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Astral posts R621m loss on the back of bird flu, loadshedding crises

20th November 2023

By: Marleny Arnoldi

Deputy Editor Online

     

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JSE-listed integrated poultry producer Astral Foods has posted a loss of R621-million for the financial year ended September 30, owing to detrimental impacts from loadshedding and avian influenza.

The group’s operating profit decreased by 143% from an operating profit of R1.4-billion the prior financial year, while headline earnings a share decreased by 148% year-on-year to a loss of R13.24.

This marked the first time the group reported a financial loss in its 23-year history.

Astral recorded a net cash outflow of R1.1-billion, with its costs amounting to R2.1-billion overall as a result of loadshedding, water disruptions and avian influenza.

The group did not declare a dividend for the year under review.

Astral’s operating profit margin decreased to -3.2%, compared with 7.4% in the 2022 financial year.

DIVISONAL PERFORMANCE

Although revenue in the Feed division increased by 11.9% year-on-year to R11.6-billion, revenue in the Poultry division – which contributed 82% towards total external revenue – was down, driven by a decline in sales volumes of 9.6%.

Feed sales volumes increased by 1.1% as the internal requirement for broiler feed increased by 9.2% owing to high feed consumption in older and heavier broilers, owing to the broiler slaughter backlog that the group had owing to loadshedding.

External feed sales volumes decreased by almost 11% as the pig and table egg sectors came under tremendous pressure from higher feed costs and lower selling prices.

The Feed division ultimately recorded a 21.5% increase in operating profit to R759-million, with an increase in the operating profit margin to 6.5%. The direct cost of loadshedding in the Feed division was R31-million in the reporting year.

The Poultry division recorded a 0.8% decrease in revenue year-on-year to R15.8-billion, with the product basket having been negatively impacted on by heavier birds as a result of downtime in the processing plants on the back of loadshedding.

The downtime resulted in a backlog in the slaughter programme, with broilers remaining on farms for longer and gaining heavier live weights.

Broiler slaughter numbers decreased by 15.3% as production cutbacks were implemented in an effort to clear the backlog in processing volumes. Live weight slaughtered reduced by only 4.1%, despite broiler numbers processed reducing from an average of 5.8-million birds a week in the prior financial year to 4.9-million birds a week in the reporting year.

Sales volumes decreased by 9.6% in the year under review, having been negatively impacted by the product offering on heavier birds and a weak trading environment.

Frozen poultry stock levels at September 30 were higher than at the end of the comparable reporting period.

Broiler sales realisations increased by 8.2%, well below levels that were required to recover higher input costs and extraordinary expenses owing to loadshedding and operational expenses relating to backup power generation. 

The broiler net margin realised for the year was negative at -9.7%, compared with a margin of 3.5% in the prior financial year.

In turn, broiler feed prices increased by 15.4% year-on-year owing to higher raw material costs. Feed cost remains the key driver of profitability, representing about 70% of the live cost of a broiler.

On-farm broiler performances decreased markedly, as the impact of loadshedding resulted in older and heavier birds, which consumed much more feed than normal.

Broiler performances returned to normalised levels in the last quarter of the financial year, as the backlog in the slaughter programme was cleared.   

The Poultry division recorded an operating profit decrease of 272% to a loss of R1.3-billion, with the operating profit margin declining to -8.7%. This compares to a profit of R802-million reported by the division in the prior financial year, as well as an operating profit margin of 5%.

Expenses in the Poultry division increased year-on-year, including the direct cost of loadshedding at R1.6-billion, water supply interruptions at R31-million and the bird flu outbreak at R400-million.

CEO Chris Schutte explains that Astral was slaughtering six-million broilers a week, with its integrated broiler production systems having been on track to produce 6.2-million broilers a week by early April, which would have taken the group to full capacity.

Astral had invested close to R1-billion to increase its processing capacity in 2020.

The nature of Astral’s integrated biological process cannot sustain prolonged interruptions, which results in costly implications.

“Loadshedding decimated any plans the group had of benefiting from the major investment made over the past four years. Instead, we endured months of extended loadshedding where our ability to slaughter and process chicken was completely eroded,” Schutte notes.

Just as Astral was exiting the loadshedding crisis with massive emergency power generation plants to run abattoirs, the industry was hit by the worst outbreak of bird flu in the country’s history.

Astral’s flocks suffered from H7N6 outbreaks since July, notwithstanding its world-class biosecurity measures.

By the close of the financial year, Astral had to cull broiler breeder parent stock infected by this highly contagious strain of the virus, losing more than one-million birds at a financial impact of R400-million.

Astral’s management team is actively participating in industry forums to drive a strategy towards vaccination for the current strains of bird flu still circulating in the country.

Owing to the group’s significant net cash outflow of R1.1-billion during the period, Astral moved into a net debt position and is geared at 25.6%, with an overdraft of R1-billion.

Schutte says the group has embarked on a reset, refocus and restart campaign, or Project 3R, which involves various initiatives to normalise the business following the recent crises. 

The group will focus on rebuilding its balance sheet in the coming financial year, which is key to providing resilience through the cyclical nature of the poultry industry in South Africa. 

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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