Wrap Text
Abridged Unaudited Group Results For The Six Months Ended 31 December 2012
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 2012
SALIENT FEATURES
REVENUE up 14,9%
HEADLINE EBITDA down 50,4%
HEADLINE EARNINGS PER SHARE down 74,1%
CONSOLIDATED BALANCE SHEET (R'000)
31 Dec 31 Dec 30 June
2012 2011 2012
ASSETS
Non-current assets
Property, plant and equipment 1 983 892 1 643 656 1 824 072
Intangible assets 36 919 29 874
Goodwill 287 444 287 444 287 444
2 308 255 1 931 100 2 141 390
Current assets
Inventories 1 035 661 881 364 873 040
Biological assets 496 887 430 660 476 427
Trade and other receivables 1 900 167 1 722 207 1 347 671
Derivative financial instruments 20 811
Tax receivable 35 167 29 524 31 160
Cash and cash equivalents 150 387 229 889 305 792
3 618 269 3 293 644 3 054 901
Total assets 5 926 524 5 224 744 5 196 291
EQUITY
Capital and reserves 2 873 618 2 904 902 2 906 359
LIABILITIES
Non-current liabilities
Interest-bearing debt long-term 95 103 65 642
Deferred income tax liabilities 432 125 371 131 432 655
Post-retirement medical obligation 112 548 103 911 108 587
639 776 475 042 606 884
Current liabilities
Trade and other payables 1 891 498 1 603 141 1 648 147
Interest-bearing debt short-term 52 372 33 243
Derivative financial instruments 16 331 3 697 3
Current income tax liabilities 1 955 42 959 1 655
Bank overdraft 450 974 195 003
2 413 130 1 844 800 1 683 048
Total liabilities 3 052 906 2 319 842 2 289 932
Total equity and liabilities 5 926 524 5 224 744 5 196 291
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (R'000)
6 months 6 months 12 months
31 Dec 31 Dec 30 June
2012 2011 2012
Revenue 4 500 609 3 917 526 7 855 142
Operating profit before depreciation 195 743 392 430 614 510
Depreciation (105 945) (90 907) (200 286)
Operating profit 89 798 301 523 414 224
Finance costs (13 883) (3 814) (11 358)
Finance income 2 523 3 976 7 370
Profit before taxation 78 438 301 685 410 236
Income tax expense (26 112) (101 324) (143 469)
Profit for the period 52 326 200 361 266 767
Total comprehensive income
for the period 52 326 200 361 266 767
Basic earnings per share (cents) 17,7 68,1 90,6
Basic earnings per share diluted (cents) 17,7 67,8 90,4
HEADLINE EARNINGS (R'000)
6 months 6 months 12 months
31 Dec 31 Dec 30 June
2012 2011 2012
Total comprehensive income
for the period 52 326 200 361 266 767
Loss on disposal of property,
plant and equipment 103 1 707 307
Headline earnings 52 429 202 068 267 074
Headline earnings per share (cents) 17,8 68,7 90,7
Headline earnings per share diluted (cents) 17,8 68,4 90,5
CONSOLIDATED CASH FLOW INFORMATION (R'000)
Operating profit 89 798 301 523 414 224
Non-cash items 155 216 97 905 207 564
Operating profit before working
capital requirements 245 014 399 428 621 788
Working capital requirements (491 266) (488 283) (115 419)
Cash generated by operations (246 252) (88 855) 506 369
Net finance (costs)/income (11 360) 162 (3 988)
Tax paid (30 350) (48 081) (71 642)
Cash available from operating activities (287 962) (136 774) 430 739
Dividends paid (94 409) (164 678) (247 246)
Net cash flows from investing activities (272 954) (136 927) (454 651)
Net cash flows from financing activities 48 946 3 769 107 454
Net movement in cash and
cash equivalents (606 379) (434 610) (163 704)
Cash and cash equivalents at the
beginning of the period 305 792 469 496 469 496
Cash and cash equivalents at the
end of the period (300 587) 34 886 305 792
STATISTICS
Ordinary shares in issue (000's) 295 029 294 310 294 992
Weighted average ordinary
shares in issue (000's) 295 011 294 091 294 389
Diluted weighted average ordinary
shares in issue (000's) 295 011 295 374 295 072
Net asset value per share (cents) 974,0 987,0 985,2
Ordinary dividends:
Interim dividends declared/paid (cents) 28,0 28,0
Final dividend paid (cents) 32,0
Total dividends (cents) 28,0 60,0
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (R'000)
Stated Share-based Retained
capital payments earnings Total
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
Total comprehensive income
for the period 66 406 66 406
Ordinary dividend paid (82 568) (82 568)
BEE share-based payments charge 1 654 1 654
Employee share option scheme:
Proceeds from shares issued 4 800 4 800
