Presentation for the 6 months ended 31 March 2019 AGENDA Business - - PowerPoint PPT Presentation

Interim Results Presentation

for the 6 months ended 31 March 2019

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AGENDA

• Business Overview

Page 3 / Slide 3

• Operational Overview

Page 5 / Slide 8

• Financial Overview

Page 12 / Slide 21

• Industry Trends

Page 17 / Slide 32

• Outlook

Page 21 / Slide 40

• Additional Information

Page 23 / Slide 44

BUSINESS OVERVIEW

SALIENT POINTS

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• Feed input costs increased markedly on higher maize prices due

to unfavourable weather conditions in the planting season, which will negatively impact crop yields for 2019

• Poultry selling prices decreased for the period under review

leading to an under recovery on higher input costs

• Poultry production efficiencies were maintained in line with

projections

• Extraordinary cost increases in the newly legislated national

minimum wage, costs associated with load shedding, and the strike cost in KZN negatively impacted profits

• Fresh product processing capacity expansion, with the project

underway at the Festive plant located in Olifantsfontein and on track for commissioning in April 2020

• Revenue
• Profit before interest and tax
• Earnings per share @ 948 cps
• Headline earnings per share @ 949 cps
• Interim dividend of 475 cps

52%

52% 51% 3%

KEY FINANCIAL INDICATORS

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53%

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DIVISIONAL SALIENT POINTS

Poultry

• Feeding cost increased
• Bird performance maintained
• Broiler sales volumes down
• Broiler sales realisations down
• Extraordinary cost impacts

Feed

• Raw material costs up
• Lower internal feed required
• External sales volumes down
• Expenses well controlled
• Improved Rand per ton margin

Other Africa

• Lower profits – depressed performances from Mozambique and Zambia

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1 036 503 113 176 145 114

200 400 600 800 1 000 1 200 PBIT 1H2018 Raw material cost Feed conversion efficiency Broiler sales volumes Broiler selling prices Extraordinary expenses Other PBIT 1H2019

THE PERIOD IN PERSPECTIVE

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R533 million

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FEED DIVISION

Operating profit - R million

• Operating profit up 24.6%
• Net margin 7.2% 1H2018: 6.2%
• Expenses well controlled
• Rand per ton margins up

Revenue - R million

• Revenue up 6.7%
• Raw material costs up
• Average selling prices up 7.6%
• Sales volumes down 0.9%

3 097 3 303

• 1 000

2 000 3 000 4 000 1H2018 1H2019 191 239

• 50

100 150 200 250 1H2018 1H2019

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FEED DIVISION

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• SAFEX yellow maize prices increased markedly for the period under

review 1H2019 avg. R2 579 per ton (1H2018: R1 981) up R598 per ton y-o-y

• Internal feed sales decreased marginally by 0.6% due to improved broiler

feed conversion rates

• External feed sales decreased by 1.3% as livestock sectors came under

pressure from higher feed costs and producers moved for lower feed prices

• Expense increases well controlled across the division for the period under

review

• The average net margin increased (on a Rand per ton basis) for the period

under review

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FEED DIVISION – SALES MIX

59% 7% 21% 13% 59% 5% 21% 15% 1H2018 703 827 Tons 1H2019 697 569 Tons

Volume decrease ≈ 0.9%

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POULTRY DIVISION

Operating profit - R million

• Operating profit down 68.9%
• Broiler feed price up 9.2%
• Net margin 4.7% 1H2018: 15.4%

Revenue - R million

• Total revenue up 1.0%
• Broiler sales volumes down 1.1%
• Broiler sales realisations down 3.4%
• Breeder revenue up R100 million

5 415 5 472

• 1 000

2 000 3 000 4 000 5 000 6 000 1H2018 1H2019 828 258

• 100

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POULTRY DIVISION - COMMERCIAL

