SA's leading integrated poultry producer Astral Foods has reported incurring more than R120million in costs relating to operational challenges. EPA
DURBAN - South Africa's leading integrated poultry producer Astral Foods has reported incurring more than R120million in costs relating to operational challenges caused by water supply constraints from the deterioration of infrastructure in Lekwa Municipality, which supplies its processing plant in Standerton.

In its financial results and dividend declaration for the year ended September 30, Astral said severe water supply interruptions at Goldi, its largest poultry processing facility based in Standerton under the Lekwa Municipal District, as well as Eskom electricity interruptions, had marred what could have been a good year for the group.

“We have to utilise about 110 trucks a day to ensure that the operations have the water needed in that operation. On top of the R120m we have spent for water and electricity, we are also spending an additional R2m a month on diesel.

"It becomes difficult to continue investing when we have these infrastructural challenges,” chief executive Chris Schutte said, blaming the government for its failure to sort out the water supply despite assurances given to the group in the past.

The overall extraordinary costs for Astral during the period amounted to R223m, which also included the cost of industrial action in its KwaZulu-Natal operations.

The group reported a 4percent increase in revenue to R13.5billion while operating profit decreased by 55percent to R882m.

“Astral’s earnings for the year were sharply down compared to a record profit in financial year 2018.

"Substantially higher raw material costs leading to high feed prices, a 66percent contribution to the total live cost of producing a broiler, together with lower poultry selling prices year-on-year, negatively impacted poultry margins,” Schutte said.

Schutte added that excluding these unfortunate costs, Astral would have reported one of its better financial years since listing.

The group declared a final dividend of R4.25 per share, which is a 60percent decline from the R10.50 a share declared at the same time last year.

Its headline earnings per share declined by 55percent to 1674cents a share, and the group declared a total dividend of 900c, down by 56percent compared to last year.

The poultry division increased its revenue by 2.6percent to R10.9bn, the bulk of which was derived from improved sales of broiler day-old chicks and parent stock in the external market, augmented with higher broiler sales volumes.

The group said broiler slaughter volumes remained relatively flat, despite production cutbacks as a result of the Standerton water crisis.

Sales volumes increased by 2.6percent to 11438tons, largely due to sales out of stock in the second half of the reporting period.

Broiler feed prices increased by 7.7percent due to higher raw material costs for the reporting period.

Operating profit for the poultry division decreased by 74.5percent to R371m.

In the feed division, revenue increased by 6.1percent to R6.6bn as a direct result of higher selling prices on the back of an increase in raw material costs.

Operating profit increased by 7.2percent to R489m with the operating profit margin remaining flat at 7.4percent.