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Interim Unaudited Group Results For The Six Months Ended 31 August 2013
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)
Interim Unaudited Group Results for the six months ended 31 August 2013
Net gearing improved to 6% from 14%
Headline earnings per share of 18,9c
Consolidated Statement of Financial Position
Audited
Unaudited as at as at
31 August 28 February
Restated
2013 2012 2013
R000 R000 R000
Assets
Non-current assets
Property, plant and equipment 707 951 713 099 699 350
Current assets 345 215 308 533 332 630
Inventory 57 140 41 469 54 525
Biological assets 90 841 80 715 83 906
Trade and other receivables 115 624 115 081 97 357
Cash and cash equivalents 81 610 71 268 96 842
Total assets 1 053 166 1 021 631 1 031 980
Equity and liabilities
Share capital and premium 258 187 272 999 263 163
Share based payments 74 297 109
Retained earnings 361 851 324 923 362 001
Equity 620 112 598 219 625 273
Non-current liabilities
Interest bearing borrowings 92 526 125 829 105 704
Deferred taxation 134 037 115 369 128 387
Current liabilities 206 491 182 214 172 616
Current portion of interest bearing
borrowings 26 116 27 487 28 841
Trade, other payables and provisions 180 332 154 691 143 775
Bank overdraft 43 36
Total equity and liabilities 1 053 166 1 021 631 1 031 980
Shares in issue (000) 76 376 79 396 77 379
Net asset value (cents) 812 753 808
Statement of Comprehensive Income
Unaudited six Audited
months ended year ended
31 August 28 February
Restated
2013 2012 2013
R000 R000 R000
Revenue 675 449 623 531 1 267 968
Operating profit before depreciation
and impairments 37 938 41 430 116 511
Depreciation and impairments 15 758 15 866 37 202
Profit before finance costs 22 180 25 564 79 309
Net finance costs 2 003 4 203 7 245
Profit before taxation 20 177 21 361 72 064
Deferred taxation 5 650 5 981 19 606
Total comprehensive income for the
period 14 527 15 380 52 458
Weighted average shares in issue
(000) 76 918 79 396 79 258
Earnings per share (cents) 18,9 19,4 66,2
Headline earnings per share (cents) 18,9 20,7 74,5
Diluted earnings per share (cents) 18,9 19,4 66,2
Diluted headline earnings per share
(cents) 18,9 20,7 74,5
Reconciliation between earnings and
headline earnings
Earnings after taxation 14 527 15 380 52 458
Reconciling items:
Disposal of property, plant and
equipment 1 497 8 531
Taxation effect (424) (1 943)
Headline earnings after taxation 14 527 16 453 59 046
Statement of Cash Flows
Unaudited six Audited
months ended year ended
31 August 28 February
Restated
2013 2012 2013
R000 R000 R000
Cash generated from operations before
working capital changes 37 938 42 927 116 323
Changes in working capital 8 765 (6 766) (16 591)
Net cash flows from operations 46 703 36 161 99 732
Interest paid (2 003) (4 203) (7 245)
Net cash flows from operating
activities 44 700 31 958 92 487
Net cash flows from investing in
property, plant and equipment (25 011) (13 109) (19 839)
Proceeds on the sale of property,
plant and equipment 592 2 262 2 680
Net cash flows from shares repurchased (4 976) (9 836)
Dividends paid (14 677)
Net cash flows from debt repaid (15 903) (17 717) (36 488)
Net movement in cash and cash
equivalents (15 275) 3 394 29 004
Cash and cash equivalents at the
beginning of the period 96 842 67 838 67 838
Cash and cash equivalents at the end
of the period 81 567 71 232 96 842
Statement of Changes in Equity
Share
capital Share-
and based
premium payments
R000 R000
For the six months ended 31 August 2013
Opening balance 263 163 109
Shares repurchased (4 976)
Net value of employee services (35)
Total comprehensive income for the period
Dividends paid
Closing balance 258 187 74
For the six months ended 31 August 2012
Opening balance as previously stated 272 999 297
Restatement
Restated opening balance 272 999 297
Total comprehensive income for the period
Closing balance 272 999 297
Non-
distributable Retained
reserve earnings Total
R000 R000 R000
For the six months ended 31 August 2013
Opening balance 362 001 625 273
Shares repurchased (4 976)
Net value of employee services (35)
Total comprehensive income for the
period 14 527 14 527
Dividends paid (14 677) (14 677)
Closing balance 361 851 620 112
For the six months ended 31 August 2012
Opening balance as previously stated 76 081 323 828 673 205
Restatement (76 081) (14 285) (90 366)
Restated opening balance 309 543 582 839
Total comprehensive income for the
period 15 380 15 380
Closing balance 324 923 598 219
Commentary
Operational and financial results
Headline earnings per share for the period under review (H114) decreased
by 9% to 18,9 cents from 20,7 cents for the prior period as restated
(H113) due primarily to 4% lower volumes and a 22% increase in feed
costs per ton. However, agricultural performance continued to improve and
increases in non-feed costs at a Rand level were contained to 7%
notwithstanding large increases in administered costs such as labour and
energy.
