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Audited summarised consolidated provisional Group results for the year ended 29 February 2016 and notice of AGM
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 29 February 2016 and notice of annual general meeting
Highlights:
Revenue up 5% to R1.73 billion
EBITDA margin up from 8.8% to 9.1%
Headline earnings per share up 5% to 108.4 cents
Net asset value up 8% to 1,018 cents
Net gearing 8%
Summarised Consolidated Statement of Financial Position
Audited as at Audited as at
29 February 28 February
2016 2015
R’000 R’000
Assets
Non-current assets
Property, plant and equipment 924 716 754 136
Investment in Associate 1 641 –
Current assets 533 692 452 559
Inventories 105 856 71 873
Biological assets 121 549 111 881
Trade and other receivables 196 528 197 952
Net cash and cash equivalents 109 759 70 853
Total assets 1 460 049 1 206 695
Equity and liabilities
Share capital and premium 244 596 252 429
Share-based payments 2 036 1 459
Retained earnings 513 555 458 335
Equity 760 187 712 223
Non-current liabilities
Interest bearing borrowings 122 515 53 554
Deferred taxation 212 688 177 852
Current liabilities 364 659 263 066
Trade, other payables and provisions 314 980 237 174
Current portion of interest bearing borrowings 49 679 25 892
Total equity and liabilities 1 460 049 1 206 695
Shares in issue (’000) 74 662 75 647
Net asset value per share (cents) 1 018 942
Summarised Consolidated Statement of Comprehensive Income
Audited Audited
year ended year ended
29 February 28 February
2016 2015
R’000 R’000
Revenue 1 726 638 1 648 631
Operating profit before depreciation and
impairments 157 576 144 451
Depreciation and impairments 37 687 33 555
Profit before finance costs 119 889 110 896
Net finance costs 3 895 2 793
Profit before taxation 115 994 108 103
Taxation 34 836 30 507
Profit after taxation 81 158 77 596
Other comprehensive income for the year – –
Total comprehensive income for the year 81 158 77 596
Weighted average shares in issue (‘000) 74 942 76 128
Earnings
Earnings per share (cents) 108,3 101,9
Headline earnings per share (cents) 108,4 103,3
Diluted earnings per share (cents) 108,3 101,9
Diluted headline earnings per share (cents) 108,4 103,3
Dividend
Dividend per share (cents) – 34,0
Reconciliation between earnings and headline earnings
Total comprehensive income for the year 81 158 77 596
Reconciling items:
Loss on disposal of property, plant and
equipment 156 732
Impairment of plant and equipment – 753
Taxation effect (44) (416)
Headline earnings 81 270 78 665
Summarised Consolidated Statement of Cash Flows
Audited Audited
year ended year ended
29 February 28 February
2016 2015
R’000 R’000
Cash generated from operations before working
capital changes 156 668 147 395
Changes in working capital 35 579 (20 304)
Cash generated from operating activities 192 247 127 091
Net finance costs (3 895) (2 793)
Net cash flow from operating activities 188 352 124 298
Net cash flow from investing in business
combination (120 000) –
Net cash flow from investing in property, plant
and equipment (88 589) (53 842)
Proceeds on the sale of property, plant and
equipment 166 1 637
Dividends paid to shareholders (25 938) (11 431)
Net cash flow from shares re-purchased (4 945) (16)
Net cash flow from shares purchased for
Employee Share Option Plan (2 888) (4 990)
Proceeds from borrowings 120 000 –
Net cash flow from debt repaid (27 252) (26 174)
Net movement in cash and cash equivalents 38 906 29 482
Net cash and cash equivalents at the beginning
of the year 70 853 41 371
Net cash and cash equivalents at the end of
the year 109 759 70 853
Summarised Consolidated Statement of Changes in Equity
Audited
Share
capital Share
and based Retained
premium payments earnings Total
R’000 R’000 R’000 R’000
Balance at 1 March 2015 252 429 1 459 458 335 712 223
Total comprehensive income for the
year – – 81 158 81 158
Ordinary shares re-purchased and
held by subsidiary (4 945) – – (4 945)
Shares repurchased held by Employee
Share Option Plan (2 888) – – (2 888)
Net value of employee services – 577 – 577
Dividends paid to shareholders – – (25 938) (25 938)
Balance at 29 February 2016 244 596 2 036 513 555 760 187
Balance at 1 March 2014 257 435 – 392 170 649 605
Total comprehensive income for the
year – – 77 596 77 596
Ordinary shares re-purchased (16) – – (16)
Shares repurchased held by Employee
Share Option Plan (4 990) – – (4 990)
Dividends paid to shareholders – – (11 431) (11 431)
Net value of employee services – 1 459 – 1 459
Balance at 28 February 2015 252 429 1 459 458 335 712 223
Results for the financial year under review
Notwithstanding the issues facing the poultry industry at the moment, the Group
is pleased to announce a strong set of results with headline earnings per share
up 5%, EBITDA margin increasing to 9.1% and net asset value per share increasing
by 8% to R10.18.
