Integrated poultry producer Astral Foods achieved an 8.5% year-on-year increase in operating profit for the six months ended March 31, while the second half of its financial year to September 30 reflected the impact of the Covid-19 pandemic and six months of lockdown, the company reports.
“We continued to execute our simple yet resilient strategy, which once again assisted the group in navigating through new challenges brought on by the Covid-19 pandemic. Astral can proudly report satisfactory results, with all its integrated operations continuing to run like clockwork during South Africa’s hard lockdown,” CEO Chris Schutte comments.
The lockdown severely disrupted the lives of all South Africans, and completely closed the hospitality, restaurant and quick service restaurant (QSR) sectors for an extended period of time, the company states.
Owing to lockdown, poultry producers that supply hospitality, restaurant and QSR markets had to channel surplus chicken into various frozen categories. The resulting oversupply led to a stock build in the industry and later culminated in aggressive price cutting in the market to clear these stock levels, the company points out.
At the same time, substantially higher raw material costs driven by a weaker local currency, weather concerns on the international grain markets, higher global coarse grain prices and increased demand from China led to higher feed prices in the second half of Astral’s financial year.
Higher feed costs, which have a 65% contribution to the total live cost of producing a broiler, together with lower poultry selling prices, resulted in a steep decline in poultry margins during the second half of the financial year under review.
Besides a challenging market environment, Astral continued to face other headwinds during the reporting period, with the financial results impacted by a number of extraordinary costs, including direct costs associated with Covid-19, widespread load-shedding and continued municipal infrastructure challenges in Standerton, in the Lekwa municipal district, in Mpumalanga.
On a positive note, Astral completed its largest capital project to date, with the expansion of its Festive poultry processing plant in Olifantsfontein, increasing the group’s capacity by 16% or 800 000 birds a week.
This expansion forms part of the pledge made by Astral as part of the Poultry Sector Master Plan, to support volume growth in the industry, as well as ensure that local production makes up a higher component of chicken consumption into the future.
“The expansion of the Festive processing plant at Olifantsfontein was completed, in time and within budget. The cost of the project to date amounted to R710-million, contributing to an increase in the total assets employed by the group. Future major capital expenditure will be carefully assessed on a project-by-project basis,” says CFO Daan Ferreira.
Group revenue for the reporting period increased by 4.6% year-on-year to R14.1-billion, supported by an increase in breeder revenue, together with an increase in the Feed division’s external turnover owing to higher feed prices for the year under review.
Operating profit decreased by 5% to R838-million off a very difficult second half, resulting in an operating profit margin of 5.9%.
“The group’s liquidity is well positioned to fund the declared dividend of R7.75 apiece. The total dividend for the year amounts to a dividend cover of 1.9 times compared to headline earnings,” says Ferreira.
For the period, the group posted headline earnings a share of R14.41.
Astral posits that, despite the higher import tariffs on frozen bone-in portions announced in March, poultry imports have continued.
“This proves what the industry has been advocating for some time – that poultry imports into South Africa typify classic dumping, where prices are merely reduced to maintain export volumes from the producing countries,” the company claims.
“We are expecting trading conditions to remain challenging given the unprecedented high unemployment rate and the severely constrained discretionary disposable income.
“Although South Africa reported an above-average maize crop for the 2020/21 season, raw material input costs are currently higher on the back of a weaker local currency, global weather concerns, international coarse grain demand (China) and a rally in international prices, which have led to higher feed prices into half one 2021,” Schutte says.
Following the QSR closure under the hard lockdown, Astral says its share of this market segment has increased as supply to this sector has resumed.