| Wed 16 Nov 2005, 17:15 | | Rainbow - Unaudited Results For The Six Months End |
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Rainbow - Unaudited Results For The Six Months Ended 30 September 2005
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 2005
HIGHLIGHTS
* Revenue down 3.2%
* EBITDA up 73.4%
* Headline earnings up 87.2%
* Fully diluted headline earnings per share up 83.9%
* Cash generated by operations up 96.0%
* Interim dividend per share up 78.9%
CONSOLIDATED BALANCE SHEET
Restated Restated
IFRS for IFRS for IFRS
Unaudited Unaudited Audited
30 Sept 30 Sept 31 March
2005 2004 2005
R"000 R"000 R"000
ASSETS
Non-current assets
Property, plant and equipment 931 749 543 462 850 318
Trademarks 804 1 605 1 205
Goodwill 287 444 - 287 444
Deferred taxation 7 094 - 16 023
Long-term receivables 441 - 441
Total non-current assets 1 227 532 545 067 1 155 431
Current assets
Inventories 267 702 232 098 260 493
Biological assets 250 016 256 400 238 656
Trade and other receivables 513 675 330 193 425 442
Derivative instruments 22 187 - 178
Taxation receivable 11 303 5 503 15 799
Cash 121 719 421 407 106 007
Total current assets 1 186 602 1 245 601 1 046 575
Total assets 2 414 134 1 790 668 2 202 006
EQUITY AND LIABILITIES
Capital and reserves 1 385 613 1 166 875 1 286 706
Non-current liabilities
Preference share capital - 500 -
Deferred taxation 173 305 138 999 180 081
Post-retirement medical obligation 67 489 35 578 63 677
Interest bearing debt - long-term 512 1 183 651
Total non-current liabilities 241 306 176 260 244 409
Current liabilities
Trade and other payables 748 907 400 331 626 654
Provisions 20 676 42 412 15 585
Derivative instruments 343 3 660 15 980
Interest bearing debt - short-term 814 1 130 1 264
Taxation payable 16 475 - 11 408
Total current liabilities 787 215 447 533 670 891
Total equity and liabilities 2 414 134 1 790 668 2 202 006
CONSOLIDATED INCOME STATEMENT
Restated
IFRS for IFRS Restated
Six months Six months for IFRS
ended ended Year ended
30 Sept 30 Sept 31 March
2005 2004 2005
R"000 R"000 R"000
Revenue 1 915 245 1 978 257 4 026 998
Operating profit before
depreciation and amortisation 263 112 151 727 393 298
Depreciation and amortisation (48 941) (32 960) (78 036)
Operating profit 214 171 118 767 315 262
Finance costs (1 470) (111) (1 126)
Finance income 1 439 20 729 28 146
Profit before taxation 214 140 139 385 342 282
Taxation (64 920) (49 699) (111 959)
Attributable profit 149 220 89 686 230 323
HEADLINE EARNINGS
Restated
IFRS for IFRS Restated
Six months Six months for IFRS
ended ended Year ended
30 Sept 30 Sept 31 March
2005 2004 2005
R"000 R"000 R"000
Attributable profit 149 220 89 686 230 323
Net asset impairment provision
released (2 555) - (11 224)
Loss/(profit) on disposal of
property, plant
and equipment 4 945 (8 709) (8 110)
Headline earnings 151 610 80 977 210 989
STATEMENT OF CHANGES IN EQUITY
Share-based Retained
Stated capital payments income Total
R"000 R"000 R"000 R"000
Balance
1 April 2005
- as previously
reported 1 105 959 - 231 852 1 337 811
IFRS adjustments:
Share-based
payments - 8 391 (8 391) -
Property, plant
and equipment - - (50 278) (50 278)
Post-retirement
medical obligation - - (827) (827)
Balance
1 April 2005
- restated 1 105 959 8 391 172 356 1 286 706
Attributable
profit - - 149 220 149 220
Dividend
paid - - (58 009) (58 009)
Share-based
payments - 2 842 - 2 842
Issue of
shares 4 854 - - 4 854
Balance
30 September 2005 1 110 813 11 233 263 567 1 385 613
CONSOLIDATED CASH FLOW INFORMATION
Restated
IFRS for IFRS Restated
Six months Six months for IFRS
ended ended Year ended
30 Sept 30 Sept 31 March
2005 2004 2005
R"000 R"000 R"000
Operating profit
before working
capital changes 265 502 144 989 374 109
Working capital changes (13 292) (16 333) 28 136
Cash generated by
operations 252 210 128 656 402 245
Net finance
(costs)/income (31) 20 618 27 020
Taxation paid (53 204) (102 721) (146 009)
Dividend paid (58 009) (57 386) (83 435)
Net cash
inflow/(outflow) from
operating activities 140 966 (10 833) 199 821
Net cash flows from
investing activities (132 361) (53 610) (581 570)
Net cash flows from
financing activities 7 107 3 564 5 470
Net
increase/(decrease) in
cash 15 712 (60 879) (376 279)
Cash at the beginning
of the period 106 007 482 286 482 286
Cash at the end of the
