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ASTRAL FOODS LIMITED - Unaudited interim results for the six months ended 31 March 2019

Release Date: 13/05/2019 07:05
Code(s): ARL     PDF:  
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Unaudited interim results for the six months ended 31 March 2019

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 2019


Financial highlights

Revenue Up 3%

Operating profit Down 51%

Earnings per share Down 52%

Headline earnings per share Down 52%

Interim dividend R4.75 per share


Financial Statements

Condensed consolidated statement of comprehensive income
                                                                                      Unaudited          Unaudited                             Audited
                                                                                 6 months ended     6 months ended                           12 months
                                                                                  31 March 2019      31 March 2018                               ended
                                                                                                        (restated)                        30 Sept 2018
                                                                                          R'000              R'000         % change              R'000   
Revenue                                                                               6 775 389          6 600 507                3         12 978 561   
Cost of sales                                                                       (5 395 325)        (4 660 738)                         (9 304 535)   
Gross profit                                                                          1 380 064          1 939 769             (29)          3 674 026   
Administrative expenses                                                               (356 093)          (450 489)                           (817 013)   
Distribution costs                                                                    (423 008)          (360 956)                           (733 738)   
Marketing expenditure                                                                  (98 608)           (93 117)                           (185 404)   
Other net income and gains                                                                  705                837                               3 690   
Profit before interest and tax (note 5)                                                 503 060          1 036 044             (51)          1 941 561   
Finance costs - net                                                                      17 667             21 960                              52 527   
Finance income                                                                           23 830             26 569                              62 903   
Finance costs                                                                           (6 163)            (4 609)                            (10 376)   
Profit before income tax                                                                520 727          1 058 004             (51)          1 994 088   
Tax expense                                                                           (150 662)          (297 305)                           (559 738)   
Profit for the period                                                                   370 065            760 699             (51)          1 434 350   
Other comprehensive income                                                                                                                               
Items that will not be reclassified to profit or loss:                                                                                                   
Remeasurement of post-employment benefit obligations (net of deferred tax)                                                                       2 598   
Items that may be subsequently reclassified to profit or loss:                                                                                           
Foreign currency (loss)/gain on investment loans to foreign subsidiaries                  (585)                526                                   5   
Foreign currency translation adjustments                                                  2 861           (12 014)                            (13 439)   
Total comprehensive income for the period                                               372 341            749 211             (50)          1 423 514   
Profit attributable to:                                                                                                                                  
Equity holders of the holding company                                                   367 723            758 980             (52)          1 431 076   
Non-controlling interests                                                                 2 342              1 719               36              3 274   
                                                                                        370 065            760 699             (51)          1 434 350   
Comprehensive income attributable to:                                                                                                                    
Equity holders of the holding company                                                   369 999            747 492             (51)          1 420 240   
Non-controlling interests                                                                 2 342              1 719               36              3 274   
                                                                                        372 341            749 211             (50)          1 423 514   
Earnings per share (Rand)                                                                                                                                
- basic                                                                                  R 9.48            R 19.58             (52)            R 36.91   
- diluted                                                                                R 9.47            R 19.56             (52)            R 36.87   


