| Wed 18 May 2005, 17:37 | | Results for the year ended 31 March 2005 |
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Rainbow - Abridged audited group results for the year ended 31 March 2005
Rainbow Chicken Limited
(`Rainbow` or `the Group`)
(Registration number 1966/004972/06)
JSE Share code: RBW ISIN: ZAE000019063
ABRIDGED audited group results for the year ended 31 March 2005
Consolidated Balance Sheet
31 March 31 March
2005 2004
R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 922 144 589 953
Trademarks 1 205 2 005
Goodwill 287 444 -
Deferred taxation 16 023 -
Long-term receivables 441 -
Total non-current assets 1 227 257 591 958
Current assets
Inventories 260 493 244 823
Biological assets 238 656 216 672
Trade and other receivables 425 442 296 077
Derivative assets 178 -
Taxation receivable 5 799 -
Cash 106 007 482 286
Total current assets 1 046 575 1 239 858
Total assets 2 273 832 1 831 816
EQUITY AND LIABILITIES
Capital and reserves 1 337 811 1 181 625
Preference share capital - 500
Total shareholders` equity 1 337 811 1 182 125
Non-current liabilities
Interest bearing debt - long-term 651 1 694
Post retirement medical obligation 62 574 33 596
Deferred taxation 201 905 165 201
Total non-current liabilities 265 130 200 491
Current liabilities
Trade and other payables 597 845 348 510
Provisions 44 394 50 843
Derivative liabilities 15 980 3 970
Taxation payable 11 408 44 381
Interest bearing debt - short-term 1 264 1 496
Total current liabilities 670 891 449 200
Total equity and liabilities 2 273 832 1 831 816
Consolidated Income Statement
Year ended Year ended
31 March 31 March
2005 2004
Revenue 4 026 998 3 830 032
Operating profit before
depreciation and amortisation 399 165 366 967
Depreciation and amortisation (83 091) (63 742)
Operating profit before
interest and taxation 316 074 303 225
Net finance income 27 078 37 181
Profit before taxation 343 152 340 406
Taxation (110 718) (112 764)
Profit after taxation 232 434 227 642
Preference dividends (58) (62)
Attributable profit 232 376 227 580
Headline Earnings
Attributable profit for the year 232 376 227 580
Profit on disposal of property,
plant and equipment (8 110) (122)
Asset impairment provision release (11 224) -
Headline earnings 213 042 227 458
Consolidated Cash Flow Information
Operating profit before
working capital requirements 374 109 366 845
Working capital requirements 28 136 (57 054)
Cash generated by operations 402 245 309 791
Net finance income 27 078 37 181
Taxation paid (146 009) (8 249)
Dividends paid (83 493) (66 839)
Net cash flows from
operating activities 199 821 271 884
Net cash flows from
investing activities (581 570) (84 795)
Net cash flows from
financing activities 5 470 4 439
Net (decrease)/increase in cash (376 279) 191 528
Cash at the beginning of the year 482 286 290 758
Cash at the end of the year 106 007 482 286
Statement of Changes in Equity
Preference
Share Retained
Stated capital capital income Total
R`000 R`000 R`000 R`000
Balance at
1 April 2004 1 098 714 500 82 911 1 182 125
Attributable Profit - - 232 376 232 376
Ordinary dividends paid - - (83 435) (83 435)
Issue of shares 7 245 - - 7 245
Preference shares redeemed - (500) - (500)
Balance at
31 March 2005 1 105 959 - 231 852 1 337 811
Supplementary Information
Year ended Year ended
31 March 31 March
2005 2004
R`000 R`000
Capital expenditure contracted
and committed 134 076 33 570
Capital expenditure approved
but not contracted 32 279 159 413
Contingent liabilities 38 290 46 048
Statistics
Number of ordinary shares in issue (000`s) 275 449 269 384
Weighted average number of
ordinary shares in issue (000`s) 273 387 266 973
Fully diluted weighted average
ordinary shares in issue* (000`s) 281 587 275 891
Basic earnings per share (cents) 85,0 85,2
Basic earnings per share - diluted* (cents) 2,5 82,5
Headline earnings per share (cents) 77,9 85,2
Headline earnings per share - diluted* (cents) 75,7 82,4
Net asset value per share (cents) 485,7 438,6
Ordinary dividends:
Interim dividend paid (cents) 9,5 8,0
Final dividend declared (cents) 21,0 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 31
March 2004 as 286 055 shares, 80,8 and 80,8 cents per share respectively. These
numbers have been restated as reflected above.
