Photo by: Bloomberg
Poultry producer Astral Foods expects to post a loss this year as the company had to foot a R919-million bill to mitigate against loadshedding, while the industry suffers its “worst-ever” bird flu outbreak.
In a trading update on Thursday, the JSE-listed company cautioned that its earnings a share (EPS) for the year ended September could decrease by as much as 165%, amounting to a loss of R18.08 apiece.
This compares to EPS of R27.81 posted in the prior financial year.
Astral had to cut back on at least 12-million broiler placements in the six months ended March 31, which resulted in older and heavier birds consuming higher levels of feed.
At the time, Astral was selling chicken at a loss of R2/kg, with the cost to produce chicken having exceeded the selling price.
The company has also been implementing additional shifts to try and address the substantial backlog in the group’s integrated broiler supply chain.
The high costs incurred in the 2023 financial year relate to diesel for generators, the cutback in poultry production to catch up with the backlog in the slaughter programme, higher feed costs owing to older broilers and overtime costs for the additional shifts.
The cost to run its diesel generators alone amounts to R45-million a month.
Fortunately, Astral reports the backlog in the slaughter programme was cleared by the end of June and broiler efficiencies have subsequently normalised on targeted broiler age, live weight and feed consumption.
However, other factors still negatively impacted the financial performance of the group, including less promotional activity in the wholesale and retail sectors on chicken and limited product range that could be discounted, as well as poultry selling prices coming under severe pressure as consumption slowed down in winter.
Astral’s selling prices for chicken have not offset input costs, including the significant loadshedding and other inflationary costs, which exacerbated the situation where negative margins on poultry sales are realised.
The group continues to subsidise the various costs.
Moreover, the poultry industry is also being ravaged by an outbreak of highly pathogenic Avian Influenza, with additional costs being incurred by Astral to cull broiler breeding stock in line with regulated disease control measures.
The company explains the losses extend beyond the biological cost of culled birds to include costs relating to measures taken for the safe disposal of these birds, as well as biosecurity measures implemented to curb the spread of the disease.
At an industry level, Astral expects short suppliers of table eggs into the market, as well as an impacted poultry meat value chain in coming months.
“The bird flu outbreak is the worst that South Africa has witnessed and goes well beyond the impact felt by the H5N8 bird flu in 2017,” the company said.
To date, the total cost associated with the current bird flu outbreak amounts to about R220-million for the group.
Astral assures that its balance sheet is geared to about 25% to maintain sufficient liquidity and solvency going forward.
The group plans to release another trading statement at the end of October.