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SOV
SOV
SOV - Sovereign Food Investments Limited - Audited Group Results for the year
ended 29 February 2012 and notice of annual general meeting
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 Group Results for the year ended 29 February 2012 and notice of annual
general meeting
* Turnover up 13%
* Headline earnings up 63%
* Net gearing improvement to 14% from 67%
Statement of Financial Position
2012 2011
R`000 R`000
Assets
Non-current assets
Property, plant and equipment 829 333 846 269
Current assets 287 029 269 763
Inventories 35 134 23 268
Biological assets 86 197 93 816
Trade and other receivables 97 860 98 029
Net cash and cash equivalents 67 838 54 650
Total assets 1 116 362 1 116 032
Equity and liabilities
Share capital and premium 272 999 127 683
Non-distributable reserve and share based payments 76 378 53 775
Retained earnings 323 828 280 859
Equity 673 205 462 317
Non-current liabilities 271 211 433 753
Interest bearing borrowings 131 367 316 775
Deferred taxation 139 844 116 978
Current liabilities 171 946 219 962
Current portion of interest bearing borrowings 28 930 46 910
Trade, other payables and provisions 143 016 173 052
Total equity and liabilities 1 116 362 1 116 032
Statement of Comprehensive Income
2012 2011
R`000 R`000
Revenue 1 258 694 1 113 110
Operating profit before depreciation and amortisation 109 034 116 390
Depreciation and amortisation 34 724 32 086
Profit before finance costs 74 310 84 304
Net finance costs 18 925 48 673
Profit before taxation 55 385 35 631
Deferred taxation 12 416 8 550
Profit after taxation 42 969 27 081
Other comprehensive income for the year - gain on
revaluation of property, plant and equipment 23 498 23 735
Total comprehensive income for the year 66 467 50 816
Weighted average shares in issue (`000) 78 274 47 817
Earnings per share (cents) 54,9 56,6
Headline earnings per share (cents) 57,9 58,1
Diluted earnings per share (cents) 54,9 56,4
Diluted headline earnings per share (cents) 57,9 57,9
Reconciliation between earnings and headline earnings
Earnings after taxation 42 969 27 081
Reconciling items:
Disposal of property, plant and equipment 684 661
Taxation effect 1 684 56
Headline earnings after taxation 45 337 27 798
Statement of Cash Flows
2012 2011
R`000 R`000
Cash generated from operations before working capital
changes 108 756 116 638
Changes in working capital (33 370) 46 438
Cash generated from operating activities 75 386 163 076
Net finance costs (18 925) (48 673)
Net cash flows from operating activities 56 461 114 403
Net cash flows from investing in property, plant and
equipment (22 463) (45 037)
Proceeds on the sale of property, plant and equipment 37 263 11 445
Net cash flows from shares issued 145 316 (6 692)
Net cash flows from debt repaid (203 389) (73 697)
Net movement in cash and cash equivalents 13 188 422
Net cash and cash equivalents at the beginning of the
year 54 650 54 228
Net cash and cash equivalents at the end of the year 67 838 54 650
Statement of Changes in Equity
Share Non-
capital Share- distributable
and based revaluation Retained
premium payments reserve earnings Total
R`000 R`000 R`000 R`000 R`000
2012
Opening balance 127 683 1 192 52 583 280 859 462 317
Ordinary shares issued 145 316 - - - 145 316
Net value of employee
services - (895) - - (895)
Total comprehensive - - 23 498 42 969 66 467
income for the year
Closing balance 272 999 297 76 081 323 828 673 205
2011
Opening balance 134 375 895 28 848 253 778 417 896
Ordinary shares issued (6 692) - - - (6 692)
Net value of employee - 297 - - 297
services
Total comprehensive
income for the year - - 23 735 27 081 50 816
Closing balance 127 683 1 192 52 583 280 859 462 317
Commentary
Results for the period under review
The Group experienced a strong recovery in financial and operational performance
in the second half of the year owing to improved agricultural and production
efficiencies, tight cost control, judicious raw material hedging and more
favourable market conditions.
Earnings for the year ended 29 February 2012 ("FY12") improved by 55% to
R55,4 million, with profit after tax increasing by 59% to R43,0 million from
R27,1 million in the previous year ("FY11"). However, owing to the dilutionary
effect of the rights offer which was concluded in March 2011 ("Rights Offer"),
headline earnings per share decreased marginally to 57,9 cents from 58,1 cents
for FY11.
