SOVEREIGN FOOD INVESTMENTS LIMITED Annual Report 1999 · SOVEREIGN FOOD INVESTMENTS LIMITED 1999...

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SOVEREIGN FOOD INVESTMENTS LIMITED Annual Report 1 9 9 9

Transcript of SOVEREIGN FOOD INVESTMENTS LIMITED Annual Report 1999 · SOVEREIGN FOOD INVESTMENTS LIMITED 1999...

Page 1: SOVEREIGN FOOD INVESTMENTS LIMITED Annual Report 1999 · SOVEREIGN FOOD INVESTMENTS LIMITED 1999 Annualised 1999 1998 1997 1996 1995 R’000 R’000 R’000 R’000 R’000 Consolidated

SOVEREIGN FOOD INVESTMENTS LIMITED

A n n u a l R e p o r t

1 9 9 9

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C O N T E N T S

1

P RO F I L E

M I S S I O N S TAT E M E N T

Sovereign Food Investments Limited offers investors an opportunity to participate in a group of companies,

entrepreneurially managed and exhibiting sound synergies amongst its integrated operations.

The Group operates at low cost in a growing market in which it has established a non-cyclical niche.

The Group operates from Uitenhage in the Eastern Cape and serves markets predominantly in the

Western and Eastern Cape. Shares in the Group are listed on the Johannesburg Stock Exchange.

To build a world-class food business in quality of operation.

To constantly innovate products and services in order to offer

more efficient beneficiation to our customers.

To create wealth for our employees, our customers and our shareholders.

1 Profile and Mission Statement

2 Directorate and Administration

3 Value-added Statement

4 Five-year Review

5 Group Structure

6 Shareholders’ Statistics

7 Definitions of Ratios and Terms

8 Chairman and Managing Director’s Report

9 Group Financial and Employment Review

10 Corporate Governance

11 Approval of the Annual Financial Statements

11 Report of the Independent Auditors

12 Directors’ Report

14 Accounting Policies

16 Balance Sheet

17 Income Statement

18 Cash Flow Statement

19 Statement of Changes in Equity

20 Notes to the Financial Statements

29 Subsidiary Companies

30 Notice to Shareholders

30 Shareholders’ Diary

31 Form of Proxy

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DIRECTORATE AND ADMINISTRATION

DIRECTORATE

Directors and Officers

Chairman CG Charlewood (58) Dip Agric, Dip B Man

Appointed 8 May 1995

Managing Director RB Spanjaard (36) BAcc(Hons)

Appointed 8 May 1995

Farms Director MGM Charlewood (32) Dip QS

Appointed 8 May 1995

Financial Director C Coombes (32) BSc(Eng), CA(SA)

Appointed 15 February 1999

Non-executive Directors

VA Bothwell* (61)Appointed 18 August 1995

BA Spanjaard (34)Appointed 1 September 1998

AH Vardy (41) BA, LLB, H Dip (Tax) Appointed 8 May 1995

*(British)

Top Management

Top management of the Group is represented by the

executive directors as well as the following managers:

Technical ManagerH Bosman (40) BVSc

Appointed 8 May 1995

Production ManagerM J Davis (37) BCom

Appointed 8 May 1995

Feedmill ManagerD Vorster (33) BSc

Appointed 1 October 1998

ADMINISTRATION

Sovereign Food Investments LimitedRegistration number 95/03990/06

Registered Office/Postal Address254 Walmer Boulevard

South End, Port Elizabeth 6001

PO Box 1386, Uitenhage 6230

Eastern Cape

Transfer SecretariesComputershare Services Limited

Edura

41 Fox Street

Johannesburg 2001

PO Box 61051, Marshalltown 2107

Gauteng

Company SecretaryC Coombes

AuditorsKPMG

Chartered Accountants and Business Advisors

Principal BankersThe Standard Bank of SA Limited

Websitehttp://www.sovfoods.co.za

[email protected]

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VALUE-ADDED STATEMENT

Value added is the measure of the wealth the Group has been able to create. This concept has been used within the

Group’s operations for several years, primarily as a tool to measure productivity, but also as a mechanism for

reporting to employees. The following is a statement of how this wealth has been distributed:

1999 1998

R’000 Percent R’000 Percent

Turnover 173 653 153 760

Cost of goods and services 122 160 99 567

Value added 51 493 54 193

Non-operating income 2 462 3 528

Total value added 53 955 100 57 721 100

Distributed as follows:

To remunerate employees

Salaries, wages and related benefits 29 366 54 24 883 43

To reward providers of capital

Dividends to shareholders 2 411 4 4 604 8

To providers of finance

Interest on borrowings 8 413 16 8 688 15

To the Government 2 798 5 2 271 4

Company taxation (1) 1

Secondary tax on companies 3 24

Regional service council levies 515 410

Employees’ taxation 2 281 1 836

To replace assets

Depreciation 3 018 6 2 233 4

To expand operations

Attributable income 7 949 15 15 042 26

Total wealth created 53 955 100 57 721 100

The payments to the Government shown above exclude Value-Added Tax of R10 418 543 (1998 – R9 132 457).

1999

VALUE ADDED

19985%

54%4%

16%

4%

43%

15%

8%

Providers of finance

Providers of capital

Employees

Government

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Annualised

1999 1998 1997 1996 1995

R’000 R’000 R’000 R’000 R’000

Consolidated resultsTurnover 173 653 153 760 127 001 77 490 65 419

Group operating profit 13 892 20 203 9 469 15 967 12 646

Attributable income 7 939 15 018 5 274 14 270 11 809

Total assets employed 140 789 127 792 124 028 84 506 61 987

Net current assets 29 184 35 704 24 301 20 082 17 952

Ordinary share performanceEarnings per share (cents) 29 58 20 55 47

Net worth per share (cents) 304 290 233 213 164

Market price at year-end (cents) 190 340 500 900 n/a

Cash flow per share (cents) 48 32 26 34 (35)

LiquidityInterest cover (times) 2,3 3,9 2,3 9,4 15,1

Gearing (percent) 28,8 24,1 20,2 14,5 -

Current ratio (percent) 1,6 2,0 1,4 2,1 2,7

ProfitabilityOperating profit margin (percent) 8,0 13,1 7,5 20,6 19,3

Return on net assets (percent) 12,6 19,9 11,7 23,1 24,7

Net asset turnover 1,6 1,5 1,6 1,1 1,3

Return on shareholders’ equity (percent) 9,6 20,1 8,8 26,0 28,8

Value addedTo remunerate employees (percent) 54 43 56 32 36

To reward providers of capital (percent) 4 8 – 14 –

To providers of finance (percent) 16 15 17 11 7

To the Government (percent) 5 4 5 2 3

To replace assets (percent) 6 4 6 3 3

To expand the Group (percent) 15 26 16 38 51

Total value added (percent) 100 100 100 100 100

The financial review has only been provided for five years as the company was listed on 8 May 1995.

