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SOV - Sovereign Food Investments Limited - Unaudited Group Results for the six
months ended 31 August 2011
Sovereign Food Investments Limited
Incorporated in the Republic of South Africa
Registration Number 1995/003990/06
JSE Code: SOV ISIN: ZAE000009221
("Sovereign" or "the Group")
Unaudited Group Results for the six months ended 31 August 2011
Revenue increase of 16%
Gross gearing reduced from 92% to 28%
Headline earnings per share of 0,7 cents
Statement of Financial Position
Audited
Unaudited six months year ended
ended 31 August 28 February
2011 2010 2011
R`000 R`000 R`000
Assets
Non-current assets
Property, plant and equipment 801 597 823 105 846 269
Current assets 266 594 333 126 269 763
Inventory 35 241 45 840 23 268
Biological assets 92 128 94 707 93 816
Trade and other receivables 134 061 115 094 98 029
Cash and cash equivalents 5 164 77 485 54 650
Total assets 1 068 191 1 156 231 1 116 032
Equity and liabilities
Share capital and premium 272 999 134 375 127 683
Non-distributable reserve and share based
payments 53 026 29 743 53 775
Retained earnings 281 379 255 043 280 859
Equity 607 404 419 161 462 317
Non-current liabilities
Interest bearing borrowings 142 987 336 729 316 775
Deferred taxation 117 180 101 544 116 978
Current liabilities 200 620 298 797 219 962
Current portion of interest bearing
borrowings 27 261 47 320 46 910
Trade, other payables and provisions
153 290 171 888 173 052
Bank overdraft 20 069 79 589 -
Total equity and liabilities 1 068 191 1 156 231 1 116 032
Statement of Comprehensive Income
Audited
Unaudited six months year
ended 31 August ended 28
February
2011 2010 2011
R`000 R`000 R`000
Revenue 610 463 527 601 1 113 110
Operating profit before depreciation and
impairments 25 980 43 259 116 390
Depreciation and impairments 16 768 15 772 32 086
Profit before finance costs 9 212 27 487 84 304
Net finance costs 8 490 25 730 48 673
Profit before taxation 722 1 757 35 631
Deferred taxation 202 492 8 550
Profit after taxation 520 1 265 27 081
Other comprehensive income for the period -
gain on revaluation of property, plant and
equipment - - 23 735
Total comprehensive income for the period
520 1 265 50 816
Weighted average shares in issue (`000)
77 165 47 817 47 817
Earnings per share (cents) 0,7 2,7 56,6
Headline earnings per share (cents)
0,7 2,7 58,1
Diluted earnings per share (cents)
0,7 2,6 56,4
Diluted headline earnings per share (cents)
0,7 2,6 57,9
Reconciliation between earnings and headline
earnings
Earnings after taxation 520 1 265 27 081
Reconciling items:
Disposal of property, plant and equipment
- - 661
Taxation effect - - 56
Headline earnings after taxation 520 1 265 27 798
Statement of Cash Flows
Audited
Unaudited six months year ended
ended 31 August 28 February
2011 2010 2011
R`000 R`000 R`000
Cash generated from operations before
working capital changes 25 43 259 116 638
980
Changes in working capital (66 512) (25 913) 46 438
Net cash flows from operations (40 532) 17 346 163 076
Interest paid (8 490) (25 730) (48 673)
Net cash flows from operating activities
(49 022) (8 384) 114 403
Net cash flows from investing in
property, plant and equipment (8 121) (24 615) (45 037)
Proceeds on the sale of property, plant
and equipment 36 025 - 11 445
Net cash flows from shares issued 145 000 - (6 692)
Net cash flows from debt repaid (193 437) (23 333) (73 697)
Net movement in cash and cash equivalents
(69 555) (56 332) 422
Cash and cash equivalents at the
beginning of the period 54 650 54 228 54 228
Cash and cash equivalents at the end of
the period (14 905) (2 104) 54 650
Statement of Changes in Equity
for the six months ended 31 August
Share Share Share-based
capital premium payments
R`000 R`000 R`000
2011
Opening balance 478 127 205 1 192
Ordinary shares issued 316 145 000 -
Net value of employee services - - (749)
Total comprehensive income for the year
- - -
Closing balance 794 272 205 443
2010
Opening balance 478 133 897 895
Total comprehensive income for the year
- - -
Closing balance 478 133 897 895
Non-
distributable Retained
reserve earnings Total
R`000 R`000 R`000
2011
Opening balance 52 583 280 859 462 317
Ordinary shares issued - - 145 316
Net value of employee services - - (749)
Total comprehensive income for the year
- 520 520
Closing balance 52 583 281 379 607 404
2010
Opening balance 28 848 253 778 417 896
Total comprehensive income for the year
- 1 265 1 265
Closing balance 28 848 255 043 419 161
Commentary
Overview
Headline earnings per share decreased to 0,7 cents for the period under review
("H112") due to higher mortalities as a result of a harsh early winter disease
and a 23% increase in non-feed costs per kg sold including a once-off charge of
R8,4 million relating to the stepping down of the CEO.
