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RBW - Rainbow Chicken - Unaudited Results For The Six Months Ended 30 September
2008 And Cash Dividend Declaration
RAINBOW CHICKEN LIMITED
(Registration number 1966/004972/06)
JSE share code: RBW ISIN: ZAE000019063
("Rainbow" or "the Group")
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008 AND CASH DIVIDEND
DECLARATION
salient features
- Revenue UP 15.9%
- Chicken realizations UP 15.4%
- Feed cost UP 38.0%
- Operating profit DOWN 44.6%
- Headline earnings per share DOWN 40.2%
- Interim dividend maintained
CONSOLIDATED INCOME STATEMENT
Six months Six months
ended ended Year ended
30 Sept 30 Sept 31 March
R`000 2008 2007 2008
Revenue 3 326 724 2 871 448 5 955 327
Operating profit before non-
recurring items, depreciation
and amortisation 247 085 380 908 925 808
Feed claim recovery 40 000
BEE expense (49 368)
Operating profit before
depreciation
and amortisation 247 085 380 908 916 440
Depreciation and amortisation (72 324) (65 211) (136 426)
Operating profit 174 761 315 697 780 014
Finance costs (1 428) (1 144) (2 566)
Finance income 13 768 14 604 34 248
Profit before taxation 187 101 329 157 811 696
Taxation (61 789) (118 630) (272 730)
Profit for the period attributable
to the equity holders of the company 125 312 210 527 538 966
HEADLINE EARNINGS
Profit for the period attributable
to the equity holders of the company 125 312 210 527 538 966
Net asset impairment provision
released (1 914) (11 170)
Loss/(profit) on disposal of
property, plant and equipment 439 (300) 269
Headline earnings 125 751 208 313 528 065
Feed claim recovery (28 400)
BEE expense 49 368
Adjusted headline earnings 125 751 208 313 549 033
CONSOLIDATED BALANCE SHEET
30 Sept 30 Sept 31 March
R`000 2008 2007 2008
ASSETS
Non-current assets
Property, plant and equipment 1 309 425 1 103 468 1 243 670
Goodwill 287 444 287 444 28 7 444
Deferred taxation 15 285
1 596 869 1 406 197 1 531 114
Current assets
Inventories 680 622 482 122 521 945
Biological assets 436 219 336 451 369 224
Trade and other receivables 950 619 757 823 862 591
Derivative financial instruments 16 727 36 394 16 768
Taxation receivable 32 621 21 688
Cash and cash equivalents 379 967 556 624 509 894
2 496 775 2 169 414 2 302 110
Total assets 4 093 644 3 575 611 3 833 224
EQUITY
Capital and reserves 2 351 719 2 028 074 2 337 130
LIABILITIES
Non-current liabilities
Deferred taxation 240 174 186 876 240 041
Post-retirement medical obligation 84 138 78 647 80 862
324 312 265 523 320 903
Current liabilities
Trade and other payables 1 348 953 1 178 533 1 126 210
Provisions 41 622 41 025 43 251
Derivative financial instruments 1 394
Finance lease liability 176 177
Taxation payable 27 038 62 280 4 159
1 417 613 1 282 014 1 175 191
Total liabilities 1 741 925 1 547 537 1 496 094
Total equity and liabilities 4 093 644 3 575 611 3 833 224
STATEMENT OF CHANGES IN EQUITY
Stated Share-based Retained
R`000 capital payments earnings Total
Balance at 1 April 2007 1 127 285 22 248 771 356 1 920 889
Profit for the period
attributable to
the equity holders
of the company 210 527 210 527
Ordinary dividend paid (139 202) (139 202)
Employee share option scheme:
Proceeds from shares issued 29 807 29 807
Value of employee services 6 053 6 053
Balance at 30 Sept 2007 1 157 092 28 301 842 681 2 028 074
Profit for the period
attributable to the equity
holders of the company 328 439 328 439
Ordinary dividend paid (69 601) (69 601)
BEE share-based payments charge 45 468 45 468
Employee share option scheme:
Value of employee services 4 750 4 750
Balance at 1 April 2008 1 157 092 78 519 1 101 519 2 337 130
Profit for the period
attributable to the equity
holders of the company 125 312 125 312
Ordinary dividend paid (127 859) (127 859)
BEE share-based payments
charge 1 716 1 716
Employee share option scheme:
