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Audited summarised consolidated provisional group results for the year ended 28 February 2017 and notice of AGM
Sovereign Food Investments Limited
Incorporated in the Republic of South Africa
Registration number 1995/003990/06
JSE code: SOV
ISIN: ZAE 000009221
Audited summarised consolidated provisional group results for the year
ended 28 February 2017 and notice of annual general meeting
Highlights
Revenue up 25% to R2,2 billion
Net Asset Value per share 972 cents
Net gearing 7,3%
Summarised consolidated statement of financial position
Audited Audited
28 February 29 February
2017 2016
R’000 R’000
Assets
Non-current assets 901 124 926 357
Property, plant and equipment 894 097 924 716
Interest in associate 3 577 1 641
Deferred taxation 3 450 –
Current assets 656 985 533 692
Inventories 89 644 105 856
Biological assets 121 856 121 549
Trade and other receivables 249 706 196 528
Cash and cash equivalents (Note 1) 195 779 109 759
Total assets 1 558 109 1 460 049
Equity and liabilities
Share capital and premium 242 408 244 596
Share-based payments 2 713 2 036
Retained earnings 478 017 513 555
Equity (Note 2) 723 138 760 187
Non-current liabilities 325 113 335 203
Interest-bearing borrowings 114 760 122 515
Deferred taxation 210 353 212 688
Current liabilities 509 858 364 659
Overdraft (Note 1) 80 000 –
Trade and other payables 365 728 302 529
Current portion of interest-bearing
borrowings 54 163 49 679
Provisions 9 967 12 451
Total equity and liabilities 1 558 109 1 460 049
Summarised consolidated statement of comprehensive income
Audited Audited
28 February 29 February
2017 2016
R’000 R’000
Revenue 2 163 675 1 726 638
Operating profit before depreciation and
impairments 18 584 157 576
Depreciation and impairments 43 451 37 687
(Loss)/profit before finance costs (24 867) 119 889
Net finance costs 16 456 3 895
(Loss)/profit before taxation (41 323) 115 994
Taxation (5 785) 34 836
(Loss)/profit after taxation (35 538) 81 158
Other comprehensive income for the year – –
Total comprehensive (loss)/income for
the year (35 538) 81 158
Summarised consolidated statement of changes in equity
Share Share-
capital and based Retained
premium payments earnings Total
Audited R’000 R’000 R’000 R’000
Balance at 1 March 2016 244 596 2 036 513 555 760 187
Total comprehensive
loss for the year – – (35 538) (35 538)
Shares purchased and held
by Employee Share
Ownership Plan (2 188) – – (2 188)
Net value of employee
services – 677 – 677
Balance at 28 February 2017 242 408 2 713 478 017 723 138
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 purchased (4 945) – – (4 945)
Shares purchased and held
by Employee Share
Ownership Plan (2 888) – – (2 888)
Dividends paid to
shareholders – – (25 938) (25 938)
Net value of employee
services – 577 – 577
Balance at 29 February 2016 244 596 2 036 513 555 760 187
Summarised consolidated statement of cash flows
Audited Audited
28 February 29 February
2017 2016
R’000 R’000
Cash generated from operations before working
capital changes 15 496 123 056
Changes in working capital 25 926 69 191
Cash generated from operating activities 41 422 192 247
Net finance costs (16 456) (3 895)
Net cash flow from operating activities 24 966 188 352
Net cash flow from investing in business
combination – (120 000)
Net cash flow from investing in property,
plant and equipment (17 793) (88 589)
Proceeds on the sale of property, plant and
equipment 3 731 166
Dividends paid to shareholders – (25 938)
Dividends received from associate 575 –
Net cash flow from shares purchased – (4 945)
Net cash flow from shares purchased for
Employee Share Ownership Plan (2 188) (2 888)
Proceeds from borrowings 50 000 120 000
Net cash flow from debt repaid (53 271) (27 252)
Net movement in cash and cash equivalents 6 020 38 906
Net cash and cash equivalents at the
beginning of the year 109 759 70 853
Net cash and cash equivalents at the end of
the year (Note 1) 115 779 109 759
Notes
1. Cash and cash equivalents
28 February 29 February
2017 2016
R’000 R’000
Cash balance 195 779 109 759
Overdraft (80 000) –
Net cash and cash equivalents 115 779 109 759
2. Net asset value per share
Shares in issue ('000) 74 412 74 662
Net asset value per share (cents) 972 1 018
3. Earnings per share
Weighted average shares in issue (‘000) 74 538 74 942
Earnings per share (cents) (47,7) 108,3
Headline earnings per share (cents) (46,5) 108,4
Diluted earnings per share (cents) (47,7) 108,3
Diluted headline earnings per share
(cents) (46,5) 108,4
4. Reconciliation between earnings
and headline earnings
Total comprehensive (loss)/income for
the year (35 538) 81 158
Reconciling items:
Loss on disposal of property, plant and
equipment 1 230 156
Taxation effect (345) (44)
Headline (loss)/earnings (34 653) 81 270
5. 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 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 summarised consolidated 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 GL Coley CA(SA), Chief
Financial Officer.
