Astral Foods Interim Results to 31st March
A dire set of numbers, with headline earnings a share falling by 82%, revenue rising just 5% and continuing complaints about Brazil and the EU dumping chicken on the SA market. CEO Chris Schutte also blames sluggish consumer spending and the high cost of feed for his ruffled feathers.
- Mohammed Nalla from Nedbank Capital:
Quite a disappointing set of results, specifically the decision to forego an interim dividend in light of the poor results. Astral has been a healthy dividend payer in the past and this move may well diminish appetite from investors that look for a healthy dividend yield. Astral has been impacted by higher imports from Brazil and the EU, and increasing stock levels in the industry. Another headwind has been the escalation in feed costs which have risen by 21.9% over the reporting period. The expectation is for a continuation of this trend which will weigh on the earnings outlook. This is exacerbated by labour unrest and industrial action which also represents a further impediment to earnings going forward.
- Francois du Plessis from Vega Capital:
“Today Astral joins the ranks of an infamous list of well-regarded companies (Anglos, Implats and Old Mutual to name a few) which had to cut or even skip dividends as pressure on cash flow mounted. After cutting its Sept ’12 annual dividend by 17% in Nov last year, Astral surprised friend and foe by skipping its interim dividend today. A cash outflow of R93 million was reported for the period. The net debt to equity ratio increased to 16,9% from 6,6% at 30 September 2012. This was mainly as a result of the new feed mill under construction. Although the Poultry Division was bleeding, the Feed Division (44% of turnover) stood its ground. Operating profit marginally increased by 1.5% to R156 million (March 2012: R154 million).This set of results is indicative that even the best managed companies are vulnerable to external shocks. Astral, has a strong track record of creating value for shareholders. However it might take a while for Astral to return to its former glory.
- Francois Dubbelman from FC Dubbelman and Associates:
Astral’s results mirror the challenges the South African poultry industry is facing with regard to cheap imports from abroad, high input costs and the resultant inability to retain reasonable profit margins. This scenario is not unique to Astral’s poultry division and it’s clear the South African poultry industry is an industry in distress, as declared by the Department of Trade and Industry (dti). It is common knowledge that South Africa has applied for an increase in the customs duty on poultry – but this would not necessarily mean a rise in prices for the consumer, who does not directly benefit from low-priced imports.
Financial results do not always provide such a clear insight into the health of an industry, and it is easy to see why Astral is down in the dumps. Government is clearly sympathetic, but is trading warily when confronting BRICS partner Brazil. Meanwhile, the current free trade accord with the EU makes it difficult to tackle that source of cheap chicken. Astral may remain in the dumps for some time to come.
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