Chicken and egg producer Quantum Foods withheld a dividend for the first time since 2014 as avian flu, a weaker SA consumer and rising global maize prices affected profits and were flagged as ongoing risks to the business.
The company, spun off from Pioneer Foods in 2014, reported revenue up 6% in its year to end-September, but operating profit was down 34% to R144m amid rising input costs.
Quantum held onto dividends as its cash pile dropped from R252m to R73m and as it expects many of the challenges it has faced in 2021 to continue as prices of maize and soya bean used in animal feed stay high and avian flu remains an ongoing threat.
It expects a weak consumer and remains concerned about load-shedding and ailing municipal infrastructure.
Quantum said its 2021 performance was “below expectations” amid “muted consumer expenditure”.
The group also lost out on sales when an abattoir customer in the Western Cape that bought its broiler chickens closed down.
Headline earnings per share, a main profit measure used in SA, dropped 35% to 52.2c per share from 80.5c in 2020.
SA food producers have a difficult time passing on rising costs to consumers, who are price sensitive and buy lower volumes of food, meat and eggs if prices rise.
Quantum was able to pass on costs, but reported a drop in sales volumes. It is not alone in struggling with increasing costs amid rising food prices and increased shipping rates.
Data from Stats SA last Thursday showed producer price inflation for final manufactured goods rose 8.1% year on year in October, the highest level since February 2016, and up from September’s 7.8%.
Food producers struggled this year when feed prices began to rise in 2020 as China increased its pig stocks and there were concerns of drought in the maize growing areas of North and South America.
In SA, avian flu resulted in the culling of 2-million egg-producing chickens to prevent the spread of the disease. The SA Poultry Association said the layer bird population in SA dropped from 28.6-million in September 2020 to 26.5-million in September 2021.
Fewer birds meant Quantum produced lower volumes of eggs to sell and also recorded lower sales of animal feed to other chicken producers. However, it said the effect of avian flu on the company and poultry industry was less severe than in previous outbreaks in 2017 and 2018.
The rise in prices has helped SA’s agriculture sector, with the 2020/2021 maize harvest of about 16.2 tonnes the second-largest crop on record, with further increases expected next year.
The rand strengthening against the dollar during the year helped offset higher shipping, import and raw material costs and Quantum warned a weakening rand would add pressure to the group’s future profits.
The share closed 0.95% lower at R5.20 on Friday.
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