1995 19991996 1997 1998

200

175

125

50

25

75

100

150

65,4

77,5

173,7

127,0

153,8

19991996 1997 1998

48

34

26

32

48

42

30

12

6

18

24

36

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FIVE-YEAR REVIEW

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5

GROUP STRUCTURE

United Chix

(Pty) Limited

(Breeding

activities)

100 percent

Sovereign

Information

Technology

(Pty) Limited

(Technical services)

100 percent

Sovereign Food

Industries (Pty) Limited

(Holding Company)

100 percent

Ritztrade 8 (Pty) Limited

(Holding Company)

100 percent

Directors’ holdings

8 percent

SOVEREIGN FOOD INVESTMENTS LIMITED(Holding Company)

100 percent

Sovereign Food

Holdings (Pty) Limited

55 percent

General public

37 percent

Crown Chickens

(Pty) Limited

(Broiler farming)

100 percent

Rocklands

Animal Feeds

Division

(Feed milling)

Rocklands Cold

Distribution

Division

(Distribution)

Rocklands

Wholesalers

Division

(Trading)

Access

Laboratories

(Pty) Limited

(Technical

services)

80 percent

Country Range

Farm Products

(Pty) Limited

(Food processing)

100 percent

Rocklands

Processed Foods

(Pty) Limited

(Value-added

food processing)

100 percent

Rocklands Fine

Foods (Pty)

Limited

(Value-added

food processing)

100 percent

Non-trading

companies

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SHAREHOLDERS’ STATISTICS

Analysis of ordinary shareholders Number of Percentage Number of Percentageshareholders of total shares (’000) of total

Size of holding

1 – 100 000 160 91 1 679 312 6

100 001 – 500 000 8 5 1 571 332 6

500 001 – 1 000 000 6 3 4 368 259 16

1 000 000 and over 2 1 19 600 779 72

176 100 27 219 682 100

Analysis of holding

Holding company 1 1 15 041 400 55

Insurance companies and pension funds 2 1 4 810 801 18

Nominee companies 19 11 2 095 094 8

Individuals 154 87 5 272 387 19

176 100 27 219 682 100

Major shareholders

Old Mutual Nominees (Pty) Limited 4 559 379 17

The interests of directors and top management in the shares of the company are available upon request to members andthe public.

Dividends

Details of dividends declared and payable are as follows:

No. Declaration Last date to Payment Capitalisation Cash portiondate register date portion (cents)

3 29 April 1999 14 May 1999 17 June 1999 6 per 100 held 6

Statistics 1999 1998 1997 1996

Share price (cents)

high 600 500 850 900

low 150 260 380 525

average 374 341 556 669

closing 190 340 500 900

Ordinary shares in issue at year-end 27 219 682 25 730 575 25 730 575 25 000 000

Number of shares traded 1 916 680 4 544 816 1 516 516 4 463 200

Number of transactions 566 557 396 225

Value of shares traded (R’000) 7 170 15 494 8 428 29 876

Number of shares traded as a percentage of shares issued 7,0 17,7 5,9 17,9

Earnings yield 15,3 17,1 4,0 6,1

Statistics have only been provided for four years as the company was listed on 8 May 1995.

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DEFINITIONS OF RATIOS AND TERMS

Earnings yield Earnings per share as a percentage of market value per share at year-end.

Net worth per share Ordinary shareholders’ funds divided by the number of ordinary shares in issue at year-end.

Cash flow per share Available operating cash flow before dividends divided by the weighted average number

of shares in issue during the year.

Interest cover Profit before interest divided by net interest paid.

Net borrowings Net interest-bearing debt less cash reserves.

Gearing Net borrowings as a percentage of capital employed.

Current ratio Current assets to current liabilities.

Return on net assets Profit before interest as a percentage of net assets.

Net asset turnover Turnover divided by net assets.

Return on shareholders’ Earnings attributable to ordinary shareholders as a percentage of ordinary

equity shareholders’ funds.

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The program of expansion and improvement of assets

is substantially complete and this, combined with the

anticipated drop in interest rates, should lead to an

increase in profits.

Year 2000 compliance

Year 2000 compliance testing and implementation is

substantially complete and the Board is confident that

all areas are now compliant.

There is expected to be no disruption to business

processes nor is there expected to be any liability on

the part of the Group due to the Year 2000 issue.

The Group has examined, in so far as it can, the state

of compliance of and the Group’s dependence on

suppliers, customers and agents and is confident that

there will be no disruption to business processes due to

non-compliance by these parties.

The target date for Year 2000 compliance has been set

as 31 August 1999.

Dividend

It is the policy of the Group to distribute reserves by

way of a capitalisation share award, or for shareholders

who so elect, the right to receive a cash dividend in

lieu thereof.

The proportion of the capitalisation share award

has been set in the range of 3 to 6 new shares per

100 shares held and the Group has maintained this

policy over the past four years.

In the year under review, the Board resolved, as

previously, to make a distribution of reserves by way

of a capitalisation share award, or for shareholders

who so elect, the right to receive a cash dividend in

lieu thereof.

It is pleasing to report that shareholders in majority

chose to receive capitalisation shares signifying their

support for the expansion phase the Group has

undergone.

By order of the Board

CG Charlewood RB Spanjaard

Chairman Managing Director

Port Elizabeth 29 April 1999

CHAIRMAN AND MANAGING DIRECTOR’S REPORT

Period under reviewDespite a good performance in the first six monthsof the year, Sovereign Food Investments had adisappointing second six months. Technical resultsachieved by the broiler division were not as expectedand this contributed substantially to the poorperformance of the Group in the latter half of theyear. Corrective action taken has produced theanticipated results and current performance is closeto the best international benchmarks. Technicalresults achieved by the breeding and hatchingconcerns continued to improve and the cost ofday-old chicks to the Group once again declinedcompared to the previous year.

Although poultry processing volumes grew by

9percent during the year, prices remained soft as

national processed poultry stock levels remained high.

The Group lessened its reliance on the commodity

market through investing heavily in the development

of value-added product ranges. These products are

expected to contribute materially to the Group’s

margins in the coming year.

The spike in interest rates during the second half of

the year also had a negative effect as net interest paid

increased over 15 percent based on almost the same

borrowings level as the previous year.

The Group’s expansion continued with over R20 million

capital expenditure during the year. Heavy investment

was made to develop new products and to access

international markets. Cash management has been

tightened and cash reserves remain comfortable.

Prospects

Exports and new product ranges will be the driving

forces behind the Group’s future profits. The company

has identified high margin export markets and

management’s focus continues to remain in this area.

Technical results are expected to continue at the

improved levels for the coming year. This increase in

volumes, combined with the focus that the Group

applied to decreasing operating costs in the past year,

should lead to a large increase in operating and

net margins.

This increase in profits is expected primarily in the

second half of the year with financial results to August

1999 expected to be significantly lower than the

corresponding period last year.

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Operating results

Compared to the prior year, turnover increased by12,9 percent to R173,7 million and operating incomedeclined by 31,2 percent to R13,9 million withoperating margins declining to 8,0 percent. Netfinance costs increased by 15,3 percent to R6,0 million.

Dividends

The dividend declared on ordinary shares decreased

47,6 percent to R2,4 million, comprising a R2,3 million

capitalisation share award and a R77 601 cash award.

The cash award represents a dividend of 6 cents

per share.

