Astral Foods Limited · JSE:ARL
Astral Foods — H1 2019 Earnings Presentation
65 slides from Astral Foods's earnings presentation, May 2019
Slide 1: Interim Results Presentation
Interim Results Presentation for the 6 months ended 31 March 2019
Slide 2: Agenda
AGENDA Business Overview Page 3 / Slide 3 Operational Overview Page 5 / Slide 8 Financial Overview Page 12 / Slide 21 “ Industry Trends Page 17 / Slide 32 Outlook Page 21 / Slide 40 Additional Information Page 23 / Slide 44 ” 2
Slide 3: Business Overview
BUSINESS OVERVIEW
Slide 4: Salient Points
Business Operational Financial Industry Trends Outlook Overview Overview Overview SALIENT POINTS Feed input costs increased markedly on higher maize prices due to unfavourable weather conditions in the planting season, which will negatively impact crop yields for 2019 Poultry selling prices decr
Slide 5: Key Financial Indicators
Business Operational Financial Industry Trends Outlook Overview Overview Overview KEY FINANCIAL INDICATORS Revenue 3% Profit before interest and tax 51% 52% Earnings per share @ 948 cps Headline earnings per share @ 949 cps 52% 53% Interim dividend of 475 cps 5
Slide 6: Divisional Salient Points
Business Operational Financial Industry Trends Outlook Overview Overview Overview DIVISIONAL SALIENT POINTS Poultry Feed Feeding cost increased Raw material costs up Bird performance maintained Lower internal feed required Broiler sales volumes down External sales volumes down Broiler
Slide 7: The Period in Perspective
Business Operational Financial Industry Trends Outlook Overview Overview Overview THE PERIOD IN PERSPECTIVE (R million) 1 200 1 000 113 17 2 176 800 145 600 114 1 036 400 R533 million 503 200 0 Other Broiler sales Broiler selling Extraordinary PBIT 1H2018 Raw material conversion PBIT 1H2019 efficien
Slide 8: Operational Overview
(Astral Astral_is aleading Southern African integrated poultry producer FEED DIVISION
Slide 9: Feed Division
Business Operational Financial Industry Trends Outlook Overview Overview Overview FEED DIVISION Revenue - R million Operating profit - R million 4 000 250 239 200 3 000 3 303 3 097 191 150 2 000 100 1 000 50 - - 1H2018 1H2019 1H2018 1H2019 Revenue up 6.7% Operating profit up 24.6% • Raw material
Slide 10: Feed Division
Business Operational Financial Industry Trends Outlook Overview Overview Overview FEED DIVISION SAFEX yellow maize prices increased markedly for the period under review 1H2019 avg. R2 579 per ton (1H2018: R1 981) up R598 per ton y-o-y Internal feed sales decreased marginally by 0.6% due to impro
Slide 11: Feed Division – Sales Mix
Business Operational Financial Industry Trends Outlook Overview Overview Overview FEED DIVISION – SALES MIX 13% 15% 1H2018 1H2019 21% 697 569 Tons 703 827 Tons 21% Volume decrease ≈ 0.9% 59% 59% 7% 5% 11
Slide 12: “ ”
“ ” 12
Slide 13: Poultry Division
Business Operational Financial Industry Trends Outlook Overview Overview Overview POULTRY DIVISION Revenue - R million Operating profit - R million 6 000 900 800 828 5 000 5 415 5 472 700 4 000 600 500 3 000 400 2 000 300 200 258 1 000 100 - - 1H2018 1H2019 1H2018 1H2019 Total revenue up 1.0% Op
Slide 14: Poultry Division - Commercial
Business Operational Financial Industry Trends Outlook Overview Overview Overview POULTRY DIVISION - COMMERCIAL Profits for the six months ended March 2019 reflect a significant decline on the comparable period Broiler live cost increased due to rising feed costs resulting in a higher base cost
