South African integrated poultry producer Astral’s operating profit decreased to R503-million for the six months ended March 31, compared with the R1.04-billion operating profit reported for the first half of the prior financial year, as a result of a R570-million decline in its poultry division’s profitability to R258-million.

The company on Monday published its interim results, with external revenue up 2.6% year-on-year to R6.8-billion, while revenue from the poultry segment – the biggest contributor to the group’s external revenue – was up by only 1% year-on-year.

Feed price and production cost increases could not be recovered by increasing sales realisations, as the consumer market was unable to absorb price increases.

The cash inflow from operating activities of R375-million included an inflow of R100-million

from lower working capital, mainly as a result of lower poultry finished goods stock compared with the stocks as at September 30, 2018.

The company incurred capital expenditure R343-million, including payments totalling R253-million in respect of the expansion project at the Festive processing plant and the Meadow Feeds Standerton silo complex.

A net cash outflow of R357-million for the first half was reported, following the payment of the final 2018 dividend of R408-million.

The cash and cash equivalents at period end were, however, in a surplus of R431-million.

The board declared an interim dividend of R4.75 apiece.

POULTRY DIVISION’S PERFORMANCE

The broiler operations reported a decline in revenue as both broiler selling prices and sales

volumes decreased for the period under review. However, revenue for the division increased by 1% to R5.5-billion, supported by a marked increase in revenue from the group’s breeding operations.

Broiler sales volumes were down 1.1%, despite sales realisations having decreased by 3.4% year-on-year. Consumer demand was subdued, resulting in deeper promotional activity to better balance supply and demand.

Broiler feed prices increased by 9.2% owing to higher raw material costs for the reporting period. Feed conversion efficiency improved further, slightly offsetting the higher feeding cost per broiler produced.

Profitability for the poultry division decreased by 68.9% to R258-million, driven largely by the higher feed input costs and lower sales realisations.

The under-recovery of increased input costs, as well as the influence of extraordinary expenses, negatively impacted on the division’s profitability.

The newly legislated minimum wage, the impact of load-shedding nationally, water supply interruptions in Standerton, and costs associated with industrial action in KwaZulu-Natal, all contributed to a higher base cost of production.

The division’s net profit margin decreased to 4.7%, compared with the 15.4% achieved in the prior period – which had been one of the highest ever reported for the division.

Total poultry imports remained high, with the average monthly total poultry imports for the

period under review equalling about 38% of local production, or an average of 41 771 t a month.

FEED DIVISION’S PERFORMANCE

Revenue increased by 6.7% to R3.3-billion as a direct result of higher feed selling prices on the back of increases in raw material costs.

Safex yellow maize prices increased to an average of R2 579/t for the period under review, compared with the price of R1 981/t for the prior comparable period.

Feed sales volumes decreased by 0.9% as the internal requirement for broiler feed decreased, on an improved broiler feed conversion rate.

Lower external sales volumes were reported as all livestock sectors came under pressure on the back of higher feed costs.

The division’s operating profit increased by 24.6% to R239-million, with an improvement in the operating profit margin to 7.2%, from 6.2% in the prior comparable period.

The division benefitted from well controlled expenses and effective raw material cost recovery.

OTHER

Astral’s Other Africa division, comprising both feed and poultry operations in three countries – Zambia, Mozambique and Swaziland – reported an increase in revenue of 20.9% to R223-million, owing largely to higher selling prices on the back of an increase in raw material input costs.

Sales volumes increased by 11.7% driven largely by higher feed sales in Zambia.

However, the operating profit decreased to R7-million, from R17-million in the prior comparable period, mainly as a result of the provision for the doubtful recovery from the Mozambican government of value-added tax on imported raw materials, as well as margin pressure in Zambia as feed selling prices could not be increased sufficiently to fully recover higher input costs.

OUTLOOK

Astral expects its near-term prospects to be influenced by negative and positive factors.

Raw material price increases are expected to negatively impact on the company’s largest input cost, namely feed, which makes up 66% of broiler live costs.

Also, the second half of Astral’s financial year is traditionally marked by slower trading conditions.

Continued high levels of unemployment and high fuel prices negatively impact on consumers’ disposable income, leading to continued pressure on poultry selling prices.

Higher local poultry production levels, together with imports from Brazil and the US, are also expected to negatively impact on the supply and demand balance in the short term.

The newly legislated national minimum wage will continue to impact on poultry production costs.

Municipal infrastructure deterioration in Standerton will lead to water supply interruptions at a cost to the business.

However, on the upside, there are sufficient international coarse grain stocks with good prevailing planting conditions in the US and South America.

Moreover, maize imports into the Western Cape at a discount to local Safex pricing will contribute positively to feed input costs in that region.

Also, local maize stocks, together with maize imports, will meet demand, despite early season South African maize crop concerns.

Recent late rainfall received in the maize growing areas of the country will benefit soil moisture conditions for the new planting season.

Supply and distribution of the Ross poultry genetics in South Africa has been secured for a further ten-year period, with the conclusion of a renewed supply agreement with Aviagen.

Astral remains committed to its strategy of being the best cost integrated poultry producer, and has embarked on identified capital projects that will support its stated strategy.