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Unaudited Condensed Consolidated Interim Financial Statements for the Six Months ended 31 March 2015
Quantum Foods Holdings Limited
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")
Unaudited condensed consolidated interim financial statements for the six months ended 31 March 2015
SALIENT FEATURES
2015 2014 % Change
Revenue R1 675 million R1 739 million (3.7%)
Operating profit/(loss) R82 million (R24 million) 443%
Operating profit (before tax and items of a
capital nature)* R81 million R24 million 230%
Headline earnings R61 million R22 million 182%
Profit/(loss) per share 26.7 cents (5.7 cents) 566%
Headline earnings per share 26.3 cents 9.3 cents 182%
* Income or expenditure of a capital nature on the statement of comprehensive income, i.e. all profit or loss
items that are excluded in the calculation of headline earnings per share. The principal items excluded
under this measurement are profits or losses on disposal of property, plant and equipment and impairments
of property, plant and equipment.
COMMENTARY
Introduction
This report for the six months ended 31 March 2015 is the first for Quantum Foods as a separate listed entity
following the unbundling from the Pioneer Food Group Ltd (“Pioneer Foods”) on 6 October 2014.
A credible set of results was achieved in the period under review with a significant improvement in the
profitability of the South African operations of the Group. This was achieved due to a combination of lower
raw material input costs as well as the focused execution of a clear strategic plan resulting in derisking and
repositioning of the business.
FINANCIAL OVERVIEW
The Group was established following an internal restructuring process within Pioneer Foods and its subsidiaries
during the previous financial year. As an operating segment of Pioneer Foods, the Group did not prepare separate
financial statements, resulting in the presentation of “carve-out financial information” as comparative figures.
Group revenue decreased by 3.7% to R1.7 billion. Revenue from the South African operations decreased by 5% to
R1.6 billion, largely due to the decrease in revenue from the broiler business following the business model
change at the Western Cape operations. Revenue from the African operations increased by 26.7% to R94.4 million,
due to the inclusion of revenue from the Group’s Zambian distribution centre for the period under review.
Cost of sales decreased by 4.1% to R1.4 billion. Cost of sales includes the biological assets (livestock) and
agricultural produce (eggs) fair value adjustments that were realised and are recorded in other gains and losses.
The fair value adjustments for the six months ended 31 March 2015 are R116.6 million (2014: R46.1 million).
Gross profit, excluding these fair value adjustments, improved from 19.0% to 23.6%.
Cash operating expenses decreased mostly as a result of the revised Western Cape broiler business model,
but also due to the increased traction of various cost-saving initiatives implemented by the Group.
The 2014 operating loss of R24.0 million includes an impairment expense of R49.5 million.
Headline earnings improved to 26.3 cents per share (2014: 9.3 cents per share).
Cash generated by operations amounted to R111.5 million in 2015. This includes an increased investment in working
capital of R7.3 million. Capital expenditure in the period under review was R22.3 million. The R36 million farming
capacity expansion project in Zambia is well under way and is expected to be completed in the second half of
the year. Progress was made with the R38 million Ugandan egg layer farm project and capital expenditure should
commence in the second half of the year.
The Group had no interest-bearing debt at 31 March 2015.
OPERATIONAL OVERVIEW
Trading conditions in South Africa for companies in the poultry sector improved in the period under review. Maize and
soya meal costs were lower due to an improved international stock position benefiting egg and broiler production costs.
Egg prices improved due to a balanced supply and demand in the market and broiler prices increased despite a continual
increase in bone-in portion imports.
Nova Feeds
The animal feed business performed well. External sales volumes were on par with the previous period. Cost efficiencies,
volume and margin management remain the priorities. Nova Feeds continues to supply leading dairy farmers in the Western
Cape and some of the largest independent poultry producers in South Africa.
Nulaid eggs and layer livestock
The egg and layer livestock business improved significantly on its performance of 2014, with the operating margin
improving to 5%. Egg sales volumes were similar to 2014 with average selling prices improving by 4.0%.