Slide 15: Poultry Division – Product Mix
Business Operational Financial Industry Trends Outlook Overview Overview Overview POULTRY DIVISION – PRODUCT MIX 23% 22% 1H2019 1H2018 51% 8% 228 172 Tons 51% 7% 230 710 Tons Volume decrease ≈ 1.1% 14% 13% 3% 4% 2% 2% 15
Slide 16: Poultry Division - Agriculture
Business Operational Financial Industry Trends Outlook Overview Overview Overview POULTRY DIVISION - AGRICULTURE Breeder revenue increased on higher demand for parent stock and an increase in broiler day-old chick sales Feed input costs increased due to higher raw material costs adversely affect
Slide 17: Broiler Production Performance
Business Operational Financial Industry Trends Outlook Overview Overview Overview BROILER PRODUCTION PERFORMANCE 108% 106% 104% 102% 100% 98% 96% Key indicators base-lined to 100% in F2014 94% F2014 F2015 F2016 F2017 F2018 1H2019 Slaughter age Live weight Average daily gain 17
Slide 18: Broiler Production Performance
Business Operational Financial Industry Trends Outlook Overview Overview Overview BROILER PRODUCTION PERFORMANCE 130% 125% 120% 115% 110% 105% 100% 95% 90% 85% 80% 75% 70% 65% Key indicators base-lined to 100% in F2014 60% F2014 F2015 F2016 F2017 F2018 1H2019 Mortality Feed consumption Performance e
Slide 19: Other Africa Division
OTHER AFRICA DIVISION
Slide 20: Other Africa Division (Zambia, Mozambique & Swaziland)
Business Operational Financial Industry Trends Outlook Overview Overview Overview OTHER AFRICA DIVISION (Zambia, Mozambique & Swaziland) Revenue - R million Operating profit - R million 250 20 223 200 17 15 185 150 10 100 7 5 50 - - 1H2018 1H2019 1H2018 1H2019 Revenue up 20.9% Operating profit d
Slide 21: Financial Overview
FINANCIAL OVERVIEW
Slide 22: Income Statement
Business Operational Financial Industry Trends Outlook Overview Overview Overview INCOME STATEMENT 2019 2018 Six months ended 31 March R million R million % change Restated Revenue 6 775 6 600 3% Operating profit 503 1 036 51% Operating profit margin 7.4% 15.7% Net finance income 18 22 Profit before
Slide 23: Group Six Monthly Revenue and Profitability
Business Operational Financial Industry Trends Outlook Overview Overview Overview GROUP SIX MONTHLY REVENUE AND PROFITABILITY 6 775 (R million) 6 556 6 600 6 379 6 131 5 823 5 795 15.7% 5 755 5 511 13.2% 14.2% 4 902 4 700 9.6% 10.0% 1 036 906 866 7.4% 7.4% 5.7% 4.5% 550 551 503 429 2.0% 3.7% 280 213
Slide 24: Feed Six Monthly Revenue
Business Operational Financial Industry Trends Outlook Overview Overview Overview FEED SIX MONTHLY REVENUE (R million) 3 729 3 461 3 448 3 405 3 275 3 303 3 096 3 102 2 956 2 961 2 550 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19 Revenue Change in volumes Change in feed price 24
Slide 25: Poultry Six Monthly Revenue
Business Operational Financial Industry Trends Outlook Overview Overview Overview POULTRY SIX MONTHLY REVENUE (R million) 5 394 5 415 5 472 5 188 4 503 4 693 4 436 4 456 4 237 3 650 3 317 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19 Revenue Change in broiler selling price Change in volumes
Slide 26: Group Six Monthly Operating Profit
Business Operational Financial Industry Trends Outlook Overview Overview Overview GROUP SIX MONTHLY OPERATING PROFIT 1,5 (R million) 1,3 1,1 1 036 0,9 906 867 191 0,7 550 551 207 266 503 0,5 429 280 186 828 237 0,3 213 120 212 608 625 239 233 351 310 157 197 194 184 258 0,1 45 59 252 22 -135 -0,1 1H
Slide 27: Balance Sheet
