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QUANTUM FOODS HOLDINGS LIMITED - Audited Summary Consolidated Financial Results for the year ended 30 September 2014

Release Date: 24/11/2014 07:05
Code(s): QFH     PDF:  
Wrap Text
Audited Summary Consolidated Financial Results for the year ended 30 September 2014

Quantum Foods Holdings Ltd
(previously Business Venture Investments no 1792 (Pty) Ltd)
(Incorporated in the Republic of South Africa)
(Registration number: 2013/208598/06)
(Share code: QFH)
(ISIN code: ZAE000193686)

("Quantum Foods" or "the Group" or "the Company")


Audited summary consolidated financial results for the year ended 30 September 2014

SALIENT FEATURES

- Revenue increased by 2% to R3 561 million (2013: R3 483 million)

- Operating loss improved from a R251 million loss in 2013 to a R21 million loss in the current period

- Operating profit/(loss) (before tax and items of a capital nature)* improved from a R21 million 
  loss to a profit of R27 million

- Headline earnings increased by 133% to a profit of R26 million (2013: R80 million loss)

- Earnings per share increased by 97% to a 4 cents loss per share (2013: 123 cents loss per share)

- Headline earnings per share increased by 133% to 11 cents (2013: 34 cents loss per share)


* Income or expenditure of a capital nature on the face of the statement of comprehensive income, being 
  all profit or loss items that are excluded in the calculation of headline earnings per share. The principle 
  items included under this measurement are profits or losses on disposal of property, plant and equipment 
  and impairments of property, plant and equipment.

Enquiries:

Quantum Foods: +27 21 864 8600, info@quantumfoods.co.za

Hennie Lourens: +27 82 808 3529, hennie.lourens@quantumfoods.co.za

Andre Muller: +27 83 660 6088, andre.muller@quantumfoods.co.za

PSG Capital - Willie Honeyball: +27 21 887 9602, willieh@psgcapital.com


COMMENTARY

Introduction
For Quantum Foods, the year under review was a momentous one. It was confirmed that Quantum Foods would
unbundle from the Pioneer Food Group Ltd ("Pioneer Foods") and be listed separately on the main board of 
the JSE. This took place on 6 October 2014.

Financial overview

The Group was established following an internal restructuring process within Pioneer Foods and its subsidiaries 
("the Pioneer Food Group") during the financial year. As an operating segment of Pioneer Foods, the Group did not 
prepare separate financial statements, resulting in "carve-out financial statements" having to be presented as 
comparative figures. The capitalisation of the R1.3 billion intergroup loan with Pioneer Foods on 1 October 2013 
had a significant impact on the finance charge in the 2014 statement of comprehensive income as well as on equity 
in the statement of financial position at 30 September 2014.

Group revenue increased by 2.2% to R3.6 billion. Revenue from South African operations remained flat at R3.4 billion, 
with the increase in revenue from the feed business due to higher volumes and the effect of higher raw material 
costs recovered in feed selling prices, offset by a decline in revenue from the broiler business following the 
downscaling of the Western Cape operations in the second half of 2013. Revenue from African operations increased by 
60% to R152 million.

Cost of sales increased by 3.6% to R3.0 billion. Cost of sales includes the biological assets (poultry) and 
agricultural produce (eggs) fair value adjustments that have been realised and which are recorded in other gains 
and losses. The fair value adjustment for the year ended 30 September 2014 was R112.5 million compared to R55.5 million 
for 2013. Gross profit, excluding these fair value adjustments, improved from 18.9% to 19.4%.

Cash operating expenses decreased, mostly as a result of the downscaling of the Western Cape broiler business, but also
due to the increased traction of various cost-saving initiatives implemented during the year.

The 2014 operating loss of R20.9 million includes an impairment expense of R49.5 million, while the 2013 operating loss 
of R251.5 million includes an impairment expense of R232.0 million.

Headline earnings improved to 11 cents per share (2013: loss of 34 cents per share).