Proceeds from shares issued 7 405 7 405
Value of employee services 8 015 8 015
Balance at 30 Sept 2008 1 164 497 88 250 1 098 972 2 351 719
CONSOLIDATED CASH FLOW INFORMATION
Six months Six months
ended ended Year ended
30 Sept 30 Sept 31 March
R`000 2008 2007 2008
Operating profit 174 761 315 697 780 014
Non-cash items 84 141 68 760 185 125
Operating profit before working
capital requirements 258 902 384 457 965 139
Working capital requirements (92 312) (135 788) (347 905)
Cash generated by operations 166 590 248 669 617 234
Net finance income 12 341 13 460 31 682
Taxation paid (49 710) (74 181) (239 641)
Cash available from operating
activities 129 221 187 948 409 275
Dividends paid (127 859) (139 202) (208 803)
Net cash flows from investing
activities (138 517) (112 051) (310 509)
Net cash flows from financing
activities 7 228 29 593 29 595
Net movement in cash and cash
equivalents (129 927) (33 712) (80 442)
Cash and cash equivalents at the
beginning of the period 509 894 590 336 590 336
Cash and cash equivalents at the
end of the period 379 967 556 624 509 894
SUPPLEMENTARY INFORMATION
Capital expenditure contracted
and committed 72 231 188 045 94 165
Capital expenditure approved but
not contracted 137 235 66 141 119 258
Contingent liabilities 49 830 53 802 50 078
STATISTICS
Ordinary shares in issue (000`s) 291 191 290 004 290 004
Weighted average ordinary
shares in issue (000`s) 290 574 287 898 288 951
Diluted weighted average
ordinary shares in issue (000`s) 290 574 293 136 292 028
Basic earnings per share (cents) 43.1 73.1 186.5
Basic earnings per share -
diluted (cents) 43.1 71.8 184.6
Headline earnings per share (cents) 43.3 72.4 182.8
Headline earnings per share -
diluted (cents) 43.3 71.1 180.8
Net asset value per share (cents) 807.6 699.3 805.9
Ordinary dividends:
Interim dividends declared/paid (cents) 24.0 24.0 24.0
Final dividend paid (cents) 44.0
BASIS OF PREPARATION
The unaudited results have been prepared in accordance with IAS 34 (Interim
Financial Reporting) and in compliance with the Companies Act of South Africa
of 1973 and the Listings Requirements of the JSE Limited. The accounting
policies are consistent with those of the previous financial period and comply
with International Financial Reporting Standards (IFRS).
OVERVIEW AND MARKET CONDITIONS
The Group`s results for the six months ended 30 September 2008 reflect a
headline earnings decline of 39.6%.
South Africa`s macroeconomic environment has continued to deteriorate with
slower economic growth and higher interest and inflation rates. Household
consumption growth has slowed further with consumer durables particularly hard
hit. This slowing is understandable in the light of consumers` disposable
income being impacted by both higher inflation and debt service costs as well
as concerns about the spill-over effects of the current global financial
crisis.
Feed raw material prices peaked at historically high levels during the past
six months and remain exceptionally volatile. This together with the crude oil
price and exchange rate volatility, uncertainty over the US crop size and the
impact of the credit crisis on world markets has translated into significant
challenges for raw material procurement. Despite these difficult market
conditions Rainbow has consistently applied its feed raw material procurement
strategy.
The local chicken market is estimated to have grown by 10% in the past twelve
months to R17.7 billion.
Total chicken imports (excluding turkey and mechanically deboned meat) have
decreased by approximately 42% to September 2008, largely due to the weakening
of the rand and exporters diverting product into other more profitable markets.
Chicken imports currently represent 5% of the local market.
The poultry industry`s petition to oppose ITAC`s proposed scrapping of the US
anti-dumping tariff is ongoing.