• Profits for the six months ended March 2019 reflect a significant decline on

the comparable period

• Broiler live cost increased due to rising feed costs resulting in a higher base

cost of production

• Broiler selling prices decreased on subdued consumer demand and

deeper promotional activity in the market, leading to an under recovery of higher input costs

• Broiler sales volumes down despite sales realisations decreasing on the

comparable period

• Overhead expenses increased with the newly legislated minimum wage,

exacerbated by the impact of load shedding nationally, and water supply interruptions in Standerton

• Imports during the period were lower than the comparable period,

averaging 41 771 tons per month (1H2018: 46 850 tons)

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POULTRY DIVISION – PRODUCT MIX

51% 2% 3% 14% 7% 23% 1H2018 230 710 Tons 51% 2% 4% 13% 8% 22% 1H2019 228 172 Tons

Volume decrease ≈ 1.1%

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POULTRY DIVISION - AGRICULTURE

• Breeder revenue increased on higher demand for parent stock and an

increase in broiler day-old chick sales

• Feed input costs increased due to higher raw material costs adversely

affecting the live bird production cost

• Strike action in KZN at National Chicks and Mountain Valley impacted

profitability during the period under review

• Further improvements in on-farm poultry production efficiencies,

benefitting broiler live cost through an improved feed conversion rate

• Higher broiler hatching egg production as a result of Astral’s bird flu

contingency planning

• In South Africa 203 cases of highly pathogenic bird flu have officially

been reported across 9 provinces, from the 21st of June 2017 to the 28th of February 2019

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BROILER PRODUCTION PERFORMANCE

94% 96% 98% 100% 102% 104% 106% 108% F2014 F2015 F2016 F2017 F2018 1H2019

Slaughter age Live weight Average daily gain

Key indicators base-lined to 100% in F2014

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BROILER PRODUCTION PERFORMANCE

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60% 65% 70% 75% 80% 85% 90% 95% 100% 105% 110% 115% 120% 125% 130% F2014 F2015 F2016 F2017 F2018 1H2019

Mortality Feed consumption Performance efficiency factor

Key indicators base-lined to 100% in F2014

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OTHER AFRICA DIVISION (Zambia, Mozambique & Swaziland)

20 Operating profit - R million

• Operating profit down 59.9%
• Net margin 3.0% 1H2018: 9.1%
• Mozambique provision for

non-recovery of import VAT Revenue - R million

• Revenue up 20.9%
• Sales volumes up 11.7%
• Average selling prices up 8.2%

185 223

• 50

100 150 200 250 1H2018 1H2019 17 7

• 5

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FINANCIAL OVERVIEW

INCOME STATEMENT

22 Six months ended 31 March 2019 R million 2018 R million Restated Revenue 6 775 6 600 Operating profit 503 1 036 Operating profit margin 7.4% 15.7% Net finance income 18 22 Profit before tax 521 1 058 Tax (151) (297) Profit for the period 370 761 Headline earnings 368 759 EPS – Cents 948 1 958 HEPS – Cents 949 1 959 3% 51% 51% 52% 52% 52% % change 51%

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4 700 4 902 5 755 5 511 5 823 6 131 5 795 6 556 6 600 6 379 6 775 213 280 550 551 429 120 212 866 1 036 906 503

1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19

External revenue Operating profit Operating profit margin % 15.7% 3.7% 13.2%

GROUP SIX MONTHLY REVENUE AND PROFITABILITY

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(R million)

14.2% 7.4% 2.0% 7.4% 10.0% 9.6% 5.7% 4.5%

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2 550 2 956 2 961 3 275 3 461 3 729 3 448 3 405 3 096 3 102 3 303

1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19

Revenue Change in volumes Change in feed price

FEED SIX MONTHLY REVENUE

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(R million)

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3 317 3 650 4 503 4 237 4 436 4 693 4 456 5 394 5 415 5 188 5 472

