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 2026. This year, we celebrate Astral's 35th anniversary of being listed on the JSE. And this momentous corporate event, together with the sterling results we are presenting today, by the way, the best in 25 years is a testament to the group's growth through determination resilience and a strong management team. A special welcome to our Chairman, Dr. Theunis Eloff and Non-Executive Director, Bridgitte Backman. We also introduced Johannes Geel this morning as new CFO. He joined the group on 1 March 2026. Just a couple of housekeeping rules. [Operator Instructions] I will now hand over to Gary and Johan to take us through the presentation.

Thank's, Manish, for those kind words. I arrived this morning, the audio visual team said, are you sick again? I said yes. It's like it happens every 6 months. But I won't mention bird flu, because it looks like if you mention those two words, everyone starts panicking. So this is a case of swine flu. But welcome, and welcome to Johan, a seasoned agricultural veteran. He is, as you know, he spent many years at Astral, certainly understands the landscape and welcome, Johan, and look forward to your support today. As usual, we'll go through the presentation, and we'll take questions at the end. Stock standard agenda and nothing much has changed here. We will look at the business broadly. The results for the 6 months and operational overview, we'll take a deeper dive into the various divisions within our value chain. Talk a little bit about industry matters, topics of the day and what's happening in the industry. Johan will take you through the finances. And then we'll cover the outlook and try and color in a little bit of context here and maybe call 1 or 2 nerves, but we'll get to that later. In general, Manish has reported already or expressed that the results for the 6 months certainly stand out there as a top result for the 25 years that we've been listed on the JSE. So certainly something we're proud of, ZAR 1.2 billion profit for the 6 months, I think to be shy of at all. Off a very low base in the prior -- in the comparable period, of course, profits then at about ZAR 271 million, but nevertheless, a very good result, and there's a couple of key drivers behind that result, and we will touch on that through the presentation. Headline earnings per share ZAR 23.18 from around ZAR 4.09 on the comparable period. And then, of course, cash, we've spoken a lot about cash for the last couple of years, particularly in our business, particularly, in a business that does experience volatility from time to time. You know that we were on a builder balance sheet phase for a couple of years. Those last year with ZAR 1 billion in the bank, and we still have ZAR 1 billion in the bank, even though we've had to pay the tax man, his big fair chunk dividends in January, robust CapEx programs, but Johan will cover that all later in the cash flow. So cash looking strong and on that and a bit of forward-looking, we have declared a dividend bump cover ZAR 11.60 per share. Bearing in mind that the full year dividend payout last year was ZAR 11 and that's certainly been one of the highest dividends that Astral has paid to shareholders. So what were the key drivers behind this result? I mean, we talk a lot about poultry feed costs. You've heard me tell you many, many times before, that poultry feed makes up 70% of the life cost of producing a broiler. So certainly our largest input cost by far. And when maize prices and protein prices, the key ingredient there have been soya meal decreased, that only serves to soften your feed input costs. And we'll cover that in some detail in a couple of slides to follow on what exactly happens on SAFEX over that period of time and how we procure those key inputs. On-farm broiler performances, very good, once again, reaching an average all-time high for the PEF on good genetics in the ROS 308 bird. You'll see some more detail on that later. But certainly, our farming performance is very good with the team producing excellent results on the farm. And as we've said before, our focus remains on ensuring that we hit the basics and the fundamentals right in the business, make sure that, that's intact. Any impact in that area of our business, you cannot necessarily or you cannot fix on the selling price. So delivering the best life cost to the backdoor of the arbiter is absolutely essential. Our broiler production increased. We alluded to this last year in November, where we said that by the end of that month, we would be close on sorting close on 6.1 million birds a week. That did materialize, and we continue to slaughter on average, 6.1 million birds a week, and I must remind everyone that we came off an average of about 5.4 million birds a week in March last year. I think the first uptick of birds we placed was 4 processing on the ninth of March. We went to 5.8 million birds a week, and then to 6.1 million. Pleased to say that we've maintained those volumes, production volumes through the business with stock still in good balance, and certainly no concerns there. Poultry selling prices were firmer. If you remember, we crossed your mind back to the comparable period in 2025, we came off a significant deflationary environment at that time with selling prices for frozen chicken under severe pressure that had largely to do with a number of dynamics in the market at that time, and we were unable with stock levels in the country to get any higher pricing, but that corrected itself over the past year, allowing us to recover input costs and, of course, recover inflationary costs in our environment and that selling price certainly supporting good performance for the period under review. This slide, as usual, tells the story. It shows the movement in profitability through the comparable periods. You'll see that ZAR 271 million that I alluded to earlier on, not a good performance for the first half of 25%. Nevertheless, there were reasons for that. And you can see the contribution to the ZAR 1.2 billion profit that has been posted for the first half of 2026. One might ask, well, with all the increased broiler production volumes, why only a small contribution there from volumes. Well, in the comparable period, you will recall, we sold a lot of chicken out of stock. So over that time where prices were quite best in the market, that festive period at the end of 2024, we sold a lot of chicken out of stock. So sales volume is up 1%. So a small contribution there from volumes, but largely the correction in price, and then, of course, softening in feed prices that have assisted the results, really reflects very well that deflationary environment and selling price that we experienced on the comparable period. You can see the trend in selling prices at that time. So in that first half of 2025 prices under severe pressure, even lagging the increase in food inflation or the inflation in the food basket, bearing in mind that chicken is in there as well. So is to pull that number down a bit. Recovery in selling prices. At the moment, this is a function of mix. It's not a drop in selling price. It was a function of mix in February -- January and February, when there was quite a bit of tertiary products were awful in the market. Exports were quite high in that category. And it's not typical of January, February season to go into the new year after festive period, where everyone has been eating well that the industry carries higher stock levels of tertiary products. So some impact there in the average NSV, but certainly, not that we went across our basket with a price decrease. But you can see, nevertheless that, that pricing is on average the same as it was in December 2023. So certainly, the correction in selling price coming through, and we were pleased that we were able in this environment to get that through to the market and recover input costs and return a decent margin to the business. This is a slide that not many people show. We've thrown it. We're transparent with the results. This is the broiler net margin. And you can see the comparable period that we compare ourselves today, minus 1.1% at that time. And I said to you that, that is not a sustainable margin. There's no business that can survive making losses. Just read the newspaper every day, and you'll see the case studies that are out there for that. So certainly, we had our work cut out for us. We had to get a reasonable price for our product basket and get the selling price up. And you can see that selling prices or selling prices assisted margin recovery, but the big impact has actually come from this decreasing feed price, the green line there. So you can see in certain periods of time, and we say quite basically, I mean, if the trend in the poultry selling price outstrips the trend, or the decrease in poultry feed input costs, you make good margins. And you can see that over time, where those lines come close together, decent margins, where they diverge, this was a terrible load shedding period. So not something we can probably compare ourselves to, but you can see when these trends move closer together, margin, when they move apart, impacting the business. So this is certainly assisting the margin opportunity that was captured in the business. As you know, we've always said that if there's one graph that I could put up today without putting them all up, and Anthony knows this, so he's smiling, he uses this graph and so do a number of other people, it's this one. And this tells you the picture. This is the change in the broiler selling price year-on-year, month-on-month against the change in the feed price year-on-year, month-on-month. And if this doesn't tell the story, then nothing will. You can see in 2018, when we had the softening in feed prices and we had support for poultry selling prices in the market, same thing has happened here. Softening in feed prices, support for selling prices, and you can see that this, although the movement year-on-year still positive, slightly down there. And that we can say in Astral life, because this is our data, our own data, it's just a mix effect. And that if you go and track this picture and you overlay the profitability in this business unit, you can see the volatility that comes through in earnings. On the raw material front, of course, very important in our lives. If we take a quick look at the South African balance sheet for maize, we are currently about 4%, 5% into the season's harvest and expecting to produce a very good crop. That is well known. The harvest is a bit delayed by the late rains, but with the dryer colder weather now, certainly, the farmers are just finishing off the soybeans, and they will make even faster progress with the harvest of the maize crop. But you can see that a 16.8 million tonne crop on the cards for South Africa this year. And we'll talk about that later, because that provides certainty, a lot of certainty on our near-term prospects for the feed price. This is a very good crop. SAFEX is still trading above export parity pricing. I see yesterday on September, yellow maize contracts trading about ZAR 300 above export parity. So there is still some work to be done here. I mean, if we're going to trade local fundamentals on this crop, we should see better prices on SAFEX. However, we all know that next year, there's this talk of El Niño developing and a drought. That is still very far away. That's a year away. But if we don't export this crop, and if you have a look at it, even with over 3 million tonnes, or 3.4 million tonnes plugged in there for deep sea exports, we will still have a very healthy carryout on this crop. And this will only serve to protect our maize supply in the country, even if we have an El Niño here next year. And remember, El Niño doesn't necessarily mean we will have crop failure. It depends on the rainfalls. South Africa has had crops through an El Niño year, where rains fell at the right time and you can still produce a ZAR 13 million, ZAR 14 million tonne crop, not unheard of. But 2 million carryout -- tonne carryout share of the surplus, we don't export it, great. We'll keep it. We may need it, but certainly a very healthy crop for this