High input costs, failing SA infrastructure bludgeons Astral’s interims

ASTRAL Foods CEO Chris Schutte yesterday said the government had failed the poultry sector, with load shedding and poor infrastructure and water leading to high input costs.

Schutte was speaking to Business Report in an interview after the largest integrated poultry producer in South Africa posted its interim results for the six months to end-March, which were down almost 90% due to higher input costs for feed, diesel, energy, wages and overtime.

The shares tumbled nearly 9% yesterday after it posted its results, hitting an intraday low of R155.09. The shares closed the day 5.01% lower at R161.

Posting its interim results, the group said its balance sheet was under significant strain following incurring R741 million in load shedding related costs. It also reported that headline earnings per share (Heps) dropped by 88% to 163 cents, while earnings per share (EPS) decreased by 88% to 162c. Previously,

Astral had prepared the market for a

Heps and EPS fall of up to 92%.

Group operating profit dropped by 88% to R98m even as Astral increased selling prices in its main poultry division in an attempt to counter surging costs.

Broiler sales volumes decreased for the period under review as demand for Astral’s poultry products slowed on a change in the product basket given the impact of load shedding disrupting the poultry processing mix.

Schutte said State-owned entities Transnet, Eskom and the Department of Water and Sanitation had failed the poultry sector, which was struggling to survive a surge in input costs.

The Competition Commission earlier this year released a press release stating that poultry prices were increasing and that they wanted to investigate as it believed that was unjustified.

Schutte said: “We would like to say if they can look at our results and see that the rise in poultry prices was driven by feed costs, by additional costs, due to load shedding and failing infrastructure.

“The main driver of chicken prices is feed, and feed is related to the currency. The weakening currency makes feed to be more expensive. Fingers should be pointed at the incapability of certain State-owned entities, which led to a weakened currency. And of course, the lack of service delivery is costing us more to produce chicken”.

He said the increase in chicken prices was not because of profiteering pricing, because Astral Foods made a loss, a negative margin of 4.4% of chicken.

“Prices are too low, and we are currently subsidising the price by R3.20 per kilogram,” he said.

“Transnet used to distribute the raw material across the country by rail, now that is all gone. It is now done by road, which multiplied the cost four times.

“Eskom has failed dismally. If we go to load shedding stage 8, we will receive half of the electricity we used to get to manage our operations. Water Affairs has also failed. These State entities play a key role in the production of food and are all regarded as failures,” he said.

Astral as a result incurred abnormal additional costs to produce a chicken, which eroded its profits, compared to the prior year

Schutte said: “I think the key driver for us to turn around the business would be our actions to produce shorter numbers. That in itself is a remedy, but it is not long-term, because we will produce less chicken in the future, which will harm supply and demand.

“The key driver on the outlook is that raw material input costs that go into poultry feed, which makes up 70% of the total cost to produce the chicken – that is on the download slope.

“Feed input costs could become relatively cheaper shortly and we should start to benefit from that on about September onwards. That is one of the positives that could assist us to get to the break-even point,” he said.

Meanwhile, independent analyst Small Talk Daily Anthony Clark optimistically said in a recent note: “I make a bold statement that “Astral Foods will turn the earnings corner in September 2023 and its slump will end. I’d watch this well-run bird closely as its time to fly is near at hand,” he said.