Astral’s fortunes deteriorate

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Astral’s fortunes deteriorate

Published Date: 2019-05-14 | Source: Stephen Gunnion | Author: Stephen Gunnion

Astral’s fortunes deteriorate

Selling prices have fallen and costs have risen, resulting in a sharp decline in first-half earnings.

After a cracking 2018 financial year, the tables have turned for poultry producer Astral Foods. Due to the weak consumer market, it wasn't able to offset rising costs in the first half of its financial year with higher prices for its chickens.

Feed costs have risen after a lull in 2017/18 due to a record maize crop the previous year. Meanwhile, chicken prices have retreated after Avian Influenza led to an escalation previously.

Reporting back for the six months to end-March, Astral said revenue from its broiler operations declined due to the decrease in selling prices as well as volumes. Although it grew revenue at its breeding operations, profitability at its poultry division still fell by two thirds to R258 million. It blamed the under-recovery of increased input costs as well as extraordinary expenses. It said the new minimum wage, the impact of load-shedding, water supply interruptions in Standerton and strikes in KwaZulu-Natal all added to a higher base cost of production, resulting in the net profit margin at its poultry division declining to 4.7% from a near-record 15.4% a year earlier.

Total poultry imports remained high over the period, equalling about 38% of local production.

Its feed division grew revenue by 6.7% to R3.3 billion due to higher feed selling prices, while operating profit rose by a quarter to R239 million. Its operations outside of SA in Zambia, Mozambique and Swaziland reported a 21% rise in revenue to R223 million due to higher selling prices on the back of an increase in raw material input costs. However, operating profit fell 59% to R7 million due to margin pressure in Zambia and a provision for the doubtful recovery from the Mozambican government of VAT on imported raw materials.

Overall, group revenue rose 2.6% to R6.78 billion in the six months to end-March, held back by a 1% rise in revenue from its main Poultry business. Operating profit declined 51% to R503 million. Net profit was also 51% lower at R370 million. Headline earnings per share came in 52% lower at R9.49 and it's declared an interim dividend of 475c per share, down 53% from a year ago.

Astral said it would continue to be affected by raw material price increases, the weak consumer market and competition from cheap imports. It said water supply interruptions due to the deterioration of municipal infrastructure at Standerton was also a cost to factor in. On the plus side, it said there were sufficient international coarse grain stocks with good prevailing planting conditions in the US and South America, while maze imports into the Western Cape at a discount to local Safex pricing would contribute positively to feed input costs in that region.

Its shares rose 2.4% to R191.62 yesterday.





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