[TOP STORY] Astral interim earnings leap, despite maize input cost pressure

While the profits look great versus the prior period, they are still below our average performance: CEO Chris Schutte.

SIMON BROWN: I’m chatting with Chris Schutte, CEO of Astral. Astral had results out for the six months ending March. It saw revenue up 26%, headline earnings per share up 138%, and a dividend of R7.90 – that up from R3 in the previous period.

Chris, I appreciate the time today. I want to dig into some of the details, but the key point is the massive leverage that you’re seeing from revenue to headline earnings per share. It surprises me, because you’ve got significant input cost pressures on the maize side.

CHRIS SCHUTTE: Good day. Yes. I think one should just put it in context. This is versus a prior period that was very bad, where we had negative margins on our broiler business. This time around we’ve got slightly positive [margins] with just about 4% margins. That was mainly a catch-up. We had price decreases during the hard lockdown, and we tried to catch up with those and then also to recover some of the input costs. So, however the profits look great versus the prior period, they are still below our average performance. We were able to pass on some prices and costs to the consumer, unfortunately, but that’s also good [in order] to have a sustainable poultry business for the long run.

SIMON BROWN: I take your point on that. Your broiler sales up 15.7%. You’ve mentioned obviously it’s the comparative period, that the previous would’ve been to March 2021. We had hard lockdowns and then we had curfews and the like. So QSRs [quick-service restaurants] were under pressure. Is that just the bounce-back or [was] some of this also improved efficiencies from the operations and improved outputs?

CHRIS SCHUTTE: Simon, if we just go back a bit, we always say when we make profits, we pay our taxes, we try and do a 2% dividend cover. But all the other money, the historic profit, we put back into the business.

So we had quite serious improvements in our business with regard to efficiency, investment, and also expansion at Olifantsfontein. That all came to fruition now.

So we spent over R1 billion over the last two-and-a-half years, and part of this is obviously the volume increase that is now in lieu of that investment, but we also sold a bit out of stock. We had quite high ending stocks [in] the previous period. So we sold higher production volumes out of stock, and then we also had a bit of a positive mix in our basket of products, which contributed a bit towards the better margin.

SIMON BROWN: Have you seen a return to maybe pre-pandemic levels – I’m thinking QSRs, I’m thinking restaurants and the like.

CHRIS SCHUTTE: Yes, I would say – and we obviously measure this week to week …

we reckon we are back to just above 90% of let’s call it pre-Covid or normality.

There’s however a change in how the consumer buys, and there are a lot more takeouts than sit downs. But I think we are back to just above 90%, and we can see that in our sales through this.

SIMON BROWN: The one point we probably raise every time we chat imports – we are looking at the results – [is] imports remain, frankly, massively high in our market.

CHRIS SCHUTTE: Poultry products imported to this country still make up 24% of total consumption. That’s still high. It’s however 6% lower than the comparative period. That could have been due to the higher anti-dumping tariffs, it could have been due to restricted trade or the lockdown, or also massive cost drivers in other countries. We still regard 24% of local consumption as fairly high imports, and that’s of total poultry products. So it’s still a concern.

We obviously, at the time of the master plan with Minister [Ebrahim] Patel, said that whatever we import less, we will make up [with] local consumption. So Astral as part of the poultry fraternity has done its bit with regard to expansion reinvestment.

We also during this period created 350 additional permanent jobs and our expansion is not done yet. We plan to expand by another approximate 8% over the next year. So we will bump up our weekly processing numbers to about 6.2 million birds a week; a year ago we were at about 5.5 million. So a nice investment for the country and it’s paying off.

SIMON BROWN: The feed division – we’ve mentioned maize, and of course yellow maize prices are at, I wanted to say record levels, but certainly they’re at very high levels. That hurts the feed division, but you still managed to pick up revenue. A slight squeeze on margins, but you are managing to pass a lot of the increases in maize on to your customers.

CHRIS SCHUTTE: Yes. The feed industry historically works on a rand per ton margin and not on a percentage, so it’s normally raw material plus the production cost plus a small margin. We’ve been able to successfully pass that on to the external market. But one should also just remember that 60% of that volume is in our poultry division and they take that knock and they have to go and recover it.

SIMON BROWN: How much is feed the big cost in your poultry division? Obviously there’s staff, there’s all of that as well, there’s administrative services, there’s power. What is feed? I mean, is it the big[gest] cost?

CHRIS SCHUTTE: Feed is now, as of this morning if we take the latest Chicago price that we had to buy at today, almost R4 800/ton. I never thought I’ll mention that, but it’s there.

So feed is now 70% of our total cost to produce one kilogram of meat.

And then of course the other big contributors are distribution and energy and our wage bill – that makes up the top four and that’s close on 90% of our total cost. Our energy cost makes up about 10% of our total, and year on year that cost is up about 16%. And our distribution cost, about another 10% of our business, is up 29%, and that’s mainly due to the higher diesel prices.

SIMON BROWN: Yeah. [There are] reports this morning that we are going to get even more petrol price increases at the end of this month. But 70% [for] feed – that’s a giant number and [it] means watch that yellow maize price.

Chris Schutte, CEO at Astral, I always appreciate the time.



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