CFO Daan Ferreira says that Astral’s results were largely affected by increased feed costs.
Astral Foods has reported a 6.7 percent increase to R7.5 billion in revenue for the six months ended March 2021, despite the many challenges that presented themseves during the last year.
CFO Daan Ferreira explains that 80 percent of the group’s revenue consists of poultry products sales, particularly its feed sales. He adds that the group reported a 8.3 percent increase in poultry revenue for the period to R6.1 billion, driven by an increase in revenue from higher broiler sales volumes and selling prices, as well as an increase in the group’s breeding operations.
However, the group said poultry price increases were not sufficient to cover the increases in feed and other production-related costs.
The group’s headline earnings per share, took a blow due to high feed input and import costs in the poultry division. The group reported a 37.3 percent decline in earnings to 597 cents per share.
“Any poultry business is exposed to changes in feed costs, which accounts for close to 70 percent of the cost of a live broiler bird,” Daan says. “We can’t control the prices for maize and soya [the major components of feed] as they are influenced by weather patterns and supply and demand, not locally only, but also on world markets.”
During the last 12 to 18 months, he explains that Astral Foods has experienced an increase in these input costs and that the company has absorbed these costs mainly as a result of the poor state of the consumer market. Broiler feed prices increased by 17 percent on a rand a ton basis, because of high raw material costs.
“The consumer, as the end user, should eventually pay more for a product, more so if increases in production costs are not a result of inefficiencies, but as a result of market forces,” Daan says. “Any business must secure its long-term sustainability and there comes a point in time where it can and should not further absorb these cost increases and have to pass it on to the consumer.”
Astral’s operating profit decreased by 78.6 percent to R61 million, with broiler selling prices failing to cover the elevated feed prices.
Market challenges
Daan says that the decrease in profit was also a result of a weak consumer market, which “bears the scars of the impact of the lockdown on consumer spending”.
He explains that the close down and restricted trading of restaurants and fast food outlets as required per the lockdown regulations, did affect the company’s sales, as well as the general spending power of the consumer market, as their discretionary income was reduced due to Covid-19.
Daan says that the South African economy and the consumer markets were under pressure even before Covid-19, which is a direct result of relatively low economic growth experience for some time. On top of that, he adds that poor service delivery and big scale corruption by all spheres of government didn’t help.
“Businesses are spending many millions of rands to secure consistent water and electricity supply. It is now critical, even more so as a result of the impact of Covid-19 on the economy, that all levels of government start to deliver what is expected from them. South Africa must be made an attractive destination for investments again, and the government has a major responsibility in this regard.”
However, he adds that, even during this challenging period, the cash flow of the group remained strong for the first half of 2021. “Astral is a food producer and as such its operating activities were not interrupted by the lockdown, except for following very strict protocols at the workplace,” Daan says.
