Broiler producers roasted by low margins

SA's broiler companies are struggling because of rising input costs and cheap imports from Brazil and the European Union. This week competitor Astral Foods reported an 82% slide in headline earnings in the six months to March 31‚ after losses in its poultry division.

Sovereign's directors said industry selling prices were expected to remain flat in the coming year because of the imbalance in supply and demand created by high import volumes.

Industry margins were expected to decline in the coming year as it would be difficult to pass on cost increases‚ such as rising administered prices‚ to consumers.

Sovereign's headline earnings before tax improved by 21% to R81m‚ with taxed profit rising by 25% to R52m from R42m.

Sovereign said turnover was up by just 1% mainly because of a 5% increase in prices and a 4% drop in volumes.

Sovereign said poultry import volumes from the European Union and Brazil (including mechanically deboned meat) rose by 15% to a record of 404‚163 tons for the year to December‚ compared with 350‚175 tons the previous year.

"The result of this can be seen in the average national price of frozen poultry which has remained flat over the past three years despite large increases in input costs such as maize‚ soya‚ sunflower‚ packaging materials‚ fossil fuels‚ electricity‚ municipal charges and wages‚" the company said.

Sovereign said the outcome of requests by the poultry industry for the government to impose high import tariffs remained uncertain.

The 5% increase in selling prices was offset by the 9% increase in feed costs and the 3% increase in non-feed costs. This had placed pressure on the group's headline earnings before taxation‚ which only increased to 6.4% from 5.3%‚ the company said.

Cash on hand increased by R29m and the net cash position at year-end was R97m.