ANNUAL RESULTS PRESENTATION FOR THE 12 MONTHS ENDED 30 SEPTEMBER 2017
AGENDA Business Overview Page 3 Industry Trends Page 20 The Period in Perspective Page 28 Financial Overview Page 30 Industry Matters Page 41 Outlook Page 43 Additional Information Page 46 2
BUSINESS OVERVIEW
BUSINESS OVERVIEW A year of two distinct halves impacted by both feed input costs and poultry selling prices The year under review includes a number of factors that distort year-on-year comparisons and trends Operational realignment and specialised focus has contributed positively to the group s results 4
BUSINESS OVERVIEW Revenue 3% Key Financial Indicators Profit before interest and tax Earnings per share 97% 102% Headline earnings per share 97% 5
BUSINESS OVERVIEW Poultry Sales volumes down (brine) Feed Sales volumes down Planned production cutbacks General market contraction Average sales realisations up Lower internal feed required Feeding cost decreased Old / New season crop swing Bird performance improvement Maize price disparity HPAI (bird flu) negative impact Rand per ton net margin down Other Africa Improved profitability better performance from all three countries 6
POULTRY DIVISION - OVERVIEW Revenue - R million Operating profit - R million 10,000 9,000 8,000 9,129 9,850 700 600 630 7,000 500 6,000 5,000 4,000 400 300 3,000 200 2,000 1,000 - F2016 F2017 100-59 F2016 F2017 Revenue up 7.9% Operating profit up Broiler sales volumes down 8.6% Broiler sales realisations up 20.6% Selling price contribution Net margin 6.4% F2016: 0.5% 8
POULTRY DIVISION - OVERVIEW Broiler sales volumes decreased by 8.6% ( 41 000 tons) mainly due to the new brine legislation and planned broiler production cutbacks of 3 million birds Broiler sales realisations increase impacted by a shift in the product offering due to the brine impact and the recovery of inflationary cost contributors IQF sales realisations were higher as the lower priced 30% IQF was discontinued and replaced with 15% brined IQF at a higher cost Broiler feed prices increased year-on-year by 3.3%, due to an enhanced feeding programme, despite lower raw material costs in the latter half of the year Improved broiler production efficiencies FCR improvements on new feeding programme more than offset the increased feed price Highly pathogenic avian influenza biological stock write-off of R54 million 9
POULTRY DIVISION - OVERVIEW Product Mix 21% 22% 5% F2016 478 019Tons 53% 7% F2017 436 694Tons Volume decrease 8.6% 49% 13% 5% 3% 14% 4% 4% 10
BROILER PRODUCTION PERFORMANCE 120.0% 115.0% 110.0% 105.0% 100.0% 95.0% 90.0% 85.0% 80.0% 75.0% Key indicators base-lined to 100% in F2012 F2012 F2013 F2014 F2015 F2016 F2017 Mortality Feed conversion (FCR) Efficiency factor (PEF) 11
BROILER PRODUCTION PERFORMANCE 106% 104% 102% 100% 98% 96% 94% Key indicators base-lined to 100% in F2012 F2012 F2013 F2014 F2015 F2016 F2017 Slaughter age Live weight Average daily gain 12
BROILER PRODUCTION PERFORMANCE 140% 135% 130% 125% 120% 115% 110% 105% 100% 95% 90% Key indicators base-lined to 100% in F2012 F2012 F2013 F2014 F2015 F2016 F2017 Broiler feed price index Feed conversion efficiency index Feeding cost index Source: Own Data 13
FEED DIVISION - OVERVIEW Revenue - R million Operating profit - R million 7,000 7,190 500 485 6,000 5,000 4,000 6,583 400 300 391 3,000 200 2,000 1,000 100 - F2016 F2017 - F2016 F2017 Revenue down 8.4% Sales volumes down 4.8% Average selling prices down 3% Operating profit down 19.3% Net margin 5.9% F2016: 6.7% Difficult trading conditions 15