6. Audited results
The auditors, Deloitte & Touche, have issued their unmodified opinion on
the Group’s audited summarised consolidated provisional results for the year
ended 28 February 2017. The audit was conducted in accordance with ISA 810:
‘Engagements to Report on Summary Financial Statements’. These summarised
consolidated financial statements have been derived from the consolidated
financial statements and are consistent in all material respects with the
consolidated financial statements. An unmodified opinion was issued on the
Group’s financial statements in accordance with ISA 700: ‘Forming an opinion
and reporting on financial statements’.
A copy of the auditors’ report on these summarised consolidated provisional
Group results and of the auditors’ report on the consolidated financial
statements as well as the consolidated financial statements for the year
ended 28 February 2017 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 these summarised consolidated provisional Group 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.
Results for the financial year under review
Despite the worst drought in South Africa in recent history, which resulted
in very high feed costs, coupled with record high poultry imports, the Group
increased revenue by 25% and reported an earnings before interest, taxation,
depreciation and amortisation (“EBITDA”) profit (before once-off corporate
activity costs of R30,7 million) of R49,3 million compared to R157,6 million
in the year ended 29 February 2016 (“Prior Period”). EBITDA (before once-off
corporate activity costs as set out below) in the second half of the financial
year was R48,3 million compared to R1,0 million in the first half of the
financial year.
After taking the once-off corporate activity costs into account, the Group
reported a loss of 47,7 cents per share compared to earnings of 108,3 cents
per share in the Prior Period.
Once-off corporate activity costs incurred include, inter alia,:
* costs (including legal, advisory, regulatory, printing and venue costs)
associated with Sovereign’s empowerment transaction, which transaction was
approved by more than 85% of Sovereign shareholders, but was withdrawn as a
result of the hostile actions of Country Bird Holdings Limited (“CBH”) and its
related and concert parties;
* costs associated with the legal proceedings instituted by CBH related and
concert parties against Sovereign in the High Court;
* legal costs associated with dealing with numerous and frequent correspondence
from CBH and its concert parties and their attorneys (including further
litigation threats);
* costs associated with various Competition Commission processes occasioned by
the actions of CBH and its related and concert parties, including a merger
filing and submissions relating to the offer made by CBH to acquire the entire
issued share capital of Sovereign (excluding treasury shares) ("CBH Offer"); and
* costs associated with the hearing before the Special Committee of the Takeover
Regulation Panel, which ruled that CBH's purported waiver of the condition as
to minimum acceptances under the CBH Offer was unlawful and that the CBH Offer
had terminated.
Total birds processed were up 20% including 2% from the Eastern Cape operation
and 18% from the full year inclusion of the Gauteng operation. Following the
implementation of the brining cap in October 2016, abattoir yield declined by 3%
with sales volumes up 18%.