Condensed consolidated balance sheet
                                                                                                         Unaudited        Unaudited            Audited
                                                                                                          6 months         6 months          12 months
                                                                                                             ended            ended              ended
                                                                                                     31 March 2019    31 March 2018       30 Sept 2018
                                                                                                                         (restated)    
                                                                                                             R'000            R'000              R'000
Assets                                                                                                       
Non-current assets                                                                                       2 507 239        2 301 542          2 409 499   
Property, plant and equipment                                                                            2 311 150        2 103 837          2 212 205   
Intangible assets                                                                                           59 954           61 570             61 159   
Goodwill                                                                                                   136 135          136 135            136 135   
Current assets                                                                                           3 506 857        3 580 376          3 764 715       
Biological assets                                                                                          779 089          759 316            770 461   
Inventories                                                                                                736 293          593 618            836 690   
Trade and other receivables                                                                              1 517 909        1 226 851          1 328 418   
Current tax asset                                                                                           19 656           30 579              7 303   
Cash and cash equivalents                                                                                  453 910          970 012            821 843   
Total assets                                                                                             6 014 096        5 881 918          6 174 214              
Equity                                                                                                                                                   
Capital and reserves attributable to equity holders of the parent company                                3 689 815        3 438 883          3 726 922   
Issued capital                                                                                              87 065           83 727             86 751   
Treasury shares                                                                                          (204 435)        (204 435)          (204 435)   
Reserves                                                                                                 3 807 185        3 559 591          3 844 606   
Non-controlling interest                                                                                    11 188           12 241             10 496             
Total equity                                                                                             3 701 003        3 451 124          3 737 418              
Liabilities                                                                                                                                              
Non-current liabilities                                                                                    656 794          597 500            649 979          
Deferred tax liability                                                                                     519 385          453 738            481 732   
Employment benefit obligations                                                                             137 409          143 762            168 247   
Current liabilities                                                                                      1 656 299        1 833 294          1 786 817   
Trade and other liabilities                                                                              1 399 497        1 393 173          1 360 469   
Employment benefit obligations                                                                             220 428          341 225            373 195   
Current tax liabilities                                                                                     11 197           61 213             17 480   
Borrowings (note 7)                                                                                         22 496           35 556             33 277   
Shareholders for dividend                                                                                    2 681            2 127              2 396   
Total liabilities                                                                                        2 313 093        2 430 794          2 436 796   
Total equity and liabilities                                                                             6 014 096        5 881 918          6 174 214   


Condensed consolidated statement of cash flows

                                                                                                         Unaudited        Unaudited            Audited
                                                                                                    6 months ended   6 months ended    12 months ended
                                                                                                     31 March 2019    31 March 2018       30 Sept 2018
                                                                                                                         (restated)
                                                                                                             R'000            R'000              R'000
Cash operating profit                                                                                      407 384        1 094 040          2 156 086   
Changes in working capital                                                                                 100 196         (41 661)          (425 201)   
Cash generated from operating activities                                                                   507 580        1 052 379          1 730 885   
Income tax paid                                                                                          (131 881)        (258 974)          (516 236)   
Cash flows from operating activities                                                                       375 699          793 405          1 214 649   
Cash used in investing activities                                                                        (321 200)         (69 031)          (254 708)   
Purchases of property, plant and equipment                                                               (343 224)        (127 003)          (346 551)   
Costs incurred on intangibles                                                                              (1 829)          (8 645)           (11 391)   
Proceeds on disposal of property, plant and equipment                                                           23               48                331   
Finance income                                                                                              23 830           26 569             62 903   
Payment received on investment sold during previous year                                                                     40 000             40 000   
Cash flows to financing activities                                                                       (411 633)        (338 701)          (729 577)   
Dividends paid                                                                                           (408 784)        (338 988)          (729 752)   
Proceeds from shares issued                                                                                    314            2 264              5 288   
Finance expense                                                                                            (3 163)          (1 977)            (5 113)   
Net movement in cash and cash equivalents                                                                (357 134)          385 673            230 364   
Effects of exchange rate changes                                                                              (18)          (3 792)              5 627   
Cash and cash equivalent balances at beginning of year                                                     788 566          552 575            552 575   
Cash and cash equivalent balances at end of period (note 8)                                                431 414          934 456            788 566   


Condensed consolidated statement of changes in equity
                                                                                                         Unaudited        Unaudited            Audited
                                                                                                    6 months ended   6 months ended    12 months ended
                                                                                                     31 March 2019    31 March 2018       30 Sept 2018
                                                                                                                         (restated)
                                                                                                             R'000            R'000              R'000
Balance beginning of year                                                                                3 737 418        3 038 832          3 038 832   
Profit for the period                                                                                      370 065          760 699          1 434 350   
Other comprehensive income/(loss) for the period, net of tax                                                 2 276         (11 488)           (10 836)   
Dividends to shareholders                                                                                (409 069)        (339 183)          (730 216)   
Proceeds on shares issued                                                                                      313            2 264              5 288   
Balance at end of period                                                                                 3 701 003        3 451 124          3 737 418   


