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Rainbow Chicken Limited – Financial Report

Abridged Audited Group Results for the year ended
1 March 2001

Rainbow Chicken Limited
(Registration number 1966/004972/06)
Abridged Audited Group Results for the year ended
31 March 2001
Consolidated Income Statement
Year ended Year ended
31 March 31 March
2001 2000
R000″s R000″s
Revenue 2 493 847 2 296 027
Operating profit before
depreciation and amortisation 167 445 111 745
Depreciation and amortisation (56 698) (59 729)
Operating profit before interest 110 747 52 016
Interest paid (16 300) (29 604)
Profit before taxation 94 447 22 412
Taxation (547) (826)
Profit after taxation 93 900 21 586
Preference dividend (62) (62)
Attributable profit 93 838 21 524
Headline Earnings
Attributable profit 93 838 21 524
Asset impairment provision raised 16 372 –
Loss/(profit) on disposal of
property, plant and equipment 2 977 (7 762)
Headline earnings 113 187 13 762
Number of ordinary shares
in issue (000″s) 256 119 256 119
Basic earnings
per share (cents) 36,6 8,4
Headline earnings
per share (cents) 44,2 5,4
Net asset value
per share (cents) 359,8 323,2
Debt/equity ratio (%) 0,0 15,2
Consolidated Balance Sheet
31 March 31 March
2001 2000
R000″s R000″s
Non-current assets
Property, plant and equipment 770 560 817 262
Current assets
Loans 1 344 1 798
Inventories 250 422 242 667
Trade and other receivables 235 007 207 052
Cash on hand 6 203 –
Total current assets 492 976 451 517
Total assets 1 263 536 1 268 779
Capital and reserves 921 497 827 659
Preference share capital 500 500
Total shareholders” equity 921 997 828 159
Non-current liabilities
Deferred taxation 8 356 7 821
Interest bearing debt – short-term – 126 039
Total non-current liabilities 8 356 133 860
Current liabilities
Trade and other payables 333 183 306 760
Total current liabilities 333 183 306 760
Total equity and liabilities 1 263 536 1 268 779

Consolidated Cash Flow Information
Year ended Year ended
31 March 31 March
2001 2000
R000″s R000″s
Net cash flows from operating
activities 161 587 89 325
Net cash flows from investing
activities (29 345) (11 577)
Net decrease in borrowings 132 242 77 748
Borrowings at the beginning of
the year (126 039) (203 787)
Cash on hand/(borrowings) at
the end of the year 6 203 (126 039)

