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SOV - Sovereign Food Investments Limited - Audited Group Results for the year
ended 28 February 2010 and notice of annual general meeting
Sovereign Food Investments Limited
Incorporated in the Republic of South Africa
Registration number 1995/003990/06
JSE code: SOV ISIN: ZAE 000009221
("Sovereign" or "the Group" or "the Company")
Audited Group Results for the year ended 28 February 2010
and notice of annual general meeting
Headline earnings per share increase to 32,3cps
Turnover up 16%
Net gearing reduction to 92%
EBITDA margin increase from 7,8% to 9,9%
Cash flow per share from operations increase from R2,15 to R2,92
Consolidated Statement of Comprehensive Income
2010 2009
R`000 R`000
Revenue 1 056 203 909 121
Operating profit before depreciation 104 145 71 011
Depreciation 26 219 20 364
Net finance costs 62 866 56 173
Profit/(loss) before taxation 15 060 (5 526)
Normal and deferred taxation 3 991 (5 034)
Profit/(loss) after taxation 11 069 (492)
Retained earnings at beginning of year 242 709 243 201
Retained earnings at end of year 253 778 242 709
Weighted average shares in issue (`000) 36 088 33 003
Earnings/(loss) per share (cents) 30,7 (1,5)
Headline earnings/(loss) per share (cents) 32,3 (1,5)
Diluted earnings/(loss) per share (cents) 30,3 (1,5)
Diluted headline earnings/(loss) per share (cents) 31,9 (1,5)
Reconciliation between earnings and headline
earnings
Profit/(loss) after taxation 11 069 (492)
Reconciling items:
Disposal of property, plant and equipment 724 -
Taxation effect (135) -
Headline profit/(loss) after taxation 11 658 (492)
Consolidated Statement of Financial Position
2010 2009
R`000 R`000
Assets
Non-current assets
Property, plant and equipment 814 262 780 130
Current assets 299 337 320 427
Inventory 43 967 39 081
Biological assets 94 587 85 342
Trade and other receivables 106 555 113 325
Cash and cash equivalents 54 228 82 679
Total assets 1 113 599 1 100 557
Equity and liabilities
Equity
Share capital and premium 134 375 14 635
Non-Distributable Reserve and Share Options 29 743 29 149
Retained earnings 253 778 242 709
Shareholders` interest 417 896 286 493
Liabilities
Long-term loans 437 382 548 966
Long-term portion 360 673 457 981
Short-term portion 76 709 90 985
Deferred taxation 101 053 97 062
Trade and other payables 157 268 168 036
Total equity and liabilities 1 113 599 1 100 557
Consolidated Statement of Cash Flows
2010 2009
R`000 R`000
Cash generated from operations before working
capital changes 105 463 71 056
Changes in working capital (18 129) (45 012)
Cash generated from operating activities 87 334 26 044
Interest paid (62 866) (56 173)
Taxation received - 3 476
Net cash flow from operating activities 24 468 (26 653)
Net cash flow from investing in property, plant (61 075) (248 048)
and equipment
Net cash flow from shares issued 119 740 -
Net cash flow from debt (repaid)/raised (111 584) 232 226
Net movement in cash, cash equivalents and
investments (28 451) (42 475)
Cash, cash equivalents and investments at
beginning of year 82 679 125 154
Cash, cash equivalents and investments at end of
year 54 228 82 679
Consolidated Statement of Changes in Equity
Non-
distribut-
Share Share Share able Retained
2010 capital premium options reserve earnings Total
Opening
balance 330 14 305 301 28 848 242 709 286 493
Ordinary
shares issued 148 119 592 - - - 119 740
Share options - - 594 - - 594
Total
comprehensive
income for
the period - - - - 11 069 11 069
Closing
balance 478 133 897 895 28 848 253 778 417 896
2009
Opening
balance 330 14 305 257 28 848 243 201 286 941
Share options - - 44 - - 44
Total
comprehensive
income for
the period - - - - (492) (492)
Closing
balance 330 14 305 301 28 848 242 709 286 493
Commentary
Results for the period under review
The Group has been successful in reversing the 1,5 cents headline loss per share
incurred last year to a 32,3 cents headline earnings per share for the financial
year ended 28 February 2010 ("FY10"). Despite the business experiencing a very
positive first six months, the second half of the year was disappointing with
difficult trading conditions being experienced.
