This customer-focussed strategy has already resulted in
Rainbow Farms" prominence in the Quick Service Restaurant (QSR) sector, which
now includes most of the major national brands in its customer base. Rainbow
recently also started supporting some of its customers" international
operations. Major capital investments were made, and continue to be made, in
support of this QSR strategy. A similar process has also commenced in other
selected channels.
In meeting increased customer demand levels, the Group"s chicken operations grew
volumes by 6,5% (2002: 4,4%) through some increased capacity, but mainly from
improved bird performance and an optimisation of plant efficiency.
PROSPECTS
While the cost of chicken production is likely to benefit from the drop in feed
related raw material costs, this is, however, likely to be offset by concomitant
lower chicken price realisations. Should the Rand remain strong against the U.S.
Dollar, imports of chicken products are likely to increase further which,
through over-supply, could have a dampening effect on selling prices.
Management"s main focus will, in addition to its continued pursuit of being the
low cost quality producer, be directed at its performance optimisation and
customer centered strategy as the Group"s platform for growth. The successful
execution of this strategy is dependent on the key elements of the Group"s
people skills and knowledge management, which will receive further attention and
support.
The consequence of implementing the above strategy is likely to be a period of
consolidation in the year ahead.
Any operating profit growth will be materially impacted both by not having the
benefit of the previous year"s non-recurring items, and by a return to a tax
paying position during the course of the year, resulting in a reduction in
headline earnings.
DECLARATION OF ORDINARY DIVIDEND
Notice is hereby given that on 14 May 2003 the Board declared a final dividend
(number 60) of 17,0 cents per ordinary share in respect of the financial year
ended 31 March 2003 (2002: 10,0 cents).
The last date to trade cum dividend will be Friday, 20 June 2003
and trading will commence ex dividend from Monday, 23 June 2003
The record date will be Friday, 27 June 2003
and the dividend will be paid on Monday, 30 June 2003
Share certificates may not be dematerialised or rematerialised between Monday,
23 June 2003 and Friday, 27 June 2003 (both dates inclusive).
Having paid an interim ordinary dividend of 7,0 cents per ordinary share on
Monday, 13 January 2003, the above declaration brings the total ordinary
dividend declared in respect of the year ended 31 March 2003 to 24,0 cents per
share (2002: 14,0 cents).
DIRECTORATE
Messrs J Johnston, Y A Lakhnati and P J Waud and Mrs L Methven resigned from the
board on 15 December 2002, 31 January 2003, 31 July 2002 and 26 September 2002
respectively. The board wishes to express its sincere appreciation to these
directors for their valuable contribution during the tenure of their
appointments. In particular the board wishes to thank Mr Y A Lakhnati for the
role that he played in recent years in restoring the Group to profitability.
We would like to welcome Messrs J B Magwaza, N P Mageza and Dr M Griessel who
were appointed as non-executive directors on 20 November 2002 and thank them for
making themselves available. We would also like to welcome Mr M Dally as Chief
Executive Officer. Mr Dally was appointed an executive director on 1 February
2003.
APPRECIATION
We sincerely thank the directors, our employees and all our business partners
for their ongoing efforts and continued support during the year.
M H VISSER M DALLY
Non-Executive Chairman Chief Executive Officer
14 May 2003
Directors:
M H Visser (Non-executive Chairman), M Dally (Chief Executive Officer),W E
Bhrmann, M Griessel, L J Grobler, N J L Hancock, D J Loch Davis, N P Mageza,J B
Magwaza, S M Parsons, N Phillips.
Registered office:
Rainbow Chicken Limited
1 Stanley Methven Road
Hammarsdale 3700
Transfer secretaries:
Computershare Investor Services Limited
70 Marshall Street
Johannesburg 2001
Auditors: Deloitte & Touche
Sponsor: Rand Merchant Bank Corporate Finance
Website: www.rainbowchicken.co.za
Enquiries regarding this report may be directed to Mr M Dally (telephone 031-736
2524) or Mr M H Visser (telephone 021-888 3000).
Date: 14/05/2003 05:30:12 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