season. And Astral has covered our positions well. And as I stand here today, we have 4.5 months left of this financial year. And of course, having a neutral or well-covered position, a neutral position, we know what our feed price is for the coming months. This is a story of maize. Very difficult to beat the maize price in a falling market. All you can do is buy it as it goes down. So that's what we did. Bought it as it went down. February, the Middle East conflict started a bit of turmoil there, oil prices jumping. That obviously has a bearing on ethanol demand in the U.S. Corn has increased a little bit, close to $5 a bushel. The rand, we've seen volatility in the rand. So SAFEX always takes a bearing of what happens on the international market. So a bit of volatility in the maize price. We're actually trading just above ZAR 3,500 a tonne. I think it was ZAR 3,590 a tonne we closed in September yesterday, yellow maize, but not necessarily bad levels given where we've come from. We -- ZAR 5,000 a tonne wasn't too long ago there on the charts. This has been a great story as well, soya meal you just buy it. The prices come off highs of ZAR 13,500 a tonne, and you could flat price soya meal anywhere around ZAR 7,000 a tonne, if not lower. So certainly, these two inputs assisting feed price considerably. And with the good farm performances, our live cost for the first half on the comparable period improving. This is the rand. So our market does take a mark of this. But with the volatility right now, it's very difficult to say where it should land or where it should be. I think the world is in a little bit of turmoil. So you can see that as soon as the first bombs dropped, this is what happened to the rand. Nevertheless, within that environment, we still have to manage our procurement well. So we watch this very closely with our procurement committee. And with the technical and key inputs from our service providers and our internal team, we have performed well in this area and procuring our soft commodity inputs. Quickly on the divisions. The Feed Division, good story to tell here. Revenue flat, although feed volumes were up. This is just a function of the selling price. So with soft commodity inputs coming down, maize and soy, selling prices dropped by about just close on 10%, 9.8%, with volumes up 9.8%. So revenue flat in the divisions, but operating profit up 23%, up to ZAR 366 million for the first half. So very good performance here from the Feed Division. Margins at 6.9%. It's a difficult number to look at or keep track of because it's impacted by the -- whatever happens here on the revenue line, which is driven largely by feed price at the end of the day. Expenses down to reduce your expenses on a rand per tonne basis by 1.3% is no easy task. So you need to have a firm grip of your costs in your feed mills. You need to push the volumes through those feed mills. So there's certainly the increase in bird numbers that Astral has assisted us to push higher volumes through these plants. And all that does is really assist in recovering those overhead costs and the rand per tonne margin increasing for the period. We've covered some of this just to highlight again, yellow maize came off highs of over ZAR 5,000 a tonne in the comparable period. Soya meal offering very good opportunity in the market. Internal feed volumes increasing by 11.1%. That's driven by the increase in the broilers that we produced in Astral. External feed sales volumes also increased by 8%. We sold more feed into the commercial layer sector, table eggs sector, and into the dairy sector. So a good performance from the Feed Division to achieve that, and we have already highlighted the very good expense control in that division. The mix somewhat unchanged. As you know, we, on average, supply about 60% of our feed internally. with the balance into the external market. Never forgetting that of this 33%, about 25% of our sales goes into the dairy sector. So a very important industry for us, and we're supplying good volumes, both in the Eastern and Western Cape into those industries. Poultry division, revenue, this was driven by the recovery in selling prices, with selling prices up 9.5%. That equates to ZAR 3 a kilo. And I think during the year last year, in the May roadshow in November, we alluded to the recovery in the selling price that we saw through the year. We've had stable poultry selling prices now for close on 8 months. So no volatility in that pricing, stable price, just obviously some mix effects that come through that you've seen in the earlier slide, but the ZAR 3 a kilo recovered all in last year with a small increase taken the last increase in September last year, and that was to cover inflationary increases in costs that we have from 1 October that been the start of the new financial year. So certainly, something there that has supported the results. And with the volumes up, and the numbers going through our processing plants and efficiencies intact, the cost base in this division has only increased marginally below inflation. Again, volumes through these plants assisting in the recovery of overhead costs. And of course, that feed price down 9.1%. That was about ZAR 790 a tonne, has certainly assisted the margin opportunity or provided margin opportunity in this division, which the team has done very well to capture. So margins in poultry here at 8.4%. We have spoken a lot about a couple of these points on the slides. The only one I want to talk to very quickly is the poultry stock levels. At 31 March, they were higher than 30 September. But at 30 September last year, we sat on very low stock levels, almost skeleton stock, hand to mouth, which isn't a sustainable environment to operate in, particularly when service delivery is very important to our customers. Our stock levels are good at the moment and if anything, still below model stock. So no cause for concern there, but Johan will show you later that, that did have an impact on working capital that was invested into stock. In this division, we did get some benefit from sales mix. You'll see a slightly higher proportion of frozen there, sold into IQF single portions. Of course, on higher volumes to sell the same amount of fresh as a proportion of the mix, value-added and QSR, all assisting the NSV in the business. So certainly, the sales mix going somewhere to supporting the result in this division with some -- in the future, some exciting opportunities here. And really, all we're going to do is work towards building capacity in some areas here that will assist the mix. On the agriculture side, a good story to tell. I've already alluded to the good farming performances. We did sell more parent stock out of Ross Poultry Breeders for the period. So a number of producers in the industry increased their placements on higher production numbers. It's important to point out that the broiler industry produced just over 23 million birds per week in October and November last year. So that's an all-time high for the South African poultry industry and certainly no shortage of chicken supplied to the market. So the local industry, once again stepping up and ensuring that the demand that we've seen in the market was well supplied. And of course, demand for chicken has been strong. And I think that the beef and the pork story with foot-and-mouth disease, swine fever, now foot-and-mouth disease in the pork industry, unfortunately, the shortage of beef has assisted the poultry demand with some retailers commenting that they have seen a switch out of beef into chicken. Breeder revenue increased. We sold more Dale chicks in that external market. I highlight there as we also picked up on our exports of Dale chicks and hatching eggs into the various African markets. So national chicks putting in a good performance there. Feed input costs decreased. We've spoken a lot about that. And that's really -- as soft commodity prices fell, you can only buy that market and feed prices came down. Astral received approval and the last time I stood here, we told you we were vaccinating one farm. We subsequently received approval, and we are -- we've vaccinated 5 large broiler breeder farms now. Going into winter, that equates to about 30% of our breeding stock and certainly provides a measure of protection that wasn't there going into our past winter. Bird flu is a global phenomenon. It's not just a South African issue. We still have biosecurity. The fundamentals in the business are unchanged. We still practice good biosecurity and vaccination is just another tool in the toolkit that allows us to add a further layer of protection to our breeding stock. These are the performances. So average daily gains here, very good. I mean this is an all-time high with the birds achieving over 58 grams per bird per day. Slaughtering a heavier bird at the same age, and more or less, this was an hour or two difference here, but a heavier bird. So that weight, you've really got out of the same feed and the same time that it's taken to grow that chicken. And that is also weight that goes through your plants and assist in the recovery of those costs. PEF, we only covered 10 years in this graph, but it is an all-time high. There isn't a result that exceeds that. A very good result there. Mortality slightly up, and this had a lot to do with the growth rate of the birds. Altitude, we must be mindful, we're still farming at altitude. Growth rates of the birds were very good. So mortality, slight uptick there, but we got weight for the age, and then the feed conversion more or less flat year-on-year, but achieving heavier birds. Industry matters, I'll cover this very quickly, and then hand over to Johan. We've spoken about this. You've seen a lot in the media, SAPA talking about it, the spike in imports. I mean this is not necessarily alarming, because there was a recovery in volumes from Brazil when they were closed down to exports because of their bird flu. So you have to consider that in this number, there was some recovery in volumes, which stopped at that time. And MDM, which makes up anywhere between 50% to 60% of the imports is a product that we use in value-added meats in this country, and we don't produce a lot of. So MDM, although part of the total import basket is there. And at this time, there was a shortage of MDM in the market. But you can see that import levels have, through the festive period that spike, we did see an increase in frozen bone and portions and awful at that time. And it was those tertiary products that also served just to put some pressure on local selling prices for the tertiary products or male. So based on industry statistics, the 6 months of October through to January, the industry has slaughtered, on average, 22.3 million birds a week. The last production report that we have out of SAPA was dated January 2026. Imports averaged 43,000 tonnes per month on the comparable period, equaling about 26% of total consumption. Legal poultry import quota, you may have read about this in the newspapers. Quite frankly, the quota should not have remained in place when the U.S. introduced import tariffs. SAPA is taking this matter on legal review. The DTIC through Minister Tao should have removed it. They chose not to. We believe it may have been used as a little bit of a bargaining tool and the negotiations with the U.S. And not even the extension that was granted to AGOA actually supports the continued AGOA quota free of the antidumping duty. The U.S. tariffs were still introduced and around the 2015 negotiations, terms and conditions agreed at that time that if any tariff regimes or measures were introduced during or placing tariffs on South African exports, then the quota would fall away. So that is currently on a court roll. And then we have requested an update from the Department of Agriculture and Trade and Industry. They granted some self-regulation to the U.S. last year around their bird flu disease status and management on exports. That expired at the end of March, and we haven't heard anything further from our Department of Agriculture, but we are chasing that up with them. I'm now going to hand over to Johan to take you through the financials in more detail. Thank you.

