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| Financial director’s
review |
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| 1 |
Financial
performance |
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%
increase/(decrease) |
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2007 |
2006 |
| – Revenue
from continuing operations |
20,7 |
(0,5) |
| – Profit
before income tax from continuing
operations |
67,2 |
88,6 |
| –
Headline earnings per share |
65,6 |
(22,5) |
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Revenue (Refer
segmental
information.) |
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Revenue from continuing
operations increased by R1,1 billion
(20,7%). All AFGRI segments except
for Handling & Storage and Logistics,
achieved improved turnover of between
22% and 27%.
Whilst the low maize crop for the
2006 year caused low utilisation for
Handling & Storage and Logistics,
the revenue in all other AFGRI South
African based businesses improved
due to increased maize plantings and
higher agricultural commodity prices
in the 2007 financial year. The Protein
business benefited from the inclusion
of the Daybreak broiler business with
turnover of R347 million. |
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Headline profit
before income tax and after finance
cost from continuing operations (Refer
segmental
information.) |
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Headline profit
before income tax and after finance
cost from continuing operations increased
by R136 million (59,9%) in 2007. Higher
agricultural commodity prices increased
margins in certain AFGRI businesses,
whilst there was continued focus on
reducing fixed overheads and optimising
agricultural supply chain efficiencies,
which included improving procurement
and stock management practices.
The result was headline profit improvements
in most AFGRI segments, with an excellent
R127 million improvement in the Producer
Services business. The Protein business
improved by R59 million assisted by
the acquisition of the Daybreak broiler
business.
Financial Services also improved by
R35 million due to an increased debtors’
book and increased trading volumes
in Africa on which exchange rate advantages
were achieved.
The Handling & Storage and Logistics
businesses had a difficult year with
headline profit decreasing by R88
million due to the relatively low
maize crop in the 2006 year. |
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Headline earnings
(Refer to notes
to the financial statements.) |
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The increase in
headline earnings per share of 65,6%
was largely driven by the 67,2% increase
in profit before income tax from continuing
operations offset by an effective
income tax rate of 26% compared to
10% for 2006.
The earnings per share is 59,9 cents
per share. The headline earnings per
share is 65,1 cents after adjusting
for the loss from discontinued operations
(+15,9 cents), impairment (+1,3 cents),
profit on disposal of assets (−1,1
cents) and negative goodwill on acquisition
(−10,9 cents). |
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| 2 |
Balance
sheet |
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%
increase/(decrease) |
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2007 |
2006 |
| – Shareholders’
equity |
4,9 |
12,5 |
| – Return
on shareholders' equity |
35,0 |
(6,4) |
| –
Net cash position |
200,0 |
(61,0) |
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Shareholders
equity |
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Shareholders equity
increased by 4,9% in 2007. This is
the result of the improved profits
after payments to stakeholders and
purchase of incentive trust shares.
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Return on
shareholders’ equity (Refer
to balance
sheet.) |
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After income tax
return on average shareholders’
equity for 2007 is 15,8% which represents
an improvement of 35,0% over 2006. |
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Net cash (Refer
to balance
sheet.) |
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Cash and cash equivalents
improved by R170 million to R255 million.
This improvement was largely driven
by improved profitability and a R333
million improvement in working capital,
reduced by R296 million outflows for
investing and financing activities
and by a R152 million net distribution
to shareholders and BEE partners. |
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| 3 |
Restatement
of 2006 and 2005 annual results |
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(Refer
to notes
to the financial statements.) |
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Certain debtors
are being financed by the Land Bank.
In previous years the assets (debtors)
and the liability to the Land Bank
have been set off and shown as a net
number in the balance sheet as there
is a legal right of set-off. The intention
was to realise the asset and settle
the liability at the same time.
Details of the breakdown of the set-off
were disclosed in the notes to the
balance sheet of the 2006 annual financial
statements. The amounts set off in
this manner in 2005 and 2006 are:
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| 2005: |
R'000 |
| Liability
to Land Bank |
2
513 368 |
| Assets (Debtors) |
2
487 968 |
| Net liability
on balance sheet |
25
400 |
| 2006: |
R'000 |
| Liability
to Land Bank |
2
228 798 |
| Assets (Debtors) |
2
323 275 |
| Net asset
on balance sheet |
94
477 |
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During 2007 the
GAAP Monitoring Panel instructed AFGRI
not to set off the liability to the
Land Bank and the asset (debtors)
and to restate the 2006 and 2005 annual
results. This restatement of a prior
year disclosure is being effected
in this annual report. The restatement
will result in the total liability
to Land Bank being disclosed in current
liabilities and the total assets (debtors)
being disclosed in current assets.
