Astral Foods Limited · JSE:ARL

Astral Foods — H1 2019 Earnings Presentation

65 slides from Astral Foods's earnings presentation, May 2019

  1. Slide 1: Interim Results Presentation

    Interim Results Presentation for the 6 months ended 31 March 2019

  2. 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

  3. Slide 3: Business Overview

    BUSINESS OVERVIEW

  4. 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

  5. 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

  6. 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

  7. 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

  8. Slide 8: Operational Overview

    (Astral Astral_is aleading Southern African integrated poultry producer FEED DIVISION

  9. 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

  10. 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

  11. 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

  12. Slide 12: “ ”

    “ ” 12

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. Slide 19: Other Africa Division

    OTHER AFRICA DIVISION

  20. 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

  21. Slide 21: Financial Overview

    FINANCIAL OVERVIEW

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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

  27. 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

  28. 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

  29. 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)

  30. 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

  31. 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

  32. Slide 32: Industry Trends

    INDUSTRY TRENDS

  33. 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

  34. 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

  35. 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

  36. 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-

  37. 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-

  38. 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

  39. 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

  40. Slide 40: Outlook

    OUTLOOK

  41. 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

  42. 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

  43. Slide 43: Astral's strategy

    “ astral’s strategy is to be the best cost integrated poultry producer in, selected African — countries ”

  44. Slide 44: Additional Information

    ADDITIONAL INFORMATION

  45. 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

  46. 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

  47. 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

  48. Slide 48: El Niño Southern Oscillation - Forecast

    EL NIÑO SOUTHERN OSCILLATION - FORECAST Source: International Research Institute for Climate and Society (IRI) – Columbia University 48

  49. 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

  50. 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

  51. 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

  52. 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

  53. 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

  54. 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

  55. 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

  56. 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

  57. 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

  58. 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

  59. Slide 59: Industry Matters

    INDUSTRY MATTERS

  60. 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

  61. 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

  62. 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

  63. Slide 63: Wageningen University Research Technical Efficiency

    WAGENINGEN UNIVERSITY RESEARCH TECHNICAL EFFICIENCY 63

  64. Slide 64: Wageningen University Research Economic Efficiency: Total Production Costs

    WAGENINGEN UNIVERSITY RESEARCH ECONOMIC EFFICIENCY: TOTAL PRODUCTION COSTS 64

  65. Slide 65: www.astralfoods.com

    Chris Schutte Chief Executive Officer Tel : +27 (0) 12 667 5468 Fax : +27 (0) 86 504 2002 email: Chris.Schutte@astralfoods.com www.astralfoods.com Daan Ferreira Chief Financial Officer Tel : +27 (0) 12 667 5468 Fax : +27 (0) 86 504 1602 email: Daan.Ferreira@astralfoods.com

Astral Foods — H1 2019 Earnings Presentation on 6ix