1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19

Revenue Change in broiler selling price Change in volumes

POULTRY SIX MONTHLY REVENUE

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(R million)

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45 59 351 310 194

• 135

22 608 828 625 258 157 197 186 237 233 252 184 207 191 266 239 213 280 550 551 429 120 212 867 1 036 906 503

• 0,1

1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 2H18 1H19

Poultry Feed Other Africa Change in feed price Change in broiler selling price

GROUP SIX MONTHLY OPERATING PROFIT

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(R million)

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March 2019 R million September 2018 R million % change Non-current assets 2 507 2 409 Net working capital 1 419 1 189 Current assets (excl. cash) 3 053 2 943 Current liabilities (excl. borrowings) (1 634) (1 754) Non-current liabilities (excl. borrowings) (656) (650) Net assets 3 270 2 948 Net (surplus cash) (431) (789) Equity 3 701 3 737 Total 3 270 2 948

BALANCE SHEET

27 19% 4% 7% 1% 11% 11% 1% 4% 45%

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CAPITAL EXPENDITURE

28 Six months ended 31 March 2019 R million 2018 R million Depreciation 88 78 Total capex spend 345 136 Festive expansion 223 Standerton silo complex 30 Other capex 92 Outstanding commitments 753 144 Festive expansion 651 Standerton silo complex 22 Other capex 80 Total spend and committed 1 098 280 Board approved (on hold) 344 Mountain Valley expansion 203 Zambian feed mill 141

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WORKING CAPITAL

29 March 2019 R million September 2018 R million Variance R million Current assets 2 863 2 912 (49) Biological assets 779 770 9 Inventory - Poultry 415 532 (117)

• Feed

285 255 30

• Other Africa

36 50 (14) Trade receivables 1 214 1 204 10 Other receivables 134 101 33 Current liabilities (1 634) (1 754) 120 1 229 1 158 71 Capital expenditure advance payments 190 31 159 Net working capital 1 419 1 189 230

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STATEMENT OF CASH FLOWS

30 For the six months ended 31 March 2019 R million 2018 R million Cash operating profit 407 1 094* Working capital movement 100 (42)* 507 1 052 Tax paid (131) (259) Net interest received 21 25 Capital expenditure (345) (136) 52 682 Dividends paid (409) (339) Other cash flow items (1) 2 Proceeds on investment sold – prior year

• (4)

Movement in cash equivalents (358) 385 Effect of exchange rate changes

• (4)

Opening balance 789 553 Closing balance 431 934

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• Decline in poultry profitability - profit margin at 4.7% (1H2018: 15.4%)
• Feed profitability in line with expectations
• Capital expenditure on expansion projects – R253 million paid
• Net surplus cash at 31 March 2019 of R431 million
• Interim dividend of 475 cps at 2 times cover

IN SUMMARY

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INDUSTRY TRENDS

SAFEX YELLOW MAIZE PRICE

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Source: CJA Strategic Risk Brokers

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SAFEX YELLOW MAIZE PRICE vs. CBOT IN RAND TERMS

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Source: CJA Strategic Risk Brokers

DURBAN SOYA MEAL PRICE

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Source: CJA Strategic Risk Brokers

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POULTRY IMPORTS PER MONTH

5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 55000 60000 65000 70000

Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19

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Tons

Source: SAPA

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BROILER SELLING PRICE

37

Source: Own Data

80% 85% 90% 95% 100% 105% 110% 115% 120% 125% 130% 135% 140% 145% Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19

Broiler selling price index Six month average

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BROILER PRICE vs. FOOD PRICE INFLATION

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Source: Own Data

90% 100% 110% 120% 130% 140% 150% 90% 100% 110% 120% 130% 140% 150% Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19

