Astral Wraps Up the Year on a High Note with R2 Billion Recovery
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SIMON BROWN: I’m speaking with Chris Schutte, the CEO of Astral, following the year-end results for September. Revenue increased by 6.4%, while HEPS rose by an impressive 245.1%, and there’s a dividend of R5.20. Chris, after an exceedingly challenging couple of years, including the pandemic, high maize prices, and bird flu, it seems like Astral has marked a significant recovery period.
CHRIS SCHUTTE: Indeed, it has. Particularly when compared to previous years, which were fraught with substantial external challenges such as bird flu, load shedding, and soaring raw material costs. We initiated a program to reset and refocus, assembling a turnaround team of 20 individuals and determining that we had to rectify our issues.
The major concern for us was our unfamiliarity with being leveraged; we prefer to avoid debt. Therefore, our emphasis was placed entirely on cash flow and managing our bank balance. This is our third best result in 24 years, representing a remarkable nearly R2 billion improvement year-on-year.
SIMON BROWN: Regarding the debt, I believe you had short-term debt of approximately R1 billion last year, and it appears from these results that it has been reduced.
CHRIS SCHUTTE: Correct. Our focus in this high-risk, volatile poultry industry is to minimize debt, as circumstances can change dramatically overnight. Last year, we had about R1.1 billion in short-term overdraft, which we managed to pay off within 10 months. As it stands, we are now in a cash-positive position.
SIMON BROWN: You mentioned bird flu is now behind you. Regarding maize prices, which play a significant role in the poultry sector, have they stabilized at a sustainable level, or do you hope for them to drop further?
CHRIS SCHUTTE: In the reporting year, we experienced slightly lower raw material costs on average compared to the previous year. However, the current El Niño phenomenon has resulted in the smallest crop in five years. We’re currently seeing prices in the range of R4000 to R5000 per ton for December trade.
In the short term, we are facing higher raw material input costs again. Nevertheless, we remain optimistic about the medium-term future; the new planting season is off to a strong start with good rainfall across various planting areas.
With the projected La Niña, which typically brings better rainfall to the southern hemisphere, we anticipate a bumper crop next year, so we’re focusing on the long-term rather than the short-term fluctuations, which are beyond our control.
SIMON BROWN: Absolutely. Another factor you can’t control is dumping; is that still occurring? You have faced challenges with this issue for several years. How is that trend currently affecting the situation, especially in terms of imports arriving in South Africa?
CHRIS SCHUTTE: Dumping is happening much less frequently now, largely due to the impact of bird flu worldwide, which has somewhat curbed the practice. Dumping refers to selling surplus products in other markets at prices lower than production costs.
My main concern has never been with imports, but rather the issue of dumping. There are some tariffs in place to combat this, and we were nearly affected again due to bird flu, as the Minister of Trade opted to provide a rebate for dumping. Fortunately, we did not face a chicken shortage, as we took extensive precautions including importing fertile eggs, which helped mitigate the bird flu impact.
SIMON BROWN: Since load shedding ended for many of us on March 26, we still experience load reduction. Are you still dealing with power interruptions?
CHRIS SCHUTTE: Unfortunately, yes. While many are relieved to have power at home, we still encounter issues in certain operational areas where there is insufficient electricity flow from Eskom to local municipalities, primarily due to municipality payment issues. This remains a concern.
In places like Olifantsfontein and Standerton (Lekwa Municipality), we are still forced to operate generators during peak hours to prevent electrical failures in the town due to inadequate supply. At the height of load shedding, our additional electricity costs reached R45 million per month; currently, we still incur around R10 million, totaling R120 million overall for additional diesel to run those generators, despite the absence of load shedding.
SIMON BROWN: If I remember correctly, Lekwa was also where you faced a significant water crisis, which might even understate the situation. Has that been addressed, or have you taken measures independently to resolve the issues?
CHRIS SCHUTTE: Yes, that’s a familiar story for South African farmers—we often find ways to adapt. However, these higher operational costs, combined with chicken being seen as the best value protein, add to the overall production costs exacerbated by inadequate government services.
In Standerton, we continue to transport water from the river using trucks, which is costly. We’ve implemented measures to expand our storage capabilities, including constructing reservoirs and utilizing reverse osmosis for cleaning and reusing water.
Ultimately, processing chicken requires both water and electricity. We have also planned a pipeline directly from the Vaal River to our Standerton plant, estimated to cost around R120 million, which we will proceed with.
SIMON BROWN: Final question: You mentioned that chicken is the best value protein. There’s potential for increased chicken consumption as consumers are expected to have a better year ahead with lower inflation, reduced interest rates, and improved confidence post-GNU. Could this lead to an uptick in chicken sales based on improving consumer sentiment?
CHRIS SCHUTTE: Well, Simon, the factors you’ve just mentioned all factor into our risk profile. When we evaluate them collectively, we see more positive indicators than negatives, particularly with anticipated reductions in interest rates and the potential for the GNU to yield positive outcomes, along with the introduction of the two-pot system injecting funds into the fiscal environment.
We are somewhat more optimistic about our outlook than we have been over the last two years, and we have potential capacity to ramp up quickly if market demand increases.
SIMON BROWN: We’ll leave it there. That was Chris Schutte, the outgoing CEO of Astral. Chris, thank you for your time today and over the years.
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