| Wed 24 Nov 2004, 17:39 | | Results for the six months ended 30 September 2004 |
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Rainbow - Unaudited results for the six months ended 30 September 2004
Rainbow Chicken Limited
(`Rainbow` or `the Group`)
(Registration number 1966/004972/06)
JSE Share code: RBW
ISIN ZAE000019063
Unaudited results for the six months ended 30 September 2004
Highlights
- Revenue up 8,6%
- Headline EBITDA up 26,2%
- Headline earnings up 21,6%
- Fully diluted headline earnings per share up 19,5%
- Cash generated by operations up 54,3%
- Interim dividend per share up 18,8%
Consolidated Balance Sheet
30 Sept 30 Sept 31 March
2004 2003 2004
R`000 R`000 R`000
ASSETS
Non-current assets
Property, plant and
equipment 617 814 578 112 589 953
Trademarks 1 605 2 406 2 005
Total non-current
assets 619 419 580 518 591 958
Current assets
Loans 254 194 138
Inventories 232 098 220 562 244 823
Biological assets 256 400 175 453 216 672
Trade and other
receivables 329 939 347 628 295 939
Derivative assets - 2 146 -
Taxation 5 503 372 -
Cash and cash
equivalents 421 407 306 073 482 286
Total current assets 1 245 601 1 052 428 1 239 858
Total assets 1 865 020 1 632 946 1 831 816
EQUITY AND LIABILITIES
Shareholders` equity
Capital and reserves 1 219 114 1 040 410 1 181 625
Preference share
capital 500 500 500
Total shareholders`
equity 1 219 614 1 040 910 1 182 125
Non-current liabilities
Deferred taxation 161 388 136 951 165 201
Post-retirement medical
obligation 35 302 30 592 33 596
Interest-bearing debt
- long-term 1 183 2 359 1 694
Total non-current
liabilities 197 873 169 902 200 491
Current liabilities
Trade and other
payables 380 895 354 522 348 510
Provisions 61 848 65 130 50 843
Derivative liabilities 3 660 696 3 970
Interest-bearing debt
- short-term 1 130 1 786 1 496
Taxation - - 44 381
Total current
liabilities 447 533 422 134 449 200
Total equity and
liabilities 1 865 020 1 632 946 1 831 816
Consolidated Income Statement
Six months ended Year ended
30 Sept 30 Sept 31 March
2004 2003 2004
R`000 R`000 R`000
Revenue 1 978 257 1 821 558 3 830 032
Operating profit
before depreciation
and amortisation 154 328 115 526 366 967
Depreciation and
amortisation (35 488) (30 126) (63 742)
Operating profit
before interest 118 840 85 400 303 225
Net interest received 20 649 19 410 37 181
Profit before taxation 139 489 104 810 340 406
Taxation (49 024) (36 893) (112 764)
Profit after taxation 90 465 67 917 227 642
Preference dividend (31) (31) (62)
Attributable profit 90 434 67 886 227 580
Headline Earnings
Attributable profit 90 434 67 886 227 580
Profit on disposal of
property, plant
and equipment (8 709) (683) (122)
Headline earnings 81 725 67 203 227 458
Consolidated Cash Flow statement
Six months ended Year ended
30 Sept 30 Sept 31 March
2004 2003 2004
R`000 R`000 R`000
Operating profit before
working capital
changes 144 989 114 843 366 845
Working capital
changes (16 333) (31 444) (57 054)
Cash generated by
operations 128 656 83 399 309 791
Net interest received 20 649 19 410 37 181
Taxation paid (102 721) (5 381) (8 249)
Dividends paid (57 417) (45 361) (66 839)
Net cash flows from
operating activities (10 833) 52 067 271 884
Net cash flows from
investing activities (53 610) (39 178) (84 795)
Net cash flows from
financing activities 3 564 2 426 4 439
Net (decrease)/increase
in cash and cash
equivalents (60 879) 15 315 191 528
Cash and cash equivalents
at the beginning
of the period 482 286 290 758 290 758
Cash and cash equivalents
at the end of the
period 421 407 306 073 482 286
Statement of Changes in Equity
Stated Retained
capital income Total
R`000 R`000 R`000
Balance 1 April 2004 1 098 714 82 911 1 181 625
Attributable profit - 90 434 90 434
Ordinary dividend paid - (57 386) (57 386)
Issue of shares 4 441 - 4 441
Balance 30 September
2004 1 103 155 115 959 1 219 114
Supplementary Information
Six months ended Year ended
30 Sept 30 Sept 31 March
2004 2003 2004
R`000 R`000 R`000