The Group took operational control of the Hartbeespoort abattoir on 19 October 2015
and as a result the number of birds slaughtered increased by 12% with total Group
revenue increasing by 5% to R1.7bn. Although revenue per kilogram (“kg”) sold
increased by 3% for the full year, revenue per kg sold declined in the second half
of the year by 3% with this mainly due to industry wide pricing weakness as a
result of oversupply in the local market.
The Group continues to execute on its product mix strategy and in the second half
of the year sales of value added, fresh and weight graded portions increased to
15% of sales volume compared to 7% in the comparable prior period. Exports of
fully cooked value added products also continue to increase and although these
volumes are still small in comparison to total sales, the Group has built a
solid export sales channel and expects export volumes to increase substantially
over the following three years. The Hartbeespoort abattoir has increased the
Group’s national sales footprint and in the last quarter of the financial year,
81% of the Group’s total sales volume was from outside the Eastern Cape.
The ongoing drought has adversely impacted the prices of soft commodities
with the spot price of white maize and yellow maize on SAFEX increasing by
91% and 65% respectively in the second half of the year compared to the
second half of the comparable prior period. However, the Group has largely
managed to mitigate this by executing on its hedging strategy and by importing
maize. This resulted in its broiler feed cost on a Rand per ton basis increasing
by only 7% in the second half of the year and being flat for the full year.
The Group has a continuous focus on cost reduction across all the divisions within
the supply chain and the inclusion of the Hartbeespoort abattoir volumes has mitigated
increases in unit costs as measured on a Rand per kg sold basis. Including the broiler
feed cost increase noted above, total agricultural cost was up 10% for the full year.
Total abattoir and product cost, including both the Uitenhage and Hartbeespoort
abattoirs was up 1% per kg sold in the second half of the year and 2% for the full
year. Distribution, sales and marketing cost, despite an increase in the level of
outside storage utilised to manage realisations, was up 7% per kg for the full year.
The Group financed the acquisition of the Hartbeespoort abattoir with debt and as a
result raised R120m in additional debt in the second half of the year. The Group
therefore ended the year with gross interest bearing debt of R172m and after
accounting for cash on hand at year end of R110m, net interest bearing debt was
R62m and the Group’s gross and net debt:equity ratios were 23% and 8% respectively.
In addition to the Hartbeespoort abattoir acquisition, the Group incurred capital
expenditure of R89m of which R36m was incurred in the first half of the year in
order to purchase a farm to secure the supply chain at Uitenhage and the balance
of R53m was incurred in order to decrease costs, mitigate the risk of further
labour disruptions and increase the production of high margin products. Due to
the ongoing investment in plant and equipment, the Group had a “tax shield” of
R264m at year end that can be utilised against future taxable income.
The Group’s net working capital cycle, as measured by days of sales, improved by
28% and this allowed the Group to generate cash from operating activities of R192m
or R2.56 per share. After paying a dividend of R26m during the year under review,
purchasing shares for R7m, capital expenditure as set out above and total debt and
interest repayments of R31m, the Group increased cash on hand by R39m to end the
year with R110m in cash.
Hartbeespoort acquisition
As noted above, the Group took operational control of the Hartbeespoort abattoir on
19 October 2015. This abattoir was purchased from Quantum Foods Proprietary Limited
for a consideration of R120m which approximated its fair value on the acquisition
date and consisted of land, buildings and plant and equipment Currently the
Hartbeespoort abattoir is processing 280 000 birds per week and, on an annualised
basis, this will increase the number of birds processed by the Group by 31% to
approximately 1.2m birds per week.
The strategy of the Group in respect of the Hartbeespoort abattoir is that a
significant proportion of the abattoir’s output will be fresh portions which
are, to a large extent, not affected by the high volume of frozen imports. In
order to give effect to this strategy, the Group is working closely with its major
customers and has already started supplying a major customer with fresh portions,
initially into the Gauteng market and thereafter on a national basis. The
acquisition has also allowed the Group to enter the “formal” Quick Service
Restaurant (“QSR”) market as it now supplies one of the large national QSR chains.
The Hartbeespoort abattoir will also allow the Group to rationalise its production
across the Uitenhage and Hartbeespoort abattoirs and this has already started with
some product lines being transferred to the Hartbeespoort abattoir. This in turn
will allow for increased production of higher margin products and better utilisation
of the value added facility at Uitenhage.
