[TOP STORY] Despite the corn input cost pressures, Astral jumps intermediate income

Simon Brown: I’m chatting with Chris Shoot, CEO of Astral. Astral had results for six months ending March. It saw earnings rise 26%, headline earnings per share rose 138%, and dividends of R7.90 – more than the previous R3.

Chris, I appreciate today’s time. I want to dig into some of the details, but the main point is the huge leverage you see from earnings to earnings per share heading. This surprises me, because you get the pressure of significant input costs towards corn.

Chris Shoot: Good day. Yes. I think it should just be kept in context. This is worse than the previous period, where our broiler business had a negative margin. This time we got somewhat positive [margins] With only 4% margin. It was basically a catch-up. Our prices dropped during the hard lockdown, and we tried to catch them and then try to recover some input costs. So, although the gains look great compared to the previous period, they are still below our average performance. Unfortunately, we were able to pass on some of the prices and costs to consumers, but that’s fine too [in order] Doing a sustainable poultry business in the long run.

Simon Brown: I accept your point. Your broiler sales have increased by 15.7%. You mentioned clearly that this is a comparative period, the previous one being March 2021. We had a severe lockdown and then we had a curfew and the like. So QSRs [quick-service restaurants] Was under pressure. Is it just bounce-back or [was] Does this improve efficiency from some operations and improved output?

Chris Shoot: Simon, if we go back a little bit, we always say when we make a profit, we pay our taxes, we try and cover 2% dividend. But the rest of the money, the historic profit, we returned to business.

So our business has improved significantly in terms of efficiency, investment and expansion in Elephant Fontaine. That has now come to fruition.

So we’ve spent R1 billion over the last two and a half years, and a portion of that is obviously volume growth now instead of that investment, but we’ve also sold some stock. We had pretty high end stock [in] The previous period. So we sold higher production volumes out of stock, and then there was some positive mix in our product basket, which contributed somewhat to better margins.

Simon Brown: Have you seen a return to pre-epidemic levels – I’m thinking of QSRs, I’m thinking of restaurants and the like.

Chris Shoot: Yeah Al that sounds pretty crap to me, Looks like BT aint for me either.

We think we’re back above 90%, let’s call it pre-covid or normalcy.

But there is a change in how consumers shop and there are far more takeouts than seat downs. But I think we’re back just over 90%, and we can see through that in our sales.

Simon Brown: We probably add one point each time we import imports – we see results – [is] Imports remain, obviously, significantly higher in our market.

Chris Shoot: Poultry products imported into this country still make up 24% of the total cost. That’s still high. Although it is 6% less than the comparative period. This may be due to higher anti-dumping tariffs, it may be due to limited trade or lockdown, or it may be due to the massive cost drivers in other countries. We still consider 24% of local consumption to be fairly high imports and this is total poultry products. So it’s still a concern.

We obviously had a master plan with the minister at that time [Ebrahim] “Whatever we import less, we will meet,” Patel said [with] Local costs. So Astral has worked his bit on reinvesting the expansion as part of the Poultry Brotherhood.

We have also created 350 additional permanent jobs during this period and our expansion has not yet taken place. We plan to expand by a further 8% next year. So we will increase our weekly processing number to about 6.2 million birds per week; A year ago we were at about 5.5 million. So an excellent investment for the country and it is paying off.

Simon Brown: Feed Division – We mentioned corn, and of course there are yellow corn prices, I wanted to say record levels, but of course they are at very high levels. It hits the feed department, but you still manage to pick revenue ৷ Slight pressure on the margins, but you are managing to deliver a lot of corn growth to your customers.

Chris Shoot: Yes. The feed industry has historically operated on a margin per tonne rand and not in percent, so it is usually raw material and production costs and a small margin. We have been able to successfully ship it to overseas markets. But one should also keep in mind that 60% of that amount goes to our poultry department and they accept that knock and they have to go and get it back.

Simon Brown: How much does food cost in your poultry department? Obviously there is staff, as well as everything, there is administrative service, there is power. What is a feed? I mean, it’s big[gest] Cost?

Chris Shoot: Feed now, from this morning if we accept the latest price in Chicago that we had to buy today, about R4 800 / ton. I never thought I would mention it, but it is.

So now feed 70% of our total cost for one kg of meat production.

And then of course the other big contributors are distribution and energy and our wage bills – which make up the top four and that’s close to 90% of our total costs. Our energy costs increase by about 10% of our total, and that cost increases by about 16% per year. And our distribution costs, our business has grown by another 10%, 29% and this is mainly due to the high price of diesel.

Simon Brown: Yes. [There are] This morning reports that we are going to get further increase in petrol price by the end of this month. But 70% [for] Feed – This is a huge number and [it] I mean look at the price of yellow corn.

Chris Shoot, CEO of Astral, I always appreciate the time.

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