Tydstroom broilers
The broiler business also improved significantly on its 2014 financial performance. The revised business model in the
Western Cape and an improvement in volumes and efficiencies at the Hartebeespoort abattoir both contributed positively.
African operations
Profitability from the African operations declined in the period under review. The weakening of the local currencies in
Zambia and Uganda against the South African rand negatively impacted profitability as reported. In Zambia, egg sales
volumes were affected by lower production and in Uganda farm efficiencies declined due to disease challenges.
PROSPECTS
The outlook for the South African economy remains challenging. Low economic growth, instability in electricity supply
and higher inflation prevail in an environment that has a continual negative impact on consumer spending. Maize costs
have recently increased due to the drought in the early part of 2015. The weakened rand also has a negative impact on
input costs.
Due to the repositioning of the Group, some of these risks have now been mitigated. The various supply chain and cost-
saving initiatives, as well as a relentless focus on efficiencies, should assist the Group in navigating through a more
challenging period.
DIVIDEND
No dividend has been declared for the six months ended 31 March 2015. 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
WA Hanekom HA Lourens
Chairman Chief Executive Officer
Wellington
25 May 2015
GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 March 31 March 30 September
2015 2014 2014
R'000 R'000 R'000
ASSETS
Non-current assets 1 034 293 1 061 172 1 061 357
Property, plant and equipment 1 015 126 1 050 918 1 045 078
Intangible assets 9 543 7 116
Investment in associates 6 226 5 966 6 112
Deferred income tax 3 398 4 288 3 051
Current assets 1 036 726 893 557 985 291
Inventories 189 924 223 515 232 544
Biological assets 285 974 291 244 292 372
Trade and other receivables 356 432 356 453 353 863
Derivative financial instruments 2 324 991
Current income tax 488
Cash and cash equivalents 202 072 21 857 105 521
Total assets 2 071 019 1 954 729 2 046 648
EQUITY AND LIABILITIES
Capital and reserves attributable to owners of
the parent 1 504 073 1 370 437 1 461 224
Share capital 1 585 386 1 585 386
Net invested equity 1 346 456
Other reserves (174 758) (2 390) (155 395)
Retained earnings 93 445 26 371 31 233
Total equity 1 504 073 1 370 437 1 461 224
Non-current liabilities 216 923 197 303 195 922
Deferred income tax 210 578 188 009 189 577
Provisions for other liabilities and charges 6 345 9 294 6 345
Current liabilities 350 023 386 989 389 502
Trade and other payables 349 252 384 323 388 037
Derivative financial instruments 1 470
Current income tax 771 1 196 1 465
Total liabilities 566 946 584 292 585 424
Total equity and liabilities 2 071 019 1 954 729 2 046 648
GROUP STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2015 2014 2014
Note R'000 R'000 R'000
Revenue 1 674 713 1 739 313 3 560 943
Cost of sales (1 395 930) (1 455 198) (2 982 629)
Gross profit 278 783 284 115 578 314
Other income 5 815 8 278 14 450
Other gains/(losses) net 3 121 027 13 528 74 767
Sales and distribution costs (92 872) (129 321) (261 203)
Marketing costs (5 045) (5 225) (9 080)
Administrative expenses (47 160) (46 139) (95 284)
Other operating expenses (178 229) (149 253) (322 823)
Operating profit/(loss) 82 319 (24 017) (20 859)
Investment income 4 175 2 670 5 899
Finance costs (1 686) (2 060) (4 974)
Share of profit of associate company 114 449 595
Profit/(loss) before income tax 84 922 (22 958) (19 339)
Income tax expense (22 710) 9 609 10 852
Profit/(loss) for the period 62 212 (13 349) (8 487)
Other comprehensive income/(loss) for the
period
Items that may subsequently be reclassified to
profit or loss:
Fair value adjustments to cash flow hedging reserve 5 770 238
For the year 11 695 331
Deferred income tax effect (2 337) (93)
Current income tax effect (938)
Realised to profit or loss (3 681)
Deferred income tax effect 93
Current income tax effect 938
Movement on foreign currency translation reserve
Currency translation differences (25 300) (26 862) (19 927)
Total comprehensive income/(loss) for the period 42 682 (40 211) (28 176)
