Astral hatches big payout

The group endured a tough six months - especially on the poultry side – with turnover dropping 4% to R4.3bn.

Astral CEO Chris Schutte noted the company only experienced the impact of the downturn in the local economy during the festive season. "For the first time in five years, our traditional consumer did not benefit from bonus payments."

Management, though, built up the trading margin to just over 7%, allowing operating profits to edge up 9% to R304m.

Schutte was pleased with Astral's overall operating profit margin improving - an exceptional achievement, he reckoned, in the light of the competitive environment.

With finance costs slashed, Astral showed a heartening 16% jump in after tax profits to R189m.

On a divisional basis it was the resurgent Feeds division that offset a weaker performance from the larger poultry division. Although revenue was up 3%, the poultry division reported operating profits down 2% to R134m. But the feeds division turned a 10% decline in top-line into a 10% gain at operating profit to R151m.

On the poultry side, Schutte said depressed consumer spending over the December festive period - exacerbated by higher levels of poultry product imports from Brazil and Argentina - resulted in unprecedented high poultry stock holdings across the entire poultry market.

He said the situation prompted vigorous promotional activity to reduce and manage poultry stock levels, which resulted in three-year record low poultry selling prices.

Schutte said the improved operating profit and margin in the feeds division was achieved through higher sales volumes and better capacity utilisation.

Most encouraging, though, was Astral's cash conversion during the interim period. Operational cash flows were up 12% at R365m. But if working capital changes and income tax paid are factored in, Astral's R345m cash flow from operations was more than double the previous interim period.

Net debt also reduced markedly to R86.3m from R328m in the corresponding interim period last year, and from R187m at the end of September 2009.

The improved cash flows and reinforced balance sheet allowed Astral's board to declare a 290 cents per share dividend, covered 1.7 times by earnings. Astral has traditionally been a popular pick for investors keen on attractive income yields.

The confident dividend declaration suggests Astral could enjoy a strong second-half trading period, which could see the group comfortably push full-year earnings past the 1 000c/share level.

Schutte said the continued favourable grain and agricultural commodity prices were set to benefit chicken production costs. "We are expecting better trading conditions in the second half of the 2010 financial year-end."

Although any recovery in the consumer spending would lead to a higher demand for poultry products, he cautioned that the strength of the rand could boost chicken import levels.