FEED DIVISION - OVERVIEW Feed volumes decreased due to lower internal feed requirements and lower external feed sales Competitive intensity in the commercial feed market on surplus capacity available in the industry Record high feed prices in first half of F2017 on back of raw material positions due to limited procurement opportunities on worst maize crop in 2016 (7,7 million tons price disparity ) Record high maize crop in 2017 resulted in a significant drop in animal feed prices in the second half of F2017 (16,7 million tons) Total expenses were well contained however the lower volumes negatively impacted margin contribution 16
FEED DIVISION - SALES Meadow Feeds - Sales Mix 14% 13% 20% F2016 1 396 301Tons 60% 21% F2017 1 329 771 Tons Volume decrease 4.8% 60% 6% 6% 17
OTHER AFRICA DIVISION - OVERVIEW Revenue - R million Operating profit - R million 550 500 450 515 25 27 400 427 20 350 300 15 250 200 10 150 100 50 5 5 - F2016 F2017 - F2016 F2017 Revenue down 17.2% Sales volumes down 12.7% Average selling prices down 6.3% Operating profit up Net margin 6.3% F2016: 1% Zambia feed mill good performance 19
INDUSTRY TRENDS
SAFEX YELLOW MAIZE PRICE Source: CJA Strategic Risk Brokers 21
SAFEX YELLOW MAIZE PRICE vs. CBOT IN RAND TERMS Source: CJA Strategic Risk Brokers 22
SAFEX SOYA BEANS PRICE Source: CJA Strategic Risk Brokers 23
Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 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 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 POULTRY IMPORTS PER MONTH 70,000 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Tons Total poultry imports 6 per. Mov. Avg. (Total poultry imports) Source: SAPA 24
Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 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 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 BROILER SELLING PRICES 170% 160% 150% Index (Rand per kg) IQF cost recovery on new legislated brine levels 25 24 23 22 21 140% 20 19 130% 18 17 120% 16 110% 15 14 100% 13 12 90% 80% 11 10 9 Broiler selling price index Six month average Source: Own Data 25
Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 BROILER PRICE vs. FOOD PRICE INFLATION 170 160 150 IQF cost recovery on new legislated brine levels 170 160 150 140 140 130 130 120 120 110 110 100 100 90 90 80 80 Broiler selling price index SA food price index Source: Own Data & CJA Strategic Risk Brokers 26
Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 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 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 CHANGE IN BROILER PRICE vs. FEED PRICE 35% 25% 15% 5% -5% -15% -25% % Change in feed price % Change in broiler selling price Source: Own Data 27
THE PERIOD IN PERSPECTIVE
THE PERIOD IN PERSPECTIVE PBIT reconciliation 1,600 1,400 1,200 (R million) *20.6% 199-67 -54 31-303 1,000 689 * 9.7% 800 600 1,079 400 200 549-718 752 * 10.9% 0-200 PBIT F2016 Poultry Sales Volumes Price Adjustment Brine Sales Realisations Feeding Cost External Feed Sales HPAI Biological Stock Profit on Sale of Investment Other PBIT F2017 * Increase in sales realisations 29
FINANCIAL OVERVIEW
ABRIDGED STATEMENT OF COMPREHENSIVE INCOME Year ended 30 September 2017 R million 2016 R million % change Revenue 12 351 11 954 Operating profit 1 048 549 3% 91% Operating profit margin 8.5% 4.6% Profit on sale of investment 31 - Profit before interest and tax 1 079 549 97% PBIT margin 8.7% 4.6% Net finance costs (15) (22) Share of profit in associates - (1) Profit before tax 1 064 526 Tax (309) (154) Profit for the period 755 372 102% 103% Headline earnings 735 373 EPS Cents 1 948 964 HEPS Cents 1 899 965 102% 97% 31