Condensed consolidated segmental analysis  
                                                                                      Unaudited          Unaudited                             Audited
                                                                                 6 months ended     6 months ended                     12 months ended
                                                                                  31 March 2019      31 March 2018                        30 Sept 2018            
                                                                                          R'000              R'000         % change              R'000
Revenue                                                             
Poultry                                                                               5 471 655          5 415 014                1         10 603 727   
Feed                                                                                  3 303 235          3 096 521                7          6 198 202   
Other Africa                                                                            223 063            184 519               21            410 787   
Inter-group                                                                         (2 222 564)        (2 095 547)                         (4 234 155)   
                                                                                      6 775 389          6 600 507                3         12 978 561   
Operating profit                                                                                                                                         
Poultry                                                                                 257 706            827 698             (69)          1 452 762   
Feed                                                                                    238 595            191 479               25            456 622   
Other Africa                                                                              6 759             16 867             (60)             32 177   
                                                                                        503 060          1 036 044             (51)          1 941 561              


Additional information

                                                                                      Unaudited          Unaudited                             Audited
                                                                                 6 months ended     6 months ended                     12 months ended
                                                                                  31 March 2019      31 March 2018                        30 Sept 2018
                                                                                                        (restated)
                                                                                          R'000              R'000         % change              R'000

Headline earnings (R'000) - (note 6)                                                    368 033            759 489             (52)          1 439 236   
Headline earnings per share (Rand)                                                                                                                       
- basic                                                                                  R 9.49            R 19.59             (52)            R 37.12   
- diluted                                                                                R 9.48            R 19.57             (52)            R 37.08   
Dividends per share (Rand) - declared out of earnings for the period                                                                                     
- Interim dividend                                                                       R 4.75            R 10.00             (53)            R 10.00   
- Final dividend                                                                                                                               R 10.50   
- Total dividend                                                                                                                               R 20.50   
Number  of ordinary shares                                                                                                                               
- Issued net of treasury shares                                                      38 801 808         38 773 208                          38 798 808   
- Weighted-average                                                                   38 800 638         38 762 630                          38 774 025   
- Diluted weighted-average                                                           38 814 198         38 806 822                          38 809 443   
Cash and cash equivalents (R'000)                                                       431 414            934 456                             788 566   
Net asset value per share (Rand)                                                        R 95.09            R 88.69                             R 96.06   


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 2019 have been prepared in accordance with International
     Financial 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 under the supervision of the financial director, DD
     Ferreira CA(SA).
     
     These condensed interim financial statements have not been reviewed or audited by the group's auditors.

3.   Accounting policies
     The accounting policies applied in these condensed interim financial statements comply with IFRS and are consistent with those applied in the
     preparation of the Group's annual financial statements for the year ended 30 September 2018, except for the adoption of IFRS 9 - Financial
     Instruments and IFRS 15 - Revenue from Contracts with Customers. Neither of these two new standards had any material impact on the
     reported results.

4.   Restatement of comparative amounts for prior periods
     Following a re-assessment of management's judgement of the nature of certain sales transactions during 2018 it was concluded that the risks
     and rewards of certain goods delivered during September 2017 have passed on to a customer who thereby acted as a principal as opposed to
     an agent. The revenue related to these transactions should have been recognised in the 2017 financial year, and not during the first half of the
     2018 financial year.

     Revenue, cost of sales and tax have been restated with the corresponding adjustments to the opening balance of equity.

     Details of the impact on prior period disclosure is as per note 10.
                                                                                      
                                                                                                         Unaudited        Unaudited            Audited
                                                                                                    6 months ended   6 months ended    12 months ended
                                                                                                     31 March 2019    31 March 2018       30 Sept 2018
                                                                                                                         (restated)
                                                                                                             R'000            R'000              R'000         
5.   Profit before interest and tax                                                                                  
     The following items have been accounted for in the profit before interest and tax:                                   
     Biological assets - fair value (loss)/gain                                                            (1 514)              996              5 149   
     Amortisation of intangible assets                                                                       3 044            2 911              6 048   
     Depreciation on property, plant and equipment                                                          84 881           75 459            145 714   
     Loss on sale of property, plant and equipment                                                             434              705                417   
     Foreign exchange losses                                                                                    60            1 885                      
     Assets scrapped                                                                                                                            10 891   
     Insurance recoveries                                                                                    3 776                               1 324   

6.   Reconciliation to headline earnings                                                                                                              
     Net profit attributable to shareholders                                                               367 723          758 980          1 431 076   
     Loss on sale of property, plant and equipment (net of tax)                                                310              509                301   
     Loss on assets scrapped (net of tax)                                                                                                        7 859   
     Headline earnings for the period                                                                      368 033          759 489          1 439 236   


