Astral Foods Limited (ARL) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Astral Foods Limited's Interim Results Presentation for the 6 months ended 31 March 2024. A special welcome to our Chairman, Dr. Theunis Eloff and to Anita Cupido, one of our Non-Executive Directors. I'm very glad to be introducing these sets of results versus the last time we saw each other. These results are testimony that Astral's Project 3R, reset, refocus and restart campaign has achieved its result target. The results are further proof of the buoyancy of the group's fully integrated poultry producer. [Operator Instructions] I will now hand over to Christiaan Schutte, CEO; Andries Ferreira, CFO; and Gary Arnold, Chief Operating Officer, will be taking you through the presentation.

Thank you, Marliese. [Foreign Language] So welcome, everybody, and thanks for taking time to listen to Astral's results and to be here. We appreciate that. We'll take you through the presentation. There's a couple of small changes. Just to highlight some issues during the past 6 months and comparing to the prior 6 months that you might have questions about. So in general, more or less the same program than in the past with small changes and some highlights to the slides. Once again, welcome to everybody. As you all know, at the end of last year, we actually made an open statement or an open letter to the public and the investors and the shareholders and all our stakeholders, saying that those results for F '23 was embarrassing to the management of Astral. We have never made a loss before. And of course, we had to take actions to improve on that and to fix it. A lot of that had to do, and it will come through in the presentation, unfortunately, on things that maybe was not fully under our control, like load shedding, bird flu, et cetera. But we will highlight that in some of the slides through Gary's presentation and Dries' presentation. So there were 4 key focus areas for us. We put together a team called that 20 turnaround team 20 with a project reset, refocus and restart and we drove that with a lot of diligence, with a lot of inputs from a lot of people in the group. And this first slide is just to illustrate how important this was to us and the focus areas. And once again, people often ask us what is PEF, Gary can explain that in detail. But if you're a poultry farmer like the miners, like the bankers, there's 1 or 2 key factors that they consider to indicate the successes or not. And PEF is one of those measures in the poultry world across the globe, it's not Astral. If you want to compare it against Brazil or farmers in Spain or in Europe anywhere, you use a PEF measure, and that includes 4 critical parts of successful poultry farming, like your livability or mortality, your feed conversion, your weight and the age of the bird. If you don't get that right, you don't have a poultry business. That's what we focus on. And in this first slide, we illustrate the history of how we improve the performance efficiency factor in this slumpier in the first half of 2023 and actually for the full year, which we will indicate at year-end. But look at this drop off to levels that we've never seen before because of load shedding, the big bird era, with a nice flavor of bird flu. So a lot of focus on what do you do on farm, on-farm efficiencies, and what we can illustrate today is this vast improvement with a focus. So I'll talk about it a bit later. This performance, PEF performance of Astral over the past 6 months has now surpassed any previous or historical levels. So an excellent result on the PEF, which is the base of a poultry business. And if anybody ever again doubt the importance of PEF, here is the evidence. If you fix that and you get that right in the poultry business, it will assist your margin because there's cost factors in there. Once you fix your margin, you see the direct impact on your operating profit and your cash. And this also illustrates how cash generative this business can be. So these are the key focus areas or was and still is the key focus areas with our turnaround strategy. And we can say that we have been fairly successful to return the business to profitability, positive margin and the PEF highest in the history of Astral, definitely in the top 10 in the world. So people often ask about the PEF. Why do you use it as a measurement even in your incentive schemes or bonus schemes? Just go back to that slide. If you ever doubt when you have to vote on the REM policy, go back to that slide and remember that PEF is the base of a poultry business. Some salient points. And of course, there will be a lot of detail later by Gary and by Dries, just the salient points that turned the 2 halves around. Poultry feeding costs decreased. You know have important feed is or feeding cost is to the business, that decreased year-on-year. Obviously, that will flow into the broiler life cost that decreased assisted by lower feed raw material costs. Feed now 64% of the total cost of production of chicken. It was as high as 72% in the past because of higher raw material cost. The broiler day-old chick increased following the devastating impact of bird flu in '23, where we had to import eggs and the base cost of the import of the eggs was exactly double that of what we produce locally. We didn't use all that eggs ourselves. We also have outside or external market and we sold that on. So we had to service our customers through our net chick business. So that is still a cost that is currently embedded in our life cost is the chick cost. On-farm broiler performance improved significantly over the comparable, surpassing all the historical results and hats off to our farming division. Excellent results. Then we had broader placement cutbacks. We had high finished goods stock levels at the end of the prior period and we were not comfortable with that level because you pay outside storage to keep so to produce a bird at a high cost with high input costs, then put it in outside storage and keep on paying to keep it there for some time, hopefully that the IQF market will improve, we realized that with the unemployment and the state of the consumer, it doesn't make sense to produce chicken and just put it in storage. So we had a planned strategy to cut back our