Astral foresees mergers among large poultry firms

SA's largest poultry group, Astral Foods, expects the onset of tougher trading conditions will trigger further industry consolidation, but this time among the bigger domestic chicken producers.

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Astral reported yesterday revenue grew 17% to R11.3bn during the year ended September, with operating profit more than doubling to R1.1bn with increases in both poultry and feed volumes. The company also saw firmer selling prices, pushing earnings 133% higher at R20.16 per share. This allowed Astral to more than triple the dividend payout to R11.50 per share.

But CEO Chris Schutte warned that the financial year ahead would be very different for poultry companies. "Some of the major 'stars' that have aligned to produce this financial year's results have started going out of sync again." He said the early effect of a strong El Niño weather pattern on planting conditions would hamper crop yields, leading to higher feed prices in the financial year ahead. Proposed brining regulations could also see lower volumes and higher selling prices for the consumer.

Classic dumping still taking place

Perhaps most concerning for local players Schutte's contention that poultry imports had not been curbed - noting a record level of total poultry product imports of about 8.6 million birds a week for the month of July. He argued that the high level of imports was clear proof that "classic dumping" was still taking place.

The situation would be exacerbated by the annual quota for 65,000 tonnes of US poultry - free of antidumping duties - negotiated around the renewal of the African Growth and Opportunity Act (Agoa).

Resilience of the poultry sector will be tested

Schutte believed further consolidation in the industry could follow as the resilience of the poultry sector would be tested to the limit. "The last consolidation phases involved mainly smaller players. This time we are bound to see consolidation amongst the six or seven biggest players in the industry."

Schutte said Astral held about 25% of the local poultry market with Rainbow Chickens (part of JSE listed RCL Foods) holding another 23%.

Opportune Investments CEO, Chris Logan said Astral needed to scale up through value accretive acquisitions to enhance its competitiveness. "SA needs a (poultry) champion and given its inherent qualities it is possible to imagine Astral becoming the InBev of the poultry sector."

Source: Business Day