                                                                                                         Unaudited        Unaudited            Audited
                                                                                                    6 months ended   6 months ended    12 months ended
                                                                                                     31 March 2019    31 March 2018       30 Sept 2018
                                                                                                                         (restated)
                                                                                                             R'000            R'000              R'000
7.   Borrowings                                                                                                              
     Current - Bank overdrafts                                                                              22 496           35 556             33 277   

8.   Cash and cash equivalents per cash flow statement                                                                                                
     Bank overdrafts (included in current borrowings)                                                     (22 496)         (35 556)           (33 277)   
     Cash at bank and in hand                                                                              453 910          970 012            821 843   
     Cash and cash equivalents per cash flow statement                                                     431 414          934 456            788 566   

9.   Commitments                                                                                                             
     Capital expenditure approved not contracted                                                           515 258           21 920          1 267 807   
     Capital expenditure contracted not recognised in financial statements                                 581 885          122 070            127 012   
     Cost on intangibles contracted not recognised in financial statements                                                                       6 252   
     Raw material contracted amounts not recognised in the statement of financial position               1 371 734        1 522 389          1 090 415   

10.  Effect of re-assessment of certain sales transactions                                                                    
     Decrease in revenue                                                                                                     65 824               
     Decrease on cost of sales                                                                                               57 707               
     Decrease in gross profit and operating profit                                                                            8 117               
     Decrease in tax expense                                                                                                  2 273               
     Decrease in profit after tax, earnings and headline earnings                                                             5 844               
     Increase in the opening balance of equity                                                                                5 844               
     Decrease in  earnings per share and headline earnings per share - cents per share                                           15               
     Impact on cash generated from operations                                                                                   nil               


Financial overview
The external revenue increased by 2.6% to R6.8 billion (1H2018: R6.6 billion), whilst revenue
from the Poultry segment, the major contributor to the group's external revenue, only increased
by 1.0%.

The group's lower operating profit at R503 million (1H2018: R1 036 million) was as a result of a
R570 million decline in poultry profitability to R258 million. Feed price and production cost
increases could not be recovered by increasing sales realisations, due to the consumer market
not being able to absorb price increases.

The cash inflow from operating activities of R375 million, included an inflow of R100 million
from lower working capital, mainly as a result of lower poultry finished goods stock compared
to the prior financial year ending stocks (30 September 2018). Capital expenditure incurred of
R343 million, includes payments totalling R253 million in respect of the expansion project at the
Festive processing plant and the Meadow Feeds Standerton silo complex.

A net cash outflow of R357 million for the first half was reported, following the payment of the final
2018 dividend of R408 million. The cash and cash equivalents at 31 March 2019 were, however,
in a surplus of R431 million.

The board declared an interim dividend of R4.75 per share which was well within the liquidity
capabilities of the group.

Operational overview

Poultry Division
The broiler operations reported a decline in revenue as both broiler selling prices and sales
volumes decreased for the period under review. However, revenue for the division increased by
1.0% to R5.5 billion (1H2018: R5.4 billion) supported by a marked increase in revenue from the
group's breeding operations.

Broiler sales volumes were marginally down by 1.1% (2 538 tons), despite sales realisations
decreasing by 3.4% on the comparable period. Consumer demand was subdued, resulting in
deeper promotional activity to better balance supply and demand.

Broiler feed prices increased 9.2% due to higher raw material costs for the reporting period. 
Feed conversion efficiency improved further, slightly offsetting the higher feeding cost per 
broiler produced.

Profitability for the poultry division decreased by 68.9% to R258 million (1H2018: R828 million),
driven largely by the higher feed input costs and lower sales realisations. The under recovery of
increased input costs, as well as the influence of extraordinary expenses, negatively impacted
profitability for this division. The newly legislated minimum wage, the impact of load-shedding
nationally, water supply interruptions in Standerton, and costs associated with industrial action
in KwaZulu-Natal, all contributed to a higher base cost of production. The net profit margin
decreased to 4.7%, compared to historically one of the highest reported profit margins of 15.4%
achieved in the prior period.

Total poultry imports remained high, with the average monthly total poultry imports for the
period under review equalling approximately 38% of local production, or an average of 41 771 tons
per month.

Feed Division
Revenue increased by 6.7% to R3.3 billion (1H2018: R3.1 billion) as a direct result of higher feed
selling prices on the back of increases in raw material costs. Safex yellow maize prices increased
to an average of R2 579 per ton for the period under review (1H2018: R1 981).

