Astral’s plague of woes plays havoc with profit
Chicken producer Astral Foods says that in line with the outlook published in its annual financial results to September 2016, trading in the first quarter ended December 2016 has been hit by weakened consumer spending. This means operating profit for the quarter is likely to be 70% lower than in the previous corresponding period.
Astral says the pain will continue well into 2017.
The domestic chicken industry has also complained that the dumping of cheap chicken imports by the EU has bitten deeply into profit.
If that were not enough, Astral says its electricity supply will stop on or after February 22 after Lekwa Local Municipality in Mpumalanga was given a deadline by Eskom to make outstanding electricity payments. Lekwa started defaulting in 2013.
Astral says it is a fully paid-up client of the municipality and will take legal action if necessary. It seems unbelievable that Eskom and municipalities can threaten business — big, medium and small — which also has to cope with poor trading conditions. Astral’s largest feedmilling and poultry-processing operations are in Standerton.
Astral CEO Chris Schutte says that if the power is cut, 11.5million chickens will not be fed. That puts 4,115 jobs at risk.
Astral sold less chicken by weight, mainly as a result of SA’s new brining regulations. These restrict the volume of fluid that can be injected into chicken to make it succulent.
Meanwhile, high maize and soya input prices will continue to hurt the industry. Maize and soya crops, which are a big cost component of chicken feed, have been devastated by drought. Astral had also introduced production cutbacks to alleviate pressure caused by poultry overstocking.
Astral’s earnings per share and headline earnings per share are expected to slip “not more than 75%” on the first quarter in 2016. Investors should be grateful for small mercies.
Ukhamba Holdings, the empowerment partner of Imperial Holdings, must regret it was unable to take up the share buy-back proposed by building materials group Dawn a few years ago. For a while in 2014, it looked as if Dawn would implement a specific buy-back of Ukhamba’s 32% stake at a generous R8.50 a share, amounting to R663m.
Instead, Ukhamba now faces taking up a chunk of its rights. The offer has been pitched at R1 a share to raise R350m. Ukhamba is taking up only R49m of its rights (49-million shares) and 78-million to which it is entitled. It’s hard to tell whether it is due to cash restrictions or apprehension about the company’s prospects. The board has taken some strange decisions not least of which was splurging on the buy-back.
Since former Hudaco CEO Stephen Connelly took over in 2016, the worst seems to have been sorted out and Dawn showed a profit in October and November. But Connelly says December and January are traditionally difficult months and management had to pitch the issue at R1, although the share price was R2.10 at the time, underpinned by tangible net asset value of R2.50.
If some minorities hadn’t got involved in December 2014, the former CEO would have wasted R663m and Dawn would’ve been in a grim situation. The fact is, regrettably few shareholders pay attention to buy-backs.