Wednesday, January 19

Quantum Foods Profits Fall Amid High Food Costs And Bird Flu Outbreak


JSE-listed poultry group Quantum Foods reported a 34% drop in operating profit to R144 million for the year ended September 30, 2021 (2020: R220 million), in part due to the rising feed prices and an outbreak of highly pathogenic avian influenza (HPAI) in South Africa.

Headline earnings fell 32% to R148 million (2020: R $ 18 million), earnings per share fell 34% to R102 million (2020: R156 million) and overall earnings per share fell 80.5 cents at 52.2 cents. However, the group achieved a 6% increase in revenue to R5 401 million (2020: R5 095 million).

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“The rise in world commodity prices was primarily due to the expectation that less favorable weather conditions in key planting areas of South America and North America would affect the 2021 harvest,” the group said in its results presentation.

“The cost of key raw materials, including corn, bran, corn chop and soybean meal, and the cost of other ingredients and feed additives increased.”

Impact of the outbreak

He said the impact of the highly pathogenic avian influenza outbreak (since April 2021) was felt through the loss of poultry stocks and food sales volumes, and the inability to export livestock due to borders of destination countries were closed to the sector.

Read: South African Commercial Poultry Farm Hit by Bird Flu Outbreak

“According to the South African Poultry Association, the layer flock decreased from 28.6 million in September 2020 to 26.5 million in September 2021. This decrease included approximately 2 million layer birds that were destroyed by producers to limit the spread of the IAAP, ”the company said.

“Egg prices also increased in the second half of fiscal 2021 due to the lower national supply of eggs. The South African broiler flock was affected by highly pathogenic avian influenza, especially at the breeder level. This resulted in a lower production of broiler hatching eggs and, subsequently, a lower supply of broilers and chicken meat on the market ”.

Small Talk Daily analyst Anthony Clark tells Moneyweb that Quantum’s financial results are consistent with what is happening in the agricultural and soft commodities space.

“Many companies involved on the input side, basically [related to] the purchase of corn, soybeans and other soft commodities has been greatly affected in the 12 to 18 months due to the rise in international prices ”, he points out.

“With rising energy costs, fuel and distribution costs and other administrative costs, something has to give and that is generally the margin, which means that all costs cannot be passed on to the consumer. You as a company [must] become more efficient, more innovative or basically absorb some of the margin in case their profits fall. ”

Clark adds that Quantum, however, has benefited from the high selling prices. Revenues from its breeding segment (broiler rearing) increased R62 million during the year, with sales prices adjusted for higher input costs, while volumes were lower.

Read: Who eats whom

Revenues for the feed segment also increased – by R203 million – due to the adjustment of sales prices to offset higher input costs.

“Curiously, due to the avian influenza outbreak that this country has experienced in 2021, it has come to the rescue of certain segments of the poultry and egg industry. [such as] the annihilation of certain types of flocks, typically breeder and layer flocks, ”says Clark.

“There has been much less product in the market to satisfy the available demand, which basically in economic terms means that if there is more demand than supply, prices generally increase … we have seen the prices of chicken. [soar] between 15% and 20% year-on-year “.

Quantum’s business is not entirely bleak, as it also posted some profit from its layer-raising business. The breeding division, which produces hens at laying point, performed better than the previous year, according to the group.

“Fiscal year 2020 was significantly affected by the cancellation or delay of customer orders at the point of contact,” he says. “As a result, the group experienced substantially higher feed costs and late transfer of birds to layer farms, negatively affecting profits. The discontinued depopulation of laying hens was resolved in fiscal year 2021, resulting in an efficiency improvement compared to fiscal year 2020. ”

The group’s performance in other African countries was relatively positive, contributing a 5.9% improvement (FY2020: 5.5%) to the group’s overall revenue for FY2021.

The board did not declare a final dividend for fiscal year 2021.

Read: Corporate Governance Win and Fail, and Some Surprising Results

Palesa Mofokeng is a Moneyweb intern.


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