| Fri 21 Nov 2003, 17:08 | | Rainbow Chicken Limited - Unaudited Results For Th |
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Rainbow Chicken Limited - Unaudited Results For The Six Months Ended 30
Release Date: 21/11/2003 17:00:00 Code(s): RBW
RAINBOW CHICKEN LIMITED - UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30
SEPTEMBER 2003
Rainbow Chicken Limited
(Registration number 1966/004972/06)
Share code: RBW
ISIN: ZAE000019063
("Rainbow" or "the Group")
Unaudited results for the six months ended 30 September 2003
Consolidated Balance Sheet
30 Sept 30 Sept 31 March
2003 2002 2003
R"000 R"000 R"000
ASSETS
Non-current assets
Trademarks, property, plant 580 518 551 010 570 783
and equipment
Current assets
Deferred taxation - - 8 907
Loans 194 1 703 162
Inventories 396 015 420 659 421 838
Trade and other receivables 347 628 401 326 361 798
Derivative assets 2 146 - -
Taxation 372 - 662
Cash and cash equivalents 306 073 45 749 290 758
Total current assets 1 052 428 869 437 1 084 125
Total assets 1 632 946 1 420 447 1 654 908
EQUITY AND LIABILITIES
Ordinary shareholders" 1 138 850 899 906 1 073 180
equity
Preference share capital 500 500 500
Total shareholders" equity 1 139 350 900 406 1 073 680
Non-current liabilities
Deferred taxation 38 511 5 536 -
Post-retirement medical 30 592 29 563 30 131
obligation
Interest bearing debt - long- 2 359 4 627 3 469
term
Total non-current 71 462 39 726 33 600
liabilities
Current liabilities
Trade and other payables 354 522 414 458 463 382
Derivative liabilities 696 - -
Provisions 65 130 48 522 80 673
Interest bearing debt - 1 786 15 474 3 573
short-term
Taxation - 1 861 -
Total current liabilities 422 134 480 315 547 628
Total equity and liabilities 1 632 946 1 420 447 1 654 908
Consolidated Income Statement
Six months ended Year ended
30 Sept 30 Sept 31 March
2003 2002 2003
R"000 R"000 R"000
Revenue 1 821 558 1 785 411 3 748 520
Core operating profit 114 949 111 917 311 121
before depreciation and
amortisation
AC 133 fair value 577 - -
adjustments
Operating profit before 115 526 111 917 311 121
depreciation and
amortisation
Depreciation and (30 126) (28 543) (59 159)
amortisation
Trademark impairment - (14 020) (21 064)
Operating profit before 85 400 69 354 230 898
interest
Net interest received 19 410 2 794 13 554
Profit before taxation 104 810 72 148 244 452
Taxation (36 893) (5 436) 9 230
Profit after taxation 67 917 66 712 253 682
Preference dividend (31) (31) (62)
Attributable profit 67 886 66 681 253 620
Interest received,
previously disclosed as
revenue, is now
reflected net of
interest paid in the
income statement. Prior
periods have, for
comparative purposes,
been restated.
Headline Earnings
Profit attributable to 67 886 66 681 253 620
ordinary shareholders
Loss on disposal of 181 1 717 3 712
property, plant &
equipment
Trademark impairment - 14 020 21 064
Other asset impairment (864) - (3 181)
provisions released
Headline earnings 67 203 82 418 275 215
Consolidated Cash Flow
Information
Operating profit before 114 843 113 634 311 652
working capital changes
Working capital changes (31 444) (85 552) 35 981
Cash generated by 83 399 28 082 347 633
operations
Interest received 19 609 3 795 15 139
Interest paid (199) (1 001) (1 585)
Taxation paid (5 381) (4 445) (6 745)
Dividends paid (45 361) (25 761) (44 117)
Net cash flows from 52 067 670 310 325
operating activities
Net cash flows from (39 178) (39 183) (95 430)
investing activities
Net cash flows from 4 213 1 434 4 936
financing activities
Net increase/(decrease) 17 102 (37 079) 219 831
in cash and cash
equivalents
Cash and cash 287 185 67 354 67 354
equivalents at the
beginning of the period
Cash and cash 304 287 30 275 287 185
equivalents at the end
of the period
Cash and cash 306 073 45 749 290 758
equivalents per balance
sheet
Interest bearing debt - (1 786) (15 474) (3 573)
short-term
The movement of post-retirement medical obligation is shown in working capital
changes and not, as previously reported, in financing activities. Prior periods
have, for comparative purposes, been restated.
