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Unaudited Condensed Consolidated Interim Financial Statements For The Six Months Ended 31 March 2017
Quantum Foods Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 2013/208598/06
Tax registration number: 909 545 5193
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 2017
SALIENT FEATURES 2017 2016 % Change
Revenue R2 041 million R1 808 million 13
Operating profit (before items of a capital nature)* R39 million R40 million (5)
Operating profit R42 million R77 million (45)
Headline earnings R29 million R34 million (17)
Earnings per share 13.9 cents 26.0 cents (47)
Headline earnings per share 12.4 cents 14.8 cents (16)
* 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.
COMMENTARY
INTRODUCTION
The six months ended 31 March 2017 were very challenging for the poultry industry, both in South Africa as well as in the other African countries in which
the Group operates. The prices of key raw materials increased significantly following the drought experienced in Southern Africa, and the constrained consumer
environment continued to impact demand and the recoverability of increased production costs from the market. Despite this, the Group improved earnings from its
South African operations. This improvement was supported by an increase in feed volumes sold to external customers and a strengthening of the Farming segment
where earnings are determined by volumes and farming production efficiencies with very limited exposure to market prices. These factors could, however, not be
negated in the Other African operations of the Group that were loss-making for the period.
FINANCIAL OVERVIEW
Group revenue increased by 12.9% to R2.0 billion, with an 11.5% increase of R200.0 million in South African operations, and a 46.6% increase of R33.3 million
in Other African operations. Revenue from Other African operations contributed 5.1% of Group revenue for 2017 (2016: 4.0%).
Revenue from South African operations:
- increased by R131.6 million for the Feeds segment, mostly due to the Olifantskop feed mill acquired on 1 February 2016, for which the revenue is now
included for the full period, but also as a result of the adjustment in selling prices in response to higher raw material costs.
- increased by R53.2 million for the Farming segment, mostly due to increased selling prices of live broilers and point-of-lay hens sold.
- increased by R15.2 million for the Eggs segment where an average price increase of 5.9% was achieved.
Revenue from Other African operations increased with the acquisition of the Galovos Eggs business in Mozambique in September 2016, increased egg volumes
sold from the Mega Eggs farm in Zambia after completion of the expansion project, as well as sales from the commercial egg farm in Masindi, Uganda,
which was not operational in the comparative period.
Cost of sales increased by 11.4% to R1.7 billion, which 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
31 March 2017 amounted to R54.8 million (2016: R70.9 million). Gross profit, excluding these fair value adjustments, increased by R46.7 million to R430.1 million
at a margin of 21.1% (2016:21.2%).
Cash operating expenses increased by 17.7% in 2017. Inflationary cost increases, as well as the cost of additional business units incorporated, contributed
to this. These business units include the Olifantskop feed mill, the Galovos Eggs acquisition and further expansions outside of South Africa. The increase
in cash operating expenses also incorporates the increased operational costs of the Western Cape broiler farms owned by the Group, following the exit of
some contract producers during the period.
Operating profit, before items of a capital nature, decreased by 4.7% to R38.6 million for the period under review. South African operations recorded a
33.1% increase of R13.8 million to a profit of R55.5 million at a margin of 2.9% (2016: 2.4%). Feeds and Farming improved by R9.1 million and R5.9 million
respectively, while Eggs weakened by R1.1 million to report a loss of R22.0 million. Other African operations recorded a decline in profits of R12.4 million,
which resulted in a loss of R9.4 million.
Headline earnings per share ("HEPS") decreased to 12.4 cents from the 14.8 cents per share of 2016.
Cash inflow from operations amounted to R86.7 million for the reporting period. This includes a reduced investment in working capital of R50.1 million.
Capital expenditure for the period amounted to R26.9 million and included the capacity expansion of the Olifantskop feed mill, the biosecurity upgrade at the
Opdiefontein layer farm in Gauteng, and the upgrade of the hatchery in Zambia.
Cash and cash equivalents increased from R79.5 million at 30 September 2016 to R129.0 million at 31 March 2017.
The Group had minimal borrowings at 31 March 2017, which comprised an arrangement to purchase electricity generated from solar panels capitalised as a finance
lease in terms of IFRS.
During the period, Quantum Foods repurchased and cancelled a further 2 047 752 shares at a cost of R5.9 million. The strategy to repurchase shares will continue.
OPERATIONAL OVERVIEW
The Nova Feeds business continued to perform well. External sales volumes increased by 18%, largely as a result of the acquisition of the Olifantskop feeds
business. Margins were maintained in a period of extremely tough trading conditions.