Commentary
BASIS OF PREPARATION AND AUDIT OPINION
The financial statements have been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice and incorporate accounting
policies which, with the exception of AC140 (Business Combinations) and the
revised standards AC128 (Impairment of Assets) and AC129 (Intangible Assets),
are consistent with those of the previous financial period.
The Group adopted AC140, AC128 and AC129 with effect from 1 April 2004. These
accounting standards require goodwill arising on business combinations for which
the agreement date is on or after 31 March 2004, not to be amortised, but
carried at cost less accumulated impairment losses.
Attention is drawn to the fact that the financial results consolidate Vector
Logistics for the first time and as such certain line items are not comparable
with the prior year.
The impact of applying AC133 (Financial Instruments: Recognition and
Measurement) on the Group`s full year results is similar to last year, a
negative headline earnings impact of R18,3 million (2004: R25,1 million).
Our auditors, PricewaterhouseCoopers Inc, have issued their report on the
results for the year ended 31 March 2005. A copy of their unqualified opinion is
available for inspection at the Company`s registered office.
OVERVIEW AND MARKET CONDITIONS
Rainbow remains the biggest volume producer in South Africa at approximately
four million birds per week. It is a fully integrated broiler producer that
breeds and rears its own livestock and processes and markets fresh, frozen,
value-added and further processed chicken nationally.
Rainbow estimates the size of the total chicken market in South Africa to be
approximately R11 billion. Total market volume growth over the past year is
estimated at 10% of which approximately 7% relates to local producers and the
balance attributable to a 48% growth in imports. The foodservice channel, which
represents almost a third of Rainbow`s chicken business, grew by approximately
12%.
The Group`s strategic focus as an integrated chicken producer was rewarded with
a pleasing underlying performance for the twelve months to 31 March 2005. Bird
performance was impacted negatively by the Group`s feed being contaminated for a
limited period by a supplier`s product. This reduced pre-taxation earnings by
some R80 million and caused headline earnings to decrease by 6,3% over the
comparable period. Without this impact the Group would have reported headline
earnings growth of approximately 19%.
The macro economic environment remained stable over the review period. The
stronger rand, government`s fiscal policies and the continued improvement in the
living standards of the majority of South Africans contributed towards higher
consumer demand and steady chicken price realisations.
However, these factors have also sustained higher levels of imports. With the
rand at current levels certain channels within the local poultry market remain
at risk of being over-supplied with imported chicken.
Rainbow has remained true to its feed raw material procurement strategy, which
includes a mix of short-, medium- and long-term instruments. Feed raw material
prices, particularly maize, softened significantly with the year-on-year closing
SAFEX price for yellow maize approximately 50% lower at the end of the financial
year. However, the Group was unable to benefit in full from this reduction as a
result of certain long positions held in maize, and to a lesser extent soya.
Within the defined procurement strategy, the Group will look to maximise the
current low input prices. Looking forward the Group remains comfortable with its
overall procurement position relative to the market and its competitors.
As stated above, the Group`s results were negatively impacted by the feed
contamination issue. The cause of the poor bird performance was identified in
January 2005 after extensive testing revealed the presence of a contaminant in a
supplier`s product that is included in the Group`s feed. The full impact of this
loss is included in the current year results. The Group`s insurance policies
provide cover in respect of certain of the losses and a letter of demand has
been lodged with the supplier to recover the damages suffered by the Group.
Management is satisfied that this is a non-recurring, external influence and
that existing risk management and quality control processes were effective in
identifying the problem and containing losses.
Chicken revenue increased by 5,5% to R3,3 billion (2004: R3,1 billion) on the
back of a 6,0% improvement in price realisations. Chicken volumes decreased by
0,5%, affected by the feed issue and to a lesser extent the three week national
strike in May/June 2004. Group revenue increased by 5,1% to R4,0 billion (2004:
R3,8 billion).
