Ububele eyes strategic partner

Cape Town - Food processing and agri-services business Ububele, which reverse-listed into the Milkworx shell last year, is more likely to bring a strategic partner onboard than hosting a rights issue to raise fresh capital.

Ububele, which on Thursday delivered solid interim results for the year ending December 2009, initially looked set to raise new capital via a rights issue.

But financial director Bertie Cloete said the fast growing company would probably prefer bringing on a strategic partner at this point - noting there has been several expressions of interest from larger food players.

A more urgent priority, however, for Ububele was consolidating its billions of shares in issue.

Cloete said the board had agreed and approved a proposal to consolidate Ububele's shares, indicating that such a development could transpire in six to eight weeks.

Ububele's interim results reflected fractional headline earnings of 0.19c/share.

In the interim period under review, the company produced turnover of nearly R300m with after tax profits coming in at R8m. If Ububele's shares were consolidated on a 100-for-one basis, earnings would have looked far more substantial at 19.5c/share.

The star performer in the interim period was Ububele's food processing operations, which benefited from increasing demand for convenience food from main clients Pick n Pay and Spar.

There was also strong demand from Angolan clients and from airlines.

Cloete noted that food's contribution to Ububele's profits had increased from around 20% at the end of 2008 to about 47% in the interim period.

He said some food producers had cited food deflation in their results. "That may be the case for staple foods. But Ububele, as a food processor, are certainly not seeing deflation... not when we have input costs in our food processing businesses."

He added: "We operate on the value adding sides of the beneficiation process, steering clear of the mass food market and the production of staple foods. It is with this positioning that we believe we are well positioned to capitalise on moving forward and which is a key factor in driving our solid maiden results as a listed company."

Ububele's agricultural compounds business was held back by a stronger rand during the interim period.

Cloete said Ububele was relieved to be able to put out strong results after initiating a reverse listing transaction. "It was really important for us to get our results out to the market."

Ububele's results could have been even better, considering that the company incurred listings costs and accounted for a restructuring of Milkworx through the income statement.

Cloete estimated that these once-off costs shaved around R5m from bottom line earnings.

Most impressive in the interim rsults was Ububele's ability to generate operational cash flow (R12m in the interim period). The company's cash position doubled to over R30m, giving the company plenty ammunition with which to target potential acquisitions.

- Fin24.com