Broiler selling price index SA food price index

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• 30%
• 20%
• 10%

0% 10% 20% 30% 40%

Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19

% Change in broiler feed price % Change in broiler selling price

CHANGE IN BROILER SELLING PRICE vs. FEED PRICE

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Source: Own Data

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OUTLOOK

• Raw material price increases will negatively impact Astral’s largest

input cost, namely feed which makes up 66% of broiler live cost

• Traditionally slower trading conditions for the second half of Astral’s

financial year, exacerbated by continued high levels of unemployment

• The negative impact of high fuel prices on consumer disposable

income, leading to continued pressure on poultry selling prices

• Higher local poultry production levels together with imports from

Brazil and the USA, will negatively impact the supply and demand balance in the short term

• The newly legislated minimum wage will continue to impact poultry

production costs

• Municipal infrastructure deterioration in Standerton, leading to water

supply interruptions at a cost to the business

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POTENTIAL NEGATIVE INFLUENCES

• Sufficient international coarse grain stocks with good prevailing

planting conditions in the US and South America

• Maize imports into the Western Cape at a discount to local Safex

prices, will contribute positively to feed input costs in that region

• Local maize stocks together with maize imports will meet demand,

despite early season SA maize crop concerns

• Recent late rainfall received in the maize growing areas of the country,

will benefit soil moisture conditions for the new planting season

• Supply and distribution of the Ross poultry genetics in South Africa,

has been secured for a further ten year period with the conclusion of a renewed supply agreement with Aviagen

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POTENTIAL POSITIVE INFLUENCES

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ADDITIONAL INFORMATION

12,30% 14,81% 19,82% 25,00% 27,80% 26,22% 27,83% 23,76% 21,17%

10% 15% 20% 25% 30% 25 50 75 100 125 150 175 200 225 250 275 300 325 350 375 2012 2013 2014 2015 2016 2017 2018 2019E 2020F End Stock Maize stock to use ratio

WORLD CORN ENDING STOCKS

45

Million Tons

Source: CJA Strategic Risk Brokers

SOUTH AFRICA – TOTAL MAIZE SUPPLY & DEMAND

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2013/14 2014/15 2015/16 2016/17 2017/18 2018/19E 2019/20F Actual Actual Actual Actual Estimate Estimate Forecast Carry In (1 May) 1 414 589 2 074 2 471 1 093 3 689 2 940 Crop Estimate 11 811 14 250 9 955 7 779 16 820 12 510 10 655 Retentions 433 163 309 1 191 495 481 Sagis Delivery 11 072 13 817 9 794 7 469 15 629 12 015 10 174 Minus early deliveries 450 Imports 80 65 1 964 2 237 206 700 Total Supply 12 566 14 471 13 831 11 727 16 722 15 911 13 814 Domestic Usage Food 4 583 4 840 4 698 4 808 4 993 5 146 5 220 Domestic Usage Feed 4 715 5 041 5 520 5 004 5 276 5 355 5 100 Gristing, withdrawn & released 480 376 293 278 313 249 540 Total Domestic Usage 9 777 10 257 10 512 10 090 10 583 10 750 10 860 Exports & Sundries 2 122 2 153 848 993 2 451 2 221 1 002 Plus early deliveries 450 Carry Out (30 Apr) 590 2 062 2 471 1 093 3 689 2 940 1 952 No of days usage 25 73 86 40 127 100 66 STU 4,96% 16,62% 21,75% 9,87% 28.31% 22.67% 16.46%

Marketing year (May to April) '000 tons

Source: CJA Strategic Risk Brokers

1 414 590 2 062 2 471 1 093 3 689 2 940 1 952 12,23% 4,96% 16,62% 21,75% 9,87% 28,31% 22,67% 16,46%

0% 5% 10% 15% 20% 25% 30% 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19E 2019/20F

Carry out Maize stock to use ratio

SOUTH AFRICA – TOTAL MAIZE SUPPLY & DEMAND

47

‘000 Tons

Source: CJA Strategic Risk Brokers

EL NIÑO SOUTHERN OSCILLATION - FORECAST

48

Source: International Research Institute for Climate and Society (IRI) – Columbia University

