Deteriorating Lekwa municipality water supply is costing Astral dearly
Astral stock plummeted more than 11 percent at R153.01 from Monday’s close of R171.39 before recovering to settle 4.33 percent lower at R163.97 by the end of trading.
The group said in a guidance to shareholders that the deterioration of the municipal infrastructure of the Lekwa municipality has led to water supply interruptions at Astral, first highlighting the damage that the interruptions had caused during the release of its six months results to end March two weeks ago, where it reported a 68.9 percent decline in the operating profit of its poultry division.
The division’s operating profit fell to R258 million from R828m compared to a year ago, driven largely by materially higher feed input costs and lower sales realisations that buckled as a result of chicken imports.
“The deterioration of the Lekwa municipal infrastructure has led to water supply interruptions at our poultry processing plant in Standerton, despite the proximity of this municipality to a substantial water source in the Vaal River,” Astral’s poultry commercial business managing director Andy Crocker said.
“This water supply issue is resulting in significant cost implications for the group.”
The under supply of water has escalated, despite a permanent court order requiring the municipality to secure a minimum necessary supply.
Astral said it was now seeking alternative water supply in an attempt to contain further cost impacts.
“All possible avenues are being explored, which includes continued legal action to secure water supply through the municipal infrastructure.
"Further updates will be communicated as and when circumstances change,” the group said.
Astral put the costs to manage the impact of the short supply at R19m, while costs related to not slaughtering birds according to a predetermined schedule amounted to R10m.
Other costs involved R25m due to slaughtering at alternative processing plants and R31m related to forced production cuts planned for June 2019.
Gary Arnold, Astral managing director of agriculture, said despite an active engagement with a number of stakeholders on the issue, co-operation from the Lekwa local municipality was not forthcoming.