Thank you, Gary. Good morning, everyone. If I have to take you through the income statement, and I'll try not to actually duplicate some of the stuff what touched on this morning. So we try just to show a couple of things what is different. If you look at the revenue, said it's ZAR 11.9 billion versus the prior year of ZAR 10.7 billion. And also operating profit moved to ZAR 1.214 billion and the profit before tax, ZAR 1,229 million and profit from continuing operations sitting just below ZAR 900 million. Headline earnings per share, you can read it all there, heads ZAR 2,318. If you move to the next slide, this is quite a busy slide, but I think a couple of things I would like to highlight here as well is if you look at the right-hand side there, you will see that actually it was the best 6 months in history. We talk about a margin of 10.2%. If you do a calculation for the last 9 years, you will find that the average was 6.2% as operating profit margin coming from a very low in the last year for the comparative period of 6 months of 2.5%. The group 6 months operating profit, which is quite an interesting slide. And as already alluded to by Gary, a couple of things work quite nicely for us at this point in time, especially if you look at the red line on the right-hand side, moving up the green line. And that is when you actually have a perfect circumstances for good profit. And you will see the same happening in 2018 when the same happened actually there, and you will see there as well. That's when you -- the increase in the poultry selling price is above the decrease in the broiler feeding cost. So this is a good slide explaining the difference also between feed as well as poultry. And you can see there's quite a nice positive movement from the first 6 months last year in the poultry division coming from a minus ZAR 26 million to a positive number of ZAR 848 million. On the balance sheet... Equity ends at ZAR 5.977 billion, let's call it ZAR 6 billion for the time being. Noncurrent assets moving by 3% to just below ZAR 3.5 billion. Net working capital is up by 19% from ZAR 2 billion to ZAR 2.4 billion. I will call this an investment. And on the next slide, I'll actually take you through some of the detail in my reasons for saying so. The net assets moved from ZAR 1 billion to ZAR 1,152 billion. And the noncurrent liabilities, you will see is more or less in line with prior year, but a little bit down from ZAR 294 million to ZAR 256 million. Capital expenditure, depreciation, ZAR 186 million versus the prior year number of ZAR 159 million. Total CapEx spend so far as ZAR 205 million compared to a prior year of ZAR 109 million. Outstanding commitments, ZAR 112 million versus the prior year of ZAR 157 million. If I add the outstanding commitments to the total CapEx, you will find it's ZAR 317 million for the current period versus the prior year number of ZAR 266 million. Working capital. If you look at the working capital, it's up by, let's call it, ZAR 400 million for now. Inventory poultry being up from ZAR 682 million to ZAR 970 million and the trade receivables up from just above ZAR 2 billion to ZAR 2.15 billion. I call this an investment in working capital. Why do I say so? Gary has mentioned earlier on that actually our stock numbers was quite low at the end of September. We have to actually invest in some of our stock numbers just to make sure that they actually do stick to our service level agreements. And at this point in time, I can also confirm what we produce is what we're selling. And we have to do that there's no stock building. And other payables moved down from -- moved up from ZAR 396 million to ZAR 462 million. I can also just confirm because you might say that the debtors are up from ZAR 3 billion to ZAR 2.15 billion, but this is as a result of a higher turnover, and I can confirm that our debtors book is quite clean here, and there's actually a very quality debtors book. Cash flow movement. We've already been touched by Gary. We're starting with an opening balance of just above ZAR 1 billion, ZAR 1,013. There was an inflow from cash operating profit of ZAR 1.476 billion. And as always, there have to be some outflows as well, the investment in working capital being ZAR 418 million. We have to pay the tax man, ZAR 357 million. We also have to invest in our CapEx of ZAR 205 million, and then we have to pay a healthy dividend to our shareholders of ZAR 342 million. It's a very small number, and this is a closing balance of ZAR 1,152 billion. It's an improved cash balance from last year from just over ZAR 1 billion to ZAR 1,152. In summary, and I'm not going to repeat what's already been said. Operating profit, ZAR 1.2 billion. Capital expenditure, ZAR 206 million. And the guideline for ourselves is we should see that we spent more or less about ZAR 500 million for -- up to the end of September. So there's still a bit of money to be spent in CapEx for the next couple of 4.5, 5 months. I already mentioned the interim dividend declared of ZAR 11.60 compared to last year's first half of ZAR 2.20, second half of ZAR 8.80, brings us to a total of ZAR 11 to the prior year with a 2x cover now brings us to ZAR 11.60, which I think is quite a healthy dividend at the point in time. Thank you very much.