weekly production. And again, we'll go into the detail later of that. Our poultry sales volumes increase. Now those 2, if you read them separately, don't make sense. But the sales volumes increased, but we sold out of stock. So we're now with a cutback at the opportunity to some sell -- sell some of our stock that was in outside storage, and there was quite a positive movement on sales out of stock. And also, of course, the bird size normalized during this period, and we had a better basket to offer to the market. During that heavy load shedding period, almost all of our birds, aside the fresh was, big birds in 5-kilo bags. And if you go with that to the market, it's oversupply and you have to promote to get rid of the product. We're completely out of that big bird era, and you can see that the basket has also improved, and we will show that later on. Positive broiler margins are reported at 2.4% prior 6 months, comparative 6 months, was it negative of 4.4%. So we swing in the margin. If you look at this result, you see a 2.4% margin, which is still paper thin [ Anthony ]. It's nothing for a high-risk volatile industry like the poultry industry. Imagine that with these performances, volumes, you get to a margin of 5%, 7.5% or 10% or our historical high on at 15% ones. Imagine this company with a 15% net margin. Positive margins in the past, we subsidized the load shedding cost and also the cost of higher raw materials. We tried to push back on that. But the key thing is, for the first time in last year, we went into heavy gearing. Now heavy gearing in the poultry industry is very different from other industries. Our gearing was at 25% with debt at ZAR 1.031 million, something that we're not used to. And that was one of the key focus areas and also discussed at many levels and at board level, we're not comfortable with debt there because of the volatility of the industry. Debt levels was reduced significantly through the 6 months performance and the cash we produce. So debt levels now down to 10%, which is more comfortable, but still not where we want to be. We want to be cash positive in order to field any unknowns in the future. And every year, I stand here and I say, I have now seen it all. And every next year, I have to come back and say, "Oh, there was something else." And that's our life. That's our business in Africa poultry, we have to fill these challenges day by day. So a quick reference. The green arrows, revenue up 4%, higher sales volume, slightly higher price, better margin, better performance. You will also see that in the feed division, this 6 months look very different to in the past, and Gary will go into the detail of that. The profit, EBIT, ZAR 550 million, up 461%, which show that after the first quarter, we were still around 300% year. Remember, when we gave the voluntary update, we said we could be up by as much as 300%. Well, unfortunately, we had to come back and correct ourselves. Profit for the period after tax and interest headline earnings, 441%. Dries will go into a lot of detail here. Gearing improved to 10.1% overdraft or debt at ZAR 444 million, a lot more palatable. And unfortunately, and the Chairman is here, I'm not going to talk about this. You can talk to the Chairman about this no interim dividend. Remember, what we said is with this business, we don't think it's the right thing to pay a dividend out of debt. So the sooner our project and our focus brings us to a cash-neutral position, the sooner we can discuss the dividend and the long-standing policy of 2x cover at board level again. And I know we're going to get a lot of questions about that during the one-on-ones today, tomorrow and till Tuesday next week. But we are not at the level where we -- the Board considered a dividend at the interim. This slide was produced in the midst of load shedding. These were the cost at the Stage 6 load shedding the yellow part, we always indicate feed or maize in yellow because that's the color of yellow maize and not something else. So additional feed cost during this period was the yellow bars. We did communicate to the market that by June, July, we will be out of that position, that was in 2023. We did exactly that because of our planning and the way we run the business. Additional shifts out, the purple part placement cutback cost at that time that were placements related to load shedding only gone. And we made it very clear that from that period onwards. Gary, was it on the 15th of June, 20th of June, we were -- as we predicted on the day, on the hour, we were out of that load shedding situation, now have generators and contingency plans. So all we're left with is additional diesel cost or generator cost. At Stage 6, our consumption of diesel additional diesel was ZAR 45 million per month. We had slightly lower levels of load shedding here. So you can see that the diesel cost is not at the ZAR 45 million per month. So quite a saving, if you want to call it that, but it's now almost the embedded cost additional diesel for generators because it's not just load shedding. We also have other power failures or supply of electricity coming from municipalities. And of course, this pre-election, no load shedding was all in April and a bit in May. So that's not reflected yet. We will report on that. We will report on April and May being 0, and then June, July be back at 50. I am cold. Just a quick view on how you make a profit. Broiler net margin, 4.4% negative there, there compared to 2.4%. This was in the second half of next year, which we'll report in the full year, down even further than negative 4.4%. You make a small margin, 2.4%, you make ZAR 0.5 billion of profit under not the best of conditions with not the best feed prices and still having additional cost in there like diesel for that 6 months was ZAR 100 million that could have been in the margin. So the margin improved also on the back of slightly lower broiler feed cost, feed cost coming down by 9% approximately. You get that effect. And this illustrates that even more. This is now an international graph. I think Anthony Clark introduced it in this because this tells the story in some of these is an analysis of the industry. So the yellow part, again, it is yellow maize or it is the yellow maize in the broiler price. This