OPERATIONAL REVIEW: BULL BRAND FOODS

Profile

Bull Brand Foods operates a large abattoir in Krugersdorp, supplied mainly from its two cattle feedlots near Magaliesburg and Potchefstroom. Additionally the Krugersdorp site houses the cannery which produces canned products branded with a range of well-known South African favourites such as “Bull Brand”, “Gants” and “Spekenam”.

Year under review

Bull Brand’s financial performance has seen a significant turnaround since becoming part of the KAP stable. Access to capital has enabled Bull Brand to almost double the size of its feedlot herd, which is now in excess of 40 000 head of cattle and has also enabled initiatives (like dust control systems, kraal size increases and “backgrounding”) at the feedlots to improve cattle growth performance.

This resulted in better economies of scale at the feedlots and abattoir. The improved production cost per kilogram at the feedlots, together with stringent overhead cost reduction by management, has resulted in a dramatic and rapid improvement in operating profits during the period under review.

Bull Brand Foods thus performed well above expectation as an integrated red meat and canned meals supplier. Despite hot and dry conditions, which resulted in maize prices increasing in the last quarter, our two feedlots enjoyed the benefits of favourable feed prices for the better part of the year. Significant investment was made to improve production and health efficiencies, further supporting production cost efficiency, and both trading divisions achieved their turnover and volume growth objectives for the year.

Strong local and export demand, underpinned by the largest ever generic beef advertising campaign, resulted not only in stable red meat prices but strong volume growth. The launch of the premium Bull Brand Slender & Tender, Snax and Cowboy King products has been received favourably and is gaining momentum. The need is clear that consumers require valueadd and convenience. The strengthening of the rand adversely affected canned meal exports but did not detract from a strong performance in the South African retail market. Markets in Namibia and Botswana continue to grow.

The benefits of a structured capital replacement programme are filtering through to improved cost and production efficiencies, especially after improving standing space for animals at Hurland and commissioning a dust control system at Taaiboschbult. Both feedlots now showcase world-class systems and infrastructure and the development of Thungela farm for preconditioning and a continuous supply for roughage, will continue. In Krugersdorp progress has been made with the replacing and upgrading of the refrigeration plant, boilers and the distribution fleet. The complete replacement of the financial and manufacturing IT platform has commenced and will be completed during 2006. This will add significant value to the day-to-day management of the business.

The drive to “de-commoditise” the fresh meat products through value-add will continue. Our brands will be supported by ongoing print and media campaigns and awareness will be generated from our involvement in South African boxing. Food safety and environmental certificates have once again been retained and we will continue to serve our export destinations as an EU-approved export plant.

Prospects

The general economic outlook remains positive, but significant sectoral challenges remain. Input costs, together with expensive weaners caused by a steady migration of maize farming to cattle feeding, will put meat prices under pressure. A shortage of imported manufacturing beef due to foot-and-mouth disease in Brazil will adversely affect the input costs of canned meals. We remain confident, however, that Bull Brand Foods will successfully navigate these challenges and achieve its new financial-year objectives.