Astral Foods’s headline earnings a share fell by a staggering 148% following R2.1 billion of load shedding, water disruption and bird flu costs, but investors’ eyes are likely to be on the way forward.
Revenue for the integrated poultry producer remained stable at R19.3bn for the year to September 30, but the impact of these costs knocked operating profit by 143% to a loss of R621 million. There was a net cash outflow of R1.1 billion, No dividend was declared.
Smalltalkdaily Research analyst Anthony Clark said the results were “academic and historical”, but there were key questions about the current trading environment and the future that would affect the group and the share price.
He said questions likely to be asked by investors in coming days would relate to the impact of recently rising input costs - domestic yellow maize and soya prices increased markedly in the past six weeks.
Another question was how much more of a chicken price increase was needed for Astral to be profitable once more. An update on the avian flu outbreak was also required.
They were also likely to ask Astral’s management by how much had it’s flock recovered to the desired 6 million birds per day production.
Clark said, in relation to the government’s request to the International Trade Administration Commissiont (Itac) for lower import tariffs to make up for lost production due to avian flu, that even if the imports “do fly in, they aren’t going to make it out of the ports in time.”
He said the pre-festive surge in demand was key to local producers’ annual sales.
Chris Schutte, the CEO of Astral Foods, said their Re-Set, Re-focus and Re-start campaign aimed to normalise the business, and they would rebuild the balance sheet through 2024.
Load shedding had decimated plans the group had to benefit from major investment in production capacity over the past four years.
“As the initial load shedding and lost processing capacity caused birds to back up on farm at a rapid rate...the birds grew older and gained weight, leading to a situation where broilers well above normal slaughter weight had to be processed, leading to further downtime in the abattoirs.”
This could only be negated by installing emergency power generation plants to run the abattoirs, cutting back the placement of broilers to reduce slaughter numbers, introducing a maintenance feeding programme to control the weight gain of the broilers, and adding processing shifts with big overtime cost, said Schutte.
Broiler performances returned to normalised levels in the fourth quarter, as the backlog in the slaughter programme was cleared, he said.
However, “as Astral exited the load shedding crisis, the poultry industry was hit by the bird flu outbreak. Astral, with other large broiler breeding operations in Gauteng and Mpumalanga, was hard hit, despite biosecurity measures and world class standards in place, he said.
Astral had to cull broiler breeder parent stock infected by the virus, losing over 1 million birds with costs at about R400m by the close of the financial year. He said it was highly doubtful that insurance cover for this risk would be made available.
Expenses in the Poultry Division increased year-on-year, negatively impacted by the cost of load shedding (R1.62bn), water supply interruptions (R31m), as well the outbreak of bird flu (R400m).
Sales volumes fell 9.6% for the year, negatively impacted by the product offering on heavier birds and a weak trading environment.
Operating profit for the Poultry Division decreased by 272% to a loss of R1.38bn. The operating profit margin declined significantly to -8.7%.
“Astral was slaughtering 6 million broilers per week, and our integrated systems were set to produce 6.2m broilers a week by the beginning of April. This would have taken the group to full capacity, following an investment of close to R1 billion in 2020. Retail sector commitments were in place,” the company said.
This allowed ‘just-in-time’ production of Astral’s product range, and prolonged interruptions could not be sustained without costly implications.