Profit/(loss) for the period attributable to:
Owners of the parent 62 212 (13 349) (8 487)
62 212 (13 349) (8 487)
Total comprehensive income/(loss) for the
year attributable to:
Owners of the parent 42 682 (40 211) (28 176)
42 682 (40 211) (28 176)
Profit/(loss) per ordinary share (cents) 26.7 (5.7) (3.6)
Diluted profit/(loss) per ordinary share (cents) 26.7 (5.7) (3.6)
GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2015 2014 2014
R'000 R'000 R'000
Share capital 1 585 386 1 585 386
Opening balance 1 585 386
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 1 346 456
Opening balance 38 071 38 071
Net invested equity capitalised during the reporting
period (38 071)
Loan from Pioneer converted to equity 1 308 385
Other reserves (174 758) (2 390) (155 395)
Opening balance (155 395) 24 472 24 472
Other comprehensive income/(loss) for the year (19 530) (26 862) (19 689)
Recognition of share-based payments share
appreciation rights 167
Common control transaction (160 178)
Retained earnings 93 445 26 371 31 233
Opening balance 31 233 39 720 39 720
Profit/(loss) for the period 62 212 (13 349) (8 487)
Total equity 1 504 073 1 370 437 1 461 224
All figures from 1 April 2014 are consolidated. Figures for the six months ended 31 March 2014 are presented
on a carve-out basis. For further information see "Basis of preparation" in note 1.
GROUP STATEMENT OF CASH FLOWS
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2015 2014 2014
R'000 R'000 R'000
NET CASH FLOW FROM OPERATING ACTIVITIES 107 852 18 282 39 908
Net cash profit from operating activities 110 830 36 052 69 550
Working capital changes (7 319) (17 526) (28 292)
Cash effect from hedging activities 8 014
Net cash generated from operations 111 525 18 526 41 258
Income tax paid (3 673) (244) (1 350)
NET CASH FLOW FROM INVESTING ACTIVITIES (9 615) (18 585) (35 359)
Additions to property, plant and equipment (19 705) (22 589) (37 364)
Additions to intangible assets (2 624) (7 188)
Proceeds on disposal of property, plant and
equipment 8 539 1 334 3 294
Interest received 4 175 2 670 5 899
Net cash surplus/(deficit) 98 237 (303) 4 549
NET CASH FLOW FROM FINANCING ACTIVITIES (1 686) (2 060) 76 752
Proceeds from issue of ordinary shares 81 032
Interest paid (1 686) (2 060) (4 280)
Net increase/(decrease) in cash and cash
equivalents 96 551 (2 363) 81 301
Net cash and cash equivalents at beginning
of period 105 521 24 220 24 220
Net cash and cash equivalents at end of period 202 072 21 857 105 521
GROUP SEGMENT REPORT
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2015 2014 2014
R'000 R'000 R'000
Segment revenue 1 674 713 1 739 313 3 560 943
Eggs and layer livestock 548 848 524 050 1 086 619
Broilers 509 872 603 210 1 241 320
Animal feeds 521 555 537 525 1 080 880
Africa 94 438 74 528 152 124
Segment results 82 319 (24 017) (20 859)
Eggs and layer livestock 27 651 2 633 (16 435)
Broilers 14 312 (75 117) (101 267)
Animal feeds 30 032 29 498 60 889
Africa 14 201 18 721 35 114
Unallocated (3 877) 248 840
A reconciliation of the segment results to
operating profit/(loss) before income tax is
provided below:
Segment results 82 319 (24 017) (20 859)
Adjusted for:
Investment income 4 175 2 670 5 899
Finance costs (1 686) (2 060) (4 974)
Share of profit of associate company 114 449 595
Profit/(loss) before income tax per statement of
comprehensive income 84 922 (22 958) (19 339)
Items of a capital nature per segment included
in other gains/(losses) net
Impairment of property, plant and equipment
before income tax (49 478) (49 478)
Broilers (49 478) (49 478)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
BACKGROUND
The Group was established during the previous reporting period when the business of Pioneer Foods related to the
production of eggs, chicken products, animal feed and poultry livestock was incorporated as Quantum
Foods. The Group comprises the following businesses: the Nulaid Business, the Tydstroom Business and the
Nova Feeds Business which are divisions of Quantum Foods (Pty) Ltd; Philadelphia Chick Breeders (Pty)
Ltd; Lohmann Breeding SA (Pty) Ltd; Quantum Foods Uganda Ltd; Quantum Foods Zambia Ltd, and an
investment in Bergsig Breeders (Pty) Ltd, classified as an associate.