GROUP ANNUAL REVENUE 16.000 (R billion) 14.000 12.000 11.3 12.0 12.4 10.000 8.000 6.000 4.000 2.000 0.000 9.6 6.6 7.2 8.5 6.2 8.2 7.4 6.9 7.0 7.2 5.5 6.3 4.3 4.9 5.2 4.0 3.6 3.5 4.8 3.5 5.1 9.9 3.7 3.9 4.1 8.7 9.1 2.7 2.5 2.8 7.0 5.8 6.0 2.7 2.7 5.1 4.4 4.6 5.0 5.3 2.7 2.0 3.3 3.6 1.3 1.7 2.2 2.3 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Poultry Feed Other Africa External revenue 32
GROUP ANNUAL OPERATING PROFIT 1080 (R million) 14.8% 1101 1079 0.16 0.14 880 12.3% 766 809 12.8% 0.12 680 480 280 80 674 423 9.6% 597 391 581 585 9.3% 9.8% 548 549 8.3% 8.4% 272 333 477 493 8.7% 7.3% 389 214 6.7% 6.6% 328 282 5.9% 5.8% 5.1% 261 281 262 203 220 151 4.6% 153 385 79 289 130 354 3.1% 485 124 90 174 238 383 494 476 163 282 262 353 137 329 104 661 59 630 0.1 0.08 0.06 0.04 0.02-112 -120 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 Poultry Feed Other Africa Profit on Sale of Investment 33
GROUP SIX MONTHLY OPERATING PROFIT 1280 (R million) 1.9 1.7 1080 1.5 867 1.3 880 1.1 680 550 551 207 0.9 480 429 0.7 280 80 324 154 140 153 59 135 156-3 -117 280 203 213 157 197 173 45 59 5 186 237 233 351 310 194 212 120 252 184-135 22 608 0.5 0.3 0.1-120 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17-0.1 Poultry Feed Other Africa Change in feed price Change in poultry selling price 34
ABRIDGED BALANCE SHEET September 2017 R million September 2016 R million Non-current assets 2 228 2 230 Assets held for sale - 25 Net working capital 862 1 003 Current assets (excl. cash) 2 461 2 588 Current liabilities (excl. borrowings) (1 599) (1 585) Non-current liabilities (excl. borrowings) (610) (646) Net assets 2 480 2 612 % change 14% 5% 1% 6% 5% Net debt / (Surplus cash) (553) 240 Loans - 35 Cash and cash equivalents (553) 205 Equity 3 033 2 372 Total 2 480 2 612 5% 35
WORKING CAPITAL For the twelve months ended 30 September 2017 R million 2016 R million Variance R million Current assets 2 461 2 588 (127) Biological assets 658 735 (77) Inventory - Poultry 316 314 2 - Feed 185 362 (177) - Other Africa 50 41 9 Trade receivables 1049 998 51 Receivables investment sold 56-56 Other receivables 147 138 9 Current liabilities (1 599) (1 585) (14) Trade payables (1 151) (1 390) 239 Other payables (448) (195) (253) Net working capital 862 1 003 (141) 36
ABRIDGED STATEMENT OF CASH FLOW For the twelve months ended 30 September 2017 R million 2016 R million Cash operating profit 1 428 546 Working capital movement (63) (46) 1 365 500 Tax paid (310) (122) Net interest paid (11) (22) Capital expenditure (180) (174) 864 182 Dividends paid (108) (373) Government grant received 29 - Other cash flow items 7 10 Loans (repaid) / received (35) (49) Movement in cash equivalents 757 (230) Effect of exchange rate changes 1 (1) Opening balance (205) 26 Closing balance 553 (205) 37
CAPITAL EXPENDITURE Twelve months ended 30 September 2017 R million 2016 R million Depreciation 149 144 Total capex 180 174 Commitments 148 105 Total spend and committed 328 279 38
HEADLINE EARNINGS & DIVIDEND PER SHARE 2500 (cents per share) 2000 2016 1899 1500 1286 1381 1148 1000 500 0 958 960 1150 965 890 840 864 1055 787 631 810 760 700 700 700 487 656 585 434 326 490 272 440 380 230 222 90 108 168 F2001 F2002 F2003 F2004 F2005 F2006 F2007 F2008 F2009 F2010 F2011 F2012 F2013 F2014 F2015 F2016 F2017 Headline earnings per share Dividend per share 39