period 121 719 421 407 106 007
SUPPLEMENTARY
INFORMATION
Capital expenditure
contracted
and committed 69 653 102 761 134 076
Capital expenditure
approved
but not contracted 31 358 80 948 32 279
Contingent liabilities 35 984 47 973 38 290
STATISTICS
Number of ordinary
shares in issue (000"s) 277 343 273 665 275 449
Weighted average
number of ordinary
shares in issue (000"s) 275 321 270 291 273 387
Fully diluted weighted
average
ordinary shares in
issue (000"s) 282 086 277 757 281 275
Basic earnings per
share (cents) 54.2 33.2 84.2
Basic earnings per
share - diluted (cents) 52.9 32.3 81.9
Headline earnings per
share (cents) 55.1 30.0 77.2
Headline earnings per
share - diluted (cents) 53.7 29.2 75.0
Net asset value per
share (cents) 499.6 426.4 467.1
Ordinary dividends:
Interim dividend
declared/paid (cents) 17.0 9.5 9.5
Final dividend paid (cents) - - 21.0
BASIS OF PREPARATION
The financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") IAS 34 (Interim Financial Reporting) and
in compliance with the Listings Requirements of the JSE Limited. The accounting
policies comply with IFRS.
These are the Group"s first IFRS condensed interim financial statements and
comparative figures have accordingly been restated. A separate Transition to
IFRS Report was published on SENS on 1 November 2005. The disclosures required
by IFRS 1 (First-time Adoption of IFRS) reflecting the reconciliation from
South African Statements of Generally Accepted Accounting Practice ("SA GAAP")
to IFRS are set out below.
It should be noted that reporting the financial effects of certain financial
instruments, used in the feed raw material procurement strategy, in accordance
with IAS 39 (Financial Instruments: Recognition and Measurement) impacts the
Group"s financial results. The pre-taxation impact of applying IAS 39 on the
Group"s interim results is a positive R25.8 million (2004: R25.5 million
negative).
OVERVIEW AND MARKET CONDITIONS
The Group"s results for the six months to September 2005 reflect significant
growth with headline earnings up 87.2% compared to the same period of the
previous year.
The macro economic environment remained positive during the period under review
with further tax relief afforded by the fiscus, low inflation and stable
interest rates all contributing to increased consumer spending. Rainbow"s
performance was principally achieved through sustained chicken price
realisations, improved supply chain efficiencies, Vector"s contribution and
the feed raw material procurement strategy delivering lower feed input costs.
Maize prices remained low and relatively stable over the first few months of
the review period. Despite the anticipated maize surplus, the September closing
SAFEX yellow maize price was 22.8% higher than March, largely due to concerns
over possible reduced planting for the new season and uncertainty over the
actual 2005 crop size. The benefit of the lower maize cost has been partially
offset by the increased cost of soya. Rainbow remains comfortable with its
overall raw material procurement positions relative to the market and its
competitors.
The local chicken price realisations and stable rand continued to result in
high levels of imports. Management continues to monitor import levels closely
as certain channels within the industry remain under threat of over-supply.
Globally, the poultry industry continues to feel the impact of Avian Influenza
("AI") and remains on high alert, particularly with recent outbreaks in Russia,
Turkey and Romania. There is currently no H5N1 strain AI among poultry flocks
in South Africa and it has never been found in South African poultry. The
National Department of Agriculture has recently confirmed that the H5N2 strain,
which previously affected the ostrich industry, has been eradicated and lifted
the export ban in September 2005.
Nevertheless the local poultry industry through the Southern African Poultry
Association ("SAPA") is taking the matter extremely seriously and through the
major players, including Rainbow, is working closely to share surveillance and
"best practice" information through an agreed code of conduct. The approach has
been to involve all the relevant parties including the Departments of Health
and Agriculture. Rainbow remains vigilant about its bio-security with strict
quarantine practices in place.