Feed sales volumes in the division decreased marginally by 0.9% as the internal requirement for
broiler feed decreased (0.6%), on an improved broiler feed conversion rate. Lower external sales
volumes (1.3%) were reported as all livestock sectors came under pressure on the back of higher
feed costs.

The operating profit for this division increased by 24.6% to R239 million (1H2018: R191 million),
with an improvement in the operating profit margin to 7.2% (1H2018: 6.2%). The division
benefitted from well controlled expenses and effective raw material cost recovery.

Other Africa Division
This division, consisting of both feed and poultry operations in three countries namely; Zambia,
Mozambique and Swaziland, reported an increase in revenue of 20.9% to R223 million (1H2018: R185
million), due largely to higher selling prices on the back of an increase in raw material input costs. Sales
volumes increased by 11.7% driven largely by higher feed sales in Zambia. However, the operating profit
decreased to R7 million (1H2018: R17 million) impacted by a provision for the doubtful recovery from
the Mozambican government of VAT on imported raw materials, as well as margin pressure in Zambia as
feed selling prices could not be increased sufficiently to fully recover higher input costs.


Outlook
Astral's view on the near-term prospects can be regarded as a mixed bag of both negative and positive
factors, each of which could potentially have an influence on its business performance.

- Raw material price increases, will negatively impact Astral's largest input cost, namely feed, which
  makes up 66% of broiler live cost.
- Traditionally slower trading conditions for the second half of Astral's financial year, exacerbated by
  continued high levels of unemployment.
- The negative impact of high fuel prices on consumer disposable income, leading to continued
  pressure on poultry selling prices.
- Higher local poultry production levels together with imports from Brazil and the USA, will negatively
  impact the supply and demand balance in the short term.
- The newly legislated minimum wage will continue to impact poultry production costs.
- Municipal infrastructure deterioration in Standerton, leading to water supply interruptions at a cost
  to the business.
- Sufficient international coarse grain stocks with good prevailing planting conditions in the USA and South America.
- Maize imports into the Western Cape at a discount to local Safex pricing, will contribute positively to
  feed input costs in that region.
- Local maize stocks together with maize imports will meet demand, despite early season SA maize crop concerns.
- Recent late rainfall received in the maize growing areas of the country, will benefit soil moisture
  conditions for the new planting season.
- Supply and distribution of the Ross poultry genetics in South Africa, has been secured for a further
  10-year period with the conclusion of a renewed supply agreement with Aviagen.

Astral remains committed to its strategy of being the best cost integrated poultry producer, and
embarked on identified capital projects that will support its stated strategy.

Declaration of ordinary dividend No 36

The board has approved an interim dividend of R4.75 per ordinary share (gross) in respect of the
six months ended 31 March 2019.

The dividend will be subject to Dividends Tax that was introduced with effect from 1 April 2012.
In accordance with paragraphs 11.17 (a) (i) to (x) and 11.17 (c) of the JSE Listings Requirements the
following information is disclosed:

  - The dividend has been declared out of income reserves;
  - The local Dividend Tax is 20% (twenty per centum);
  - The gross local dividend is R4.75 per ordinary share for shareholders exempt from the
    Dividend Tax;
  - The net local dividend is R3.80 per ordinary share for shareholders liable to pay Dividend Tax;
  - Astral Foods Limited has currently 42 890 385 ordinary shares in issue (which includes 4 088
    577 treasury shares held by a subsidiary); and
  - Astral Foods Limited's income tax reference number is 9125190711.

Shareholders are advised of the following dates in respect of the final dividend:

Last date to trade cum-dividend                                                Tuesday, 4 June 2019
Shares commence trading ex-dividend                                          Wednesday, 5 June 2019
Record date                                                                     Friday, 7 June 2019
Payment of dividend                                                            Monday, 10 June 2019

Share certificates may not be dematerialised or rematerialised between Wednesday,5 June 2019 and 
Friday, 7 June 2019, both days inclusive.

On behalf of the board

T Eloff                                                           C E Schutte
Chairman                                                          Chief Executive Officer

Pretoria
7 May 2019

Sponsor Nedbank Corporate and Investing Banking, 
a division of Nedbank Limited

135 Rivonia Campus Rivonia Road 
Sandown, 2196 
Tel +27 (0) 294 4444 


www.astralfoods.com

13 May 2019

Date: 13/05/2019 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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