SA’s largest egg producer, Quantum Foods, expects rising raw material prices, influenced by a weaker rand, to be a burden on its business over the coming year as the company reported a drop in earnings for the year to end-September.
On Thursday, the owner of the Nulaid eggs brand said revenue increased by 15% to R5.1bn, from R4.4bn in the prior year.
While the company — spun out of consumer brands giant Pioneer Foods in 2014 — experienced topline growth, its fortunes lower down on the income statement were not as positive. Operating profit decreased by 11% from R245m previously to R218m.
The company’s headline earnings per share (HEPS) followed suit, decreasing by 13% to 80.5c per share, from 92.3c seen in 2019. Rising input costs hurt Quantum’s profits.
Quantum said the costs of all key raw materials, including maize, bran, hominy chop, and soybean meal increased during the year, adding that “the significant weakening of the rand against major currencies was the main driver for cost increases” in the current reporting period.
It is expected that raw material expenses will continue to weigh on the business in the current financial year.
“The steep increase in raw material costs will have a negative impact, particularly in terms of egg and layer livestock profitability,” said the company. “Together with the expected decline in egg prices, this will put egg businesses, including Nulaid, under severe financial pressure.”
Quantum said cyclical profitability was part of the egg industry’s natural cycle and might actually create acquisition opportunities in the future.
The company, now valued at R1.34bn, declared a final gross cash dividend of 10c, which is 40% of the 25c per share in 2019. Dividends per share decreased by 52% to 16c per share for the period. Shareholders’ cut of earnings will be paid from income reserves.
During the year, Quantum’s largest shareholder, Zeder Financial Services, sold its shares to a competitor, Country Bird Holdings (CBH). Since then, a private equity group based in Luxembourg, Aristotle Africa, purchased a significant number of shares to become the largest shareholder in Quantum, with CBH the second largest.
Shares in Quantum, up 675% so far in 2020, shot up by a 10th in afternoon trade, ending the session 11.67% firmer at R6.70.
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