Cost pressures cut into Astral's earnings

"We are expecting the prevailing business environment to not improve for the next reporting period with our key cost drivers like maize and soya remaining at high levels. Although Astral maintains its position as a low cost producer in the poultry market, it will be difficult to recover the increased production costs under these market conditions," said chief executive, Chris Schutte.

The company posted a 14% drop in operating profit to R324 million in the six months to March 2012, as the poultry division weighed on the overall earnings.

Feed costs rose 23% in the period under review, which resulted in a margin squeeze in the division. Operating profit in this particular division declined 37% to R144 million, including the R17 million provision, regarding the proposed settlement with the Competition Commission on various anticompetitive matters.

The proposed penalty is still to be settled with the commission and then reviewed by the Competition Tribunal.

Poultry imports, primarily from Europe and Brazil, continued to climb to record levels resulting in pricing pressure on locally produced poultry which, in turn, led to a significant increase in promotional activity during the second quarter to manage higher stock levels.

These factors resulted in the inability to recover significant increases in feed and other input costs, such as energy, in the selling price of chicken.

The feed division on the other hand maintained its profit margin and reported a 25% increase in profits, in line with the higher revenue realised. The Other Africa operations reported increased profits and the service and ventures' profits were the same as the previous year.