SOUTHERN AFRICA - VEGETATIVE HEALTH INDEX

49

VHI of previous year VHI of current year

Source: NOAA - National Environmental Satellite, Data, and Information Service (VHI)

BROILER FEED – INGREDIENT INCLUSION & COST CONTRIBUTION

50

Source: Own Data 65,0 45,7 63,3 43,6 61,4 39,6 61,1 38,0 55,6 29,8 54,3 26,7 53,4 28,6 11,4 14,9 15,6 20,3 16,8 22,3 14,0 18,6 14,0 17,9 13,2 17,9 13,8 18,4 9,1 8,6 6,4 5,6 6,9 5,4 6,2 4,0 6,1 3,3 5,7 4,1 4,9 4,2 6,4 14,9 6,7 14,0 7,3 17,2 7,8 18,8 8,6 21,5 9,1 21,3 8,6 20,1 0,2 0,9 0,4 1,2 0,5 1,7 0,4 1,5 0,5 1,7 0,7 2,3 0,7 2,2 7,5 10,3 7,3 10,3 6,6 9,1 9,9 13,8 14,6 19,8 16,6 22,2 18,2 23,4 0,3 4,7 0,3 5,0 0,4 4,7 0,5 5,4 0,5 6,0 0,4 5,4 0,4 3,0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1H16 Incl. 1H16 Contr. 2H16 Incl. 2H16 Contr. 1H17 Incl. 1H17 Contr. 2H17 Incl. 2H17 Contr. 1H18 Incl. 1H18 Contr. 2H18 Incl. 2H18 Contr. 1H19 Incl. 1H19 Contr.

Maize Soybean Meal Sunflower Meal Other Fish Meal F/Fat and Extr Soy Vitamins, Minerals and Medication.

BRAZIL, EU & USA PRODUCT COST BENCHMARK

51

Ex BRAZIL – May 2019 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 1 200.00 1 200.00 1 200.00 SA COST R/$ exchange rate R$ 14.30 14.60 14.90 Rand per ton TON 17 160.00 17 520.00 17 880.00 23 480.00 Rand per kg KG 17.16 17.52 17.88 23.48 Duty per kg KG 37% 37% 37%

• Clearance costs

KG 0.65 0.65 0.65

• COST INTO STORAGE

KG 24.16 24.65 25.15 23.48 Storage KG 0.50 0.50 0.50

• Distribution

KG 0.80 0.80 0.80 0.92 Marketing, Administration, Finance KG 0.80 0.80 0.80 0.96 TOTAL COST KG 26.26 26.75 27.25 25.36 EUROPE – May 2019 FROZEN LEG QUARTERS BULK PACKED CIF DBN € per ton TON SA COST € exchange rate R$ Rand per ton TON 23 480.00 Rand per kg KG 23.48 Duty per kg KG

• Clearance costs

KG

• COST INTO STORAGE

KG 23.48 Storage KG

• Distribution

KG 0.92 Marketing, Administration, Finance KG 0.96 TOTAL COST KG 25.36

Source: Own Estimates

BRAZIL, EU & USA PRODUCT COST BENCHMARK

52

EUROPE Ex Ireland, Spain, Poland and Denmark with Safeguard Duty @ 30 % – May 2019 FROZEN LEG QUARTERS BULK PACKED CIF DBN € per ton TON 1 100.00 1 100.00 1 100.00 SA COST R/€ exchange rate R$ 16.00 16.20 16.50 Rand per ton TON 17 600.00 17 820.00 18 150.00 23 480.00 Rand per kg KG 17.60 17.82 18.15 23.48 Duty per kg KG 30% 30% 30%

