Quantum Foods profits fall sharply after many unexpected cost factors

QUANTAM Food Holdings’ headline earnings per share decreased 73% to 14.1 cents in the year to September 30, despite an 11.5% rise in revenue after the poultry, animal feed and South Africa’s biggest egg producer faced a year of challenges.

Revenue rose to R6.02 billion, but operating profit sagged 74% to R37 million. No final dividend was declared.

Other listed competitors in the poultry sector have not performed as badly, with RCL Foods’ poultry division reporting a similar rise in revenue, but its earnings before interest tax depreciation and amortisation increased 214% to R348.6m in the year to June 30.

Astral Foods, the largest integrated poultry group in South Africa, lifted revenue 22% and earnings per share by 127% in the year to September 30.

Quantum’s revenue increased by 11.5% to R6bn, with a 10.7% increase of R545m in South African operations and a 23.2% increase of R74m from other African countries. Other African countries contributed 6.6% to group revenue versus 5.9% the previous year, the group said in a statement on Friday.

Margin compression was due to being unable to recover increases in the cost of feed raw material and other operating costs from customers, especially in the layer farming, eggs and Ugandan businesses.

An HPAI (avian influenza) outbreak in January had a major impact at the Lemoenkloof layer farm in the Western Cape, which affected operations for the rest of the financial year.

Repopulation of the farm started in July after some 400 000 layer hens were culled. The farm supplies about 13% of the group’ s total egg production.

False positive tests for HPAI were experienced on two farms in Gauteng and North West, which resulted in a quarantine of layer hens that still had to be fed, at a higher cost, beyond their normal age of depopulation.

Insurance for the HPAI outbreak at Lemoenkloof Farm – R20m was received – was limited to risk associated with direct losses from the culling of infected flocks, and did not cover lost production and lower sales volumes. A big increase in load shedding caused costs to rise due to additional overtime costs, increased fuel usage, having to transport products over longer distances and some previously planned raw materials not being available for feed production.

An unprotected strike at Kaalfontein Farm disrupted operations and increased costs. The Kaalfontein Farm provides about 15% of Quantum Foods’ South African egg production.

Forty employees were dismissed and additional security and temporary labour were employed at short notice while starting a process to fill these positions. The change of staff and a maintenance backlog resulting from the labour action resulted in “much higher operational costs and hampered production efficiencies at the farm”, Quantum’s directors said.

A relatively large layer flock with the depressed consumer environment had reated an imbalance in the supply and d emand of eggs, which put pressure on egg selling prices. This and higher production costs resulted in margin pressures and losses in the egg business. The East London packing station was closed in August this year, resulting in the exit of some unprofitable distribution routes and once-off exit costs.

The group said cost management and efficiency would be key drivers of success and sustainability in the next year.