Statement of Changes in Equity
Stated Accumulated Consolidated
Capital Profit/(Loss) Total
R"000 R"000 R"000
Balance 1 April 2002 1 084 108 (226 808) 857 300
Retained income 40 951 40 951
Issue of shares 1 655 1 655
Balance 30 September 2002 1 085 763 (185 857) 899 906
Retained income 168 614 168 614
Issue of shares 4 660 4 660
Balance 31 March 2003 1 090 423 (17 243) 1 073 180
AC 133 transitional 37 791 37 791
adjustment (net of
deferred tax)
Restated balance 31 March 1 090 423 20 548 1 110 971
2003
Retained income for the 22 556 22 556
period
Attributable profit 67 886 67 886
Ordinary dividend paid (45 330) (45 330)
Issue of shares 5 323 5 323
Balance 30 September 2003 1 095 746 43 104 1 138 850
Supplementary Information
Six months ended Year ended
30 Sept 30 Sept 31 March
2003 2002 2003
R"000 R"000 R"000
Capital expenditure 32 602 29 027 30 568
contracted and committed
Capital expenditure 21 582 18 566 18 162
approved but not
contracted
Contingent liabilities 18 027 16 726 18 027
Statistics
Number of ordinary shares 267 918 258 595 262 709
in issue (000"s)
Weighted average number of 265 702 257 333 259 106
ordinary shares in issue
(000"s)
Fully diluted weighted 286 467 281 080 282 702
average ordinary shares in
issue * (000"s)
Basic earnings per share # 25,5 25,9 97,9
(cents)
Basic earnings per share - 25,3 25,7 91,5
diluted (cents)
Headline earnings per 25,3 32,0 106,2
share # (cents)
Headline earnings per 25,1 31,3 99,2
share - diluted (cents)
Net asset value per share 425,1 348,0 408,5
(cents)
Ordinary dividends:
Interim dividend 8,0 7,0 7,0
declared/paid(cents)
Final dividend paid - - 17,0
(cents)
* The dilution is attributed to share options issued to the Rainbow Share
Incentive Trust. The notional benefit of the share options is R4,710 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 in accordance
and compliance with South African Statements of Generally Accepted Accounting
Practice and incorporate accounting policies which are consistent with those of
the previous financial period, with the exception of accounting for financial
instruments (AC 133) as set out below.
Change in Accounting Policies - AC 133
With effect from 1 April 2003 Rainbow applied "AC 133 - Financial Instruments:
Recognition and Measurement".
Due to the fact that the comparative figures are not restated under the
transitional provisions of AC 133, certain items are not directly comparable on
a line-for-line basis with that of prior financial periods.
Overview and Market Conditions
The period under review was characterised by an appreciating rand and high
interest rates, which placed pressure on the economy. Rainbow reported
satisfactory results for the six months ended 30 September 2003. The feed and
breed operations delivered a strong profit performance whilst the chicken
operation, traditionally weaker in the first six months of the financial year,
held its own in difficult market conditions.
Both pre-tax profits and cash flow improved significantly, but provision for a
substantially increased taxation charge as the Group exhausts its assessed loss
and attracts STC on dividends paid, resulted in headline earnings declining
compared to the same period in 2002.
As previously reported, Rainbow is continuing its consolidation process with
resources being invested in projects of a longer-term nature. Considerable
emphasis was placed on strategic issues and progress made to date is
satisfactory.
Feed raw material procurement benefited from the stronger rand and particularly
good local maize crops, however, the dollar price of many other raw materials
increased substantially.
High levels of imports, currently estimated at approximately 12% of local
consumption, continue to negatively affect the local poultry industry putting
undue downward pressure on price realisations. However, the real impact is muted
as mainly low margin secondary and tertiary products are imported.
The SAFEX average maize futures contract price for yellow maize is approximately
37% lower than the comparable period. The chicken industry has, however, not
been able to fully benefit from these improved input costs because of previously
concluded forward maize contracts.
Rainbow"s procurement strategy has introduced a greater degree of price
stability and has to date favourably positioned the Group. Nonetheless, Rainbow
will also only experience the full benefit of the lower maize price in the
second half of the current financial year.
AC 133 - Financial Instruments: Recognition and Measurement
The Group"s feed raw material procurement policy"s sole objective is to procure
raw materials for the Group"s own feedmilling requirements in the most cost
effective manner. The procurement strategy supporting this policy comprises a
number of totally inter-dependant components, which include various period
commitments. Procurement instruments used include spot purchases, contract
growing (forward contracts), futures and options. In recognition of the fact
that feed prices ruling in the market place are substantially affected by
changes in raw material input costs, management are, on a daily basis, also
acutely aware of the ruling market values of raw materials and of the consequent
value of the Group"s own total net position relative to that of the market and
its competitors.
