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Rainbow results for the 6 months ended Sep 03

Revenue increased by 2% to R1.82bn (2002: R1.79bn). It should also be noted that the current trading period had five fewer trading days. A substantial reduction in price realisations in the feed operations resulted in a significant decline in revenues from Epol, which weighed down group revenues, notwithstanding a marginal volume growth in all of the group”s operations. EBITDA increased by 3.2% to R115.5m (2002: R111.9m). The EBITDA margin of 6.3% is the same as that achieved for the corresponding period last year. Improved cash generation and higher cash balances held within the group resulted in a substantial increase in net interest received to R19.4m (2002: R2.8m). Profit before taxation increased by 21.6% to R104.8m (2002: R86.2m prior to the impairment charge) benefiting from the higher interest earnings. Attributable earnings increased by 1.8% to R67.9m (2002: R66.7m) due to having returned to a tax paying position. Headline earnings, similarly impacted by the taxation charge, declined by 18.5% to R67.2m (2002: R82.4m). Cash generated by operations increased to R83.4m (2002: R28.1m), resulting in a period end cash balance of R304.3m (following improved working capital and declining maize prices).



Return on equity on a twelve-month rolling basis increased to 25.0% (2002: 21.0%) benefiting from ongoing operational improvements. Rainbow has previously disclosed its normal practice of entering into forward purchase agreements with various counter-parties to procure feed raw materials in the ordinary course of business. This practice is currently under review, but any potential change may impact the balance sheet structure, but will not affect net asset value or group profitability.



Prospects

In the second half of this financial year, the feed and breeding operations are expected to continue to deliver solid performances. Chicken price realisations should improve in line with normal seasonal demand trends and benefits arising from the lower feed costs should be higher than in the first period. Given the rand”s strength, volumes of imported products are expected to remain at current levels. Consumer spending is, however, expected to benefit from the recent reduction in interest rates and lower fuel prices. Branding initiatives are being reviewed as a high priority alongside performance optimisation and the development of new niches, which are considered to be key growth drivers. Rainbow”s turnaround is not yet complete and areas from which further long-term benefits can be expected include the distribution and market management functions.

The group is on track to achieve its strategic performance objectives through operational efficiency, decommoditisation and market management. As the group now operates off a higher base, year-on-year earnings improvements will not take place at the same pace as achieved in recent years. The decline in headline earnings for the full year, being mainly due to the group”s return to a taxable position may possibly be similar to that recorded in the period under review.