Quantum Foods spent R52 million more in diesel costs and R35m on generators as it tried to stave off the effects of load shedding, worsening an already dire full year to end-September in which it also had to write off R155m in biological assets.
With load shedding persisting, Quantum Foods was weighing further investments into diesel generators and could move its production operations to manual processes.
The company’s broiler, egg production and animal feed production is power-intensive.
CEO Hendrik Lourens said the company was now planning to institute mitigatory measures to the power supply crisis, including “securing diesel with enough storage capacity” and planning “to continue farming manually and using satellite connectivity” for communication.
“Interrupted electricity supply has direct and indirect impacts on Quantum Foods’ operations. We delayed further investment in renewable energy this year to address urgent energy requirements during longer load shedding periods,” he said Friday.
Despite the effects of load shedding, Quantum Foods lifted revenue from R6 billion a year ago to R6.9bn. Revenue for South African operations increased by 15.7% to R6.5bn.
However, Quantum Foods’ South African operations recorded an operating loss of R19m compared to a profit of R36m a year earlier.
This came as “the outbreak of highly pathogenic avian influenza ... affected many businesses” in the poultry industry, prompting the R155m write-off in biological assets, including layer hens and breeding stock.
“The outbreak resulted in lower profitability in the group’s farming and eggs businesses. The effect on the group and the poultry industry in South Africa, specifically in the northern parts of South Africa, has been more severe than in previous outbreaks, due to the more contagious nature of the avian influenza.”
Quantum Foods’ headline earnings per share decreased to a loss of 17.4 cents against a profit of 14.1c in the previous year. The dividend was passed.
In spite of this, cash flow from operating activities amounted to R276m, inclusive of a decreased investment in working capital of R53m.
A decrease in the investment in working capital also accounted for lower raw material costs, adjusted vendor payment terms for a key maize supplier and effective credit control.
Cash and cash equivalents increased from a net overdraft of R11m a year ago to close the current period under review at a positive balance of R71m. However, the value of Quantum Foods’ investment in the other African countries decreased by R50m.
On a segmental basis, Quantum Foods’ animal feeds business grew volumes “while managing costs tightly through a long and continued upward feed price cycle”, which was worsened by the annual growth rate of raw material cost increases of 14.8% since 2018.
Its Malmesbury feed mill was “running at full capacity”, while the eggs business returned to profitability in the last few months as it benefited “from a focused approach following the operational restructure that expanded value chain” control.
As a result of this, the animal feeds business raised revenues by 25%. External volumes increased by 6.7%, but the segment experienced lower internal demand for layer feed due to shrinking layer bird flock and the impact of highly pathogenic avian influenza.
“The African businesses came under pressure with much higher feed costs impacting demand for day-old livestock and feed. A major challenge was the supply of hominy chop and wheat bran, by-products from wheat and maize processing,” the company said.