Astral Foods’ earnings down 55% despite a 3.9% revenue increase

SOUTH AFRICA – South Africa’s integrated poultry producer Astral Foods, reported a 3.9% group revenue increase to R13.5bn (US$0.9bn) for the full year ended September 2019.

Despite increase in revenue, the groups operating profit fell 55% to R882m (US$59.7m) compared to the R1.9bn (US$0.12bn) reported in 2018.

The poultry division’s operating profit was down 74.5% from R1.5bn (US$0.10bn) reported in 2018 to R371m (US$25.1m), mainly due to tough trading conditions especially increase in poultry imports which remained high and constrained consumer buying power.

Its feed division increased its profit by 7.2% to R489m (US$33.1m). However, feeds’ sales volumes decreased 3.3%.

According to the report, higher revenue generated in the feeds division up 6.1% to R6.6bn (US$0.44bn) was driven by higher selling prices as a result of an increase in raw material costs.

 “Broiler feed prices increased by 7.7% versus the prior year due to higher raw material costs over the reporting period. Feed costs were higher throughout the period under review, negatively affecting Astral’s earnings for the full year.”

“Feed cost remains the key driver of profitability, representing approximately 66% of the live cost of a broiler,” the report read.

Load-shedding, the implementation of the minimum wage and a strike at its KwaZulu-Natal poultry operations also contributed to extraordinary costs of about R223m (US$15.1m).

The company has previously said the Standerton poultry processing facility, Southern Africa’s largest, required 5.5 megalitres water daily to process 2-million broilers a week. It has blamed deteriorating municipal infrastructure for the disruptions.

Contributions from other Africa operations of R22m (US$1.4m), was down from the previous year’s R32m (US$2.16m). Profits were impacted by significant feed costs in Zambia, following a “devastating drought” and crop failure for the 2019 harvest season.

Additionally, non-recovery of taxes from the Mozambican government also negatively impacted the division’s performance. “The results from Zambia and Mozambique were countered by a better performance from Swaziland,” the report read.

The company expects raw material prices to remain high, with high levels of poultry imports from the US and Brazil.

Astral revealed It has also allocated R0.9bn (US$60.9m) towards expanding its poultry production capacity, by an estimated 16%, over the next two to five years.

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