is the change year-on-year. This is not the actual price, so if you see that the price change slowed down or being negative versus the prior year, the movement, you see the benefit. Look in the years where we had good results was definitely not in that situation. You can go and look there and you can go and look at that situation over there, good profits in that period. At the same time, the movement month-on-month, compared to the prior period, the change in broiler selling price is positive. So there's the 6 months. Feed cost down, selling price up slightly. Selling price, not just up because you moved the price up, your basket has also changed, your offering to the market has changed because you're out of the big bird era. A quick view. I'm not going to elaborate on this because then I'm going to steal from Dries. Last year F '23 first half, ZAR 98 million profit, 5%. Benefit, raw material cost slightly lower, so there's the benefit. Then we had further improvements on our FCR, a critical point in our business, feed-conversion ratio also improved. That's the benefit we got from that. Slightly higher sales volumes up -- was at 4.2%, 4.2% broiler volumes up out of stock. Broiler selling price is up 7%, again, a bit by price increases and our other contribution comes from the basket and the offering. So that selling price up. In the reduced feed consumed, this block is specifically focusing on that graph we showed earlier, the load shedding cost or the impact of load shedding on our cost structure. So ZAR 413 million was the less feed consumed on farm due to the big bird area. Big birds longer on the farm, the age go out, the weight go out, you feed them and now you feed them the highest raw material cost in your history. So that's the benefit of not having big birds. So that block is load shedding. And then all the other load shedding cost, the movement year-on-year in that improvement. And there's a lot of detail about that, which you can ask us about. The expense increase, on sequential bird flu cost, and you can ask Gary about that. Those are costs related to the import of fertile eggs, et cetera, et cetera. which is still a block that could disappear if we do not have bird flu in this winter. Most of that can also come back to the business. It's higher cost on the back or on the hangover, [indiscernible] from bird flu. And then the net of all the other at ZAR 155 million, and the improvement from ZAR 100 million to ZAR 550 million, up 460%. That is the picture of what happened. You see what we did last year. ZAR 150 million just on the back of load shedding. Most of it is back except the diesel cost. So fairly good performance, still paper thin margins. That's the one thing we will keep on working, but the consumer is under pressure. We feel it, we smell it and we get told that by the retailers. So the prospects of major price movement is not going to happen during this winter. We are busy with the effort because we now have lower stock levels. We're not sure how successful we will be in that part of the business. It all depends on the pull from the consumer. I thank you. Gary will do the operational review, and then Dries will do the financial review after that. Thanks, Gary.

Thank you, Chris. Can you hear me okay? Well, good. Discovered this morning when we were fitting these headset mics that my years are smaller than Chris' and Dries'. So Chris has always wondered why I'm a bit hard at listening. Now we know. So hopefully, it stays put. Anyway, Good morning to you, and good morning to everyone online. Welcome to the presentation today. I'm going to take you through an operational overview. Touching on raw materials first, as always, which sets the scene for feed division performance and ultimately, the cost that we incur in poultry production. Looking a little bit forward. We're currently in the harvest season for our '24, '25 maize crop. You all know the El Nino weather conditions, have played havoc on this year's crop. We experienced some dry weather at a particularly critical stage of the crop. So we're going to see 3 million ton knocked off the crop this year, from a record high of 16.4 million ton crop last year, obviously, on the back of lower yields, and I've got a slide on that a little later. The important figure here being the carryout percentage. So if we look at the fair value based on that percentage historically, SAFEX maize pricing should be lower than we currently see, but SAFEX is trading higher than those fundamental levels, and there's reasons for that. So this is just a new slide we put in. You can see the drop in yields, 1.3 ton per hectare, stripping 3 million ton of the crop for this year. So this push SAFEX prices up, during February, March, we saw a rally on SAFEX on local fundamentals. Maize prices moving from around ZAR 3,800 a ton to approximately ZAR 4,500 a ton. But fortunately, in recent times, we've seen a drop off on SAFEX over the past month in the spot price for May. So I looked last night on the 24th of April, we put a small pig in on July contracts at just over ZAR 4,500 a ton. And yesterday, that same contract was trading for just less than ZAR 4,100 a ton. So maize prices having come off from the highs after the dry weather conditions. A lot of this has to do with the strength of the rand. And we hope may that continue because it has assisted SAFEX pricing for maize, but we have also seen more sellers coming to market as the crop has commenced harvest. Although we had this rally in the maize price, and as you know, Astral holds a position, we're not buying spot. So we didn't necessarily participate in this rally. But whilst there was this rally in play, we did fortunately see a drop in international soybean prices and the price for meal, soy meal. So that, to some degree, offset the increase in the maize price. But more recently, you'll see a little spike here on the back of the dry weather we had in South Africa impacting South African bean crop, and some extreme weather -- actually weather conditions in Brazil, leading to some flooding, which has pushed up prices on the international market. So the feed division, Chris alluded to earlier on that we'll get into a little bit more detail here. So the feed division's revenue down largely driven by volumes, feed