Astral profits despite feed division
November 17, 2009
By Florence de Vries
JSE-listed foods group Astral Foods lifted earnings a share by 6 percent to R8.90 in the year to September though its feed unit suffered as a result of volatile market conditions affecting the group's input costs.
Operating profit was up 6 percent to R580.9 million. A final unchanged dividend of R4.40 a share was declared, bringing the total dividend for the year to R7.
Astral's feed division was effected mainly by the reduced livestock feeding requirements, which resulted in excess capacity and margin squeeze.
The division's revenue fell slightly to R5.12 billion from R5.13bn. Lower off-take volumes stretched the raw material position deep into the second half of the period.
Lower input costs could only be passed on during the latter part of the period to the poultry division and external customers. A decline of 22 percent in operating profit, from R384.9m to R299.3m, resulted in operating margins showing a similar trend, with a decrease to 5.8 percent, compared with 7.5 percent last year.
The division's Zambian operation posted disappointing results due to a significant contraction of that economy together with the substantial weakening of the Zambian currency.
Peter Wille, an equity analyst from BoE Private Clients, said the group had performed slightly below expectations largely as a result of the feed unit.
"This was more of a timing issue than anything else since the hedges were on the books for a longer period of time," Wille said.
Astral's chief executive, Chris Schutte, said the poultry division was the star performer, with the operating profit increasing by 73 percent from R162.9m to R281.6m.
"The results for this division come off the back of a bad performance in the previous year, where the group had high raw material input costs," Schutte said.
He said the group's operating margin had shown an improvement from 3.4 percent to 5.2 percent.
"In the beginning of the year we reduced the slaughter age of birds from 37 to 35 days as a result of the high feed costs during the first half of the year and depressed consumer spending during the second half of the year."
He added that the group had continued to take a conservative view on the procurement of key raw materials, given the global outlook for agricultural commodities as a whole and the predicted El Ni241o weather pattern on grain crops.
Schutte said: "As a result of the continued (bad) economic climate, our ability to recover increases in costs from the market remains limited."
There seemed to be concerns from the Competition Commission about irregularities at the group in the past, which had resulted in the commission's investigation about anti-competitive behaviour at the group, he added.
"Chicken is the cheapest source of protein and when it is mass-produced, it will always be on the radar screen," said Schutte, adding that the group's "noses were clean".
The share price gained 2.4 percent on the JSE yesterday to close at R102.35.
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