Capital expenditure
contracted and
committed 102 761 32 602 33 570
Capital expenditure
approved but not
contracted 80 948 21 582 159 413
Contingent liabilities 47 973 18 027 46 048
Statistics
Number of ordinary
shares in issue (000`s) 273 665 267 918 269 384
Weighted average
number of
ordinary shares
in issue (000`s) 270 291 265 702 266 973
Fully diluted
weighted average
ordinary shares
in issue* (000`s) 277 802 273 629 275 891
Basic earnings
per share (cents) 33,5 25,5 85,2
Basic earnings
per share
- diluted* (cents) 32,6 24,8 82,5
Headline earnings
per share (cents) 30,2 25,3 85,2
Headline earnings
per share
- diluted* (cents) 29,4 24,6 82,4
Net asset value
per share (cents) 445,5 388,3 438,6
Ordinary dividends:
Interim dividend
declared/paid (cents) 9,5 8,0 8,0
Final dividend
paid (cents) - - 21,0
* The dilution is attributed to share options issued to the Rainbow Share
Incentive Trust. The prior year fully diluted basic and headline earnings per
share numbers have been restated to rather reflect the effect of the number of
shares that will be regarded as an issue of shares for no consideration. The
fully diluted weighted average ordinary shares in issue and the fully diluted
basic and headline earnings per share numbers were previously reported at 30
September 2003 as 286 467 shares, 25,3 and 25,1 cents per share respectively,
and at 31 March 2004 as 286 055 shares, 80,8 and 80,8 cents per share
respectively. These numbers have been restated as reflected above.
Basis of preparation
The financial statements have been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice and incorporate accounting
policies which are consistent with those of the previous financial period.
The Board`s view remains that reporting the financial effects of only certain
financial instruments in accordance with AC133 (Financial Instruments:
Recognition and Measurement) could substantially distort the Group`s financial
results and create inappropriate volatility. The impact of applying AC133 on the
Group`s interim results is an adverse R25,5 million (2003: R0,6 million positive
profit impact).
Calculation of prior year fully diluted basic and headline earnings per share
Rainbow had previously calculated fully diluted basic and headline earnings per
share numbers on a basis that added a notional benefit to earnings and divided
this by the weighted average number of ordinary shares in issue including all
share options. In order to comply with AC104 (earnings per share), the
comparatives have been restated to reflect the effect of the number of shares
that will be regarded as an issue of shares for no consideration, being the
difference between the fair value of the shares at the date of delivery and the
offer value.
Fully diluted earnings per share
Basic Headline
Previously Previously
reported Restated reported Restated
Six months to 30 September 2003 25,3 24,8 25,1 24,6
Twelve months to 31 March 2004 80,0 82,5 80,8 82,4
Overview and market conditions
The Group reported pleasing results for the six months to 30 September 2004.
Headline earnings growth of 21,6% represents the initial fruits of Rainbow`s
strategic emphasis as an integrated chicken producer to focus on consumers,
brand building, supply-chain optimisation, route to market and market management
initiatives.
Sustained consumer confidence bolstered by a positive macro economic environment
characterised by continued lower interest and inflation rates saw increased
consumer spending during the period.
The outbreak of high pathogenic Avian Influenza (AI) amongst ostrich farmers in
South Africa in August 2004 resulted in a total poultry export ban. Although
South Africa`s poultry exports, and in particular Rainbow`s chicken exports, are
not significant the issue is more about the adverse impact this incidence has on
the poultry industry`s reputation. Globally the poultry industry continues to
feel the impact of AI and remains on high alert, especially in Asia.
