Bird flu outbreaks contribute to Quantum’s first loss

Load-shedding, SA’s worst bird flu epidemic yet and the railways breakdown eviscerated Quantum Eggs’ profitability and led to its first annual loss since it listed in 2014.

It has been selling eggs at a loss. Though it says higher egg prices will allow it to recover, the current bird flu epidemic will also affect its 2024 year.

Quantum’s headline earnings per share decreased from 14.1c in the previous period to a headline loss per share of 17.4c.

SA’s largest chicken producer, Astral, also reported its first loss as load-shedding, higher feed costs and culling due to bird flu ate into profits.

Quantum is selling eggs at a loss, as expenses such as those for feed for its layer flocks rose 15% on average as prices for maize, sunflower seed, soya and bran rose. The owner of the Nulaid brand expects higher egg prices, with prices already having risen due to shortages caused by bird flu.

DIESEL

Load-shedding, mainly requiring the purchasing of diesel for generators, cost Quantum R67m, or R52m more than in the previous year. It also faced a substantial increase in generator maintenance, necessitated by intense use.

Chickens at its indoor farms cannot stay alive for more than a few hours without electricity as it regulates temperature and air flow in the factories.

The collapse ofthe railways has also been costly. Quantum, which owns a profitable animal feeds business, said that whereas seven years ago 70% of its maize was delivered to its Malmesbury mill by rail, “we now deliver more than 80% via road due to the failing rail infrastructure”.

It also warned that bird flu outbreaks have become “endemic in SA”.

“It can result in operations shutting down between six and nine months and affect the entire value chain,” the company said on Friday in its results for the year to end-September.

“Layer farms and breeders are more at risk than commercial broilers, as layer and breeder flocks remain on farms much longer,” it said.

Though bird flu does not affect younger chickens such as those slaughtered for meat at about 33 days, it affects older hens such as those that lay eggs.

The outbreak of the pathogenic avian influenza is the worst yet in SA. It hurt Quantum Foods and its competitors, such as Astral Foods, as they culled millions of chickens and received no financial assistance from the government. Other countries provide funding to farmers to mitigate the cost of losses from culling.

Outbreaks hit Quantum Foods in 2017, 2018, 2021, 2022, and most recently at some of its farms in Gauteng and the North West, leading to R155m in layer hens and breeding stock being written off in the latest financial year.

OUTBREAKS CAN RESULT IN OPERATIONS SHUTTING DOWN FOR SIX TO NINE MONTHS

“This excludes the further cost of feed and eggs that had to be destroyed as well as the direct cost of destroying birds and disinfecting facilities. Additional costs to move eggs to areas affected by bird flu had to be incurred, and we lost the potential income from selling birds and eggs,” the group said.

It lost eggs to the value of R10.3m and spent R4.8m on cleaning factories after culls.

As it had fewer eggs after chickens were culled, it closed its egg-packing plants in Bloemfontein and mothballed its Pinetown factory and laid off staff.

The company’s revenue grew 1.5% year on year to R7bn and gross profit 6.6% to R1.2bn, but operating profit plunged 210.5% to an operating loss of R35.9m. This resulted in profit dropping 249.3% to a loss of R35.6m and headline earnings per share, a common profit measure in SA that excludes certain items, amounting to a loss of 17.4c per share.

If there are fewer chickens, there is also lower demand for animal feed, the group’s largest segment by revenue, resulting in retrenchments.