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Rainbow cooks up tasty return for shareholders

KwaZulu-Natal Correspondent

DURBAN Rainbow Chicken proved its mettle in returning as a worthy investment share after its darker days several years ago, rewarding shareholders with fully diluted headline earnings of 99,2c (2002: 56,8c) that were more in line with analyst expectations for next year.

However, the industrial broiler company tempered its good news with the warning of the risks in the year ahead, particularly given the nature of the chicken business.

Afrifocus analyst Des Meyer said the warnings might prove “unduly conservative” with the company “covering its back in the year ahead”, but the results under review were substantially better than anticipated.

Rainbow staged its long-anticipated turnaround in May 2000 following years of substantial losses, but patient shareholders waited another 18 months before receiving a dividend in the final step in Rainbow”s recovery.

Releasing the full-year figures to March, CEO Myles Dally said while the cost of chicken production was likely to benefit from the drop in feed-related raw material costs in the year ahead, this would be offset by concomitant lower chicken price realisations. He warned that should the rand remain strong against the dollar, the imports of chicken products were likely to increase and oversupply would dampen selling prices.

Management would focus on its performance optimisation and customercentred strategy as a growth platform, but this called for consolidation. Operating profits would be “materially impacted” by not having the benefit of this year”s nonrecurring items and the return to a tax-paying position, resulting in reduced headline earnings.

Yesterday Rainbow reported a 65% growth in attributable profit to R253,6m on a 24% rise on turnover to R3,7bn.

This translated into headline earnings of R275,2m (R154,7m) and a 17c (10c) final dividend brought the annual total to 24c (14c). Dally acknowledged that the turnover growth was predominantly attributable to the recovery of higher feed raw material input costs in sales prices.

He also believed that while the improvements were “significant”, both the 7% (5,2%) operating margin and the headline earnings were at levels that indicated further improvements were necessary before acceptable levels of return were achieved.

May 15 2003 07:20:14:000AM Nicola Jenvey Business Day 1st Edition