Johannesburg — POULTRY producer Country Bird Holdings said yesterday it experienced cost pressure in the year to June, but its margins were expected to improve in the medium term as capacity expansion came online.

The company said, in posting maiden results as a listed company, that revenue rose 35% to R1,3bn from R972m. However, input cost increases placed pressure on margins, and its trading margin narrowed from 17% to 12,2%.

Despite "significant increases in raw material prices", net profit after stripping out a R12,3m once-off empowerment deal charge, was R112,2m, up on the previous year's R107,8m.

The company experienced input cost pressure in its Supreme poultry division, pushing trading margins down to 9,7% from 14,8%. Poultry accounted for most of its revenue.

Country Bird could not pass on the full effect of increases to customers. Financial director Geoff Heath said it was a "question of timing" before price increases could be passed on down the value chain.

Margins were also affected by "substandard breeder performance", but Heath said Country Bird was changing breeders and the full benefit of the switch would be felt in the next 12-18 months.

Heath said the company had increased poultry capacity, and expected to grow into the spare 20% within the next two years.

Volume increases as a result of the expansion have been felt, and will aid results in the current financial year, although the full effect was expected to be seen only in 2009.

Heath said the company had enough capacity to double its feed operations over the next year after a major restructuring following its acquisition of Senwesko Feeds, which it renamed Nutrifeeds. The full benefits of its restructuring were expected to be felt in the current financial year.

Country Bird said it would complete restructuring and capacity expansion in the current year. The feed division's operating margin was 5,7%, down from last year's margin of 6,8%. However, the margin improved during the second half of the year.

Country Bird expected "significant volume growth and margin improvements" in the current year from its feed division, which would also benefit from increased poultry volumes.

Alistair Lea, portfolio manager at Coronation Fund Managers, said he expected the company's margins to improve in the next two to three years as it would benefit from the economies of scale that its capacity expansions would give it.

In addition, Lea said, once the company had resolved performance issues at its breeders, margins would improve. He hoped that Country Bird would also be able to increase its prices to recover some of the maize price increases it had experienced.

Heath said the company was confident of growth locally and at its other African operations. Globally, he said, there was a shortage of chicken and local per person consumption was about 10kg a year lower than in developed nations, which indicated room for growth.

Ross Africa, its African breeding operation, had scope that would allow it to benefit from synergies, said Heath.