Business Operational Financial Industry Trends Outlook Overview Overview Overview BALANCE SHEET March 2019 September 2018 R million R million % change Non-current assets 2 507 2 409 4% Net working capital 1 419 1 189 19% Current assets (excl. cash) 3 053 2 943 4% Current liabilities (excl. borrowing
Slide 28: Capital Expenditure
Business Operational Financial Industry Trends Outlook Overview Overview Overview CAPITAL EXPENDITURE 2019 2018 Six months ended 31 March R million R million Depreciation 88 78 Total capex spend 345 136 Festive expansion 223 Standerton silo complex 30 Other capex 92 Outstanding commitments 753 144 F
Slide 29: Working Capital
Business Operational Financial Industry Trends Outlook Overview Overview Overview WORKING CAPITAL March 2019 September 2018 Variance R million R million R million Current assets 2 863 2 912 (49) Biological assets 779 770 9 Inventory - Poultry 415 532 (117) - Feed 285 255 30 - Other Africa 36 50 (14)
Slide 30: Statement of Cash Flows
Business Operational Financial Industry Trends Outlook Overview Overview Overview STATEMENT OF CASH FLOWS 2019 2018 For the six months ended 31 March R million R million Cash operating profit 407 1 094* Working capital movement 100 (42)* 507 1 052 Tax paid (131) (259) Net interest received 21 25 Cap
Slide 31: In Summary
Business Operational Financial Industry Trends Outlook Overview Overview Overview IN SUMMARY Decline in poultry profitability - profit margin at 4.7% (1H2018: 15.4%) Feed profitability in line with expectations Capital expenditure on expansion projects – R253 million paid Net surplus cash at
Slide 32: Industry Trends
INDUSTRY TRENDS
Slide 33: SAFEX Yellow Maize Price
Business Operational Financial Industry Trends Outlook Overview Overview Overview SAFEX YELLOW MAIZE PRICE Source: CJA Strategic Risk Brokers 33
Slide 34: SAFEX Yellow Maize Price vs. CBOT in Rand Terms
Business Operational Financial Industry Trends Outlook Overview Overview Overview SAFEX YELLOW MAIZE PRICE vs. CBOT IN RAND TERMS Source: CJA Strategic Risk Brokers 34
Slide 35: Durban Soya Meal Price
Business Operational Financial Industry Trends Outlook Overview Overview Overview DURBAN SOYA MEAL PRICE Source: CJA Strategic Risk Brokers 35
Slide 36: Poultry Imports per Month
Business Operational Financial Industry Trends Outlook Overview Overview Overview POULTRY IMPORTS PER MONTH Tons 70000 65000 60000 55000 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Dec-14 Aug-15 Dec-15 Aug-16 Dec-16 Aug-17 Dec-17 Aug-18 Dec-18 Feb-15 Jun-15 Feb-16 Jun-16 Feb-17 Jun-
Slide 37: Broiler Selling Price
Business Operational Financial Industry Trends Outlook Overview Overview Overview BROILER SELLING PRICE 145% 140% 135% 130% 125% 120% 115% 110% 105% 100% 95% 90% 85% 80% Apr-15 Apr-16 Apr-17 Apr-18 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun-18 Oct-18 Feb-19 Aug-
Slide 38: Broiler Price vs. Food Price Inflation
Business Operational Financial Industry Trends Outlook Overview Overview Overview BROILER PRICE vs. FOOD PRICE INFLATION 150% 150% 140% 140% 130% 130% 120% 120% 110% 110% 100% 100% 90% 90% Apr-15 Apr-16 Apr-17 Apr-18 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun-18
Slide 39: Change in Broiler Selling Price vs. Feed Price %
Business Operational Financial Industry Trends Outlook Overview Overview Overview CHANGE IN BROILER SELLING PRICE vs. FEED PRICE 40% 30% 20% 10% 0% Jun-16 Feb-15 Jun-15 Feb-16 Feb-17 Jun-17 Feb-18 Jun-18 Aug-18 Feb-19 Dec-14 Aug-15 Dec-15 Aug-16 Dec-16 Aug-17 Dec-17 Dec-18 Oct-14 Apr-15 Oct-15 Apr-1
Slide 40: Outlook
