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Audited summarised consolidated provisional Group results for the year ended 28 February 2014
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" or "the Company")
Audited summarised consolidated provisional group results for the year
ended 28 February 2014, dividend announcement and notice of annual general
meeting
Summarised Consolidated Statement of Financial Position
As at As at
28 February 28 February
2014 2013
R’000 R’000
Assets
Non-current assets
Property, plant and equipment 736 971 699 350
Current assets 336 601 332 630
Inventories 61 730 54 525
Biological assets 106 042 83 906
Trade and other receivables 127 458 97 357
Net cash and cash equivalents 41 371 96 842
Total assets 1 073 572 1 031 980
Equity and liabilities
Share capital and premium 257 435 263 163
Share based payments - 109
Retained earnings 392 170 362 001
Equity 649 605 625 273
Non current liabilities
Interest bearing borrowings 79 438 105 704
Deferred taxation 147 345 128 387
Current liabilities 197 184 172 616
Trade, other payables and provisions 171 002 143 775
Current portion of interest bearing borrowings 26 182 28 841
Total equity and liabilities 1 073 572 1 031 980
Shares in issue ('000) 76 226 77 379
Net asset value per share (cents) 852 808
Summarised Consolidated Statement of Comprehensive Income
Year Ended Year Ended
28 February 28 February
2014 2013
R’000 R’000
Revenue 1 391 224 1 267 968
Operating profit before depreciation and
impairments 99 502 116 511
Depreciation and impairments 30 886 37 202
Profit before finance costs 68 616 79 309
Net finance costs 4 811 7 245
Profit before taxation 63 805 72 064
Deferred taxation 18 958 19 606
Profit after taxation 44 847 52 458
Other comprehensive income for the year - -
Total comprehensive income for the year 44 847 52 458
Weighted average shares in issue (‘000) 76 651 79 258
Earnings
Earnings per share (cents) 58,5 66,2
Headline earnings per share (cents) 60,2 74,5
Diluted earnings per share (cents) 58,5 66,2
Diluted headline earnings per share (cents) 60,2 74,5
Dividend
Dividend per share (cents) 15,0 19,0
Reconciliation between earnings and headline earnings
Total comprehensive income for the year 44 847 52 458
Reconciling items:
Loss (Profit) on disposal of property,
plant and equipment 405 (45)
Impairment of property, plant and equipment 1 429 8 576
Taxation effect (514) (1 943)
Headline earnings 46 167 59 046
Summarised Consolidated Statement of Cash Flows
Year Ended Year Ended
28 February 28 February
2014 2013
R’000 R’000
Cash generated from operations before
working capital changes 99 798 116 323
Changes in working capital (32 215) (16 591)
Cash generated from operating activities 67 583 99 732
Net finance costs (4 811) (7 245)
Net cash flow from operating activities 62 772 92 487
Net cash flow from investing in property,
plant and equipment (72 929) (19 839)
Proceeds on the sale of property, plant and
equipment 4 017 2 680
Dividends paid to shareholders (14 678) -
Net cash flow from shares re-purchased (5 728) (9 836)
Net cash flow from debt repaid (28 925) (36 488)
Net movement in cash and cash equivalents (55 471) 29 004
Net cash and cash equivalents at the
beginning of the year 96 842 67 838
Net cash and cash equivalents at the end of
the year 41 371 96 842
Summarised Consolidated Statement of Changes in Equity
Share Share
Capital and Based Retained
Premium Payments Earnings Total
2014 R'000 R'000 R'000 R'000
Balance at 1 March 2013 263 163 109 362 001 625 273
Total comprehensive income for
the year - - 44 847 44 847
Ordinary shares re-purchased (5 728) - - (5 728)
Net value of employee services - (109) - (109)
Dividends paid to shareholders - - (14 678) (14 678)
Balance at 28 February 2014 257 435 - 392 170 649 605
2013
Balance at 1 March 2012 272 999 297 309 543 582 839
Total comprehensive income for
the year - - 52 458 52 458
Ordinary shares re-purchased (9 836) - - (9 836)
Net value of employee services - (188) - (188)
Balance at 28 February 2013 263 163 109 362 001 625 273
Results for the financial year under review
Industry developments
During the financial year under review (“FY14”) three important
industry/external factors played a major role in the financial performance
of the Group.
Firstly, imports into South Africa continued at levels slightly below that
of the prior year (3% down) in spite of an increase in tariffs that were
implemented for all poultry imports that originated in countries other
than those belonging to the European Union (“EU”), the European Free Trade
Association and the South African Customs Union.
