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Astral Looks Forward to Better Half Year

by 5m Editor
14 May 2009, at 8:20am

SOUTH AFRICA - Following difficult business conditions in its first half-year, the new CEO of Astral Foods is optimistic about the next six months.

Despite tough trading conditions in its first half to March, Astral Foods lifted interim revenue and expected to do well in the second half of its financial year, Chris Schutte, the chief executive of the listed poultry producer, told Business Report of South Africa yesterday.

As a result it maintained its interim dividend steady at 2.60 rand (ZAR) a share even though earnings a share fell 39 per cent to ZAR 4.17.

For the six months to March, Astral posted a 32 per cent drop in operating profit despite an 18 per cent rise in revenue to ZAR 4.5 billion.

Mr Schutte, who took over as chief executive last week, explained that increases in the selling price of poultry were insufficient to cover the rise in feed costs although they enabled the poultry division to increase revenue by 13 per cent.

A decision to slaughter birds at an earlier age because of the high cost of their feed resulted in sales volumes falling seven per cent year on year.

Since March feed costs had come down, causing Astral to expect an increase in operating profit in the poultry division in the current half-year.

Mr Schutte said the animal nutrition division lifted revenue by 23 per cent to ZAR 2.7 billion because of the higher price of feed, but it suffered a 37 per cent drop in operating profit.

The main reasons were a 20 per cent rise in the cost of agricultural inputs and a ten per cent fall in sales volumes.

The division did not benefit immediately from a fall in the price of maize because it took a conservative view on the procurement of raw materials due to volatility in global markets towards the end of last year.

Despite the poor economic situation, Mr Schutte expects improvements in sales and operating profit in the second half.

"Chicken is the cheapest form of protein in South Africa and demand for it is high," he said.

Analysts were not enthusiastic about the performance.

John Thompson of Investec Asset Management said Astral had been the worst-performing of the poultry companies in the past six months. However, the poultry industry is "in an enviable position right now". It was poised to grow quite significantly, with the chicken price having risen by 30 per cent year on year while the cost of feed had come down, he said.

Alistair Lee of Coronation Fund Managers said the results were a big improvement on the previous six months but they were still quite weak.

The company is, for the first time, supplying two fast food chains – MacDonald's and KFC – after investing ZAR 18 million to acquire 50 per cent of the South African operation of East Balt, a US-owned industrial bakery.

"We took the decision to invest in this, although otherwise the only business we are in is the integrated poultry trade, because it is a commodity business and not directly retail," said Mr Schutte.

Other purchases were a feed mill in Mozambique and a poultry breeding farm in the Western Cape, Elite Farming.

The Business Report article concludes that Astral rose 0.4 per cent to ZAR 96.02 on the Johannesburg Stock Exchange yesterday.