Astral Foods expects 300% jump in profit off low base

SA’s biggest poultry producer, Astral Foods, expects its profit to bounce back at least 300% in the six months to end-March, benefiting from a very low base of the comparable period a year ago, when the frequency and higher stages of load-shedding wreaked havoc on its operations.

Its headline earnings per share will likely rebound to R6.54 during the reporting period from R1.62 a year earlier.

Astral is also benefiting from lower feed costs, said Smalltalk Daily analyst Anthony Clark, saying the firm could recover this year after having posted its first ever loss in the full-year to September.

The company said in a preliminary trading update on Wednesday that it had taken steps to maintain its emergency backup generator capacity at all its operations. With lower stages of load-shedding during the first quarter of its 2024 financial year, Astral has been spared from incurring a higher diesel bill.

However, a significant diesel cost is still being incurred to operate the Standerton poultry processing plant due to municipal power supply interruptions, CEO Chris Schutte said. It was also implementing contingency plans to ensure uninterrupted water supply. Rolling blackouts, water disruptions and bird flu cost Astral about R2bn in the year to end-September.

It is spending R100m to build a pipeline from the Vaal River directly to its Standerton plant, after winning a court case to allow it to bypass the municipality’s water provision.

The start of the new financial year has been positive, with the company achieving lower feeding costs and smaller chickens.

The incessant load-shedding had resulted in abattoirs being unable to operate, meaning birds had to be kept alive and fed. The chickens grew very large, which was unpopular with consumers. Astral made a loss of about R3/kg as it could not recoup the extra feeding costs. With chickens being slaughtered on schedule, it is not having to spend extra on feed. In fact, it said it has reduced the number of chickens being slaughtered as consumers are buying less poultry.

Astral also used its trading update to criticise the decision of department of trade, industry & competition minister Ebrahim Patel to withdraw certain duties on imported frozen chicken as recommended by the International Trade Administration Commission (Itac).

Itac had been tasked by Patel in October with looking at relaxing duties to encourage imports due to fears of chicken shortages in the festive season as a result of bird flu.

The SA Poultry Association estimates that 7.5-million chickens were culled. However, Astral said at the time it would not have a shortage of chicken as it had extra frozen stocks.

Astral said it was “dismayed” at rebates given on frozen chicken and pointed out there had been no shortages in December.

The local industry feels it needs support from the government, having had to contend with mass culling during SA’s worst-ever bird flu outbreak and losses caused by loadshedding.

Astral’s division that sells chicken feed also sold less externally and internally due to the large number of chickens that were culled in response to bird flu, it said.

SA does not reimburse farmers for the millions lost to mandatory culling, as the US and European countries do.

Astral said it had cost it relatively more to produce broiler chickens for meat after the outbreak.