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ASTRAL FOODS LIMITED - Unaudited Interim Results for the six months ended 31 March 2013

Release Date: 13/05/2013 07:05
Code(s): ARL     PDF:  
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Unaudited Interim Results for the six months ended
31 March 2013

Astral Foods Limited   
Incorporated in the Republic of South Africa   
Registration number 1978/003194/06   
Share code: ARL   
ISIN: ZAE000029757

UNAUDITED INTERIM RESULTS
for the six months ended 
31 March 2013

-   Revenue increase 5%
-   Operating profit decrease 80%
-   Earnings per share decrease 47%
-   Headline earnings per share decrease 82%
-   No interim dividend declared

CONDENSED GROUP STATEMENT OF FINANCIAL POSITION

                                          Unaudited     Unaudited       Audited
                                         six months    six months     12 months
                                              ended         ended         ended
                                           31 March      31 March       30 Sept
                                               2013          2012          2012
                                              R'000         R'000         R'000
ASSETS
Non-current assets                        1 939 981     1 773 066     1 840 046
 Property, plant and equipment            1 722 452     1 615 939     1 678 976
 Intangible assets                           21 717        11 333        17 169
 Goodwill                                   136 135       139 147       136 135
 Investment in associates                    51 806                          
 Investments and loans                        7 871         6 647         7 766
Current assets                            1 692 004     1 655 135     1 672 894
 Inventories                                323 229       424 352       379 433
 Biological assets                          572 971      483 215#       534 806
 Trade and other receivables                758 018      662 281#       723 569
 Current tax assets                           9 850                      9 819
 Derivative financial instruments                            291             
 Cash and cash equivalents                   27 936        84 996        25 267
Assets held for sale                                     156 842        51 889
Total assets                              3 631 985     3 585 043     3 564 829
EQUITY
Capital and reserves attributable to
 equity holders of the parent company     1 565 692     1 576 583     1 585 227
 Issued capital                               2 044         2 044         2 044
 Treasury shares                          (204 435)     (204 435)     (204 435)
 Reserves                                 1 768 083     1 778 974     1 787 618
Non-controlling interests                    12 369        11 421        10 744
Total equity                              1 578 061     1 588 004     1 595 971
LIABILITIES
Non-current liabilities                     606 155       495 473       516 367
 Borrowings (note 6)                         92 951        19 045        14 859
 Deferred tax liability                     415 494       381 863       407 711
 Retirement benefit obligations              97 710        94 565        93 797
Current liabilities                       1 447 769     1 404 720     1 431 208
 Trade and other liabilities              1 235 086    1 267 286#     1 307 776
 Current tax liabilities                      8 766         5 287         5 684
 Borrowings (note 6)                        202 198       132 147       116 091
 Shareholders for dividend                    1 719                      1 657
Liabilities held for sale                                 96 846        21 283
Total liabilities                         2 053 924     1 997 039     1 968 858
Total equity and liabilities              3 631 985     3 585 043     3 564 829

# Restated, refer note 10

CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME

                                                Unaudited     Unaudited                 Audited
                                               six months    six months               12 months
                                                    ended         ended                   ended
                                                 31 March      31 March                 30 Sept
                                                     2013          2012     Change         2012
                                                    R'000         R'000          %        R'000

Revenue                                         4 234 057    4 038 214#          5    8 160 078
Operating profit (note 4)                          63 847       323 541        (80)     477 149
 Profit on sale of interest in joint venture
  (note 9)                                         79 426                               35 972
Profit before interest and tax                    143 273       323 541        (56)     513 121
 Finance income                                       538         3 070                   6 396
 Finance costs                                   (12 541)      (11 387)                (24 371)
 Share of profit of associates                      1 806                                    
Profit before income tax                          133 076       315 224        (58)     495 146
 Tax expense                                     (25 688)     (113 975)               (162 646)
Profit for the period                             107 388       201 249        (47)     332 500
Other comprehensive income
 Foreign currency translation adjustments           2 224       (5 663)                     102
Total comprehensive income
 for the period                                   109 612       195 586        (44)     332 602
Profit attributable to:
 Equity holders of the parent company             105 970       199 245        (47)     329 335
 Non-controlling interests                          1 418         2 004        (29)       3 165
                                                  107 388       201 249        (47)     332 500
Comprehensive income attributable to:
 Equity holders of the parent company             107 987       193 733        (44)     329 473
 Non-controlling interests                          1 625         1 853        (12)       3 129
                                                  109 612       195 586        (44)     332 602
Earnings per share (cents)
  basic                                              278           523        (47)         865
  diluted                                            278           523        (47)         864