Thank you, Johan. I appreciate covering that for us. Now probably to the slides everyone was waiting for. If I read the room yesterday, it seemed as though people have taken what we said in our press release and pan it a little bit. So I just want to cover this in some -- a little bit more context. We've always provided balance in our closing remarks and our outlook. And we have always been transparent, and we have always been realistic about the future. And of course, it's nothing new if you read the newspapers these days to see that the world is in a little bit of trouble with the Middle East conflict. I mean the surge in fuel prices around the world has impacted South Africa and the consumer here as much as it's impacted everyone else. Now, we will talk about that in the next couple of points. But bird flu, which we have said before remains a risk to the local industry is that. It's a disease that is spread by wild birds. And if you've got very good biosecurity, it's not spread by your own people and it's not spread by equipment. And if you keep the wild birds of your property or out of the poultry sheds, then you've got a good chance of keeping the disease out. And that's exactly what we do with biosecurity. I think the beef industry has learned a very hard and fast lesson about animal movement control or the lack thereof and the impact that's had on their industry, the lack of biosecurity. I mean, just driving on to some dairy farms, it's only now that they've realized let's put up a spray race at the gate and disinfect vehicles coming in. You'll visit 1 or 2 wine states. We recently a couple of months ago with a sprayer spraying your wheels of your car because they've got beef they want to protect or cattle to livestock to protect. So that has started to surface in the beef industry. But poultry industries, we've been managing bird fruit since 2017. Now obviously, you can't -- it's an invisible enemy. It's not something that you can fight off. But you can if you've got good biosecurity. And that's all we can do is continue to implement the best levels of biosecurity that we have available to us. And yes, high infection rates in the Northern Hemisphere are a risk because there you've got migratory bird routes. But again, that doesn't necessarily mean that a disaster awaits the industry. Time will tell. There's been 1 or 2 boring signs. There was a seal in the Cape last week. I read in the newspaper that was infected with H5N1. There's been a couple of commercial poultry flocks this year that have confirmed cases, small farms. So it's there, but it's something we must -- we've, I think, learned to manage and continue to manage well, and that is with very strict biosecurity. So the Iranian conflict and the surge in oil prices have translated into higher fuel and transport costs. I think you read that in the newspaper every day about the potential impact on the consumer inflation, the inflation outlook. It's not new. And then we read that unemployment, recent unemployment stats, I think hit a high of 32.7%. So this -- that environment places the consumer under some pressure. And we put it out there because it is what the environment has at the moment or serves up at the moment. It doesn't necessarily mean that the consumer can stop eating or afford food right now. The spike in fuel prices and fertilizer costs has been flagged as an issue globally. We've got a planting season coming up in October, November, December. So of course, any shortage in fertilizer can increase costs. That may just add some further pressure if there is a drought next year, which we talk about in the next point. But again, if the situation resolves itself in the Middle East quickly, as quickly as it started, I think there can be some recovery and turnaround as soon as freight starts flowing again and oil starts flowing. So I think like all -- like everyone, we keep a close eye on the developments there and the ongoing discussions between the U.S. and Iran. Is there a likely drought? Well, that's what the forecasters say. You wouldn't say so if you look at the weather now over the last couple of months and how wet it's been. I think the amount of rain we've had going into winter now will do 2 things. It will provide very good planting conditions for the new crop in October. The soy moisture levels will be good. So if there's any drier weather, certainly, I think that will help get the crop off to a good start. And again, it completely depends when the rain falls. And this point can only impact the crop that hasn't even been harvested yet or would only be harvested in a year's time. A lot of water to flow under the bridge still. And of course, as I said earlier on, given this large crop that South Africa is about to see at 16 -- could even be 17 million tonnes. For the near term, there is no panic around raw material input costs. as I said earlier on, for the balance of this financial year, we've already covered. The uncertain global landscape with heightened geopolitical tensions could lead to an economic slowdown. With some currency and soft commodity volatility that we've shown you in the charts earlier. We must navigate through that. It's not new. Our procurement team is seasoned. They look for the signs. We get a lot of input from very experienced people, and we base our procurement strategy on a number of factors and always have a very balanced view to how we procure soft commodities. And we try and navigate that volatility as best we can. South Africa is set for this record harvest. -- they're only about 4%, 5% through the harvest, the figures I saw yesterday. So still a lot of maize to come in. And this will lead to stable poultry feed input costs over the short term. Our broiler volumes are at 6.1 million birds a week. We have no plans to reduce that. The volumes assist our best cost, the producer strategy and certainly go a long way with good plant efficiencies to supporting the performance that you've seen out of Astral here. If anything, we have our eyes set over the next couple of years on how to grow the business, not how do we look at cutting it back. Astral's bird flu vaccination program has made good progress, and this will provide some protection to our breeding stock. Remember, we came out of 2023 with no insurance cover for bird flu and no compensation from government and just biosecurity. We now have vaccination. 30% of our breeding stock, as I stand here today, almost 0.75 million broiler breeders have been vaccinated. And our veterinary team has done very well with that. They've done very well in implementing the protocols that were published by the Department of Agriculture around vaccination for bird flu. It does come at a cost, but one has to weigh that cost up against what we used to have as an annual insurance premium we paid for insurance or weigh it up against the possible cost of losing livestock to bird flu. So a lot has been said in the past 6 months about the cost of vaccination. I guess it depends on what your barometer is, and having been through bird flu a few times and facing the consequences of those losses, vaccination and well-managed and implemented vaccination has a place in poultry production as does vaccination for many other avian diseases. Our balance sheet is healthy, and this will continue to support key strategic investments. And there will be an expansion of manufacturing capabilities and growth opportunities. We cannot sit still and be satisfied with where we are today. We must look at growth opportunities, and we have a good couple of opportunities on the radar for Astral. Then good news for the industry is some revival, I want to say, because it's been a long time since the poultry Oversight Committee around the master plan met. However, that committee met a few weeks ago on one of our contract producers' farms and a Phase 2 of the Poultry Sector Master Plan was signed. And you will see from the reports afterwards that government and various stakeholders again have confirmed their support to improve or increase local production of poultry, make sure that we don't become that predatory trade doesn't take local production away from us and support the expansion of the producers in the industry and emerging farmers. And that's a good news story for the industry to tell because certainly, Phase 1 of that master plan supported investment in capacity. That's where Astral's growth came from. 2020, we -- in 2019, we signed the poultry sector master plan and confirmed our commitment to investment. At that time, we spent close on ZAR 1 billion expanding our capacity by 16% by 800,000 birds a week and look where we are today, producing 6.1 million birds a week. So certainly looking forward to the next step in our journey. And that's the outlook. So a balance between what we see today would be negative factors that are out there. They can have some bearing on the near-term prospects, near term, probably more medium term, I'd say, than short term. I think we need to be realistic that the situation in the Middle East is in some sort of flux. As of today, we haven't passed on the diesel price increase through to the market. It's a very difficult conversation to have, particularly with the consumer under so much pressure given the rising input costs just in transport. So we're very cognizant of that. Our customer base are sensitive to food inflation. We have to be cognizant of that. We have to be slightly circumspect that it's easy to -- not easy, but it's always a difficult conversation, but you can make the price what you wanted. At the end of the day, you've still got to sell chicken. You still got to balance all the costs in the business. You still got to balance your investment in working capital and stock. So we look at this on an ongoing basis. And right now, we're comfortable that we've done the right thing, but it's a conversation that we'll keep having with our customers. It's not a cost that any industry can carry forever. I don't think there's any environment that works like that where input costs from suppliers keep piling up and then someone doesn't or can't recover those in the market. I mean we've had packaging suppliers walk in with increases based on the oil issue in the Middle East. Everyone has got a business that they need to look after. So we will make any necessary decisions on that in the -- as and when we deem it necessary. So that is the outlook, balanced, and we thank you for your attention today. We appreciate your interest in Astral and your support. It has been an honor to present these results today being a very strong set of results for the company. And on that, it's not a one-man show. This is a team effort. So to the Astral team out there, good job. But as always, keep it up, and we look forward to the next round. Thank you.

