Astral revenue up 14%, but profit takes a hit

Spike in poultry feed prices, load shedding, and continued municipal service delivery disruptions prove challenging.
The group says the easing of Covid-19 lockdown restrictions and promotional activity by retailers has pushed sales volumes up. Image: Moneyweb

JSE-listed poultry group Astral Foods recorded a 14% increase in revenue in the year to September 30, up from R13.9 billion to R15.9 billion, according to its results statement published on Monday.

The company ascribes this increase primarily to the broiler operations in its poultry division, contributing R1.7 billion as a result of growth in broiler sales volumes as well as a recovery in the selling price of poultry products.

However, Astral’s full-year profit declined 16% to R437.7 million (2020: R561.2 million) after being hit on several fronts by issues such as the sharp surge in poultry feed prices, load shedding, disruptions in municipal service delivery at its operations in the Lekwa Municipal District in Standerton, and damage to its infrastructure during the July unrest.

Read:

According to Astral, the South African Futures Exchange (Safex) yellow maize price increased by 22% to R3 363 per ton in 2021, while soya meal prices shot up 24% to R8 216 per ton.

This contributed to operating profit in the group’s poultry division plunging 50.3% to R147 million (2020: R295 million).

Astral said non-feed expenses in the division “increased year-on-year, negatively impacted by the direct cost of Highly Pathogenic Avian Influenza [R49 million], looting and damage to infrastructure [R18 million], on-going Covid-19 costs [R14 million], as well as water and electricity supply interruptions [R27 million] … leading to “the operating profit margin reducing to 1.1% [2020: 2.6%]”.

However, the group also benefitted from the surge in feed prices.

“Revenue for the feed division increased by 18.9% to R8.3 billion [2020: R7 billion] as a direct result of higher selling prices on the back of the increase in raw material costs,” it noted, adding that “operating profit for this division increased by 4.2% to R530 million”.

Read: RCL Foods surges to 52-week high as it swings back to profit

Commenting on the latest results, Astral CEO Chris Schutte said: “The group’s tried and tested strategy has supported a solid set of results under prevailing market conditions and a challenging operational environment, which has seen enormous pressure come to [bear] on the local poultry industry over the past year.”

He added: “The state of the South African economy has seen record high unemployment and severely constrained disposable income, which limits the ability to recover higher input costs placing pressure on the industry.

“Notwithstanding the very good South African maize crop for 2021, which is expected to be repeated in 2022, we continue to witness volatile raw material markets on global supply and demand factors.”

Schutte again lamented the widespread poor municipal service delivery in the country, in addition to nationwide load shedding, which he says continues to negatively impact Astral’s operations.

“[This] adds an unnecessary cost burden to producing chicken in South Africa.”

Astral, however, noted in its result media statement that trading conditions have improved as the economy continues to recover given the easing of Covid-19 lockdown restrictions.

The group says promotional activity by retailers has resulted in higher sales volumes.

“The fast-food industry as well as fresh sales categories have recovered to pre Covid-19 levels.”

Astral declared a final dividend of 400 cents per ordinary share. Together with its interim dividend, its payout to shareholders effectively comes to 700 cents a share.

Small Talk Daily analyst Anthony Clark tells Moneyweb that Astral’s results are “reasonable in light of the extremely challenging input cost environment” for the better part of the last 12 to 18 months.

“The soaring price of commercial maize, [and] the volatility in soya and sunflower, are all key inputs in the broader feed mix. Roughly 68% of all Astral’s costs is derived from feed,” he notes.

Read: SA’s 2021 maize output expected to rise 10%

“So, when costs rise exponentially, they either have to put up prices to recover the cost or if they are unable to put up the pricing because of the very difficult operating environment that we as a country face, the underlying weakness in consumerism and Covid-19 means that margins get squeezed,” adds Clark.

“Rearing chickens is all about efficiency and optimising your plant facilities. If you are able to get more product through a better facility, then your underlying costs of production start to come down and that’s where Astral is at. They are absolutely superb farmers and operators in the abattoir system. That has helped them mitigate some, but not all of the underlying price increases in soft commodities,” he says.

“The expansion they did in key operations a couple of years [ago] has improved efficiencies and will take eventual slaughter rates up from around 5 million birds a week to 5.8 million.”

* Palesa Mofokeng is a Moneyweb intern.

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