Cash generated by operations amounted to R41 million in 2014. This includes an increased investment in working capital
of R28 million. With the domestic capital programme largely completed at the end of the 2013 financial year and further
African expansions only planned for the 2015 financial year, net investment in assets for the 2014 year amounted to R41
million. The Group had no interest-bearing debt at 30 September 2014.

Operational overview

Trading conditions in South Africa were challenging during the financial year and especially so for companies trading 
in the poultry sector. The prices of maize, the biggest input in animal feed costs, reached record levels on SAFEX, 
and the cost of soybean meal, the second largest input in animal feed, was negatively affected by the weaker rand and 
high prices on the Chicago Board of Trade. This led to substantial increases in feed costs, which could not be recovered 
in the selling prices of chicken meat and eggs, and therefore, had a negative impact on the results of the broiler and 
egg businesses.

Nova Feeds

The animal feed business performed well, with external sales volumes increasing by 6% for the year. Nova Feeds continues
to supply the leading dairy farmers in the Western Cape as well as some of the largest independent poultry producers in
South Africa.

Nulaid eggs and layer livestock

The egg business improved on its performance of 2013, but margins remained low due to increased feed costs and disease
challenges that affected production efficiency. Sales volumes declined as a result of a reduction in the quantity of 
eggs procured from contracted producers; however, selling prices recovered well. The Nulaid brand was awarded icon brand
status for the second year running, and is regarded as one of the top food brands in South Africa.

Tydstroom broilers

The broiler business also improved on its financial performance of 2013, but remained loss-making. High feed costs could
not be recovered in final product pricing, with the price of broiler meat remaining under pressure, especially due to
imports and conditions in the domestic supply environment. This led to a further impairment of broiler assets during the
financial year.

An agreement was reached with Astral Operations Ltd for the supply of live broilers to abattoir operations in the
Western Cape. The remaining abattoir in the province (Durbanville) was closed, giving Quantum Foods the opportunity to
focus on broiler farming operations, while reducing the business risk from a broiler meat market perspective.

African operations

The African operations produced a good set of results. Turnover and profitability in Zambia increased substantially, with
Mega Eggs included for a full year. Uganda delivered its highest profits since the business was acquired due to an 
excellent improvement in sales volumes.

Prospects

The outlook for the South African economy remains challenging. Low economic growth, higher inflation and labour unrest
prevail in an environment that has a continual negative impact on consumer spending. That said, the current tariff 
regime for imported broiler meat, expected lower supply of eggs, the improvement in world supply of critical raw 
materials for animal feed manufacturing and continued focus on improved efficiency bode well for the year ahead.

Dividend

No dividend has been declared for the year ended 30 September 2014. The Group does not yet have a formal dividend
policy, and the Board will assess the ability to declare and pay dividends on an annual basis.

By order of the Board

N Celliers                                              HA Lourens
Chairman                                                Chief Executive Officer

Wellington
24 November 2014


CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                                            Audited               Audited
                                                                       30 September          30 September
                                                                               2014                  2013
                                                          Notes               R'000                 R'000
ASSETS
Non-current assets                                                        1 061 357             1 132 722
Property, plant and equipment                                             1 045 078             1 124 027
Intangible assets                                                             7 116                    59
Investment in associates                                                      6 112                 5 517
Deferred income tax                                                           3 051                 3 119

Current assets                                                              985 291               813 117
Inventories                                                                 232 544               232 190
Biological assets                                                           292 372               276 737
Trade and other receivables                                                 353 863               278 607
Derivative financial instruments                                                991                   901
Current income tax                                                                -                   462
Cash and cash equivalents                                                   105 521                24 220

Total assets                                                              2 046 648             1 945 839

EQUITY AND LIABILITIES

Capital and reserves attributable to owners 
of the parent                                                             1 461 224               102 263
Share capital                                                4            1 585 386                     -
Net invested equity                                                              -                 38 071
Other reserves                                               5             (155 395)               24 472
Retained earnings                                                            31 233                39 720

Total equity                                                              1 461 224               102 263

