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Unaudited Condensed Consolidated Interim Financial Statements For The Six Months Ended 31 March 2016
Quantum Foods Holdings Ltd
Incorporated in the Republic of South Africa
Registration number: 2013/208598/06
Tax registration number: 9095455193
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 2016
SALIENT FEATURES 2016 2015 % Change
Revenue R1 808 million R1 675 million 8%
Operating profit R77 million R82 million (7%)
Operating profit (before items of a capital nature)* R40 million R81 million (50%)
Headline earnings R34 million R61 million (44%)
Earnings per share 26.0 cents 26.7 cents (2%)
Headline earnings per share 14.8 cents 26.3 cents (44%)
* Income or expenditure of a capital nature in 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.
COMMENTARY
INTRODUCTION
The first six months of the 2016 financial year have been very challenging. Significant increases in raw material costs, due to the drought in South Africa
and a rapid decline in the value of the rand, as well as a South African economy characterised by increased pressure on the consumer, created unfavourable
trading conditions that severely tested the Quantum Foods business model. These headwinds were not restricted to South Africa. Tougher industry conditions,
as well as currency volatility, also impacted the operations in the rest of Africa. Due to the repositioning of the Group, these headwinds had a limited
effect on the broiler business during the period under review. Improved results from this segment and the feed segment offset, to some extent, the
significant decline in profitability of the eggs and layer livestock and the other African operations of the Group in the period under review.
FINANCIAL OVERVIEW
Group revenue increased by 7.9% to R1.8 billion. Revenue from South African operations increased by R155.7 million (9.9%), mostly in the animal feed
segment, due to increased selling prices and volumes following the acquisition of the Olifantskop feed mill on 1 February 2016. Revenue increased in the
broiler, and eggs and layer livestock segments, where improved selling prices contributed more than the decreases in volumes of main product categories.
Revenue from operations in the rest of Africa decreased by R22.9 million (24.2%), particularly in Zambia, following the exit of the distribution centre
business in the previous period and contributed 4.0% to Group revenue for the six months.
Cost of sales increased by 7.1% to R1.5 billion. Cost of sales includes the biological assets (livestock) and agricultural produce (eggs) fair value
adjustments that were realised and included in other gains and losses in the statement of comprehensive income. These fair value adjustments for the six-
month period ended March 2016 amounted to R70.9 million (2015: R116.6 million). Gross profit, excluding these fair value adjustments, decreased by
R12.0 million, resulting in a gross profit margin of 21.2% compared to 23.6% in 2015.
Cash operating expenses increased by 5.1% in 2016, with the decrease following the sale of the Hartbeespoort abattoir offset by inflationary increases and
the cost of additional business units incorporated in this period. These include the Safe Eggs (pasteurised egg) business and the Olifantskop feed mill, as
well as two farms rented and incorporated into the eggs and layer livestock business.
Operating profit decreased by R5.8 million to a profit of R76.5 million for the six-month period. The 2016 operating profit includes a profit on the sale
of assets of R36.1 million. Operating profit (excluding profit on sale of assets) in the South African operations decreased by R28.8 million to
R41.7 million at a margin of 2.4% (2015: 4.5%). Operating profit in the rest of Africa declined by R11.2 million to R3.0 million at a margin of 4.2%.
Operating expenses not allocated to segments amounted to R4.3 million. Including those, an operating margin of 2.2% was achieved compared to 4.8% in the
previous period.
Headline earnings per share ("HEPS") decreased to 15 cents from the 26 cents per share in 2015.
Cash outflow from operations amounted to R53.9 million in 2016. This includes an additional investment in working capital of R116.1 million of which the
Olifantskop feed business contributed R23.5 million. Capital expenditure, excluding the acquisition of the Olifantskop feed mill, for the period amounted
to R45.9 million, R40.7 million of which was incurred on the table egg expansion projects in Zambia and Uganda.
The Group had no interest-bearing debt at 31 March 2016.
OPERATIONAL OVERVIEW
The animal feed segment performed well in a volatile raw material market. Volumes sold to third parties continued to increase while margins were slightly
lower. The acquisition of the Olifantskop feed mill on 1 February 2016 contributed positively to the financial result. Following this business combination,
more than 50% of the Nova Feeds production is now sold to third parties.