1. Basis of preparation
The unaudited condensed consolidated interim financial statements are prepared in accordance with
International Financial Reporting Standards ("IFRS"), IAS 34 Interim Financial Reporting, the Listings
Requirements of the JSE Ltd, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards
Council and the requirements of the Companies Act of South Africa. The accounting policies applied in
the preparation of these interim financial statements are in terms of IFRS and are consistent with those
applied in the previous consolidated annual financial statements.
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 31 March 2014.
Accordingly, the comparative interim financial information have been prepared on a carve-out basis by extracting
the historical assets, liabilities, revenues and expenses reflected in the consolidated financial statements
of Pioneer Foods.
2. Accounting policies
These condensed consolidated interim financial statements incorporate accounting policies that are
consistent with those applied in the Group's annual 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 applicable to the Group, that became effective for the current reporting period beginning
on 1 October 2014:
· Amendments to IAS 32 Financial instruments: Presentation
· Amendments to IAS 36 Impairment of assets
· Amendment to IFRS 2 Share based payment
· Amendment to IFRS 3 Business combinations
· Amendment to IFRS 8 Operating segments
· Amendment to IFRS 13 Fair value measurement
The adoption of these amendments to standards did not have any material impact on the Group's results and
cash flows for the six months ended 31 March 2015 and the financial position at 31 March 2015.
Critical accounting estimates and judgements
In preparing these condensed consolidated interim financial statements, the significant judgements made by
management in applying the Group's accounting policies and the key sources of estimation uncertainty were
the same as those that applied to the consolidated financial statements for the year ended 30 September 2014.
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 March 31 March 30 September
2015 2014 2014
R'000 R'000 R'000
3. Other gains/(losses) net
Biological assets fair value adjustment 65 926 31 760 51 950
Agricultural produce fair value adjustment 50 243 31 534 70 722
Foreign exchange differences 2 202 1 127 (272)
Foreign exchange contract fair value
adjustments 1 314 (2 426) 230
Fair value hedging adjustment on futures (178)
Profit on disposal of property, plant and
equipment 1 520 1 011 1 615
Impairment of property, plant and equipment (49 478) (49 478)
121 027 13 528 74 767
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2015 2014 2014
R'000 R'000 R'000
4. 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 period:
Profit/(loss) for the period attributable to owners
of the parent 62 212 (13 349) (8 487)
Headline earnings 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/(loss) attributable
to owners of the parent and headline earnings
Profit/(loss) for the period attributable to owners
of the parent 62 212 (13 349) (8 487)
Remeasurement of items of a capital nature
(IAS 33 earnings adjusted)
Profit on disposal of property, plant and equipment (956) (778) (1 312)
Gross (1 520) (1 011) (1 615)
Tax effect 564 233 303
Impairment of property, plant and equipment 35 840 35 840
Gross 49 478 49 478
Tax effect (13 638) (13 638)
Headline earnings for the period 61 256 21 713 26 041
Weighted average number of ordinary shares in
issue (`000) 233 249 233 249 233 249
Earnings per share (cents)
Basic and diluted 26.7 (5.7) (3.6)
Headline earnings per share (cents)
Basic and diluted 26.3 9.3 11.2
The earnings per share and headline earnings per share for the previous reporting periods set out above are
based on Quantum Foods' actual number of shares in issue on 6 October 2014, the date of listing on the JSE,
being 233 248 590 shares.
