JSE-listed poultry producer Astral Foods has reported a 51% decrease in its profit before interest and tax to R271-million for the six months ended March 31, owing to margin pressure in its Poultry division.

The group’s net margin of 2.5% in the six months under review compares with a net margin of 5.3% in the prior comparable six months.

“We experienced significant poultry selling price deflation which, together with higher input costs, led to negative poultry margins. During this period, Astral subsidised the cost of producing chicken, as higher feed and other inflationary costs could not be passed on in selling prices – as a result of the very competitive poultry market landscape,” says CEO Gary Arnold.

Astral’s interim headline earnings per share decreased by 54% to R271-million, but the company still declared an interim dividend of R2.20 apiece, which amounts to two times dividend cover.

The company generated cash of R224-million in the reporting period, compared with cash outflow to fund capital expenditure of R132-million. Astral realised a capital gain of R32-million through the sale of assets.

It had a net cash balance of R259-million at the end of March.

Moreover, Astral experienced a cybersecurity incident during March, whereby unauthorised access was gained to certain areas of the group’s network. The Poultry division was negatively impacted in this regard through downtime in processing and deliveries for about two days. This resulted in a loss of R20-million which is reflected in the interim profitability.

Revenue in the Feed division increased by 9.4% year-on-year to R5.3-billion in the six months under review, compared with R4.9-billlion in the six months ended March 31, 2024. This was a direct result of higher sales volumes and feed selling prices.

Sales volumes increased by 5.9% year-on-year to 37 984 t, driven by an increase in external feed sales of 6.4%, with feed sales to the commercial layer sector recovering following the bird flu outbreak in the industry during the latter part of 2023.

The higher internal sales volumes were driven by the requirement for broiler breeder feed, as all flocks were completely restocked and in production following the bird flu outbreak of 2023, which negatively impacted feed volumes in the prior comparable six months.

The Feed division’s operating profit improved by 11.6% year-on-year to R297-million, while the division’s operating profit margin also increased slightly to 5.6%.

Operating expenses in the division were well controlled during the period under review, with below inflationary increases reported.

Revenue in the Poultry division increased by 1.5% year-on-year to R8.8-billion, driven by higher sales volumes over the period. Poultry selling prices were, however, 3.1% lower than in the comparable period.

This, together with higher poultry feed input costs and an increase in operating expenses in line with inflation, resulted in a loss for the period of R26-million for this division, compared with a profit of R284-million having been reported in the prior half-year, marking a 190% decrease.

For context, the SAFEX yellow maize price increased by 28% to an average of R5 004/t in the six months under review.

Astral confirms that margins were “extremely thin” in the Poultry division going into this financial period and, with higher input costs and lower poultry selling prices in the market, the broiler margin for the period under review reduced to 1.1%, compared with 2.4% in the prior half-year.

Broiler sales volumes increased by 4.4% to 10 977 t in the six months under review, owing to sales out of finished good stock, which eased working capital requirements and resulted in poultry inventory levels at the end of March this year being markedly lower than at the end of September 2024.

Broiler performances for the period under review were good and achieved a record high. The broiler feed price increased by 2% over the period, supported by higher local grain prices on the back of the drought in 2024.

However, the improved broiler feed conversion efficiency partially offset the higher feed cost, positively assisting the broiler live cost.

CFO Dries Ferreira says Astral’s interim cash generation was strong despite a depressed cash operating profit of R224-million, supported by good working capital improvements mainly from the Poultry division.

“Our balance sheet remains healthy and we continue to focus on increasing cash reserves to ensure long-term financial resilience. Our positive cash position enabled us to declare an interim dividend, in line with our dividend policy.”

OUTLOOK

Looking ahead, Ferreira and Arnold both expect the poultry industry to face both challenges and opportunities. The executives believe bird flu remains a significant risk to the local industry, with limited progress having been made towards the approval of vaccinations for poultry breeding stock.

This while the South African economy continues to experience deteriorating growth prospects, which typically supress local investment, infrastructure spend and job creation. These factors all constrain consumer spending.

Arnold also points out the uncertain global landscape characterised by trade wars and shifting alliances which poses risks of an economic slowdown, market uncertainty and currency volatility. These factors could complicate Astral’s operating environment in the next six months.

However, the expectation of a larger local maize crop is likely to benefit maize prices going forward. Additionally, lower poultry inventory levels should assist in recovering poultry selling prices after months of price deflation.

Meanwhile, Astral has increased broiler placement numbers providing the group with an opportunity to grow sales. “We remain cautiously optimistic about leveraging the opportunities ahead to strengthen our position and drive growth in the coming months,” Arnold concludes.