The Farming segment achieved pleasing results where the broiler farming business delivered results in line with expectations. Stable and adequate broiler farming
production efficiencies, as well as a marginal improvement in live bird volumes supplied, supported the results. Operational performance in the layer farming
business improved as average efficiencies from hens in production on the commercial layer farms increased. The profit contribution from layer farms was, however,
negatively affected by lower overall egg production, which resulted in reduced cost recovery. This is mainly as a consequence of increased open time on the
Opdiefontein layer farm in Gauteng where a planned biosecurity upgrade was completed, and a disease challenge that increased the mortality of flocks in the
Eastern Cape. Margins in the layer livestock business remained thin as these were impacted negatively by the inability of that business to recover increased
production cost from layer livestock customers in challenging industry conditions.
Volumes in the Eggs segment were 2% lower than the comparative period due to lower production on own farms as well as reduced volumes of eggs procured from
contract producers. Operating efficiencies in the packing stations continues to improve. The replacement of the egg grader at the Sova packing station delivered
the planned improvement in efficiency, and the structural changes made from a human capital perspective continue to impact the eggs business positively.
The financial performance of the Other African countries segment was disappointing. The Zambian business remained profitable, but losses were incurred in both
Uganda and Mozambique. In Zambia, satisfactory operational performance was achieved while operational performance in Uganda was below expectations.
The Galovos Eggs business in Mozambique performed considerably below expectation. Significant layer hen mortality that resulted from a period of extreme heat,
combined with below-expected farm production efficiencies, negatively impacted the financial results.
PROSPECTS
The remainder of the 2017 financial year will be characterised by comparably lower raw material costs for the South African operations of the Group. This should
benefit especially the Eggs segment where an increase in margins ought to result from the decline in feed costs. The Feeds and Farming segments are expected to
remain stable profit contributors to the Group as the benefit of reduced input costs will not have a significant impact on profitability. For the Group's
Other African operations, input cost relief is also expected following the anticipated improvement of crops harvested. In order to realise the benefit of these
tailwinds, a relentless focus on efficiencies and cost management will remain a key focus area for the second half of the year.
DIVIDEND
No dividend has been declared for the six months ended 31 March 2017 (no dividend was declared for the six months ended 31 March 2016). The Board evaluates
the Group's 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 2017
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
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
2017 2016 2016
R'000 R'000 R'000
ASSETS
Non-current assets 1 061 961 1 024 998 1 071 729
Property, plant and equipment 1 037 110 999 031 1 048 280
Intangible assets 14 542 17 049 15 559
Investment in associate 7 364 6 461 6 988
Deferred income tax 2 945 2 457 902
Current assets 1 106 796 1 130 772 1 194 300
Inventories 220 328 219 358 307 424
Biological assets 322 982 327 380 323 950
Trade and other receivables 429 352 414 678 481 480
Derivative financial instruments 1 961 13 707 -
Current income tax 3 131 6 932 1 935
Cash and cash equivalents 129 042 148 717 79 511
Total assets 2 168 757 2 155 770 2 266 029
EQUITY AND LIABILITIES
Capital and reserves attributable to owners of the parent 1 595 971 1 569 717 1 596 148
Share capital 1 575 475 1 585 386 1 581 402
Other reserves (223 930) (211 217) (211 432)
Retained earnings 244 426 195 548 226 178
Total equity 1 595 971 1 569 717 1 596 148
Non-current liabilities 244 755 233 412 242 372
Interest-bearing liability 6 279 - 6 318
Deferred income tax 231 300 226 923 228 878
Provisions for other liabilities and charges 7 176 6 489 7 176
Current liabilities 328 031 352 641 427 509
Trade and other payables 327 944 346 568 417 172
Derivative financial instruments - 4 294 4 224
Current income tax - 1 779 6 029
Interest-bearing liability 87 - 84
Total liabilities 572 786 586 053 669 881
Total equity and liabilities 2 168 757 2 155 770 2 266 029
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2017 2016 2016
Notes R'000 R'000 R'000
Revenue 2 040 939 1 807 555 3 913 078
Cost of sales (1 665 673) (1 495 112) (3 224 202)
Gross profit 375 266 312 443 688 876
Other income 8 477 8 161 16 603
Other gains - net 3 58 182 95 563 155 800
Sales and distribution costs (105 805) (91 764) (194 904)
Marketing costs (5 276) (5 224) (12 087)
Administrative expenses (53 609) (46 784) (98 972)
Other operating expenses (234 949) (195 881) (431 042)