FINANCIAL REVIEW
Chicken revenue for the six months was largely the same as the prior year. Food
inflation remains low, and Rainbow"s average price realisation growth of 1.2%
was a function of improved product mix offset by lower contractual foodservice
pricing. Despite the two additional trading days, volumes declined by 1.6% due
to the planned shutdown and complete relay of the Rustenburg processing plant
in April and the outbreak of Newcastle disease in certain flocks.
Group revenue decreased by 3.2% to R1.9 billion (2004: R2.0 billion) as a
result of Epol"s revenue being impacted by the lower maize cost and lower
external volumes as a consequence of the feed contamination issue.
Revenue - Rm 2005 2004 %
Chicken 1 545 1 551 (0.4)
External sales - Cobb, Epol and Vector 370 427 (13.2)
Reported revenue 1 915 1 978 (3.2)
EBITDA includes a non-recurring loss of R4.9 million (2004: R9.3 million
profit) on disposal of property, plant and equipment and a R2.6 million (2004:
nil) asset impairment provision release in respect of a dormant property that
has been sold. Excluding these items, headline EBITDA increased by 86.5% to
R265.5 million (2004: R142.4 million), benefiting from an improved product
mix, lower feed input cost and the inclusion of Vector"s earnings. The
headline EBITDA margin increased to 13.9% (2004: 7.2%).
Taxation increased in line with the higher operating profit. The effective
taxation rate however reduced to 30.3% (2004: 35.7%) largely as a result of
the 1% taxation rate adjustment to the deferred taxation liability (R6.0
million).
Finance income reduced by 93.1% due to the acquisition of Vector Logistics in
October 2004.
Headline earnings increased by 87.2% to R151.6 million (2004: R81.0 million)
with diluted headline earnings per share improving by 83.9% to 53.7 cents per
share (2004: 29.2 cents per share).
Cash generated by operations improved by 96.0% to R252.2 million (20 04: R128.7
million) as a result of the overall improved performance of the Group and
continued focus on working capital requirements, which only increased by
R13.3 million (2004: R16.3 million).
Capital expenditure was R141.1 million (2004: R65.9 million), which included
R64.7 million in respect of the new Further Processing Plant. A further amount
of R69.7 million (2004: R102.8 million) had been contracted and committed, but
not spent, whilst R31.4 million (2004: R80.9 million) had 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, including the negative impact of
the feed contamination issue, decreased marginally to 22.7% (2004: 23.1%).
REVIEW OF OPERATIONS
The five pillars to the Group"s strategic direction are consumer insight
(consumers being the heart of our business), customer focus (creating win-win
partnerships), supply chain (delivering excellence), business investment
(investing for future growth) and our culture (doing things inspirationally).
Rainbow"s operational board was restructured in May this year to align the
management structure with the above strategic intent. A Supply Chain Director
responsible for agriculture (including Cobb), feed (Epol) and processing has
been appointed. An Agricultural Director and a Processing Director, each with
national responsibility, replaced the previous regionalised structure of
three regional directors. An IT Director has also been appointed. Rainbow now
operates as an integrated chicken business, focused on delivering consumer
and customer centred products through an efficient supply chain spanning "farm
to fork". Significant investment has been made in understanding consumer
demand. This understanding has translated into new product concepts as well as
improved daily production planning. Under unified management, Rainbow"s supply
chain is tasked with producing the right size bird at the lowest cost and is
focused on operational excellence. Recent operational performance reflects some
early benefits of the above.
An example of consumer driven innovation, the Rainbow Family Pack, was launched
during the review period with excellent trade and consumer acceptance. This
Individually Quick Frozen ("IQF") variant delivers on a consumer requirement of
a specific portion count. Partnering with key customers is also gaining
momentum.
The significant upgrades to the Rustenburg and Worcester processing plants were
completed during the period under review at a total cost of approximately R66
million. In addition, the new R156 million Further Processing Plant in
Hammarsdale was commissioned in October 2005. This investment holds exciting
opportunities for the realisation of Rainbow"s branded and value-added chicken
strategy. It is envisaged that the Further Processed product launches will be
phased over the next few months into the various customer channels. All the
above investments are in line with Rainbow"s overall consumer and customer
focused strategy.