Volumes increased by 14% over the 2009 financial year ("FY09") and have
increased by 81% in the three-year period from the 2007 financial year. Poultry
prices were up marginally from FY09 to FY10 and as a result turnover increased
by 16%. Poultry prices continue to be negatively impacted by higher import
volumes, lower prices of imported poultry and softer consumer demand.
Despite the investment and expansion over the past 36 months, the Group remains
challenged in various areas of its supply chain, most notably in the broiler
operation and at the abattoir. This has resulted in the Group not realising the
full effect of the improved efficiencies expected from the expansion and has
also impacted on farming performance.
These constraints, together with increases in the costs of items such as
electricity, fossil fuels and statutory wage rates, has resulted in an increase
in non-feed costs of 4% per kg sold in FY10 compared to FY09. Management is pro-
actively addressing these challenges and is committed to reducing the Group`s
non-feed costs to appropriate levels.
Raw material costs for the year under review have declined by 5%. Although the
decline in the spot maize price for the period was 24%, the Group`s policy of
acquiring commodities in advance meant that the full benefit of the price
reduction is not seen in these results.
The benefit of the reduced raw material costs will only be felt in the next
financial year as a result of the lower cost of feed.
The Rights Offer undertaken in December 2009 ("the Rights Offer"), which raised
R125,9 million (before costs) of new equity for the Group, has strengthened the
statement of financial position considerably and gearing is now within the
target range set by management prior to the Rights Offer. Gross bank funding has
decreased by R112 million from R549 million at the end of FY09 to R437 million
at the end of FY10. The full impact of the Rights Offer on the statement of
comprehensive income is only expected to be seen during the next financial year.
As a result of gearing concerns and the global financial crisis, capital
expenditure ("Capex") was limited to what was needed to complete projects in
progress and other necessary expenditure. Capex for the year was R61 million
with R45 million of this being spent in the first half of FY10.
The Group continues to monitor working capital very closely and net working
capital as a % of turnover remained consistent with that of FY09 at 8%.
Sovereign`s positive financial performance coupled with the Rights Offer has
significantly strengthened the Group`s statement of financial position allowing
the Group the opportunity to consider further strategic growth initiatives to
enhance the efficiency and performance of the various business units.
Cash generated from operations increased by R34 million compared to the prior
period and after careful working capital management, cash generated from
operating activities increased by R61 million compared to the prior period.
Industry conditions and prospects
Poultry prices are expected to remain the dominant factor in the coming year and
the effect of the 2010 Soccer World Cup on poultry prices is not yet clear.
National supply and demand remain tightly balanced and the level of low priced
imports will have a material impact on poultry prices going forward.
Management`s focus in the coming year will be to optimise product mix and
resolve the cost issues at both the feed and non-feed levels by addressing
internal inefficiencies and minimising the impact of external cost input
increases. In this context the Group has outsourced the bulk of its distribution
operation since the end of the financial period under review.
Notice of annual general meeting
Notice is hereby given that the annual general meeting of the Company will be
held at 09:00 on Thursday, 13 July 2010 at the registered offices of the Company
in Uitenhage, Eastern Cape.
Dividend
The Group has made a substantial investment in production capacity over the last
two years which is expected to enhance earnings in the future, but in the
interest of improving the gearing position, the Directors consider it prudent
not to declare a dividend at this time.
Accounting policies
The abridged annual financial statements conform to International Accounting
Standard 34: Interim Financial Reporting, the Listings Requirements of the JSE
Limited and the Companies Act of South Africa (Act 61 of 1973), as amended. The
principal accounting policies, which comply with International Financial
Reporting Standards, have been consistently applied in all material respects in
the current and comparative years.
These results have been audited by the Group`s independent auditors, PKF (PE)
Inc. Their unmodified audit report, dated 29 April 2010, is available for
inspection at the registered offices of the Company.
By order of the board
CP Davies MJB Davis
Non-executive Chairman Chief Executive Officer
Uitenhage
5 May 2010
Email: info@sovfoods.co.za
Transfer secretaries
Computershare Investor Services (Pty) Limited
PO Box 61051, Marshalltown 2107, Gauteng
Sponsor
One Capital
Directorate
CP Davies* (Non-executive Chairman), MJB Davis (Chief Executive Officer), MJ
Hankinson*, KT Kweyama*, Prof PM Madi*, LM Nyhonyha*, C Coombes, GG Walter, BJ
van Rensburg (*Non-executive)
www.sovereignfoods.co.za
Date: 05/05/2010 17:30:02 Supplied by www.sharenet.co.za
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