Average sales realisations increased by 7% primarily due to the Group’s long term
product mix strategy with value added, fresh and weight graded products increasing
from 11% to 16% of sales volume. Revenue from these categories increased by
R209 million to R530 million which is 24% of total revenue. Exports of fully cooked
and raw products continue to increase and although these volumes are still small in
comparison to total sales, the Group continues to build a solid export sales channel
into the food services and retail sectors in the Middle East. The Gauteng operation
has increased the Group’s national sales footprint and as a result, 81% of total
sales volume was from outside the Eastern Cape.
Agricultural efficiencies in the Eastern Cape continued to improve with average live
mass improving by 1%, feed conversion ratio improving by 1% and mortalities decreasing
from 5,7% to 3,4%. These contributed to a 5% improvement in overall agricultural
efficiencies.
The drought adversely impacted the prices of commodities with the spot price of white
maize, yellow maize and soya beans on SAFEX increasing by 24%, 12% and 20% respectively
compared to the Prior Period. However, the Group managed to mitigate this by executing
on its procurement strategy and by importing maize. This resulted in its feed cost
on a Rand per ton basis increasing by only 16% compared to the Prior Period.
Cost reduction remains a strong focus area for management and despite a 6% depreciation
in the R/$ exchange rate and above CPI increases in the costs of energy and labour,
non-feed operational costs increased by 8% per kg sold.
Capital expenditure was limited to R18 million which 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 on-going investment in plant and equipment, the Group
has a “tax shield” of R236 million at year end that can be utilised against future
taxable income.
Strong working capital management was exercised during the year and this led to net
working capital, as measured by days of sales, improving by 38%. As a result of this
and the improved financial performance in the second half of the financial year, the
Group generated R41 million in operating cash. The board remains satisfied with the
strength of the balance sheet with R116 million cash on hand at year end and gross
and net gearing of 23% and 7% respectively.
Prospects
Feed Costs
The South African Crop Estimates Committee latest estimate indicates that South Africa
will have its second largest maize and largest soya beans crops ever with the maize crop
estimated at 14,5 million tons and the soya bean crop estimated at 1,2 million tons.
This has caused the price of white maize to decline dramatically with July 2017 white maize
reaching a low of R1 700 per ton on the 23 March 2017 after reaching a high of R3 786 on
19 January 2016. This represents a 55% decline in the price of the single biggest cost in
poultry production. Similarly, July 2017 soya beans have declined by 24% from a high of
R6 325 on 1 August 2016 to R4 808 on 27 March 2017.
It is therefore expected that the price of feed for the Group in the forthcoming financial
year will decline.
Imports and Local Production Volumes
A number of factors have led to a decline in the volume of poultry imports in the fourth
quarter of 2016:
* Wide spread Avian Influenza in the European Union (“EU”) and the United States (“US”)
precluded certain countries from exporting to South Africa.
* The recently imposed provisional 13,9% Trade, Development and Cooperation Agreement
duty against the EU increased the landed cost of poultry.
* The international price of poultry, as measured in US dollars, increased.
* The recent meat “scandal” in Brazil meant that certain consignments of product have
been rejected by South African authorities.
Local production volumes have also recently been reduced due to the following factors:
* The recent well publicised industry production cut backs.
* The shutting down of several smaller producers in 2015 and 2016.
* The implementation of the brining cap in October 2016.
The Group therefore expects a strong financial performance in the year ahead due to
improved poultry pricing and the material decline in maize and soya bean prices.
Annual General Meeting
Shareholders are advised that the annual general meeting of the Company will be held at
10:00AM on Tuesday, 22 August 2017 at the Sun International Boardwalk Hotel, Beach Road,
Summerstrand, Port Elizabeth.
A separate notice, incorporated in the Integrated Report 2017, convening the annual general
meeting, will be posted to shareholders in due course.
Dividend
The Board is of the opinion that it is prudent not to declare a dividend for the financial
year under review.
Results presentation
A presentation on these results will be available on the Group’s website at
www.sovereignfoods.co.za.
By order of the board
T Pritchard C Coombes
Chairman Chief Executive Officer
12 May 2017
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 Company's website at www.sovereignfoods.co.za.
Date: 16/05/2017 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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