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Interim Unaudited Group Results for the six months ended 31 August 2014
Sovereign Food Investments Limited (Incorporated in the Republic of South
Africa) Registration Number 1995/003990/06
JSE Code: SOV
ISIN Number: ZAE000009221
(‘Sovereign’ or ‘Group’ or ‘Company’)
Interim Unaudited Group Results for the six months ended 31 August
2014
Highlights
Net asset value up 6,5% to 865 cents
Net gearing up 1% to 7%
Revenue up 21% to R815 million
EBITDA margin up to 6,0% from 5,6%
Headline earnings per share up 49% to 28,1 cents
Earnings per share up 47% to 27,8 cents
Consolidated Statement of Financial Position
Unaudited as at Audited as at
31 August 28 February
2014 2013 2014
R’000 R’000 R’000
Assets
Non-current assets
Property, plant and equipment 734 693 707 951 736 971
Current assets 375 642 345 215 336 601
Inventory 69 685 57 140 61 730
Biological assets 106 060 90 841 106 042
Trade and other receivables 155 877 115 624 127 458
Cash and cash equivalents 44 020 81 610 41 371
Total assets 1 110 335 1 053 166 1 073 572
Equity and liabilities
Share capital and premium 257 420 258 187 257 435
Share based payments – 74 –
Retained earnings 401 929 361 851 392 170
Equity 659 349 620 112 649 605
Non-current liabilities
Interest bearing borrowings 66 279 92 526 79 438
Deferred taxation 155 586 134 037 147 345
Current liabilities 229 121 206 491 197 184
Current portion of interest
bearing borrowings 26 279 26 116 26 182
Trade, other payables and
provisions 202 831 180 332 171 002
Bank overdraft 11 43 –
Total equity and liabilities 1 110 335 1 053 166 1 073 572
Shares in issue (’000) 76 222 76 376 76 226
Net asset value (cents) 865 812 852
Statement of Comprehensive Income
Unaudited for Audited
the six months ended year ended
31 August 28 February
2014 2013 2014
R’000 R’000 R’000
Revenue 814 828 675 449 1 391 224
Operating profit before depreciation
and impairments 49 007 37 938 99 502
Depreciation and impairments 17 598 15 758 30 886
Profit before finance costs 31 409 22 180 68 616
Net finance costs 1 976 2 003 4 811
Profit before taxation 29 433 20 177 63 805
Deferred taxation 8 241 5 650 18 958
Total comprehensive income for the
period 21 192 14 527 44 847
Other comprehensive income for the
period – – –
Total comprehensive income for the
period 21 192 14 527 44 847
Weighted average shares in issue
(‘000) 76 222 76 918 76 651
Earnings per share (cents) 27,8 18,9 58,5
Headline earnings per share (cents) 28,1 18,9 60,2
Diluted earnings per share (cents) 27,8 18,9 58,5
Diluted headline earnings per share
(cents) 28,1 18,9 60,2
Reconciliation between earnings and
headline earnings
Earnings after taxation 21 192 14 527 44 847
Reconciling items:
Loss on disposal of property, plant
and equipment 341 – 1 834
Taxation effect (95) – (514)
Headline earnings after taxation 21 438 14 527 46 167
Statement of Cash Flows
Unaudited for the Audited
six months ended year ended
31 August 28 February
2014 2013 2014
R’000 R’000 R’000
Cash generated from operations 49 348 37 938 99 798
Changes in working capital (4 563) 8 765 (32 215)
Net cash flows from operations 44 785 46 703 67 583
Interest paid (1 976) (2 003) (4 811)
Net cash flow from operating
activities 42 809 44 700 62 772
Net cash flow from investing in
property, plant and equipment (16 186) (25 011) (72 929)
Proceeds on the sale of property,
plant and equipment 525 592 4 017
Net cash flow from shares re-
purchased (15) (4 976) (5 728)
Dividends paid (11 433) (14 677) (14 677)
Net cash flow from debt repaid (13 062) (15 903) (28 926)
Net movement in cash and cash
equivalents 2 638 (15 275) (55 471)
Cash and cash equivalents at the
beginning of the period 41 371 96 842 96 842
Cash and cash equivalents at the end
of the period 44 009 81 567 41 371
Statement of Changes in Equity
Share Share-
capital and based Retained
premium payments earnings Total
R’000 R’000 R’000 R’000
For the six months ending
31 August 2014
Opening balance 257 435 – 392 170 649 605
Shares repurchased (15) – – (15)
Total comprehensive income
for the period – – 21 192 21 192
Dividends paid – – (11 433) (11 433)
Closing balance 257 420 – 401 929 659 349
For the six months ending
31 August 2013
Opening balance 263 163 109 362 001 625 273
Shares repurchased (4 976) – – (4 976)
Net value of employee
services – (35) – (35)
Total comprehensive income
for the period – – 14 527 14 527
Dividends paid – – (14 677) (14 677)
Closing balance 258 187 74 361 851 620 112
Commentary
Operational and financial results
Headline earnings per share for the period under review increased by 49%
to 28,1 cents from 18,9 cents for the prior period while earnings per
share were up by 47% to 27,8 cents. This was due to a 21% increase in
revenue driven by 7% higher sales volumes and a 12% price increase
offset by feed cost increases of 11% per ton and non-feed cost increases
of 10% per unit.
