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Sovereign Foods weathers ‘perfect storm’

• Revenue up 25%, sales volumes increase by 18%

• Net asset value of Sov Foods share: R9.72

The Sovereign Foods group has announced subdued results and a loss of 46.5 cents per share during the period under review compared to headline earnings of 108.4 cents per share during the previous year. Chris Coombes, Sovereign Foods CEO, said three unusual events converged to create one the most difficult trading years and testing times in the history of the seven decades-old Eastern Cape company.

“Although the Group has achieved a compound annual growth rate of 17% in revenue over the past 10 years and delivered solid investment returns, this year we are reporting a loss”.

Coombes said the three factors affecting the results this year were the once-off corporate activity costs, high feed costs as a material manifestation of the 2015 and 2016 drought and the subsequent ripple effect on soft commodity prices during the period under review, and EU dumping of bone-in chicken portions in South Africa.

Optimistic about financial 2018 Coombes said Sovereign Foods was confident for the new financial year for a variety of reasons:

  • Exports of fully cooked and raw products continue to increase and Sovereign Foods continues to build a solid export sales channel into the food services and retail channels in the Middle East.
  • Cost reduction remains a strong focus for management and despite a 6% depreciation in the R/$ exchange rate and increases in the costs of energy and labour, Group nonfeed costs (excluding once-off costs and recoveries in both reporting periods) only increased by 8% per kg sold.
  • A number of factors have led to a decline in the volume of poultry imports in the fourth quarter of 2016: o Avian Influenza in the EU and the US which meant that certain countries are precluded from exporting to South Africa
  • The recently imposed provisional 13.9% TDCA tariff against the EU has increased the landed cost of poultry from the EU
  • The international price of poultry, as measured in US dollars, has started to increase o The recent meat “scandal” in Brazil has meant that certain consignments of product have been rejected by the South African authorities.
  • Local production volumes have also recently been reduced due to the recent well publicised industry production cutbacks, the shutting down of several smaller producers in 2015 and 2016 and the implementation of the brining cap in October 2016.
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