REVIEW OF OPERATIONS
Supply chain
Agricultural performance during the winter months improved on last year despite
the higher than normal incidence of disease in the industry and the
particularly cold winter experienced in some areas. This improvement can be
attributed to the continued investment in upgrading facilities and good
husbandry and bio-security practices. Rainbow remains focused on producing the
right bird at the lowest cost.
Feedmilling operating costs have been well managed during the period, however,
significant cost increases have been experienced in all commodity inputs.
Sourcing reasonably priced raw materials will remain a challenge as it is
anticipated that the volatility in the commodity markets will continue for the
foreseeable future.
The graph below depicts the feed cost increases for the six-month periods
ended 30 September since 2003, with significant increases having been
experienced in the past two years.
SEE PRESS FOR GRAPH
In response to the input cost pressure, the agricultural and feed management
teams have collaborated in challenging the current feed specification and
where possible reformulated diets to derive a lower feed cost at an acceptable
performance level.
The processing plants remain focused on delivering the required mix whilst
ensuring costs are well contained. A number of opportunities have been
identified that will further improve efficiencies, yield and product mix.
Rainbow`s outbound supply chain has been further streamlined with the
completion of the new plant-based cold storage facility at the Hammarsdale
plant which Vector operates. In addition to the capacity benefit, process
efficiency and integration improvements are anticipated with this change.
Vector Primary Transport, which commenced as a new service offering in August
2007, delivered further financial benefits whilst reducing risk to Rainbow. New
distribution contracts entered into during the period under review include
Wimpy and FishAways.
Brands
Rainbow`s focus on innovation, differentiation and communication continues to
prove successful. The Rainbow range of products can be classified as `core` and
`added value`. A significant amount of work has gone into invigorating the core
Rainbow products. This will serve to further entrench the existing consumer
perceptions of offering better quality and consistency. Added value products,
which now include Rainbow Viennas and Polonies, Rainbow Crumbed, Rainbow Grill
and Braai as well as Farmer Brown Fully Cooked and Tenderbreasts, have shown
tremendous growth and now contribute a meaningful percentage to total retail
sales. A number of new launches across all ranges are planned for the second
half of the financial year.
As anticipated, with the tighter economic conditions placing pressure on
consumers` level of disposable income, the volume growth rate of the Rainbow
FoodSolutions brand has slowed over this period. In response the FoodSolutions
team have continued to focus on innovation and building strong relationships
with key customers.
Rainbow`s brand strategy has been effective in delivering an acceptable margin
during a period of extreme input cost pressure.
IT infrastructure
Rainbow has made further progress with the implementation of its IT and
Enterprise Resource Planning strategy. An increased focus has been placed on
supply chain excellence and customer service initiatives. The leveraging of
our IT systems remains a key enabler within the business with specific
attention on the analysis of customer and product profitability.
Culture
For the past eighteen months Rainbow`s entire leadership team have participated
in a process called the "Good to Great" journey aimed at jointly defining
Rainbow`s strategy and aligning the business and its people behind the company
vision of "Rainbow chicken at the heart of every meal". The journey has
galvanised and empowered the leadership team, provided strategic clarity and
given significant impetus to the strategic effort in the business.
FINANCIAL REVIEW
Revenue - Rm 2008 2007 %
Chicken 2 561.1 2 217.3 15.5
Other 765.6 654.1 17.0
Reported revenue 3 326.7 2 871.4 15.9
Chicken revenue for the six months was 15.5% higher than the same period of the
previous year. Rainbow`s average price realisation increased by 15.4% and
despite four less trading days (3.1% impact) volumes were marginally higher.
Group revenue increased by 15.9% to R3.3 billion (2007: R2.9 billion).
The table below depicts headline EBIT after applying the impact of IAS 39
(Financial Instruments: Recognition and Measurement). As previously reported,
reporting the financial effects of certain financial instruments used in the
feed raw material procurement strategy introduces volatility to the Group`s
financial results. For this reporting period, the pre-taxation impact of
applying IAS 39 on the Group`s results is a negative impact of R52.9 million
(2007: R31.5 million negative).
