JSE-listed Astral Foods on Monday reported an operating profit of R550-million from revenue of R5.755-billion for the unaudited six months to March 31, an increase of 158.4% and 22.4% on the R212-million and R4.699-billion, respectively, of the year-ago period.

Astral said in a statement to shareholders on Monday that its best cost integrated strategy again proved to be robust and had further strengthened on the back of selective investments, contributing to higher poultry volumes and improved efficiencies and feeding costs into the future.

During the period under review, the company’s poultry division contributed a profit of R351-million, which Astral said was a significant increase on the division’s reported operating profit of R45-million for the six months ending March 31, 2014.

Profitability of the feed division, which now included contributions from the recently commissioned Standerton feedmill, was at R186-million, growing 18.3% compared with the profit for the previous comparative period.

The Africa division also increased its operating profit by 23.6% to R14-million from about R11-million; however, Astral pointed out that its contribution to the group's profit was still relatively minor.

The company’s headline earnings improved from R147-million for the previous year's first six months to R387-million for the period under review, and this was mainly attributable to normalised profit margins achieved by the poultry division and from increased broiler sales volumes.

Further, Astral noted a R10-million net finance cost, which was lower than the previous year’s period, as a result of the cash inflow during the reporting period.

“Cash inflow from operating activities of R566-million is well up on the previous year's inflow of R293-million,” the company stated.

Astral advised that its R50-million capital expenditure reflected expenditure on normal replacement items. The net movement in cash and cash equivalents, including the payment of the 2014 final dividend, was an inflow of R394-million.

The group reported a net cash surplus of R240-million, which included the long-term funding of the new feed mill, compared with the net debt position of R174-million as at September 30, 2014.

The available surplus funds, as well as the underlying liquidity capabilities of the group, supported an interim dividend of 575c a share.

OPERATIONAL OVERVIEW
Revenue for the poultry division was up by 35.7% to R4.503-billion, compared with R3.317-billion in the year-ago period, and was supported by higher broiler volumes, which improved by 19.9%.  The increase was primarily owing to the contribution to sales as a result of the Tydstroom broiler volumes now having been incorporated into Astral's Western Cape broiler operation.

An additional volume benefit was also realised from both on-farm production efficiencies and increased bird placements against cutbacks in the comparable reporting period, Astral explained.

For the period under review, the average selling price of poultry increased by 12.8%, which, together with improved production costs – as a result of feed prices decreasing by 2.3% on the comparable period – and the volume increase, enhanced the division’s operating profit.

The improved average selling price included a contribution from product mix with an increase in the fresh participation of 2%, which was driven largely by the increase in fresh volumes in the Western Cape owing to the inclusion of the Tydstroom volumes.

Notwithstanding the provisional and permanent European Union antidumping duties, poultry imports remained high during the period, Astral advised, noting that the average level of poultry product imports equated to about 6.2-million birds a week for the six months ending March.
Revenue for the feed division increased by 16.1% to R2.961-billion from R2.550-billion achieved in the year-ago period, as a result of higher sales volumes, which increased by 17.2% over the comparable period. This was owing to the contribution of volumes previously supplied by Afgri Kinross that were now manufactured in the new Standerton feed mill.

The division’s operating profit improved to R186-million compared with the 2014 period’s R157-million, with an operating profit margin at 6.3%. Rand a ton margins were maintained on the comparable period in the prior year, supported by the successful recovery of inflationary costs.

The other Africa division achieved a revenue increase of 3.2% to R256-million from the R248-million reported for the six months ending March 31, 2014, as a result of higher day-old chick sales as expansion projects were completed in Zambia and Mozambique.

The divisions’ operating profit during the period under review grew to R14-million, however, the profitability at both the Zambian and Mozambican feed operations was negatively impacted by currency exchange movements, inflating raw material input costs.

PROSPECTS
“The slowing level of growth in the economy and higher unemployment levels will continue to hamper an increase in the per capita consumption of poultry,” Astral noted.

The company explained that if a quota on US poultry imports was agreed to on the back of the African Growth and Opportunity Act renewal, it was likely to negatively impact South African producers, as greater poultry product volumes were expected in the local market.

Meanwhile, the South African maize crop currently being harvested is estimated to be the lowest maize crop since 2007. Astral highlighted that this would negatively impact livestock production costs owing to higher feed prices in the second half of the current reporting period and the onset of the new maize crop in 2016.

“The increasing maize prices will be partly offset by more favourable soya prices as these two raw materials contribute the majority of the ingredients in a typical poultry feed ration. Global stock levels of both maize and soya remain healthy and could support the option of grain imports into Astral's coastal feed mills,” the company added.