IN SUMMARY Recovery in Profits in 2H2017 with profit margin at 13.2% (1H2017: 3.7%) Positive cash flow accelerates in 2H2017 (R703 million) Net surplus cash at year-end (R553 million) Final dividend of 875 cps within the Group s liquidity capability Full year dividend of 1 055 cps at 1.8 times cover 40
INDUSTRY MATTERS
INDUSTRY MATTERS Poultry imports Page 63 Highly Pathogenic Avian Influenza (HPAI) Page 64 Industry consolidation Page 65 42
OUTLOOK
OUTLOOK The negative political landscape and policy uncertainty has contributed to a weak economic environment that could lead to a further downgrade by the credit rating agencies. Record unemployment levels and lower levels of disposable income are unlikely to improve due to a poor economic outlook for the foreseeable future. Continued high level of poultry imports with weak tariff protection, has allowed foreign produced poultry to become further entrenched in the local market leading to a contraction in production amongst South African producers. On a positive note and key to local protein production, both global and local coarse grains (maize and soybeans) exhibit healthy stock-to-use ratios. Current consensus points towards the promise of another year where at least average local grain production is predicted. Numerous supply constraints influenced by the past drought, production cutbacks and the devastating bird flu could result in further inflation in the food basket. Further unlocking the inherent genetic potential of the Ross broiler breed through optimised broiler nutrition, and the cementing of Astral s best cost strategy. The threat of further spread of the highly pathogenic bird flu virus (H5N8) is a major contributor towards uncertainty around the sustainability of certain sectors of the local poultry industry. The role of vaccination of high value breeding stock as a preventative measure, together with the concept of compensation for losses incurred is paramount to managing this highly virulent avian disease. 44
ADDITIONAL INFORMATION
WHAT WE SAID IN MAY 2017 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 regulations will continue to negatively impact total kilograms sold at the revised brining level of 15% on IQF product. The risk of permanent power cuts by Eskom to Astral s operations in Standerton has been negated through an order of the High Court. Record local maize crop is expected for the current harvest season at 14,5 million tons which historically is the largest change in the crop size yearon-year (2016: 7,7 million tons). Poultry production efficiencies are expected to remain intact on the back of superior nutrition optimising the genetic potential of the Ross 308 breed. 47
Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 KEY FINANCIAL RATIOS 70 30.0 65 60 25.0 55 50 48 48 51 46 49 45 20.0 40 30 20 10 0 37 31 36 33 8.9 7.5 5.9 7.3 5.5 5.5 39 10.0 8.3 6.1 39 11.4 9.6 4.7 16.5 13.9 14.5 14.8 12.3 12.8 4.1 4.4 4.3 34 31 31 30 29 25 26 26 11.0 9.3 9.3 9.9 23 21 9.3 8.0 7.8 8.4 7.4 5.8 4.7 4.8 3.6 3.7 4.0 41 36 11.1 20 19 9.8 6.5 4.5 13 12 5.1 3.9 4.2 3.8 3.1 19 16 5.8 4.6 4.1 36 28 9.9 8.7 4.1 15.0 10.0 5.0 - RONA ROE EBITDA margin PBIT margin Asset turn 48
Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 KEY FINANCIAL INDICATORS 80 78.00 70 60 61.05 61.07 50 49.95 40 30 20 10 0 26 23 8.53 20 22 10.79 21 14.34 29 21 17.36 23.83 17 28.28 9 33.47 34.24 19 14 12 12 35.38 15 14 41.36 41.65 37.43 16 11 10 9 7 3 44.16 21 15 18 9 24 34 2 10 24 0 NAV share Working capital days Net Debt / Equity 49
2012 2013 2014 2015 2016 2017 2018E 2019F WORLD CORN ENDING STOCKS vs. STU Million Tons 250 225 200 233 234 21.50% 21.50% 200 196 24% 23% 22% 21% 175 168 169 20% 150 142 19% 125 100 75 119 14.80% 15.60% 16.30% 16.10% 17.07% 18% 17% 16% 15% 50 25 11.9% 14% 13% 12% 0 11% End stock STU Source: CJA Strategic Risk Brokers 50
SOUTH AFRICA TOTAL MAIZE SUPPLY & DEMAND Marketing year (May to April) '000 tons 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18E 2018/19F Actual Actual Actual Actual Actual Estimate Forecast Carry In (1 May) 991 1,414 589 2,074 2,471 1,093 3,446 Crop Estimate 12,121 11,811 14,250 9,955 7,779 16,744 12,751 Retentions 433 163 309 837 638 Sagis Delivery 11,972 11,072 13,817 9,794 7,469 15,907 12,114 Minus early deliveries 0 0 0 0 450 0 0 Imports 11 80 65 1,964 2,237 0 0 Total Supply 12,973 12,566 14,471 13,831 11,727 17,000 15,559 Domestic Usage Food 4,499 4,583 4,840 4,698 4,808 4,872 4,908 Domestic Usage Feed 4,378 4,715 5,041 5,520 5,004 5,399 5,220 Gristing, withdrawn & released 674 480 376 293 278 358 343 Total Domestic Usage 9,551 9,777 10,257 10,512 10,090 10,630 10,471 Exports & Sundries 2,008 2,122 2,153 848 993 2,925 2,477 Plus early deliveries 0 0 0 0 450 0 0 Carry Out (30 Apr) 1,414 590 2,062 2,471 1,093 3,446 2,611 No of days usage 54 25 73 86 40 118 91 STU 12.23% 4.96% 16.62% 21.75% 9.87% 25.42% 20.16% Source: CJA Strategic Risk Brokers 51
RSA MAIZE CARRY OUT & STOCK TO USE RATIO 3,500 000 Tons 25.42% 26% 21.75% 3,000 20.16% 21% 2,500 16.62% 16% 2,000 12.23% 11% 1,500 9.87% 1,000 4.96% 6% 500 1% 0 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18E 2018/19F -4% Carry out Maize stock to use ratio Source: CJA Strategic Risk Brokers 52
EL NIÑO SOUTHERN OSCILLATION - FORECAST Source: International Research Institute for Climate and Society (IRI) Columbia University 53
SOUTHERN AFRICA VEGETATION HEALTH INDEX VHI of previous year VHI of current year Source: NOAA - National Environmental Satellite, Data, and Information Service (VHI) 54
BROILER FEED INGREDIENT INCLUSION & COST CONTRIBUTION 100% 90% 80% 70% 60% 6.2 0.3 4.3 0.3 7.5 16.5 15.6 4.2 6.8 0.9 7.4 6.1 0.4 4.8 0.4 7.4 14.7 14.9 6.2 7.1 1.3 7.5 6.4 0.3 7.5 0.2 9.1 11.4 14.9 4.7 10.3 0.9 8.6 6.7 0.3 7.3 0.4 6.4 15.6 14.0 5.0 10.3 1.2 5.6 7.3 0.4 6.6 0.5 6.9 16.8 17.2 4.7 9.1 1.7 5.4 7.8 0.5 9.9 0.4 6.2 14.0 18.8 5.4 13.8 1.5 4.0 50% 40% 25.0 20.4 14.9 20.3 22.3 18.6 30% 20% 10% 0% 64.9 40.0 66.2 42.7 65.0 45.7 63.3 43.6 61.4 39.6 61.1 38.0 1H15 Incl. 1H15 Contr. 2H15 Incl. 2H15 Contr. 1H16 Incl. 1H16 Contr. 2H16 Incl. 2H16 Contr. 1H17 Incl. 1H17 Contr. 2H17 Incl. 2H17 Contr. Maize Soybean Meal Sunflower Meal Fish Meal F/Fat and Extr Soy Vitamins, Minerals and Medication. Other Source: Own Data 55
BRAZIL, EU & USA PRODUCT COST BENCHMARK Ex BRAZIL November 2017 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 1 150.00 1 150.00 1 150.00 SA COST R/$ exchange rate R$ 13.80 14.00 14.30 Rand per ton TON 15 870.00 16 100.00 16 445.00 22 640.00 Rand per kg KG 15.87 16.10 16.45 22.64 Duty per kg KG 37% 37% 37% - Clearance costs KG 0.65 0.65 0.65 - COST INTO STORAGE KG 22.39 22.71 23.18 22.64 Storage KG 0.50 0.50 0.50 - Distribution KG 0.70 0.70 0.70 0.95 Marketing, Administration, Finance KG 0.80 0.80 0.80 0.89 TOTAL COST KG 24.39 24.71 25.18 24.48 EUROPE Ex NETHERLANDS November 2017 FROZEN LEG QUARTERS BULK PACKED CIF DBN per ton TON SA COST exchange rate R$ Rand per ton TON 22 640.00 Rand per kg KG 22.64 Duty per kg KG - Clearance costs KG - COST INTO STORAGE KG 22.64 Storage KG - Distribution KG 0.95 Marketing, Administration, Finance KG 0.89 TOTAL COST KG 24.48 Source: Own Estimates 56