It appears that importers changed the origin of their imports from
countries outside the EU to EU countries to circumvent the revised
tariffs. Imports therefore continue to represent a significant portion
(20%) of local production with a consequent continuing oversupply of
commodity products and have depressed realisations to unrealistic levels.
Secondly, local prices of the Group’s largest input cost, white maize,
reached a 17 year high of R3 483 per ton in January 2014. This was as a
result of the drought conditions experienced in some parts of the country
coupled with a weaker Rand and was exacerbated by an inability to import
lower priced corn from South America due to concerns around genetic
modification.
Thirdly, administered prices as set by regulatory bodies, which include,
inter alia, minimum wage rates, electricity, municipal charges and diesel,
have seen increases over the past several years far in excess of inflation
and continue to impact on all poultry companies.
Company performance
The Group continued to mitigate against the margin squeeze resulting from
the above adverse factors by executing its strategy of moving away from
commodity IQF type products towards higher margin value added and fresh
products. Furthermore, the agricultural and production results continued
their strong performance into FY14 thereby contributing significantly in
underpinning operating results and margins.
With no increase in volumes the Group’s revenue increased by 10% including
7% food inflation and 3% product mix changes. The cost of broiler feed per
unit sold increased by 12% due to a 16% increase in the cost of raw
materials per ton, which was mitigated by the improvement in broiler
performances. Non-feed costs increased by 11% per unit sold driven mainly
by increases in administered costs mentioned above. In the previous
financial year (“FY13”), “depreciation and impairments” included an amount
of R8.6m relating to prior year adjustments; this line item is back to a
normalised level for FY14. As a result of the above points, the Group’s
EBITDA margin decreased from 9.2% to 7.2%.
Strong operational cash flows together with lower debt levels resulted in
net finance costs declining to R4.8 million (FY13 – R7.2 million).
Headline earnings decreased by 21.8% from R59.0 million (FY13) to
R46.2 million with headline earnings per share decreasing by 19.2% from
74.5 cents to 60.2 cents.
The Group’s balance sheet remains strong with net asset value per share up
5.5% from the previous financial year to R8.52 (FY13 – R8.08) in spite of
cash balances reducing from R96.8 million in FY13 to R41.4 million.
Working capital levels increased from 7.3% of revenue in FY13 to 8.9% due
to an increase in the values and quantities of biological assets on hand
and year-end cut-off of trade debtors. Net debt levels remain low, at 10%,
but slightly above the previous financial year’s levels of 6%.
Cash flow from operating activities reduced to R62.8 million, compared to
the R92.5 million in FY13, due to the reduced profitability and increased
working capital requirements.
During the year the Group returned a total of R20.4 million to
shareholders with R14.7 million paid out in dividends (FY13 – R Nil) and
also continued its share repurchase program whereby it repurchased
1 153 335 shares from the market at an average price of R4.97 per share at a
total cost of R5.7 million (the total cost of the repurchased shares in
the previous financial year was R9.8 million).
Capital expenditure of R72.9 million (FY13 - R19.8 million) was mainly
spent on increasing the supply of high margin products through the
installation of an automated cut-up and weight grading system, a large
convection oven and increased fresh handling capacity, which totalled
R62 million.
Profitability for the Group remains a major challenge as reflected in the
return on net assets of 8%, as compared to the 10% return of the previous
financial year.
Prospects and industry conditions
Due to on-going increases in the cost of staple foods, energy and
transport, the South African consumer is expected to remain under pressure
thereby continuing to constrain consumer demand.
Industry selling prices will continue to be dominated by the level of
import volumes and due to this and the above-mentioned factor, industry
selling prices in the coming year are expected to lag increases in
administered prices such as labour, energy and transport.
Maize prices are expected to decrease slightly in the year ahead due to
the good local maize crop although soya beans and soya oil cake prices are
expected to be higher than the previous financial year.
To counter the issues outlined above the Group continues to execute its
product mix change strategy, is also working to reduce discretionary
expenditure where possible and is striving to make its operations as
effective and efficient as possible.
Annual general meeting
Shareholders are advised that the annual general meeting of the Company
will be held at 10:00 on Tuesday, 12 August 2014 at the registered offices
of the Company in Uitenhage, Eastern Cape.
A separate notice, incorporated in the Integrated Report 2014, convening
the annual general meeting, will be distributed to shareholders in due
course.
