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RBW - Rainbow Chicken Limited - Abridged unaudited group results for the six
months ended 31 December 2011 and cash dividend declaration
RAINBOW CHICKEN LIMITED
Registration number: 1966/004972/06
JSE share code: RBW
ISIN: ZAE000019063
("RCL" or "Group")
ABRIDGED UNAUDITED GROUP RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2011 AND
CASH DIVIDEND DECLARATION
SALIENT FEATURES
(Compared to 6 months ended 30 September 2010)
REVENUE UP 15,8%
OPERATING PROFIT UP 27,0%
HEADLINE EARNINGS PER SHARE UP 24,5%
INTERIM DIVIDEND 28,0 CENTS PER SHARE
CONSOLIDATED BALANCE SHEET
31 Dec 30 Sept 30 June
R`000 2011 2010 2011
ASSETS
Non-current assets
Property, plant and equipment 1 643 656 1 514 932 1 600 008
Goodwill 287 444 287 444 287 444
1 931 100 1 802 376 1 887 452
Current assets
Inventories 881 364 633 278 664 804
Biological assets 430 660 422 938 445 226
Trade and other receivables 1 722 207 1 266 574 1 259 552
Derivative financial instruments 918
Tax receivable 29 524 107 41 773
Cash and cash equivalents 229 889 367 623 469 496
3 293 644 2 691 438 2 880 851
Total assets 5 224 744 4 493 814 4 768 303
EQUITY
Capital and reserves 2 904 902 2 694 687 2 856 333
LIABILITIES
Non-current liabilities
Deferred income tax liabilities 371 131 321 628 372 198
Post-retirement medical obligation 103 911 96 270 102 162
475 042 417 898 474 360
Current liabilities
Trade and other payables 1 603 141 1 337 103 1 433 243
Derivative financial instruments 3 697 276 3 469
Current income tax liabilities 42 959 23 332 898
Bank overdraft 195 003 20 518
1 844 800 1 381 229 1 437 610
Total liabilities 2 319 842 1 799 127 1 911 970
Total equity and liabilities 5 224 744 4 493 814 4 768 303
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
6 months 6 months 15 months
31 Dec 30 Sept 30 June
R`000 2011 2010 2011
Revenue 3 917 526 3 384 386 8 621 389
Operating profit before depreciation 392 430 317 124 762 617
Depreciation (90 907) (79 687) (210 340)
Operating profit 301 523 237 437 552 277
Finance costs (3 814) (1 082) (1 808)
Finance income 3 976 8 332 21 520
Profit before taxation 301 685 244 687 571 989
Income tax expense (101 324) (82 227) (188 139)
Profit for the period 200 361 162 460 383 850
Total comprehensive income for
the period 200 361 162 460 383 850
Basic earnings per share (cents) 68,1 55,5 131,0
Basic earnings per share - diluted (cents) 67,8 55,2 130,1
HEADLINE EARNINGS
6 months 6 months 15 months
31 Dec 30 Sept 30 June
R`000 2011 2010 2011
Total comprehensive income for the period 200 361 162 460 383 850
Loss/(profit) on disposal of property,
plant and equipment 1 707 (791) 4 920
Headline earnings 202 068 161 669 388 770
Headline earnings per share (cents) 68,7 55,2 132,7
Headline earnings per share - diluted
(cents) 68,4 55,0 131,8
CONSOLIDATED CASH FLOW INFORMATION (R`000)
Operating profit 301 523 237 437 552 277
Non-cash items 97 905 84 229 238 845
Operating profit before working capital
requirements 399 428 321 666 791 122
Working capital requirements (488 283) (204 336) (147 791)
Cash generated by operations (88 855) 117 330 643 331
Net finance income 162 7 250 19 712
Tax paid (48 081) (51 006) (170 448)
Cash available from operating activities (136 774) 73 574 492 595
Dividends paid (164 678) (140 530) (222 540)
Net cash flows from investing activities (136 927) (128 592) (352 253)
Net cash flows from financing activities 3 769 3 586 12 627
Net movement in cash and
cash equivalents (434 610) (191 962) (69 571)
Cash and cash equivalents at the
beginning of the period 469 496 539 067 539 067
Cash and cash equivalents at the
end of the period 34 886 347 105 469 496
STATISTICS
Ordinary shares in issue (000`s) 294 310 292 879 293 926
Weighted average ordinary
shares in issue (000`s) 294 091 292 746 293 075
Diluted weighted average ordinary
shares in issue (000`s) 295 374 294 142 295 018
Net asset value per share (cents) 987,0 920,1 971,8
Ordinary dividends:
Interim dividends declared/paid (cents) 28,0 28,0 28,0
Final dividend paid (cents) 56,0
Total dividends (cents) 28,0 28,0 84,0
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Stated Share-based Retained
R`000 capital payments earnings Total
Balance at 1 April 2010 1 177 057 116 574 1 366 551 2 660 182
Total comprehensive
income for the period 162 460 162 460
Ordinary dividend paid (140 530) (140 530)
BEE share-based payments charge 1 716 1 716
Employee share option scheme:
Proceeds from shares
issued 3 586 3 586
Value of employee services 7 273 7 273
Balance at 30 September
