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Sovereign Foods' poultry volume rises, profits drop

South African Poultry company, Sovereign Food Investments, has reported diluted headline earnings per share of 0.7 cents for the six months ended August 2011 from 2.6 cents a year ago.

Revenue rose to R610.5m from R43.3m, however, operating profit before depreciation and impairments declined to R25.98m from R43.26m.

Sovereign said that while gearing has improved, the cash flow position is still not at a level acceptable to the Board and it therefore considers it prudent to not declare an interim dividend for the period under review.

The company attributed the lower earnings to higher mortalities as a result of a harsh early winter disease and a 23% increase in non-feed costs per kg sold including a once-off charge of R8.4m relating to the stepping down of the CEO.

From a production perspective, the feed conversion ratio improved by 6% while maintaining the same live mass per bird. Negative production indicators were mortalities increasing from 6% to 8% and processing yield declining by 1%. The group slaughtered 6% more birds which resulted in an increase in sales volume of 5% to 50 400 tonnes.

However, the volume of poultry imports into SA increased by 47% over H1 11 and 28% over H2 11 and continues to place pressure on local pricing. Of particular concern is the sudden increase in the import volumes of leg quarters from the European Union which attract no tariffs.

The poultry industry also saw a substantial increase in maize prices and the group's broiler feed costs increased by 8% per tonne. This increase in maize prices will continue to place the poultry industry under pressure for the next six months, it said.

The group's primary challenge for the next six months is to contain and reduce its non-feed costs. It has embarked on an aggressive plan to reduce discretionary and direct production costs and this plan is expected to yield results in the next six months.

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