sales volumes down by 18.7% and raw material costs down. So those 2 revenue down in that division, and operating profit down. The operating profit was down only on the back of the loss of internal feed sale volume. So we cast our mind back to the first half of 2023. We had those big birds. Chris spoke of the big bird era. We were feeding them a lot of feed to maintain them on farms and keep them on farm. Those are old. They were heavy. And our feed bill at that time was massive. It was a benefit in that first half to the feed division. It reflected in their profitability. Our feed mills were full, but that wasn't necessarily a good position for Astral because that benefit there was a cost to the poultry division, and you can see what impact that had on the business. This year, a more normalized profitability posted by the feed division. If one looks at history and as our shareholders and analysts know, we've always said this is a banker, the feed division, so normalized profit on normal levels of internal feed supplied, actually even lower because of the feed conversion benefits in the group. We required less feed gone from the feed division. But then we also had the broiler breeders that we lost with the 2023 bird flu outbreak. So we lost feed volume sales onto our parent stock farms there. But as we've repopulated those farms, those feed volumes have come back. Margins in the division at 5.5%, our rand per ton margin slightly down in the period. We've seen the graphs on the SAFEX on the maize and soy meal. I think important to note that on the 2 comparable halves average SAFEX maize price down 16.4% and soy 11.1%. This obviously brought some welcome relief in the feed price to Astral. And you can remember last year, that massive feed bill of over ZAR 400 million, additional feed was being fed to the birds at an all-time high in the raw material costs. So feed prices coming off for the period and then we had lower consumption. And that I've explained already. You can see that reflected in nearly -- just over 27% lower feed sales to the poultry division. External feed sales slightly down. This was really due to the bird flu outbreak in the commercial layer sector. It was a biosecurity risk to supply a number of those farms up on the hot felt, so we made a decision, a conscious decision to stay away from that market for a while, not knowing the status of bird flu on some of those farms, not wanting to put our own operations at further risk. And so we didn't actively pursue external feed sales in that sector, which led to a small decline in our external feed sales. This is the mix. And so you will always recognize this graph, so 60% internal feed sales. That's been the norm for a number of years. That's the consumption into the group and the integrated value chain, 66% skewed. And you can see that in the results for the division. So this wasn't necessarily good for the group. It came at a cost to the poultry division. In the poultry division, this is a consolidated view of all our operations, commercial and agriculture under this division. Revenue up 6.7%, that being driven by the increase in sales volumes, which Chris alluded to 4.2%. I'll get into a little bit more detail on the next slide on that. And then selling prices improved for the period under review. Frans and his team put in a good effort to get some -- the pricing up. As Chris said, for a long period of time, we subsidized the cost base, and there was an effort to recover inflationary costs in the pricing. Breeder revenue up 20%. This is a sum of national chicks, our day-old chick supplier and Ross Poultry Breeders, the supplier of parent stock into the market. So good performance from those 2 businesses under the circumstances. Operating profit up in this division, 200%. So you can see the swing in profitability assisting Astral's performance substantially in the first 6 months of 2024. Chris already mentioned broiler feed price is down 9%. And as you know, that was assisted by the better raw material costs. For the first half of 2023, the load shedding led to an interruption in our processing. The bird stayed behind on farm. It's led to bigger birds, older birds. And when those birds eventually did get to the processing plant, they were quite big, not quite big, they were all a bit bigger. And this led to an unfavorable product mix. So our product basket, which you know we supply the IQF market, the fresh market, the quick service restaurant trade, some of the sectors take a fairly fixed specification product. Now with the bigger birds and the bigger portion size, it was very difficult to service those markets ably. And that led to a lot about chicken going straight into 5-kilo IQF and not servicing those product or market segments. So that in itself led to a decline in sales in those areas. And this year we've seen the normalization of the bird weight and age, and we've returned to normalized levels of sales in both fresh and QSR. So that's assisted the sales volumes, and we also sold out of stock, notwithstanding the production CapEx that we implemented. So we went into this period with stock levels a bit higher than we were comfortable with. Demand in the market was also soft. So we put in an effort to manage or better manage supply with demand. We were able to do that and sell out of stock. So that helped support our increased sales volumes as well. Chris has spoken about the broiler margins, still thin. You can see minus 15% for the second half of last year 2023, where the brunt of the cost from load-shedding were felt. And we'll talk a bit more about that in the outlook later. Operating expenses were lower, obviously, as a significant cost and additional feed and diesel due to the high stages of load-shedding in 2023 were not repeated. This doesn't take anything away from the fact that we still had a ZAR 101 million diesel bill for the first 6 months of this year, a significant number on -- given the profitability in the business. This is the sales mix. So percentages giving a little bit of a false impression here, but if you look at the sales or these percentages and the sales mix against the volumes, you'll see that we sold more volumes in each product category, where last year, that was impacted by load-shedding in the big birds. In