Non-current liabilities                                                     195 922               207 105
Deferred income tax                                                         189 577               197 811
Provisions for other liabilities and charges                                  6 345                 9 294

Current liabilities                                                         389 502             1 636 471
Trade and other payables                                                    388 037               327 456
Current income tax                                                            1 465                   630
Borrowings                                                    6                   -             1 308 385

Total liabilities                                                           585 424             1 843 576

Total equity and liabilities                                              2 046 648             1 945 839



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                            Audited               Audited
                                                                         Year ended            Year ended
                                                                       30 September          30 September
                                                                               2014                  2013
                                                           Note               R'000                 R'000
Revenue                                                                   3 560 943             3 483 351
Cost of sales                                                            (2 982 629)           (2 879 966)
Gross profit                                                                578 314               603 385

Other income                                                                 14 450                19 744
Other gains/(losses) - net                                    7              74 767              (146 446)
Sales and distribution costs                                               (261 203)             (270 697)
Marketing costs                                                              (9 080)              (13 983)
Administrative expenses                                                     (95 284)              (93 830)
Other operating expenses                                                   (322 823)             (349 661)

Operating loss                                                              (20 859)             (251 488)

Investment income                                                             5 899                10 100
Finance costs                                                                (4 974)             (111 128)
Share of profit of investments accounted for 
using the equity method                                                         595                   335

Loss before income tax                                                      (19 339)             (352 181)
Income tax expense                                                           10 852                65 349

Loss for the year                                                            (8 487)             (286 832)

Other comprehensive income/(loss) for the year
Items that may subsequently be reclassified to 
profit or loss:
Fair value adjustments to cash flow hedging reserve                             238                     -
  For the year                                                                  331                     -
    Deferred income tax effect                                                  (93)                    -
Movement on foreign currency translation reserve
   Currency translation differences                                         (19 927)               26 328

Total comprehensive income/(loss) for the year                              (28 176)             (260 504)

Loss for the year attributable to:
  Owners of the parent                                                       (8 487)             (286 832)
                                                                             (8 487)             (286 832)
Total comprehensive income/(loss) for the year 
attributable to:
  Owners of the parent                                                      (28 176)             (260 504)
                                                                            (28 176)             (260 504)

Loss per ordinary share (cents)                                                  (4)                 (123)
Diluted loss per ordinary share (cents)                                          (4)                 (123)



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                                                            Audited               Audited
                                                                         Year ended            Year ended
                                                                       30 September          30 September
                                                                               2014                  2013
                                                                              R'000                 R'000

Share capital (refer to Note 4)                                           1 585 386                     -
Opening balance                                                                   -                     -
Borrowings and net invested equity capitalised 
during the reporting period                                               1 344 176                     -
Common control transaction                                                  160 178                     -
Shares issued during the reporting period                                    81 032                     -

Net invested equity                                                               -                38 071
Opening balance                                                              38 071               (50 873)
Net invested equity capitalised during the 
reporting period                                                            (38 071)                    -
Movement in net invested equity                                                   -               143 557
Assessed loss transferred to net invested equity                                  -               (54 613)

Other reserves (refer to Note 5)                                           (155 395)               24 472
Opening balance                                                              24 472                (1 856)
Other comprehensive income for the year                                     (19 689)               26 328
Common control transaction                                                 (160 178)                    -

Retained earnings                                                            31 233                39 720
Opening balance                                                              39 720                24 218
Loss for the year                                                            (8 487)             (286 832)
Contribution from Pioneer Foods                                                   -               302 334


Total equity                                                              1 461 224               102 263


All figures from 1 October 2013 are consolidated. Figures for earlier periods are presented on a carve-out basis. 
For further information see "Basis of preparation" in Note 1.


As the divisions of Quantum Foods were part of Pioneer Foods, all profits or losses relating to the divisions were 
transferred to Pioneer Foods at the end of each reporting period as either a contribution from or a distribution to 
Pioneer Foods.


CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                            Audited               Audited
                                                                         Year ended            Year ended
                                                                       30 September          30 September
                                                                               2014                  2013
                                                                              R'000                 R'000


NET CASH FLOW FROM OPERATING ACTIVITIES                                      39 908               163 870
Net cash profit from operating activities                                    69 550                25 298
Working capital changes                                                     (28 292)              139 197
Net cash generated from operations                                           41 258               164 495
Income tax paid                                                              (1 350)                 (625)


NET CASH FLOW FROM INVESTING ACTIVITIES                                     (35 359)             (467 310)
Additions to property, plant and equipment                                  (37 364)             (166 066)
Additions to intangible assets                                               (7 188)                    -
Proceeds on disposal of property, plant and equipment                         3 294                 3 665
Business combinations, net of cash acquired                                       -              (315 009)
Interest received                                                             5 899                10 100

Net cash surplus/(deficit)                                                    4 549              (303 440)


NET CASH FLOW FROM FINANCING ACTIVITIES                                      76 752               317 321
Repayment of borrowings                                                           -               (17 442)
Proceeds from issue of ordinary shares                                       81 032                     -
Interest paid                                                                (4 280)             (111 128)
Movement in net invested equity                                                   -               143 557
Contributions received                                                            -               302 334


Net increase in cash  cash equivalents and bank overdrafts                   81 301                13 881
Net cash, cash equivalents and bank overdrafts at beginning of year          24 220                10 339


Net cash, cash equivalents and bank overdrafts at end of year               105 521                24 220


CONSOLIDATED SEGMENT REPORT

                                                                            Audited               Audited
                                                                         Year ended            Year ended
                                                                       30 September          30 September
                                                                               2014                  2013
                                                                              R'000                 R'000

Segment revenue                                                           3 560 943             3 483 351
  Eggs and layer livestock                                                1 086 619             1 081 384
  Broilers                                                                1 241 320             1 318 775
  Animal feed                                                             1 080 880               988 333
  Africa                                                                    152 124                94 859

Segment results                                                             (20 859)             (251 488)
  Eggs and layer livestock                                                  (16 435)              (54 430)
  Broilers                                                                 (101 267)             (312 261)
  Animal feed                                                                60 889                91 661
  Africa                                                                     35 114                20 403
  Other                                                                         840                 3 139


A reconciliation of the segment results to operating loss 
before income tax is provided below:
Segment results                                                             (20 859)             (251 488)
Adjusted for:
  Interest income                                                             5 899                10 100
  Finance costs                                                              (4 974)             (111 128)
  Share of profit of associated companies                                       595                   335
Loss before income tax per statement of comprehensive income                (19 339)             (352 181)


Items of a capital nature per segment included in other 
gains/(losses) - net
Impairment of property, plant and equipment and intangible 
 assets before income tax                                                    49 478               232 000
  Eggs and layer livestock                                                        -                25 890
  Broilers                                                                   49 478               206 110


NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

BACKGROUND

The Group was established during the current reporting period. The Group represents the business of Pioneer Foods 
related to the production of eggs, chicken products, animal feed and poultry livestock. The Group comprises the 
following businesses: the Nulaid business, the Tydstroom business and the Nova Feeds business, which were divisions 
of Pioneer Foods (Pty) Ltd; Philadelphia Chick Breeders (Pty) Ltd; Lohmann Breeding SA (Pty) Ltd; Bokomo Uganda 
(Pty) Ltd; the agricultural business activities of Bokomo Zambia Ltd, and an investment in Bergsig Breeders 
(Pty) Ltd, classified as an associate. These businesses were legally bound together through a reorganisation that 
occurred on 1 October 2013. Quantum Foods Zambia Ltd acquired the agricultural business activities of Bokomo 
Zambia Ltd on 1 August 2014 as part of this reorganisation.

1.  Basis of preparation

The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Ltd Listings
Requirements for preliminary reports, and the requirements of the Companies Act, No 71 of 2008, applicable to summary 
financial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework 
oncepts and the measurement and recognition requirements of International Financial Reporting Standards ("IFRS") and the 
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued 
by the Financial Reporting Standards Council and also, as a minimum, to contain the information required by IAS 34 - 
Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements 
from which the summary consolidated financial statements were derived are in terms of IFRS and are consistent with those 
accounting policies applied in the preparation of the previous consolidated annual financial statements.

