Cape Town - Integrated poultry producer Astral Foods [JSE:ARL] recorded a 51% dip in profits, while headline earnings were down to R138m for the six months ended 31 March 2017 due to lower volume and the impact of drought-related cost increases, in particular on the profitability of the poultry businesses.
In a company statement, Astral, which manufactures animal feeds, produces day-old chickens and hatches eggs, said its revenue decreased by 0.5% to R5.8bn compared to the same period last year.
Earnings per share decreased 55% and an interim dividend per share of 180c was declared.
"The poultry division's contribution of R22m to operating profit was substantially down on the prior period of R194m, while the feed division's profits were 21% lower than the comparative period."
Astral's other Africa divisions' contribution to profits were R5m - an improvement on the previous period's R1m, although the company still deems it as "low" and a reflection of ongoing difficult trading conditions in these regions.
Trying operating conditions
Astral said in its statement that the period under review includes a number of key factors that distort the comparison of financial results to the same period in 2016, mainly as a result of new brining regulations, which had an impact on the group's poultry product mix, sales volumes and average sales.
Sales volumes were significantly down by 10.5% (24 020 tons) due to a combination of less meat sold and lower brining levels. New brining legislation was promulgated in October 2016 with a brine uptake capped at 15%, and this change has distorted year-on-year pricing comparisons.
Poultry feed prices reached a record high, increasing by an average 16.8% compared to the same period last year, as a result of high raw material costs following the devastating drought together with a revised poultry feeding programme.
Improved broiler production efficiencies on the new feeding programme partly negated the higher feed cost. The inability to fully recover higher feed input costs through the selling price of poultry, resulted in the operating profit for the division dropping significantly by 88.5% to R22 million, compared to R194m in 2016.
Total poultry imports remained high, levels despite a decrease in poultry imports from the European Union (EU) as a result of Avian flu outbreaks in certain EU countries.
Total poultry imports equate to an average 8.2 million chickens per week for the six months ending March 2017, notwithstanding all efforts to curb poultry dumping.
Astral noted that total poultry imports reached a record high in March 2017 at 66 658 tons (equivalent to 11.7 million chickens per week) which is comparable to approximately 65% of local production.
The weak economy in Mozambique remains a concern as it continued to impact on the value of Astral's business operations in that country.
"The weakened state of consumer spending is unlikely to improve due to poor economic growth and higher unemployment," the statement read.
In addition, the current safeguard duty recommended by the International Trade Administration Commission (ITAC) of 13.9% against the EU is not expected to significantly curb poultry import levels, Astral cautioned.
In January this year, Trade and Industry Minister Rob Davies approved a provisional 13.9% safeguard duty on European bone-in chicken imported in December in terms of South Africa's economic partnership agreement (EPA) with the EU.
Astral is also of the view that the new brining regulations (set at a level of 15%) will have negative consequences for the total kilograms of chickens sold.
The company's share price traded 0.5% lower at R15.70 at around 12:15 on Monday.Read Fin24's top stories trending on Twitter: Fin24’s top stories