Chicken producer Astral, which has made a strong comeback in the half year to March after a steep drop in earnings last year, aims to increase the number of birds it slaughters weekly to previous volumes of 5.8-million in the next year.
The company, which produces Goldi Chicken and County Fair, cut back broiler bird numbers in the six months to March from an average of 5.8-million birds per week in September 2023 to 5.4-million birds per week. This was an effort to balance supply with demand as the market witnessed weak consumer spending and Astral avoided over-production of finished products, while selling out of stock and easing working capital requirements.
CEO Chris Schutte said that for the first time the group has spare capacity and over the next 12 to 18 months “we do plan on bringing those volumes back to the market, but depending on the state of the consumer”.
He said the rise in unemployment and inflation were some of the risks the company was monitoring.
Lwando Ngwane, equity analyst at All Weather Capital, said depressed consumer spending and persistent high inflation were “making it tough for consumer-facing companies like Astral to push through sales volumes into the market and continue to be a risk to driving better revenue growth”.
The chicken producer industry slaughters about 21.2-million birds a week.
In the six months to March, Astral reported an operating profit increase of 461.2% to R550m, attributable to the poultry division reporting an operating profit against a loss of R283m in the comparable period
Though sales of Astral chicken increased in the half year to March, overall there was less demand from consumers on the back of constrained disposable income.
The Competition Commission, in its essential food price report, found that consumers were swapping chicken for canned fish because of — among other things — the smaller quantities, typically 400g cans or less, which give consumers some flexibility, easy storage as they don't need refrigeration, and different flavours to accommodate consumer tastes without additional expenditure on flavour-enhancing ingredients.
Schutte said canned pilchards were not replacing chicken, which remained better value.
“We have seen a swing in sales in the past six months because people were afraid of buying frozen stuff because it might go off because of load-shedding,” he said.
To accommodate cash strapped consumers,Astral had introduced 4.2kg bag of chicken pieces to add to theexisting 2kg, 3.5kg and 5kg bags.
But Schutte said that to go smaller than a 2kg bag was “a problem, and in our market surveys biggest demand is still 5kg, especially month end”.
In the six months to March, Astral reported an operating profit increase of 461.2% to R550m, attributable to the poultry division reporting an operating profit against a loss of R283m in the comparable period. Group revenue increased by 4% to R10.4bn.
Ngwane said Astral’s first interim results were good and better than the market expected at the start of the year.
“Things appear to be pointing in a positive direction for the company to recover from a tough year in 2023 where it saw a combination of challenges with higher input costs, severe load-shedding and an outbreak of the H7 bird flu strain. Given that all these three factors have eased to different degrees, it looks like the company is set to achieve its 'reset, refocus and restart' strategy over the next 12-18 months.”
While Astral expects an improved second half, Schutte said the possibility of bird flu infections remains a major risk to the local poultry industry, especially in the absence of regulatory approval to vaccinate.
Astral COO Gary Arnold said progress had been made and there had been continuous engagement with the government. “Its new for both sides and they are certainly adopting a conservative and measured approach, which we like. Not a bad thing but we need to get to a point where we can vaccinate.”
Changing weather patterns are another concern for Astral. Schutte said the El Niño weather pattern had a negative impact on local grain crops due to dry weather conditions in a critical period of the growing season, “with a sizeable drop in the crop and higher Safex prices, leading to higher feed input costs”.
Ngwane said the outlook for poultry producers appears positive in the short to medium term as the sector recovers from avian influenza and the severe load-shedding experienced in 2023.
“In the current environment, poultry producers are experiencing a reversal of elevated expenses, including diesel costs, egg import costs and higher feed costs. This alone has seen the sector reporting higher than expected earnings, albeit from a low base.”
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