Asset management

Continued focus on working capital management

resulted in working capital per R1 000 turnover

declining by 18 percent.

Financing

Gearing increased by 19,5 percent to 28,8 percent. Cash

generated from operations increased by 40,6 percent to

R18 961 million. The approach of the Group to the

management of financial instrument risk is outlined

on page 13. The debt maturity profile of long-term

borrowings requires repayment of R11,7 million in the

coming financial year, although R6 million will be

extended at repayment, and R35,3 million in the

forthcoming five financial years.

Inflation

The effect of inflation is monitored and taken into

account when considering the Group objective of

creating wealth in real terms. Inflation is considered

when preparing and reviewing cash flows, long-term

budgets and new projects.

Due to the diverse nature of the factors affecting

inflation amongst the Group’s divisions including

climatic conditions, geographical locations and business

cycles, meaningful inflation adjusted financial

statements could not be prepared by using a

standardised procedure and therefore no inflation

adjusted statements are presented.

GROUP FINANCIAL AND EMPLOYMENT REVIEW

Employment review

Training

In-house training is provided for the majority of

employees. In addition, external training is provided

for specific employees.

Housing benefits

Housing facilities are provided for some employees at

no or nominal cost.

Other benefits

Other benefits provided include contributions to

provident and medical aid schemes and the provision

of several sporting facilities.

Community involvement

Educational facilities are provided to local

communities.

Family benefits

Three months paid maternity leave is provided for all

employees.

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C ORPORATE GOVERNANCE

The Board of Directors and Management endorsesthe principles of good corporate governance as setout in the King Report, especially the need toconduct the enterprise with integrity andaccountability. The Group has reviewed therecommendations of the Report and has determinedaction to be taken in appropriate circumstances.

Governance structures

Board of Directors

The Sovereign Food Investments Board currently

comprises four executive directors, including the

Chairman and three non-executive directors, who meet

regularly and maintain full and effective control over

the Group’s affairs. The offices of the Chairman and

Managing Director are held by different directors.

The non-executive directors bring an independent and

outside view of performance, strategy and resource

planning. All directors have full access to the

information and staff resources of the Group leading

to informed Board decisions being taken promptly. All

directors have access to the advice and services of the

company secretary and, in appropriate circumstances

may, at the Group’s expense, seek independent

professional advice concerning the Group’s affairs.

Audit Committee

An Audit Committee whose purpose is to bring

influence to bear on accounting, auditing and financial

reporting matters meets on a periodic basis. The Audit

Committee comprises RB Spanjaard, who has the chair,

C Coombes and AH Vardy. The Group’s external

auditors have unrestricted access to the members and

workings of the Audit Committee.

Remuneration Committee

The Remuneration Committee meets as and when

required throughout the year. The purpose of the

committee is to ensure that remuneration policies

throughout the Group are equitable and that the

directors and senior management are fairly

remunerated.

Internal control and risk management

The directors believe the internal controls in use by the

Group are adequate to safeguard the assets from loss or

unauthorised use and that the financial records may be

relied upon to maintain accountability for Group assets

and liabilities. Internal controls are enhanced by

accounting policies and organisational structures,

providing adequate segregation of duties. The Group

has been careful in the selection and training of

administrative personnel. The cost of enhancements to

internal controls is compared to the benefits to be

derived from their implementation.

Nothing has come to the attention of the directors to

indicate any material breakdown in the functioning of

the Group’s internal controls, procedures and systems

during the year under review.

Management reporting

The Group has a comprehensive system of

management reporting which includes the preparation

of annual budgets at Board and divisional level, the

comparison of actual results to budgets on a weekly,

monthly and annual basis with some indicators being

reviewed on a daily basis. On a monthly basis, cash flow,

working capital and long-term borrowing forecasts are

prepared, reviewed and reported on.

Strategic planning

The strategic focus of the Group is reviewed on a

regular basis at both Board and divisional level and

long-term strategy is reduced to near-term operational

plans and responsibilities.

Equal opportunities

The directors believe in a policy of equitable

employment for members of staff drawn from all

sectors of the community.

Code of ethics

With its mission statement in mind, the Group is

formalising a code of ethics to which it will be

committed. Such a code will address issues to ensure

the future success of the Group and merit the trust and

confidence of present and potential investors.

Environment

Environmental awareness is an integral part of the

Group’s operations. The Group is committed to

ensuring that its operations, packaging and products

are as environmentally friendly as possible and also

considers the environmental impact of new and

existing projects.

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APPROVAL OF THE ANNUAL FINANCIAL STATEMENTS

REPORT OF THE INDEPENDENT AUDITORS

The annual financial statements for the year ended 28 February 1999 set out on pages 12 to 29 have been approved

by the Board of Directors and are signed on its behalf by:

CG Charlewood RB Spanjaard Port Elizabeth

Chairman Managing Director 29 April 1999

To the shareholders of Sovereign Food Investments Limited and its subsidiaries

We have audited the annual financial statements and Group annual financial statements set out on pages 12 to 29.

These financial statements are the responsibility of the company’s directors. Our responsibility is to express an

opinion on these financial statements based on our audit.

Scope

We conducted our audit in accordance with statements of South African Auditing Standards. Those standards require

that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material

misstatement. An audit includes:

– examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;

– assessing the accounting principles used and significant estimates made by management; and

– evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

Audit opinion

In our opinion these financial statements fairly present, in all material respects, the financial position of the

company and the Group at 28 February 1999, and the results of its operations and cash flows for the year then ended

in accordance with generally accepted accounting practice and in the manner required by the Companies Act.

KPMGChartered Accountants (SA) Port Elizabeth

Registered Accountants and Auditors 29 April 1999

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DIRECTORS’ REPORTfor the year ended February 1999

Nature of business

Sovereign Food Investments Limited is the holding company of five principal operations within the broiler industry

which cover breeding activities, broiler farming, food processing, animal feed milling and value-added poultry

processing and trading. Further details are given in the Group structure on page 5 and in the Chairman and

Managing Director’s report on page 8, as well as below.

Directors’ responsibility for the annual financial statements

The directors are responsible for monitoring the preparation and integrity of the financial statements and related

information included in this report.

In order for the Board to discharge its responsibilities, management has developed and continues to maintain a

system of internal control. The Board has ultimate responsibility for the system of internal control and reviews

its operation.

The internal controls include a risk-based system of internal accounting and administrative controls designed to

provide a reasonable but not absolute assurance that assets are safeguarded and that transactions are executed and

recorded in accordance with generally accepted business practices and the Group’s policies and procedures. These

controls are implemented by trained, skilled personnel with an appropriate segregation of duties, are monitored by

management and include a comprehensive budgeting and reporting system operating within strict deadlines and an

appropriate control framework. The external auditors are responsible for reporting on the financial statements.

The financial statements are prepared in accordance with generally accepted accounting practice and are based on

appropriate policies consistently applied and supported by reasonable and prudent judgments and estimates.

The directors believe that the company and the Group will be a going concern in the year ahead. For this reason they

continue to adopt the going concern basis in preparing the annual financial statements.