• Clearance costs

KG 0.65 0.65 0.65

• COST INTO STORAGE

KG 23.53 23.82 24.25 23.48 Storage KG 0.50 0.50 0.50

• Distribution

KG 0.80 0.80 0.80 0.92 Marketing, Administration, Finance KG 0.80 0.80 0.80 0.96 TOTAL COST KG 25.63 25.92 26.35 25.36 Ex USA – May 2019 FROZEN LEG QUARTERS BULK PACKED CIF DBN US$ per ton TON 1000.00 1000.00 1000.00 SA COST R/$ exchange rate R$ 14.30 14.60 14.90 Rand per ton TON 14 300.00 14 600.00 14 900.00 23 480.00 Rand per kg KG 14.30 14.60 14.90 23.48 Duty per kg KG 37.00% 37.00% 37.00%

• Clearance costs

KG 0.65 0.65 0.65

• COST INTO STORAGE

KG 20.24 20.65 21.06 23.48 Storage KG 0.50 0.50 0.50

• Distribution

KG 0.80 0.80 0.80 0.92 Marketing, Administration, Finance KG 0.80 0.80 0.80 0.96 TOTAL COST KG 22.34 22.75 23.16 25.36

Source: Own Estimates

LOCAL BROILER PRODUCTION & MARKET SHARE

53

Local broiler production ≈ 19.4 million birds per week

26% 20% 8% 7% 8% 5% 4% 22% Astral RCL Country Bird Daybreak Sovereign Grainfields Chubby Chick Other

Source: Own Estimates

LOCAL BROILER PRODUCTION & MARKET SHARE

54

• Avg. poultry imports ≈ 7.4 million birds per week

(6 months ending March 2019)

18% 13% 6% 5% 6% 3% 2% 16% 31%

Astral RCL Country Bird Daybreak Sovereign Grainfields Chubby Chick Other Imports

Source: SAPA & Own Estimates

TOTAL POULTRY IMPORTS (CHICKEN, MDM, TURKEY)

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F2018 46 348 45 875 48 600 47 242 40 230 52 807 46 651 47 085 37 800 48 816 61 751 56 456 F2019 45 061 44 571 37 739 35 174 42 094 45 987 % Var

• 2,8
• 2,8
• 22,3
• 25,6

4,6

• 12,9

bpw* 8,0 7,9 6,7 6,2 7,5 8,2

*bpw ≈ million birds per week

Tons

Source: SAPA Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep F2016 37 789 83 258 126 866 165 602 200 461 258 134 306 385 360 899 414 947 460 098 502 138 551 209 F2017 50 324 101 279 135 812 173 187 212 399 278 057 319 933 367 106 409 557 453 981 499 952 551 867 F2018 46 348 92 223 140 823 188 065 228 295 281 102 327 753 374 838 412 638 461 454 523 205 579 661 F2019 45 061 89 632 127 371 162 545 204 639 250 626

100 000 200 000 300 000 400 000 500 000 600 000 F2016 F2017 F2018 F2019

TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN

56

Brazil 61,5% EU 12,6% Argentina 5,9% US 16,1% Other 3,9%

Country of origin for poultry imports - 2018

Brazil 52,1% EU 23,0% Argentina 2,7% US 18,0% Other 4,2%

Country of origin for poultry imports - March 2019 YTD 566 210 tons 123 275 tons

Source: SAPA

TOTAL POULTRY IMPORTS – COUNTRY OF ORIGIN

57

Source: SAPA

Country Imports (tons) 2017 2018 2019 YTD Brazil 337 476 348 155 64 212 United States 87 059 91 374 22 153 Argentina 32 816 33 278 3 363 Ireland 24 746 26 328 7 052 Denmark 16 884 25 672 5 794 Poland 72 13 463 11 993 Thailand 4 019 9 011 2 867 Canada 14 431 7 305 1 576 Spain 11 138 4 932 3 298 Chile 1 770 4 362 614 Australia 984 553 114 Swaziland 24 482 23 Uruguay 50 359