Revenue (R`m) 2005 2004 %
Chicken 3 281 3 109 5,5
External sales - Cobb,
Epol and Vector 746 721 3,5
Reported revenue 4 027 3 830 5,1
EBITDA includes a non-recurring profit of R9,0 million (2004: R0,1 million) on
disposal of fixed assets and a R16,0 million (2004: nil) release of impairment
provisions in respect of increased valuations of dormant properties that are
either to be sold or brought back into use. Excluding these items, headline
EBITDA increased by 2,0% to R374,1 million (2004: R366,8 million) and headline
EBITDA margin declined to 9,3% (2004: 9,6%). Chicken cost of production
increased by 7,0% partly as a result of a 30,4% increase in depreciation arising
out of recent capex investments. The average feed cost was 2,1% higher than last
year.
The effective taxation rate was slightly lower at 32,3% (2004: 33,1%).
Headline earnings decreased by 6,3% to R213,0 million (2004: R227,5 million)
with fully diluted headline earnings per share declining by 8,1% to 75,7 cents
per share (2004: 82,4 cents per share).
Cash generated by operations remains strong at R402,2 million (2004: R309,8
million), with the improvement largely attributable to lower working capital
requirements. The cash balance at the end of the period was lower than the
previous year due to the R454,9 million acquisition of Vector, which was funded
from the Group`s cash resources, and increased capital expenditure. As a result
interest income was also lower at R27,1 million (2004: R37,2 million).
The higher capital expenditure levels reflect both strategic investments and the
under investment in previous years. The Group expects that further above average
capital expenditure levels will be necessary to ensure the business is
adequately invested for the future. During the year R200,0 million (2004: R87,0
million) was spent, of which R58,2 million related to the new Further Processing
Plant. An additional amount of R134,1 million (2004: R33,6 million) has been
contracted and committed but not spent, whilst R32,3 million (2004: R159,4
million) has been approved but not contracted.
Return on equity decreased to 18,4% (2004: 21,1%).
REVIEW OF OPERATIONS
`It`s all about chicken`
In line with the Group`s strategic intent, and enabled by significant
investment, Rainbow now operates as an integrated supply chain. Focus is on the
production of the lowest cost, right-sized bird and while all areas of the
business understand their role in achieving this, the full benefits will only
materialise over the next two years. Management evaluation requirements have
similarly been adjusted and the Group`s internal financial reporting reflects
this `cost chain`.
The Group has invested significantly in understanding consumers and demand
patterns. Numerous marketing initiatives have been undertaken to build brand
awareness and innovate in line with consumer requirements. The first ever
television commercials for the Rainbow brand were ranked amongst the top 25%
favourite viewer advertisements ever produced in South Africa.
Rainbow FoodSolutions, whose aim is to delight customers by providing a total
chicken solution, has customer teams who work closely with the quick service
restaurant industry, contract caterers, accommodation sector, mines and state
institutions to develop tailored chicken solutions that meet their individual
requirements. Rainbow FoodSolutions was recognised by various customers winning
the `Supplier Excellence` award from KFC and `Supplier of the Year` award from
the Compass group.
Rainbow`s exports have been limited to customised products to customers such as
KFC and Nandos in the Middle and Far East. When avian flu broke out in Asia, our
global supplier status enabled us at very short notice to assist KFC in
Singapore and Hong Kong. Following the outbreak of avian flu in ostrich flocks
in the Eastern Cape, a voluntary ban on exports of all poultry products from
South Africa was initiated and Rainbow`s supply was terminated immediately. The
strong rand places pressure on the profitability of exports.
The Rustenburg processing plant, the Group`s biggest facility, was upgraded in
March 2005. Rustenburg is now a focused, high volume `frozen only` plant, well
positioned to service Gauteng, South Africa`s biggest frozen chicken market, at
improved economies of scale.
The fresh production that previously took place at Rustenburg has been
outsourced to a third party producer, Sangiro, a key strategic partner with a
specialised fresh business.
The R156 million Further Processing Plant being constructed in Hammarsdale
remains on schedule for commission in October 2005. This investment holds
exciting opportunities for the realisation of the Group`s branded and value-
added chicken strategy.
The Western Cape processing plant based in Worcester is currently upgrading its
fresh and value-added capacity. This will enable better servicing of the Western
Cape, South Africa`s biggest fresh market, with both the Farmer Brown and
Rainbow brands as well as the supply to Woolworths. The Worcester plant was
recently awarded HACCP certification from the SABS, being the first chicken
processor in South Africa to be awarded this globally recognised food safety
management tool.