Dividend
The board has adopted a policy of declaring one final dividend per annum
with a cover of four times on headline earnings. In terms of this policy,
the board has approved and declared a final dividend of 15.0 cents per
ordinary share (gross) in respect of the year ended 28 February 2014.
The dividend is payable to shareholders recorded in the register as
shareholders of the Company as at the close of business on Friday, 6 June
2014. The directors of Sovereign confirm that the Group will satisfy the
solvency and liquidity test immediately after completion of the dividend
distribution.
The dividend will be subject to Dividends Tax that was introduced with
effect from 1 April 2012. In accordance with paragraphs 11.17(a)(i) to
(xi) and 11.17(c) of the JSE Limited Listings Requirements (“Listings
Requirements”), the following information is disclosed:
* The dividend has been declared out of income reserves;
* The local Dividend Tax is 15% (fifteen percent);
* The gross local dividend is 15.0 cents per ordinary share for
shareholders exempt from the Dividend Tax;
* The net local dividend is 12.75 cents per ordinary share for
shareholders liable to pay Dividend Tax;
* The local dividend withholding tax amount is 2.25 cents per ordinary
share for shareholders liable to pay the dividend withholding tax;
* Sovereign currently has 76 225 416 ordinary shares in issue;
* Sovereign’s income tax reference number is 9999607717; and
* The Company’s auditors are Deloitte & Touche.
In compliance with the requirements of Strate Limited, the electronic
settlement and custody system used by JSE Limited, the following salient
dates for the payment of the dividend are applicable:
Last date to trade "CUM" dividend Friday, 30 May 2014
Trading commences "EX" dividend Monday, 2 June 2014
Record date Friday, 6 June 2014
Date of payment Monday, 9 June 2014
Share certificates may not be dematerialised or rematerialised between
Monday, 2 June 2014 and Friday, 6 June 2014, both dates inclusive.
On Monday, 9 June 2014, the dividend will be electronically transferred to
the bank accounts of certificated shareholders who use this facility. In
respect of those who do not, cheques dated 9 June 2014 will be posted on
or about that date. The accounts of those shareholders who have
dematerialised their shares (which are held at their participant or
broker) will be credited on Monday, 9 June 2014.
Directorate
During the period under review Mr Grant Coley was appointed as Chief
Financial Officer.
Basis of preparation
The summarised consolidated financial results are prepared in accordance
with the Listings Requirements for provisional reports and the
requirements of the Companies Act of South Africa. The Listings
Requirements require that the provisional financial statements are
prepared in accordance with the conceptual framework, the measurement and
recognition requirements of the International Financial Reporting
Standards (“IFRS”), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, the Financial Reporting Pronouncements as
issued by the Financial Reporting Standards Council and, as a minimum,
requires that they contain the information required by IAS 34 Interim
Financial Reporting. The accounting policies applied in the preparation of
the consolidated financial statements from which the summary financial
statements were derived are in terms of IFRS and are consistent with those
accounting policies applied in the preparation of the previous
consolidated annual financial statements. This report was compiled under
the supervision of G Coley, Chief Financial Officer.
The auditors, Deloitte & Touche, have issued their unmodified opinion on
the Group’s summarised consolidated provisional financial results for the
year ended 28 February 2014. The audit was conducted in accordance with
ISA 810: ‘Engagements to Report on Summary Financial Statements’. This
provisional report has been derived from the Group financial statements
and is consistent in all material respects with the Group financial
statements. An unmodified opinion was issued on the Group financial
statements in accordance with ISA 700.
A copy of the auditor’s report on these summarised consolidated
provisional financial results and of the auditor’s report on the annual
financial statements for the year ended 28 February 2014 is available for
inspection at the Company’s registered office. Any reference to future
financial performance included in this announcement, has not been reviewed
or reported on by the Company’s auditors.
By order of the board
CP Davies C Coombes
Non-executive Chairman Chief Executive Officer
16 May 2014
Email: info@sovereignfoods.co.za
Transfer secretaries
Computershare Investor Services (Pty) Limited, PO Box 61051, Marshalltown
2107, Gauteng
Company Secretary
ME Hoppe
Sponsor
One Capital
Directorate
CP Davies* (Non-executive Chairman), JA Bester*, GL Coley, C Coombes
(CEO), Prof PM Madi*, LM Nyhonyha*, T Pritchard*, GG Walter, BJ van
Rensburg (*Non-executive)
These results may be viewed on the internet at www.sovereignfoods.co.za
Date: 16/05/2014 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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