Astral Foods warns investors of profit crash due to soaring cost of production

SOUTH AFRICA – South Africa’s largest poultry producer, Astral Foods, has warned its investors of a potential slip in profits that could even be worse than the 92% crash experienced at the beginning of the year.

Astral Foods said there was a reasonable certainty that both earnings per share (EPS) and headline earnings per share (HEPS) will drop between 87% and 92% in six months.

Previously, Astral had warned that it could not pass on rampant feed and load-shedding costs to consumers and was essentially subsidizing the market at a rate of R2 per kilogram.

“The poultry division is suffering massively because of input costs with maize costs, electricity increases, and load shedding. They can’t pass these price increases on to consumers, and I think that is where they are battling here,” FNB portfolio manager Wayne McCurrie said.

Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, added that conditions had never been tougher for Astral, which only recently had been performing well.

He noted that Astral appeared to suffer from the impact of high input costs, and while the prices of maize and wheat were coming down, there was always a bit of a lag effect.

At the beginning of the year, Astral issued a profit crash warning blaming power disruptions for exacerbating already high energy and feed costs.

The CEO of the Company, Chris Schuttle, added that the business, which generated group revenue of US$1.1bn in the year till September, had to subsidize the increased cost of production, which included investing in diesel generators and additional water storage.

Schutte recapped his statement announced in November that the company expected market conditions to deteriorate resulting in chicken prices skyrocketing beyond the rate of inflation, adding that for the first time in South Africa, food security was now under threat due to agriculture’s reliance on basic infrastructure and services, which were failing.

“The increasing cost of the food basket, which includes poultry as a staple protein, will place the consumer under extreme stress due to financial hardship,” he said.

As consumers continue to feel pressure, the competitiveness of South Africa’s poultry industry is being eroded by load shedding, which should push up imports, analysts state.

Treurnicht explained that load shedding was hitting the quality of production, for example, resulting in the deaths of birds as ventilation systems and other production parts also come under pressure.

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