Astral loses R2,1 billion due to load shedding and bird flu

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Load shedding, municipal water shedding and bird flu were the main reasons why South Africa’s largest integrated poultry producer, Astral Foods, has today reported a loss of R621 million (143% less than 2022) for the financial year ending 30 September 2023.

This is the company’s first loss in its 23-year history, according to Chris Schutte, chief executive officer of Astral. Headline earnings per share decreased by 148% to a loss of R13,24/share and no dividend has been declared for the year.

Schutte described the results as “devastating” and the direct result of numerous headwinds the company had to face. “Load shedding and bird flu costs decimated the group’s earnings for 2023.”

The Group reported revenue for the year ended 30 September 2023 of R19,3 billion, in line with that achieved in the previous financial year. Although revenue in the feed division increased slightly year-on-year, revenue in the poultry division was down, driven by a decline in sales volumes of 9,6%. The poultry division accounts for over 80% of Astral’s total external revenue.

Consequently, the operating profit margin decreased to -3,2% compared to 7,4% in 2022 since Astral reported a full-year loss before interest and tax of R621 million compared to a profit of R1,4 billion in 2022.

Schutte said while the government will receive approximately R300 million less in income tax due to the company’s weakened performance, he doubted if it would have any impact on service delivery. “Astral is big in terms of agriculture, but only a drop in the ocean when it comes to the greater economy of South Africa. And the government earns a lot on the back of fuel sales, so they won’t even flinch.”

Electricity and water shedding

The company’s largest component, namely its poultry division, saw a 272% decrease in operating profit ending in a loss of R1,38 billion. Last year, the division realised a profit of R802 million.

Power outages and water supply disruptions wreaked havoc on Astral’s strategy to benefit from the large investment of close to R1 billion into the sector over the past four years. Schutte said while the business’ entire strategy was in place, the integrated biological nature of Astral’s business effectuates that it could not sustain the prolonged interruptions caused mainly by state inefficiencies.

Finally, the expenses in the division increased year-on-year, and therefore operating costs were negatively affected by the direct cost of load shedding (R1,622 billion), water supply interruptions (R31 million), and the outbreak of bird flu (R400 million).

“Water shedding will be our next big crisis,” Schutte warned, adding that the company had already invested over R30 million in equipment to store at least two and a half days’ water on site to curb the impact of sudden water disruptions. Reverse osmosis technology has been implemented to ensure that the water used in plants is clean.

Additionally, to the implementation of reverse osmosis technology at its Standerton farms, Astral has also secured a water license through which it would be able to pump water directly out of the Vaal River. “While this will help mitigate risk, it is not ideal, because we will have to invest around R100 million to build the necessary pumping infrastructure.”

Bird flu woes

Apart from crumbling infrastructure, Astral has also lost a million birds – including 40% of its entire parent stock – due to highly pathogenic avian influenza over the past year. Schutte said this cost the company around R400 million in the financial year. “This is the worst loss in birds that we’ve encountered in the company’s history.”

Schutte denied government reports that bird flu was under control. “It is not. The only reason why the infection rate has declined is the fact that we’ve lost nearly all poultry in Gauteng and Mpumalanga. So, there isn’t any poultry left to be infected.”

To mitigate the loss, Astral has already imported 10 million fertilised eggs from South America. However, this comes with a hefty price tag. “It costs us roughly double what local fertilised eggs would have cost, and the quality isn’t nearly at the level that we’re used to.”

Read more about bird flu in Gauteng and Limpopo.

Schutte said transportation was one of the main reasons why imported eggs were so expensive. “To move the eggs, we must charter a plane and pay for the aviation fuel – which has also become very expensive.”

Additional expenses mean that the price of poultry meat would need to increase by R3/kg merely to recover costs. “This is in no way profiting. It is merely recovered historical costs.”

Schutte said they were also very concerned over the fact that the Department of Agriculture, Land Reform and Rural Development offered no compensation for animals that had to be culled as a result of bird flu, while the minister of trade, industry and competition, Ebrahim Patel said that he would consider removing anti-dumping duties if the price of poultry were to increase on the back of bird flu outbreaks.

“This is extremely unfair, since state inefficiencies have resulted in rising operating costs,” Schutte said.

Possible lay-offs on the cards

Schutte said while the company is proud of the fact that they hadn’t thus far laid off any workers, the reality is that they cannot employ staff when there is no poultry to slaughter. “This will be a last resort, but it might be on the cards.”

If this were to happen, Schutte pointed out that the public needs to take note that such job losses would be directly attributable to government inefficiencies rather than being the fault of the private sector or Astral in particular. – Susan Marais, Plaas Media

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