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SOV - Sovereign Food Investments Limited - Audited Group Results for the year
ended 28 February 2011 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: ZAE000009221
("the group")
AUDITED GROUP RESULTS for the year ended 28 February 2011
and Notice of Annual General Meeting
HIGHLIGHTS
* Headline earnings per share increased by 80%
* Sales volumes increased by 11%
* Net gearing reduction to 67% from 92%
* Cash flow per share from operations increased by 42% to R3.41
Consolidated Statement of Financial Position
At At
28 February 28 February
2011 2010
R`000 R`000
Assets
Non-current assets
Property, plant and equipment 846 269 814 262
Current assets 269 763 299 337
Inventory 23 268 43 967
Biological assets 93 816 94 587
Trade and other receivables 98 029 106 555
Cash and cash equivalents 54 650 54 228
Total assets 1 116 032 1 113 599
Equity and liabilities
Share capital and premium 127 683 134 375
Non-distributable reserve and share-based
payments 53 775 29 743
Retained earnings 280 859 253 778
Equity 462 317 417 896
Non-current liabilities
Interest-bearing borrowings 316 775 360 673
Deferred taxation 116 978 101 053
Current liabilities 219 962 233 977
Current portion of interest-bearing borrowings 46 910 76 709
Trade, other payables and provisions 173 052 157 268
Total equity and liabilities 1 116 032 1 113 599
Statement of Comprehensive Income
Year ended Year ended
28 February 28 February
2011 2010
R`000 R`000
Revenue 1 113 110 1 056 203
Operating profit before depreciation and
amortisation 116 390 104 145
Depreciation and amortisation 32 086 26 219
Net finance costs 48 673 62 866
Profit before taxation 35 631 15 060
Deferred taxation 8 550 3 991
Profit after taxation 27 081 11 069
Other comprehensive income for the year - gain
on revaluation of property, plant and equipment 23 735 -
Total comprehensive income for the year 50 816 11 069
Weighted average shares in issue (`000) 47 817 36 088
Earnings per share (cents) 56.6 30.7
Headline earnings per share (cents) 58.1 32.3
Diluted earnings per share (cents) 56.4 30.3
Diluted headline earnings per share (cents) 57.9 31.9
Reconciliation between earnings and headline
earnings
Earnings after taxation 27 081 11 069
Reconciling items:
Disposal of property, plant and equipment 661 724
Taxation effect 56 (135)
Headline earnings after taxation 27 798 11 658
Statement of Cash Flows
Year ended Year ended
28 February 28 February
2011 2010
R`000 R`000
Cash generated from operations before working
capital changes 116 638 105 216
Changes in working capital 46 438 (18 129)
Cash generated from operating activities 163 076 87 087
Interest paid (48 673) (62 866)
Net cash flow from operating activities 114 403 24 221
Net cash flows from investing in property,
plant and equipment (45 037) (61 552)
Proceeds on the sale of property, plant and
equipment 11 445 724
Net cash flows from shares issued (6 692) 119 740
Net cash flows from debt repaid (73 697) (111 584)
Net movement in cash and cash equivalents 422 (28 451)
Cash and cash equivalents at the beginning
of the year 54 228 82 679
Cash and cash equivalents at the end of the year 54 650 54 228
Statement of Changes in Equity
Share-
Share Share based
capital premium payments
R`000 R`000 R`000
2011
Opening balance 478 133 897 895
Shares issued - (6 692) -
Share-based payments - - 297
Total comprehensive income for the year - - -
Closing balance 478 127 205 1 192
2010
Opening balance 330 14 305 301
Ordinary shares issued 148 119 592 -
Share-based payments - - 594
Total comprehensive income for the period - - -
Closing balance 478 133 897 895
Non-
distributable Retained
reserves earnings Total
R`000 R`000 R`000
2011
Opening balance 28 848 253 778 417 896
Shares issued - - (6 692)
Share-based payments - - 297
Total comprehensive income for
the year 23 735 27 081 50 816
Closing balance 52 583 280 859 462 317
2010
Opening balance 28 848 242 709 286 493
Ordinary shares issued - - 119 740
Share-based payments - - 594
Total comprehensive income for
the period - 11 069 11 069
Closing balance 28 848 253 778 417 896
RESULTS FOR THE PERIOD UNDER REVIEW
The group showed a substantial improvement in earnings during the year ended 28
February 2011 ("FY11") with headline earnings per share improving by 80.0% to
58.1 cents per share over that for the year ended 28 February 2010 ("FY10"). It
is particularly pleasing to note that the headline earnings per share for the
six months to 28 February 2011 ("H211") were 55.4 cents per share, contrasted to
the headline earnings per share for the six months to
31 August 2010 ("H111") which were 2.7 cents per share.
Total national poultry import volumes increased 12.2% for the period under
review compared to the prior comparative period which led to a national
oversupply situation. As a result, the group`s average poultry price decreased
5.0% compared to the prior comparative period. Although prices recovered
slightly in H211, they remained under pressure and were flat relative to prices
in the six months to 28 February 2010 ("H210").
The group has seen volume growth over the past several years despite its
internal supply chain constraints and this volume growth has proven the
viability of the group`s investment in high-quality assets at both an
agricultural and abattoir level. The increase in volume in FY11 was driven from
the excellent improvement in agricultural performance with live mass per bird
increasing by 7.4% and broiler mortality decreasing by 45.1% from 9.5% in FY10
to 5.2% in FY11.
