Afgri moving to mitigate the effects of weak SA poultry market

27th September 2013

By: Schalk Burger

Creamer Media Senior Deputy Editor

  

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Agood early harvest of yellow maize in the eastern parts of South Africa did not remove the sting from poor performances in a difficult poultry industry, says JSE-listed agricultural services and processing business Afgri CEO Chris Venter.

Drought in the western part of the country meant a poor white maize harvest, but cash-flush farmers have bolstered sales of agricultural equipment, he adds, highlighting some of the performance paradoxes in the 2012/13 financial year.

Revenue increased by 10% for the year ended June 30, but profit fell 49% to R99-million from R196-million in 2012. The group posted headline earnings per share of 38c, down 32.9% from 55.6c last year, and the final dividend fell 66% to 3.3c a share.

“The Afgri Poultry business reported a R229.2-million loss before taxation, after impair- ments of R116.8-million and a R112.4-million loss in the context of a distressed industry,” says Afgri FD John Geel.

Afgri has reduced its debt-to-equity ratio to 0.86, down from 1.8 last year. This is a positive development and is bolstered by strong performances in the agriservices and financial services segments of the business, notes Venter.

“However, there are severe market conditions in the animal protein market, made up of animal feeds and poultry. The poultry industry is in distress and under severe pressure because imports have grown and feed input prices have increased 13%. Afgri has implemented efficiency and cost saving measures in attempts to mitigate the poor market conditions, as well as position more fresh chicken products in the offering.”

Poultry imports to South Africa increased by 15.4%, from 349 854 t to 403 773 t, between 2011 and 2012, with the half-year figure for 2013 being 201 104 t, indicating similar or slight volume growth in imports for the full year.

“An announcement on an increase in poultry import tariffs is expected soon, but the unclear brining percentage standards are creating uncertainty in the market,” says Venter.

The group’s oil, milling and protein division, comprising Afgri Milling and Nedan, is experiencing margin pressure but performing well. The Nedan extraction and preparation plants are on schedule to be commissioned in November.

The group’s agriservices equipment businesses are well positioned after a good harvest and high commodity prices, while the Australia-based business should do better after cost cutting and repositioning, says Venter.

“In the animal protein businesses, we do not foresee any relief in animal feed input costs and margin pressure will remain. We are driving cost savings and product diversification in the poultry businesses.”

The executives will seek board approval in November to reposition the group’s strategic approach to animal feeds, which is something they have been working on for the past 18 months.

Afgri expects good plantings during the year, with hectares planted expected to increase, depending on good rainfall. Its grain management business is also well positioned with high opening stock levels, concludes Venter.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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