2010 1 180 643 125 563 1 388 481 2 694 687
Total comprehensive
income for the period 221 390 221 390
Ordinary dividend paid (82 010) (82 010)
BEE share-based payments charge 2 544 2 544
Employee share option scheme:
Proceeds from shares
issued 9 041 9 041
Value of employee services 10 681 10 681
Balance at 1 July 2011 1 189 684 138 788 1 527 861 2 856 333
Total comprehensive
income
for the period 200 361 200 361
Ordinary dividend paid (164 678) (164 678)
BEE share-based payments charge 1 729 1 729
Employee share option scheme:
Proceeds from shares
issued 3 769 3 769
Value of employee
services 7 388 7 388
Balance at 31 December
2011 1 193 453 147 905 1 563 544 2 904 902
SUPPLEMENTARY INFORMATION
6 months 6 months 15 months
31 Dec 30 Sept 30 June
R`000 2011 2010 2011
Capital expenditure contracted
and committed 259 137 77 876 79 694
Capital expenditure approved but
not contracted 134 416 114 698 116 858
Contingent liabilities 20 895 29 259 24 424
SEGMENTAL ANALYSIS (R`000)
Revenue 3 917 526 3 384 386 8 621 389
Rainbow 3 582 027 3 112 579 7 903 823
Vector 652 967 543 283 1 467 941
Sales between segments:
Vector to Rainbow (317 468) (271 476) (750 375)
Operating profit:
Rainbow 220 685 157 141 343 048
Vector 80 838 80 296 209 229
Operating profit 301 523 237 437 552 277
Finance costs (3 814) (1 082) (1 808)
Finance income 3 976 8 332 21 520
Profit before taxation 301 685 244 687 571 989
BASIS OF PREPARATION
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS), including IAS 34 (Interim Financial
Reporting) and in compliance with the Companies Act of South Africa and the
Listings Requirements of the JSE Limited, under the supervision of the Chief
Financial Officer, Robert Field CA (SA). The accounting policies comply with
IFRS and are consistent with those applied in the previous year except for the
amendments to standards noted below that became effective on 1 January 2011: IAS
24 (Related Party Disclosures), IAS 34 (Interim Financial Reporting) and IFRS 7
(Financial instruments: Disclosures). The adoption of these standards has no
effect on the results, nor has it required any restatement of the results.
FINANCIAL YEAR-END CHANGE
During the past year RCL changed its financial year-end to 30 June so as to
align with that of its holding company, Remgro Limited. It is acknowledged that
this change makes comparative reporting less meaningful. Furthermore, it should
be noted that the October to December trading quarter, which is historically
materially higher than any other quarter, is not included in the September 2010
interim comparatives. However, unaudited comparatives of certain key financial
features for the six months ended December 2010 have been included in the
commentary section.
SEGMENTAL REPORTING
The business restructure on 1 January 2011 resulted in the Group now having two
operating segments, namely Rainbow and Vector. Key financial reporting systems
for the charging of services between Rainbow and Vector have been established
from July 2011. The charging of these services is now derived on an activity
based costing basis. The activities and systems configured to compute the
charges were not available in prior years and consequently the reflection of the
segmental results will only be meaningful with effect from the 2012 financial
year.
RCL FINANCIAL PERFORMANCE SUMMARY
RCL remains committed to its strategic focus of adding value through brands. The
Group`s chicken consumer brands and differentiated customer offerings in both
foodservice chicken and Vector`s distribution services have all shown pleasing
growth over the past period. However, RCL`s operating results have recently been
challenged by record maize prices, rand depreciation affecting the landed
soyameal cost, the electricity tariff increases and high levels of poultry
imports.
RCL`s revenue increased by 15,8% to R3,9 billion largely as a consequence of the
higher trading quarter included in the six months ended 31 December 2011
compared to the six months ended 30 September 2010. Similarly impacted, headline
earnings increased by 25,0% for the six months ended 31 December 2011 compared
to the six months ended 30 September 2010.
The table below depicts headline EBIT from a statutory perspective and adjusted
for unrealised gains or losses on financial instruments used in the feed raw
material procurement strategy.
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 the period under review, the pre-taxation impact on the
Group`s results of these unrealised positions is a positive impact of R4,4
million (2010: R2,5 million).
