November 16, 2011

Astral Foods have improved the profitability of its poultry operations despite discouraging macroeconomic conditions and evidence of Brazil's "classical dumping" of chicken, the company said Monday (Nov 14).

The company that produces poultry under the Festive, Goldi and County Fair brands said the poultry division's profit in the year ended September was up 35% to ZAR353 million (US$43.1 million) compared with ZAR262 million (US$32 million) the previous year, benefiting from production efficiencies.

The feed division reported operating profit of ZAR282 million (US$34.4 million) compared with ZAR281 million (US$34.3 million) the previous year after "experiencing a good recovery" in its other African operations, the company said.

The results for the South African operations were down 8% as a result of lower volumes.

Headline earnings for the year increased 20% to ZAR437 million (US$53.3 million), mainly as a result of improved profitability from the poultry operations while revenue increased 3% from ZAR8.4-8.6 billion (US$1.02-1.05 million). The services and ventures segment's profits were down 6% after the company sold the interest in Meaders Feeds for ZAR13.9 million (US$1.7 million), ZAR1.8 million (US$220,000) below the fair value as reported at the end of the previous year. The operating profit margin for the group at 7.8% is an improvement on the previous year's 7%.

Astral CEO Chris Schutte said there were positive signs that prices were firming. "We have managed to increase the dividend and reduce debt levels at the same time. We are well positioned for any challenges". The company highlighted the significant increase in the feeding cost of poultry due to high raw material input costs.

"It is difficult to buy corn into the new season, it's like fixing the price of electricity for 10 years. The most we can do is six months. All indications are that we will have a good crop next year, however," Mr Schutte said.

An analyst who declined to be named said the second half was more challenging and if it was not for new efficiencies, the results could have been worse.

"The corn shortage is driving prices up temporarily, but there is no reason why South Africa should not be able to produce sufficient corn next year. Astral have a strong balance sheet and is a well-run business. What they need is a strong economy and more jobs and that is what they don't have at the moment. They should be able to navigate the difficult waters," the analyst said.