Feeding a growing economy
CHICKEN PRODUCER Astral is counting on South Africa’s growing economy and disposable income to consume more chicken. In the 2006 financial year, the company embarked on an aggressive expansion programme, spending R297m on its poultry division to expand capacity.
Subsequent to the year-end, the Astral board approved another R202m expenditure at the Earlybird poultry division to expand capacity and improve processing efficiencies.
Writing in the 2006 annual report, chairman Jan van den Berg says: “Last year we gave notice of our intention to expand capacity at our Earlybird division. This primary project has substantially been completed and will result in a progressive increase building up to about 12% in our broiler production by the second half of calendar 2007.” Van den Berg says the company expects the benefits of these expansion processes to be felt in the second half of 2007. “We expect further growth in demand for poultry, which we will be in a strong position to take advantage of as our capital programmes come on stream,” he writes.
Despite a sharp increase in poultry and animal feed costs, strong poultry consumption ensured a 24% profit growth to R516m in the year to end September 2006 from R416m for the same period in 2005. The increase in input costs was mainly due to the increase in the maize price of US$205/t (about R1 470/t) in October 2005 to a high of US$274/t (about R1 970/t) by July 2006.
Astral CEO Nick Wentzel says the steady growth of the economy has boosted disposable income, resulting in per capita consumption of chicken increasing 14% over the past six years to 22,41kg in 2006 from 19,74kg in 2000. But Wentzel is far from satisfied: “However, this is still well below the 30kg (per capita consumption) in Western Europe and 40kg in North America.” Just less than half the R202m capital expenditure (R94m) goes to broiler production, processing and distribution division Earlybird to ramp up production capacity from the current 2,1m to 2,5m chickens a week.
However, Astral is not blindly chasing higher consumption through the expansion programme. Says Wentzel: “We place great emphasis on return on capital employed and we are acutely aware of the danger of overcapitalising. It’s accordingly pleasing to report that our return on net assets improved from 51% to 65%.”