Firmer local chicken price realisations and the strong rand continued to sustain
higher levels of imports. Management continues to monitor import levels closely.
Rainbow`s feed raw material procurement strategy includes a mix of short-,
medium- and long-term instruments. Feed raw material prices were on average 4,3%
higher than the comparable period last year and the closing SAFEX price for
yellow maize for the period was 3,7% higher. It was, however, approximately
22,6% lower than the March 2004 level. As a result of certain long positions
held in both maize and soya, the Group did not experience the full benefit on
margins that these lower input costs could have provided.
Direct costs associated with the three week national strike experienced in the
chicken operations in May/June 2004 had an adverse profit impact of R7,1
million.
Financial review
Chicken revenue increased by 9,7% to R1,6 billion (2003: R1,4 billion) on the
back of an 8,1% improvement in price realisations, mainly due to improved
product mix, as well as volume growth of 1,6%. Group revenue increased by a
slightly lower 8,6% to R2,0 billion (2003: R1,8 billion) due to the higher
utilisation of Epol`s output.
Percentage
Revenue - R`m 2004 2003 increase
Chicken 1 586 1 445 9,7
Feed 1 015 922 10,1
Total gross revenue 2 601 2 367 9,9
Less: inter-Group revenue (623) (546) 14,1
Reported revenue 1 978 1 821 8,6
EBITDA includes a non-recurring profit of R9,3 million (2003: R0,7 million) on
disposal of fixed assets. Excluding this item, the headline EBITDA increased by
26,2% to R145,0 million (2003: R114,8 million), benefiting from improved average
price realisations as a consequence of a better product mix. The headline EBITDA
margin increased to 7,3% (2003: 6,3%).
Taxation increased in line with the higher operating profit, with an effective
taxation rate of 35,1% (2003: 35,2%).
Interest income growth of only 6,4% was largely a function of the lower interest
rates and had a dilutive effect on headline earnings growth.
Headline earnings increased by 21,6% to R81,7 million (2003: R67,2 million) with
fully diluted headline earnings per share improving by 19,5% to 29,4 cents per
share (2003: 24,6 cents per share).
Cash generated by operations improved by 54,3% to R128,7 million (2003: R83,4
million) as a result of the overall improved financial performance of the Group
and a continued focus on working capital requirements, which increased by R16,3
million (2003: R31,4 million). The cash balance at the end of the period was
lower than the March 31st position primarily due to the required provisional
taxation payments previously not made while the Group was utilising its assessed
losses.
The Group`s strong cash position and generation capabilities means that it will
allow the funding of the Vector acquisition off its own balance sheet.
Capital expenditure was R65,9 million (2003: R41,1 million) including an amount
of R19,7 million spent to date in respect of the new Further Processing Plant.
An additional amount of R102,8 million (2003: R32,6 million) has been contracted
and committed, but not spent, whilst R80,9 million (2003: R21,6 million) has
been approved, but not contracted. The Group remains committed to upgrading its
facilities and funding normal levels of replacement capital expenditure from its
own resources.
Return on equity on a 12-month rolling basis increased to 22,1% (2003: 16,9%),
benefiting from the improvement in the Group`s underlying performance.
Review of operations
The chicken operation, which remains the biggest volume producer in South Africa
at approximately four million birds per week, recorded an improved performance
with an increase of 9,7% in revenue. The volume growth of 1,6% (2003: 6,2%)
achieved in the first half of the financial year is pleasing, given the 8,1%
increase in realisations. Chicken margins improved as a result of the improved
product mix.
For the first time in the Group`s history, television commercials in respect of
the Rainbow brand were flighted in August 2004. This investment in above-the-
line support was well received by the market and will contribute to the
establishment of a solid brand platform and long-term value creation. Additional
marketing initiatives successfully implemented over the period included new
packaging and new product offerings that are more in line with consumer trends.
Rainbow`s continued strength and investment in the foodservice sector has helped
the Group to grow with its key customers. The business with Woolworths in the
Western Cape is progressing well and management has planned further capital
expenditure to grow its fresh chicken capabilities in this region.
The Group lost some of the momentum it had achieved in respect of supporting key
strategic customers on an international platform as a result of the export ban.
