Chicken producer suffers major loss as bird flu and load shedding wreak havoc

Astral Foods – one of South Africa’s largest poultry producers – has reported its first-ever loss, but says that progress is being made against the Avian Influenza (bird flu) outbreak that has decimated the industry.

Although the group’s revenue of R19.25 billion for the year ended 30 September 2023 was only a slight decrease from the prior year, revenue in the poultry division – which contributed 82% towards total external revenue – was down due to a decline in sales volumes of 9.6%.

The operating profit margin dropped to -3.2% (2022: 7.4%) as the group reported a full-year loss before interest and tax of R621 million (FY22: profit R1.4 billion).

It noted that its earnings were significantly affected by load-shedding-related costs and the bird flu outbreak.

The group’s total capital expenditure of R398 million included capital paid on emergency diesel generators and additional water storage at R168 million.

“The group is geared at 25.6%, with an overdraft at the end of the financial reporting period of R1.0 billion,” it said.

“This after drawing an additional R600 million on the General Banking Facilities to maintain healthy levels of liquidity, as working capital requirements increased materially and the group incurred its first financial loss over its 23-year history.”

Amidst the difficult financial position, the group did not declare a final dividend for the period under review.

Outlook

The group said that it will focus on rebuilding the balance sheet through FY24, which it said is crucial to providing resilience through the cyclical nature of the poultry sector in South Africa.

Looking more positively, embedded diesel costs have dropped over the last few months, even if load shedding is expected to continue unabated this year.

“Bird flu remains a major risk to the local poultry industry; however, progress is being made towards approvals for voluntary vaccination of broiler breeding stock,” the group said.

The El Nino weather pattern – which results in drier conditions in South Africa – may also provide some risk to the local crop during the 2023/24 growing season, whilst depressed consumer spending and weak economic growth also impact Astral’s production.

“Improved biological efficiencies following the load shedding ‘big bird era’ have improved dramatically, which go a long way to improving broiler live cost. The product mix has normalised, and all product from the ‘big bird era’ has been cleared,” the group said.

“An effort to correct poultry selling prices has been implemented in the market to reverse the unsustainable negative returns and previously ‘subsidised’ pricing.”

In addition, global maise prices have eased, and with the large local maise crop and surplus carry out, SAFEX maize prices are declining.

Read: Warning over food prices in South Africa