The business re-engineering of the broiler segment was completed during October 2015, with the sale of the Hartbeespoort abattoir. Quantum Foods is now a
pure livestock business within the South African broiler industry, supplying live birds to third-party abattoirs. The results of the broiler segment were
in line with expectations. This segment now represents a more stable, less cyclical profit contributor to Quantum Foods.
The egg business did not perform well. High input costs, weak farm performance and below-standard packing station efficiencies led to a negative financial
result. Structural changes were made in the business, but profitability is only expected once raw material prices return to normal levels.
In the layer livestock business, volumes increased, but margins shrank as price increases could not compensate for high raw material costs.
The financial performance from the rest of Africa was disappointing. The performance on operational level was, however, satisfactory. Exchange rate
volatility as well as industry challenges played a negative role in the results. The table egg expansion projects, in both Zambia and Uganda, are
progressing as planned.
PROSPECTS
The remainder of the 2016 financial year is expected to be characterised by continuing high raw material costs. We expect the feed and broiler businesses
to remain stable contributors to the results of the Group. The egg business is expected to remain under severe pressure, due to both the current industry
challenges as well as the lead time for significant improvement in the farm performances of the Group.
In the rest of Africa, conditions will remain difficult due to exchange rate volatility and the slowing of the Zambian economy, but we look forward to
positive contributions from the completed expansions during the last three months of this financial year.
DIVIDEND
No dividend has been declared for the six months ended 31 March 2016. The Group does not yet have a formal dividend policy. 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 2016
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
Investor presentation
An investor presentation will be available on the Company's website www.quantumfoods.co.za/investor-presentations
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 March 31 March 30 September
2016 2015 2015
R'000 R'000 R'000
ASSETS
Non-current assets 1 024 998 1 034 293 945 625
Property, plant and equipment 999 031 1 015 126 923 322
Intangible assets 17 049 9 543 12 784
Investment in associate 6 461 6 226 6 731
Deferred income tax 2 457 3 398 2 788
Current assets 1 130 772 1 036 726 1 053 062
Inventories 219 358 189 924 234 566
Biological assets 327 380 285 974 288 775
Trade and other receivables 414 678 356 432 334 794
Derivative financial instruments 13 707 2 324 7 424
Current income tax 6 932 - -
Cash and cash equivalents 148 717 202 072 187 503
Assets held for sale - - 83 399
Total assets 2 155 770 2 071 019 2 082 086
EQUITY AND LIABILITIES
Capital and reserves attributable to owners of the parent 1 569 717 1 504 073 1 514 567
Share capital 1 585 386 1 585 386 1 585 386
Other reserves (211 217) (174 758) (228 968)
Retained earnings 195 548 93 445 158 149
Total equity 1 569 717 1 504 073 1 514 567
Non-current liabilities 233 412 216 923 220 747
Deferred income tax 226 923 210 578 214 258
Provisions for other liabilities and charges 6 489 6 345 6 489
Current liabilities 352 641 350 023 346 772
Trade and other payables 346 568 349 252 343 890
Derivative financial instruments 4 294 - -
Current income tax 1 779 771 2 882
Total liabilities 586 053 566 946 567 519
Total equity and liabilities 2 155 770 2 071 019 2 082 086
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2016 2015 2015
Notes R'000 R'000 R'000
Revenue 1 807 555 1 674 713 3 468 312
Cost of sales (1 495 112) (1 395 930) (2 864 073)
Gross profit 312 443 278 783 604 239
Other income 8 161 5 815 11 639
Other gains/(losses) - net 3 95 563 121 027 238 482
Sales and distribution costs (91 764) (92 872) (193 631)
Marketing costs (5 224) (5 045) (11 287)
Administrative expenses (46 784) (47 160) (96 168)
Other operating expenses (195 881) (178 229) (389 212)
Operating profit 76 514 82 319 164 062
Investment income 5 210 4 175 9 886
Finance costs (48) (1 686) (1 887)
Share of (loss)/profit of associate company (270) 114 619
Profit before income tax 81 406 84 922 172 680
Income tax expense (20 682) (22 710) (45 764)