Incorporation of the Group

Sovereign Food Investments was incorporated on 8 May 1995 with the acquisition by the Group of 100 percent of

the share capital of Crown Chickens (Pty) Limited and its operating subsidiaries and divisions, United Chix (Pty)

Limited, Rocklands Animal Feeds (Pty) Limited (dormant), Rocklands Animal Feeds Division, Rocklands

Wholesaling, Rocklands Cold Distribution and Country Range Farm Products (Pty) Limited. At this time the interest

of minorities of 30 percent of the share capital in Country Range Farms Products (Pty) Limited was also acquired.

DividendDetails of the ordinary share dividend declared on 29 April 1999 relating to the year ended 28 February 1999, the

details of which became known on 17 June 1999, are as follows:

Number of shares Amount Shares to be issued

Members electing capitalisation award 25 926 335 1 555 580

Members electing cash dividend 1 293 347 77 601

Secondary taxation on companies to be paid on the above dividend amounts to R9 700 (1998 – R17 117).

Holding company

Sovereign Food Holdings (Pty) Limited, a company incorporated in the Republic of South Africa, is the holding

company of Sovereign Food Investments Limited, with a 55 percent holding of the company’s shares.

Subsidiaries’ income

The attributable interest of the company in the aggregate net income after taxation of its subsidiaries was

R7 894 697 (1998 – R14 921 377). The Group’s interest in subsidiaries as set out on page 21 forms part of

this report.

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During the year the Group acquired a 100 percent interest in the following companies: Ritztrade 8 (Pty) Limited,

Sovereign Information Technology (Pty) Limited, Rocklands Fine Foods (Pty) Limited, Rocklands Processed Foods

(Pty) Limited, Rocklands Poultry (Pty) Limited and WIP One Hundred and Six (Pty) Limited.

Directors and secretary

The names of the directors and secretary of the company at the date of this report are listed on page 2.

Mr BA Spanjaard retired as an Executive Director on 31 August 1998 and was appointed as a Non-executive Director

on 1 September 1998. Mr CA Dreyer retired as Financial Director on 15 February 1999 and Mr C Coombes was

appointed as Financial Director on 15 February 1999.

In terms of the Articles of Association Mr CG Charlewood, Mr RB Spanjaard and Mr BA Spanjaard retire by

rotation and, being eligible, offers themselves for re-election.

Directors’ shareholding

At the year-end, the directors in aggregate held direct beneficial interests in 1 619 306 (1998 – 1 684 736) ordinary

shares in the company and had indirect beneficial interest, including those held through Sovereign Food Holdings

(Pty) Limited, in a further 18 092 952 (1998 – 16 927 281) shares.

Financial instruments

The Group’s financial instruments, other than derivatives, comprise borrowings, some cash and liquid resources and

various items, such as trade debtors, trade creditors, etc. that arise directly from its operations. The main purpose of

these financial instruments is to raise finance for the Group’s operations.

The Group also enters into derivative transactions in the form of commodity futures. The purpose of such

transactions is to manage the commodity risks arising from the Group’s operations and its sources of finance.

It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments

shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, and credit risk.

The Board reviews and agrees policies for managing each of these risks and they are summarised below. These

policies have remained unchanged since May 1995.

Interest rate risk

The Group finances its operations through a mixture of retained profits and bank borrowings. The Group borrows at

both fixed and floating rates of interest. The Group’s policy is to keep between 15 percent and 40 percent of its

borrowings at fixed rates of interest. At the year-end, 38,5 (1998 – 16,3 ) percent of the Group’s borrowings were at

fixed rates.

Liquidity risk

As regards liquidity, the Group’s policy has throughout the year been that, to ensure continuity of funding, at least

10 percent of its borrowings should mature in more than five years. At the year-end, 11,2 (1998 – nil ) percent of the

Group’s borrowings were due to mature in more than five years.

Short-term flexibility is achieved by overdraft facilities.

Credit risk

The Group is exposed to credit losses in the event of non-performance by the counterparties to non-derivative

financial assets but has no off-balance-sheet risk of accounting loss. Concentrations of credit risk arise due to the

Group operating in the poultry industry in South Africa. The Group anticipates, however, that counterparties will be

able to fully satisfy their obligations under the contracts. The Group does not obtain collateral or other security to

support financial instruments subject to credit risk but monitors the credit standing of counterparties.

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The financial statements are prepared on the historical cost basis, adjusted by the revaluation of land and buildings

and incorporate the following principle accounting policies which are materially consistent with those adopted in the

previous financial year:

Basis for consolidation

The consolidated financial statements include companies in which the Group has management control and/or a

significant investment of more than 50 percent of the equity capital. The consolidated income statement includes

the results of new subsidiary companies from the effective date of acquisition.

Fixed assets and depreciation

Land and buildings are valued by the directors, in consultation with independent and qualified valuators,

approximately every five years. Surpluses on revaluation are transferred to non-distributable reserves.

Land and buildings are classified as investment property and are not depreciated. Plant and machinery, vehicles and

equipment are not revalued and are reflected at cost.

Depreciable fixed assets are depreciated on the straight-line basis over their estimated useful lives.

Leased assets

Assets leased in terms of financial lease agreements are capitalised, where material, at the cash cost equivalent and

the corresponding liability to the lessor is raised. Assets subject to sale and leaseback transactions which give rise to a

finance lease are maintained at their carrying value. Lease payments are allocated, using the effective interest rate

method to determine the finance lease cost, which is charged against income, and the capital repayment, which

reduces the liability to the lessor. These assets are depreciated on the same basis as categories of fixed assets owned

by the Group.

Operating lease payments are charged against income as they are incurred.

Inventories

Breeding stock

Breeding stock is capitalised at cost at the beginning of its productive cycle and is amortised on a straight-line basis

over its anticipated productive cycle to its estimated net realisable value.

Live broiler chickens, hatching eggs, finished product and other livestock

Live broiler stock, hatching eggs, finished goods and other livestock are valued at the lower of cost, determined on a

first-in first-out basis, and net realisable value. Costs include all direct production costs and an appropriate portion of

overheads.

Raw materials and consumables

Raw materials and consumables, including feedmill stocks, are valued at the lower of cost, determined on a first-in

first-out basis, and net realisable value.

Deferred taxation

Deferred taxation is calculated using the liability method on the partial basis. In terms of this basis provision is made

for deferred taxation only to the extent that it is probable that a liability will arise in the foreseeable future as a

result of the reversal of existing timing differences. The extent to which a full provision has not been made for all

timing differences existing at the year-end is disclosed by way of contingent liability.

Government grants

Decentralisation and other Government grants are brought to account in the year in which the amounts that will be

received are determined.

AC C OUNTING POLICIESfor the year ended February 1999

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Revenue

Revenue is the invoice price of goods sold, before the deduction of incentive rebates and discounts, allowed in terms

of distribution agreements. Value-Added Tax has not been included in the determination of revenue.

Research and development expenditure

Research and development expenditure is charged to income in the year in which it is incurred.

Borrowing costs

Borrowing costs are charged to income in the year in which they are incurred.

Retirement benefits

The policy of the Group is to provide retirement benefits for all its monthly paid and certain hourly paid permanent

employees. Current contributions to the provident funds operated for employees are charged against income as

incurred.

