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Astral Posts 'Solid' Result for Year

by 5m Editor
15 November 2010, at 9:13a.m.

SOUTH AFRICA - Astral Foods describes its final result for the year as 'solid', with revenue down five per cent but operating profit one per cent higher than the previous year.

Astral Foods Limited (Astral), a leading South African integrated poultry producer, reports a solid set of final results for the year ended 30 September 2010 in the face of continued challenging economic conditions.

Chris Schutte, Chief Executive Officer of Astral, commented: "Lower agricultural input costs and lower poultry realisations were the main factors that impacted Astral’s results, however, despite this, the Feed Division was able to increase its profitability. In light of the strong cash flows generated by our operations, we have been able to increase the total dividend to our shareholders."

Revenue for the Group decreased by five per cent to 8.4 billion rand (ZAR; 2009: ZAR8.8 billion) due to lower agricultural input costs, mainly as a result of the lower maize price, for the Feed Division and lower poultry realisations as a result of depressed consumer spend, for the Poultry Division. Operating profit increased by a marginal one per cent to ZAR585 million from ZAR581 million for the comparative year attributable to lower input costs on the Poultry Division side as well as cost efficiencies realised in both the divisions. Mr Schutte stated that he is more than satisfied with the Group's overall operating profit margin improving from 6.6 per cent to 7.0 per cent, especially in the face of the competitive environment Astral trades in.

Profit before taxation, including the fair value adjustment of the net investment held-for-sale of ZAR7.2 million, increased by a satisfactory five per cent to ZAR557 million (2009: ZAR531 million), mainly as a result of lower finance charges. Headline earnings per share increased to 960 cents from 890 cents for the 2009 year end, an eight per cent increase.

The Poultry Division reported a decline of two per cent in revenue to ZAR5.4 billion (2009: ZAR5.5 billion) on the back of significantly lower selling prices, which was as a result of an oversupply of products to a depressed consumer market. Mr Schutte stressed that "The increase in sales volumes, to a large extent, compensated for the lower selling prices realised as a result of the oversupply of poultry products in the market."

The volume growth achieved was mainly due to efficiency improvements and on-farm production results. Less than one per cent of the higher sales volumes were brought about by planned placements. During the period, 1.2 million jobs were shed in the South African labour market. This, together with higher levels of poultry imports supported by a strong local currency, resulted in an oversupply of poultry in the market place which in turn culminated in vigorous poultry price discounts in order to manage extreme stock levels.

The profitability for this division was supported by lower feed input costs, as was the case in the first half of the year. Operating profit for this division was also down seven per cent from ZAR282 million (2009) to ZAR262 million for this year end mainly as a result of the protracted labour action at Earlybird Farm Standerton. Operating margin was maintained at approximately five per cent and this could be attributed to the fact that the advantages of the low feed input costs did not compensate to the full extent for the reduced selling prices realised.

On 20 September 2010 Astral announced the acquisition of the Vredebest Farms, situated in the Western Cape near Paarl, for a consideration of ZAR22 million. The Vredebest Farms comprises three separate farms with poultry houses, dwellings and a broiler hatchery on one of the farms and are ideally situated to be incorporated in the County Fair Foods' integrated operations in the Western Cape. County Fair Foods was already Vredebest Farms' largest customer purchasing between 90,000 to 100,000 day-old chicks per week. The results from Vredebest Farms will only contribute to Astral's results from next year.

"Another exciting prospect for this division is that the incorporation of the 'new' Ross 308 genetic line will be accomplished during the early part of 2H2011," said Mr Schutte.

Despite the 11 per cent decrease in revenue reported by the Feed Division from ZAR4.8 billion in 2009 to ZAR4.2 billion for this reporting period, operating profit increased by a solid eight per cent to ZAR281 million (2009: ZAR261 million) resulting in a seven per cent operating profit margin (2009: five per cent).

Revenue was impacted by lower feed prices driven by lower grain prices. The lower grain prices came about due to improved global and local plantings and yields as well as a reduction in global demand. Sales volumes increased by one per cent due to an increased demand from the Group's Poultry operations, offset by sales to external markets. The improved operating profit and margin position was made possible by tight cost controls and higher volume throughput. The strong rand together with the contraction in the Zambian and Mozambican economies, negatively impacted the African operations.

Mr Schutte said: "Te Zambian operations, incorporating the TIGERChicks' new world-class broiler breeding farm and hatchery, showed signs of improvement in trading conditions towards the end of the reporting period."

The business segment named Services and Ventures, which includes inter alia NuTec and the East Balt South Africa bakeries, reported a 27 per cent decrease in revenue from ZAR368 million in 2009 to ZAR270 million mainly as a result of intergroup revenue relating to a specialised procurement business now being incorporated into the Feed and Poultry Divisions. Operating profit increased by nine per cent from ZAR39 million in 2009 to ZAR42 million. East Balt South Africa supplies soft buns to McDonalds and KFC and commissioned a new state-of-the-art bakery in the Western Cape, the official opening is taking place on 30 November 2010. A decision was taken to divest from Meaders Feeds Limited (Mauritius) and the assets have been impaired to the value of ZAR7.2 million to reflect the market value of Astral's share in the issued share capital of the company.

Daan Ferreira, Astral's Group Financial Director, says: "Astral's net finance costs paid is well down on last year's ZAR50 million to ZAR21 million for the current year. The Group continued to retain a strong balance sheet with the net debt to equity ratio reducing from 14 per cent at 30 September 2009 to nine per cent at 30 September 2010. Cash generated from operating activities for the year was ZAR769 million, an improvement of 32 per cent on last year's ZAR584 million, due to lower working capital."

Total dividends for the year ended 30 September 2010 are 760 cents per share (2009: 700 cents per share), an increase of nine per cent. "The increased dividend was supported by a strong balance sheet structure as well as cash flow capabilities," commented Mr Ferreira.

Mr Schutte concluded: "We do not expect that the business environment for next year will be any different from the year under review. The global outlook for grains is a key cost driver for both feed and poultry production and shows signs of tighter supply and demand prospects which could lead to prices firming. The extent at which higher feed prices translate to prospective earnings, will be dependent on both the level of poultry imports supported by a strong local currency and the domestic supply and demand balance.

"Local demand will be influenced and impacted by consumer buying patterns, unemployment levels and further job shedding. In the current uncertain economic environment it will be Astral’s priority to continue to focus on extracting efficiencies within each of our operations," added Mr Schutte.