Can I say something before we go to the... I have 2 things to say. I'm mandated for the one, and I'm not mandated for the other. I'm mandated by the Board that actually gave me a directors because we know Gary and Johan and others here of the Cape team don't blow their own homes. And we thought that we should just share with everyone that the Board has a high appreciation for what the whole management team did, not just the head office, but in all the regions because it's true that often these things, and that's Astral's issue, you don't have control of most of those things. And often, you've got a tailwind, you take it. But even if you have a tailwind, you have to manage properly. And I think the on-farm efficiencies, both in poultry and feed pays tribute to that. And so as a Board, we wanted to say congratulations. Some of you, the older ones will know that Chris, there was some slides and Chris always pointed out that he joined there. It was a low point and then Astral went up now. Gary and Johan, hopefully, in 10 years' time, when I'm not here anymore can say, well, we joined there and we kept up that. So thank you, Gary, Johan and team, guys of the Western Cape and others here. The thing I'm not mandated to say is that we, as a Board, I often think and no one will take a brach this. A Board works almost like sex in a marriage. If it's good and it works, you don't even notice it as one of the things in your marriage. However, if it doesn't work, if there's a problem, then it can break your marriage. And the same of a Board. We put a high premium on a seasoned Board on continuity, on a culture. We recruit Board members not only with skills in mind, but also with cultural fit because you know and I know that you make one mistake, you appoint a wrong Chair or a wrong Audit Committee member and you've got trouble. And so we just wanted to say to those shareholders that are here that we were at the beginning of the year, confronted with some of our shareholders saying some of us are seen now because King decided that from King 4, where the independence was measured in 12 years, it now became 9 years. And we were faced with a situation that 3 of our Board members which is half of our NEDs, would have had to resign. And we said, no, we're not going to do it. It's not in the interest of the company because King has always been comply or explain. Now all of a sudden is just comply. And we think it's nonsense frankly, but we have now put measures in place for a proper succession plan a little bit earlier than we planned. And I think it's important that shareholders just know this, and we will also before the AGM next year, communicate specifically on this to shareholders because we believe that although a Board is in the background, as I said about a marriage, if you...[Technical Difficulty]