# Restated, refer note 10

CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

                                           Unaudited     Unaudited       Audited
                                          six months    six months     12 months
                                               ended         ended         ended
                                            31 March      31 March       30 Sept
                                                2013          2012          2012
                                               R'000         R'000         R'000

Balance at beginning of the period         1 595 971     1 585 632     1 585 632
Total comprehensive income
 for the period                              109 612       195 586       332 602
Dividends to the company's shareholders    (127 882)     (192 205)     (320 086)
Payments to non-controlling
 interest holders                                         (1 869)       (3 829)
Option value of share options granted            360           860         1 652
Balance at end of the period               1 578 061     1 588 004     1 595 971

CONDENSED GROUP SEGMENTAL ANALYSIS
                                                     Unaudited           Unaudited                          Audited
                                                    six months          six months                        12 months
                                                         ended               ended                            ended
                                                      31 March            31 March                          30 Sept
                                                          2013                2012         Change              2012
                                                         R'000               R'000              %             R'000
Revenue
 Poultry                                             2 952 420           2 878 255              3         5 834 816
   As previously reported                                               2 919 451#                        5 914 483
   Re-allocation to Other Africa                                         (41 196)*                        (79 667)*
 Feed                                                2 396 820           2 175 309             10         4 327 012
   As previously reported                                               2 167 244#                        4 309 636
   Re-allocation from Services
    and ventures                                                            8 065*                          17 376*
 Other Africa                                          203 303             161 479             26           341 308
   As previously reported                                                  120 283                          261 641
   Re-allocation from Poultry                                              41 196*                          79 667*
 Services and ventures                                  30 246             147 062            (79)          222 620
   As previously reported                                                  155 127                          239 996
   Re-allocation to Feed                                                  (8 065)*                        (17 376)*
 Inter-Group                                       (1 348 732)         (1 323 891)                      (2 565 678)
   Feed to Poultry                                 (1 333 609)        (1 275 795)#                      (2 413 486)
   Services and Ventures to Poultry
    and Feed                                          (15 123)            (48 096)                        (152 192)

                                                     4 234 057          4 038 214#              5         8 160 078
Operating profit
 Poultry                                             (116 619)             139 705          (183)          137 438
   As previously reported                                                  144 188                         144 893
   Re-allocation to Other Africa                                          (4 483)*                        (7 455)*
 Feed                                                  156 201             153 895              1          288 808
   As previously reported                                                  151 069                         283 135
   Re-allocation from Services
    and ventures                                                            2 826*                          5 673*
 Other Africa                                           19 593              19 675                          37 677
   As previously reported                                                   15 192                          30 222
   Re-allocation from Poultry                                               4 483*                          7 455*
 Services and ventures                                   4 672              10 266            (54)          13 226
   As previously reported                                                   13 092                          18 899
   Re-allocation to Feed                                                  (2 826)*                        (5 673)*

                                                        63 847             323 541            (80)         477 149

* Following changes in internal reporting provided to the chief operating decision-maker, certain comparative amounts
  have been re-allocated.
# Restated, refer note 10

CONDENSED GROUP STATEMENT OF CASH FLOWS
                                                Unaudited      Unaudited        Audited
                                               six months     six months      12 months
                                                    ended          ended          ended
                                                 31 March       31 March        30 Sept
                                                     2013           2012           2012
                                                    R'000          R'000          R'000

Cash operating profit                             122 232        388 565        596 964
 Changes in working capital                      (89 100)       (86 067)      (118 852)
Cash generated from operating activities           33 132        302 498        478 112
 Income tax paid                                 (14 950)      (111 196)      (142 072)
Cash flows from operating activities               18 182        191 302        336 040
Cash used in investing activities                (52 706)       (81 157)      (116 583)
 Capital expenditure                            (104 431)       (85 780)      (209 274)
 Finance income                                       538          3 070          6 396
 Proceeds on disposal of business unit  net       47 552          1 553         83 161
 Proceeds on disposal of property,
  plant and equipment                               3 635                        3 134
Cash flows to financing activities               (58 532)      (212 365)      (349 848)
 Net increase/(decrease) in borrowings             85 190        (5 808)            409
 Interest paid                                   (15 902)       (12 623)       (26 508)
 Dividends paid                                 (127 820)      (193 934)      (323 749)