Historically the Group`s level of exports have been low, which coupled with the
recent exchange rate levels, meant that the ban did not have a material effect
on the Group`s review period performance.
The feed and breed operations have delivered a better bird performance at a
competitive cost and the Group remains focused on improving efficiencies across
its entire integrated chicken supply chain.
Epol achieved a 10,1% increase in revenue. The 5,9% increase in volume was
largely due to increased volumes to Rainbow. Adequate provisions have been
raised in respect of Epol`s adverse long maize and soya positions.
Cobb is currently introducing a new breed line in all the chicken operations.
Early results are pleasing with bigger bird portions, improved flock health and
decreased mortality. Revenues increased by 9,3% (2003:13,0%).
Strategic review
In line with its consumer and brand building focus and supply-chain optimisation
strategy the Group has made further investments in its brands and people,
particularly in the sales and marketing functions.
Rainbow previously reported that it had been under-invested in plant, people and
information technology. All three categories continue to receive attention.
Brand focus, a strategic cornerstone of the Group`s future success, continues to
receive high-level attention. Investment in a better understanding of consumer
trends has resulted in extensive brand reviews and action plans. FoodSolutions,
our newly-launched brand for the foodservice channel, continues to strengthen
relationships with key customers through investment in innovation, quality and
service excellence.
Prospects
Macro economic conditions are expected to remain positive over the next six
months and the increased consumer spending trends should continue over the
festive season, the Group`s highest revenue months.
However, the continued soft maize prices will result in lower increases in
realisations going forward and the Group does not expect the chicken operation
to continue growing revenue at the same rate in the second six months of the
financial year.
The proposed Vector acquisition, the finalisation of which is imminent, offers
the Group further opportunities to influence its route to market, and is
expected to make a positive contribution to earnings. Vector will continue to
partner with its existing principals to enhance their route to market
initiatives. The new relationship between Rainbow and Vector will create a range
of opportunities to streamline the Group`s supply chain and deliver a more
efficient interface with customers.
The Group will continue to invest in its consumer-focused strategy, the benefits
of which will only be delivered in the longer-term. As reported in the 2004
annual report, the full year earnings growth rate is not expected to be at the
same pace as that achieved in recent years or that achieved during this six-
month period.
Directorate
Mr DJ Loch Davis resigned from the Board with effect from 28 July 2004. The
Board wishes to express its sincere appreciation for his valuable contribution.
With effect from 28 July 2004 Mr RH Field was appointed as Group Financial
Director and Mr DW Vale was appointed as non-executive director. Mr LJ Grobler`s
new role as Group Commercial Director has enabled the Group to dedicate
additional resources to key strategic projects.
Dividend declaration
Notice is hereby given that on 24 November 2004 the Board declared an interim
dividend (number 63) of 9,5 cents per ordinary share in respect of the six
months ended 30 September 2004 (2003: 8,0 cents). The fully diluted headline
earnings per share dividend cover is 3,1 times (2003: 3,1 times).
The salient dates of the declaration and payment of this interim dividend are as
follows:
Last date to trade ordinary shares `CUM`
dividend Friday, 7 January 2005
Ordinary shares trade `EX`
dividend Monday, 10 January 2005
Record date Friday, 14 January 2005
Payment date Monday, 17 January 2005
Share certificates may not be dematerialised or rematerialised between Monday,
10 January 2005 and Friday, 14 January 2005 (both dates inclusive).
For and on behalf of the Board
MH Visser M Dally
Non-executive Chairman Chief Executive
Durban
24 November 2004
Directors
MH Visser (Non-executive chairman), M Dally (CE)*, WE Buhrmann, RH Field*, M
Griessel, LJ Grobler*, NP Mageza, JB Magwaza, N Phillips, DW Vale
*Executive Directors
Company secretary: SB Heath
Registered office: Rainbow Chicken Limited, One The Boulevard, Westway Office
Park, Westville 3630
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg 2001
Auditors: PricewaterhouseCoopers Inc
Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited) Corporate
Finance
Bankers: ABSA Bank Limited
Website: www.rainbowchicken.co.za