Trade debtors

Trade debtors to be settled within 60 days are carried at amounts due. The collectability of debt is assessed at balance

sheet date and specific provision is made for any doubtful accounts.

Trade creditors

Liabilities are recognised for amounts in respect of which the Group has an obligation to make payment for goods or

services received, whether or not billed to the Group. Trade accounts payable are normally settled within 60 days.

Bank loans

Bank loans are carried on the balance sheet at their principal amount, subject to set-off arrangements. Interest

expense is accrued at the contracted rate.

Employee entitlements

Wages, salaries, annual leave and sick leave

The provisions for employee entitlements to wages, salaries, annual leave and sick leave represent the amount which

the Group has a present obligation to pay resulting from employees’ services provided up to the balance sheet date.

The provisions have been calculated at undiscounted amounts based on current wage and salary rates.

Derivatives

The Group is exposed to changes in commodity prices from its activities. The Group uses futures commodity price

contracts to hedge these risks. Derivative financial instruments are not held for speculative purposes.

Derivative financial instruments designated as hedges are accounted for on the same basis as the underlying

exposure. Gains and losses on hedges of existing assets or liabilities are treated in the same manner as gains and

losses on the hedged item. Gains and losses related to qualifying hedges of firm commitments or anticipated

transactions are deferred and are recognised in income or as adjustments of carrying amounts when the hedged

transaction occurs.

Futures commodity price contracts

Futures commodity price contracts are used to hedge anticipated purchase commitments. Initial margin

requirements and daily cash calls are met in cash until the underlying transaction occurs, at which time the

unrealised gains and losses are brought to account in income.

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Group Company

1999 1998 1999 1998

Notes R’000 R’000 R’000 R’000

BALANCE SHEETat 28 February 1999

Assets

Non-current assets

Property, plant and equipment 1 93 084 76 020 – –

Interest in subsidiaries 2 – – 61 537 49 132

93 084 76 020 61 537 49 132

Current assets 47 705 51 772 (21) 211

Inventories 3 27 118 21 067 – –

Trade and other receivables 12 869 18 273 – –

Cash and cash equivalents 7 718 12 432 (21) 211

Total assets 140 789 127 792 61 516 49 343

Equity and liabilities

Capital and reserves

Issued capital 4 272 257 272 257

Share premium 5 42 608 38 156 42 608 38 156

Share election reserve 6 2 333 4 467 2 333 4 467

Non-distributable reserves 7 6 955 6 955 – –

Accumulated profits 21 30 493 24 965 36 (8)

82 661 74 800 45 249 42 872

Non-current liabilities

Interest-bearing borrowings 8 27 907 26 976 8 250 –

Current liabilities 30 221 26 016 8 017 6 471

Trade and other payables 18 433 15 894 929 310

Shareholders for dividend 21 78 137 78 137

Taxation 11 10 37 10 24

Current portion of interest-bearing borrowings 8 11 700 9 948 7 000 6 000

140 789 127 792 61 516 49 343

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INC OME STATEMENTfor the year ended 28 February 1999

Revenue 173 653 153 760 1 954 2 496

Operating income/(loss) 9 13 892 20 203 (252) 68

Investment income – – 2 450 4 617

Income/(Loss) before finance costs/(income) 13 892 20 203 2 198 4 685

Net finance costs/(income) 10 5 951 5 160 (260) (29)

Income/(Loss) before taxation 7 941 15 043 2 458 4 714

Taxation 11 (8) 1 (7) –

Income/(Loss) after taxation 7 949 15 042 2 465 4 714

Dividend election plan

Election reserve 21 2 333 4 467 2 333 4 467

Cash dividend 21 78 137 78 137

Secondary tax on companies 11 10 24 10 24

Retained earnings/(accumulated loss)

For the year 5 528 10 414 44 86

At the beginning of the year 21 24 965 14 551 (8) (94)

At the end of the year 21 30 493 24 965 36 (8)

Headline earnings and earnings per ordinary

share (cents) 17 29,2 58,4

Fully diluted earnings per ordinary share (cents) 17 27,6 55,1

Dividends per ordinary share (cents) 17 6,0 15,0

Group Company

1999 1998 1999 1998

Notes R’000 R’000 R’000 R’000

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Group Company

1999 1998 1999 1998

Notes R’000 R’000 R’000 R’000

CASH FLOW STATEMENTfor the year ended 28 February 1999

Cash flows from operating activities

Cash receipts from customers 179 057 166 039 1 954 2 681

Cash paid to suppliers and employees (160 096) (152 553) (11 542) (5 803)

Cash generated from/(utilised by) operations 14.1 18 961 13 486 (9 588) (3 122)

Interest received 2 462 3 528 2 301 32

Interest paid (8 413) (8 688) (2 041) (3)

Dividends paid 14.2 (137) – (137) –

Normal taxation paid 14.3 (12) (11) – –

Secondary taxation on companies paid 14.4 (17) – (17) –

Net cash flow from operating activities 12 844 8 315 (9 482) (3 093)

Cash flows from investing activities

Investment in operations (12 656) (10 971) – –

Additions to fixed assets (13 159) (11 022) – –

Proceeds on sale of fixed assets 503 51 – –

Net cash outflow from investing activities (12 656) (10 971) – –

Cash flows from financing activities

Movement on interest-bearing debt 22 7 565 9 250 3 000

Payment of capital element of finance leases (44) (39) – –

Payment of capital element of instalment

sale agreement (4 880) (2 979) – –

Net cash flow from financing activities (4 903) 4 547 9 250 3 000

Net increase/(decrease) in cash and cash equivalents (4 714) 1 891 (232) (93)

Cash and cash equivalents at the beginning

of the year 12 432 10 541 211 304

Cash and cash equivalents at the end of the year 14.5 7 718 12 432 (21) 211

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Share Non-Share Share election distributable Accumulated

capital premium reserve reserves profit Total

STATEMENT OF CHANGES IN EQUITYfor the year ended 28 February 1999

Balance at28 February 1998 257 38 156 4 400 6 955 24 976 74 744

Capitalisation award no. 2

adjustment (see note 21) – – 67 (11) 56

Restated opening balance 257 38 156 4 467 6 955 24 965 74 800

Capitalisation award no. 2 15 4 452 (4 467) – – –

Capitalisation award no. 3 – – 2 333 – – 2 333

Net profit for the period – – – – 5 528 5 528

Balance at 28 February 1999 272 42 608 2 333 6 955 30 493 82 661

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NOTES TO THE FINANCIAL STATEMENTSfor the year ended 28 February 1999

1. Fixed assets

Cost and valuation

Land and buildings 49 088 42 883 – –

Plant, furniture, equipment and vehicles 52 477 38 947 – –

Capitalised leased vehicles 201 201 – –

101 766 82 031 – –

Accumulated depreciation

Plant, furniture, equipment and vehicles 8 640 5 981 – –

Capitalised leased vehicles 42 30 – –

8 682 6 011 – –

Net book value

Land and buildings 49 088 42 883 – –

Plant, furniture, equipment and vehicles 43 837 32 966 – –

Capitalised leased vehicles 159 171 – –

93 084 76 020 – –

Plant, Land furniture Capitalised

and equipment leasedbuildings and vehicles vehicles Total

Net book value at beginning of year 42 883 32 966 171 76 020

Cost and valuation 42 883 38 947 201 82 031

Accumulated depreciation – 5 981 30 6 011

Additions 6 205 14 539 – 20 744

Disposals – (662) – (662)

Depreciation – (3 006) (12) (3 018)

Net book value at end of year 49 088 43 837 159 93 084

Cost and valuation 49 088 52 477 201 101 766

Accumulated depreciation – (8 640) (42) (8 682)

Details of land and buildings are contained in a register, setting out the information required by P16(6) of the

4th Schedule of the Companies Act, which is available for inspection by members or their duly authorised agents at

the registered office of the company. A copy of the register will be posted on request to members of the public.

