A presentation on Astral’s results for the year to September had just about equal parts of good news and bad news, as did the comments by management regarding the outlook for the foreseeable future.
Astral CEO Chris Schutte kicked off with all that went wrong during the past year, saying that profitability was hit by higher feed costs, lower selling prices and extraordinary costs during the year that saw a decline of 55% in operating profit and headline earnings. Headline earnings per share (EPS) decreased to only R16.74 compared to the record of R37.12 in the previous financial year.
Full-year to September
|Revenue||R13 485m||R12 979m|
Schutte says that a sharp increase in feed input costs was one of the main reasons for the decline in operating profit as it is one of the largest costs.
Figures show that feed costs comprise 66% of the total cost to raise a chicken to slaughter age. Astral produced a graph that shows that the average price of yellow maize increased by around 25% in the last year compared to the 2018 year – which gives a good indication of the increase in feed costs.
Astral was able to counter some of the increase in feed prices through better efficiencies in feeding practises, and total feed costs increased by less than 8%. An improvement in the conversion of feed to weight limited the effect of higher feed costs to a certain degree.
In contrast, Astral received lower prices for its chicken products with the result that operating profit in the poultry division fell by nearly 75% from R1.45 billion in 2018 to only R371 million in the past year.
Schutte says that the reasons behind the lower retail prices include low economic growth, high unemployment and weak purchasing power of consumers, as well the continued import of low-priced chicken from Brazil and America. Astral also saw significantly lower prices in the second half of the financial year due to promotions by retailers.
Imports of cheap chicken – mostly cuts and whole chickens that are unwanted in their home countries – averaged nearly 45 tons per month, says Schutte. “It is equal to around 30% of total consumption.”
Figures show that chicken is the cheapest and most popular choice of meat in SA.
People eat an average of 39.5kg of chicken per year, followed by (much more expensive) beef at 17kg.
Pork is not that popular, despite the fact that prices are more or less comparable to those of chicken. Per capita consumption of pork amount to around 5kg per annum. Mutton, the most expensive of the readily available meats, seems to have become a luxury, with average per capita consumption of only 3kg per annum.
That chicken is the meat of choice is also borne out by the statistic that the industry slaughters more than 19 million chickens every week to feed the nation. Imports equal nearly eight million chickens per week, according to figures from the SA Poultry Association.
Schutte listed several extraordinary factors and events that increased costs and impacted profit during the last year. These include load shedding, violent industrial action in KwaZulu-Natal, and implementation of the new minimum wage.
Astral also mentioned the interruption of water supply to its processing plant in Standerton, which added R93 million to operating cost during the last year.
Luckily, the feed division delivered a solid performance as it was able to pass the higher input costs on to its customers. Profit increased by just more than 7% to contribute R489 million to the group’s profit.
It is interesting that better efficiencies in Astral’s poultry division translated to a decrease of around 3% in feed sales within the group. Sales to external customers also decreased due to higher feed prices and lower selling prices putting other poultry producers under pressure.
Schutte says high feed prices will continue to weigh on the industry and will continue to affect Astral’s profits.
He warns that feed prices are expected to remain high, but hopes that farmers’ plans to increase planting and prospects of better rainfall will yield a larger harvest next year to alleviate price pressure.
He also warns that record levels of unemployment and poor economic growth will continue to put pressure on selling prices. Furthermore, he sees that the deterioration of infrastructure will continue to impact operations and add unnecessary costs.
Industry fights back
The industry made plans to fight back against all the hardships. It has negotiated a master plan for the poultry industry with as many stakeholders as possible, including the Department of Trade and Industry and the Department of Agriculture, Forestry and Fisheries, to preserve and grow the chicken industry.
The industry pledged to invest more than R1.5 billion in new processing plants and R1.7 billion in expanding production capacity on chicken farms. Some of the expansion projects have already been started.
The idea behind the plan is to grow the consumption of locally produced chicken products by, among others, increasing supply, promoting consumption, driving exports and ensuring compliance with regulations by chicken importers.
Astral is planning to increase its poultry production capacity by some 16% over the next two to five years.
Investors seemed pleased with the slightly optimistic tone and few pieces of good news in the results following the trading statement a few weeks ago that warned of the huge decline in earnings.
The share price increased by just more than 1% to above R173 after the publication of the results. The final dividend of R4.25 per share pushed the total to R9 for the year, placing Astral on a dividend yield of 5%.