Astral Foods reports drastic decline in poultry profits

South Africa’s largest poultry meat company, Astral Foods, has reported a drop of more than 90 percent in operating profit from its poultry business for the financial year ended September 30, 2016.

(nd3000, Bigstock)
(nd3000, Bigstock)

South Africa’s largest poultry meat company, Astral Foods, has reported a drop of more than 90 percent in operating profit from its poultry business for the financial year ended September 30, 2016. The fall has been largely attributed to an increase in chicken imports.

Total annual revenue by the poultry division for the year just ended was 4.5 percent higher at ZAR9.129 billion (US$642 million), making this the biggest contributor to Astral’s overall business portfolio. However, operating profit for the division was down to just ZAR58.9 million (US$4.14 million) from just over ZAR661 million (US$46.5 million) for the 2015 financial year. That represents a decline of almost 92 percent.

Astral’s CEO, Chris Schutte, blamed the fall on adverse weather and an imbalance in the market caused by a sudden increase in chicken meat imports, reports Moneyweb.

“Last year, we posted record results; however, we have seen deterioration in profitability following the most challenging economic and trading conditions in the history of the industry,” said Schutte. “The impact of the severe drought gripping the country and the imbalance in supply and demand of poultry, caused by excessive levels of imports, placed tremendous pressure on the poultry division’s results.”

These challenging market conditions are affecting all South African poultry producers, and Schutte warned that cutbacks in local broiler production are imminent as poultry operations shut down.

“Under these circumstances Astral will continue to assess consolidation opportunities as they arise,” he added.

Schutte told IOL that, after an absence of 15 years, imports of chicken from the U.S. began arriving in South Africa in March. The trade peaked at 57,700 metric tons that month, which is equivalent to 10.3 million birds per week or around 55 percent of the country’s own production, he said, illustrating the impact of the imports on the local poultry sector.

Feed business profitability ameliorates Astral’s overall financial position

Astral Foods’ overall results for the year were boosted by good performance from its feed business, which recorded a 15.3 percent increase in revenue to just under ZAR7.2 billion (US$510 million). Operating profit was almost ZAR485 million (US$34.1 million), which is a rise of 14.7 percent from the previous year.

Currency weakness in Mozambique and power outages in Zambia reduced the company’s operating profit in its “Other Africa” business by 70 percent from last year a little under ZAR5 million (US$350,000) in the current period, according to Moneyweb.

For all businesses combined, Astral Foods’ net profit for the year after interest and taxes was cut by 52 percent to a little over ZAR372 million (US$26.2 million) on total revenue that was up by 6.1 percent from the previous year at more than ZAR11.9 billion (US$840 million)

These challenges to the South African poultry business were not expected. They were evident from Astral’s half-year results and in September, the company’s CEO warned shareholders to expect falls of 50-70 percent in headline earnings and earnings per share for the year. 

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