Operating profit rises 23% at Astral Foods

Ayanda Mdluli

Tough trading conditions did not prevent Astral Foods from announcing solid interim results yesterday for the six months to March.

Chris Schutte, the chief executive of Astral Foods, said the poultry industry had been subject to negative market influences, but he was pleased that results were boosted by improved production efficiencies and reduced production costs in its poultry division.

The JSE-listed company’s revenue decreased by 2 percent year on year to R4.2bn for the six months to March as a result of lower external feed sales reported by the feed division. However, operating profit grew by 23 percent to R375 million from R304m for the comparative period last year.

The group’s overall operating profit margin continued to improve from 7.1 percent to 8.9 percent.

Schutte anticipated that food prices would increase in the coming year.

The company produces 18.5 million chickens a year and accounts for 20 percent of local poultry production. The industry is worth close to R30bn and employs about 90 000 people.

The poultry division increased its interim revenue by 1 percent to R2.8bn. This increase came on the back of “slightly lower sales volumes”, which were mitigated by improved selling prices.

“Poultry demand was negatively impacted by job losses during the past 18 months together with record levels of poultry imports due to the strong local currency and ‘classical’ dumping,” Schutte said.

“We experienced slightly better pricing levels post the December festive period coupled with firmer sales compared to the comparative period.”

He said poultry profit for the period increased by 71 percent to R229m, which translated to an “operating margin of 8.3 percent” compared with 4.9 percent a year earlier.

“The increase in profitability was mainly supported by improved efficiencies together with lower feed costs that resulted in advantageous production cost,” Schutte said.

Jiten Bechoo, an analyst at Avior Research, said demand for poultry seemed to be recovering slowly, which was implied by the mere 1 percent annual increase in revenue for Astral’s poultry division.

“This is exacerbated by the fact that management still cited large imports as dampening the poultry price realisations. The poultry industry is in general oversupply, which is implied by the increase in inventory levels year on year, slow moving volumes and increased imports.”

Price growth would not be aggressive in the second half of 2011, Bechoo said, and he pointed out that local feed prices were the major driver for a 5 percent decline in revenue and 12 percent fall in operating profit for the feed division.

However, lower feed prices assisted in the 71 percent jump in the poultry division’s operating profit.

Astral Foods shares closed 1 percent up at R133 yesterday.