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Johannesburg - Animal feed and broiler chicken producer Astral Foods forecast an improved performance for the second half of its financial year.
Astral CEO Chris Schutte said lower maize prices, which were significant in January, would benefit animal feed prices. "We are an integrated business so we can pass on savings to our poultry division, reducing our production costs," he said.
Astral subsidiaries include Meadow Feeds, Country Fair, Early Bird and Ross Poultry Breeders.
But while Astral was confident earnings would improve, recent figures from Statistics SA showed retail trade sales fell 4.4% to R38bn year-on-year in February and were 5.3% down at R39bn in March, also on a year-on-year basis.
Stats SA reported annual food inflation was much higher at 15.8% in February and 14.7% in March. In the food category milk, egg and cheese prices increased by 1.6%, while meat went up by 0.8% between February and March.
However, Brait economist Colen Garrow said there was hope for the economy: "The outlook for food retailers was quite positive." Consumers should spend more on food as the reserve bank lowered interest rates, he said.
Profits a waiting game
Schutte said lower maize prices did not reflect in Astral's half-year results because its animal nutrition division had stuck to its procurement strategy and had bought maize at higher levels. "We were worried the price of maize would increase further," said Schutte.
Earlier on Wednesday, Astral reported an 18% increase in revenue to R4.5bn, but a 32% drop in operating profit to R279m. Earnings per share were down 39% to 417c per share. The operating margin decreased from 10.8% to 6.3%.
In a trading statement earlier in May, Astral competitor Rainbow Chicken said headline share earnings end-March were likely to be 35% to 45% lower than the previous year. Its annual results would be released in June, it said.
Mpandekazi Maneli, an analyst at Cadiz African Harvest, said: "Astral will have a good recovery in earnings in the second half of the year, given the decline in input costs going forward."
Margins would improve as the company benefited from the price fall in maize, which makes up a large percentage of feed, she said.
"We strove to recover higher raw material prices but we could not, so we made a decision to bring down slaughtering by 2.5 days to 35 days," said Schutte.
He said this has the effect of reducing the weight of birds by 150g per chicken, so profitability took a hit as volumes for the period shrank by 10%.
Schutte said the feed market was very competitive as everyone was trying to fill their mill, which is beneficial for the farming community.
"We could not pass on the full increase in raw material because of fierce competition to maintain volumes from other mill facilities," said Schutte.
- Fin24.com