In addition, the Hartbeespoort abattoir will allow the Group to decrease its average
distribution cost as the Hartbeespoort abattoir is close to its primary market. The
Hartbeespoort abattoir will also decrease the overall sales and marketing and group
services costs per unit as no significant additional costs will be incurred in these
divisions in the production of the additional volumes from this abattoir.
Brining legislation
On Friday 22 April 2016, the Minister of Agriculture, Forestry and Fisheries promulgated
brining regulations in the Government Gazette, stating that the mass increase of
portions may not exceed 15% and that the mass increase of whole birds may not exceed
10%. According to the Gazette, the regulations are expected to be effective six months
following the announcement.
The South African Poultry Association, on behalf of its members, has instituted legal
action against the Minister of Agriculture, Forestry and Fisheries asking that the brining
regulations as promulgated be set aside.
Changes to the board of directors (the “Board”)
Shareholders are referred to the announcements published on SENS on 12 October 2015
and on 9 February 2016 (“Announcements”) regarding the following changes to the Board:
* Mr Charles Peter Davies retired as chairman of the Board with effect from
10 October 2015 and continues to serve as an independent non-executive
director.
* Mr Thomas Pritchard, an independent non-executive director, was appointed
as chairman of the Board with effect from 10 October 2015.
* Mr Litha Mveliso Nyhonyha and Professor Mziwakhe Phinda Madi voluntarily elected to
step down from the Board, with effect from 9 October 2015.
* Messrs Gerald Walter and Blaine van Rensburg voluntarily elected to step down from
the Board, with effect from 9 October 2015. Messrs Walter and van Rensburg remain
employees of the Company and members of Sovereign’s executive committee.
As a result of the above Board restructure, various changes to the constitution of Sovereign’s
sub-committees were implemented with effect from 10 October 2015. Further details of the above
changes to the Board and the various sub-committees are contained in the Announcements and
will be disclosed in the Integrated Report 2016.
Empowerment transaction
As set out in the SENS announcement published on 31 May 2016 (“Transaction Announcement”),
the Group has proposed a series of interconditional transactions comprising, inter alia:
* the introduction of empowerment partners;
* the repurchase of no more than 5% of the Group’s issued share capital; and
* the introduction of a new executive remuneration policy, collectively, the “Transactions”.
To obtain a thorough understanding of the Transactions, shareholders are advised to refer
to the full terms and conditions pertaining thereto, as set out in the Transaction
Announcement.
Annual General Meeting
Shareholders are advised that the annual general meeting of the Company will be held at
10:00 on Thursday, 4 August 2016 at the Sun International Boardwalk Hotel, Beach Road,
Summerstrand, Port Elizabeth.
A separate notice, incorporated in the Integrated Report 2016, convening the annual
general meeting, will be distributed to shareholders in due course.
Dividend
The Board feels it prudent to not declare a dividend for the year under review.
Results presentation
A presentation on these results will be available on the Group’s website at
www.sovereignfoods.co.za.
Basis of preparation
The audited summarised consolidated provisional group results are prepared in accordance
with the JSE Limited Listings Requirements (“Listings Requirements”) for provisional
reports and the requirements of the Companies Act No. 71 of 2008. 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
audited summarised consolidated provisional results for the year ended 29 February 2016.
The audit was conducted in accordance with ISA 810:‘Engagements to Report on Summary
Financial Statements’. These summarised financial statements have been derived from
the Group’s financial statements and are consistent in all material respects with
the Group’s financial statements. An unmodified opinion was issued on the Group’s
financial statements in accordance with ISA 700.
A copy of the auditors’ report on these summarised consolidated provisional
financial results and of the auditors’ report on the financial statements as
well as the financial statements for the year ended 29 February 2016 is
available for inspection at the Company’s registered office. Any reference to
future financial performance included in this announcement has not been audited
or reported on by the Company’s auditors.
The auditors’ report does not necessarily report on all of the information
contained in this announcement/financial results. Shareholders are therefore
advised that in order to obtain a full understanding of the nature of the
auditors’ engagement they should obtain a copy of the auditors’ report together
with the accompanying financial information from the Company’s registered office.
By order of the board.
T Pritchard C Coombes
Chairman Chief Executive Officer
31 May 2016
Email: info@sovereignfoods.co.za
Transfer secretaries
Computershare Investor Services (Pty) Ltd, PO Box 61051, Marshalltown 2107, Gauteng
Company Secretary
ME Hoppe
Sponsor
One Capital
Directorate
T Pritchard* (Chairman), JA Bester*, GL Coley, C Coombes (CEO), CP Davies*
(*Independent non-executive)
These results may be viewed on the internet at www.sovereignfoods.co.za
Date: 31/05/2016 05:31:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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