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Recovery by poultry division boosts Astral FY showing

17th November 2014

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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Integrated poultry producer Astral Foods has boosted year-on-year headline earnings from R165.1-million for the previous year to R329.7-million for the 2014 financial year, largely owing to a continued turnaround in the profitability of the group’s poultry division.

Astral’s poultry division swung to an operating profit of R104.4-million for the year ended September 30, 2014, after posting a loss of R112.5-million for the previous year, enabling the board to declare a final dividend of 240c a share for the period.

“The distribution is supported by the low debt-to-equity level and the underlying liquidity capabilities of the group,” Astral said in a results statement on Monday.

Group revenue increased by 13% to R9.6-billion, helped by a 16% increase in poultry revenue and a 4% increase in external revenue in the feed division, while the group's operating profit increased by 88% to R492.9-million.

Profitability of the feed division improved 7% on the previous year's operating profit to R353.7-million, while the Africa division's operating profit narrowed from R45-million to R34.8-million as a result of “disappointing” results in the first six months of this financial year. 

Net finance costs, at R25.3-million, were marginally lower than the previous year, while interest of R14.2-million on finance raised to fund major capital expenditure items had been capitalised.

“In future, this finance cost will no longer be capitalised to property, plant and equipment, but will be charged against operating profit in the statement of comprehensive income,” Astral said.

Meanwhile, profit before tax, at R469.9-million, was 63% higher than the previous year's R287.9-million, which included a profit of R46.6-million on the sale of a portion of an interest in an associate.

The company generated R704.1-million in cash from operating activities over the year, representing a substantial increase on the previous year's R237.7-million.

“The main driver was the improvement in the operating profit and an inflow from reduced working capital funding,” Astral outlined.

Capital expenditure, at R391.7-million, was higher than the previous year owing to the ongoing expenditure on the new feed mill, costs incurred to accommodate increased volumes at the County Fair abattoir and other specific expenditure on efficiency improvements.

A net inflow of R24-million had been received from additional financing for the new feed mill, while an inflow of R65.8-million was received from shares issued in respect of share options exercised.

POULTRY DIVISION
Revenue from Astral’s poultry division increased 16% to R7-billion on the back of higher volumes  – up 7% – and higher poultry selling prices, which increased 8%.

The average broiler feed price increased 2% year-on-year, while local prices peaked towards the end of March, owing to “extremely low” maize stocks following injudicious exports.

This directly impacted on feed prices in the first six months of the reporting period.

“Following perfect conditions, a record local maize crop topping 14-million tons was harvested, resulting in the price of maize decreasing substantially in the latter half of the 2014 financial year. 

“In the last quarter of the reporting period, lower maize prices were offset by higher soya prices. The lower maize prices will only be realised in the new financial year, owing to the lag brought about by forward procurement of soft commodities,” explained Astral, adding that soya prices could soften on the back of good global crops. 

Broiler production performances, meanwhile, improved for the period, in line with continued focus in this area, delivering value in improved feed efficiencies and better bird growth rates.

An improvement in product mix was realised with Astral further reducing its exposure to individually quick-frozen portions.

FEED DIVISION
Revenue for the feed division increased by 12% to R5.5-billion as a direct result of the higher raw material and feed pricing, while sales volumes increased 5%, assisted by higher intergroup volumes as a result of higher bird placements.

Operating profit increased 7% to R354-million, while total volumes increased year-on-year to 1.27-million tons a year.

The increase in feed sales to Astral 's poultry operations was offset by a drop in sales to the external market, owing to a contraction in demand from the independent poultry market. 

The new feed mill in Standerton, Mpumalanga, was officially opened and commissioned during the last quarter of 2014.

“All the feed volumes previously manufactured by Afgri for Astral's Goldi broiler operation, in Standerton, were moved into the new facility, with the income stream of these volumes accruing to Astral in the last two months of the period under review,” outlined the company.

AFRICA DIVISION
Revenue for the Africa division increased by 13% to R499-million in the year under review, supported by higher volumes as a result of the expansion in capacity at the broiler breeder and hatchery operations in Zambia and Mozambique.

In contrast, operating profit dropped by 23% to R35-million.

“The profitability at Tiger Animal Feeds, in Zambia, was impacted negatively by unfavourable raw material positions and the management thereof in the first half of the reporting period. A turnaround in the performance of this business unit in the second half of the year was delivered in line with expected returns,” Astral noted.

PROSPECTS
Looking ahead, the group expected the slowing level of growth in the economy and higher unemployment levels to depress consumer spending, citing “strong evidence” that the average household would have to make do with a reduced discretionary budget. 

It added that, through the South African Poultry Association, an antidumping application was submitted to the International Trade and Administration Commission of South Africa (Itac) against three European Union member countries.

The Itac implemented provisional antidumping duties against poultry imports from the UK, the Netherlands and Germany until the January 2, 2015.

“It is of paramount importance that these measures are sanctioned on a more permanent basis by the Trade and Industry Minister to stem the tide of dumped poultry products into South Africa,” Astral noted. 

The recent South African harvest produced a record maize crop and, together with healthy global maize and soya crops, the softening of grain prices would benefit feed prices and livestock production costs in the first half of the new reporting period. 

Astral added that it had engaged in an expansion drive over the past year, with sizeable investments in various value enhancing projects.

“The bedding down of these investments and achieving the projected returns will be key in the new financial year,” the group concluded.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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