This strategy, whilst not without risk, has resulted in the consistent
favourable positioning of the Group, vis-a-vis the market and its competitors
over the past six years.
It should be noted that it is the Group"s total feed raw material strategy,
represented by the combination of all of its inter-dependant components, which
supports the policy and which seeks to meet the objectives contained within the
policy. Thus, when evaluating the Group"s position relative to market values,
all instruments and or commitments are "marked to market".
However, AC 133 does not recognise the concept of matching and by applying the
statement as prescribed, it will in future result in material profit
fluctuations, both positive and negative.
AC 133 requires that only "financial instruments" as defined, namely certain
futures and options, be fair valued. Notwithstanding the Group"s policy of only
procuring raw materials to meet the Group"s own requirements (i.e. "to take
delivery"), the Group is not exempted from applying the statement because of the
nature of its dealings in certain financial instruments. Included herein are
options that, by their very nature, cannot directly give rise to a delivery in
that they first need to be converted to a future and are thus scoped into the
statement. The critical issue is that, by virtue of omitting producer contracts
and certain futures, it would always result in a financial effect different from
the overall strategy, and hence would not result in fair presentation.
Although the profit impact on the Group"s interim results is positive and not
significant, management considers that it could be material and is thus in
principle concerned that application of the statement in future periods could
substantially distort the Group"s financial results.
The impact of applying AC 133 on the Group"s interim results is firstly, an
after taxation increase in opening retained income of R37,8 million (pre-
taxation: R54,0 million), reflected as a transitional adjustment in the
statement of changes in equity, and secondly, an interim period profit of R0,6
million.
The AC 133 requirement that the unrealised SAFEX profit of R54,0 million be
recorded as an opening adjustment resulted in the Group not being able to record
the, now realised, profits in the current period consistent with past practice.
Without being able to offset the benefit of the SAFEX positions, the Group has
had to absorb the adverse impact of the previously concluded forward maize
contracts.
Financial Review
The balance of the commentary deals with the Group"s results on the basis of AC
133 having been applied.
Revenue increased by 2,0% to R1,82 billion (2002: R1,79 billion). It should also
be noted that the current trading period had five fewer trading days. A
substantial reduction in price realisations in the feed operations resulted in a
significant decline in revenues from Epol, which weighed down Group revenues,
notwithstanding a marginal volume growth in all of the Group"s operations.
EBITDA increased by 3,2% to R115,5 million (2002: R111,9 million). The EBITDA
margin of 6,3% is the same as that achieved for the corresponding period last
year.
Improved cash generation and higher cash balances held within the Group resulted
in a substantial increase in net interest received to R19,4 million (2002: R2,8
million).
Profit before taxation increased by 21,6% to R104,8 million (2002: R86,2 million
prior to the impairment charge) benefiting from the higher interest earnings.
Taxation increased to R36,9 million (2002: R5,4 million). The effective taxation
rate of 35,2% (2002: 7,5%) includes a provision for STC on dividends paid. As
the Group had recorded a deferred tax asset equivalent to the taxation value of
its assessed losses in the previous year, utilisation of the assessed loss gives
rise to the need to provide for taxation at the full rate of company taxation.
The Group expects to utilise all its remaining assessed losses in the current
financial year and the effective taxation rate for the full year should thus be
similar to that provided for in the first half.
Attributable earnings increased by 1,8% to R67,9 million (2002: R66,7 million)
due to having returned to a tax paying position. Headline earnings, similarly
impacted by the taxation charge, declined by 18,5% to R67,2 million (2002: R82,4
million) with diluted headline earnings per share declining by 19,8% to 25,1
cents per share (2002: 31,3 cents per share).
Cash generated by operations increased to R83,4 million (2002: R28,1 million),
resulting in a period end cash balance of R304,3 million (following improved
working capital and declining maize prices).
Net capital expenditure was unchanged at R39,2 million. The Group remains
committed to upgrading its facilities and funding future capital expenditure
from its own resources.
Return on equity on a twelve-month rolling basis increased to 25,0% (2002:
21,0%) benefiting from ongoing operational improvements.
Rainbow has previously disclosed its normal practice of entering into forward
purchase agreements with various counter-parties to procure feed raw materials
in the ordinary course of business.
This practice is currently under review, but any potential change may impact the
balance sheet structure, but will not affect net asset value or Group
profitability.