Net movement in cash and
 cash equivalents                                (93 056)      (102 220)      (130 391)
 Effects of exchange rate changes                     562          1 928          (206)
 Reclassification to assets
  held for sale                                                 (12 839)             
 Cash and cash equivalent balances
  at beginning of the period                     (61 181)         69 416         69 416
Cash and cash equivalent balances
 at end of the period (note 7)                  (153 675)        (43 715)       (61 181)

ADDITIONAL INFORMATION
                                       Unaudited     Unaudited               Audited
                                      six months    six months             12 months
                                           ended         ended                 ended
                                        31 March      31 March   Change      30 Sept
                                            2013          2012        %         2012

Headline earnings (R'000) (note 5)        35 948       198 739     (82)      299 723
Headline earnings per share (cents)
  basic                                      94           522     (82)          787
  diluted                                    94           521     (82)          787
Dividends per share (cents)                  nil           336                   672
Number of ordinary shares
  issued net of treasury shares      38 060 308    38 060 308            38 060 308
  weighted-average                   38 060 308    38 060 308            38 060 308
  diluted weighted-average           38 069 482    38 111 641            38 096 321
Net debt (borrowings less cash and
 cash equivalents) (R'000)               267 213        66 196               105 683
Net asset value per share (Rand)           41,14         41,42                 41,65

NOTES

1.  Nature of business
    Astral is a leading South African integrated poultry producer. Key activities consist of manufacturing of animal
    feeds, broiler genetics, production and sale of day-old chicks and hatching eggs, integrated breeder and broiler
    production operations, abattoirs and sale and distribution of various key poultry brands.

2.  Basis of preparation
    The condensed interim financial statements for the six months ended 31 March 2013 have been prepared in
    accordance with International Reporting Standards ("IFRS"), IAS 34  Interim Financial Reporting, the Listings
    Requirements of the JSE Limited and the South African Companies Act (2008). These condensed interim financial
    statements have been prepared by the financial director, DD Ferreira CA(SA).

    These financial statements have not been reviewed or audited by the Group's auditors.

3.  Accounting policies
    The accounting policies applied in this interim financial statements comply with IFRS and IAS 34 and are
    consistent with those applied in the preparation of the Group's annual financial statements for the year ended
    30 September 2012.
                                                         Unaudited     Unaudited       Audited
                                                        six months    six months     12 months
                                                             ended         ended         ended
                                                          31 March      31 March       30 Sept
                                                              2013          2012          2012
                                                             R'000         R'000         R'000
4.   Operating profit
     The following items have been accounted for
     in the operating profit:
     Biological assets  fair value (loss)/gain              (521)         1 673         (752)
     Amortisation of intangible assets                       1 621         1 208         2 405
     Depreciation on property, plant and equipment          58 868        59 380       116 296
     Impairment of goodwill                                                            3 012
     Impairment of property, plant and equipment                                         970
     Profit on sale of property, plant and equipment         2 703           703           885
     Foreign exchange loss                                                (830)       (1 744)
     Provision for Competition Commission settlement                     17 000             
5.   Reconciliation to headline earnings
     Earnings for the period                               105 970       199 245       329 335
     Profit on sale of property, plant and
       equipment (net of tax)                              (2 174)         (506)       (1 705)
     Profit on disposal of interest in joint venture
       (net of tax)                                       (67 848)                          
     Profit on disposal of business unit (net of tax)                               (29 646)
     Insurance recovery on damaged assets
       (net of tax)                                                                  (3 044)
     Impairment of goodwill                                                            3 012
     Loss on assets scrapped (net of tax)                                              1 073
     Impairment of assets (net of tax)                                                   698
     Headline earnings for the period                       35 948       198 739       299 723
6.   Borrowings
     Non-current
     Secured loans                                         113 538        22 481        28 348
     Less: Portion payable within 12 months
      included in current liabilities                     (20 587)       (3 436)      (13 489)
                                                            92 951        19 045        14 859
     Current
     Bank overdrafts                                       181 611       128 711       102 602
     Portion of non-current secured loans payable
      within 12 months                                      20 587         3 436        13 489
                                                           202 198       132 147       116 091
7.   Cash and cash equivalents per
     cash flow statement
     Bank overdrafts                                     (181 611)     (128 711)     (102 602)
     Cash at bank and in hand                               27 936        84 996        25 267
     Cash and cash equivalents classified
      as held for sale                                                                16 154
     Cash and cash equivalents per cash flow
     statement	                                         (153 675)       (43 715)      (61 181)
8.   Capital commitments
     Capital expenditure approved not contracted           134 467       340 306       254 845
     Capital expenditure contracted not recognised
      in financial statements                              119 576        33 662        17 055

