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Johannesburg - A halving in the price of key inputs like maize and soya, together with consumers' finances "getting into better shape", should see earnings rise in 2009 for animal feed and broiler chicken producer Astral Foods.
So says Astral CEO Nick Wentzel, following the release of the company's full-year figures for the year to end-September 2008. Shares jumped 10% following the release of the numbers, placing the company on an earnings multiple of 9.8 times.
Higher raw material and transportation prices and an oversupply of chicken - owing to the slowdown in spending by South African consumers - resulted in Astral's operating profit falling 32% to R548m, despite a 29% increase in revenue to R6.3bn. The operating profit margin halved from 12.8% in 2007 to 6.6% in 2008.
Headline earnings per share declined 39% to 840c/share, but the company maintained its total dividend at 700c/share. "Our capital expenditure programme has been completed for now, so we were able to maintain the payout," says Wentzel.
Astral experienced a 23% increase in production costs, but poultry prices rose by only 8%. Since June, though, the company has noticed that consumers are "more in control of their finances", with chicken prices rising since then.
The prices of key inputs have also halved since mid-year, which will contribute to better earnings and higher margins in financial 2009, says Wentzel. Maize prices have halved from $7.80 a bushel in mid-2008 to $3.80 a bushel; with the price of oil falling $70 off its high, the demand for ethanol derived from maize has diminished.
The price of soya has almost halved from $17 to $9 over the last four months.
The rand's weakness has seen a decline in the number of chickens imported from countries like Brazil, says Wentzel: "Imports are down 20% when compared to the level they were at this time last year. All these issues affect future earnings and margins," says Wentzel.
Sales volumes in the poultry division rose 11% and revenue was up 16% to R5.1m, but operating profit fell 66%. In the animal nutrition business, revenue rose 46% to R5.1m, while volumes rose 2%.
Competition liability
In July, the competition commission asked the tribunal to levy a 10% administrative penalty on Astral Foods subsidiary Astral Operations' 2006/7 turnover, for its part in preventing competition in the broiler production market.
Wentzel says the company is co-operating with authorities but opposing the referral. Hearings are taking place in December.
The commission found that both Astral and its KwaZulu-Natal-based subsidiary Elite Breeding Firms (of which Astral owns 82%) were preventing other players from expanding their broiler supply and either entering or expanding in the breeder market.
Elite is a joint venture between Astral and another JSE-listed chicken company, Country Bird Holdings. Elite provides parent breeding stock to both Astral and Country Bird. The commission has also recommended that it be fined 10% of its turnover and exports for financial 2007.
Country Bird and Supreme Poultry lodged the complaint against Astral and Elite with the commission in February 2007.
"Country Bird has asked for an intervention. They want to defend themselves."
- Fin24.com
