JSE-listed Astral Foods on Monday attributed the 96.8% increase in headline earnings a share to R18.99 for the year ended September 30 to the recovery in poultry profits during the second half of the financial year.
“Stable prices for poultry products during the winter months, together with materially lower feed raw material costs in the second half of the financial year, were the main drivers for the profits for the year, with a contribution of R630-million to the group's profit,” the company stated.
This was despite an 8.6% decrease in sales volumes owing to lower brining levels, with a negligible amount ascribed to planned poultry production cutbacks of three-million birds in the first half of the reporting period.
Sales realisations increased by 20.6% of which more than half relate to the necessary price adjustment to offset the legislated change in brine levels of specific product lines.
The Feed division's profit contribution of R391-million was lower than the previous year's R485-million as result of the lower volumes and lower profit margins.
Profit contribution from the ‘other Africa’ businesses at R27-million was an improvement on the previous year's R5-million; however, the Mozambican businesses still performed unsatisfactorily, Astral noted.
The profit before interest and taxes of R1.08-billion includes R31-million profit on the sale of an investment.
Net finance costs, at R15-million, were lower than in the previous year following the positive cash position during the second half of the financial year.
The investment in a new enterprise resource planning information system continued during the year with a further R22-million expenditure. Costs incurred on other capital expenditure items of R158-million are marginally higher than the previous year's R145-million and represent normal ongoing replacement and improvement items.
The improved cash operating profit of R1.42-billion, up from 2016’s R547-million, working capital outflow of R64-million and relative low dividend payments of R108-million, resulted in a strong positive cash inflow for the year.
The board also declared a final dividend of R8.75 apiece. The distribution will be financed from surplus cash.
Astral noted that the negative political landscape and policy uncertainty has contributed to a weak economic environment that could lead to a further downgrade by the credit rating agencies.
“Record unemployment levels and lower levels of disposable income are unlikely to improve due to a poor economic outlook for the foreseeable future,” it added.
Further, it said that the continued high level of poultry imports, with weak tariff protection, has allowed foreign produced poultry to become further entrenched in the local market leading to a contraction in production among South African producers.
“On a positive note and key to local protein production, both global and local coarse grains (maize and soybeans) exhibit healthy stock-to-use ratios,” it highlighted.
Astral also pointed out that current consensus pointed towards the promise of another year where at least average local grain production was predicted, exacerbated by numerous supply constraints in the year ahead.
The company stated that the drought, production cutbacks and the devastating bird flu could result in further inflation in the food basket.