Operational Results
From a production perspective, the feed conversion ratio improved by 6% whilst
maintaining the same live mass per bird. Negative production indicators were
mortalities increasing from 6% to 8% and processing yield declining by 1%. The
Group slaughtered 6% more birds which resulted in an increase in sales volume of
5% from 47 800 tons to 50 400 tons.
The Group maintained the pricing increase realised during the 2011 financial
year and pricing increased by 10% over the six months ended 31 August 2010
("H111") and 2% over the six months ended 28 February 2011 ("H211"). Through the
continued pursuit of its product diversification strategy, the Group has managed
to further decrease its dependence on the IQF market over the past 18 months
with sales into this category declining from 53% in H111 and 50% in H211 to 46%
in H112. However, the volume of poultry imports into South Africa increased by
47% over H111 and 28% over H211 and continues to place pressure on local
pricing. Of particular concern is the sudden increase in the import volumes of
leg quarters from the European Union which attract no tariffs.
The poultry industry also saw a substantial increase in maize prices and the
Group`s broiler feed costs increased by 8% per ton. Average SAFEX white maize
spot prices increased from R1 120 per ton in H111 and R1 350 per ton in H211 to
R1 750 per ton in H112 and March 2012 SAFEX white maize prices are currently
trading at approximately R2 200 per ton. This increase in maize prices will
continue to place the poultry industry under pressure for the next six months.
The Group`s primary challenge for the next six months is to contain and reduce
its non-feed costs which have increased to R7,31/kg in H112 compared to R5,92/kg
in H111 and R6,55 in H211. The Group has embarked on an aggressive plan to
reduce discretionary and direct production costs and this plan is expected to
yield results in the next six months.
Working capital as a percentage of annualised revenue increased from 7,9% as at
31 August 2010 to 8,9% as at 31 August 2011 as a result of a deterioration in
both trade receivables and trade payables. It is expected that the deterioration
in trade receivables will be corrected by February 2012. Inventory levels have
increased from the low position as at 28 February 2011 in line with
expectations.
Capital expenditure for the period under review was limited to R8 million and
was spent primarily at the abattoir. The R150 million raised in the Rights Offer
which was completed in March 2011 was applied entirely to the reduction of debt
and total debt repaid for the period was R193 million. This had the effect of
reducing gross debt to R170 million as at 31 August 2011 and gross gearing fell
to 28%.
Cash on hand declined from R55 million as at 28 February 2011 to a net overdraft
of R15 million as at 31 August 2011.
Prospects
Over the festive season poultry prices traditionally increase, however increased
import volumes may continue to supress poultry prices and this, coupled with the
increase in maize and soya prices, could keep margins within the poultry
industry under pressure for the next six months.
Despite the poor trading results experienced in the first six months, the Group
believes its core business model of high yield farming and processing operations
remains sound. The cost reduction plan coupled with the strong production
results is expected to yield progressive results going forward despite the
expected margin pressure referred to above.
Directorate
During the period under review, Mr Mike Davis stepped down from the board of
directors of Sovereign ("Board") and as Chief Executive Officer. Mr Charles
Davies, currently Sovereign`s Non-executive Chairman, will assume the role of
Executive Chairman and Mr Litha Nyhonyha, currently a Non-executive Director,
will be appointed as the Board`s Lead Independent Director until such time as a
new Chief Executive Officer is appointed.
Accounting Policies
The condensed consolidated interim financial statements have been prepared in
accordance with International Financial Reporting Standards and comply with the
requirements of International Accounting Standard 34 - Interim Financial
Reporting, the AC500 series of interpretations as issued by the Accounting
Practices Board, the JSE Limited Listing Requirements and the Companies Act of
South Africa. The accounting policies are consistent with those applied by the
Group for the year ended 28 February 2011. These financial results have been
prepared by Mr C Coombes CA (SA).
Interim Dividend
Whilst gearing has improved, the cash flow position of the Group is still not at
a level acceptable to the Board and the Board therefore considers it prudent to
not declare an interim dividend for the period under review.
By order of the Board
CP Davies C Coombes
Executive Chairman Chief Financial Officer
30 September 2011
E-mail: info@sovfoods.co.za
Transfer secretaries
Computershare Investor Services (Pty) Limited, PO Box 61051, Marshalltown 2107,
Gauteng
Sponsor
One Capital
Directorate
CP Davies (Chairman), JA Bester*, C Coombes, PM Madi*, LM Nyhonyha*,
T Pritchard*, BJ Van Rensburg, GG Walter
* Non-executive
www.sovfoods.co.za
Date: 03/10/2011 07:05:25 Supplied by www.sharenet.co.za
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