Review of Operations
The performance optimisation and customer-centered strategy remains a priority
and is an ongoing process. Management expects the groundwork to take another two
years to complete before the full benefits become evident. Nonetheless, the
Group"s focus on customer requirements and niche markets has already resulted in
new business wins.
Rainbow Chicken, Farmer Brown and Bonny Bird
Despite increased chicken consumption resulting in a volume growth of
approximately 2% and an improvement in the volume mix, chicken revenues were
moderated by lower input costs placing downward pressure on price realisations,
causing them to be at similar levels to last year.
The chicken operation is committed to achieving and maintaining low cost
producer status, which it considers to be a prerequisite for its sustainability.
So as to support its customer-centric capabilities the chicken operation
positions itself at the leading edge of proven technology. Consequently plant
and equipment is written down over five years and investments in new processes
are ongoing.
The chicken operation continually develops new products for both customers and
its own brands.
The Group"s food technologists work closely with customers, especially in the
quick service restaurant sector (QSR), to enhance Rainbow"s offering in line
with changing national and international consumer demands. Sales to the QSR
sector represent 25% of Group revenue.
Epol
Epol"s feed performance, world-class management practices and efficiency
improvements resulted in a further feed conversion improvement.
Epol"s revenues were reduced by feed prices being approximately 8% lower.
However, Epol"s strategy to optimise profitability by adding value saw higher
demand, mainly from the general
market and volumes increased by 4,5% (2002: 4,2%). Epol also witnessed a small,
but increasing demand for export.
Notwithstanding lower feed prices and the application of AC 133 the Group"s feed
operation recorded pleasing profits.
Cobb SA
Cobb SA, the breeding operation, nearly filled its capacity in the review
period., delivering a strong profit performance Management intends to optimise
this position and is evaluating the feasibility of growing volumes locally and
through export.
Cobb SA achieved 13% revenue growth. The breed is now established and its
superior quality accepted by the market.
The Group"s close relationship with Cobb Vantress US has proven invaluable in
meeting local performance requirements and volumes.
Prospects
In the second half of this financial year, the feed and breeding operations are
expected to continue to deliver solid performances. Chicken price realisations
should improve in line with normal seasonal demand trends and benefits arising
from the lower feed costs should be higher than in the first period.
Given the rand"s strength, volumes of imported products are expected to remain
at current levels. Consumer spending is, however, expected to benefit from the
recent reduction in interest rates and lower fuel prices.
Branding initiatives are being reviewed as a high priority alongside performance
optimisation and the development of new niches, which are considered to be key
growth drivers.
Rainbow"s turnaround is not yet complete and areas from which further long-term
benefits can be expected include the distribution and market management
functions.
The Group is on track to achieve its strategic performance objectives through
operational efficiency, decommoditisation and market management. As the Group
now operates off a higher base, year-on-year earnings improvements will not take
place at the same pace as achieved in recent years.
The decline in headline earnings for the full year, being mainly due to the
Group"s return to a taxable position may possibly be similar to that recorded in
the period under review.
Directorate
Mr. S M Parsons resigned from the Board with effect from 10 September 2003. The
Board wishes to express its sincere appreciation to Mr. Parsons for his valuable
contribution during his tenure.
Dividend Declaration
Notice is hereby given that on 21 November 2003 the Board declared an interim
dividend (number 61) of 8,0 cents per ordinary share in respect of the six
months ended 30 September 2003
(2002: 7,0 cents).
The last date to trade cum dividend will be Friday, 2 January 2004 and trading
will commence ex dividend from Monday, 5 January 2004. The record date will be
Friday, 9 January 2004 and the dividend will be paid Monday, 12 January 2004.
Share certificates may not be dematerialised or rematerialised between Monday, 5
January 2004 and Friday, 9 January 2004 (both dates inclusive).
For and on behalf of the BoardFor and on behalf of the Board
M H Visser M Dally
Non-executive Chairman Chief Executive Officer
21 November 2003
Directors:
M H Visser (Non-executive Chairman), M Dally (Chief Executive Officer), W E
Buhrmann, M Griessel, L J Grobler (Financial Director), N J L Hancock, D J Loch
Davis, N P Mageza, J B Magwaza, N Phillips.
Registered office: Transfer secretaries:
Rainbow Chicken Limited Computershare Limited
1 Stanley Methven Road 70 Marshall Street
Hammarsdale 3700 Johannesburg 2001
Group secretary: S B Heath
Auditors: Deloitte & Touche
Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited) Corporate
Finance
Bankers: ABSA Bank Limited
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).
