Load shedding decimates South African chicken business

 ·25 Jan 2023

Poultry producer Astral Foods says it expects its earnings for the first half of its financial year to be decimated by ongoing disruptions caused by load shedding, warning shareholders to expect headline earnings to drop by no more than 90%.

In a voluntary trading statement issued on Wednesday (25 January), the group said that deteriorating market conditions in South Africa due to ongoing rolling blackouts was causing disruptions across its business.

The outages, as well as the general decay of municipal infrastructure, are continuing to impact its operational efficiencies and costs negatively, it said.

“Considering the prevailing market conditions, Astral has reasonable certainty that earnings per share and headline earnings per share for the six months ending 31 March 2023, are expected to decrease by no more than 90%, being 142.0 cents each, compared to the six months ended 31 March 2022 (EPS of 1 456 cents and HEPS of 1 420 cents).”

Astral said that its feed division successfully managed to limit the impact of load shedding by utilising available spare capacity amongst its various feed mills, however, this came at an additional cost.

“Future capital expenditure has been committed to negate further risk,” it said.

As a result of load shedding negatively impacting the poultry division, however, substantially higher internal feed volumes are required.

“Feed input costs, making up about 70% of the cost of producing a live broiler, increased significantly into 1Q2023 with the SAFEX yellow maize price peaking at around R5,300 per ton on the back of a weakening local currency and a tight global balance sheet.

“The Poultry division has experienced severe operational disruptions through 1Q2023 due to Eskom load shedding. This has continued and led to abnormal additional costs as well as substantial production cutbacks of at least 12 million broiler placements for the 1H2023.”

The abnormal costs have been incurred on a backlog in the broiler slaughter programme, that has resulted in older and heavier birds consuming higher levels of feed, the group noted. In addition, excessive processing costs are being incurred as additional shifts are being implemented to try and address the substantial backlog in the group’s integrated broiler supply chain.

“The larger bird size and continued load shedding disruptions have compromised the group’s poultry product offering,” it said.

Astral previously indicated that a substantial poultry selling price increase would be required to recover the high feed input costs and the impact of load shedding. However, it was unable to implement the selling price increase required and as a result, it continues to ‘subsidise’ the increased cost of production to our customer base and the consumer.

Based on prevailing market and operational conditions, Astral said the cost to produce chicken exceeds the selling price by at least R2.00 per kilogram.

As a result, the poultry division is expected to incur significant losses for the 1H2023, it said.

“A large portion of the capital expenditure commitments amounting to R737 million, outlined during the F2022 results presentation, has been placed on hold given the current adverse market conditions. The Group has however committed funds towards backup electricity generation solutions to reduce the adverse impact of load shedding.”

Read: Another food price shocker on the cards for South Africa

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