Astral Foods Limited · JSE:ARL
Astral Foods — H1 2017 Earnings Presentation
71 slides from Astral Foods's earnings presentation, May 2017
Slide 1: Interim Results Presentation
interim results presentation for the six months ended 31 March 2017 2017
Slide 2: Agenda
AGENDA Business Overview [# 03] Industry Trends [# 21] Financial Overview [# 29] Industry Matters [# 40] Outlook [# 42] Additional Information [# 46] 2
Slide 3: Business Overview
business overview 2017 ee \ASTRAL
Slide 4: The Period in Perspective
THE PERIOD IN PERSPECTIVE “The period under review includes a number of factors that distort year-on-year comparisons and trends” Impact of brining legislation Sales volume / tonnage Average sales realisation and product mix IQF cost (15% brine cap) Impact of revised poultry feeding progra
Slide 5: Financial Indicators
THE PERIOD IN PERSPECTIVE Revenue 1% Operating profit 51% Financial Indicators Earnings per share 55% Headline earnings per share 54% 5
Slide 6: The Period in Perspective
THE PERIOD IN PERSPECTIVE Poultry Feed Volumes down Volumes down Average realisations up Market contraction Record high feed costs Smallest maize crop on record Planned production cutbacks Maize import program Enhanced feeding program Old / New season crop swing Improved poultr
Slide 7: Poultry Division
poultry division 2017 “eTRAL
Slide 8: Poultry Division - Overview
POULTRY DIVISION - OVERVIEW Revenue - R million Operating profit - R million 5,000 200 194 4,436 4,456 4,000 150 3,000 100 2,000 50 1,000 22 - - 1H2016 1H2017 1H2016 1H2017 Revenue up 0.4% Operating profit down 88.5% • Broiler volumes down 10.5% • Net margin 0.5% 1H2016: 4.4% • Avg. broiler real
Slide 9: Poultry Division - Overview
POULTRY DIVISION - OVERVIEW Broiler sales volumes decreased by 10.5% (≈ 24 000 tons) mainly on the back of the new brine regulations Broiler production cutbacks equalling 4,6 million birds over the period Broiler selling prices increased in an effort to recover higher feed and inflationary cos
Slide 10: Poultry Division - Sales
POULTRY DIVISION - SALES Product Mix 22% 23% 1H2016 1H2017 5% 204 887 Tons 47% 228 907 Tons 52% 7% Volume decrease ≈ -10.5% 13% 14% 5% 3% 5% 4% 10
Slide 11: Poultry Division - Sales Volume Variance
POULTRY DIVISION - SALES Poultry Sales Volume Variance Reconciliation • Poultry Production Volume Growth Consignment stock adjustment = 1.2% Lower meat sales = 4.1% Brine = 5.2% 1H2016 = 228 907 t 1H2017 = 204 887 t Sales volumes 1H2017 (decrease of 24 020 tons ≈ 10.5%) 11
Slide 12: Broiler Production Performance
BROILER PRODUCTION PERFORMANCE 150% 145% 140% 135% 130% 125% 120% 115% 110% 105% 100% 95% 90% 85% Key indicators base-lined to 100% in 2011 80% F2011 F2012 F2013 F2014 F2015 F2016 1H2017 Mortality Feed conversion (FCR) Efficiency factor (PEF) 12
Slide 13: Broiler Production Performance
BROILER PRODUCTION PERFORMANCE 106% 104% 102% 100% 98% 96% Key indicators base-lined to 100% in 2011 94% F2011 F2012 F2013 F2014 F2015 F2016 1H2017 Slaughter age Live weight Average daily gain Processing yield 13
Slide 14: Broiler Production Performance
BROILER PRODUCTION PERFORMANCE 190 180 170 160 150 140 130 120 110 100 90 Key indicators base-lined to 100% in 2011 80 F2011 F2012 F2013 F2014 F2015 F2016 1H2017 Broiler feed price index Live cost index Feed conversion efficiency index 14
Slide 15: Feed Division
feed division 2017 2 \ASTRAL
Slide 16: Feed Division - Overview
FEED DIVISION - OVERVIEW Revenue - R million Operating profit - R million 4,000 250 233 3,461 3,448 200 3,000 184 150 2,000 100 1,000 50 - - 1H2016 1H2017 1H2016 1H2017 Revenue down 0.4% Operating profit down 21.0% • Sales volumes down 8.0% • Net margin 5.3% 1H2016: 6.7% • Average selling prices