The Group recognises the importance of an integrated Enterprise Resource
Planning (`ERP`) system to effectively manage its complex supply chain and
expects to initiate the roll-out of such a system in the 2006 financial year.
In addition, the Group is implementing a poultry management IT system, initially
in the Western Cape, that will provide an important management tool for the
agricultural business. Ultimately this software will be integrated into the new
ERP system.
The Vector acquisition has bedded down well and their results have been
consolidated as from October 2004. Vector`s results for the period are in line
with expectation, however, being part of Rainbow`s integrated supply chain,
along with Cobb and Epol, their results will not be shown separately. Vector
recently renewed its five-year contract with a significant principal. As
mentioned previously, Vector remains committed to servicing its other principals
who stand to benefit from Rainbow`s customer-focused supply chain initiatives.
The Cobb 500 breed continues to perform well and the new line has been
successfully introduced across all of Rainbow`s agricultural operations.
Epol was negatively impacted by the feed contamination issue as well as the
volatile and declining maize prices, but is expected to reverse this position in
the coming year. In January 2005, Epol was awarded ISO 9001: 2000 certification
for all their sites. This is a first for the feed industry in South Africa. The
structure of the ISO 9001 quality management system is process orientated and
through specific quality objectives, defines the business approach towards the
quality of product, clients, suppliers, staff and the consequences of all work
performed. The management of Epol are committed to maintain and improve this
management system with the aim of enhancing customer satisfaction as well as
complying with all legal and regulatory requirements.
STRATEGIC REVIEW
The Group`s strategic focus is to target consistent, sustainable demand at an
acceptable profit margin and shareholders` return. Key to this strategy is the
positioning of Rainbow`s stable of brands in line with consumer requirements.
The review period was an important one for the Group in that significant
progress has been made towards moving Rainbow from a commodity manufacturer to a
dynamic, consumer- focused, integrated producer. Much of this change relates to
enhancements in the sales and marketing functions, but more importantly a
cultural shift has allowed divisional concentration to be replaced with all
business areas focused on the consumer and customer. The significant investments
made in assets, brands and people are expected to deliver against the Group`s
strategy in the period ahead.
PROSPECTS
Indications are that the macro economic environment will remain stable with
sound fiscal disciplines and a lower interest rate contributing to consumer
spend remaining fairly positive over the period. A strong rand and excess maize
stocks should translate into lower feed raw material input costs.
However, a negative earnings contribution is expected from the new Further
Processing Plant as it will only be commissioned mid-way through the period.
Further to this, as mentioned at the time of concluding the acquisition, YUM!
(KFC) changed its distribution partner and therefore Vector`s profit
contribution will be lower in the year ahead, offset in the second half to some
extent by the inclusion of certain Rainbow volumes not previously distributed by
Vector.
The Group expects to report earnings growth for the upcoming financial year,
albeit off a compromised base.
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.
Mr NP Mageza resigned from the Board with effect from 25 April 2005 owing to
extensive commitments relating to his current executive portfolio. The Board
wishes to express its sincere appreciation for his valuable contribution during
his tenure.
DIVIDEND DECLARATION
Maintaining the final dividend declared in 2004, notice is hereby given that on
18 May 2005 the Board declared a final dividend (number 64) of 21,0 cents per
ordinary share. Having paid an interim ordinary dividend of 9,5 cents per
ordinary share on 17 January 2005, the above declaration brings the total
ordinary dividend declared in respect of the year ended 31 March 2005 to 30,5
cents per share (2004: 29,0 cents), resulting in a fully diluted headline
earnings per share dividend cover of 2,5 times (2004: 2,8 times).
The salient dates of the declaration and payment of this dividend are as
follows:
Last date to trade ordinary
shares `CUM` dividend Friday, 17 June 2005
Ordinary shares trade
`EX` dividend Monday, 20 June 2005
Record date Friday, 24 June 2005
Payment date Monday, 27 June 2005
Share certificates may not be dematerialised or rematerialised between Monday,
20 June 2005 and Friday, 24 June 2005 (both dates inclusive).
For and on behalf of the Board
MH Visser M Dally Durban
Non-executive Chairman Chief Executive 18 May 2005
Directors: MH Visser (Non-executive chairman), M Dally (CE)*, WE Buhrmann,RH
Field*, M Griessel, LJ Grobler*, 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
Date: 18/05/2005 05:05:18 PM
Produced by the JSE SENS Department