This improvement in agricultural performance was also seen in the feed
conversion ratio which decreased by 8.3% in FY11. This, coupled with an 8.9%
decrease in the cost of feed raw materials, saw an overall decrease in broiler
feed costs per unit sold by 16.0%.
However, non-feed costs per unit increased by 3.8% in the period under review,
driven largely by increased utility and energy costs. Another contributing
factor was the purchase of eggs from third parties due to poor breeder
performance. During H111, the group outsourced its frozen distribution fleet
which has led to a 17.9% decrease in the group`s distribution cost in FY11 and
has mitigated other cost increases.
Capital expenditure ("capex") for the year was R45.0 million of which
R24.6 million was incurred in H111 and R20.4 million in H211. The bulk of this
capex has been to improve cold storage capacity and product mix at the abattoir.
Net working capital decreased by R45.8 million or 52.1% as at 28 February 2011
from 28 February 2010. This was due in part to delays in feed raw material
deliveries immediately prior to year-end which led to the value of inventory and
biological assets falling by R21.5 million. Net working capital also decreased
as a result of a decrease in trade receivables days from 37 days to 32 days and
an increase in trade payables of R15.8 million.
In prior years, the group had an unsecured loan in the form of plant and
equipment utilised by a BBBEE contract grower. This was partly repaid in the
year under review which resulted in the sale of property, plant and equipment
for R10.5 million.
Partly as a result of the decrease in working capital, the group generated
R163.1 million in cash in FY11 from operating activities which is
R76.0 million or 87.3% more than was generated in FY10. As a result of this
strong cash flow, the group ended the year with cash of R54.6 million. After
repaying R73.7 million in long-term debt during FY11, gross long-term debt was
R363.7 million and net gearing was 66.8% as at 28 February 2011.
RIGHTS OFFER
The group undertook a rights offer in December 2010 which was successfully
concluded in March 2011 through which R150 million was raised in new capital.
Subscriptions for 39 422 835 new Sovereign ordinary shares were received in
terms of the rights offer, resulting in a total oversubscription for 124.8%
of the 31 578 947 new Sovereign ordinary shares at a subscription price of
475 cents. Costs of R6.7 million were incurred in the year under review in
respect of the rights offer, which has resulted in the decrease of share premium
to R127.2 million as at 28 February 2011.
The R150 million was applied, in its entirety, towards the repayment of long-
term debt in March 2011, which improved the group`s net gearing. In addition,
the application of the proceeds from the rights offer allowed the group`s
management to negotiate improved borrowing terms and conditions with the group`s
remaining facility providers.
INDUSTRY CONDITIONS AND PROSPECTS
Poultry prices will remain the dominant factor in the coming year and there are
indications that international poultry prices will be higher than in the past.
However, international pricing together with the relative strength of the Rand
to the US Dollar and to the Brazilian Real will determine the level of poultry
imports and the pricing of these imports into South Africa.
Recent increases in the price of maize and proteins are of major concern and it
is expected that margin gains due to improved poultry prices will be mitigated
by the increases in the prices of feed components.
In the coming year, management intends to continue with its drive to improve
yields across the supply chain, to continue to optimise its product mix and to
improve service levels to its customers by utilising its new cold store,
together with minimising the impact of external cost increases such as feed raw
materials and utilities on its cost base.
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of the company will be
held at 09:00 on Wednesday, 13 July 2011 at the registered offices of the
company in Uitenhage, Eastern Cape.
DIVIDEND
As the group continues to rebuild its capital structure the directors consider
it prudent not to declare a dividend at this time. Going forward, the group will
reassess its dividend policy.
DIRECTORATE
During the period under review, Mr Mike Hankinson and Ms Khanya Kweyama
resigned. Mike resigned due to a potential conflict of interest in his role as
the chairman of Spar (Spar being a major customer of the group) and Khanya
resigned due to other work commitments. The group wishes to thank Mike and
Khanya for their valuable contribution to the group.
The group appointed Mr John Bester and Mr Tom Pritchard as independent non-
executive directors and as members of the group`s audit committee. John is a
chartered accountant (SA) and has extensive experience in the financial
services, insurance and distribution and manufacturing sectors in South Africa.
He has served on and still chairs the audit committees of several companies. Tom
is a chartered accountant (SA) and has a wealth of experience across a broad
spectrum of businesses including the poultry industry. He has served as
financial director to several organisations in the past years.
ACCOUNTING POLICIES
The abridged annual financial statements conform to International Accounting
Standard ("IAS") 34: Interim Financial Reporting, the AC 500 series of
interpretations as issued by the Accounting Practices Board ("APB"), 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 ("IFRS"), 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 28 April 2011, is available for
inspection at the registered offices of the group.
By order of the board
CP Davies MJB Davis
Non-executive Chairman Chief Executive Officer
Uitenhage
29 April 2011
Directorate: CP Davies* (Chairman), MJB Davis (Chief Executive Officer),
JA Bester*, C Coombes, Prof. PM Madi*, LM Nyhonyha*, T Pritchard*, GG Walter,
BJ van Rensburg
(* Non-executive)
Registered office: Kruis River Road, Uitenhage, 6320. PO Box 1386 Uitenhage,
6320, Eastern Cape
E-mail: info@sovfoods.co.za
Transfer secretaries: Computershare Investor Services (Pty) Limited.
PO Box 61051, Marshalltown 2107, Gauteng
Sponsor: One Capital
www.sovfoods.co.za
Date: 29/04/2011 17:30:02 Supplied by www.sharenet.co.za
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