SOUTH AFRICA – Astral Foods, a leading poultry producer in South Africa, expects to record losses during this financial year due to input costs exceeding the selling prices for chicken.
The Johannesburg Stock Exchange listed company has seen input costs skyrocket beyond levels necessary to maintain profitability due to frequent power blackouts and a deadly bird flu outbreak.
To keep production on even during power blackouts, Astral Foods has for instance had to switch on diesel powered generators, which leaves it with a R45 million (US$2.4 million) bill a month.
To date, the total cost associated with the current bird flu outbreak amounts to about R220 million (US$11.74 million) for the group.
According to Astral Foods, the losses extend beyond the biological cost of culled birds to include costs relating to measures taken for the safe disposal of these birds, as well as biosecurity measures implemented to curb the spread of the disease.
“The bird flu outbreak is the worst that South Africa has witnessed and goes well beyond the impact felt by the H5N8 bird flu in 2017,” the company said.
Astral had to cut back on at least 12 million broiler placements in the six months ended March 31, which resulted in older and heavier birds consuming higher levels of feed.
The County Fair and Mountain Valley chicken brand owner also had to cut back on poultry production to catch up with the backlog in the slaughter programme.
This in addition to higher feed costs owing to older broilers and overtime costs for the additional shifts resulted in production costs being way higher that selling prices for chicken.
At one time, Astral was selling chicken at a loss of R2/kg, with the cost to produce chicken having exceeded the selling price.
In total the company revealed incurred a R919 million (US$49.04 million) bill which is higher than what it expects to earn from the sale of chicken meat products.
As a result, Astral Foods has cautioned that its earnings a share (EPS) for the year ended September could decrease by as much as 165%, amounting to a loss of R18.08 apiece. A year earlier, it had posted an EPS of R27.81.
Fortunately, Astral reports the backlog in the slaughter programme was cleared by the end of June and broiler efficiencies have subsequently normalised on targeted broiler age, live weight and feed consumption.
However, other factors still negatively impacted the financial performance of the group, including less promotional activity in the wholesale and retail sectors on chicken and limited product range that could be discounted, as well as poultry selling prices coming under severe pressure as consumption slowed down in winter.
At an industry level, Astral expects short suppliers of table eggs into the market, as well as an impacted poultry meat value chain in the coming months.
Astral assures that its balance sheet is geared to about 25% to maintain sufficient liquidity and solvency going forward and plans to release another trading statement at the end of October.