The consolidated annual financial statements are based on the predecessor accounting model. This method requires that 
the assets and liabilities of the Group are presented using the carrying amounts from the highest level of common 
control (i.e. Pioneer Foods) for which consolidated financial statements are prepared. As an operating segment of Pioneer 
Foods, the Group did not prepare separate financial statements in accordance with IFRS in the normal course of business 
for the periods up to and including 30 September 2013.

Predecessor accounting requires that comparative figures are presented as if the restructuring had taken place at the 
start of the first reporting period presented. Accordingly, the comparative figures were prepared on a carve-out basis 
by extracting the historical assets, liabilities, revenues and expenses reflected in the consolidated financial statements 
of Pioneer Foods.

The directors take full responsibility for the preparation of the summary consolidated financial statements and that 
the financial information has been correctly extracted from the underlying annual financial statements.

2. Accounting policies

These summary consolidated financial statements incorporate accounting policies that are consistent with those applied 
in the Group's consolidated financial statements for the year ended 30 September 2014 and with those of previous 
financial years, except for the adoption of the following amendments to published standards and interpretations that 
became effective for the current reporting period beginning on 1 October 2013:

- IFRS 10 - Consolidated financial statements
- IFRS 12 - Disclosure of interest in other entities
- IFRS 13 - Fair value measurement
- Amendments to IAS 19 - Employee benefits
- Revised IAS 27 ­ Separate financial statements
- Revised IAS 28 ­ Investments in associates and joint ventures

The adoption of these amendments to standards and interpretations did not have any material impact on the Group's 
results and cash flows for the year ended 30 September 2014 and the financial position at 30 September 2014.

3. Impairment of property, plant and equipment

The Group continually considers the existence of impairment indicators relating to items of property, plant and 
equipment and cash-generating units ("CGUs"). For assets or CGUs where such impairment indicators exist, the Group 
performs impairment tests by comparing the asset's or CGU's carrying amount to its respective recoverable amount. An 
impairment loss is only recognised if the asset's or CGU's carrying amount exceeds its respective recoverable amount.

During the reporting period, the poultry industry in South Africa continued to struggle, which led to the broiler 
business recognising losses. As a result, the carrying value of property, plant and equipment was impaired to its 
recoverable amount. The recoverable amount of an asset or CGU is the higher of its value-in-use or fair value less 
costs to sell.

Fair value less cost to sell is the amount obtainable from the sale of an asset or CGU in an arm's length transaction 
between knowledgeable, willing parties, less the cost of disposal. Value-in-use calculations are pre-tax cash flow 
projections based on using the estimated growth rates stated below.

In determining the fair value less costs to sell the Group applied the income approach and market approach.

In terms of the income approach, the discounted cash flow method is used to determine the present value of projected 
future cash flows for a CGU using a rate of return that is commensurate with the risk associated with the business and 
the time value of money. This approach requires assumptions about revenue growth rates, operating margins, tax rates 
and discount rates. The assumptions regarding growth are based on the CGU's internal forecasts for revenue, operating 
margins and cash flows for a period of five years and by application of a perpetual long-term growth rate thereafter. 
Past experience, economic trends as well as market and industry trends were taken into consideration. The discount 
rate used to arrive at the present value of future cash flows represents the weighted average cost of capital 
("WACC") for comparable companies operating in similar industries as the applicable CGU, based on publicly available 
information. The WACC is an estimate of the overall required rate of return on an investment for both debt, and equity 
owners. Its determination requires separate analysis of the cost of equity and debt, and considers a risk premium 
based on an assessment of risks related to the projected cash flows of the CGU.

