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Astral returns to profit, questions poultry import tariff rebate in market without chicken shortages

Live chickens

Photo by Reuters

31st January 2024

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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JSE-listed poultry producer Astral Foods CEO Chris Schutte, in a voluntary trading statement, said the company had returned to profitability during the first quarter of the current financial year, which ends on September 30, 2024, recovering from its first full-year loss in 23 years of operation in the 2023 financial year.

However, he questioned the poultry import tariff rebate structure recommended by the International Trade Administration Commission of South Africa (Itac) against highly pathogenic avian influenza- (HPAI-) related shortages.

“There is absolutely no shortage of chicken being experienced in the market, nor are any expected in the local supply chain, with industry production at normalised levels owing to numerous contingency plans implemented, including the importation of fertile broiler hatching eggs at a great cost to the industry,” he emphasised on January 31.

Meanwhile, Schutte said the group’s financial position remained sound, with gearing levels trending lower.

Further, the company expects earnings a share for the six months to March 31, to increase by 300% to 647c and headline earnings a share (HEPS) by 300% to 654c, up from the 2023 interim earnings a share of 162c and HEPS of 163c a share.

The 2023 financial results reflected numerous headwinds during that period, which included additional costs related to loadshedding, water supply disruptions, record high raw material inputs and HPAI, which decimated the group’s earnings, he said.

During the first quarter of its 2024 financial year, Astral has reported making headway on several of the challenges experienced in the prior reporting period.

Astral has maintained emergency backup generator capacity at all its operations, and lower loadshedding stages have allowed it to contain diesel expenses below those anticipated.

A significant diesel cost is, however, still being incurred to operate the Standerton poultry processing plant owing to municipal power supply interruptions.

Further, the group was implementing contingency plans to ensure uninterrupted water supply, reducing plant downtime owing to water infrastructure failures, albeit at a higher cost, he said.

Lower feeding costs were achieved as a result of a normalised broiler age and live weight, resulting in an improved feed conversion rate following the so-called big bird era, supported by easing local soft commodity input prices.

Additionally, a normalised poultry sales mix on the back of a consistent bird size through the poultry processing plants, which was adversely affected during the big bird era, negated the previously high levels of promotional discounting.

Astral is also averting a potential shortage of chicken as a result of bird flu through a costly programme of importing broiler hatching eggs, it said.

Meanwhile, following the significant bird flu impact on Astral’s broiler breeding stock, the Poultry division incurred a higher cost-base of production in supplying day-old broiler chicks within the group.

“Protocols for voluntary vaccination against bird flu have been published by government, and the registration of the necessary vaccines has and is receiving attention by the relevant authorities,” the group said.

Additionally, on the back of depressed consumer spending, Astral has aligned broiler slaughter numbers in an effort to adapt to current market conditions and remains committed to recovering input costs.

“The group’s Poultry division has posted a marginal level of profitability in the first quarter of the financial year against a loss-making result in the comparable prior year period,” Schutte said.

The Feed division experienced markedly lower internal feed sales against the comparable period in reduced demand from the Poultry division, owing to lower feed requirements for both broilers on the back of normalising the targeted bird age, and the in-house broiler breeder operations that saw lower demand because of breeding stock being culled during the bird flu pandemic in 2023.

External feed sales into the poultry industry had been limited by the impact of bird flu, particularly in the commercial layer sector. The lower internal feed volumes would negatively impact the Feed division’s financial performance for the six months ending March 31, Astral warned.

However, internal feed volumes were projected to normalise during the second half of the 2024 financial year, Schutte said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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