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Sovereign Food Expansion Pays Off

by 5m Editor
1 October 2009, at 9:34am

SOUTH AFRICA - Sovereign Food Investments has announced it is back in profit after a two-year perod of expansion.

A two-year expansion programme started paying off for Eastern Cape-based poultry producer Sovereign Food Investments, which swung 32 million rand (ZAR) into the black in the half-year to end August, according to Fin24.

This represented a stunning turnaround for Sovereign after notching up losses of over ZAR 40 million in the corresponding interim period in 2008, after gearing its balance sheet to accommodate a sizeable expansion programme in poultry production.

Sovereign scored from a 30 per cent increase in volumes and a 15 per cent increase in poultry prices, while total total production costs fell five per cent with feed costs falling six per cent on the back of lower commodity prices and improved production efficiencies.

Not surprisingly then Sovereign managed to transform a 59 per cent increase in turnover to ZAR 545 million into operating income of ZAR 78 million – representing a far healthier trading margin of over 14 per cent.

Operating cash flow was a reassuring ZAR 133 million, which allowed Sovereign to comfortably service its debt charges of ZAR 33 million.

Aside from a stronger operational performance, Sovereign's management also kept a tight rein on working capital, which reduced by over 50 per cent to ZAR 34 million. This allowed Sovereign to ratchet down its gearing from 170 per cent to 140 per cent.

At the end of August, Fin24 reports that Sovereign's interest bearing debt stood at ZAR 537 million split into ZAR 446 million of long-term debt and ZAR 96 million of short-term debt.

Sovereign is currently involved in talks around a potential merger with Country Bird Holdings, another medium sized poultry player listed on the Johannesburg Stock Exchange.