5. Contingent liabilities
Litigation
Dispute with egg contract producers
As previously reported, 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 allocation of trial dates in these two matters.
Although the claims were brought against Pioneer Foods, the Group indemnified Pioneer Foods against any
damages suffered as a result of same in terms of the internal restructuring agreements when it acquired
the egg business in terms of the internal restructuring.
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 respect of this matter.
Dispute with broiler farms and breeder farms
As previously reported, several breeder farms and broiler farms (four in total) filed claims against
Pioneer Foods for the alleged breach of the terms of their supply agreements with Pioneer Foods.
Only letters of demand were received. These claims have now prescribed as more than three years have
lapsed since the letters of demand were received. Although these claims were brought against Pioneer Foods,
the Group indemnified Pioneer Foods against any damages suffered as a result of same in terms of the internal
restructuring agreements when it acquired the broiler business in terms of the internal restructuring.
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 respect of these matters.
6. Future capital commitments
Capital expenditure approved by the Board and contracted for amount to R38.6 million (30 September 2014:
R40.5 million). Capital expenditure approved by the Board, but not contracted for yet, amount to R72.3 million
(30 September 2014: R73.8 million).
7. 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:
Level 1 Level 2 Level 3
31 March 2015 R'000 R'000 R'000
Assets measured at fair value
Derivative financial instruments
Foreign exchange contracts 2 100
Fair value hedges 224
2 324
Total assets measured at fair value 2 324
There were no transfers between any levels during the period, nor were there any significant changes to
the valuation techniques and input used to determine fair values.
8. Events after the reporting period
Business combinations
On 20 April 2015, Quantum Foods acquired the assets of Safe Eggs (Pty) Ltd, a producer of pasteurized eggs.
The purchase price of the business assets was R17.5 million.
On 7 May 2015, the Group entered into an agreement with Crown Chickens (Pty) Ltd, a wholly owned subsidiary
of Sovereign Food Investments Ltd, for the sale of the Hartebeespoort broiler abattoir business. The
selling price is R120 million. The agreement is subject to conditions precedent, fully set out in a SENS
dated 11 May 2015.
There have been no other events that may have a material effect on the Group that occurred after the end of
the reporting period and up to the date of approval of the condensed consolidated interim financial statements
by the Board.
9. Preparation of financial statements
The condensed consolidated interim financial statements have been prepared under the supervision of AH Muller,
CA(SA), Chief Financial Officer.
10. Audit
These results have not been audited or reviewed by the Company's external auditors.
ADMINISTRATION
Directors
WA Hanekom (Chairman), N Celliers, HA Lourens (CEO)*, AH Muller (CFO)*, PE Burton, Prof ASM Karaan, GG Fortuin
(* Executive)
PM Roux resigned on 7 October 2014. LP Retief resigned on 19 February 2015. GG Fortuin was appointed on 28 April 2015.
Company secretary
INT Ndlovu
Email: Ntokozo.Ndlovu@quantumfoods.co.za
Registered address
11 Main Road
Wellington
7655
PO Box 1183
Wellington
7654 South Africa
Tel: 021 864 8600 Fax: 021 873 5619
Email: info@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
ENQUIRIES
Quantum Foods
+27 21 864 8600
info@quantumfoods.co.za
Hennie Lourens
+27 82 808 3529
hennie.lourens@quantumfoods.co.za
André Muller
+27 83 660 6088
andre.muller@quantumfoods.co.za
PSG Capital
Willie Honeyball
+27 21 887 9602
willieh@psgcapital.com
www.quantumfoods.co.za
Date: 25/05/2015 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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