Statement of Changes in Equity
Stated distributable Accumulated Consolidated
Capital Reserves Loss Total
1 April 2000 1 082 853 97 996 (353 190) 827 659
Prior year”s
written off – 102 697 (102 697) –
1 April 2000
restated 1 082 853 200 693 (455 887) 827 659
profit for
the year – – 93 838 93 838
Balance 31
March 2001 1 082 853 200 693 (362 049) 921 497
contracted and
committed 3 884 12 319
Capital expenditure approved but
not contracted 9 916 26 447
Contingent liabilities 26 376 23 968
In our interim results dated 2nd November 2000 we reported that South
Africa”s agricultural and food industry had experienced virtually no growth
due to the insignificant improvement in the economy and changes in consumer
spending patterns. Although Government had granted interim relief against
unfairly priced import dumping in July 2000 (which relief has now been
confirmed for a five year period), the benefits thereof to the industry only
began to filter through in October 2000.
There has been very little change in local economic conditions during the
year and, whilst interest rates softened slightly compared to the previous
year, they remain high in real terms. Price realisations remained relatively
low for most of the year, only showing recovery towards the festive season.
Following relatively small increases in the earlier part of the year, feed
prices in the industry rose by approximately ten percent during the last
quarter of the financial year due to prevailing drought conditions and a
sharp weakening of the Rand: Dollar exchange rate. These factors had a
significant negative impact on industry profitability and threatened the
survival of some of its members.
Rainbow”s restructuring and streamlining process continues to make good
progress. Further improvements in key performance indicators and production
costs are being achieved and progress in marketing and customer services
continue to bear fruit.
The Group over the past year formulated its strategic future positioning,
the implementation of which will commence in the new year. Rainbow also
entered into certain international alliances, the scope of which will be
expanded to cover all aspects of its operations where alliances could
further the interests of the Group.
Breeding represents one of the most critical components of our supply chain
and in view thereof an international alliance was formed and Rainbow Farms
(Pty) Ltd acquired the sole right to breed and sell Cobb chicken parent
stock in South Africa. Cobb is considered to be the best performing chicken
breed in the world. Following the acquisition, the Group committed an amount
of R21,1 million to its breeding operations. Our Cobb breeding facilities
are now operated as a division of Rainbow Farms (Pty) Ltd under the name of
“Cobb South Africa T”. As part of Rainbow”s customer partnering philosophy
we also established a further processing (“convenience foods”) plant, part
of an investment of R15,6 million in support of KFC product requirements and
growth. The latter investment enables the Group to take advantage of
existing opportunities in the local market and also to meet some of our
short-term global aspirations with minimal further investment.
Group revenue for the year improved by 8,6% (2000: 6,7%) from R2 296,0
million to R2 493,8 million mainly as a result of volume growth and slightly
higher price realisations. Operational efficiency improvements to date have
met expectations and, barring energy costs which have soared due to
substantial price increases, our cost containment drive is progressing as
Notwithstanding the weak economy, and in particular the challenges in both
volume and pricing in the agricultural sector, Epol continued to perform
Following a review of the underlying values of certain of our dormant
assets, the Group has increased its asset impairment provisions by a net
amount of R16,4 million (2000: nil). Due to improved agricultural and
inventory management the balance of the Group”s provisions required in the
current year are R16,1 million less than the prior year, and this amount was
released. After the abovementioned provision and asset impairment provision
changes, the Group achieved an operating profit before interest of R110,7
million (2000: R52,0 million) for the year to March 2001. Lower average debt
levels during the year and marginally lower interest rates reduced the
interest charge to R16,3 million (2000: R29,6 million). Attributable profit
and headline earnings respectively amounted to R93,8 million (2000: R21,5
million) and R113,2 million (2000: R13,8 million).
Capital expenditure totalled R34,8 million (2000: R23,8 million) for the
year. Current year expenditure was incurred to grow and to improve
efficiencies in both the farming and processing operations.
Focus on the balance sheet and cash management continued throughout the
year. The increase in working capital investment of R15,0 million from
R144,8 million in March 2000 to R159,8 million in March 2001 is mainly due
to the Group”s volume growth and expansion. Notwithstanding capital
expenditure incurred (R34,8 million) and an increase in working capital
investment (R15,0 million), strong trading and the funding of debt through
trade payables eliminated the interest bearing debt thus changing the
funding position from a requirement of R126,0 million at 31 March 2000
(1999: R203,8 million) to a cash positive position of R6,2 million at 31
March 2001. The debt / equity ratio consequently improved to 0,0% (2000:
15,2%). Notwithstanding the achievement of a favourable cash balance at 31
March 2001, the Group is still operating with core borrowings and will
continue to incur interest costs in the new year. Provided that current
conditions and normal trends prevail for the remainder of the year, interest
bearing debt is expected to peak at approximately R100 million (2000: R197
million) during the first half of the new year. Current unsecured short-term
borrowing facilities provide adequate cover for this need.
We expect that the slightly higher price realisation level achieved during
the last quarter will carry into the new year, giving rise to marginally
higher average realisations being achieved during the first six months of
the new year compared to the same period last year. Unless consumption
demand improves significantly, no further material improvement in average
pricing realisation levels can be expected for the year ahead and higher
feed costs, expected to significantly outstrip inflation, will mean that on
balance the industry will have to depend largely on production cost
efficiency improvements in order to sustain itself.
Management”s main focus will remain on the continuation of its successful
streamlining process to further reduce costs and improve efficiencies,
marketing effectiveness and customer service. People training and
development will also be given intensive attention.
In view of the expectation that price realisations will not materially
improve and that feed cost increases will significantly outstrip inflation,
the profitability of the Group in the coming year will largely depend on the
successful continuation of the performance improvement process.
As mentioned above, the Group is still operating with core borrowings and
will be implementing its strategy for future positioning which will require
increased levels of capital expenditure. Following consideration of these
factors and that the Group”s interest cost on borrowings is not yet
efficient, the Board of Directors did not declare an ordinary dividend for
the year ended 31 March 2001 (2000: nil). The resumption of dividend
payments will be considered during the current financial period ending 31
March 2002.
For and on behalf of the Board
Group Secretary
16 May 2001
Enquiries regarding this report may be directed to:
Mr Y A Lakhnati (telephone 031-736-2548) or Mr M H Visser (telephone 021-888-
M H Visser (Non-executive Chairman)
Y A Lakhnati (Chief Executive Officer)
W E B hrmann, L J Grobler, N J L Hancock, J Johnston, D J Loch Davis, L
Methven, N Phillips, P J Waud
Registered office:
Rainbow Chicken Limited
1 Stanley Methven Road
Hammarsdale 3700
Transfer secretaries:
Mercantile Registrars Limited
11 Diagonal Street
Johannesburg 2001