OUTLOOK
Slide 41: Potential Negative Influences
Business Operational Financial Industry Trends Outlook Overview Overview Overview POTENTIAL NEGATIVE INFLUENCES Raw material price increases will negatively impact Astral’s largest input cost, namely feed which makes up 66% of broiler live cost Traditionally slower trading conditions for the sec
Slide 42: Potential Positive Influences
Business Operational Financial Industry Trends Outlook Overview Overview Overview POTENTIAL POSITIVE INFLUENCES Sufficient international coarse grain stocks with good prevailing planting conditions in the US and South America Maize imports into the Western Cape at a discount to local Safex price
Slide 43: Astral's strategy
“ astral’s strategy is to be the best cost integrated poultry producer in, selected African — countries ”
Slide 44: Additional Information
ADDITIONAL INFORMATION
Slide 45: World Corn Ending Stocks
WORLD CORN ENDING STOCKS Million Tons 375 30% 350 27,80% 27,83% 325 26,22% 300 25,00% 23,76% 25% 275 250 21,17% 225 200 19,82% 20% 175 150 125 14,81% 100 15% 75 12,30% 50 25 0 10% 2012 2013 2014 2015 2016 2017 2018 2019E 2020F End Stock Maize stock to use ratio Source: CJA Strategic Risk Brokers 45
Slide 46: South Africa – Total Maize Supply & Demand
SOUTH AFRICA – TOTAL MAIZE SUPPLY & DEMAND Marketing year (May to April) 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19E 2019/20F '000 tons Actual Actual Actual Actual Estimate Estimate Forecast Carry In (1 May) 1 414 589 2 074 2 471 1 093 3 689 2 940 Crop Estimate 11 811 14 250 9 955 7 779 16 820
Slide 47: South Africa – Total Maize Supply & Demand
SOUTH AFRICA – TOTAL MAIZE SUPPLY & DEMAND ‘000 Tons 4 000 30% 28,31% 3 500 25% 3 000 22,67% 21,75% 20% 2 500 16,62% 16,46% 2 000 15% 12,23% 1 500 9,87% 10% 1 000 4,96% 5% 500 1 414 590 2 062 2 471 1 093 3 689 2 940 1 952 0 0% 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19E 2019/20F Carry o
Slide 48: El Niño Southern Oscillation - Forecast
EL NIÑO SOUTHERN OSCILLATION - FORECAST Source: International Research Institute for Climate and Society (IRI) – Columbia University 48
Slide 49: Southern Africa - Vegetative Health Index
SOUTHERN AFRICA - VEGETATIVE HEALTH INDEX VHI of previous year VHI of current year Source: NOAA - National Environmental Satellite, Data, and Information Service (VHI) 49
Slide 50: Broiler Feed – Ingredient Inclusion & Cost Contribution
BROILER FEED – INGREDIENT INCLUSION & COST CONTRIBUTION 0,3 0,3 0,4 0,5 0,5 0,4 0,4 100% 5,0 3,0 4,7 4,7 5,4 6,0 5,4 7,5 7,3 6,6 9,9 0,2 0,4 0,5 9,1 14,6 16,6 90% 10,3 10,3 18,2 6,4 7,3 0,4 13,8 6,7 1,7 0,9 1,2 7,8 0,5 19,8 23,4 6,4 22,2 9,1 6,9 1,5 0,7 80% 8,6 0,7 6,2 9,1 8,6 14,9 14,0 6,1 1,7 2,2
Slide 51: Brazil, EU & USA Product Cost Benchmark
BRAZIL, EU & USA PRODUCT COST BENCHMARK Ex BRAZIL – May 2019 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 1 200.00 1 200.00 1 200.00 SA COST R/$ exchange rate R$ 14.30 14.60 14.90 Rand per ton TON 17 160.00 17 520.00 17 880.00 23 480.00 Rand per kg KG 17.16 17.52 17.88 23.48 Duty per kg K
Slide 52: Brazil, EU & USA Product Cost Benchmark
BRAZIL, EU & USA PRODUCT COST BENCHMARK EUROPE Ex Ireland, Spain, Poland and Denmark with Safeguard Duty @ 30 % – May 2019 FROZEN LEG QUARTERS BULK PACKED CIF DBN € per ton TON 1 100.00 1 100.00 1 100.00 SA COST R/€ exchange rate R$ 16.00 16.20 16.50 Rand per ton TON 17 600.00 17 820.00 18 150.00 23
Slide 53: Local Broiler Production & Market Share
