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Johannesburg - Poultry company Sovereign Food Investments [JSE:SOV] on Monday reported diluted headline earnings per share of 0.7 cents for the six months ended August 2011 from 2.6c a year ago.
Revenue rose to R610.5m from R43.3m; however, operating profit before depreciation and impairments declined to R25.98m from R43.26m.
Sovereign said that while gearing has improved, the cash flow position is still not at a level acceptable to the board and it therefore considers it prudent to not declare an interim dividend for the period under review.
The company attributed the lower earnings to a rise in mortalities as a result of a harsh early winter disease and a 23% drop in non-feed costs per kilogram sold, as well as a once-off charge of R8.4m relating to the stepping-down of the CEO.
From a production perspective, the feed conversion ratio improved by 6% while maintaining the same live mass per bird. Negative production indicators were mortalities rising from 6% to 8% and processing yield falling by 1%. The group slaughtered 6% more birds, which resulted in an increase in sales volume of 5% to 50 400 tonnes.
The group maintained the pricing increase realised during the 2011 financial year and pricing increased by 10% over the six months ended August 2010 and 2% over the six months ended February 2011.
Through the continued pursuit of its product diversification strategy, the group has managed to further decrease its dependence on the individual quick frozen market over the past 18, months with sales into this category declining from 53% in H1 11 and 50% in H2 11 to 46% in H1 12.
However, the volume of poultry imports into SA increased by 47% over H1 11 and 28% over H2 11 and continues to place pressure on local pricing. Of particular concern is the sudden increase in the import volumes of leg quarters from the European Union which attract no tariffs.
The poultry industry also saw a substantial rise in maize prices and the group's broiler feed costs went up by 8% per tonne. Average SAFEX white maize spot prices increased from R1 120 per tonne in H1 11 and R1 350/t in H2 11 to R1 750/t in H1 12; March 2012 SAFEX white maize prices are currently trading at about R2 200/t.
This increase in maize prices will continue to place the poultry industry under pressure for the next six months, it said.
The group's primary challenge for the next six months is to contain and reduce its non-feed costs. It has embarked on an aggressive plan to reduce discretionary and direct production costs and this plan is expected to yield results in the next six months.
Looking ahead, the group said over the festive season poultry prices traditionally increase. However, higher import volumes may continue to supress poultry prices and this, coupled with the increase in maize and soya prices, could keep margins within the poultry industry under pressure for the next six months.
"Despite the poor trading results experienced in the first six months, the group believes its core business model of high yield farming and processing operations remains sound," it said.
The cost reduction plan as well as strong production results are expected to yield progressive results going forward, despite the expected margin pressure.
Revenue rose to R610.5m from R43.3m; however, operating profit before depreciation and impairments declined to R25.98m from R43.26m.
Sovereign said that while gearing has improved, the cash flow position is still not at a level acceptable to the board and it therefore considers it prudent to not declare an interim dividend for the period under review.
The company attributed the lower earnings to a rise in mortalities as a result of a harsh early winter disease and a 23% drop in non-feed costs per kilogram sold, as well as a once-off charge of R8.4m relating to the stepping-down of the CEO.
From a production perspective, the feed conversion ratio improved by 6% while maintaining the same live mass per bird. Negative production indicators were mortalities rising from 6% to 8% and processing yield falling by 1%. The group slaughtered 6% more birds, which resulted in an increase in sales volume of 5% to 50 400 tonnes.
The group maintained the pricing increase realised during the 2011 financial year and pricing increased by 10% over the six months ended August 2010 and 2% over the six months ended February 2011.
Through the continued pursuit of its product diversification strategy, the group has managed to further decrease its dependence on the individual quick frozen market over the past 18, months with sales into this category declining from 53% in H1 11 and 50% in H2 11 to 46% in H1 12.
However, the volume of poultry imports into SA increased by 47% over H1 11 and 28% over H2 11 and continues to place pressure on local pricing. Of particular concern is the sudden increase in the import volumes of leg quarters from the European Union which attract no tariffs.
The poultry industry also saw a substantial rise in maize prices and the group's broiler feed costs went up by 8% per tonne. Average SAFEX white maize spot prices increased from R1 120 per tonne in H1 11 and R1 350/t in H2 11 to R1 750/t in H1 12; March 2012 SAFEX white maize prices are currently trading at about R2 200/t.
This increase in maize prices will continue to place the poultry industry under pressure for the next six months, it said.
The group's primary challenge for the next six months is to contain and reduce its non-feed costs. It has embarked on an aggressive plan to reduce discretionary and direct production costs and this plan is expected to yield results in the next six months.
Looking ahead, the group said over the festive season poultry prices traditionally increase. However, higher import volumes may continue to supress poultry prices and this, coupled with the increase in maize and soya prices, could keep margins within the poultry industry under pressure for the next six months.
"Despite the poor trading results experienced in the first six months, the group believes its core business model of high yield farming and processing operations remains sound," it said.
The cost reduction plan as well as strong production results are expected to yield progressive results going forward, despite the expected margin pressure.
