Astral Foods says it will have to inject R200m into alternative energy and water storage resources as worsening rolling blackouts and water shortages affect its operations.
This comes as the Centurion-based poultry group warned of deteriorating market conditions because of prolonged load-shedding and dilapidated municipal infrastructure.
Speaking to Business Day after releasing annual results to end-September on Monday, Astral CEO Chris Schutte said that to counter the effect of blackouts on Astral’s operating plants “we will invest a further R200m in the near future in power generating diesel plants and water storage capacity”.
The group has already implemented production cutbacks to partially manage the effect of load-shedding, which severely hampers its integrated poultry production and processing chain. Astral reported that the direct cost of load-shedding was R126m and water supply interruptions cost R9m in the past financial year.
Emphasising that this was a “grudge purchase” brought on by the “dismal performance” of state-owned enterprises (SOEs), Schutte emphasised that consumers were the worst hit.
“The consumer is paying more than a rand per kilo for poultry just on the back of load-shedding,” he said, adding that Astral had been absorbing the bulk of the input costs over the past six months, which was not sustainable.
The group had previously embarked on numerous capital projects to install diesel generators and additional water storage at its facilities.
Consequentially, chicken became more expensive to produce in SA, placing the industry further on the back foot under already trying times characterised by record-high input costs for both feed and energy, he said. The result was above-inflation increases for chicken, a common source of protein for many South Africans.
The company, valued at R7.33bn on the JSE, criticised the “shameless demise” of SOEs responsible for supplying essential services and maintaining infrastructure, which in turn was hurting business sentiment and “directly threatens local food security into the future”.
Schutte said high inflation, raw material cost increases, dilapidated infrastructure and a weak rand put the outlook for SA’s poultry industry on a precarious footing.
“One thing I can tell you now is that the first six months of our new financial period are going to be pretty ugly,” Schutte said, pointing out that input costs were still rising, without any relief in sight.
“We can’t see where currency strength will come from and we can see global stock levels improving rapidly over the next year,” he said, outlining that feed and raw materials made up 70% of the cost to produce a kilogram of white meat.
Broiler feed input costs were up 11.6%.
Operating through three segments — poultry, feed and “other Africa” operations — Astral engages in the manufacture of animal feeds, broiler genetics, the production and sale of day-old chicks and hatching eggs, breeder and broiler production, abattoir and further processing operations and sales, and the distribution of various poultry brands.
Revenue from its continuing operations increased by just more than one-fifth year on year to R19.3bn, while the cost of sales jumped 17.6% to R15.3bn.
The improvement was largely thanks to an increase in the broiler operations of its poultry division, which contributed R2.8bn, the direct result of a growth in broiler sales volumes and a recovery in the selling price of poultry.
Broiler slaughter volumes rose 7.7%. Sales volumes added 8.9% to 42,630 tonnes.
Operating profit from continuing operations more than doubled to R1.44bn, with poultry generating about half and feed about 40%. The better profitability of the poultry division lifted the operating profit margin 2.8 percentage points to 7.4%.
Headline earnings per share, a profit measure that strips out impairments and one-off items, more than doubled to 2,762c.
Total profit for the year also more than doubled to R1.07bn.
Despite the poor outlook, Astral Foods almost doubled (97%) its dividend to 1,380c.
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