Integrated poultry producer Astral Foods has advised that its poultry division has experienced severe operational disruptions through the first quarter of its 2023 financial year, mainly as a result of loadshedding, leading to abnormal additional costs and substantial production cutbacks.

The company says it has to cut back on at least 12-million broiler placements for the six months ending March 31, and is reasonably certain that its earnings per share (EPS) will decrease by about 90%, or by 142c, compared with the EPS of R14.56 posted for the six months ended March 31, 2022.

The abnormal costs relate to a backlog in the broiler slaughter programme, which has resulted in older and heavier birds consuming higher levels of feed. Additionally, 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 loadshedding disruptions have compromised the group’s poultry product offering. As such, a substantial poultry selling price increase would be required to recover the high feed input costs and the impact of loadshedding.

“However, Astral has been unable to implement the selling price increase required and, as a result, continues to rather subsidise the increased cost of production to its customer base and the consumer,” CEO Chris Schutte states.

He adds that, based on prevailing market and operational conditions, the cost to produce chicken exceeds the selling price by at least R2/kg. Accordingly, the poultry division is expected to incur significant losses for the first half of the financial year.

The poultry division’s feed input costs make up about 70% of the cost of producing a live broiler.

On the other hand, Schutte explains that the feed division has successfully managed to limit the impact of loadshedding by using available spare capacity among its various feed mills, however, this has come at an additional cost.

Future capital expenditure (capex) for this division has been committed to negate further risk. The higher internal feed volumes will positively impact the feed division’s financial performance for the six months ending March 31.

Owing to prolonged loadshedding, as well as the general decay of municipal infrastructure, Astral has had to embark on numerous capital projects, including installing diesel generators and additional water storage at its facilities, while putting other capex projects on hold while the adverse market conditions persist.

The projected cost of loadshedding for the group for the first half of the 2023 financial year will be about R400-million.

With chicken becoming ever more expensive to produce in South Africa, it sets back the industry, which is already experiencing trying times with record high input costs for both feed and energy sources.

“The shameless demise of a number of State-owned entities that are responsible for supplying essential services and maintaining general infrastructure, is impacting business sentiment and reinvestment decisions for growth, which directly threatens food security into the future,” Schutte laments.

He points out, however, that the group’s balance sheet remains healthy, with good levels of liquidity in place, following a superb performance in the financial year ended September 30, 2022.

“For the first time in South Africa, food security is now under threat owing to the agriculture sector’s reliance on basic infrastructure and services, which are failing. Moreover, the increasing cost of the food basket, which includes poultry as a staple protein, will place the consumer under extreme stress owing to financial hardship.

“If prevailing market and operational conditions owing to loadshedding continue, it could lead to Astral resizing its business in the short term, resulting in job losses throughout the supply chain,” Schutte concludes.