Poultry group Sovereign Foods on Tuesday reported 155 cents in headline earnings per share for the year to February, down from 207.2 cents the same time a year ago.

No dividends were declared as the cash was used to expand the group's capacity.

Revenue increased 27 percent to R581.2-million as a result of a nine percent increase in volume and an 18 percent increase in average selling price. But operating income fell to R87.5-million from R108-million.

"The difficult trading conditions in the last three months arose as a result of temporary problems with the upgrade of the processing plant, lower than expected market prices due to imports and industry over-capacity, delays in building new farming facilities, which resulted in worse than expected bird performance, and considerably higher than forecast feed raw materials," the group said.

The group said it had expanded its poultry business by 30 percent this year as part of the larger plan to double its size to produce 800 000 birds per week by February 2010.

It added that a further 37 percent expansion would be completed in the coming financial year, and the balance thereafter.

In addition production capacity at the feedmill was currently being doubled to ensure that the group remained self-sufficient in respect of feed production.

The company further plans to commission a R62-million hatchery by mid-year in order to increase the its day-old chick production capacity to 900 000 birds per week.

This is the first phase of a planned R100-million hatchery expansion, which will take the group's production capacity to two million birds per week.

In the year under review, the group spent R265-million as part of the three-year expansion.

The group funded R67-million of this capex out of operational cash, resulting in the company ending the period with net gearing of 67 percent.

The group will spend a further R310-million in the coming year to bring its planned expansion near to completion.

This expansion would be financed via debt, operational cash and cash reserves, it said.

Looking ahead, the group said despite the challenges of the year under review, it remained "very positive about the prospects for the years ahead".

"The expansion programme has positioned the group to deal with the tighter conditions facing the South African economy. These include electricity disruptions, high raw material prices, a significant skills shortage and pressured consumer spending," it said.

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