Operating profit 42 286 76 514 124 274
Investment income 3 020 5 210 7 736
Finance costs (477) (48) (922)
Share of profit/(loss) of associate company 376 (270) 257
Profit before income tax 45 205 81 406 131 345
Income tax expense (13 128) (20 682) (39 991)
Profit for the period 32 077 60 724 91 354
Other comprehensive (loss)/income for the period
Items that may subsequently be reclassified to profit or loss:
Fair value adjustments to cash flow hedging reserve (8 800) (4 106) (2 283)
For the period (12 828) 1 636 4 737
Deferred income tax effect (563) 1 130 47
Current income tax effect 4 154 (1 588) (1 374)
Realised to profit or loss 607 (7 339) (7 907)
Deferred income tax effect (47) - -
Current income tax effect (123) 2 055 2 214
Movement on foreign currency translation reserve
Currency translation differences (5 281) 20 812 25 026
Total comprehensive income for the period 17 996 77 430 114 097
Profit for the period attributable to owners of the parent 32 077 60 724 91 354
Total comprehensive income for the period attributable to owners of the parent 17 996 77 430 114 097
Earnings per ordinary share (cents) 4 13.9 26.0 39.2
Diluted earnings per ordinary share (cents) 4 13.9 26.0 39.2
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2017 2016 2016
R'000 R'000 R'000
Share capital 1 575 475 1 585 386 1 581 402
Opening balance 1 581 402 1 585 386 1 585 386
Shares repurchased and cancelled (5 927) - (3 984)
Other reserves (223 930) (211 217) (211 432)
Opening balance (211 432) (228 968) (228 968)
Other comprehensive (loss)/income for the period (14 081) 16 706 22 743
Recognition of share-based payments 1 583 1 045 2 492
Adjustment to common control reserve* - - (7 699)
Retained earnings 244 426 195 548 226 178
Opening balance 226 178 158 149 158 149
Profit for the period 32 077 60 724 91 354
Dividends paid (13 829) (23 325) (23 325)
Total equity 1 595 971 1 569 717 1 596 148
* Deferred tax on business combinations prior to unbundling from the previous holding company not previously recognised, adjusted against common
control reserve.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2017 2016 2016
R'000 R'000 R'000
NET CASH FLOW FROM OPERATING ACTIVITIES 86 705 (53 909) (42 061)
Net cash profit from operating activities 67 258 78 377 164 250
Working capital changes 50 063 (116 126) (173 622)
Cash effect of hedging activities (14 400) (1 668) (3 002)
Net cash generated from/(utilised in) operations 102 921 (39 417) (12 374)
Income tax paid (16 216) (14 492) (29 687)
NET CASH FLOW FROM INVESTING ACTIVITIES (16 818) 28 405 (48 762)
Additions to property, plant and equipment (26 377) (45 879) (98 759)
Additions to intangible assets (501) - -
Proceeds on disposal of property, plant and equipment 7 040 119 275 122 080
Business combinations - (50 201) (79 819)
Interest received 3 020 5 210 7 736
Net cash surplus/(deficit) 69 887 (25 504) (90 823)
NET CASH FLOW FROM FINANCING ACTIVITIES (20 253) (23 315) (27 668)
Repayment of interest-bearing liability (36) - (46)
Shares repurchased (5 927) - (3 984)
Interest paid (477) (48) (371)
Dividends paid to ordinary shareholders (13 813) (23 267) (23 267)
Net increase/(decrease) in cash and cash equivalents 49 634 (48 819) (118 491)
Effects of exchange rate changes (103) 10 033 10 499
Net cash and cash equivalents at beginning of period 79 511 187 503 187 503
Net cash and cash equivalents at end of period 129 042 148 717 79 511
CONDENSED CONSOLIDATED SEGMENT REPORT
Unaudited
Unaudited Six months
Six months ended Audited
ended 31 March Year ended
31 March 2016 30 September
2017 Restated* 2016
R'000 R'000 R'000
Segment revenue 2 040 939 1 807 555 3 913 078
Eggs 498 377 483 129 1 005 221
Farming 674 882 621 665 1 326 746
Animal feeds 762 777 631 196 1 420 758
Other African countries 104 903 71 565 160 353
Segment results - excluding items of a capital nature 38 555 40 453 89 327
Eggs (22 044) (20 900) (26 881)
Farming 37 162 31 284 61 022
Animal feeds 40 427 31 337 72 532
Other African countries (9 362) 3 020 (234)
Head office costs (7 628) (4 288) (17 112)
Items of a capital nature per segment included in other gains - net
Profit/(loss) on disposal of property, plant and equipment before income tax 3 731 36 061 34 947
Eggs - (55) 291
Farming (91) 36 107 35 297
Animal feeds 3 822 9 (641)
Segment results 42 286 76 514 124 274
Eggs (22 044) (20 955) (26 590)
Farming 37 071 67 391 96 319
Animal feeds 44 249 31 346 71 891
Other African countries (9 362) 3 020 (234)
Head office costs (7 628) (4 288) (17 112)
A reconciliation of the segment results to profit before income tax is provided below:
Segment results 42 286 76 514 124 274
Adjusted for:
Investment income 3 020 5 210 7 736
Finance costs (477) (48) (922)
Share of profit/(loss) of associate company 376 (270) 257
Profit before income tax per statement of comprehensive income 45 205 81 406 131 345
The farming segment's profit on disposal of property, plant and equipment in the previous period includes the profit on the sale of the Hartbeespoort abattoir, which
was disclosed as an asset held for sale at 30 September 2015.