the Agriculture division, Chris already mentioned, a good performance this year, and we'll get into some detail on the next slide. Parent stock sales out of Ross poultry breeders decreased very slightly. What we saw with bird flu not only impacting Astral's broiler breed operations, but those of our customer base as well. A number of their farms under quarantine that slowed down the restocking or placement of new parent stock flocks. So a number of customers have pushed out placements, and delay those by some time. So the order book is still there, but there's just a timing impact on the placement there. So a small impact on parent stock sales. We've spoken about feed input costs. Production efficiencies, we'll talk a lot about on the next 2 slides. Bird flu, we all know the new strain that emerged in 2023, H7N6, devastating impact on the industry. Astral lost approximately 40% of its broiler breeding stock. We've had a good restocking or we had a successful restocking program in place on top of the hatching egg import program on top of other contingency plans, which we implemented. So sorry -- having nearly replaced us now as we move into this winter period, and we'll talk about vaccination just now, which is critical going forward. The shortage in the supply of broiler hatching eggs was mitigated by the import program and contingency plans that we implemented to keep our operations supplied with broiler hatching eggs, so we could supply our own internal requirements and those of our external day-old chick customers. Unfortunately, with the imported eggs, increasing flock ages, so not depleting the flocks normally around 60 weeks, we push some flocks out the production to as high as 74 weeks. You don't get the efficiencies in production out of those flocks. It impacts hatchability. We were setting eggs from younger flocks, again, impacting hatchability. So a number of factors coming into play there, which impacted the day-old chick cost and then not having all of those broiler breeders, all those parents on our broiler breeder farms. There was an under-recovery and overhead costs in certain areas. So that led to the higher balance sheet costs, which Chris mentioned. These are the important slides. Chris spoke about PEF earlier on, and the benefit to the business by improving the cost base, having efficient on-farm production performances versus the picture. So everything here is baseline to 2013. We've got well over 10 years history here. You can see what happened to the age of the broilers during the load-shedding period, birds nearly 40 days of age there, now back to normal, just over 32 days of age. So what we're seeing is, at a normalized age, we've got normalized bird rates. Bird rates again back at around 1.85 kilos. That's what you want to see. But you want to also see this where you achieve those same bird rates and age at a better feed consumption or lower feed consumption, better feed conversion efficiency. So even between notwithstanding the impact of load-shedding last year, I mean the difference here is close to 300 grams of feed every kilo live weight gain that cost us a fortune. Notwithstanding that, we've improved the feed conversion on those levels achieved in 2022, and achieved the same live weight broiler at a slightly lower age. So that's benefited the life cost of production. And you can see the PF at an all-time high, as Chris alluded to earlier on and mortalities, liveability, back at an acceptable level. Some quick industry matters. A couple of the topical imports. On average, like just over 30,000 tonnes, for March 32,000 tonnes, you can see here. We'll talk about the import tariff rebate now. There's some quick stats on the industry for the first half. Well, actually, this was -- yes, this was at the end of March, reducing on average, 21.2 million birds a week. So no shortage in local production and the import tariff rebate that was implemented from January was implemented by the DTIC on the back of a supposed shortage in broiler production and poultry meat as a result of bird flu. We had a number of engagements with ITAC and the DTI and attempted to convince them that there wouldn't be a shortage of chicken meat as the industry had implemented contingency plans to avoid this. Unfortunately, in the first quarter of this year, they issued permits, with these rebates, a number of importers benefiting from the rebate on imports in the period January through March. We again pulled for a meeting with Minister, Patel. We saw him about a month ago, and the Chief Commissioner within ITAC, we again laid out a case with some history to show them that there was no shortage of broiler meat post the bird flu epidemic of 2023 and that there wouldn't be. They asked us to submit a whole lot of data, which we did ASAP, and no permits for the second quarter have been issued. We indicated there wouldn't be a shortage of meat. And in fact, a slight surplus going into quarter 3 and quarter 4 of this year. So we don't expect on the data that we presented there to be any more import tariff rebate permits issued. On the competition commission poultry market inquiry, there's not a lot to say here. The draft terms of reference were published. SAPA, as an industry, submitted our comments to these draft terms of reference on the 15th of March, and we haven't heard anything subsequent to that. We do expect we'll hear something at some point in time and an individual company representations can be made. Vaccination, it's been a slow process. As a country, we've made good progress in that. We have guidelines for vaccination, which have been published in November of last year. That's a big step forward, but there has been continuous engagement with the authorities on issuing permits against those guidelines. A couple of poultry producers have made application to vaccinate. We wanted them. We're still working with DALRRD on this process. It's new for bird size, and DALRRD certainly adopting quite a conservative and measured approach, which we like, not necessarily a bad thing, but we need to get to a point where we can vaccinate. It will just be an additional tool in the biosecurity bag. And will help protect our flocks. I'm now going to hand over to Dries, who will take you through all of the financials.