Land and buildings were last revalued on the date of incorporation and subsequent additions are recorded at cost.

Investment properties were valued by an independent valuer for insurance purposes on 29 February 1996 at an

estimated new replacement cost of R88 003 500. Details of the name and qualifications of the valuer are available

for inspection at the registered office of the company.

Vehicles, plant, furniture and equipment with a net book value of R19 240 457 (1998 – R15 732 187) are subject to

instalment sale and financial lease agreements (refer note 8).

Group Company

1999 1998 1999 1998

R’000 R’000 R’000 R’000

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Group Company

1999 1998 1999 1998

R’000 R’000 R’000 R’000

2. Interest in subsidiaries

Shares at cost – – 29 746 29 746

Net amounts owing – – 31 791 19 386

– – 61 537 49 132

Included in net amounts owing are loans to Sovereign Food Investments Limited by United Chix (Pty) Limited for

R190 000 and by Country Range Farm Products (Pty) Limited for R638 000. These companies are subsidiaries of

Sovereign Food Investments Limited. These loans are unsecured, have no fixed terms of repayment and bear no

interest.

3. Inventories

Raw materials and consumables 10 840 6 364 – –

Livestock 13 900 12 729 – –

Finished products 2 378 1 974 – –

27 118 21 067 – –

4. Share capital

Authorised

50 000 000 ordinary shares of 1 cent each 500 500 500 500

Issued

27 219 682 ordinary shares of 1 cent each

(1998 – 25 730 575 shares) 272 257 272 257

Number of shares

Under option in terms of the company’s share

incentive scheme at 500 cents per share exercisable

until 15 January 2003 (including nil (1998 –

50 000) shares in respect of executive directors) 49 000 247 000 49 000 247 000

Under option in terms of the company’s share

incentive scheme at 320 cents per share exercisable

until 15 January 2004 (including 150 000 (1998 –

250 000) shares in respect of executive directors) 295 000 495 000 295 000 495 000

Under option in terms of the company’s share

incentive scheme at 350 cents per share exercisable

until 15 January 2004 88 000 15 000 88 000 15 000

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NOTES TO THE FINANCIAL STATEMENTS (cont .)

for the year ended 28 February 1999

Group Company

1999 1998 1999 1998

R’000 R’000 R’000 R’000

4. Share capital (cont.)

Under option in terms of the company’s share

incentive scheme at 400 cents per share exercisable

until 18 February 2005 (including 150 000 (1998 –

300 000) shares in respect of executive directors) 473 000 751 000 473 000 751 000

Under control of the directors for the purpose of

The Sovereign Share Incentive Scheme 1 495 000 992 000 1 495 000 992 000

To be allocated in terms of the capitalisation

award of dividend no. 2 declared 7 April

1998 and issued on 27 May 1998 (including

96 295 shares in respect of executive directors) – 1 489 107 – 1 489 107

To be allocated in terms of the capitalisation

award of dividend no. 3 declared 29 April

1999 and issued on 17 June 1999 (including

96 281 shares in respect of executive directors) 1 555 580 – 1 555 580 –

Under the control of the directors until the next

annual general meeting 18 824 738 20 280 318 18 824 738 20 280 318

Ordinary shares in issue 27 219 682 25 730 575 27 219 682 25 730 575

50 000 000 50 000 000 50 000 000 50 000 000

5. Share premium

Balance at 1 March 1998 38 156 38 156 38 156 38 156

Arising on issue of shares in terms of the

capitalisation award of dividend no. 2

declared 7 April 1998 4 452 – 4 452 –

Balance at 28 February 1999 42 608 38 156 42 608 38 156

6. Share election reserve

Balance at 1 March 1998 4 467 – 4 467 –

Transfer from income statement 2 333 4 467 2 333 4 467

6 800 4 467 6 800 4 467

Utilised for share issue (4 467) – (4 467) –

Balance at 28 February 1999 2 333 4 467 2 333 4 467

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Group Company

1999 1998 1999 1998

R’000 R’000 R’000 R’000

7. Non-distributable reserve

Excess of net asset value of subsidiaries over the

acquisition cost of Crown Chickens (Pty) Limited

and its subsidiaries. 6 955 6 955 – –

8. Interest-bearing debt

Instalment sale creditors payable in monthly

instalments totalling R672 027 (1998 – R518 256).

These liabilities are secured by instalment sale

agreements over assets with a net book value of

R19 302 103 (1998 – R15 560 225). Interest is

charged at variable rates on these agreements. 16 568 13 863 – –

Finance lease agreements repayable in monthly

instalments of R6 639 (1998 – R5 889). These

liabilities are secured by finance lease agreements

over assets with a net book value of R159 457 (1998 –

R171 962). Interest is charged at variable rates on

these agreements. 99 143 – –

Secured loans repayable in monthly instalments

of R39 525 (1998 – R46 916). Interest is charged

at variable rates on these loans. 2 591 2 647 – –

Unsecured loans repayable in quarterly instalments of

R250 000 (1998 – nil) and bearing interest at

15,79 percent per annum (1998 – nil). 9 250 – 9 250 –

Unsecured loans repayable on 30 November 1999

and bearing interest at 20,35 percent per annum

(1998 – 17,00 percent). 6 000 6 000 6 000 6 000

Unsecured loans having no fixed terms of

repayment and bearing interest at 19,00 percent

per annum (1998 – 17,25 percent). 5 099 14 271 – –

39 607 36 924 15 250 6 000

Short-term portion repayable before 28 February 2000 11 700 9 948 7 000 6 000

27 907 26 976 8 250 –

The increased level of borrowings has been largely utilised to fund the Group’s expansion activities.

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NOTES TO THE FINANCIAL STATEMENTS (cont .)

for the year ended 28 February 1999

Group Company

1999 1998 1999 1998

R’000 R’000 R’000 R’000

9. Operating income

Revenue 173 653 153 760 1 954 2 496

Cost of sales 92 667 81 125 – –

Gross profit 80 986 72 635 1 954 2 496

Other operating expenses 67 094 52 432 (2 206) 2 428

Operating income/(loss) 13 892 20 203 (252) 68

Other operating expenses include certain direct costs.