The decline in headline EBIT margin is in line with the forecast made at the
previous year-end and reflects the 38.0% feed cost increase not being
entirely recovered in chicken pricing.
2008 2007 %
Headline EBIT (Rm)
pre - IAS 39 228.1 344.7 (33.8)
post - IAS 39 175.2 313.2 (44.1)
Headline EBIT margin (%)
pre - IAS 39 6.9 12.0
post - IAS 39 5.3 10.9
The effective taxation rate of 33.0% (2007: 36.0%) is lower as a result of the
1% reduction in the taxation rate and a lower STC charge on the reduced final
dividend.
Net finance income decreased by R1.1 million due to the lower cash balances
during the period.
Headline earnings decreased by 39.6% to R125.8 million (2007: R208.3 million)
with diluted headline earnings per share reducing by 39.1% to 43.3 cents per
share (2007: 71.1 cents per share).
Cash generated by operations decreased by 33.0% to R166.6 million (2007:
R248.7 million) by virtue of the lower trading results and increased working
capital investment. Inventories and receivables have been impacted by the
higher feed costs, however, underlying days` cover is marginally improved on
the previous year.
Capital expenditure was R139.6 million (2007: R116.4 million). A further amount
of R72.2 million (2007: R188.0 million) has been contracted and committed, but
not spent, whilst a further R137.2 million (2007: R66.1 million) has been
approved, but not contracted. The Group continues to follow a policy of
upgrading its facilities and funding normal levels of replacement capital
expenditure from its own resources.
Return on equity on a 12-month rolling basis decreased to 20.7% (2007: 27.8%).
BEE TRANSACTION
Rainbow`s BEE transaction was concluded on 30 July 2008 with the issue of the
15% shares to the consortium. As noted in the 2008 annual report, for
accounting purposes the transaction is treated as an option and therefore does
not impact the per share calculations. The only impact on Rainbow`s results
will be STC payable on dividends declared in respect of the 15% BEE shares.
PROSPECTS
Consumer spending is expected to continue to soften over the next six months as
a consequence of the higher inflation and interest rate environment.
Maize and soya prices and the exchange rate are likely to remain volatile over
the next few months. Prices are expected to remain at the current higher levels
translating into significantly higher feed input costs than the 2008 financial
year.
Other inflationary and supply pressures are likely to continue. As in the
period to date, sales realisations are unlikely to fully recover all the
anticipated production cost increases.
As a result earnings for the full year on a pre-and post-IAS39 basis are likely
to be lower than 2008.
DIRECTORATE
Following the implementation of the BEE transaction, with effect from 31 July
2008, Gcina Zondi was appointed as a non-executive director.
CASH DIVIDEND DECLARATION
Notice is hereby given that on 19 November 2008 the Board declared an interim
dividend (number 71) of 24.0 cents per ordinary share in respect of the six
months ended 30 September 2008 (2007: 24.0 cents).
The salient dates of the declaration and payment of this dividend are as
follows:
Last date to trade ordinary shares cum dividend Friday, 9 January 2009
Ordinary shares trade ex dividend Monday, 12 January 2009
Record date Friday, 16 January 2009
Payment date Monday, 19 January 2009
Share certificates may not be dematerialised or rematerialised between Monday,
12 January 2009 and Friday, 16 January 2009 (both dates inclusive).
For and on behalf of the Board
MH Visser M Dally
Non-executive Chairman Chief Executive Officer
Durban
19 November 2008
Directors: MH Visser (Non-executive Chairman), M Dally (CEO)*, RH Field*,
M Griessel JB Magwaza, MM Nhlanhla, DW Vale, G Zondi, DG Zwiegelaar
*Executive directors
Company secretary: JMJ Maher
Registered office: Rainbow Chicken Limited
One the Boulevard, Westway Office Park, Westville, 3629
Transfer secretaries: Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg 2001
Auditors: PricewaterhouseCoopers Inc
Sponsor: RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Bankers: ABSA Bank Limited
Website: www.rainbowchicken.co.za
Date: 19/11/2008 17:10:01 Supplied by www.sharenet.co.za
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