Japfa posts US$35.9 million H2 loss amid high raw material costs, swine fever woes

AGRIBUSINESS giant Japfa : UD2 0% on Wednesday (Mar 1) posted a net loss of US$35.9 million for the second half of 2022, a reversal from net profit of US$0.3 million in the corresponding period for 2021. 

Earnings for the full year came in at US$8.2 million, down from US$118.8 million in 2021. The group said its margins were impacted by high raw material costs combined with limited increases in average selling prices (ASPs) across all the businesses in its PT Japfa Tbk and Animal Protein Other (APO) segments. 

Revenue for H2 was up 3 per cent to about US$2.2 billion from US$2.1 billion, while full-year revenue rose 7 per cent to US$4.4 billion. 

The group attributed the stronger full-year topline figures primarily to higher animal feed ASPs that were supported by steady volumes across all operations. 

The board of directors has recommended a final cash dividend of S$0.01 per share, unchanged from 2021. In 2021, however, the group had also paid out an additional final special dividend of S$0.005 per share. 

Notably, Japfa’s APO business in Vietnam was affected by the African Swine Fever (ASF) outbreak, and there were continued disruptions to the group’s supply of pork and swine fattening prices. 

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“While the long-term prospects in Vietnam are sound, the current challenges are expected to weigh down our operations in the near term. In the light of the current market volatility, APO-Vietnam has temporarily frozen non-essential new capital expenditure and scaled down the sow breeding and swine fattening livestock,” said Japfa.

The ASF resurgence caused a drop in swine fattening prices because of preemptive sales in the market, and the low swine fattening selling prices were not able to cover the increased feed raw material and operational costs. These factors collectively crimped margins for Japfa’s swine operations in Vietnam, the group said. 

Japfa said that in 2022, its swine fattening livestock operations suffered a loss of about US$20 million for the year. The biggest impact of ASF was in the fourth quarter. 

“The situation is unlikely to improve in the immediate future,” the group warned. 

Its Indonesian subsidiary, PT Japfa Tbk, saw FY2022’s profit fall to US$92.9 million from about US$140.7 million, while revenue grew 4.9 per cent to US$3.3 billion on the back of higher feed prices. 

Although raw material costs remain high, the company said feed margins are recovering from their historical lows in 2021 due to the coronavirus pandemic. 

Although feed margins have improved, profitability remained under pressure as selling prices of both day-old-chicks and broilers did not keep pace with higher production costs arising from high raw material costs, the group added. 

The APO segment booked 10.6 per cent growth in revenue to US$1 billion. The unit, however, posted a net loss of US$52 million for FY2022 – of which approximately US$20 million stemmed from the ASF impact on Japfa’s swine operations in Vietnam, and the remainder from margin contractions. 

The group’s APO operations in India posted an increase in revenue as a result of higher sales volumes and prices for feed and poultry operations, and a net profit of US$2.8 million. 

Japfa has scaled back its poultry feed volumes by 20 per cent for its APO operations in Myanmar as the situation remains challenging. The group’s APO segment in Bangladesh is “not yet meaningful”, the group said. 

Looking ahead, Japfa said raw material prices are expected to remain high, as weather conditions may affect crop production in some countries. The war between Russia and Ukraine and interest rate hikes could also pose challenges, the group said. 

“In the near term, we expect these global external factors to remain uncertain, but we are cautiously optimistic about the solid prospects for staple protein consumption in our markets. In addition, the recent reopening of China is expected to improve prospects in the region, which could drive demand in our markets.” 

Shares of Japfa closed flat at S$0.30 on Wednesday.