Quantum Food Holdings’ headline earnings a share sagged 82% to 2.9 cents in the six months to March 31, and the dividend was passed after its poultry operations were hit by high feed costs, load shedding and low egg prices.
Trading conditions in the period were the most challenging conditions experienced by Quantum Foods since its listing in October 2014, the directors said on Friday.
Revenue increased 22% to R3.45 billion. However, operating profit (before capital items) fell 57% to R15 million. Earnings per share fell by 82% to 2.9 cents.
The outlook was murky. Directors said that while the prices of raw material inputs had softened from levels seen in the interim period, feed costs would also depend on the rand not weakening significantly.
Lower feed raw material costs could positively affect earnings from the egg business. Earnings from the feeds and farming businesses were more resilient to increased feed raw material costs.
Earnings from the feeds and farming businesses were also more dependent on efficiencies, volumes and cost management. The migration to the Ross 308 breed would be largely completed by the end of the current financial year, and efficiency improvements were expected.
Egg selling prices firmed towards the end of the interim period, supported by lower supply from a reduced flock as some producers exited the market, or placed fewer birds due to the financial pressure in the egg industry.
However, these higher egg prices were still not sufficient for the business to be profitable.
There was also uncertainty as to how a reduction in egg supply would impact selling prices, particularly as a result of the HPAI (highly pathogenic avian influenza) outbreak in the Western Cape in April this year. HPAI remained a key risk that would influence poultry businesses going forward.
Increased load shedding in winter, which forms the bulk of the second half of the group’s financial year, would result in increased operational challenges and higher costs, which would negatively impact earnings.
The business in Mozambique should benefit from lower feed costs, and the expectation of higher egg selling prices following lower supply in South Africa.
Trading conditions in the six months ended March 31 this year were the most challenging conditions experienced by Quantum Foods since its listing in October 2014.
The main reasons for the challenging conditions were the record-high feed raw material costs; disrupted electricity supply; and an inability to recover increased production costs from customers.
In addition, the prior period included a loss of about R24m resulting from an outbreak of HPAI at the Lemoenkloof layer farm in the Western Cape in February last year, as well as the negative impact of labour unrest at the Kaalfontein layer farm in Gauteng.
These prior period matters did not re-occur in the current reporting period.