Integrated poultry producer Astral Foods has reported an 88% dip in operating profit to R98-million for the six months ended March 31,  showing clear evidence of the trying operational environment the company endured.

This compares to an operating profit of R785-million posted for the six months ended March 31, 2022.

Accordingly, headline earnings a share also decreased by 88% to 163c, compared with the prior corresponding period. 

As Astral recorded a net cash outflow of R1.2-billion, including R741-million in costs attributed to loadshedding and R705-million in expanded working capital requirements, it decided against declaring an interim dividend.

While Astral managed to recover higher feed prices – raw material costs in the industry have soared in the last year – from adjusting poultry selling prices upwards, the group could not recover all costs incurred as a result of loadshedding and failing municipal infrastructure from the market.

CEO Chris Schutte explains that the company experienced a perfect storm of challenges, including daily bouts of loadshedding and extended periods at Stage 6 loadshedding, in particular, the general decay of municipal infrastructure, with disrupted water supply as a result, as well as record high poultry feed prices.

The group’s operating margin remained marginally positive at 1%, compared with an operating margin of 8.3% in the prior comparable six months.  

The Poultry division, particularly the broiler operations, experienced major production disruptions owing to loadshedding, which decimated Astral’s usual economy of scale benefits and operational efficiency, these factors being the cornerstones of Astral’s best-cost strategy.

OPERATIONS

Revenue in the Poultry division increased by 3% to R8.2-billion in the six months under review, driven by broiler selling prices which were increased in an endeavour to recover the rapidly escalating costs in poultry feed.

Poultry feed prices were up 28.9% in the period, following on record high local coarse grain prices, as well as high costs of diesel, which links to the company’s mitigation measures for loadshedding.

Broiler sales volumes decreased as demand for Astral’s poultry products slowed on a change in the product basket – given the impact of loadshedding disrupting the poultry processing mix – with lower sales into the Quick Service Restaurant sector coupled with lower fresh chicken sales as a proportion of the total basket.

Broiler sales volumes decreased by 10.6%, or 28 177 t, in the six months under review. Broiler volumes processed for the period under review reduced by 16.9%, equating to an average of 4.9-million birds a week, compared with an average of 5.8-million birds in the prior comparable period.

However, total broiler weight slaughtered reduced by only 1.5% for the period as heavier birds were processed on the back of the loadshedding impact.

In the six months under review, Astral cut back production by almost 25-million broilers, which were sold as either live birds or through reduced broiler placements, in an effort to manage the backlog in the slaughter programme, as loadshedding hampered the ability of the group’s poultry processing facilities to slaughter.

Notwithstanding the effort to increase poultry selling prices, the price levels fell short of what was required to recover the higher input costs for feed, diesel, energy, wages and overtime.

Of these costs, feed was the largest contributor, which saw not only an escalation in the price for poultry feed, but significantly higher levels of feed required to sustain the birds on-farm as a direct result of loadshedding which impacted the group’s ability to process all the bird volumes, leading to older and heavier birds consuming more feed.

Consequently, a negative broiler margin for the period under review of -4.4% is reported, compared with a broiler margin of 4.7% in the prior comparable six months, which reflects costs in the broiler operations that could not be recovered through poultry selling prices.

The operating profit for the Poultry division decreased by 160.6% to a loss of R283-million, against a profit of R466-million in the prior comparable period.  

Moreover, operating profit in the Feed division increased by 28% to R381-million, owing to higher selling prices and increased sales volumes required by the Poultry division. 

Astral CFO Dries Ferreira explains that the group is being forced to reallocate at least R400-million in expansion capital towards back-up solutions to supply electricity and water to operations.

The group expects raw material input costs to reduce from July onwards, which means poultry efficiencies should return to normal levels. However, continuing weakening of the local currency and further escalations in the diesel bill, coupled with the ongoing cost-of-living crisis and electricity shortage, means Astral will have to focus on rebuilding its balance sheet in the 2024 financial year.

“It is time for government to respond to the concerns raised by the business community and hardships reflected in the livelihoods of all citizens, instead of sitting asleep at the wheel floundering around decisions and not implementing real solutions, while the country implodes,” Schutte states.

He adds that the State is destroying, in many ways and forms, from water and electricity supply through to logistics management, the agricultural sector’s ability to function efficiently and competitively.