Poultry producer Astral’s turnaround strategy has paid off, enabling the group to return to profitability, eliminate its R1bn debt accumulated in 2023 and achieve strong earnings growth for the year to end-September.
Astral said on Monday the company’s net cash inflow of R1.095bn enabled it to erase its debt entirely and allowed the board to declare a final dividend of 520c per share.
Revenue increased 6.4% to R20.5bn driven by a recovery in the poultry division. Headline earnings per share (HEPS) increased 245% to 1,920c. Operating profit jumped to R1.125bn after a R621m operating loss a year ago, as the group benefited from the absence of major disruptions such as load-shedding and bird flu.
Astral’s poultry division reported a 7.7% revenue increase to R17.1bn. Operating profit for the division increased to R580m from a loss of R1.38bn in 2023, with operating margins improving from negative 8.7% to positive 3.4%.
While the poultry division thrived, the feed division posted a 15.2% revenue decline to R9.8bn. Lower raw material costs led to a decrease in feed selling prices, with maize and soya meal prices down year on year. External feed sales volumes rose 4.7%, due to a demand in the pig and sheep sectors.
The unit’s operating profit fell 28.3% to R545m due to lower internal feed sales volumes, affected by reduced broiler feed requirements after the resolution of 2023’s slaughter backlog.
“The successful execution of our ‘Re-set, Re-focus and Re-start’ campaign (Project 3R) during the year under review, resulted in the group returning to profitability after the worst year in Astral’s history. I am grateful to leave the company in a healthy financial position creating a platform for future growth,” said outgoing CEO Chris Schutte.
He will be succeeded by CFO Gary Arnold in February next year.
According to Chris Logan, investment analyst and owner of Opportune Investments, Schutte’s departure will be a loss for the poultry producer, however, the group has strong “management depth”. He said with less external pressure and some pricing power, Astral has potential to outperform and challenge its 2018 share price high.
“The retirement of CEO Chris Schutte is a major loss, no question Chris is the doyen of the industry. But there is depth of management and in a year when Astral is not buffered by negative external factors and has some pricing power Astral should be able to perform far stronger than it has in 2024 and hopefully challenge its all-time high share price of over R300 set in 2018,” he said.
“Chris has mentored and left behind a very competent team and if hostile external factors abate the best could yet be to come in this cyclical and structurally challenged industry.”
Despite escaping the red and posting strong earnings the group remains cautious about the road ahead, citing weak consumer spending and intense competition.
The group said promotional activity in the retail space has placed pressure on selling prices while high unemployment levels limit disposable income. Consumer spending also remains constrained.
However, despite these hurdles Astral remains optimistic. Schutte said recent political and economic developments have given the group a reason for cautious optimism.
The formation of a stable government of national unity after the May 29 elections has brought a degree of political certainty, with Astral optimistic that this could spur much-needed investment and growth. Interest rate cuts expected in 2025, coupled with the implementation of the two-pot retirement system, may also provide a boost to consumer spending in the medium term, Schutte said.
Update: November 18 2024
This story has been updated with more comment and information.
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