SOUTH AFRICA – Astral Foods, a South African poultry producer, has reported a 52% decline headline earnings for the six months to end-March 30 2019 attributed to a significant decline performance of the poultry division.

Despite a 3% growth in revenues to R6.8bn, the company said that higher cost of sales and distribution expenses also dented the firm’s profits

“Feed price and production cost increases could not be recovered by increasing sales realisations due to the consumer market not being able to absorb price increases,” the company highlighted.

Astral, which also manufactures animal feed noted that its poultry division reported a 68.9 percent drop in profit to US$20.01 million (R285m), driven largely by the higher feed input costs and lower sales.

“The under recovery of increased input costs, as well as the influence of extraordinary expenses, negatively impacted profitability for this division,” the firm said.

The group said poultry imports remained high during the period, equating to about 38% of local production, or an average of 41,771 tons a month.

“Higher local poultry production levels together with imports from Brazil and the US will negatively impact the supply and demand balance in the short term,” it said.

According to a Reuters report, the company also cited the newly legislated minimum wage, rotational power cuts, water supply interruptions in Standerton and costs associated with industrial action in KwaZulu-Natal as contributor to higher costs.

On the backdrop of raw material price increases and persistent challenging trading conditions, Chris Schutte, chief executive of Astral, said that its near-term prospects of the firm’s performance remains jumbled.

However, the firm noted that the outlook for maize prices and stocks have improved.

“I’m forecasting that Astral has a much weaker second half, as the winter months tend to be a poorer trading season,” said Independent analyst Anthony Clark in a report by Business Day.

However, Clark said SA’s poultry sector could benefit from better maize harvests and falling international soy prices, both of which would reduce feed costs.

“The yellow maize price and the soy price are both retreating quite nicely, so moving into 2020, Astral could have much lower input costs, aiding an earnings recovery.”