May 16, 2012

High feed costs affect Astral Foods' profit

Astral Foods' profit in the six months ended March has been eaten by high corn and soya prices plus a ZAR17 million (US$2 million) provision for an anticompetitive conduct settlement, CEO Chris Schutte said Monday (May 14).

Group revenue rose 16%, from ZAR4.2 billion (US$502 million) to ZAR4.9 billion (US$585 million), but operating profit fell 14% thanks to a 23% increase in feed costs. Headline earnings decreased 18%, from US$6.36 to US$5.22.

Astral, which produces poultry under the Festive, Goldi and County Fair brands, was one of the local poultry producers that waged a successful antidumping campaign against Brazil.

Earlier this year, the South African government decided to add charges of between 6% and 63% on imports of Brazilian chicken, adding duties to boneless cuts and whole frozen chickens.

Schutte said Astral also wanted the poultry association to look into imports of headquarters from Brazil and Europe.

The poultry division reported a 12% increase in revenue with a 5% increase in sales volumes as well as a 7% improvement in pricing levels. The feed division reported an increase in revenue of 26% thanks to the higher feed prices and higher commodity prices as well as higher sales volumes stemming from the intergroup requirement for poultry feed.

Kagiso Asset Management equities analyst Ross Heyns said the 18% decline in headline earnings was an indication of market conditions rather than management performance. The figure, he said, was also affected by a provision for a Competition Commission settlement and would otherwise have been down 11%. Heyns said margins in the poultry division, which were also lower than last year, would remain under pressure for the entire industry while feed costs remain at elevated levels, with the company unable to push price increases.  Schutte said the company did not expect the business environment to improve for the next reporting period as its key cost drivers, such as corn and soya, remained at high levels. The new crop in the US appeared to be the 'mother of all crops' he said, which boded well for world grain prices and recovery next year.