Profits Down at Astral Foods

SOUTH AFRICA - Astral Foods suffered as input costs rose sharply and consumption fell, reducing profits by 32 per cent.
calendar icon 18 November 2008
clock icon 4 minute read

Poultry and animal feed producer, Astral Foods, saw its annual profit fell substantially for the year to September, broadly in line with the industry, after a downturn in consumption and a sharp rise in input costs, reports Business Day in South Africa.

Astral's profit fell 39% from 546 million rand (ZAR) to ZAR 334 million despite revenue rising 29% from ZAR 6.3 billion to ZAR 8.2 billion. Operating profit fell 32% to ZAR 548 million. It was ZAR 808 million last year.

CEO, Nick Wentzel, said that severe pressure on the industry this year led to oversupply in the retail market, which depressed prices. At the same time, sharp increases in the main production inputs - maize, soya and energy - hit poultry margins hard.

Although sales volumes increased 11 per cent, mainly due to the poultry expansion projects coming into full production and the selling price of poultry meat increasing 8 per cent, the increases were not enough to compensate for the 29 per cent increase in feed prices.

Astral also saw the average live cost to produce a broiler chicken go up 23 per cent.

Astral's peer, Rainbow Chicken, reported similar results at its half-year, but smaller rival Country Bird reported a 90 per cent drop at its final results this year, and Sovereign Foods a 200 per cent reduction.

Astral nevertheless maintained last year's dividend of ZAR 7 per share. That was because of the company's positive outlook for the year ahead and its low gearing at 13 per cent, Mr Wentzel said, though he based this mainly on expectations of lower feed costs.

"About 23 per cent of production costs is made up by feed," Mr Wentzel said. "A good start to the summer growing season, and a normal summer expected, means maize prices are likely to come down."

"Already US maize prices are down by half, as are soya bean prices," he added. Maize and soya are the main components of poultry feed.

Oil and other energy prices were also down, Mr Wentzel said, which meant inputs costs would drop in the period ahead.

Commodity prices were expected to fall further as the effects of the global economic crisis took hold.

He also attributed the narrower margin to a year shorter by one week, from 53 to 52, which accounted for additional revenue of ZAR 78 million and an operating profit of ZAR 6 million for its previous financial year.

Astral's weaker performance was offset to a degree by its animal nutrition division, which reported strong results which showed revenue growth of 46 per cent, from last year's ZAR 3.5 billion to ZAR 5.1 billion.

Mr Wentzel described the growth as satisfactory, and attributed it to high agricultural input commodity prices.

Volumes at the division increased a satisfactory 2 per cent for the year, and operating profit rose 16 per cent to ZAR 385 million. Margins came under pressure, though, and fell from last year's 9.4 per cent to 7.5 per cent.

The company planned no further capital expansion projects for the period ahead after having spent ZAR 340 million last year, and completed its programme with a further ZAR 275 million spent this year.

Astral also completed its share buy-back programme, concludes the Business Day report.

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