Astral Foods presented a doom-laden summing-up of its business this week, describing an industry crippled by load-shedding and unable to compete in the export market.
CEO Chris Schutte said at the company’s results presentation that turning more to the export market was not a viable option to improve the struggling bottom line.
“It’s easy to suggest exports as an opportunity or option, but our input costs are at a level that we can hardly claim we are globally cost-competitive. We must thank SOEs [state-owned entities] for increasing the cost of production of poultry,” he said in response to an analyst’s question.
“How do we compare with Brazil, [which has] a government that fully supports agriprocessing and export? It will be difficult from a cost perspective to be globally competitive given our production costs.”
The owner of such brands as Goldi Chicken, County Fair and Festive incurred R741m in load-shedding costs in the six months to March and faced soaring prices for poultry feed, which accounts for 70% of production costs. It feeds about 38-million chickens daily.
Schutte said the company wanted to ensure that “we can put affordable protein on the table for South Africans first before we can think of export”.
We are not globally competitive from a cost perspective. Brazil beats us every day in cost and prices
— Astral CEO Chris Schutte
“We are not globally competitive from a cost perspective. Brazil beats us every day in cost and prices,” he said.
Schutte said most of South Africa’s neighbours bar chicken imports to protect their domestic producers. But Astral has operations in Zambia and that facility would be expanded.
He said Astral was producing its chickens at a loss and had not yet passed on its higher costs to consumers. But it was only a matter of time before it had to do so, “not to make profits but to break even and recover input costs”.
“We know that major retailers are also subsidising the consumers. We are putting [in] money to make it affordable because it’s a preferred protein choice. But for how long can we do this? We have emptied our pockets in subsidising the additional costs.”
Schutte issued a warning about the way load-shedding’s disruption of agriprocessing and value chains was pushing up the cost of food for vulnerable communities.
“If the masses are hungry, the rich and fortunate won’t sleep.”
Astral’s balance sheet had been weakened as the business laboured under excessive, unrecoverable costs and the way consumers were having to cut food spending.
During the six months ended March, Astral cut back production by 24.9-million broilers, by slowing the replacement process and selling live birds. This was made necessary by backlogs in the slaughter line caused by power cuts.
Among the woeful interim figures presented this week were an 89% drop in operating profit, an 88% drop in headline earnings per share and a net cash outflow of R1.2bn. Revenue ticked up 6%.
The company is expected to recover in the last quarter if raw material prices start to ease.
With stage 6 load-shedding Astral spends R45m a month on diesel but Schutte said this could rise up to 20% if and when stage 8 is implemented.
All capital expenditure has been placed on hold except for essential maintenance and emergency measures to protect electricity and water supplies.
Chris Logan, who runs Opportune Investments, said Astral should start doing better once the benefits of the lower maize price kick in and the company’s efforts to achieve greater energy and water self-sufficiency gather pace.
“But the general environment in South Africa is so precarious, it’s increasingly difficult to be confident about locally based companies,” he said.
Rhodes Foods Group, the maker of Bull Brand corned meat, Magpie pastries, Squish fruit and vegetable purée and Hinds spices, also reported this week on the harm that load-shedding is doing to production. It said its diesel costs totalled R37.8m in the six month to March, running at a weekly average of R2m at current load-shedding levels.
RFG CEO Pieter Hanekom said costs could rise about 10% if load-shedding moves to higher levels.
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