9.   Profit on sale of interest in joint venture
     The Group successfully concluded the sale of 25% interest in the Nutec SA (Pty) Limited ("Nutec") joint venture
     after it had been classified as assets and liabilities held for sale at 30 September 2012. The remaining 25% interest
     is now recognised as interest in an associate.

     The comparative number relates to the profit on sale of the entire interest in the East Balt bakery.

10.  Restatement of the 31 March 2012 amounts
     The disclosure of sales to contract growers for the period to 31 March 2012 have been restated in line with the
     disclosure applied for the 30 September 2012 financial year reported results.
 
     Sales of day-old chicks and feed to contract growers have been regarded as third party sales in the past and
     have been recognised in revenue. The outstanding amount of these sales was disclosed as trade receivables. This
     disclosure reflects the legal right of ownership of the goods transferred and the risks for quality and quantity carried
     by the contract growers.
    
     The interpretation of the above transactions was re-assessed at the September 2012 reporting period in
     conjunction with the Group's external auditor's technical department and a conclusion was reached that the
     contract growers should be regarded as suppliers rather than customers of the Group. The impact of this revised
     interpretation is that, on transfer of goods to the contract growers no sale should be recognised in revenue, and
     outstanding amounts in respect of these transfers should as a result be disclosed as biological assets and not as
     trade receivables.

     There was no impact on prior period reported profits or cash flows as the adjustment to revenue is offset by an
     adjustment to cost of sales, and the adjustment to trade receivables was offset by adjustments to biological assets
     and trade payables.

Effect of reclassification of sales to contract growers:
                                                                                  Trade          Trade
                                                              Biological      and other      and other
                                                    Revenue       assets    receivables       payables
March 2012                                            R'000        R'000          R'000          R'000

As previously disclosed                           4 885 288      362 156        743 563    (1 227 509)
Reclassification                                  (847 074)      121 059       (81 282)       (39 777)
Restated                                          4 038 214      483 215        662 281    (1 267 286)

FINANCIAL OVERVIEW
Headline earnings for the period decreased by 82% to R36 million from R199 million for the same period
last year as a result of losses by the poultry operations.

Earnings per share decreased by 47% from 523 cents to 278 cents, and headline earnings per share
decreased by 82% from 522 cents to 94 cents.

Group revenue increased by 5% from R4 038 million to R4 234 million due to higher selling prices driven
by increased input costs.

Losses reported by the poultry operations had a material impact on the Group's operating profit
which, at R64 million, was 80% down on the profit for the same period for the previous year. The Feed
and Other Africa operations' profits were on the same level as for the previous year. The interests
in East Balt bakery and 25% of the interest in Nutec, both reported under services and ventures,
have been sold, resulting in lower profits for this segment compared to the same period for the previous
year. The profit on the sale of the 25% interest in Nutec, together with the revaluation of the remaining
25%, amounted to R79 million, which is included in the earnings for the period.

Net finance costs at R12 million have increased on the previous year's R8 million due to higher average
level of borrowings.

A cash outflow of R93 million was reported for the period, increasing the net bank overdrafts to
R154 million (30 September 2012: R61 million). Total net borrowings amount to R267 million
(30 September 2012: R106 million), which includes R58 million incurred to date in respect of the new
feed mill under construction. The net debt to equity ratio was 16,9% (30 September 2012: 6,6%).

The board has decided against the backdrop of the difficult trading conditions and resulting low
reported profits, not to declare an interim dividend.

OPERATIONAL OVERVIEW
Poultry division
Revenue for the division was up by 3,0% to R2 952 million (2012: R2 878 million) on the back of
higher chicken selling prices which improved by 6,1%. Chicken sales volumes were down by 5,8%
and was largely attributable to a cutback in bird placements for the period under review.

A further increase in feed costs by 21,9% negatively impacted the operating profit of the division by
R306 million, with the operating profit decreasing by 183% to a loss of R117 million (2012: R140 million
profit).

