Feed­ing a grow­ing econ­omy

Finweek English Edition - - Companies & markets - FROM THE AN­NUAL RE­PORT SIKONATHI MANTSHANTSHA

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%.”

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