LOCAL BROILER PRODUCTION & MARKET SHARE 22% 26% 4% 5% 8% 20% 7% 8% Astral RCL Country Bird Daybreak Sovereign Grainfields Chubby Chick Other Local broiler production ≈ 19.4 million birds per week Source: Own Estimates 53
Slide 54: Local Broiler Production & Market Share
LOCAL BROILER PRODUCTION & MARKET SHARE 18% 31% 13% 6% 16% 5% 2% 6% 3% Astral RCL Country Bird Daybreak Sovereign Grainfields Chubby Chick Other Imports Avg. poultry imports ≈ 7.4 million birds per week (6 months ending March 2019) Source: SAPA & Own Estimates 54
Slide 55: Total Poultry Imports (Chicken, MDM, Turkey)
TOTAL POULTRY IMPORTS (CHICKEN, MDM, TURKEY) Tons 600 000 500 000 400 000 300 000 200 000 F2016 F2017 F2018 F2019 100 000 0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep F2016 37 789 83 258 126 866 165 602 200 461 258 134 306 385 360 899 414 947 460 098 502 138 551 209 F2017 50 324 101 279 135 812
Slide 56: Total Poultry Imports – Country of Origin
TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN Country of origin for poultry Country of origin for poultry imports - 2018 imports - March 2019 YTD Other 3,9% Other 4,2% US 16,1% US 18,0% Brazil Argentina 52,1% 5,9% Argentina Brazil 2,7% 61,5% EU 12,6% EU 23,0% 566 210 tons 123 275 tons Source: SAPA 56
Slide 57: Total Poultry Imports – Country of Origin
TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN Country Imports (tons) 2017 2018 2019 YTD Brazil 337 476 348 155 64 212 United States 87 059 91 374 22 153 Argentina 32 816 33 278 3 363 Ireland 24 746 26 328 7 052 Denmark 16 884 25 672 5 794 Poland 72 13 463 11 993 Thailand 4 019 9 011 2 867 Canada 14 431
Slide 58: South African Protein Price Comparison
SOUTH AFRICAN PROTEIN PRICE COMPARISON cents / kg 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 Mar-14 Nov-14 Mar-15 Nov-15 Mar-16 Nov-16 Mar-17 Nov-17 Mar-18 Nov-18 Mar-19 Jan-14 Jul-14 Sep-14 Jan-15 May-15 Jul-15 Sep-15 Jan-16 Jul-16 Sep-16 Jan-17 May-17 Jul-17 Sep-17 Jan-18 Jul-18 Sep-18
Slide 59: Industry Matters
INDUSTRY MATTERS
Slide 60: Poultry Imports
POULTRY IMPORTS The EPA (SADC-EU Economic Partnership Agreement) safeguard for poultry bone- in imports from the EU is in force Under the provision the safeguard duty on EU frozen bone-in portions will be as follows (to which the EU have declared a dispute): 35.3% from 28 September 2018 up to
Slide 61: Poultry Imports
POULTRY IMPORTS Tariff Investigation (Frozen Chicken) SAPA has made application made for an increase in the rate of custom duties for bone-in portions and boneless cuts from 37% and 12% respectively to the maximum bound rate of 82% ITAC has already found unfair trade within WTO rules and only
Slide 62: Wageningen University Research
WAGENINGEN UNIVERSITY RESEARCH South Africa remains an efficient chicken producer in the global context, and has consistently produced chicken cheaper than European Union countries This is according to the latest research from the Bureau for Food and Agricultural Policy Data for major chicken
Slide 63: Wageningen University Research Technical Efficiency
WAGENINGEN UNIVERSITY RESEARCH TECHNICAL EFFICIENCY 63
Slide 64: Wageningen University Research Economic Efficiency: Total Production Costs
WAGENINGEN UNIVERSITY RESEARCH ECONOMIC EFFICIENCY: TOTAL PRODUCTION COSTS 64
Slide 65: www.astralfoods.com
Chris Schutte Chief Executive Officer Tel : +27 (0) 12 667 5468 Fax : +27 (0) 86 504 2002 email: [email protected] www.astralfoods.com Daan Ferreira Chief Financial Officer Tel : +27 (0) 12 667 5468 Fax : +27 (0) 86 504 1602 email: [email protected]