Vector"s results for the period are in line with expectation. Progress is
being made in realising synergies between Rainbow and Vector through an aligned
business strategy. New business gained, which on an annualised basis offsets
the loss of the YUM! (KFC) distribution contract, includes Nando"s, Spur and
Willowton. Further to this and as mentioned previously, Vector will from
January 2006 also service the remaining Rainbow volumes that were previously
distributed by a third party.
Progress has been made in assessing the Group"s requirements for an integrated
Enterprise Resource Planning ("ERP") system, to effectively manage its complex
supply chain. The roll-out is likely to take place on a phased basis over the
next two years.
PROSPECTS
Consumer spending is expected to remain positive over the next six months.
Despite the negative impact of the feed contamination issue suffered during the
second half of last year, earnings growth for the full year is likely to be
lower than the first six months growth. A negative earnings contribution of
approximately R30 million is expected from the new Further Processing Plant due
to it only being commissioned midway through the 2006 financial year. The
investment and operational cost structure will exceed the product contributions
during the phased launch period. Further to this, as mentioned in the recent
trading statement, Vector"s contribution will be lower in the second six months
without the YUM! (KFC) volumes.
DIRECTORATE
Mr LJ Grobler resigned from the Board with effect from 30 June 2005. The Board
wishes to express its appreciation for his contribution to the business over
the past seven years. Mrs M Nhlanhla was appointed as non-executive director
with effect from 19 July 2005.
DIVIDEND DECLARATION
Notice is hereby given that on 16 November 2005 the Board declared an interim
dividend (number 65) of 17.0 cents per ordinary share in respect of the six
months ended 30 September 2005 (2004: 9.5 cents).
The salient dates of the declaration and payment of this interim dividend are
as follows:
Last date to trade ordinary shares cum dividend Friday, 6 January 2006
Ordinary shares trade ex dividend Monday, 9 January 2006
Record date Friday, 13 January 2006
Payment date Monday, 16 January 2006
Share certificates may not be dematerialised or rematerialised between Monday,
9 January 2006 and Friday, 13 January 2006 (both dates inclusive).
IFRS ADJUSTMENTS
The basis of the adjustments, net of the taxation impact, as shown in the
reconciliations of equity and the income statement are noted below:
Share-based payments
The Group grants share options to employees under the Rainbow Share Incentive
Scheme. Under SA GAAP, other than costs incurred in administering the scheme,
which were expensed as incurred, the scheme did not result in any adjustment
besides a dilution in earnings per share when the shares were issued.
In accordance with the requirements of IFRS 2 (Share-based Payments), the Group
has recognised an expense in the income statement, with a corresponding cred-
it to equity, representing the fair value of outstanding employee share
options. The fair value at the date of granting the options is charged to
income over the relevant option vesting periods, adjusted to reflect actual
and expected levels of vesting.
Property, plant and equipment
Past interpretation and practice, generally accepted in South Africa, did not
take into account separate depreciation of significant components of property,
plant and equipment, or the re-assessment of an asset"s useful life on a
regular basis.
The revised version of IAS 16 (Property, plant and equipment) requires
significant components of an asset, with useful lives that differ significantly
from the asset as a whole, to be depreciated separately over their useful lives
and also requires the useful life and residual value of an asset to be reviewed
at least at each financial year-end.
Post-retirement medical benefits
Previously the Group recognised actuarial gains and losses in full in the year
in which they arose. From 1 April 2004, actuarial gains and losses will be
recognised using the corridor method - actuarial gains and losses in excess of
10% of the defined benefit obligation in the fund will be amortised in the
income statement over the expected remaining working lives of the employees.
Equity reconciliation of previous SA GAAP to IFRS
Audited Unaudited Audited
Year ended Six months ended Transition date
31 March 30 Sept 1 April
2005 2004 2004
R"000 R"000 R"000
Capital and reserves
As previously reported 1 337 811 1 219 614 1 182 125
Preference shares
reclassified - (500) (500)
Property, plant and
equipment (50 278) (52 046) (53 816)
Post-retirement medical
obligation (827) (193) -
As reported under IFRS 1 286 706 1 166 875 1 127 809
Income statement reconciliation of previous SA GAAP to IFRS
Attributable profit
As previously reported 232 376 90 434
Share-based payments (4 764) (2 325)
Property, plant and
equipment 3 538 1 770
Post-retirement medical
obligation (827) (193)
As reported under IFRS 230 323 89 686
Date: 16/11/2005 05:15:24 PM Produced by the JSE SENS Department