6 months 6 months
31 Dec 30 Sept
2011 2010 % var
Headline EBIT (Rm)
- Statutory 303,9 236,3 28,6
- Pre IAS 39 297,7 233,8 27,3
Headline EBIT margin (%)
- Statutory 7,8 7,0 0,8
- Pre IAS 39 7,6 6,9 0,7
The effective taxation rate at 33,6% is unchanged.
Working capital
The increase in working capital funding requirements of R488,3 million (2010:
R204,3 million) is explained by the peak December trading period not included in
the September 2010 comparative.
The higher December sales resulted in an increase in trade and other receivables
of R462,6 million.
Receivables have been consistently well managed with debtor days (excluding feed
debtors) of 33 reflecting an improvement on the 35 days recorded in June.
The R216,6 million increase in inventory was mainly impacted by Vector`s take-on
of new CSD (Customer Secondary Distribution) business. The higher feed commodity
prices also impacted the valuation of feed raw materials and biological assets.
Offsetting the inventory increase, trade and other payables were R169,9 million
higher than the comparative period.
Capital expenditure
Capital expenditure for the six month period was R142,2 million (2010: R130,1
million). Apart from R29,0 million pertaining to the new plant based cold
storage facility at Rustenburg, the spend is attributed to many individual
projects not exceeding R5,0 million across the Rainbow and Vector businesses. A
further amount of R259,1 million (2010: R77,9 million) has been contracted and
committed, but not spent, whilst a further R134,4 million (2010: R114,7 million)
has been approved, but not contracted. The capital contracted and committed
includes the R92,5 million in respect of the Bush Valley transaction.
Return on equity increased to 13,3% (2010:13,1%).
COMPARATIVE TO THE TRADING SIX MONTHS ENDED 31 DECEMBER 2010
The estimate financial information on which the profit estimate below is based
has not been reviewed and reported on by the company`s external auditors. The
key financial features below have been extracted from the management accounts
with no adjustments made thereto.
In comparison to the six months ended 31 December 2010, revenue increased by
9.2%.
On a comparative basis with the six months ended 31 December 2010, statutory
headline EBIT and headline earnings per share increased by 18.0% and 15.0%
respectively.
6 months 6 months
31 Dec 31 Dec
2011 2010 % var
Revenue (Rm) 3 917,5 3 586,3 9,2
Operating profit (Rm) 301,5 263,1 14,6
Headline EBIT (Rm) 303,9 257,5 18,0
Headline EBIT margin (%) 7,8 7,2 0,6
Headline earnings per share (cents) 68,7 59,7 15,0
RAINBOW MARKET CONDITIONS
The local chicken market is estimated to have grown by 16,9% to R23,0 billion
over the past year, being a combination of a 6,2% volume growth and a 10,1%
realisation increase. Total chicken imports (excluding turkey and mechanically
deboned meat) increased by 58,7% for the quarter ended December 2011 versus the
December 2010 quarter end. On a six month comparative basis, imports increased
by 66,7% to December 2011, and are now estimated to constitute 15,7% of the
local market.
Local maize prices have increased significantly over the past six months,
exceeding the record levels reached during September 2008. The average spot
price of yellow maize on SAFEX was 82,2% higher over the comparable six month
period, increasing from R1 199/ton to R2 185/ton. The full extent of these
increases on local raw material prices was further exacerbated by the weaker
rand. The R/US$ exchange rate decreased from R6,96 at the end of September 2010
to R8,07 at the end of December 2011, thereby increasing the landed cost of
imported soyameal.
For Rainbow, the six months to December were characterised by a very low demand
winter period with improved trading conditions in the quarter to December 2011.
Chicken prices have remained under significant pressure due to the impact of
lower consumer disposable income and the higher level of imports. Due to other
operational efficiencies Rainbow has been able to limit the impact of the
significant feed and electricity cost increases and deliver an acceptable
operating margin of 6,2%.
RAINBOW REVIEW OF OPERATIONS
Chicken brands
Rainbow`s focus on added value has seen its contribution to total chicken
revenue increasing from 47,8% in June 2011 to 53,1% in December 2011, again
demonstrating that Rainbow`s added value strategy remains integral to delivering
an acceptable profit in challenging economic times.
In the added value sector Rainbow`s categories have performed well, with growth
continuing at double digit numbers. Rainbow`s existing retail added value
footprint represented mainly by Rainbow Simply Chicken Polony and Vienna`s,
Rainbow Family Polony and the Rainbow Simply Chicken Crumbed products all grew
volumes strongly with 30,0% incremental volume achieved in the chilled processed
meats sector following the successful launch of Rainbow IQF Russians, Rainbow
French Polony and Red Vienna`s. The new Wolwehoek further processed facility has
provided the additional capacity to further grow processed categories in line
with Rainbow`s added value strategy.
Woolworths in the Western Cape achieved good volume growth on the back of
collaboration between Rainbow and Woolworths in terms of Rainbow being an
enabler to delivering on Woolworths` strategy.
