Astral Foods, SA’s largest chicken producer, will report its first ever annual loss since listing in 2001 after it spent R1.9bn on load-shedding related costs including feeding birds it could not slaughter on time.
Its share price ended the day 10.98% lower at R154, its biggest one-day loss since October 2022.
The group warned in a trading statement that for the year to end-September it would swing into a headline loss per share of about R18, representing a fall of 165%.
It is also selling chickens at a loss of R3/kg as it could not put up prices to recover high costs of feed and diesel as a result of delays in slaughtering. These costs include paying overtime to employees to deal with the backlog at abattoirs. Consumers buy less chicken if prices rise too much, but the firm said selling poultry at a loss was not sustainable.
The company is presently spending about R45m per a month — about R1.5m a day — to run diesel generators needed at farms and abattoirs as it suffers from the fallout of state-owned power utility Eskom being unable to provide sufficient energy for SA.
CEO Chris Schutte said this monthly spend will become an “embedded cost” as at least another two years of load-shedding is expected.
Without the R1.9bn spend caused by load-shedding, Astral would have reported “an average to good year”, he said.
The company’s chicken division has run at a loss before but it has always made an overall annual group profit. This year the poultry losses were so massive, they undermined profit in its animal feed division.
The costs associated with a cutback in its poultry production, higher feed costs because of older broiler chickens that could not be slaughtered on time due to blackouts, and overtime shifts amounted to R741m in the six months to the end of March and are forecast to be R919m for the rest of its 2023 financial year.
“Astral can report that the backlog in the slaughter programme, as a result of load-shedding, was cleared by the end of June 2023. Subsequently, broiler efficiencies have normalised on targeted broiler age, live weight and feed consumption,” the company said. It is now slaughtering chickens at the right time and size which lowers feed costs and reduces sales losses.
Astral Foods, which usually publishes its annual results in November, said it will provide investors with another update at the end of October about what to expect from its annual results.
The group has also felt the effect of promotions on chickens in the wholesale and retail sectors, while contending with fewer consumers buying chicken during winter.
Consumers are looking to save money where they can amid high inflation and interest rate hikes, with food inflation remaining higher than overall consumer inflation.
“The selling prices for chicken have not recovered input costs, including the significant load-shedding and other inflationary costs, creating a situation where negative margins on poultry sales have been realised. Astral has been forced to subsidise the above costs for a prolonged period,” the company said.
Schutte said Astral would have to put up chicken prices by about 9% to recover its losses. It had held meetings about prices with retailers describing them as “very hard conversations with key customers”.
He said Astral explained to major customers the dire situation that the chicken industry faced and “the penny” appeared to have dropped.
Astral was very aware of the pressures the consumer was under, he said.
The local poultry industry is also facing an outbreak of bird flu, meaning extra costs for Astral and its competitors as they cull chickens in line with disease control measures.
The total costs related to this latest outbreak, which Astral believes is the worst in SA’s history, has so far amounted to about R220m.
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