                                                                            Audited
                                                                       30 September
                                                                               2014
                                                                              R'000
The key assumptions used in performing the impairment test, 
by CGU, were as follows:

Discount rate:
Broiler business                                                               17.0%

Perpetual growth rate:
Broiler business                                                                5.5%


In addition to the impairment charge of R232.0 million 
recognised in the results for the year ended 30 September 2013, 
a further impairment charge of R49.5 million is 
recognised in the current reporting period.

The carrying value of property, plant and equipment was 
impaired as follows based on the calculation performed:

Broiler business
Property, plant and equipment                                                49 478


For the avoidance of doubt, the aforementioned impairment in 
the current reporting period was already accounted for in the 
interim carve-out results for the six months ended 31 March 2014.

                                                                            Audited
                                                                       30 September
                                                                               2014
                                                                              R'000
4. Share capital 

Issued and fully paid - ordinary shares
233 284 332 (2013: nil) ordinary no par value shares                      1 585 386

Reconciliation of shares issued during the reporting period
Opening balance                                                                   -
Shares issued to acquire entities under common control                    1 504 354
Additional share capital raised                                              81 032
                                                                          1 585 386


                                                                            Audited               Audited
                                                                       30 September          30 September
                                                                               2014                  2013
                                                                              R'000                 R'000
5. Other reserves
   Hedging reserve                                                              238                     -
   Common control reserve                                                  (160 178)                    -
   Foreign currency translation reserve                                       4 545                24 472
                                                                           (155 395)               24 472

The interest-bearing borrowings from Pioneer Foods and net invested equity were converted to share capital on 
1 October 2013. The difference between this share capital and the total amount of capital raised from shares 
issued to acquire the businesses under common control is recognised as a common control reserve in the statement 
of changes in equity.

The hedging reserve relates to the change in fair value of derivative financial instruments. These derivative 
financial instruments include futures.

The foreign currency translation reserve relates to exchange differences arising from translation of foreign 
subsidiaries' statements of comprehensive income at average exchange rates for the year and their statements of 
financial position at the ruling exchange rates at the reporting date if the functional currency differs.

6. Borrowings

The interest-bearing loan from Pioneer Foods was converted to equity on 1 October 2013 as part of the restructuring 
of the Pioneer Food Group.




                                                                            Audited               Audited
                                                                         Year ended            Year ended
                                                                       30 September          30 September
                                                                               2014                  2013
                                                                              R'000                 R'000                                                               
7. Other gains/(losses) - net

Biological assets fair value adjustment                                      51 950                44 477
 Unrealised - reflected in carrying amount of biological assets               9 767                14 432
 Realised - reflected in cost of goods sold                                  42 183                30 045
Agricultural produce fair value adjustment                                   70 722                27 022
Foreign exchange differences                                                   (272)                5 930
Foreign exchange contract fair value adjustments                                230                 7 067
Profit on disposal of property, plant and equipment                           1 615                 1 058
Impairment of property, plant and equipment                                 (49 478)             (155 056)
Impairment of intangible assets                                                   -               (76 944)
                                                                             74 767              (146 446)


                                                                            Audited               Audited
                                                                         Year ended            Year ended
                                                                       30 September          30 September
                                                                               2014                  2013
                                                                              R'000                 R'000 
8. Earnings per ordinary share

Basic and diluted
The calculation of basic and diluted earnings per share is 
based on earnings attributable to owners of the parent divided 
by the weighted average number of ordinary shares in
issue during the year:

Loss for the year                                                            (8 487)             (286 832)

Headline earnings ("HE") is calculated based on Circular 2/2013 
issued by the South African Institute of Chartered Accountants.

The Group has no dilutive potential ordinary shares.