Profit for the period 60 724 62 212 126 916
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 (4 106) 5 770 796
For the period 1 636 11 695 16 851
Deferred income tax effect 1 130 (2 337) -
Current income tax effect (1 588) (938) (4 718)
Realised to profit or loss (7 339) (3 681) (15 747)
Deferred income tax effect - 93 93
Current income tax effect 2 055 938 4 317
Movement on foreign currency translation reserve
Currency translation differences 20 812 (25 300) (75 513)
Total comprehensive income for the period 77 430 42 682 52 199
Profit for the period attributable to owners of the parent 60 724 62 212 126 916
Total comprehensive income for the period attributable to owners of the parent 77 430 42 682 52 199
Earnings per ordinary share (cents) 4 26.0 26.7 54.4
Diluted earnings per ordinary share (cents) 4 26.0 26.7 54.4
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2016 2015 2015
R'000 R'000 R'000
Share capital 1 585 386 1 585 386 1 585 386
Other reserves (211 217) (174 758) (228 968)
Opening balance (228 968) (155 395) (155 395)
Other comprehensive income/(loss) for the period 16 706 (19 530) (74 717)
Recognition of share-based payments 1 045 167 1 144
Retained earnings 195 548 93 445 158 149
Opening balance 158 149 31 233 31 233
Profit for the period 60 724 62 212 126 916
Dividend declared (23 325) - -
Total equity 1 569 717 1 504 073 1 514 567
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2016 2015 2015
Notes R'000 R'000 R'000
NET CASH FLOW FROM OPERATING ACTIVITIES (53 909) 113 997 163 819
Net cash profit from operating activities 78 377 110 830 232 127
Working capital changes (116 126) (1 174) (53 630)
Cash effect of hedging activities (1 668) 8 014 1 104
Net cash (utilised in)/generated from operations (39 417) 117 670 179 601
Income tax paid (14 492) (3 673) (15 782)
NET CASH FLOW FROM INVESTING ACTIVITIES 28 405 (9 615) (62 031)
Additions to property, plant and equipment (45 879) (19 705) (58 323)
Additions to intangible assets - (2 624) (5 389)
Proceeds on disposal of property, plant and equipment 119 275 8 539 9 295
Business combination 7 (50 201) - (17 500)
Interest received 5 210 4 175 9 886
Net cash (deficit)/surplus (25 504) 104 382 101 788
NET CASH FLOW FROM FINANCING ACTIVITIES (23 314) (1 686) (1 370)
Interest paid (48) (1 686) (1 370)
Dividend paid to ordinary shareholders (23 266) - -
Net (decrease)/increase in cash and cash equivalents (48 818) 102 696 100 418
Effects of exchange rate changes 10 032 (6 145) (18 436)
Net cash and cash equivalents at beginning of the period 187 503 105 521 105 521
Net cash and cash equivalents at end of the period 148 717 202 072 187 503
CONDENSED CONSOLIDATED SEGMENT REPORT
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2016 2015 2015
R'000 R'000 R'000
Segment revenue 1 807 555 1 674 713 3 468 312
Eggs and layer livestock 578 344 548 848 1 154 315
Broilers 526 408 509 872 1 034 834
Animal feeds 631 238 521 555 1 099 905
Other African countries 71 565 94 438 179 258
Segment results 76 514 82 319 164 062
Eggs and layer livestock (19 777) 27 651 40 571
Broilers 66 213 14 312 39 706
Animal feeds 31 346 30 032 65 493
Other African countries 3 020 14 201 25 286
Unallocated (4 288) (3 877) (6 994)
A reconciliation of the segment results to operating profit/(loss) before income tax is provided below:
Segment results 76 514 82 319 164 062
Adjusted for:
Investment income 5 210 4 175 9 886
Finance costs (48) (1 686) (1 887)
Share of (loss)/profit of associate company (270) 114 619
Profit before income tax per statement of comprehensive income 81 406 84 922 172 680
Items of a capital nature per segment included in other gains/(losses) - net
Profit/(loss) on disposal of property, plant and equipment before income tax 36 061 1 520 1 580
Eggs and layer livestock (60) 496 718
Broilers 36 113 1 024 894
Animal feeds 8 - (35)
Other African countries - - 3
The broiler segment's profit on disposal of property, plant and equipment includes the profit on the sale of the Hartbeespoort abattoir, which was
disclosed as an asset held for sale at 30 September 2015.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
The unaudited condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standard, 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 International Financial Reporting Standards
and are consistent with those applied in the previous consolidated annual financial statements.