Operating income/(loss) is arrived at after taking

into account:

Revenue items

Management fees from subsidiaries – – 1 954 2 496

Dividends from subsidiaries – – 2 450 4 617

Expense items

Auditors’ remuneration

Audit fees 210 200 12 20

Current year 160 145 10 18

Prior year 28 40 – –

Other fees 22 15 2 2

Depreciation of fixed assets 3 018 2 233 – –

Plant, furniture, equipment and vehicles 3 006 2 219 – –

Capitalised leased vehicles 12 14 – –

Directors’ emoluments for managerial services 1 139 1 290 764 806

Property rentals 316 114 120 131

Operating leases of office equipment 32 7 – –

Managerial, technical, administrative and

secretarial fees paid outside the Group 921 663 65 –

Loss on disposal of fixed assets 159 34 – –

Profit/(loss) on futures (646) 55 –

Research and development expenditure 186 57 – –

10. Net finance costs/(income)

Finance charges on capitalised leases 17 27 – –

Interest on debt 8 396 8 661 2 041 3

8 413 8 688 2 041 3

Interest received (2 462) (3 528) (2 301) (32)

5 951 5 160 (260) (29)

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Group Company

1999 1998 1999 1998

R’000 R’000 R’000 R’000

11. Taxation

SA normal taxation (1) 1 – –

Current year – – – –

Prior year (1) 1 – –

Secondary taxation on companies 3 24 3 24

Current year 10 24 10 24

Prior year (7) – (7) –

2 25 3 24

The estimated taxation losses of certain subsidiaries available for set-off against future taxable income amount toR31 190 342 (1998 – R25 435 895).

Reconciliation of taxation rate Percent Percent Percent Percent

Normal rate of company taxation 35,0 35,0 35,0 35,0

Permanent differences (6,4) (10,2) – (34,3)

Timing differences (40,1) (43,1) – –

Assessed loss provided/(utilised) 11,5 18,3 (35,0) (0,7)

Secondary taxation on companies – 0,2 (45,2) 0,5

Effective taxation rate – 0,2 (45,2) 0 5

12. Deferred taxation

Had the comprehensive basis of providing deferred

taxation been applied:

Net liability at 1 March 1998 13 625 8 391 – –

Rate change (1 946) – – –

Provided for the year 1 788 5 234 – –

Net liability at 28 February 1999 13 467 13 625 – –

Comprising:

Accelerated capital allowances 15 513 15 636 – –

Livestock and raw materials 7 416 6 817 – –

Provisions and other timing differences (105) 75 – –

Provision of assessed loss (net) (9 357) (8 903) – –

13 467 13 625 – –

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NOTES TO THE FINANCIAL STATEMENTS (cont .)

for the year ended 28 February 1999

Group Company

1999 1998 1999 1998

R’000 R’000 R’000 R’000

13. Retirement benefit information

The company provides, through two defined contribution provident plans, retirement benefits for all monthly

paid and certain hourly paid permanent employees. These funds are subject to the Pension Funds Act, 1956, as

amended. All new members pay their own contributions to the funds. Contributions are at the rate of between

15,5 percent and 16,0 percent of pensionable emoluments of which members pay between 6,0 percent and

6,5 percent.

The independent consulting actuaries were of the opinion at the last review of the funds, that the reconciliation

of total contributions showed that the employer’s contribution liabilities for the scheme have been met.

Total value of current service contributions to

the schemes 1 091 563 206 227

Proportion of total employees covered (percent) 45,7 28,2 100,0 100,0

14. Notes to the cash flow statement

14.1 Cash generated from/(utilised by) operations

Income before interest and taxation 13 892 20 203 2 198 68

Depreciation 3 018 2 233 – –

Loss on disposal of fixed assets 159 34 – –

Operating profit before working capital changes 17 069 22 470 2 198 68

Working capital changes

Increase in inventories (6 051) (628) – –

Decrease in accounts receivable 5 404 12 279 – 185

Increase/(decrease) in accounts payable 2 539 (20 635) 619 57

Increase in amounts owing by subsidiaries – – (12 405) (3 432)

18 961 13 486 (9 588) (3 122)

14.2 Dividends paid

Amount outstanding at 1 March 1998 137 – 137 –

Income statement charge 78 137 78 137

Amount paid during the year (137) – (137) –

Amount outstanding at 28 February 1999 78 137 78 137

14.3 Normal taxation paid

Amount outstanding at 1 March 1998 13 23 – –

Income statement charge (1) 1 – –

Amount paid during the year (12) (11) – –

Amount outstanding at 28 February 1999 – 13 – –

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Group Company

1999 1998 1999 1998

R’000 R’000 R’000 R’000

14.4 Secondary taxation on companies paid

Amount outstanding at 1 March 1998 24 – 24 –

Income statement charge 3 24 3 24

Amount paid during the year (17) – (17) –

Amount outstanding at 28 February 1999 10 24 10 24

14.5 Cash and cash equivalents

Bank balance and cash on hand 7 718 12 432 (21) 211

14.6 Non-cash transactions

During the year, the Group acquired buildings,

plant and equipment and commercial vehicles

with an aggregate cost of R5 837 963 (1998 –

R4 820 280) by means of instalment sale and

finance lease agreements.

15. Loans to directors

Included in accounts receivable are the following:

BA Spanjaard – 11 – –

MGM Charlewood 3 1 – –

16. Capital commitments

Authorised

Contracted – – – –

Not contracted for 8 529 6 532 – –

To be expended within one year 8 529 6 532 – –

This capital expenditure will be financed as follows:

Cash generated from current operations 2 689 3 000 – –

Long-term equity finance 5 840 3 532 – –

8 529 6 532 – –

17. Earnings per share

The calculation of earnings per ordinary share is based on net income attributable to ordinary shareholders

of R7 939 295 (1998 – R15 018 054) and weighted average of 27 219 682 (1998 – 25 730 575) ordinary shares

in issue.

The calculation of fully diluted earnings per ordinary share is based on net income attributable to ordinary

shareholders of R7 939 295 (1998 – R15 018 054) and weighted average of 28 775 262 (1998 – 27 219 682)

ordinary shares in issue. The dilution of 1,6 (1998 – 3,2) cents per ordinary share is the result of 1 555 580

(1998 – 1 489 107) ordinary shares issued in terms of the capitalisation dividend dated 29 April 1999.

The dividend per ordinary share is the cash election portion of the capitalisation dividend dated 29 April 1999.

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NOTES TO THE FINANCIAL STATEMENTS (cont .)

for the year ended 28 February 1999

Group Company

1999 1998 1999 1998

R’000 R’000 R’000 R’000

18. Related party transactions

Related party transactions exist between the Group, the holding company and fellow subsidiaries. All purchasing

and selling transactions are concluded at arm’s length.

19. Borrowing powers

The directors have not exceeded their borrowing powers as authorised by the Articles of Association.

20. Financial instruments

Exposure to interest rate and credit risk arises in the normal course of the Group’s business. Derivative financial

instruments are used as a means of reducing exposure to fluctuations in commodity prices. Whilst these financial

instruments are subject to the risk of market rates changing subsequent to acquisition, such changes would

generally be offset by opposite effects on the items being hedged.

20.1 Interest rate risk

The Group generally adopts a policy of ensuring that its exposure to changes in interest rates is on a

fixed rate basis.