The number of birds processed increased by 8% with bird weights remaining
constant. In 2013 Sovereign changed breeds and is now performing at
historically high levels in terms of bird performance. The Group’s
profitability for the period was impacted by an illegal industrial action
at the abattoir in August 2014 which reduced operating profits by R10 million
and EBITDA margins by 1,2%. This illegal action will also have an impact on
the profitability of the second half of the year.
Although import volumes (including mechanically deboned meat) remained
high during the period under review, in July 2014 anti-dumping duties were
imposed against leg quarters imported from certain companies in Germany,
the Netherlands and the UK. At this stage the Group is uncertain of the
exact effect that these duties will have on local poultry prices.
The Group’s 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 2% to 35%. The R16 million capital
expenditure for the period has largely been directed towards this product
mix strategy.
SAFEX maize prices declined by 2% but the Group was not able to fully
benefit from these lower prices due to its policy of buying raw
materials on a forward basis resulting in the Group’s landed maize price
increasing by 10%. This increase and a 20% increase in the landed price
of soya beans led to the Group’s broiler feed cost increasing by 11% per
ton.
Increases in labour and energy costs, as well as inflationary pressure on
other overheads coupled with a 7% increase in sales volumes over the
previous year resulted in non-feed costs increasing by 18% in Rand terms,
although on a per unit basis non-feed costs increased by 10% per
kg sold. Finance charges were slightly down on the previous period, this
being the net result of both lower cash and debt balances. Operating
margins remain under pressure at 6,0%, although they are slightly up
from last year’s 5,6%.
The Company declared a final dividend for the year ended 28 February
2014 of 15,0 cents per share and due to this, an amount of R11 million
was paid out to shareholders in the period under review. The Group has
continued with its share repurchase program although only 3 000 shares
were repurchased during the period under review.
The Group generated cash from operating activities of R43 million. Of
this, R16 million was invested in property, plant and equipment; R11
million went towards paying dividends and normal debt repayments amounted
to R13 million. The net result was an increase in cash of R3 million to
close on R44 million.
Working capital as a percentage of annualised revenue decreased to 8,0%
from 9,0% over the six months. Trade, other payables and provisions
increased by R32 million, and includes an amount of R23 million (February
2014: R16 million) in respect of a dispute with a local service provider.
The Group retains its strong balance sheet with net gearing at 7%, and net
asset value increased by 6,5% to 865 cents per share.
Prospects and industry conditions
Consumer demand is expected to remain weak due to above inflation
increases in energy and transport costs as well as lower availability of
credit. 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.
The Department of Agriculture, Forestry and Fisheries (DAFF) have proposed
a set of regulations that will cap brine levels at 15%. The South African
Poultry Association (SAPA) is currently in discussions with DAFF on this
issue and the outcome of these discussions is uncertain.
Some industry consolidation has taken place as a result of the sustained
pressure on the industry’s margins and it is possible that if the industry
continues to be subjected to these constrained margins, further industry
consolidation could take place.
Accounting policies
The unaudited condensed consolidated financial results are prepared in
accordance with the JSE Limited Listings Requirements (“Listings
Requirements”) and the requirements of the Companies Act of South Africa.
The 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 GL Coley CA(SA), Financial Director.
Interim dividend
It is the policy of the Company 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
3 October 2014
E-mail: info@sovfoods.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), C Coombes (CEO),
JA Bester*, GL Coley, PM Madi*, LM Nyhonyha*, T Pritchard*, BJ Van Rensburg,
GG Walter
*Non-executive
These results may be viewed on the internet at www.sovereignfoods.co.za
Date: 03/10/2014 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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