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 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 2015.
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2016 2015 2015
R'000 R'000 R'000
3. Other gains/(losses) - net
Biological assets fair value adjustment 34 877 65 926 111 882
Unrealised - reflected in carrying amount of biological assets (6 238) 490 (4 489)
Realised - reflected in cost of goods sold 41 115 65 436 116 371
Agricultural produce fair value adjustment 28 547 50 243 121 128
Foreign exchange differences (2 923) 2 202 4 000
Foreign exchange contract fair value adjustments (554) 1 314 (108)
Foreign exchange contract cash flow hedging ineffective losses (445) - -
Fair value hedging adjustment on futures - (178) -
Profit on disposal of property, plant and equipment 36 061 1 520 1 580
95 563 121 027 238 482
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2016 2015 2015
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 profit
for the period attributable to owners of the parent divided by the weighted
average number of ordinary shares in issue during the period:
Profit for the period attributable to owners of the parent 60 724 62 212 126 916
Headline earnings is calculated in accordance with Circular 2/2015
issued by the South African Institute of Chartered Accountants.
The Group has no dilutive potential ordinary shares.
Reconciliation between profit for the period attributable to owners of
the parent and headline earnings
Profit for the period attributable to owners of the parent 60 724 62 212 126 916
Remeasurement of items of a capital nature
Profit on disposal of property, plant and equipment (26 277) (956) (1 000)
Gross (36 061) (1 520) (1 580)
Tax effect 9 784 564 580
Headline earnings for the period 34 447 61 256 125 916
Weighted average number of ordinary shares in issue ('000) 233 249 233 249 233 249
Earnings per share (cents)
Basic and diluted 26.0 26.7 54.4
Headline earnings per share (cents)
Basic and diluted 14.8 26.3 54.0
5. Contingencies and future capital commitments
There have been no changes since the previous reporting period in the status of the litigation against the Group (Dispute with egg contract producer
and early termination of contract).
Capital expenditure approved by the Board and contracted for amounts to R17.8 million (30 September 2015: R49.0 million). Capital expenditure approved
by the Board, but not yet contracted for, amounts to R97.6 million (30 September 2015: R113.0 million).
6. 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:
31 March 2016 Level 1 Level 2 Level 3
R'000 R'000 R'000
Assets measured at fair value
Derivative financial instruments
- Fair value hedges - 13 707 -
Total assets measured at fair value - 13 707 -
Liabilities measured at fair value
Derivative financial instruments
- Foreign exchange contracts - not earmarked for hedging - 371 -
- Foreign exchange contracts - cash flow hedges - 3 923 -
Total liabilities measured at fair value - 4 294 -
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.
7. Business combination
During the period under review the following business was acquired and all assets and liabilities relating to this acquisition has been accounted for
on an acquisition basis:
31 March 2016 2016
R'000
Olifantskop Feed Mill (on 1 February 2016)
Fair value
Property, plant and equipment 37 887
Intangible assets 5 728
Inventory 6 844
Trade and other payables (258)
Purchase consideration - settled in cash 50 201
Reason for business combination:
To grow the external feeds sales volumes by
entering into the Eastern Cape animal feed market.
Contribution since acquisition:
Revenue 35 906
Operating profit before finance cost and income tax 1 652
Pro forma contribution assuming the acquisition was
at the beginning of the period:
Revenue 107 718
Operating profit before finance cost and income tax 4 956
8. Events after the reporting period
Business combination
The Group's shareholders were advised on SENS on 26 April 2016, that the Group has made an offer to purchase the Galavos egg business, located in
Mozambique, as a going concern. The Galavos business produces and sells commercial eggs in the Mozambican market. The sale of business agreement has been
concluded and signed, with specific conditions precedent to the agreement to still be fulfilled or waived. The conditions precedent have not yet been
fulfilled.
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 or any comments relating to the prospects of the Group have not been audited or reviewed by the Company's external auditors.
Directors: WA Hanekom (Chairman), N Celliers, HA Lourens (CEO)*, AH Muller (CFO)*, PE Burton, Prof. ASM Karaan, GG Fortuin (* Executive)
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
Date: 25/05/2016 03:00:00 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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