Astral’s R1.9 billion load-shedding bill raises alarm over South Africa’s chicken supply

Load-shedding cost Astral Foods approximately R1.9 billion in the 2023 financial year, and the food producer expects its earnings to drop by up to 165%.

Astral had previously informed the market that it would face significant costs from load-shedding for the remainder of its financial year ending 30 September 2023. 

These costs include the additional cost of diesel to power standby generators, costs associated with a cutback in poultry production to catch up with the backlog in the slaughter programme, higher feed costs due to older broilers, and overtime costs for the additional shifts introduced in its poultry processing plants.

Astral said these costs amounted to R741 million for the six months ended 31 March 2023 and forecasted R919 million for the remainder of the financial year. 

The company said the cost to operate diesel generators is now an embedded expense burden of approximately R45 million per month. 

Astral’s total costs of load-shedding, including capital costs of R200 million, for the financial year will amount to approximately R1.9 billion. 

Astal attributed the severe decline of Astral’s results for the year ending 30 September 2023 to these costs.

However, the company reported that the backlog in its slaughter programme, due to load-shedding, was cleared by the end of June 2023. 

“Subsequently, broiler efficiencies have normalised on targeted broiler age, live weight and feed consumption,” the company said. 

Another factor that impacted the company’s results was the Highly Pathogenic Avian Influenza (bird flu) outbreak, which saw Astral and other producers incur additional costs to cull broiler breeding stock in line with regulated disease control measures. 

“The losses extend beyond the biological cost of the culled birds but also include costs relating to measures taken for the safe disposal of these birds and biosecurity measures implemented aimed at curbing the spread of the disease,” the company explained. 

“The poultry industry, in both the table egg and broiler sectors, has seen significant losses as a new strain of bird flu (H7N6) has spread across both Gauteng and Mpumalanga at an alarming rate.”

“The bird flu outbreak is the worst that South Africa has witnessed and goes well beyond the impact felt by the H5N8 bird flu in 2017.” 

Astral said that, to date, the total cost associated with the current bird flu outbreak amounts to approximately R220 million.

The company said deep-cut promotional activity in the wholesale and retail sectors on chicken has been extensive.

“Coinciding with the above, Astral had to, unfortunately, pack ‘the big bird format’, on the back of load-shedding, into a very limited product range which had to be discounted.”

“This, together with a normal slowdown in chicken consumption patterns over the winter season, has seen poultry selling prices under severe pressure.”

Astral said the selling prices for chicken have not recovered input costs, including the significant load-shedding and other inflationary costs, creating a situation where negative margins on poultry sales have been realised.

Astral has been forced to subsidise the above costs for a prolonged period.

The company expects that earnings per share and headline earnings per share for the year ending 30 September 2023 could decrease by as much as 165% due to these factors.