Worrying about the oil price and fretting about it every day, it's there. Not a lot we can do about it right now. So we'll keep managing what we manage, and that will give you our assurance of. But Maisie are there questions?

There are a couple. Are there any on the floor that would ask -- like to ask first? Okay. Then we'll go on to the online questions. Host from Batalia Capital. Can you please explain the increase in administrative expenses from ZAR 495 million last year to ZAR 788 million this year? Johan is new, I'll let him answer that.

Thanks for the question. The biggest reason for that increase in admin cost is as a result, we do have a bonus policy and seeing that we actually have done quite well, I have to stick within those rules and regulations, and I have to provide for additional bonuses. That's the main reason for that increase.

So Astral's HR policy or incentive framework -- our team has complied with the guidelines there and provisions were raised, which obviously reflect a net fee. Bearing in mind that last year with the result, there was hardly any -- well, there was no provision for that in the first half, so off a very low base.

Raj Ambar from Excelsia Capital. Do you expect pressure on poultry selling prices due to the lower input cost or imports with the strong rand?

My immediate answer would be no. I mean, with the fuel price increase now, I would say 2 months ago, there was a conversation around selling prices and when will the feed price reflect in selling price. But the market knows very well that there's a lag. There's about a 5- to 6-month lag before that lower maize price actually comes through in food prices. That has been quoted in the media from the retail sector. And that's well understood. So there was a question posed at the time to say, well, when will we start seeing this benefit. But of course, the outbreak of that war and the increase on fuel costs, which we are absorbing. SAFEX has rallied off its lows of February. we fortunately have had good cover. So not completely exposed to that, but there was a time where we just set out the market and didn't participate in that spike after the February events. But it's an ongoing conversation, difficult to say when will they come to bear because right now, we're absorbing a cost. And I think in doing that, doing our bit for the industry and for retail and for the consumer more importantly, this could -- we've had stable poultry pricing for 7 months. The situation could turn around as quickly as it started. And then we want to try and avoid the volatility in pricing. So the customer knows what they're paying for chicken, and they see that on shelf.

Grant Morris from Lucas Cray. Congratulations to the team on the results. Could you please elaborate on your plans to make adjustments to the sales mix? And what areas specifically you intend to grow? And will it require additional growth CapEx?

Sure. I mean there's always opportunity within the mix. And I think one must be cognizant of the fact that the QSR sector is growing. Some of the participants there are growing. We have customers in that area. We support their growth. They require capacity to be brought online, which means we have to make an investment in that capacity. We also actively have a number of value-added products that have been developed in our value-added or further process range. So for example, pump products, some fully cooked products. So always looking to support the supply of those into the market. Product innovation is something that we're working hard on. It will never -- what I don't want people to think is we completely want to change our sales mix. Our anchor, our foundation is frozen chicken. But it does not mean that we can't exploit opportunities in the balance of the mix. And the conversation around the second phase of the master plan has been to look at the export market. And for that, you will need capacity, fully cooked capacity to export to Europe or the Middle East. And certainly, we'll be making an investment in that over the next year to 18 months.

Ci Zenzi from Isafa Rural innovations. With increase in climate, biosecurity and geopolitical risks outlined in the outlook statement, how is Astral leveraging King 4 principal 10 to ensure sustainability-related operational data such as biosecurity monitoring, feed input volatility, climate risk indicators and supply chain resilience metrics are governed with sufficient quality, assurance and decision transparency to support strategic decision-making and stakeholder confidence.

King IV, principle 10, Johan, can you help me? Look, Astral, I've got -- maybe I've got to remember the question, but look, we look at the business every single day and all the metrics and drivers behind this business. We understand them, we hope and get them more often right than wrong. We're farming with livestock and biosecurity is critical to our business. It is nonnegotiable. We have very strict policies around biosecurity. It's a risk with many diseases, so not only bird flu. So we tend to focus on that in recent times because it's topical. But we've been managing certain disease risks in the business for many years. In the '70s and '80s, Newcastle disease was the -- just like bird flu, everyone put -- they hang their heads and ran away because they didn't know what to do, but the disease was brought under control and we vaccinate for it. So there are so many factors out there that do come into play, geopolitical risk, they have a bearing on what -- on the rand. They have a bearing on soft commodity pricing. They have a bearing on the oil price. There are certain things, again, that we can control and those we focus on. put all our energy into that. There are certain things we can't control. And those we will manage with inputs from a broader team. As I said, the procurement committee is not one person. It's not one guy that wakes up in the morning and says today, okay, he's going to buy maize today. We have a procurement committee with seasoned professionals. They make us a call. We agree on a strategic direction. And there's a team -- execution team of 3 people every day that will decide whether today is a good day to buy maize or not. And we stick to the principles that have worked for us for many years. And within the frameworks, whether it's King or our own internal policies and biosecurity policies and procedures, we will manage the business. And certainly, again, there's some things you can do something about. There's some things you simply have to manage in an environment like everyone else does.