* The comparative information has been restated to reflect the new reporting structure
As a result of the Group exiting the broiler meat market at the start of the previous reporting period and the change in the responsibilities of key management, the
Group has updated the disclosure of the previously disclosed segments to align with information reviewed by the Group's chief operating decision-maker for the purposes
of allocating resources.
Previously reported segments of Eggs and layer livestock and Broilers have been restated based on the revised operating segments of Eggs, Layer farming and Broiler
farming. Animal feeds and Other African countries continue to be standalone segments as previously reported.
The Eggs business is the commercial egg business, which consist of the sale of ungraded eggs and the processing of eggs in the pack stations and distribution thereof,
to the market. The Layer farming business includes the layer livestock and commercial layer farms.
The broiler farming and layer farming operating segments are aggregated for segment reporting. Both operations have similar risk profiles, being the production risk
inherent to live bird farming. The exposure of these operations to market risk is very low.
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 2016.
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 2016.
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 March 31 March 30 September
2017 2016 2016
R'000 R'000 R'000
3. OTHER GAINS/(LOSSES) - NET
Biological assets fair value adjustment 35 294 34 877 50 293
Unrealised - reflected in carrying amount of biological assets 5 914 (6 238) (7 303)
Realised - reflected in cost of goods sold 29 380 41 115 57 596
Agricultural produce fair value adjustment 25 423 28 547 86 475
Unrealised - reflected in carrying amount of biological assets 7 (1 245) (1 012)
Realised - reflected in cost of goods sold 25 416 29 792 87 487
Foreign exchange differences (655) (2 923) (6 212)
Foreign exchange contract fair value adjustments (3 599) (554) (9 291)
Foreign exchange contract cash flow hedging ineffective losses (2 012) (445) (412)
Profit on disposal of property, plant and equipment 3 731 36 061 34 947
58 182 95 563 155 800
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 32 077 60 724 91 354
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 32 077 60 724 91 354
Items of a capital nature
Profit on disposal of property, plant and equipment (3 320) (26 277) (25 516)
Gross (3 731) (36 061) (34 947)
Tax effect 411 9 784 9 431
Headline earnings for the period 28 757 34 447 65 838
Weighted average number of ordinary shares in issue ('000) 231 163 233 249 233 128
Earnings per share (cents)
Basic and diluted 13.9 26.0 39.2
Headline earnings per share (cents)
Basic and diluted 12.4 14.8 28.2
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 (Early termination of contract, customer claim and
allegations of anti-competitive trade practices - Zambia).
Capital expenditure approved by the Board and contracted for amounts to R28.8 million (30 September 2016: R12.4 million). Capital expenditure approved by the Board,
but not yet contracted for, amounts to R30.8 million (30 September 2016: R156.6 million).
6. EVENTS AFTER THE REPORTING PERIOD
There have been no 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.
7. PREPARATION OF FINANCIAL STATEMENTS
The condensed consolidated interim financial statements have been prepared under the supervision of AH Muller, CA(SA), Chief Financial Officer.
8. 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)#, PE Burton#, GG Fortuin#, Prof. ASM Karaan#, N Celliers, HA Lourens (CEO)*, AH Muller (CFO)* * Executive # Independent
Company secretary: Ntokozo Makomba - Email: Ntokozo.makomba@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: 25/05/2017 01:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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