BRAZIL, EU & USA PRODUCT COST BENCHMARK EUROPE Ex Belgium, Denmark with Safeguard Duty @ 0% November 2017 (Safeguard Duty expired on 3 July 2017) FROZEN LEG QUARTERS BULK PACKED CIF DBN per ton TON 1 400.00 1 400.00 1 400.00 SA COST R/ exchange rate R$ 16.30 16.50 16.80 Rand per ton TON 22 820.00 23 100.00 25 320.00 22 640.00 Rand per kg KG 22.82 23.10 23.52 22.64 Duty per kg KG 0% 0% 0% - Clearance costs KG 0.65 0.65 0.65 - COST INTO STORAGE KG 23.47 23.75 24.17 22.64 Storage KG 0.50 0.50 0.50 - Distribution KG 0.70 0.70 0.70 0.95 Marketing, Administration, Finance KG 0.80 0.80 0.80 0.89 TOTAL COST KG 25.47 25.75 26.17 24.48 Ex USA November 2017 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 900.00 900.00 900.00 SA COST R/$ exchange rate R$ 13.80 14.00 14.30 Rand per ton TON 12 420.00 12 600.00 12 870.00 22 640.00 Rand per kg KG 12.42 12.60 12.87 22.64 Duty per kg KG 37.00% 37.00% 37.00% - Clearance costs KG 0.65 0.65 0.65 - COST INTO STORAGE KG 17.67 17.91 18.28 22.64 Storage KG 0.50 0.50 0.50 - Distribution KG 0.70 0.70 0.70 0.95 Marketing, Administration, Finance KG 0.80 0.80 0.80 0.89 TOTAL COST KG 19.67 19.91 20.28 24.48 Source: Own Estimates 57
LOCAL BROILER PRODUCTION & MARKET SHARE 29% 27% 7% 22% 7% 8% Astral RCL Country Bird Daybreak Sovereign Other Local broiler production 18.5 million birds per week Source: Own Estimates 58
LOCAL BROILER PRODUCTION & MARKET SHARE 31% 19% 15% 20% 4% 5% 6% Astral RCL Country Bird Daybreak Sovereign Other Imports Avg. poultry imports 8,2 million birds per week (12 months ending September 2017) Source: Own Estimates 59
TOTAL POULTRY IMPORTS (CHICKEN, TURKEY, MDM) 600,000 Tons 500,000 400,000 300,000 200,000 100,000 0 F2014 F2015 F2016 F2017 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 81,170 108,674 137,660 168,965 209,337 247,672 285,532 327,180 375,717 417,427 460,255 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 50,324 101,279 135,812 173,187 212,399 278,057 319,933 367,106 409,557 453,981 499,952 551,867 F2016 37,789 45,469 43,608 38,736 34,859 57,673 48,251 54,514 54,048 45,151 42,040 49,071 F2017 50,324 50,955 34,533 37,375 39,212 65,658 41,876 47,173 42,451 44,424 45,971 51,915 % Var 33.2 12.1-20.8-3.5 12.5 13.8-13.2-13.5-21.5-1.6 9.4 5.8 bpw* 8,9 9,1 6,1 6,6 7,0 11,7 7,4 8,4 7,5 7,9 8,2 9,2 *bpw million birds per week Source: SAPA 60
TOTAL POULTRY IMPORTS COUNTRY OF ORIGIN Country of origin for poultry imports - 2016 Country of origin for poultry imports - September 2017 YTD Argentina 3.3% US 4.7% Other 2.1% US 15.9% Other 4.3% Brazil 41.7% Argentina 5.3% Brazil 58.8% EU 15.7% EU 48.1% 560 155 tons 416 055 tons Source: SAPA 61
TOTAL POULTRY IMPORTS COUNTRY OF ORIGIN Country Imports (tons) 2014 2015 2016 2017 YTD Brazil 168 666 241 180 233 787 244 564 Netherlands 73 987 61 995 110 344 112 United Kingdom 43 009 15 985 45 647 1 319 Spain 10 356 27 090 39 620 11 138 United States 5 022 331 26 573 66 188 Belgium 11 994 35 613 24 256 23 451 Argentina 21 586 27 718 18 713 22 080 Ireland 8 286 13 336 15 556 18 555 Hungary 7 758 10 547 13 174 0 Denmark 6 133 9 508 9 779 10 785 Canada 5 255 131 8 884 12 219 Germany 21 821 554 6 073 81 Poland - - 4 773 72 Thailand 347 7 616 2 078 3 477 Chile 928 408 360 721 Australia 43 264 254 956 France 7 294 24 895 105 3.1 Source: SAPA 62