Value of employee services 11 165 11 165
Balance at 30 June 2012 1 198 253 160 724 1 547 382 2 906 359
Total comprehensive income
for the period 52 326 52 326
Ordinary dividend paid (94 409) (94 409)
BEE share-based payments charge 1 729 1 729
Employee share option scheme:
Proceeds from shares issued 357 357
Value of employee services 7 256 7 256
Balance at 31 December 2012 1 198 610 169 709 1 505 299 2 873 618
SEGMENTAL ANALYSIS (R'000)
6 months 6 months 12 months
31 Dec 31 Dec 30 June
2012 2011 2012
Revenue 4 500 609 3 917 526 7 855 142
Rainbow 4 121 050 3 582 027 7 196 632
Vector 741 050 652 967 1 339 580
Sales between segments:
Vector to Rainbow (361 491) (317 468) (681 070)
Operating profit:
Rainbow (3 303) 220 685 245 487
Vector 93 101 80 838 168 737
Operating profit 89 798 301 523 414 224
Finance costs (13 883) (3 814) (11 358)
Finance income 2 523 3 976 7 370
Profit before taxation 78 438 301 685 410 236
SUPPLEMENTARY INFORMATION (R'000)
Capital expenditure contracted
and committed 155 369 259 137 186 831
Capital expenditure approved but
not contracted 21 413 134 416 73 703
Contingent liabilities 59 382 20 895 28 433
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 IAS 1 (Presentation of Financial Statements) that became effective 1 July 2012. The adoption
of this standard has no effect on the results, nor has it required any restatement of the results.
RCL FINANCIAL PERFORMANCE SUMMARY
RCL remains committed to its strategic focus of adding value through its consumer and
service brands. Rainbow's added value chicken brands and differentiated customer offerings in
foodservice as well as Vector's distribution services have all demonstrated growth over the past
period. The lower than anticipated earnings are mainly a function of two major issues facing the
local poultry market, namely record levels of imports and high feed raw material input costs. The
resultant over-supply in the local market has meant that the price of chicken in retail bears little
reference to its cost of production, and has resulted in significant reductions in margins across
commodity chicken lines like Individually Quick Frozen (IQF) products.
RCL's revenue for the six months to December 2012 increased by 14,9% to R4,5 billion. Headline
earnings of R52,4 million decreased by 74,1% over the comparative period.
The table below depicts headline EBITDA from a statutory perspective and adjusted for
unrealised gains or losses on financial instruments used in the feed raw material procurement
strategy. Reporting in terms of IAS 39, 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 negative impact of R80,5 million, being largely related to the material decline in the
maize price, especially during the latter part of the reporting period (2011: R6,2 million positive
impact). The benefit of the lower maize prices off their peak will only be seen in future periods.
6 months 6 months
31 Dec 31 Dec
2012 2011 % Var
Headline EBITDA (Rm)
Statutory 195,9 394,8 (50,4)
Pre-IAS 39 276,4 388,6 (28,9)
Headline EBITDA margin (%)
Statutory 4,4 10,1 (5,7)
Pre-IAS 39 6,1 9,9 (3,8)
Cash flow and working capital
Cash generated by operations decreased by R157,4 million in comparison to the prior period,
mainly as a result of Rainbow's substantially lower operating profit.
Despite the higher feed costs the investment in working capital is in fact slightly lower than
the comparable period. Receivables continue to be well managed with debtor days being
maintained from June 2012. The R182,1 million increase in inventories and biological assets
was mainly impacted by Vector's take-on of new business and higher feed commodity prices
impacting the valuation of biological assets and feed raw materials. Offsetting the inventory
increase, trade and other payables were R243,4 million higher than June 2012.
The increase in net finance cost of R11,5 million is mainly a consequence of the difficult trading
conditions experienced and continued investment in the business. The increase in cash
outflow from investing activities to R273,0 million (2011: R137,0 million) is mainly attributable to
expansion projects approved in the prior year.
Capital expenditure
Capital expenditure for the six month period was R274,1 million (2011: R142,2 million).