Slide 17: Feed Division - Overview
FEED DIVISION - OVERVIEW Feed volumes decreased due to internal poultry production cutbacks and a drought affected external feed market Broiler feed conversion efficiency improvements in the poultry division further contributed to the lower internal feed sales Record high feed prices on back o
Slide 18: Feed Division - Sales
FEED DIVISION - SALES Meadow Feeds - Sales Mix 13% 13% 1H2017 20% 1H2016 21% 656 605169 066 Tons Tons 712 962 Tons Volume decrease ≈ 8% 60% 59% 7% 7% 18
Slide 19: Other Africa Division
other africa division 2017 2 \ASTRAL
Slide 20: Other Africa Division - Overview
OTHER AFRICA DIVISION - OVERVIEW Revenue - R million Operating profit - R million 300 6 250 5 258 5 200 216 4 150 3 100 2 50 1 1 - - 1H2016 1H2017 1H2016 1H2017 Revenue down 16.5% Operating profit up 284% • Sales volumes down 15.5% • Net margin 2.4% 1H016: 0.5% • Average selling prices down 1.3%
Slide 21: Industry Trends
industry trends \ASTRAL
Slide 22: SAFEX Yellow Maize Price
SAFEX YELLOW MAIZE PRICE 22 Source: CJA Strategic Risk Brokers
Slide 23: SAFEX Yellow Maize vs. CBOT in Rand Terms
SAFEX YELLOW MAIZE vs. CBOT IN RAND TERMS 23 Source: CJA Strategic Risk Brokers
Slide 24: SAFEX Soya Beans Price
SAFEX SOYA BEANS PRICE 24 Source: CJA Strategic Risk Brokers
Slide 25: Total Poultry Imports per Month
- 65,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 70,000 Source: SAPA Oct-10 Dec-10 Tons Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Total poultry imports Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14
Slide 26: Industry Broiler Selling Price
12.00 12.50 13.50 14.00 14.50 15.00 15.50 16.00 16.50 17.00 17.50 18.00 18.50 19.00 19.50 20.00 21.00 21.50 22.00 22.50 23.00 13.00 20.50 Oct-10 12.33 Source: SAPA 12.83 Dec-10 13.51 13.34 Feb-11 13.42 13.20 Apr-11 13.38 13.46 Jun-11 13.18 12.79 Aug-11 12.86 13.56 Oct-11 13.91 Rand per kilogram 14.9
Slide 27: Broiler Price vs. Food Price Inflation
BROILER PRICE vs. FOOD PRICE INFLATION 170 170 165 165 160 160 155 155 150 150 145 145 140 140 135 135 130 130 125 125 120 120 115 115 110 110 105 105 100 100 95 95 90 90 85 85 80 80 75 75 70 70 Apr-14 Apr-10 Apr-11 Apr-12 Apr-13 Apr-15 Apr-16 Oct-09 Dec-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15
Slide 28: Change in Broiler Price vs. Feed Price
0% 5% 10% 15% 20% 25% 30% 35% -15% -10% -5% Oct-10 Dec-10 Feb-11 Apr-11 Source: SAPA & Own Data Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 % Change in feed price Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15
Slide 29: Financial Overview
financial overview 2017 2 \ASTRAL
Slide 30: Abridged Statement of Comprehensive Income
ABRIDGED STATEMENT OF COMPREHENSIVE INCOME 2017 2016 Six months ended 31 March % change R million R million Revenue 5 795 5 823 1% Operating profit 212 429 51% Operating profit margin 3.7% 7.4% Net finance costs (16) (4) Profit before tax 196 425 54% Tax (60) (124) Profit for the period 136 301 55%
Slide 31: Group Six Monthly Revenue and Profitability
GROUP SIX MONTHLY REVENUE AND PROFITABILITY 2000 6000 6131 (R million) 5823 5795 5755 1800 5511 5000 1600 4902 4700 1400 4000 4219 4290 4039 4122 1200 3744 3663 3675 3591 3552 3415 1000 3000 800 2000 600 550 551 400 429 1000 375 302 304 299 324 279 281 280 200 208 213 212 153 59 120 0 0 1H09 2H09 1H
Slide 32: Poultry - Six Monthly Revenue