The period under review was impacted by higher stock levels in the poultry industry, as poultry
imports from Brazil and the European Union hit record highs during October and November 2012.
Intense promotional activity followed as the industry endeavoured to clear these high stocks and
resulted in lower poultry prices that were insufficient to cover increased feed input costs. The increase
in feed costs, lower selling prices together with lower sales volumes, as well as costs attributable
to industrial action during the period, culminated in a significant deterioration in the profitability of
Astral's poultry division.

Feed division
Revenue for the division increased by 10,2% to R2 397 million (2012: R2 175 million) as a result of
higher feed selling prices on the back of higher maize and soya input pricing levels. Sales volumes
decreased by 5,3% due to a lower inter-group requirement for poultry feed (down 11,9%), which was
partially offset by an increase in external feed sales (up 2,5%).

Other Africa division
Revenue for the division increased by 25,9 % to R203 million (2012: R161 million) as a result of higher
volumes (up 15,9%) and higher sales realisations (up 10,0%).

The operating profit remained unchanged at R20 million with an operating profit margin at 9,6%
(2012: 12,2%). The profitability of the division was impacted by the start-up costs of a Greenfield
hatchery operation in Mozambique and lower profit margins in the Mozambican feed business.

Services and Ventures division
Revenue for the division decreased to R30 million (2012: R147 million) whilst operating profit
decreased to R5 million (2012: R10 million). Excluded from the results for the period under review
is the profit contribution from the East Balt SA operation, which was disposed of during 2012 and
in addition only includes two months' reporting pre-disposal of half of the Group's 50% interest in
Nutec. Future segmental reporting for this division will fall away.

COMPETITION COMMISSION
As previously reported, the all-inclusive agreement with the Competition Commission, which has
been negotiated to settle all previous and current matters and investigations, is in the final stages of
conclusion, with the settlement value of R17 million having being fully provided for in the prior financial
year. This agreement still remains to be confirmed as an order by the Competition Tribunal.

LABOUR MATTERS
Industrial action experienced at the Group's Earlybird Olifantsfontein processing operation in Gauteng
and the County Fair poultry farms in the Western Cape, resulted in a direct cost of R37 million for
the period under review. In both instances the strikes were settled with a zero percentage increase
in wages. The farm workers' minimum wage, which was legislated at R105 per day on 1 March 2013,
has been introduced with an annual cost to the Group of R3,3 million.

PROSPECTS
Contrary to prior expectations, the outlook for good maize crops in South Africa and the United States
is less optimistic as a result of unfavourable weather conditions, which could lead to prolonged high
feed input costs, albeit with some softening in grain prices in the coming six months off the highs of the
past reporting period.

The slowing level of growth in the economy and higher unemployment levels will continue to depress
consumer spending. This, coupled with high levels of poultry imports, will continue to hamper the
industry's ability to recover the high input costs.

An application was made by the South African Poultry Association to the International Trade
Administration Commission (ITAC) for the implementation of higher general tariffs on poultry imports.
This application was brought about by the large and rapid increase in the volume of extremely
low-priced imported frozen poultry meat and, if successful, will go some way to improving the imbalance
in the supply and demand of chicken.
On behalf of the board

JJ Geldenhuys	                                      CE Schutte
Chairman	                                      Chief Executive Officer

Pretoria
13 May 2013

Registered office
92 Koranna Avenue, Doringkloof, Centurion, 0157, South Africa
Postnet Suite 278, Private Bag X1028, Doringkloof, 0140
Telephone: +27 (0)12 667 5468

Website address:
http:/www.astralfoods.com

Directors
JJ Geldenhuys (Chairman), *CE Schutte (Chief Executive Officer)
*GD Arnold, *T Delport, Dr T Eloff,*DD Ferreira (Financial Director)
IS Fourie, *Dr OM Lukhele, M Macdonald, Dr N Tsengwa
(*Executive director)

Company secretary
MA Eloff

Transfer secretaries
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001, PO Box 61051, Marshalltown, 2107
Telephone: +27 (0)11 370 5000

Sponsor
JPMorgan Equities South Africa (Pty) Limited
1 Fricker Road, Illovo, Johannesburg, 2196, Private Bag X9936, Sandton, 2146
Telephone: +27 (0)11 507 0430
Date: 13/05/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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