May 5, 2008

Sovereign Foods to expand to handle tight economy conditions

South African poultry group Sovereign Foods reports of expansion plans for the future in view of a revenue increase but a drop in operating income.

Sovereign's turnover in 2007 increased 27 percent to ZAR 581.2 million (US$79.8 million) due to 9 percent of volume increase and 18 percent increase of average selling price.

However, operating income dropped to BRL 87.5 million (US$12 million) from BRL 108 million (US$14.8 million).

Temporary problems with the upgrade of a processing plant, low market prices, delay in building new farming facilities and high feed costs have contributed to the difficult trading conditions, according to Sovereign Foods.

The company plans to commission a BRL 62 million (US$8.5 million) hatchery by midyear to increase its day-old chick production capacity to 900,000 birds per week, a first phase of a planned BRL 100 million (US$13.7 million) hatchery expansion. The expansion is expected to increase production capacity to two million birds per week.

The expansion programme has positioned the company to handle tight economy conditions in South Africa that include electricity disruptions, high raw material costs, skill shortage and pressured consumer spending, according to Sovereign Foods.

The group has expanded its poultry business by 30 percent this year, and is expecting a further 37 percent of expansion to be completed in the coming financial year.

Sovereign Foods is the holding company of the principal operations within the broiler industry that cover breeding activities, broiler farming, food processing, animal feed milling and value-added poultry processing and trading.