POULTRY - SIX MONTHLY REVENUE 6000 1.6 5500 (R million) 1.4 5000 4500 4,693 1.2 4,503 4,436 4,456 4000 4,237 1.0 3500 3,650 0.8 3,317 3000 3,049 2,956 2,952 0.6 2,878 2500 2,581 2,606 2,652 2,449 0.4 2000 0.2 1500 1000 0.0 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 Re
Slide 33: Feed - Six Monthly Revenue
FEED - SIX MONTHLY REVENUE 4500 1.80000 (R million) 4000 1.60000 3,729 1.40000 3500 3,461 3,448 1.20000 3,275 3000 2,956 2,961 1.00000 2500 0.80000 2,519 2,550 2,397 0.60000 2000 2,175 2,152 1,847 0.40000 1,730 1,770 1,708 1500 0.20000 1000 0.00000 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1
Slide 34: Group Six Monthly Operating Profit
GROUP SIX MONTHLY OPERATING PROFIT 750 1.9 (R million) 1.7 650 550 551 1.5 550 1.3 450 429 375 1.1 186 350 324 237 304 299 280 281 0.9 250 133 213 212 203 233 0.7 153 151 130 154 120 150 149 0.5 59 157 197 50 124 184 134 128 229 140 135 156 173 45 59 351 310 194 252 0.3 5 22 -50 -3 -117 -135 0.1 -15
Slide 35: Abridged Balance Sheet
ABRIDGED BALANCE SHEET March 2017 September 2016 % change R million R million Non-current assets 2 221 2 230 Assets held for sale 25 25 Net working capital 1 025 1 003 2% Current assets (excl. cash) 2 574 2 588 Current liabilities (excl. borrowings) (1 549) (1 585) 2% Non-current liabilities (excl.
Slide 36: Working Capital
WORKING CAPITAL March 2017 September 2016 Variance R million R million R million Current assets 2 574 2 588 (14) Biological assets 719 735 (16) Inventory - Poultry 401 314 87 - Feed 409 362 47 - Other Africa 23 41 (18) Trade receivables 886 998 (112) Other 136 138 (2) Current liabilities (1 549) (1
Slide 37: Abridged Statement of Cash Flow
ABRIDGED STATEMENT OF CASH FLOW 2017 2016 For the six months ended 31 March R million R million Cash operating profit 282 559 Working capital movement (39) (353) 243 206 Tax paid (50) (100) Net interest paid (14) (3) Capital expenditure (69) (73) 110 30 Dividends paid (39) (222) Other cash flow item
Slide 38: Capital Expenditure
CAPITAL EXPENDITURE 2017 2016 Six months ended 31 March R million R million Depreciation 73 75 Total capex 69 73 Commitments 108 Total spend and committed 177 38
Slide 39: In Summary
IN SUMMARY Profits significantly down in both divisions 1H2017 profitability improved over 2H2016 Cash flow positive due to limited working capital increase Net debt to equity ratio 6.6% (30 Sep 2016: Net debt to equity 10.1%) Interim dividend of 180 cps, within the Group’s liquidity capab
Slide 40: Industry Matters
industry matters 2017 a ~ \ASTRAL
Slide 41: Industry Matters
INDUSTRY MATTERS DTI, DAFF and industry working group [# 65] Poultry imports [# 66] Impact of new brining regulations [# 67] Industry consolidation and contraction [# 68] 41
Slide 42: Outlook
outlook “eTRAL
Slide 43: Outlook
OUTLOOK The weakened state of consumer spending is unlikely to improve due to poor economic growth and higher unemployment. The current safeguard duty recommended by ITAC against the EU is not expected to significantly curb poultry import levels (March 2017 USA spike). The new brining regulati
Slide 44: New Operational Structure
NEW OPERATIONAL STRUCTURE FEED AGRICULTURE COMMERCIAL MICHAEL SCHMITZ GARY ARNOLD ANDY CROCKER 30 YEARS 20 YEARS 19 YEARS 44
Slide 45: Thank You
at \ASTRAL “Astral’s strategy is to be the best cost integrated poultry producer in selected African countries” April 2017 Thank you
Slide 46: Additional Information
additional information 2017
Slide 47: What We Said in November 2016
WHAT WE SAID IN NOVEMBER 2016 The weakened state of consumer spending is unlikely to improve due to poor economic growth and higher unemployment which will continue to constrain an increase in the per capita consumption of poultry. The new brining regulations will negatively impact total kilogra