The Group improved its broiler performance by 12% whilst keeping its bird
age consistent. A fertility challenge in the first quarter of the year,
which has now been resolved, resulted in birds processed reducing by 8%
although this was mitigated by a 4% improvement in bird mass.
Poultry prices increased by 12% of which 10% can be attributed to price
inflation and 2% to changes in product mix. Although import volumes
(including mechanically deboned meat) remained high during the period
under review, it is noted that on 30 September 2013, Government approved
increases in import tariffs in certain categories of poultry. However, the
bulk of leg quarter imports originate in the European Union and these
import tariff increases will only apply to countries other than the
European Union.
The Groups strategy to diversify away from commodity lines towards higher
margin product lines is on-going with sales of IQF mixed portions as a
percentage of volume sold declining by 7%. Of the R25 million capital
expenditure in the period, R17 million was directed towards this product
mix strategy and R8 million was directed towards reducing the Groups risk
profile in the agricultural supply chain.
Increases in maize and soya prices resulted in the Groups broiler feed
costs increasing by 22% per ton. Chicago Board of Trade spot corn prices
for the period under review have declined by 14% over the six months ended
28 February 2013 but due to the weakening Rand and a lower than forecast
maize crop, South African maize prices have not declined to the same extent and
spot white maize prices have only decreased by 3% over the same period.
Despite large increases in labour and energy costs as well as inflationary
pressure on other overheads, non-feed costs increased by only 7% in Rand
terms. However, due to the lower volumes, non-feed costs increased by 11%
per kg sold. Finance charges decreased by 44% in Rand terms due to a
combination of lower debt and higher cash levels.
The Group declared a final dividend for the year ended 28 February 2013 of
19,0 cents per share and due to this, an amount of R15 million was paid
out to shareholders in the period under review. In addition, the Group
continued with its share repurchase program and repurchased and delisted 1
003 851 shares for an amount of R5 million in the period under review.
Working capital as a percentage of annualised revenue improved to 6,3%
from 6,5% and as a result of the dividend paid, share repurchases and capital
expenditure noted above, cash on hand decreased from R97 million as at 28
February 2013 to R82 million as at 31 August 2013. Trade, other payables
and provisions increased by R36 million, which included an amount of R9
million in respect of a dispute with a local service provider.
Due to the lower debt levels, net gearing improved to 6% from 14% as at
31 August 2012.
Prospects and industry conditions
The consumer remains under pressure from amongst other things, above
inflation increases in energy and transport costs and these increases
continue to reduce the amount of disposable income available for food.
The introduction of additional import tariffs should lead to a more stable
balance between poultry supply and demand and bring some relief to the
industry. However, in the near term, industry margins could remain
suppressed due to high feed and input costs and a constrained consumer.
