Sovereign Reports Difficult Half-Year of Trading

SOUTH AFRICA - Sovereign Food Investments has published its trading statement and business update for the first half of financial year 2010 (FY10).

23 March 2010

3 minute read

Africa

In its Business Update, Sovereign reports that after a positive start to FY10, the Group experienced difficult trading conditions during the six months ended 28 February 2010 ('H2'). FY10 volumes are up 14 per cent on FY09 and volumes in H2 are consistent with the volumes in the first half of FY10 ('H1'). Volumes have increased 81 per cent in the three-year period from the financial year ended 28 February 2007 to FY10.

During H2, poultry prices, which are normally higher in this period (which includes the festive period), were lower than in H1. Poultry prices in H2 were negatively impacted by, inter alia, generally higher import volumes, lower prices of imported poultry and softer consumer demand.

Although the Group`s feed cost in H2 was in line with expectations, only a marginal benefit from the recent reductions in commodity prices has been experienced during FY10. The Group continues to be challenged by a less-than-optimal feed conversion ratio and this will be a major focus of management going forward.

Steep increases were experienced in non-feed costs in H2 and FY10, compared to both H1 and FY09, respectively. These increases have been due to external cost increases in respect of items such as electricity, fossil fuels and statutory wage rates. Furthermore, the Group has not as yet realised the improved efficiencies expected from the increase in size of the business. Management is pro-actively addressing these challenges and is committed to reducing the Group`s non-feed costs to appropriate levels.

As a consequence of the unusual occurrence of three major corporate actions during FY10 (i.e. the proposed merger between Sovereign and AFGRI Limited`s poultry and animal feeds businesses, the merger approach received from Country Bird Holdings Limited following its acquisition of a significant shareholding in Sovereign and the Company`s rights issue), the Company incurred once-off costs pertaining to the various legal, statutory and regulatory, due diligence, advisory and related processes pertaining to these three corporate actions. These once-off costs had a negative impact on non-feed costs.