POULTRY IMPORTS Provisional safeguard duties against the EU of 13.9% that were implemented during December 2016 at 13,9% expired on 3 July 2017 A decision on a permanent safeguard duty against the EU is awaited following efforts made by an industry, DTI and DAFF work group to secure better trade terms to support local industry jobs and reinvestment Avian Influenza outbreaks caused temporary trade bans with some EU countries and with this a switch to Brazilian and US imports has been reported A record level of total poultry imports at 65 658 tons ( 11,7 million bpw) and equivalent to 65% of local production was reported for March 2017 Imports remained relatively stable year-on-year when measured against the Astral financial calendar year equalling approximately 8,2 million birds per week 63
HIGHLY PATHOGENIC AVIAN INFLUENZA South Africa reported its first case of H5N8 infection in domestic poultry in June 2017 in Mpumalanga From that date H5N8 has caused wide spread damage to the local poultry industry and in particular significantly affected broiler breeders and commercial laying hens Industry working closely with the Poultry Interest Group of the South African Veterinary Association have engaged DAFF, and more particularly the Director for Animal Health, in an effort to propose the use of vaccination as a tool to mitigate the impact of H5N8 infection on South African poultry A number of technical submissions have been made to DAFF, however some clear differences exist in the expectations with regards to the use of the vaccine and the consequential actions should a vaccinated flock be infected with the field strain of the virus. Industry is working with the relevant authorities to find a solution to the impasse; however time is of the essence in this matter as the industry faces a serious risk of further negative consequences as a result of this disease In the meantime DAFF have requested the following; that efficacy studies are conducted on selected commercially available international vaccines as well as a locally available autogenous H5N8 vaccine (could take approximately three months) following completion of the challenge studies, and if DAFF is satisfied with all other conditions they requested of the industry, DAFF will invite public comment on vaccination against H5N8 and that process is expected to take an additional 3 months at a minimum 64
INDUSTRY CONSOLIDATION 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 operation (KZN) Country Bird Holdings abandoned its bid to gain control of Sovereign Foods during September 2017, as it accepted an offer from Capital Works which offered a 33% premium over the R9 a share that CBH bid for the Sovereign shares Sovereign Foods now looks set to delist from the Johannesburg Stock Exchange under the ownership of the private equity firm Capital Works Daybreak Farms now wholly owned by the Public Investment Corporation following a buy out of other shareholders 65
SOUTH AFRICAN PROTEIN PRICE COMPARISON Cents per kg 9000 8000 7000 6000 5000 4000 3000 2000 1000 Chicken Pork Beef Mutton Feed Conversion Rate 1.6 2.2 5.5 5.0 Per Capita Consumption 39.1 kg 4.7 kg 19.5 kg 3.4 kg Source: FNB, Red Meat Industry Forum 66
CONTACT DETAILS 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