Change in accounting policy
During the year ended 28 February 2013, the Group changed its accounting
policy in respect of the revaluation of land and buildings. Previously,
the Group re-valued land and buildings at regular intervals. Valuations
were made on the basis of recent market transactions on arms-length terms.
The revaluation surplus net of applicable deferred income taxes was
credited to revaluation reserve in shareholders equity which was
non-distributable. In order to bring the Groups accounting policy in
respect of the revaluation of land and buildings in line with its peers, land and
buildings are now shown at historical cost less subsequent depreciation
for buildings. All other property, plant and equipment is stated at
historical cost less depreciation. Historical cost includes expenditure
that is directly attributable to the acquisition of the items. This change
in accounting policy has been applied retrospectively and was reflected in
the Group results for the year ended 28 February 2013.
Prior period restatement
During the year ended 28 February 2013, a prior period restatement was
also made in respect of operating leases that had been classified as finance
leases in prior years, the reallocation of assets classified as plant and
equipment to buildings and the impairment of certain plant, equipment and
vehicles. These changes were reflected in the Group results for the year
ended 28 February 2013.
The net effect of these changes on the interim unaudited financial results
for the six months to 31 August 2012 is as follows:
Restatement Restatement
due to due to
As prior change in
previously period accounting
stated adjustments policy Restated
R000 R000 R000 R000
Statement of Financial
Position
Property, plant and
equipment at net book value 821 419 (10 230) (98 090) 713 099
Non-distributable reserve 76 014 (76 014)
Net current assets 126 652 (333) 126 319
Retained earnings 335 843 (12 946) 2 026 324 923
Deferred taxation 144 506 (5 035) (24 102) 115 369
Statement of Comprehensive
Income
Profit before finance costs,
depreciation and
impairment 37 191 4 239 41 430
Depreciation 16 917 (1 051) 15 866
Profit before finance
costs 20 274 5 290 25 564
Net finance costs 3 586 617 4 203
Profit before taxation 16 688 4 673 21 361
Taxation 4 673 1 308 5 981
Profit after taxation 12 015 3 364 15 380
Other comprehensive income
for the period (loss)/gain
on revaluation of property,
plant and equipment (67) 67
Total comprehensive income
for the period 11 948 3 364 67 15 380
Earnings per share (cents) 15,0 4,2 0,1 19,4
Headline earnings per share
(cents) 16,5 5,6 1,4 20,7
Directorate
During the period under review, Mr Grant Coley was appointed as Chief
Financial Officer.
Accounting policies
The unaudited condensed consolidated financial results are prepared in
accordance with the JSE Limited Listings Requirements and the requirements
of the Companies Act of South Africa. The JSE Limited Listings
Requirements require that the unaudited financial statements are prepared
in accordance with the conceptual framework, the measurement and
recognition requirements of International Financial Reporting Standards
(IFRS), the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, and Financial Reporting Pronouncements (FRPs) as
issued by the Financial Reporting Standards Council (FRSC) and also, as
a minimum, require that they contain the information required by IAS 34
Interim Financial Reporting. The accounting policies applied in the
preparation of these financial results are consistent with those applied
in the previous annual financial statements apart from the change in
accounting policy noted above. This report was compiled under the
supervision of G Coley CA(SA), Financial Director.
Interim dividend
It is the policy of the Group to only declare a final dividend and
therefore no interim dividend is declared for the period under review.
By order of the Board
CP Davies C Coombes
Non-Executive Chairman Chief Executive Officer
4 October 2013
E-mail: info@sovfoods.co.za
Transfer secretaries
Computershare Investor Services Proprietary Limited, PO Box 61051,
Marshalltown 2107, Gauteng
Sponsor
One Capital
Directorate
CP Davies* (Non-Executive Chairman), C Coombes (CEO), JA Bester*, GL
Coley, PM Madi*, LM Nyhonyha*, T Pritchard*, BJ Van Rensburg, GG Walter
* Non-Executive
www.sovereignfoods.co.za
Date: 04/10/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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