The FoodSolutions sector returned positive growth with increased store openings
contributing to improved overall channel growth.
Rainbow`s mainstream chicken, similar to the balance of the market, has seen
volume growth accompanied by marginal price improvements historically consistent
with a December quarter end.
During September 2011, Rainbow concluded an agreement to acquire the poultry
processing operations of Bush Valley Chickens, located near Tzaneen in the
Limpopo province, for a purchase consideration of R92,5 million. The facility
currently processes approximately 150 000 chickens per week and fits Rainbow`s
strategic growth plan, although the short-term impact on earnings is expected to
be immaterial. The transaction has been approved by the Competition Commission
but remains subject to the fulfilment of certain suspensive conditions.
Supply chain
Although negatively impacted by the severe weather conditions across the country
from May to July 2011, and the unfortunate eight week strike over the June year-
end period, the overall agricultural performance has demonstrated a pleasing
improvement over the six months. The immediate day-to-day focus remains
delivering the right bird at the lowest cost to service the demand of customers`
weight sensitive products.
The genetic potential of the Cobb breed is not yet fully optimised. Despite
improved breeder performance field results and international data demonstrate
that there is opportunity to enhance broiler performance through improved
average daily weight gain and mortality reduction. These initiatives are
receiving considerable business focus, being driven by a team of local and
international experts.
The processing plants and the feed mills continue to achieve efficiency
improvements and simultaneously enhance production mix flexibility.
Sustainability projects aimed at ultimately reducing the cost attributed to the
electricity component of processing are well underway. The supply chain has
successfully absorbed and to a large extent off-set the impact of the strike and
the Rustenburg plant challenges reported in the previous year-end reporting
period.
VECTOR MARKET CONDITIONS AND REVIEW OF OPERATIONS
The distribution market remains challenged with high oil prices and a weaker
rand driving the local cost of diesel above CPI. In the Gauteng area the
increasing cost of distribution will be further impacted by the proposed Gauteng
tolls across many national and regional routes.
A recent example of Vector`s strategy to leverage assets and business
competencies is the take-on of Pick n Pay`s inland frozen distribution business,
previously distributed from their Longmeadow Distribution Centre. The expansion
and upgrade of the Roodepoort operation last year and the opening of a new bulk
facility in Midrand are delivering improved operational efficiencies and
customer service.
Although stock shrinkage remains a challenge in the inland region, the
implementation of new business processes and security measures have contributed
to reducing losses to more acceptable levels.
Further initiatives to optimise the distribution network and infrastructure to
improve efficiencies and support growth are also under way. In addition to this,
the implementation of new demand and supply planning tools will reduce inventory
and further improve service levels.
Vector is a business investing for growth and despite the cost pressures has
delivered an operating margin of 12,4% for the interim period.
IT
During this reporting period, Rainbow has initiated step-change investments in
the replacement of its remaining legacy Enterprise Resource Planning systems
with SAP software. This investment also includes further integration between the
Feed, Agriculture and Processing areas through the use of specialised global
Poultry based applications. Focus continues to be placed on supply chain
excellence and customer service initiatives. The leveraging of IT systems
remains a key enabler within the business, with specific emphasis on the
analysis of customer and product profitability.
CASH DIVIDEND DECLARATION
Notice is hereby given that on 21 February 2012 the Board declared an interim
dividend (number 77) of 28,0 cents per share in respect of the period ended 31
December 2011 (2010: 28,0 cents). This interim dividend is subject to STC as the
declaration date precedes the implementation of the new dividend taxation
legislation effective 1 April 2012.
The salient dates of the declaration and payment of this dividend are as
follows:
Last date to trade ordinary shares cum dividend Friday, 13 April 2012
Ordinary shares trade ex dividend Monday, 16 April 2012
Record date Friday, 20 April 2012
Payment date Monday, 23 April 2012
Share certificates may not be dematerialised or rematerialised between Monday,
16 April 2012 and Friday, 20 April 2012 (both dates inclusive).
PROSPECTS
Initial planting estimates for the local maize crop are higher but weather
conditions are now the key determinant in the size of the final crop.
Other input cost pressures remain a challenge to the business and consumer
sentiment and the general economy needs to improve before RCL`s operating
margins can be restored to targeted levels.
Despite these factors, growth opportunities continue to be explored to meet the
Group`s long-term strategic aspirations.
For and on behalf of the Board
MH Visser M Dally
Non-executive Chairman Chief Executive Officer
Durban
21 February 2012
Directors
MH Visser (Non-executive Chairman), M Dally (CEO)*, JJ Durand,
RH Field*, M Griessel, PR Louw, NP Mageza, JB Magwaza,
MM Nhlanhla, RV Smither, GC Zondi.
*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: 21/02/2012 17:15:01 Supplied by www.sharenet.co.za
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