As part of this restatement the 2006
and 2005 balance sheets previously
reported on a set-off basis, are restated
in this annual report. |
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| The information
for 2007 is: |
R’000 |
| Liability to Land
Bank |
2
692 594 |
| Assets (Debtors) |
2
723 831 |
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The restatement also
discloses interest income from debtors as
operating income and interest on the Land
Bank liability as interest paid. Previously
the net interest on the transaction was
disclosed as operating profit.
The interest received from debtors financed
by the Land Bank and interest paid to the
Land Bank are: |
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R'000
Received |
R'000
Paid |
| 2005 |
188
644 |
(167
313) |
| 2006 |
231
461 |
(184
048) |
| 2007 |
245
895 |
(199
118) |
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These restatements have
no effect on shareholders’ equity,
earnings per share or headline earnings
per share for the respective financial years. |
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| 4 |
Business
acquisitions |
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During the year the Daybreak
business was purchased and is included in
the 2007 results. Daybreak focuses on broiler
production and processing for sale to the
retail and informal sectors. Daybreak integrates
with the AFGRI Animal Feeds business. During
2007 Daybreak contributed R347 million to
turnover and R41 million to profit before
interest and income tax.
Daybreak has net assets of R162 million
and was purchased for R115 million
(excluding shareholders’ loans). This
resulted in negative goodwill on acquisition
of R47,1 million during 2007, which is added
back in the calculation of headline earnings
per share. |
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| 5 |
Disposal
of businesses |
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During the year the ginning
operations of Clark Cotton, the snacks business,
Capital Equipment and Soilmix were sold
or discontinued. The after tax losses from
these discontinued operations were R41,3
million for Clark Cotton, R5,5 million for
the snacks business sold in KwaZulu--Natal,
R2,4 million for the withdrawal from certain
retail areas and R1,1 million for the portion
of the New Ventures business sold and discontinued.
The loss from discontinued operations is
added back in the calculation of headline
earnings per share. |
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| 6 |
Capital
management |
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The Group manages its
capital to maximise the return on shareholders’
funds within acceptable limits of risk.
In this process third party resources are
used where it makes economic sense. |
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| 7 |
Accounting
developments |
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In terms of JSE Listings
Requirements the AFGRI Group adopted International
Financial Reporting Standards (IFRS) for
the first time for the year ended 28 February
2006. IFRS 1 was applied in the preparation
of the 2006 annual financial statements
with a conversion date of 1 March 2004.
No additional IFRS statements were adopted
during the 2007 financial year.
IFRS 7 is effective for years commencing
on or after 1 January 2007 and will be effective
for the Group in the 2008 financial year.
IFRS 7 requires additional disclosure on
financial instruments and their impact on
the Group’s financial performance. |
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| 8 |
Black Economic
Empowerment (BEE) profit share |
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The BEE structure consists
of a right to share in profits and is disclosed
as a Minority share.
The BEE minority share in profits before
tax in AFGRI Operations Limited at a rate
of 26,77% of which 64,5% is paid out in
cash to mirror the Group’s dividend
payment. |
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| 9 |
Cash distribution
and cash dividends |
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A final cash dividend
for 2007 of 19,85 cents per share is declared.
This follows the interim dividend of 10,15
cents per share that was declared and paid
at half-year and brings the total dividend
for the year to 30,0 cents per share.
For the prior year an interim dividend of
9,05 cents and a final distribution of 21,18
cents per share were declared. The prior
year final distribution of 21,18 cents included
a special distribution of 10,73 cents being
the capital distribution of the proceeds
from the sale of the Pioneer Foods shares.
The total 2007 dividend of 30,0 cents per
share compares to a total 2006 normal dividend
of 19,50 cents per share, which represents
an increase of 53,8%. |
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