Significant individual capex initiatives included the Rustenburg and Bushvalley expansion
(R88,5 million), conversion of chicken house heating from gas to coal (R47,7 million) and
investment in additional freezing and chilling capacity in Worcester (R35,2 million). An amount of
R155,4 million (2011: R259,1 million) has been contracted and committed, but not spent, whilst
a further R21,4 million (2011: R134,4 million) has been approved, but not contracted.
Return on equity decreased to 4,2% (2011: 13,3%) being impacted by Rainbow's lower
operating margin.
RAINBOW MARKET CONDITIONS AND REVIEW OF OPERATIONS
The past six months have been some of the most difficult in the history of the South African
poultry industry. The record levels of imports and high feed raw material input costs remain the
major issues plaguing the industry.
Imports at record levels
Imports of chicken (excluded Mechanically Deboned Meat (MDM)) for calendar 2012 increased
by 14% over the high base of 2011 and now exceeds the total volume Rainbow sells into the
local retail and wholesale channels. The average monthly chicken imports (excluding MDM) over
the past six months was 22 430 tons. Consequent over-supply has led to IQF pricing lower than
three years ago in some months, despite the record high input costs. The significant reduction
in chicken margins has placed the local industry under severe financial stress, with a number of
the smaller producers having closed their doors in the past year.
The crisis has led to the South African Poultry Association (SAPA) engaging extensively with
government to find an acceptable solution that promotes fair trade whilst affording protection
to local jobs.
Escalating feed raw material input costs
Droughts in Argentina and the USA had a significant impact on international maize and soya
prices, with the extremely low stock levels in the USA heightening price volatility. These high
prices are expected to continue until good crops in South America's current season and better
plantings in the USA's upcoming season are realised.
Local maize prices continued to demonstrate significant volatility over the reporting period. The
period commenced with a market price of R2 180/ton and increased by 28% to R2 780/ton in
the first month. The price thereafter decreased to close on 31 December 2012 at R2 240/ton.
The increase in the average market price over the comparable six month period was 15%.
The R/US$ exchange rate deteriorated by 2% from R8,32 at the end of June 2012 to R8,47
at the end of December 2012, however was on average 12% weaker over the comparable
six month period.
There was significant volatility in the international (CBOT) price of soyameal which commenced
the financial year with a price of $427 per short ton, increasing to a record high of $548 per short
ton in August and then decreased to $428 per short ton at the end of December 2012. The
increase in the average market price over the comparable six month period was 48%.
Chicken brands
The added value segment of Rainbow's business continues to grow in its contribution to
total revenue. Mainstream chicken continues to underperform due to depressed pricing as it
competes directly with imports. Rainbow FoodSolutions has continued its solid volume growth
due to aggressive marketing and expansion of stores from key Quick Service Restaurant (QSR)
customers. The launch of Mama's into retail as an added value alternative to IQF demonstrates
Rainbow's innovation in mainstream. Mama's is a smaller portion fixed quantity pack size that
assures mothers of adequate portions to feed their entire family.
Supply chain
The financial period has been characterised by above inflation cost increases in electricity,
gas and diesel. Rainbow's operations continue to run efficiently with overall operating costs
(excluding feed) on a cents per kilogram basis limited to a 7% increase.
During the current period the Bushvalley expansion was completed resulting in the operation of
a second day-shift. Focus has now shifted to extracting further efficiencies in this supply chain.
Injection cap proposed by government
In December 2012 the Department of Agriculture, Forestry and Fisheries (DAFF) published its
intention to cap injection at 8% in South Africa. As previously reported, Rainbow welcomes the
decision to cap injection at appropriate levels, however it believes that 8% is too low to deliver
a quality succulent product as demanded by consumers and to restore the natural loss of fluids
from defrosting. Rainbow has engaged with DAFF and provided input into scientific benchmarks
for the appropriate levels of brine injection and consumer protection. All poultry stakeholders
submitted their proposals to DAFF on 18 January 2013 with proposed legislation expected to
be announced in the next six months.
Rainbow's results
Acceptable performance in the added value categories was over-shadowed by IQF in retail.
Despite an overall 5,7% volume growth in tons per day and 7,9% average realisation increase
over the comparable period, Rainbow posted a marginal loss for the interim period as a result
of not being able to recover the 17,4% rand per ton increase in feed cost. Feed cost now
comprises 53% of the cost of the live bird delivered to the plant.
