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World Cup Did Not Boost Astral's Business

by 5m Editor
21 September 2010, at 10:35a.m.

SOUTH AFRICA - Astral Foods is feeling the current dip in chicken prices.

Poultry producer, Astral Foods, has had a tough six months to September as weak consumer spending has caused retail prices of poultry meat to decline, according to Business Report of South Africa.

"We are in an overproduction situation at the moment and pricing is under severe pressure," Astral chief executive, Chris Schutte said, adding that consumer poultry prices declined to a three-year low in the past three months.

Peter Wille, an equity analyst at BoE Private Clients, said although Astral had not expanded as aggressively as its competitors, the group was still affected by the current oversupply situation.

"The issue has been aggravated by weaker consumer spending and an increase in imports," Mr Wille said.

Last year, Astral's competitor, Sovereign Foods completed the bulk of its expansion programme started three years ago.

According to Mr Schutte, the winter months are usually slower and the World Cup did not bring any positive benefit to the poultry industry.

Prior to the event, Mr Schutte had said he did not expect the soccer tournament to have a material effect on the company's earnings as the group catered to retailers and supermarkets, as opposed to rivals Country Bird and Rainbow Chicken, which supplied the chicken fast-food business.

"What I said then has proved to be correct. The World Cup has had a negative effect on the poultry market as people spent more money on tickets and transport," he said.

Although the group had been adversely affected by overpricing, Mr Schutte said Astral was "well-supported by lower input costs".

According to Business Report, Astral has concluded a transaction valued at 23 million rand (ZAR) to purchase the assets of the Vredebest Farms in the Western Cape. The purchase includes three farms, namely Anysrug, Hillcroft and Vrymansfontein.

"We have bought this farm (to enhance) hatching capacity in the Western Cape," Mr Schutte said, adding that farming land in the Western Cape was scarce.

He said the farms are the "perfect geographical fit" for the company's existing operations and that it was important for Astral to have land available for future expansion.

County Fair Foods, a division of Astral, is Vredebest's largest customer, purchasing between 90,000 and 100,000 day-old chicks a week.

Daan Ferreira, the chief financial officer at Astral, said the acquisition was seen as a strategic investment due to its proximity to County Fair and would accommodate future expansion. He added that the acquisition would not affect current profitability and cash flow.

Mr Schutte said the company's expansion plans were largely on the breeder side, where it would produce eggs to be hatched for broiler production. The company would eventually convert two of the farms into broiler production facilities.

Yesterday, Astral's share price rose 0.5 per cent to ZAR111.80, according to Business Report.