A number of factors are severely impacting Astral Foods' poultry meat business.
Ahead of its current year-end reporting, South Africa's leading chicken producer issued a statement explaining power supply disruption, avian flu outbreaks and challenging market conditions in South Africa are severely impacting its poultry meat business.
Astral stated its full-year trading results will reflect the ongoing adverse direct and indirect impacts of load shedding.
The term “load shedding” refers to scheduled rolling blackouts carried out by power companies in order to avoid a total collapse of the electricity grid.
By January of this year, power outages were causing difficulties for all South African citizens. For the poultry industry, it was already estimated that ongoing load-shedding by the nation’s main electricity supplier had led to the culling of 10 million chicks, among other adverse impacts.
In May, Astral Foods reported its operating profit was down by 88% for the half-year despite a 6% increase in net sales.
With the power disruption ongoing, Astral Foods’ costs have continued to rise, the company now reports.
Not only has it needed to purchase diesel to run generators, but overtime costs have risen to carry out additional shifts at its processing plants. For live production, volumes had to be decreased to tackle the slaughter backlog. This led to additional costs from processing oversized birds, as well as to higher feed costs, the company reports.
For the first half of the fiscal year, Astral has already announced that these additional costs amounted to 741 million rand (ZAR; US$39.5 million). From April to the year-end in September, these have been forecast to escalate further to ZAR919 million. Including capital expenditure of ZAR200 million, load shedding is estimated to have cost Astral Foods ZAR1.9 billion.
As a result of these extra costs, the company is forecasting a severe decline in its results for the full year to September 30.
Earnings warning issued
Under the rules of the Johannesburg Stock Exchange — where Astral Foods is listed — firms are obliged to publish a trading statement once it appears the financial results differ from the comparative period by 20% or more.
Under the challenging market conditions, Astral Foods now expects earnings per share (EPS) and headline earnings per share (HEPS) for the current year to be down by as much as 165%. This would equate to losses of ZAR1,808 cents and ZAR1,802 cents, respectively, from the 2022 figures.
The company reports that its balance sheet is geared to approximately 25% in order to maintain sufficient liquidity and solvency.
On a positive note, Astral Foods reports that the backlog in scheduled slaughtering was cleared by June of this year. This has led to the resumption of normal broiler performance.
Impacts of avian flu outbreaks
Adding to the challenges being experienced by the South African poultry sector, highly pathogenic avian influenza (HPAI) has been circulating in the country since April.
Latest official figures put the number of hens alone affected so far at four million — around 15% of the national layer flock. Earlier this month, there were warnings of shortages in the egg market.
Up to early September, the country’s veterinary authority had registered 49 outbreaks of HPAI in poultry. Directly impacted have been almost 4.4 million poultry in total, according to notifications received by the World Organisation for Animal Health (WOAH). Outbreaks have occurred in seven provinces, including around the major cities of Cape Town, Johannesburg and Pretoria.
Of concern is the discovery that two different HPAI virus serotypes — H5N1 and H7N6 — are circulating simultaneously in the country. This situation increases the risk of the emergence of new variant that causes higher mortality or morbidity, or is more transmissible, or causes severe disease symptoms in humans.
Last week, Reuters reported that South Africa looked likely to suffer upcoming shortages of chicken as well. This it attributed to power supply interruptions and to HPAI outbreaks.
According to Astral Foods, the avian flu situation is the worst in the country’s history. It puts costs associated with this outbreak series at ZAR220 million.
More on Astral Foods
With annual slaughterings of 290 million birds, Astral Foods is the largest broiler producer in Africa by a wide margin, according to WATTPoultry.com’s Top Poultry Companies survey.
For the last fiscal year, Astral Foods reported year-on-year increases of 102% in operating profit, and almost 22% in revenue.