Reconciliation between profit attributable to owners of the 
parent and headline earnings 
Profit/(loss) for the period attributable to owners of the parent            (8 487)             (286 832)

Remeasurement of items of a capital nature (IAS 33 earnings adjusted)
Profit on disposal of property, plant and equipment                          (1 312)                 (850)
 Gross                                                                       (1 615)               (1 058)
 Tax effect                                                                     303                   208
Impairment of property, plant and equipment and intangible assets            35 840               208 098
 Gross                                                                       49 478               232 000
 Tax effect                                                                 (13 638)              (23 902)

Headline earnings/(loss) for the period                                      26 041               (79 584)

Weighted average number of ordinary shares in issue ('000)                  233 284               233 284

Earnings/(loss) per share (cents)
Basic and diluted                                                                (4)                 (123)
Headline earnings/(loss) per share (cents)
Basic and diluted                                                                11                   (34)


9. Contingent liabilities

Litigation
Dispute with egg contract producers
As previously reported, six egg contract producers proceeded with claims in the Western Cape High Court, Cape Town. 
The claims from three of the six contract producers are still unresolved.

Pioneer Foods is defending contractual claims from its privatised egg contract producers and the matters were set down 
for arbitration during 2012. Since the hearings commenced in 2012, settlements were negotiated with the two egg contract 
producers that had the largest claims and a further contract producer withdrew its claim. These settlements had no adverse 
financial impact on Pioneer Foods.

Pioneer Foods filed pleas to all these claims and, in two of these claims, counterclaims have been filed to recover damages 
suffered by Pioneer Foods as a result of breach of contract by the contract producers. Pioneer Foods is awaiting the setting 
of trial dates in these two matters.

Although the claims were brought against Pioneer Foods, the Group indemnified Pioneer Foods against any damages which may be 
suffered as a result of the disputes, in terms of the internal restructuring agreements made on acquisition of the egg business.

Management is of the view, based on legal advice regarding the merits of the claims against the Group, that the Group will not
incur any material liability in this respect.

Dispute with broiler farms and breeder farms

As previously reported, several breeder farms and broiler farms (four in total) also filed claims against Pioneer Foods for the 
alleged breach of the terms of their supply agreements with Pioneer Foods. One of the broiler farms withdrew its claim during 
the period under review.

Only letters of demand have been received thus far, and these claims should eventually be settled by arbitration. No date has 
been set for the arbitration proceedings. Although these claims were brought against Pioneer Foods, the Group indemnified 
Pioneer Foods against any damages which may be suffered as a result of these disputes, in terms of the internal restructuring 
agreements made on acquisition of the broiler business.

A further breeder farm has filed a claim against Pioneer Foods for the alleged breach of the terms of a shareholder agreement.
Final judgement was granted in favour of Pioneer Foods during April 2014.

Based on legal advice regarding the merits of these claims, management is of the view that the Group will not incur any material
liability in this respect.

10. Future capital commitments

Capital expenditure approved by the Board and contracted for amounted to R40.5 million (30 September 2013: R12.8 million). Capital
expenditure approved by the Board, but not contracted for yet, amounted to R73.8 million (30 September 2013: R20.0 million).

11.  Fair value measurement

All financial instruments measured at fair value are classified using a three-tiered fair value hierarchy that reflects the 
significance of the inputs used in determining the measurement. The hierarchy is as follows:

Level 1:
Fair value measurements derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:
Fair value measurements derived from inputs other than quoted prices included within level 1 that are observable for the asset 
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3:
Fair value measurements derived from valuation techniques that include inputs for the asset or liability that are not based on
observable market data (unobservable inputs).


The following table presents the Group's financial assets and liabilities that are measured at fair value at


30 September 2014                                             Level 1                     Level 2                    Level 3
                                                                R'000                       R'000                      R'000
Assets measured at fair value
Derivative financial instrumens
- Foreign exchange contracts                                        -                         991                          -
Biological assets
 - Livestock                                                        -                           -                    292 372
                                                                    -                         991                    292 372
Total assets measured at fair value                                                                                  293 363


There were no transfers between any levels during the period, nor were there any significant changes to the valuation techniques
and inputs used to determine fair values.

Financial instruments in level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter securities) is
determined by using valuation techniques. These valuation techniques maximise the use of observable market data, where it is
available, and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an 
instrument are observable, the instrument is included in level 2.