So on the financials, you've heard the moving parts being explained very well by Chris and Gary. And it all comes down to the numbers that's on the screen here. So in the last 6 months, we focused very diligently on healing the income statement and the consequence of healing the income statement is heading the balance sheet. So what happens here is we've got a 4% rise in revenue, as explained. That's a volume correction and a basket correction, mainly in the poultry division, some negative on that line from the feed division, but all it comes down to a 4% revenue increase to ZAR 10.4 billion. That translated into an operating profit improvement to ZAR 550 million. Also, if you consider the waterfall that Chris highlighted, there's some remaining costs from the bird flu era. That's still present in the first 6 months. That could disappear into the future. But still be left with a 461% increase or correction in operating profit of ZAR 550 million with a margin of 5.3%, which I will touch on a little bit later. Then we still got some bank interest that is as a result of the higher gearing levels that we came into this year despite the strong improvement in gearing levels in the 6 months, we still have an interest bill that was present in the numbers for the 6 months of ZAR 58 million net. That leaves us with profit before tax of ZAR 481 million. And then the tax line at ZAR 126 million, of which only ZAR 28 million was cash, and that demonstrates the utilization of the losses that we incurred in the prior period, that's now starting to unwind, and we're getting the cash benefit out of those losses that we incurred last year, at least on the tax line. The attributable profit, ZAR 355 million, a 472% increase with EPS coming in at ZAR 9.23 or ZAR 9.23 in total, up 471%. And HEPS at ZAR8.84 with the main difference being the insurance proceeds on the hatchery fire that we had last year. If you consider the long-term trend in Astral's key numbers here, the revenue firstly, you can see that there is a consistent improvement in the revenue over time, reflecting the hard work being put in by the commercial division on the poultry side as well as the fee division in growing their external volumes and market. But the volatility in the earnings is as a result of the business model that we have, that mainly reflects the timing differences between feed price increases and recovering those costs from the market, which I will also unpack a little bit more detail in the coming slides. The 5.3% net margin with a ZAR 550 million operating profit, we consider the history for the group. It is still below the long-term average, which means that we are still aiming to improve on the margins that we've achieved down. Also maybe to -- if I go back -- just outlining the big loss that was incurred in the second half of the prior year. What's also important to note here is the big bump that we had here running to about a 15% margin, which Chris touched on earlier in the 2018 coming off the 2017 results, which is more clearly demonstrated by the movement in the feed price and the selling price changes when the selling price changes increase and the feed price changes decrease, it opens up the blue bars here, which is the poultry division operating profit. The consistency of the gold bars here is the fee division. And here, you can see the return to the more longer-term average operating profit for the fee division, which has become to being known as the banker for the group. Here, you can see again the fee -- the selling price increases relative to the feed price decreases is starting to open up there and it bodes well. Poultry division returning to the profit of 284 as explained earlier. Then we have the balance sheet. So this was the main focus of the group to rebuild the balance sheet through fixing the income statement mainly, but also there were some moving parts here that we need to get it right. Maybe just from the top, not much movement on the noncurrent assets, demonstrating keeping the capital expenditure programs tight over the last 6 months, I've got a slide explaining that a bit more detail. Next one, we've got the right-of-use assets. That must be read together with the lease liabilities, you can see both of them decreasing, demonstrating the unwinding of the right-of-use assets and the liabilities that goes with that. Big focus here was the net working capital for the group. I've got a slide unpacking that in a bit more detail. Despite the fact that it looks like it increased by 1% there, it was a big effort that we need to managing the quality of the working capital, which we were successful with. Then we have noncurrent liabilities, which increased quite strongly. That mainly reflects the deferred tax asset that we had as a result of the loss last year that gets set off against the deferred tax liabilities, and the unwind of the asset naturally will increase the liability that remains -- and the deferred tax liabilities mainly relate to the fact that it actually is a farming operation, which means we get a lot of tax benefit from installing fixed capital in the business. You get the tax deduction straight away, which helps with the cash on the tax line. And then ultimately, you pay the tax in later periods. And that creates the deferred tax liability. The net assets or the invested capital in the group has improved, come down on ZAR 5 billion in the September numbers to ZAR 4.8 billion, that's a 5% improvement or a reduction, which means the business as 5% less need for invested capital to generate the profits that we are generating. And that is manifested in 2 line items. So firstly, the net overdraft or the cash and cash equivalents and plus the other borrowings that came down handsomely by 57% to ZAR 444 million from September's numbers of ZAR 1.31 billion. And then the remaining equity on the balance sheet, which improved on the back of the profitability that we had, ZAR 4.4 billion or ZAR 4.379 billion. Capital expenditure. Depreciation and amortization compared to the full year last year, you can see that there's not any surprises on the depreciation and amortization, given the fact that