Agriculture News South Africa

Sovereign Foods reports increase in revenue despite difficult trading year

Poultry producer, Sovereign Foods, one of the Eastern Cape's largest integrated agricultural businesses, released its annual audited financial results for the 2017 financial year ending 28 February 2017, which showed a revenue increase of 25% to R2,2 billion in the period under review.
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Group sales volumes increased by 18%, and sales of value added, fresh and weight graded portions increased to 16% of sales volume (FY2016: 11%) with revenue from these categories increasing by R209 million to R530 million. The net asset value of the shares stands at R9.72.

Sovereign Foods increased average realisations per kilogram sold by 7% and continued to execute on its long-term product mix strategy and value-added processing, which to a certain degree cushioned and absorbed shocks from EU dumping in South Africa.

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 group, therefore, ended the year with gross interest bearing debt of R169 million and after accounting for net cash on hand at year-end of R116 million, net interest-bearing debt was R53 million and the group’s gross and net debt: equity ratios were 23% and 7% respectively.

The Group limited capital expenditure to R18m 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 ongoing investment in plant and equipment, the group has a “tax shield” of R236m 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 38% and this allowed the group to generate cash from operating activities of R41m or 56 cents per share. After purchasing shares for the ESOP for R2m, capital expenditure as set out above and total debt and interest repayments of R69 million, the group increased cash on hand by R6m to end the year with R116m in cash.

The group announced subdued results and a loss of 46.5 cents per share during the period under review compared to headline earnings of 108.4 cents per share during the previous year.

Testing times

Chris Coombes, Sovereign Foods CEO, said three unusual events converged to create one the most difficult trading years and testing times in the history of the seven-decades-old Eastern Cape company.

“Although the group has achieved a compound annual growth rate of 17% in revenue over the past 10 years and delivered solid investment returns, this year we are reporting a loss.” The three factors affecting the results this year were the once-off corporate activity costs, high feed costs as a material manifestation of the 2015 and 2016 drought and the subsequent ripple effect on soft commodity prices during the period under review, and EU dumping of bone-in chicken portions in South Africa.

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