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South Africa: Astral First-Half Profit Drops 11 Percent

Published on 21 May, 2008, Last updated at 13:23 GMT
 

LISTED animal feed and poultry business Astral Foods has reported a significant drop in operating profit after a first half-year characterised by sharp increases in the price of raw materials, a slowdown in consumer demand and disruptions in production caused by power outages.

Although revenue at Astral (ARL) rose 29% from R2,9bn to R3,8bn for the six months to March, operating profit fell 11% to R408m from R456m for last year's first half. Earnings per share decreased correspondingly from 777 c to 688 c. However the group declared an unchanged interim dividend of 260c.

CEO Nick Wentzel said yesterday the results were lower than expected and the record prices for maize, which constituted about 50% of broiler feed, contributed considerably to costs at the animal nutrition division.

Revenue at the division grew 35%, but the operating margin fell to 10,2% from 10,8%.

The prices of other soft commodities that make up the balance of poultry feed -- soya beans and seed-oil cake -- also rose sharply worldwide and, with the price of maize, added about 27% to costs at the nutrition division.

The price of vitamins and minerals rose about 1000% after production that had been shifted to China from Europe had ceased because of quality problems.

In comparison, the group's feed mills in Mauritius, Mozambique and Zambia fared particularly well over the period, Wentzel said, increasing their combined revenue 57% and lifting operating profit 41%.

About half of the poultry feed produced at the nutrition division is consumed internally, at the poultry division. The vertically integrated structure did not, however, benefit this division much and margins came under severe pressure as a result of economic conditions.

Despite having an internal supply, Wentzel said it was not possible to recover feed prices from consumers.

Consumer spending slowed down as a result of higher interest rates. Poultry has also been oversupplied generally since the Christmas season during which sales did not go as well as expected.

Revenue at the poultry division rose 28% to R2,56bn from R1,99bn a year ago, though operating profit fell 34% to R183m from R279m. While feed prices rose 27%, the price of retail broilers rose 9%. Some compensation was realised as a result of a 19% increase in volumes following the completion of the Earlybird expansion project.

Wentzel complained about an "abnormal wastage" of fresh and frozen products that was a consequence of power outages during the reporting period. He said the group had since taken measures to prevent stock perishing.

The benefits of these steps would be evident at year-end, Wentzel said, as would that of the weaker rand exchange rate support for domestic broiler prices. He expected this year's bumper maize crop to lower maize prices and thus the cost of feed.

However, further rate hikes and general food inflation would continue to depress consumer spending and could negatively affect Astral's financial performance over the second half.

 

 
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