there's not been any major changes on the CapEx programs for the 6 months. The total CapEx spend for the 6 months in the middle block, and see it's returning more to the longer-term average of capital spend that we have. We always guided between ZAR 250 million and ZAR 300 million is the rule of thumb for capital expenditure in the group per annum, and we're well underway there. The major item there is the expansion CapEx of ZAR 64 million, which mainly relates to the Zambian feed mill upgrade that we've commissioned now recently. And then some spillover load-shedding and water-related CapEx that find its way into this year's cash flows and the balance sheet items. Outstanding capital commitment is high at ZAR 517 million, slightly down from September at ZAR 594 million. However, you will note that we've marked here which projects are all on hold till further notice, and that demonstrates the major focus on capital allocation of the group. Also given the backdrop of the quality of the balance sheet that we want to get right as quickly as possible. On the working capital in more detail, makes for interesting reading. The biological assets considering the fact that from September, the middle column, September number, the previous balance sheet that we've reported, where we had the bird flu impact on the biological assets, which decimated up to 40% of our breeding stock. Here, you can see we're starting to replenish our breading stock, and that has consumed cash and increased the value of the biological assets. And for the 6 months, it increased by ZAR 200 million, but that's a program we have to go through. So that was a planned expansion. The inventory, which we touched on earlier, firstly, the quality of the inventory increased in poultry as well as the total stockholding improved and down. And that released nice cash back into the balance sheet. And that also bodes well for the quality of the Poultry division balance sheet. The feed division, nice and stable at ZAR 430 million, demonstrating the focus of not expanding the raw materials in the silos. Revenue receivables up very strongly, ZAR 335 million year -- half year versus full year. But that demonstrates the quality of the top line and that all that cash as we stand here today, has been collected already. So there's no bad debts that reside underneath that number and it demonstrates a good sales line. We've got other receivables, down ZAR 117 million, leaving us with current assets expanding by ZAR 136 million, and you can see where the main items were there. Then on current liabilities, reducing -- sorry, increasing by ZAR 109 million, and that's just a small movement. There is not much to comment on the current liabilities. That leaves us with net working capital versus September, basically flat half year versus full year last year. On the cash flow statement, just demonstrating it in a graph or in a graphic manner. Firstly, we came into the year with cash and cash equivalents and I've got to maybe just quickly pause on that. On the next slide, I'll explain it in a bit more detail. There was a temporary loan that we took out end of last year to assist with the cash flows. And that was technically not seen as cash and cash equivalents for the cash flow statement. So I'm keeping that off this graph, and I'll explain that in the next one. We had cash and cash equivalents overdraft of ZAR 431 million beginning of this year, which excludes a ZAR 600 million temporary loan, which meant ZAR 1,031 million, which is the number you'll recognize. We generated ZAR 806 million of cash profits in the 6 months, which again demonstrates the cash-generative nature of Astral. We dispose of our 9.8% interest in Quantum Foods for cash of ZAR 141 million net. And then we had some cash investments into the balance sheet that was necessary and a cash outflow, we paid ZAR 30 million in tax. If you allocate out of the working capital, the items that relate to more of the income statement nature. You'll see that the cash invested into working capital is ZAR 74 million on a net basis. Then we had capital expenditure, cash, ZAR 142 million. We had lease payments of ZAR 45 million, and then, yes, the ZAR 200 million reduction in that temporary loan that we took out. So we had ZAR 600 million there. We repaid ZAR 200 million. We left with ZAR 400 million on that loan at the end of March. And that means ZAR 44 million of cash and cash equivalents, net debt, almost a breakeven plus a ZAR 400 million of this one-off loan if you consider the total debt. And then the finance expenses paid the actual interest on all the borrowings at ZAR 77 million, which is the one that we want to get rid of as well. So here, I'm going to start at the bottom line, the ZAR 444 million, which includes all debt, not only the cash and cash equivalents, as they've defined. So here you can see there's the ZAR 400 million one-off loan versus the ZAR 600 million at September and that shows the ZAR 200 million that was repaid. So from the top now, cash profit after working capital changes, ZAR 732 million compared to the full year last year of a cash outflow at that level of ZAR 900 million. Here we can see the working capital loan, the ZAR 200 million, that was the ZAR 600 million where we actually drew on that loan last year. So that showed as an inflow, and we repaid ZAR 200 million, leaving us at the movements in cash and cash equivalents line, an outflow for the last year -- full year of ZAR 1.13 billion versus a cash inflow of ZAR 400 million in the current year. Leaving us, I'm going to jump to the bottom again, with net debt of ZAR 444 million versus ZAR 1 billion that we came into this 6 months' worth. And in summary, revenue ZAR 10.4 billion, up 4%. Our operating profit improved by 461% to ZAR 550 million. Our CapEx nicely controlled, ZAR 137 million, mainly the Zambian feed mill. And then gearing improved nicely from ZAR 1 billion to ZAR 444 million or a gearing ratio of 10.1%. And then this, we have sufficient banking facilities in place to ensure liquidity and solvency, and we accordingly also didn't declare a dividend at the interim stage. Thank you. I hand over to Chris.

