Quantum Foods earnings soar, but avian flu risk clouds outlook

Egg prices increased significantly in the six months to March 31 due to the outbreak of Avian flu last year. Picture Independent Archives

Egg prices increased significantly in the six months to March 31 due to the outbreak of Avian flu last year. Picture Independent Archives

Published May 27, 2024


QUANTUM Food Holdings did really well to turn its 13% decline in half year revenue into a whopping 320% increase in operating profit to R61 million after trading conditions improved for poultry producers, in spite of the impact of avian flu.

Headline earnings a share (HEPS) increased by 651% to 21.7 cents, from 2.9 cents in the prior corresponding period. Earnings per share increased by 664% to 22.1 cents, from 2.9 cents.

Nevertheless, no interim dividend was declared, the same as at the halfway stage last year.

Further avian flu outbreaks were reported by South African producers, including at Quantum’s layer farm operations in the northern provinces during the six months to March 31. The value of the birds affected was about R37m versus nil in the prior comparative period.

Operational costs were reduced due to lower feed raw material costs and less load shedding hours. There was a R21m decrease in sales and distribution costs due to lower volumes sold, and an R11m reduction in generator fuel expenses. There were also lower manpower costs as some units were not fully operational in the period..

The operating profit margin also benefited from a “substantial” increase in egg prices, following a decreased national layer flock and lower egg production.

Key feed raw material costs were lower mainly due to reduced international selling prices. These costs were also partially offset by the rand weakening against the US dollar.

The average rand to US dollar weakened by 6.8% over the period. The average yellow maize price on the South African Futures Exchange fell 16.6%. The average landed price (Cape Town) of soya meal fell 5.7%.

The company said satisfactory progress was made in rebuilding its layer breeder flock. Layer breeder birds were placed in newly contracted facilities and alternative company-owned facilities to reduce the risk of diseases that could impact the future supply of hatching eggs.

Layer hatching eggs were imported to supplement the severely restricted own available supply.

By the end of the period, the company had enough layer breeder birds in production to supply its layer hatching egg requirements from which day-old chicks could be produced.

Also, independent egg production farmers were contracted in areas where the avian flu risk was assessed to be low.

Head office costs decreased to R7m from R9m. Cash and its equivalents improved to R186m from R71m.

In the egg segment during the period, the average egg selling price increase of 57.1% were offset by a 61.5% decrease in sales volumes.

The risk of HPAI was expected to remain high for the remainder of the 2024 financial year. Vaccines were available for the H5 HPAI strain, which affected birds in coastal provinces in previous outbreaks. Vaccines were not yet available for the H7 HPAI strain, which affected birds in the northern provinces last year.

“The South African government has published stringent protocols for voluntary vaccination against HPAI. To date, the company is not aware of any producers in South Africa who have successfully applied for vaccination.

“In the absence of vaccination, HPAI will remain a key risk factor,” the group said.

Prices of key raw material inputs had increased from the first half. This was expected to result in higher feed costs towards the end of 2024.

Egg selling prices had fallen which, with the expected increase in feed costs, should lead to lower margins from the egg business in the second half.

The operational and financial performance of the broiler breeder farming and commercial broiler farming operations in the Western Cape significantly improved in the first half.

The broiler farming operations at the breeder farm in Hartbeespoort were affected by the avian flu outbreak in the fourth quarter.

Overall, the Group’s other African operations recovered well from the weak financial performance experienced during the previous period, contributing satisfactorily to the company’s financial performance.