20.2 Credit risk

No collateral is required in respect of financial assets. Management has a credit policy in place and the

exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all

customers requiring credit over a certain amount. Reputable financial institutions are used for investing

and cash handling purposes.

At balance sheet date there were no significant concentrations of credit risk.

20.3 Commodity futures

Certain derivative instruments are utilised with the intention of hedging a portion of the Group’s future

strategic raw material purchases. As at 28 February 1999 the Group held eight short (1998 – 80 long)

futures contracts. The risk attached to this position is that the market may rise.

20.4 Fair values

The fair values of all financial instruments are substantially identical to carrying values reflected in the

balance sheet.

21. Prior year adjustment

Prior year figures have been adjusted to take into account the result of the capitalisation award of dividend no 2.

The effect of this adjustment is as follows:

Gross Taxation Net

Reduction in cash dividend 56 – 56

Increase in election reserves 67 – 67

Restatement of opening retained earnings (11) – (11)

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SUBSIDIARY C OMPANIES

Book value of holdingcompany’s interest

Issued share Group’s effective Amounts owing to/(by) capital holding Shares holding company

1999 1998 1999 1998 1999 1998 1999 1998

R R percent percent R’000 R’000 R’000 R’000

Directly owned

Sovereign Food Industries

(Pty) Limited 36 36 100 100 29 746 29 746 5 451 5 001

Indirectly owned

Crown Chickens (Pty)

Limited 5 005 5 005 100 100 27 168 13 833

United Chix (Pty)

Limited 1 000 1 000 100 100 (190) 552

Country Range Farm Products

(Pty) Limited 1 000 1 000 100 100 (638) –

Access Laboratories

(Pty) Limited 100 100 80 80 – –

Rocklands Fine Foods

(Pty) Limited 100 – 100 – – –

Rocklands Processed Foods

(Pty) Limited 100 – 100 – – –

Sovereign Information

Technology (Pty) Limited 100 – 100 – – –

Ritztrade 8 (Pty) Limited 100 – 100 – – –

Rocklands Poultry (Pty)

Limited 100 – 100 – – –

WIP One Hundred and Six

(Pty) Limited 100 – 100 – – –

29 746 29 746 31 791 19 386

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30

NOTICE TO SHAREHOLDERS

Notice is hereby given that the third annual general

meeting of shareholders in Sovereign Food

Investments Limited will be held at Kruis River Road,

Uitenhage on Thursday, 30 September 1999 at 10:00 to

transact the following business:

1. To receive, approve and adopt the annual

financial statements for the year ended

28 February 1999.

2. To re-elect CG Charlewood, RB Spanjaard and

BA Spanjaard, who retire as directors in terms of

the company’s Articles of Association.

3. To consider, and if deemed fit, to pass with or

without modification, the following ordinary

resolution:

Resolved that, after providing for the

2 500 000 ordinary shares of the company

reserved for the purposes of The Sovereign Share

Incentive Trust, the unissued ordinary shares in

the capital of the company remain under the

control of the directors who shall be authorised

to issue these shares at such times and on such

terms as they may determine, subject to Section

221 of The Companies Act, 1973 (as amended),

and the Regulations of the Johannesburg Stock

Exchange.

4. To confirm the re-appointment of the auditors to

serve until the next annual general meeting and

to authorise the directors to establish their

remuneration for the past year.

5. To transact such other business as may be

transacted at an annual general meeting.

Any shareholder entitled to attend and vote at

the meeting is entitled to appoint a proxy to

attend, speak and on a poll, vote in his stead. The

person so appointed need not be a shareholder.

Forms of proxy must be lodged with or posted to

the company’s transfer secretaries,

Computershare Services Limited, at Edura,

41 Fox Street, Johannesburg 2001 (PO Box

61051, Marshalltown 2107) to be received not

later than 12:00 on Tuesday, 28 September 1999.

By order of the Board

C Coombes

Company Secretary

Port Elizabeth

29 April 1999

Financial year-end February

Announcement of results for the year April 1999

Annual financial statements posted August 1999

Annual general meeting September 1999

Interim report for the half-year ending August 1999 September 1999

SHAREHOLDERS’ DIARY

Produced by Oaktree Communications

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31

FORM OF PROXY

For use by shareholders at an annual general meeting to be held at 10:00 on Thursday, 30 September 1999

(“the general meeting’’).

I/We

being the holder/s of ordinary shares in the company, hereby appoint (see note 1)

1. or, failing him

2. or, failing him

3. the chairman of the meeting,

as my/our proxy to vote for me/us on my/our name/s at the annual general meeting (and at any adjournment

thereof) to be held at 10:00 on Thursday, 30 September 1999, in the company’s boardroom at Kruis River Road,

Uitenhage, for the purpose of considering and, if deemed fit, passing, with or without modification, the ordinary

resolution to be considered at the general meeting in accordance with the following instructions (see note 2).

Number of votes (1 vote per share)

For Against Abstain

Ordinary resolution (per notice item 3)

If no indication is given, the proxy will vote as he deems fit.

Each shareholder entitled to attend and vote at the annual general meeting may appoint one or more proxies (who

need not be a member of the company) to attend, speak and, on a poll, vote in his stead.

Please read the notes on the reverse side hereof.

Signed at on 1999

Signatures

Assisted by me (where applicable)

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NOTES

1. A shareholder may insert the name of the proxy

or the names of two alternative proxies of the

shareholder’s choice in the space provided with

or without deleting “the chairman of the

meeting” but, any such deletion must be

initialled by the shareholder. The person whose

name appears first on the form of proxy and has

not been deleted, shall be entitled to act as proxy

to the exclusion of those whose names follow.

2. A shareholder’s instructions to the proxy must be

indicated by the insertion of the relevant

number of votes exercisable by that shareholder

in the appropriate box/es provided. Failure to

comply with the above will be deemed to

authorise the proxy to vote or abstain from voting

at the general meeting as he deems fit in respect

of all the shareholder’s votes exercisable thereat.

A shareholder or his proxy is not obliged to use

all the votes exercisable by him, but the total of

the votes cast and in respect whereof abstention

is recorded may not exceed the total of the votes

exercisable by the shareholder or by his proxy.

3. Forms of proxy must be lodged with or

posted to the company’s transfer secretaries,

Computershare Services Limited, at

Edura, 41 Fox Street, Johannesburg 2001

(PO Box 61051, Marshalltown 2107) to be

received not later than 12:00 on Tuesday,

28 September 1999.

4. Any alteration or correction made to this form or

proxy must be initialled by the signatory/ies.

5. Documentary evidence establishing the authority

of a person signing this form of proxy in a

representative capacity, must be attached to this

form of proxy unless previously recorded by the

company’s transfer secretaries or waived by the

chairman of the general meeting.

6. The completion and lodging of this form of

proxy shall not preclude the relevant shareholder

from attending the general meeting and

speaking and voting in person thereat to the

exclusion of any proxy appointed in terms

hereof, should such shareholder wish to do so.

7. The chairman of the general meeting may reject

or accept a proxy form which is completed

and/or received other than in accordance with

these instructions, provided that he is satisfied

as to the manner in which a shareholder wishes

to vote.

8. A minor must be assisted by a parent or

guardian.