VECTOR MARKET CONDITIONS AND REVIEW OF OPERATIONS
The distribution environment in South Africa continues to be characterised by above inflation
cost increases in fuel and electricity and slow demand due to macro-economic factors. Despite
this, Vector has performed relatively well during the interim period, with revenue increasing by
13,5% compared to the prior year whilst operating profit increased by 15,2%. This was largely
driven through a strong focus on cost containment, efficiencies and a good performance from
the Customer Secondary Distribution business servicing customers such as Spur, Nando's and
Chicken Licken.
The recently completed expansion at Midrand has allowed Vector to further consolidate the
Pick n Pay frozen business in the inland region as well as increase its bulk storage capacity,
and positions Vector well for future growth opportunities. The take-on of two new principals in
Namibia, namely Namib Poultry and Mello Pies, has contributed to an improved performance
from the Namibian operations.
The new plant based cold storage facility located at the Rainbow processing plant in Rustenburg
is delivering the anticipated efficiencies to the network. The implementation of new demand
and supply planning tools are at an advanced stage and will assist in reducing inventory and
improving service levels.
IT
Rainbow went live with SAP in its chicken operations on 1 July 2012. The implementation was
very successful and was recognised internationally, winning the SAP Gold Quality award for
Europe, Middle East and Africa (EMEA) for best project in the medium implementation category.
Further investment for 2013 includes the roll-out of SAP to Rainbow's feed operations as well
as further integration between the Feed, Agriculture and Processing areas through the use of
specialised poultry based applications. Continued focus has also been placed on the optimisation
of the outbound supply chain through Vector's system solutions. The leveraging of the Group's IT
systems and optimised business processes remains a key enabler within the business.
CONTINGENT LIABILITIES
The increase in contingent liabilities relates to Foodcorp transaction costs that are contingent
upon the successful conclusion of the transaction.
DIVIDEND
As a result of the rights issue announced on SENS on 6 December 2012 and expected to be
completed by 4 March 2013, as well as the difficult trading conditions, no interim dividend will
be declared and the Board will defer a dividend decision to year-end.
DIRECTORATE
Mr Chris van den Heever has resigned as a non-executive director from the Board with effect
from 1 February 2013. The Board is pleased to announce that Chris will be seconded to RCL
from Remgro for a period of two years in order to focus on projects aligned to RCL's strategic
growth aspirations. Mr Hein Carse, who like Chris is an Investment Executive at Remgro, has
been appointed as a non-executive director of the Board with effect from 19 February 2013.
STRATEGIC GROWTH
On 14 November 2012 RCL announced the acquisition of an effective indirect 64,2% shareholding
in New Foodcorp Holdings Proprietary Limited for a purchase consideration of R1,037 billion. The
acquisition is subject to Competition Commission approval which is anticipated in March 2013.
Foodcorp brings a strong portfolio of brands into the RCL stable and will help to diversify RCL's
earnings stream into different products and markets. Transaction costs have been recognised
to the extent that they are not conditional on the finalisation of all conditions precedent, and
consequently the impact on the interim results is not material.
Aligned to the Group's strategy of expansion into sub-Saharan Africa, RCL concluded an
agreement for the purchase of a 49% shareholding in Zam Chick Limited for US$14,25 million,
as announced on SENS on 4 February 2013. Zam Chick Limited is the broiler operations of
Zambeef PLC of Zambia, itself a fully integrated agri-business listed on the Lusaka and London
exchanges. The purchase is subject to regulatory approval in both Zambia and South Africa.
The purchase consideration of both acquisitions is to be funded out of a portion of the proceeds
from the R3,9 billion rights offer announced on SENS on 6 December 2012.
PROSPECTS
The two major issues facing the poultry industry, namely high levels of imports and record high
raw material input costs, are unlikely to be resolved in the near term and will continue to supress
chicken margins.
The trading outlook for Vector is likely to remain challenging, particularly in the retail business
where Vector's principals are coming under increased pressure from cheap imports.
The Group continues to explore opportunities in strategic growth markets in the food sector in
South Africa and sub-Saharan Africa in line with its long-term aspirations.
For and on behalf of the Board
JJ Durand M Dally
Non-executive Chairman Chief Executive Officer
Durban
20 February 2013
Directors
JJ Durand (Non-executive Chairman), M Dally (CEO)*, HJ Carse, RH Field*, M Griessel,
PR Louw, NP Mageza, JB Magwaza, MM Nhlanhla, RV Smither, GC Zondi
*Executive directors
Company secretary: JMJ Maher
Registration number: 1966/004972/06
JSE share code: RBW
ISIN: ZAE000019063
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: 20/02/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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