Turnover increased by 13%, driven by 2% volume growth and 11% average price
increase whilst the national average price of frozen poultry increased by 10%
for the 2011 calendar year. The volume of imported poultry remained high for
the year under review and increased by 40% to 395 178 tons compared to 282 160
tons for FY11. However, additional import duties were imposed on selected
products from Brazil in February 2012, which may result in a decrease in import
volumes in the coming year.
Despite the impact of disease in the first half of the year increasing
mortalities by 3% year-on-year, overall agricultural performance improved with
live mass per bird increasing by 5%, feed conversion ratio ("FCR") improving by
4% and the Group`s performance efficiency factor ("PEF") improving by 8%.
The improvement in FCR was offset by a 14% increase in the cost of broiler feed,
resulting in an overall increase of 10% in broiler feed costs per unit sold.
This increase in the cost of broiler feed must however be seen in the context
of a South African maize market where the spot price of white maize on the
South African Futures Exchange ("SAFEX") increased by 70% and of an
international soya market where the spot price of soya beans on the Chicago
Board of Trade ("CBOT") increased by 41% from FY11 to FY12.
Non-feed costs increased by 14% per unit sold in the period under review, driven
largely by increases in payroll costs as a result of once off payments and
restructuring costs, increased costs of packaging and value added materials due
to changes in product mix, and increased utility and energy costs. These higher
non-feed costs placed pressure on the Group`s operating margin which declined by
1,7%.
Owing to the proceeds received from the Rights Offer and stronger cash
generation in the second half, net finance costs declined to R18,9 million for
the period under review.
The majority of the R23 million of capital expenditure was utilised to increase
production of new product lines and to improve process flows at the abattoir.
Net working capital increased to 6,1% of turnover as at 29 February 2012
primarily due to a decrease in the amount owing to trade creditors. The levels
of inventories, biological assets and debtors at year end were consistent with
the previous year.
Following on from the Rights Offer and the sale of Accurate Farm in terms of a
BBBEE transaction, net cash on hand at year end increased by R13,2 million to
R67,8 million. Gross long term debt declined by R203,4 million during the year
and consequently net gearing declined to 14% at 29 February 2012.
Prospects and industry conditions
The Group has undertaken several initiatives to reduce non feed-costs which are
expected to bear fruit in the coming year. These include head count and payroll
reductions as well as the simplification of the Group`s supply chain.
Although there is continued volatility in the maize and soya markets, maize
prices appear to be in a downward recovery cycle. Maize and soya prices and the
current high levels of poultry imports will have an impact on operating margins
for the coming year.
Notice of annual general meeting
Notice is hereby given that the annual general meeting of the Company will be
held at 10:00 on Friday, 3 August 2012 at the registered offices of the Company
in Uitenhage, Eastern Cape.
Dividend
Although the Group has restructured its capital base during the year under
review, the Directors consider it prudent not to declare a dividend. The
Directors will continue to reassess the dividend policy.
Directorate
Mr. Mike Davis stepped down from the board of directors of Sovereign ("Board")
on 30 August 2011 as Chief Executive Officer. Mr. Charles Davies, who was
Sovereign`s Non-executive Chairman, assumed the role of Executive Chairman and
Mr. Litha Nyhonyha was appointed as the Board`s Lead Independent Director until
such time as a new Chief Executive Officer is appointed.
Accounting policies
The abridged condensed annual financial statements have been prepared in
accordance with the International Accounting Standard 34: Interim Financial
Reporting, the AC500 series of interpretations as issued by the Accounting
Practices Board or its successor, the Listings Requirements of the JSE Limited
and the Companies Act of South Africa 2008 as amended. The accounting policies,
which comply with International Financial Reporting Standards, have been
consistently applied in all material respects in the current and comparative
years.
These results have been audited by the Group`s independent auditors, PKF (PE)
Inc. Their unmodified audit report, dated 17 May 2012, is available for
inspection at the registered offices of the Group.
By order of the Board
CP Davies C Coombes
Executive Chairman Chief Financial Officer
This report has been prepared under the supervision of C Coombes CA(SA)
18 May 2012
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 (Executive Chairman), LM Nyhonyha* (Lead Independent Director)*,
JA Bester*, C Coombes, Prof PM Madi*, T Pritchard*, GG Walter,
BJ van Rensburg
* Non-executive
www.sovfoods.co.za
Date: 18/05/2012 07:05:05 Produced by the JSE SENS Department.
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