The Group uses a variety of methods that make assumptions that are based on existing market conditions at the reporting date.
Quoted market prices or dealer quotes for similar instruments are used for derivative financial instruments. Other techniques, 
such as estimated discounted cash flows, are used to determine the fair value for the remaining financial instruments. The fair 
value of foreign exchange contracts is determined using quoted forward exchange rates at the reporting date.

Financial instruments in level 3
The carrying amounts of cash and cash equivalents, trade and other receivables less provision for impairment, trade and other
payables and short-term borrowings are assumed to approximate their fair values due to the short term until maturity of these
assets and liabilities.

The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at 
the current market interest rate that is available to the Group for similar financial instruments. The fair values of long-term 
investments and long-term borrowings are not materially different from the carrying amounts.

Biological assets
The layer and broiler livestock and agricultural produce are measured at fair value, which is determined by using unobservable
inputs and is categorised as level 3 under the fair value hierarchy. Fair values of livestock held for breeding, point-of-lay hens, 
broilers and hatching eggs are determined with reference to market prices of livestock of similar age, breed and genetic material.

The fair value of the layer birds, which includes rearing and layer livestock, is determined by the selling prices of day-old 
chicks, point-of-lay hens and culls. The fair value of the layer birds at the different stages in the life cycle is based on 
their age by using a standard production profile.

The fair value of broiler livestock is determined by the selling prices of day-old chicks and live birds at slaughter age. The 
fair value of the broiler livestock at the different stages in the life cycle is determined by using a standard production profile.

Changes in the fair value are included in profit or loss, with a charge of R10,198,684 (2013: R16,019,060) being recognised as the
unrealised fair value adjustment in profit or loss in the current period to adjust the biological assets to fair value.

The effect of an increase in selling prices will result in an increase in the fair value of the livestock. The key unobservable 
inputs, used in determining fair value, and which are not interrelated, are the selling prices of day-old chicks, point-of-lay hens, 
culls and live birds.

12. Events after the reporting period

Restructuring and listing of shares
On 6 October 2014, Pioneer Foods unbundled its shareholding in the Group, and Quantum Foods Holdings Ltd was listed on the
main board of the JSE.

No other events that may have a material effect on the Group have occurred after the end of the reporting period
and up to the date of approval of the audited summary consolidated financial statements by the Board.

13. Preparation of financial statements

The summary consolidated financial statements have been prepared under the supervision of AH Muller, CA(SA), Chief Financial
Officer.

14. Audit

These summary consolidated financial statements for the year ended 30 September 2014 have been audited by
PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The auditor also expressed an unmodified opinion
on the annual financial statements from which these summary consolidated financial statements were derived.

Copies of the auditor's reports on the summary consolidated financial statements and the annual consolidated financial statements 
are available for inspection at the Company's registered office, together with the financial statements identified in the
respective auditor's reports.

The auditor's report does not necessarily report on all of information contained in this announcement. Users are therefore
advised that, in order to obtain a full understanding of the nature of the auditor's engagement, they should obtain a copy of the
auditor's report together with the accompanying financial information from the issuer's registered office.

Directors
N Celliers (Chairman), LP Retief (Lead independent), HA Lourens (CEO)*, AH Muller*, PE Burton, Prof ASM Karaan, WA Hanekom 
(*Executive)


The Board was constituted on 29 July 2014. WA Hanekom was appointed on 1 October 2014. PM Roux resigned on 7 October 2014.


Company secretary
INT Ndlovu
Email: Ntokozo.Ndlovu@quantumfoods.co.za

Company details
11 Main Road, Wellington, 7655, PO Box 1183, Wellington, 7654, South Africa
Tel: 021 860 8600 Fax: 021 873 5619
Email: info@quantumfoods.co.za
Website: www.quantumfoods.co.za

Transfer secretaries
Computershare Investor Services (Pty) Ltd, PO Box 61051, Marshalltown, 2107, South Africa
Tel: 011 370 5000 Fax: 011 688 5209

Sponsor
PSG Capital (Pty) Ltd, PO Box 7403, Stellenbosch, 7599, South Africa
Tel: 021 887 9602 Fax: 021 887 9624


Date: 24/11/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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