Slide 48: World Corn Ending Stocks vs. STU
WORLD CORN ENDING STOCKS vs. STU Million Tons 250 24% 233 236 23% 225 21.70% 21.50% 22% 203 200 188 21% 175 168 20% 19% 150 142 134 18% 125 119 17% 15.50% 16.80% 16% 100 14.80% 14.2% 15.60% 15% 75 14% 50 13% 12% 25 11.9% 11% 0 10% 2018F 2011 2012 2013 2014 2015 2016E 2017F End stock STU 48 Source: C
Slide 49: South Africa - Total Maize Supply & Demand
SOUTH AFRICA – TOTAL MAIZE SUPPLY & DEMAND Marketing year (May to April) 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17E 2017/18F '000 tons Actual Actual Actual Actual Actual Estimate Forecast Carry In (1 May) 2,336 991 1,414 589 2,074 2,270 1,102 Crop Estimate 10,360 12,121 11,811 14,250 9,955 7,7
Slide 50: RSA Maize Carry Out & Stock to Use Ratio
RSA MAIZE CARRY OUT & STOCK TO USE RATIO ‘000 Tons 2,500 25% 19.7% 19.9% 2,000 20% 16.6% 16.8% 1,500 15% 12.2% 1,000 10% 8.2% 7.3% 500 5% 5.0% 0 0% 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17E 2017/18F Carry out Maize stock to use ratio 50 Source: CJA Strategic Risk Brokers
Slide 51: El Niño Southern Oscillation (ENSO) - Forecast
EL NIÑO SOUTHERN OSCILLATION (ENSO) - FORECAST 51 Source: International Research Institute for Climate and Society (IRI) – Columbia University
Slide 52: South Africa - Vegetation Health Index
SOUTH AFRICA – VEGETATION HEALTH INDEX VHI of previous year VHI of current year 52 Source: NOAA - National Environmental Satellite, Data, and Information Service (VHI)
Slide 53: Broiler Feed Ingredient Inclusion & Cost Contribution
BROILER FEED INGREDIENT INCLUSION & COST CONTRIBUTION 100% 5.2 5.4 6.2 6.4 6.7 0.4 6.1 7.3 0.3 0.3 0.4 0.3 0.3 0.4 3.1 11.2 2.5 10.8 4.3 90% 0.4 0.9 4.8 7.5 7.3 14.0 0.3 15.6 0.4 14.9 14.9 6.6 7.0 4.1 6.0 5.5 17.2 7.5 7.4 0.2 0.4 0.5 5.4 3.9 4.2 6.2 4.7 5.0 6.9 80% 9.1 6.4 4.7 1.1 2.4 6.8 7.1 10.3 1
Slide 54: Brazil, EU & USA Product Cost Benchmark
BRAZIL, EU & USA PRODUCT COST BENCHMARK Ex BRAZIL – May 2017 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 1 200.00 1 200.00 1 100.00 SA COST R/$ exchange rate R$ 13.30 13.50 13.80 Rand per ton TON 15 960.00 16 200.00 16 560.00 23 720.00 Rand per kg KG 15.96 16.20 16.56 23.72 Duty per kg K
Slide 55: Brazil, EU & USA Product Cost Benchmark
BRAZIL, EU & USA PRODUCT COST BENCHMARK EUROPE Ex Belgium, Denmark with Safeguard Duty @ 13.9% – May 2017 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 1 400.00 1 400.00 1 400.00 SA COST R/$ exchange rate R$ 13.30 13.50 13.80 Rand per ton TON 18 620.00 18 900.00 19 320.00 23 720.00 Rand pe
Slide 56: Local Broiler Production & Market Share
LOCAL BROILER PRODUCTION & MARKET SHARE 27% 33% 20% 5% 7% 8% Astral RCL Country Bird Daybreak Sovereign Other Local broiler production ≈ 18.1 million birds per week 56 Source: Own Estimates
Slide 57: Total Poultry Market Participation
TOTAL POULTRY MARKET PARTICIPATION 19% 31% 14% 6% 22% 4% 4% Astral RCL Country Bird Daybreak Sovereign Other Imports Avg. poultry imports ≈ 8,2 million birds per week (6 months ending March 2017) 57 Source: Own Estimates & SAPA
Slide 58: Total Poultry Imports
TOTAL POULTRY IMPORTS (CHICKEN, TRUKEY, MDM) Tons 600,000 500,000 400,000 300,000 200,000 100,000 F2014 F2015 F2016 F2017 0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep F2014 28,250 66,647 99,050 124,194 148,092 179,811 216,947 253,490 294,102 320,603 346,582 383,710 F2015 42,363 81,170 108,674 1
Slide 59: Total Poultry Imports - Country of Origin
TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN Country of origin for poultry Country of origin for poultry imports - 2016 imports - March 2017 YTD US 4.7% Other 5.0% Other 2.1% Argentina 3.3% Brazil US 24.9% 41.7% Brazil 46.3% Argentina 4.1% EU 48.1% EU 19.7% 560 155 tons 142 425 tons 59 Source: SAPA
Slide 60: Total Poultry Imports - Country of Origin
TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN Poultry imports according to main country of origin for 2014 to 2016 and 2017 YTD 60 Source: SAPA
Slide 61: Technical Efficiency SA Producers
TECHNICAL EFFICIENCY SA PRODUCERS 61 Source: LEI – Wageningen Univeristy in the Netherlands
Slide 62: Global Broiler Production Costs
GLOBAL BROILER PRODUCTION COSTS 62 Source: LEI – Wageningen Univeristy in the Netherlands
Slide 63: Local Broiler Production, Imports & Per Capita Consumption
LOCAL BROILER PRODUCTION, IMPORTS & PER CAPITA CONSUMPTION Million birds per week / Rand per kg kilograms 40 30 35 25 30 25 20 20 15 15 10 10 5 5 0 Feb-12 Dec-11 Jun-12 Feb-13 Jun-13 Feb-14 Jun-14 Feb-15 Jun-15 Feb-16 Jun-16 Feb-17 Aug-12 Dec-12 Aug-13 Dec-13 Aug-14 Dec-14 Aug-15 Dec-15 Aug-16 Dec-1
Slide 64: South African Protein Price Comparison
SOUTH AFRICAN PROTEIN PRICE COMPARISON Cents per kg 7000 6000 5000 4000 3000 2000 1000 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Oct-12 Apr-13 Oct-13 Oct-14 Oct-15 Oct-16 Apr-12 Apr-14 Apr-15 Apr-16 Chicken Pork Beef Mutton Feed Conversion Rate 1.6 2.2 5.5 5.0 Per
Slide 65: DTI, DAFF and Industry Working Group
DTI, DAFF AND INDUSTRY WORKING GROUP On the back of the crisis in the industry and resultant job losses a task team was set up to deal with the critical issues at hand The brief from Government was to determine / implement steps and actions to stabilise the industry over the short term; and De
Slide 66: Poultry Imports
POULTRY IMPORTS The investigation for safeguard measures in terms of Article 16 of the TDCA against the EU was initiated by ITAC on 19 February 2016 These measures take the form of a safeguard duty on EU imports which are zero rated besides the anti-dumping duties against 3 EU countries ITAC p
Slide 67: Impact of New Brining Regulations
IMPACT OF NEW BRINING REGULATIONS The new brining regulations set at 85 : 15 for IQF portions was effective on 22 October 2016 Astral was granted a dispensation to clear all product brined at 70 : 30 by the end of January 2017 Based on the new brining percentages sales volumes will continue to
Slide 68: Industry Consolidation & Contraction
INDUSTRY CONSOLIDATION & CONTRACTION Intentional short term cutbacks during 1H2017 due to an imbalance in supply and demand RCL introduced permanent cutbacks from March 2017 which saw the company shedding approximately 1 500 jobs and reducing production by some 700 000 bpw in their Hammarsdale o
Slide 69: Growth Hormone Myth
GROWTH HORMONE MYTH Do chickens grow so fast because they are injected with growth hormones? No, definitely not! No chickens produced by any of Astral’s poultry operations are injected, fed or in any way whatsoever subjected to hormones. In order to obtain the desired growth and weight targets, a pe
Slide 70: B-BBEE Scorecard (Current Charter)
B-BBEE SCORECARD (CURRENT CHARTER) 75 69.77 70 68.05 65 62.72 60 60.84 55.57 55 Score 51.83 50 45.62 45 40 35 32.03 30 2010 2011 2012 2013 2014 2015 2016 2017 70
Slide 71: Contact details
Chris Schutte Chief Executive Officer Tel : +27 (0) 12 667 5468 email: [email protected] www.astralfoods.com Daan Ferreira Chief Financial Officer Tel : +27 (0) 12 667 5468 email: [email protected] 71