Following publication of the company’s financial results for the year just ended, Astral Foods has warned that chicken prices will have to rise.
According to Business Live, prices are set to go up again for consumers because of steeply rising feed costs, as well as on-going supply chain disruption.
Although sales of the company’s top-end products have recovered to levels seen prior to the coronavirus (COVID-19) pandemic, CEO Chris Schutte said profits have been heavily squeezed. As well as spiraling feed costs, Schutte highlighted recent disruptions to water and electricity supplies to its premises.
Profitability cut despite rising revenue
For the financial year ended September 30, 2021, Astral Foods achieved an increase of 14% in revenue compared to the previous year. For its continuing operations, sales were 15.9 billion rand (ZAR; US$1.023 billion). However, operating profit was down by 12% year-on-year to ZAR711 million. At ZAR459.6 million, profit for the period was down 15%.
In the company’s annual report, Astral records that its Poultry Division contributed 81% of total external revenue, its Feed Division 17%, and Other Africa Division 2%.
The firm attributes the growth in revenue (ZAR1.9 billion) mainly to the broiler operations of its Poultry Division. It achieved increases in both sales volume and product selling prices.
For the year just ended, Astral’s profit margin was just 4.6%, which compares with 5.8% in 2020. Compared to ZAR295 million last year, profits by the Poultry Division were cut to ZAR147 million, while the broiler business contributed just ZAR43 million. In contrast, profits by the Feed Division went up — to ZAR530 million from ZAR508 million last year.
Profit squeeze for Astral’s Poultry Division
Astral Foods attributed the reported 50% reduction in operating profit for its Poultry Division to both feed and non-feed related issues.
Compared to 2020, broiler feed prices were 16% higher during the financial year just ended, the firm reports. This was largely explained by higher raw material costs. For the company, feed accounts for 68% of the production cost for the birds. Furthermore, changes made to feed formulations to mitigate the increasing costs resulted in an expected slight loss in on-farm broiler performance.
In terms of non-feed expenses, Astral Foods estimates the year-on-year increases to avian flu (ZAR49 million), looting and damage to infrastructure (ZAR18 million), on-going COVID-19 costs (ZAR14 million), as well as water and electricity supply interruptions (ZAR27 million).
Just last week, another leading poultry producer in South Africa cited rising feed costs among its biggest current challenges. Operations of Country Bird Holdings have also been disrupted by water and electricity outages, and escalating feed costs.
Performance by Astral Foods’ Feed and Other Africa operations
For the firm’s Feed Division, revenue rose as a result of higher selling prices in line with raw material costs. The increase in sales was almost 19% in value and 2% in volume.
Furthermore, costs were increased to this operation by ZAR1.9 million as a result of disruption to electricity supplies (load-shedding), and ZAR1.4 million for COVID-19 prevention.
At ZAR289 million, Astral reports that revenue generated by continued operations by its Other Africa Division were down 6.7% year-on-year. While selling prices were higher in 2021, feed sales volume was put under pressure. Astral noted improved performance by its operations in Zambia.
In its annual report, the company notes that its National Chicks Swaziland and Mozambican operations are reported as discontinued operations. This follows approaches by prospective buyers with firm offers to acquire Astral’s interests.
Astral appoints financial manager
Earlier this week, Astral Foods announced the appointment of Dries Ferreira as group financial manager (and chief financial officer designate). The appointment takes effect from January 10, 2022.
Dries graduated from the University of Port Elizabeth, and later qualified as a Chartered Accountant (SA) in 2004. He is currently the Chief Executive Officer of WellCapital Propriety Limited, and also Chief Financial Officer and executive director of Newpark Real Estate Investment Trust Limited. WellCapital Propriety provides senior executive recruitment services, while Newpark is a listed South Africa-based trust that invests in property in prime locations.
Astral Foods’ current Chief Financial Officer Daan Ferreira will serve until he retires at the annual general meeting in 2023.
Last month, Gary Arnold took up the appointment of the company’s chief operating officer. Taking up the executive director position vacated by Arnold was Frans van Heerden.
More on Astral Foods
With annual slaughterings of 260 million birds, Astral Foods is the largest poultry producer in Africa, according to the WATT Poultry International Top Companies survey.
An integrated producer, Astral Foods has a number of subsidiaries, including National Chicks, County Fair, Ross Poultry, Tiger Chicks, Tiger Animal Feeds and Provimi. During the past year, the company also produced 1.355 million metric tons of feed, as well as feed premixes. Other operations include broiler genetics, production and sale of day-old chicks and hatching eggs, integrated breeder and broiler production operations, abattoirs, and the sale and distribution of various poultry brands.
