- Astral warns that its profits will plummet by up to 90% as power costs and load shedding increase
- The company has been unable to pass the price increases on to consumers.
- The cost of producing a chicken exceeds the selling price by R2 per kilogram.
- For more financial news, go to News24 Business cover.
SA’s largest poultry producer, Astral Foods, warned on Wednesday that its half-year profit could fall by as much as 90% as it was unable to raise chicken prices to cover rising feed and load reduction costs.
The JSE-listed group said the cost of producing a chicken now exceeds the selling price by R2 per kilogram.
The group is also suspending a large part of its R737 million capex plans.
Its overall earnings per share is now expected to fall “no more than 90%” to 142 cents for the six months ending March 2023.
On Wednesday morning, the group’s shares fell 2% to R156.49 as the market digested the news.
Click here for more details on Astral’s share price and other information
Astral previously said it would have to increase chicken prices to offset rising feed and freight costs and municipal infrastructure problems. However, it found itself unable to do so, so it continued to subsidize the higher production costs.
Astral said its poultry division had experienced “serious operational disruptions” during the first quarter of its 2023 fiscal year due to load reduction, adding that this had led to “abnormal additional costs, as well as substantial production cuts of at least 12 million broiler locations” by the first half of fiscal 2023.
He said there had been a delay in slaughter, resulting in older and heavier birds consuming more feed.
“In addition, excessive processing costs are being incurred as additional shifts are implemented to try to address substantial backlog in the group’s integrated broiler supply chain. The larger size of the birds and the continued disruptions of cargo have compromised the group’s poultry supply”.
The group said its balance sheet remained “healthy” with “good levels of liquidity.”
Astral’s food division fared a little better. It could reduce the effect of load shedding by using the additional capacity available among its various food factories.
Due to the interruptions in the operations of the poultry division, “substantially higher internal feed volumes are required”, which should positively affect the financial performance of the segment.
The cost of doing business rises
Casparus Treurnicht, a portfolio manager and research analyst at Gryphon Asset Management, said Astral’s update showed that the cost of doing business in SA is rising rapidly, due to government missteps. And he also warned that smaller poultry producers could find themselves in a position where they have to go out of business.
Astral had a healthy balance sheet, which means the company is in a better position than smaller local players.
What concerned Treurnicht was that he believed that the current problems facing chicken farmers and others would be permanent due to infrastructure problems.
“Chicken and eggs have always been a very cyclical business and go through changes from time to time, but I hate to say it, this is different.
“More importantly, the rising cost of chicken (traditionally the cheapest protein) will hit the poorest households hardest, exactly what the government would not want.”
