Astral Foods' earnings down 55%, as it contends with poultry imports and higher feed costs

Astral Foods' earnings is down 55%, mainly due to tough trading conditions in its poultry division, the group said.

The poultry producer on Monday released its financial results for the year ended September 30, 2019.

Headline earnings are down 55% from R37.12, reported in 2018, to R16.74. The total dividend for the year is 56% less than last year's R20.50, leaving shareholders with R9, after having declared a final dividend of R4.25 for the 2019 year.

In its report the group said its dividend payments of R594m was "relatively high" compared to cash generated from the current year's profits. The dividend payments include the final dividend of 2018 – the group also noted that 2018 was a record profit year.

Despite revenue increasing 3.9% to R13.5bn, lower profits from the poultry division dragged down the group's operating profit to R882m, this is 55% lower than the R1.9bn reported in 2018.

While the poultry division's operating profit was down 74.5% from R1.5bn, reported in 2018, to R371m - its feed division increased its profit by 7.2% to R489m.

According to the report, higher revenue generated in the feeds division (up 6.1% to R6.6bn) was driven by higher selling prices as a result of an increase in raw material costs. However, feeds' sales volumes decreased 3.3%.

Contributions from other Africa operations of R22m, was down from the previous year's R32m, the report read. 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.

Poultry takes a knock

The poultry division's revenue increased by 2.6%, from R10.6bn to R10.9bn, mainly due to higher sales volumes of broilers. However trading conditions remained weak for most of the year, the group attributes this to poultry imports which remained high and constrained consumer buying power. Broiler feed costs also increased during the period, which impacted its earnings.

"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.

Outlook

Astral said its outlook was a "mixed bag" of both negative and positive factors.

The group expects raw material prices to remain high, impacting feed costs – which accounts for 66% of broiler live cost.

Astral also said high levels of unemployment and low growth would continue to place pressure on its poultry selling prices. "High levels of poultry imports from Brazil and the US are expected to persist in the absence of adequate tariff measures," the group added.

Astral however is optimistic about engagements with ministers from the department of trade and industry and the department of agriculture, forestry and fisheries regarding interventions in the poultry industry.

Astral noted that improved prospects of seasonal rainfall would have a positive effect on the maize harvest in 2020. It has also allocated R0.9bn towards expanding its poultry production capacity, by an estimated 16%, over the next two to five years.

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