I can maybe just add, if you don't mind. We also have a session about 5, 6 weeks ago looking at what is reportable and what we should report on. So I think in the near future, we will have some sort of indication what is important for Astral to manage and to report on and we will review that.

ZAR 3 per liter increase would mean, we have to recover about -- and this is approximately ZAR 0.05 per kilo in the selling price. So one can do your sums. The diesel price impact is quite high, ZAR 13 a liter, approximately the increase between April and May. And I don't want to say it's manageable, but we have absorbed it. certainly wasn't there before. But at the end of the day, it's our responsibility to balance the books. And for now, we -- the conversation with the retailers has been certainly one where we are not looking right now to take that increase. But again, we can't carry this forever. I don't think you can expect any business to. So it's something that we will review every day. And if there's any relief in the fuel price, all of a sudden, that requirement to review selling prices diminishes. And last month, April was the first increase, and everyone was literally in a state of flux, probably still is looking, it's a bit of a wait-and-see game. But we have a responsibility to run a good business. So we'll make a call on that when we feel it's necessary, if it's necessary at all.

[indiscernible] here from Ashburton. Can you give us a bit of an update on what's happening with the Daybreak assets? I know you have potentially out the business rescue process or the liquidation process there, maybe certain assets within that portfolio that may come to the market, et cetera. Would that be something that Astral would be interested in? And maybe if you can just give us an update on what's happening with the Daybreak assets.

I don't want to sound like I'm cagey. We are subject to some nondisclosure there. But in broad terms, look, offers were called for by the business rescue practitioners for all of the assets or part of the assets or a strategic equity partner. There were -- as far as I understand from what I read in the press like all of us, 3 offers received. We, of course, as I've said before, we're looking at the assets. From that date in January, there's been no meeting of creditors. So I have no idea what's happening there. I believe some offers have lapsed. And then I hear now that further money was raised through the UIF and government pension fund on behalf of the PIC, and that money has been invested to restart one of the plants. That's what we hear. And well, that will be a lengthy start-up because anyone who's been through those assets can testify to the condition that they find themselves in, and there's a lot of regulatory frameworks that need to be put in place before they start up again. And that really revolves around management of effluent, water use licenses, and every other Food Safety Act compliance measure that would be required, et cetera, et cetera. So they're still standing. There's nothing being produced through them. They are still hatching some chicks through the hatchery. We have still been doing business with them, supplying feed, some parents, also buying some chicks from them. And we have a clean book with them. We do see the BRP team from time to time. They still are looking for, we believe, a strategic equity partner. I think what the PIC said in the media most recently, which hasn't been confirmed by the BRP team was that they were looking for a 60% equity partner, someone that could invest or inject capital into the business. Yes, we like -- we've got our own business to look after, and we've got opportunities that exist within our business before taking on other troubles or those sort of troubles.

[indiscernible] from Excelsior Capital. Just wondering whether you guys would be willing to pay a special dividend this year? Or would you be sort of looking to hold on to the cash in case conditions get worse?

So we've been mandated by our Board to hold a certain level of cash on the balance sheet, and we're well positioned for that. And thank goodness, we did when we went into 2023. We had a good strong surplus cash balance. And one needs that, I think you need that in the poultry industry to see you through any periods of volatility. We have a healthy balance sheet right now as I stand here today, bank balance, very healthy. We do have a robust CapEx program. This year, we gave some guidance at the end of last year on our CapEx spend this year. It will be higher than last year, some necessary replacement to do, and we have to look after and take care of the assets. And then there's some opportunities to expand in the business, and we will provide more color to those in good time. But certainly, we have cash to invest. We do have a very good pipeline of good projects, projects that can improve efficiencies, reduce cost. A good example is the water pipeline in Standerton to our Goldi processing facility. It is a grudge purchase. There's ZAR 120 million we need to spend, but it reduces our cost of doing business. because instead of trucking some of the water up and down and facing water supply disruptions from the municipality, we can secure long-term sustainability of water. And then on the back of that, decide how we expand that business. So pay a special dividend now is certainly we're not on the radar. I mean the Board looked very carefully at our forecast. We have got a stated 2x cover, ZAR 11.60 dividend is a healthy cash outflow of about ZAR 450 million that we're paying out next month. So we -- the cash flow has to look after that, which we're comfortable will. And then we'll assess where we are at year-end. But we do know that we need to reinvest in the business. And after 2023 and '24, where unfortunately, we went through some trial and tribulations there. We have got some CapEx -- big CapEx projects at that time, and I talk about big and I talk about one like the pipeline that were put on hold. But at some stage, we will do them. And of course, we will need cash for that. The Board has structured -- we've got a revolving -- Teresa has spoken about it before, revolving credit facility, ring-fenced facility we've raised for important capital projects with a ring-fenced income stream. And then, of course, we've been mandated to hold cash on the balance sheet. So we'll have to balance that all up at the appropriate time. Anything you want to add, Johan?

No, nothing. Maybe just one thing. I think the capital project, we are looking for a good payback period. Some of the things I've seen in the last 4, 5 weeks is more or less between 2 and 3.5 years of payback, which I think is an excellent investment.

So Charl Gous from Bateleur Capital. Can you please provide guidance on the expected working capital movements for the second half of the financial year post the rebuild of inventory levels in the first half?

Yes. I would just quickly touch on it and then Johan can. I mean we -- as I've said in the presentation, we will maintain our production volumes. So with that -- having said that, we obviously will keep a very close eye on stock. I mean, one doesn't want to build stock whilst you do that, being mindful that going into winter. We didn't see this last winter because there was very good consistent demand for frozen chicken. So time will tell what happens this winter. But if the environment doesn't change much around beef and pork and there's a strong demand for chicken, even within this environment where we're producing higher numbers in the industry, we're still selling production, and we will endeavor to do that as long as possible. So working capital is -- we've invested in higher sales, higher volumes. Our stock was incredibly low at 30 September last year. And so low, in fact, that it was almost uncomfortable. So we've had to reinvest back into working capital, and I don't envisage that changing too much over the next couple of months. Johan?