• Netherlands

112 323 48 United Kingdom 1 366 231 76 Germany 134 222 37 Belgium 23 451 23 27 Other 344 137 28 Grand Total 556 877 566 210 123 275

1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19

SOUTH AFRICAN PROTEIN PRICE COMPARISON

58

Source: SAPA, FNB, Red Meat Industry Forum

Chicken Pork Beef Mutton Feed Conversion Rate 1.5 2.2 5.5 5.0 Per Capita Consumption 39,5 kg 5,1 kg 17,0 kg 3,0 kg

cents / kg

INDUSTRY MATTERS

POULTRY IMPORTS

60

• The EPA (SADC-EU Economic Partnership Agreement) safeguard for poultry bone-

in imports from the EU is in force

• Under the provision the safeguard duty on EU frozen bone-in portions will be as

follows (to which the EU have declared a dispute):

• 35.3% from 28 September 2018 up to and including 11 March 2019
• 30% from 12 March 2019 up to and including 11 March 2020
• 25% from 12 March 2020 up to and including 11 March 2021
• 15% from ​12 March 2021 up to and including 11 March 2022
• This duty levels the playing field somewhat, with imports from Brazil and the US

subject to a 37% import duty (current) for these exporting countries (plus an anti- dumping duty on the US - for which the AGOA 65 000 ton annual quota is exempt)

• Imports from the EU over the past couple of years have been substantially lower

than historical levels, from a time where record EU imports were received in November 2016. This is due to the prevalence of highly pathogenic bird flu in a number of EU countries affecting EU trade with South Africa

• Import volumes previously supplied by the EU have switched to Brazil, which is

currently the largest exporter of poultry products to South Africa

POULTRY IMPORTS

61

• Tariff Investigation (Frozen Chicken)
• SAPA has made application made for an increase in the rate of custom duties for

bone-in portions and boneless cuts from 37% and 12% respectively to the maximum bound rate of 82%

• ITAC has already found unfair trade within WTO rules and only the percentages

are up for review

• The ITAC investigation was expected to be completed by the end of March

2019 with the Minister of Trade and Industry making his decision 2 to 4 weeks thereafter

• However, this has been delayed by an urgent application from AMIE and

Merlog Foods where they are claiming:

• Access to certain confidential information from SAPA and the Participating

Producers ("Confidentiality Claim"); and

• A right to receive a preliminary decision from ITAC for comment prior to making a

recommendation to the Minister of Trade and Industry ("Constitutional Claim")

• Anti-Dumping Application against Brazil
• Webber Wentzel provided an opinion that there is sufficient evidence to prove

dumping of bone-in portions into South Africa

• It is necessary to update the 2017 injury information provided for the frozen

chicken tariff investigation / application to include 2018

• It is has been recommended that ITAC be engaged informally to obtain its view on

whether there is sufficient information to initiate an application

WAGENINGEN UNIVERSITY RESEARCH

62

• South Africa remains an efficient chicken producer in the global

context, and has consistently produced chicken cheaper than European Union countries

• This is according to the latest research from the Bureau for Food and

Agricultural Policy

• Data for major chicken producing countries is analysed every two

years by Wageningen University and Research in the Netherlands, which has been ranked as one of the world’s top agricultural universities

• Additional research to include the comparable South African data has been

undertaken by the Bureau for Food and Agricultural Policy (BFAP), an independent research institute in Pretoria

• The report, based on data from 2017 was released during April 2019 by

the BFAP

• South African producers remain competitive and were shown to produce

a kilogram of chicken meat at a lower cost relative to the European producers included in the sample, but at a higher cost than the leading exporters such as the US and Brazil (with the difference mainly being attributable to feed costs)

WAGENINGEN UNIVERSITY RESEARCH

63

TECHNICAL EFFICIENCY

WAGENINGEN UNIVERSITY RESEARCH

64

ECONOMIC EFFICIENCY: TOTAL PRODUCTION COSTS

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

www.astralfoods.com

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