If it wasn't for the leap year, it would have been your birthday today. So thanks Gary, and it's very comprehensive. I now also have a better understanding of what's happening. Just the outlook. And it's difficult to talk about the outlook because there's a number of things outside of our control. Embedded diesel cost, ZAR 100 million. We don't see that going away. Bird flu remains a major risk. It's wintertime. No compensation, no vaccination, no insurance. So it will always be a high-risk up to the time that we can vaccinate on a consistent manner. So Gary and his team, SAPA, our vets are working very hard day-to-day with government on the back of this, and I'm sure we're going to make some inroads there soon. The El Nino weather patterns had a big impact of 3 million tonnes on the crop, pushing prices up with a slight slowdown later on, like Gary explained. And then the weak economic growth. So we all know about the impact of that. If you don't have economic growth or top line growth, you're not going to create jobs. And government cannot create jobs, private sector create jobs. I must create the environment and the infrastructure. Do that for us, and we'll do the rest. We've been telling them at many forums for many years. Just give us the environment and the infrastructure will do the rest. And you'll hear that from many, many business leaders. So that's not going to change soon. I think it's going to get worse the unemployment because we don't see any economic growth beyond 1% over the next 1 or 2 or 3 years, where will it come from? Uncertain political landscape. I think Dr. Eloff, our Chairman, also this morning or was it in yesterday's paper, gave his opinion based on certain research on how we see the landscape. And there's so many permutations if the ANC get below 50% or -- but if they get below 45%, but if they get below 41%, who will the partners be? Will it be if -- so many variables and permutations. I don't want to speculate on that. But the 1 thing we do know is that coalitions in this country has not proven to be successful. And I think that's the risk. Who will be bird partners and will it work and for how long? That will bring the uncertainty. I think it's almost certain now with the forming of the MK party at the ANC due to the landscape in KZN will definitely go below 50%. I think that's on the card for every -- from every survey that's been done. So that will bring about some fluctuation in foreign investment or -- and in the currency. On the positive side, the biological efficiencies of our birds and Astral the way we run the business, and we focus on bird performance is still a focus. And Gary and myself just spend a couple of days in Europe with Aviagen, and there is continuous improvement coming from the geneticist and the selection program. So the efficiencies from broilers and breeders have not come to an end. We didn't go there and now it's going to flatten off. There is consistent improvement. So if you want to choose a space to be in, in livestock production, you want to be in fish or beef or cattle or pork, all 3 is the more sustainable one over the long run because it keeps on improving. The rate of improvement in efficiency is at a quicker rate than any other livestock on this globe. It's also the best converter of raw material into meat and that makes it more sustainable, and there's a continuous improvement. So that is what our business is about. We already see some signs in the distant future, about improved planting conditions. There is already noise and speculation from an El Nino weakening that could result in a La Nina, which means good rains in the Southern Hemisphere and better crops. So both the top ones are positive to Astral. Maize imports to the Cape, Gary and the team acted quickly on that when the opportunity was there. We imported maize into the Cape. It puts a bit of a lift on SAFEX prices, just [ won the guys ], we'll keep on importing. You can't just run away with the price. And that's beneficial to our Cape mills and our Cape production. This, I think, elaborated a lot on our balance sheet. We will focus on reducing our debt, and we want to drive it down as hard as possible over the next 6, 12, 18 months to get to that neutral or cash neutral, cash positive. We said at the end of last year, we think it will take us 24 months to get to a neutral position. If you look at the trend and the rate at which we could catch up and improve, maybe we will see that returning much earlier than what was communicated at the end of last year. So the 3R projects of Reset, Refocus and Restart is still alive, and that's something that's not just going to be there. We already spoke to management. It is something you can do over and over and over again. So you can continuously get to a point where you are Rest, Restart and Refocus. So that's working well for Astral as a business that are not centralized. It's a decentralized. But the integrated business that makes it slightly more complex than a normal business. So that's what we see on the negative and the positive side over the next 6 to 12 months. We thank you. If there's any questions from the floor or from anywhere else, Marliese?

Thank you, Chris. We'll take questions from the floor first.

Are there any questions? Anything from the floor. I think it was -- I hope it was a comprehensive presentation. There's enough information. There's also a further about 20 slides at the back for information for our analysts and shareholders and stakeholders that we normally produce for you to make informed decisions. So the information is there. We're also seeing a number of you over the next 2 days here in Cape Town on one-on-one. And I'm sure there will be more detailed questions there. Marliese, you have a question.

Yes, Chris. I've got a question from Andrew Moses from MIBFA. Can you please explain the large 49% increase in administrative expenses from ZAR 409 million to ZAR 610 million.

We can explain. Dries?

So what has happened in the last 12 months is all discretionary spend in the business in any way or form plus variable expenses that we could manage was pushed down right down to the bottom. So what is happening now in the administrative expenses is a lot of that variable spend and discretionary type of spend in the group starting to come back. And obviously, what's also behind the numbers is with the strong improvement the way that some of the incentive structures in the group work is there's a natural provision that needs necessary for those improved results, that find its way into the administrative expenses. So don't look at it just half year on half year, and look at the longer-term trend of that administrative expenses. You'll see that those expenses are very well controlled and you will see that the streams are starting to come through again.

And it comes off a 0 base...

And it comes off absolute zero-base.

There are no further questions from the floor or from the webinar.

Well, I thank you for participating and your effort and time for being here. Thank you for taking interest in Astral. If you have any questions subsequent to this session, please forward them to Marliese, we will get back to you within a jiffy. But then I thank everybody who's on this call, on the webcast, and people here. Thank you for your time and effort. Please have a cup of coffee outside, and we'll see you again soon. Thank you.