Thanks, Gary. I think if we look at -- it all depends what's going to happen on the selling price, first of all, because that will have an impact on your debtors outstanding. And secondly, it depends on what's going to happen on SAFEX because that will have some sort of an impact on your valuation of your raw materials your final product. But what I've to think into my calculations is to have more or less a similar number in working capital as we have at the end of September, which means it should be -- I wouldn't say neutral because that sometimes you can't say it, but I've more or less on the same levels and very close to be neutral, maybe a little bit up and down.

Thishan Govender from Truffle Asset Management. Gary and Johan, congratulations on a good set of results. Two questions. The potential El Nino impact, what crop level next year would be needed for local SAFEX prices to move from export parity to import parity pricing given expected carryover stocks and assuming our exports stay constant?

I don't know. There's a lot of drivers there that can drive -- you won't see -- certainly not with the crop we're harvesting this year. If anything, we're looking -- moving closer to export parity. There are shipments booked and we can do deep sea exports up until, I think it's June, July, there are slots booked. They haven't priced yet. I think there's some work to do for SAFEX to move towards export parity levels for us to export surpluses that they are in this market, and they will be on this crop. If those surpluses don't export, well, then they're there and they can assist us if there is an issue with the crop next year. And it's a big if, and it's still well over a year away. And people are talking about an El Nino, but we've also seen in years gone by that doesn't necessarily mean, Anthony, you've covered this market for many years and doesn't necessarily mean that there will be a disaster on the crop. So it has the rain at the right time. And as I said, I think the planting conditions we're going into this year will be good, little late rain. Let's see. Yes.

The second question, distribution cost is a large number on your income statement. Assuming we see higher and longer diesel prices for the next year, how much pricing would be needed to offset the increase? And do the current supply and demand fundamentals allow for you to take any price increases?

So I gave a sensitivity earlier on. I said every rand a liter increase in the diesel price is about ZAR 0.05 per kilo in the selling price. In our Feed division.

Protection regulation. For more information, visit our...

For more information, please visit www.astralfoods.com. No, we -- in the Feed division, we endeavor to recover that increase in the diesel price as a variable cost and the transport rate that we charge to the -- on our feed. So that's recovered. The difficulty is in the poultry side of the business where you can't go immediately to the market through third-party distributors and everyone else and just recover that from retail. It's a conversation that is already out there. But obviously, one has to be very cognizant of the consumer environment. Again, we need to balance the book. So it's no good forcing the price because you should want to build some stock and then you will pay storage costs on chicken sitting in a freezer. Those are sums we do every single week to make sure that we know exactly what is happening in our cost base. And we've been there before. If you build stock quickly and you've got stock sitting in frozen storage, that can cost you ZAR 20 million, ZAR 30 million a month in storage costs. So we've got to -- it's not a science, it's an art. We've got to manage the cost base. And we have been looking at that. And for now, we've absorbed that cost. And I would say for April, comfortable to do that, and we will keep a close eye on it.

Chris Logan from Opportune. Congrats on both your 25th anniversary and the great results. Are the local farmers still profitable with these lower maize and soya prices?

At these levels trading today, yes, they are profitable marginally, but they are profitable. What's profitable, I think if you go to NAMPO, you'll see the largest collection of airplanes and helicopters landing anywhere from -- so I think they're profitable. They're doing pretty well by the looks of it. I rocked up in my Toyota Corolla and got stuck in the mud and the maize farmer flew over me and landed on the air strip. So I think they're doing well. Yes, they are. We keep an eye on that. Our suppliers give us those breakeven thresholds for maize farmers in the West, maize farmers in the East, and we look at that as well. Maize farmers are -- I think they're born to plant. They need cash flow. So they will plant, they will produce a crop and they will -- they are making some money. If anything, they want to protect the upside that's currently there because if they carry the surplus into next year and there is an issue with the crop next year, they've got this maize. And farmers these days have ability to store quite a lot of maize on their farms. They hang on to it, hoping that the price will go up. It doesn't always, but they need to sell it some time.

Lwando Ngwane from All Weather Capital. Given how strong the balance sheet is and the levels at which the share price is trading at deep discount, would you...

No. I think we've covered this many times. We see more value in investing back into the business, certainly not in buying back shares now to try and prop up. The share price must do its work. We saw -- and again, I think there was an honesty and transparent conversation we have yesterday's drop in the share price was a bit of a surprise. I think the market has looked at the outlook and said, oh, everything is gloomy. I hope I provided more context today. But we've got work to do with the cash. And certainly, we can do good work with it investing it back into the business with some of the projects we have. Johan, anything you'd like to add?

No, Gary, I agree with you. Buyback of shares and rather invest in opportunities/capital investments with a good return.

Those will be to the longer-term benefit of our shareholders if we do that, not to the short-term benefit of the shareholder.

[indiscernible] Asset Management. Given the foot and mouth disease, how is the demand for feed from the beef farmers been?

It's been fine. I mean we've actually -- as I said, it's not only a risk to beef farmers. I mean the dairy industry are obviously very nervous about it as well. We've increased our sales to that sector over the past 6 months. And in fact, we've been -- we've stayed very close to our customers there and assisting them with biosecurity. Perhaps all the lessons we've learned out of managing bird flu are equally important on their farms. And I must say that vaccination for that disease probably should have happened a lot sooner than it did. I mean I'm not a beef farmer, so I can't be -- I'm not going to repeat what they've said. But certainly, that program must be escalated and they must bring it under control. But we haven't seen any drop in feed volumes or any credit risk from that sector. So if we've taken on a new customer, the dairy customer, we've done our own assessments of the risk on farm, and we haven't got any issues.

Thank you. The last question from Warren Riley Bateleur Capital. Can you give us a direction regarding the poultry margins tracking similar or better than first half trend?

Well, that would then be a forecast, which I'm not really allowed to do. I mean we've got an increase in input costs in diesel and transport. So we didn't have that in the first half. But again, we've got a -- we've covered our feed prices for the balance of the financial year. We know what our feed price is. If we can hold on to selling prices, more importantly, sell what we produce. The results then will reflect that environment. But in an inflationary environment like this with fuel, we'll have to take that, as we've said, month-to-month. I can't stand here right now and tell you the margin will be x. I'm not allowed to, I think.

Thank you, Gary. There are no further questions.

Thank you very much, Marlize..

Thank you.

Thank you for your time and attention. It's been a long one, a lot of questions, but we really appreciate your attendance. And for those here today in the audience, thank you for that. And then behind the camera, there's a lot of people as well, and we thank you for all your time and patience. Thank you.