Quantum Foods Holdings Ltd ($QFH)

Good morning, ladies and gentlemen. Thank you for joining us for the presentation of the Quantum Foods results for the 6 months ending 31 March 2026. The purpose of this engagement is to present the company's results published on the stock exchange news service of the JSE this morning and to address any questions or comments on these results. We therefore respectfully request that any questions or comments not related to the financial results or presentation be addressed to the Company Secretary, Ms. Ziyanda Wakashe, in writing and the company will respond accordingly. I will begin with a high-level overview of the business environment during the reporting period, whereafter our CFO, André Muller, will present the financial overview. Following on the financial overview is feedback on the operations. And thereafter, I will also highlight focus areas of management for the remainder of the 2026 financial year. The company's revenue declined by 4.8% to ZAR 3.43 billion. Revenue in the South African operations declined by 6.8% (sic) [ 6.9% ] and was mainly driven by a decline in feed, egg and live bird prices as well as a decline in the feed and point-of-lay volumes. The decline in feed input prices is usually passed on to feed customers, while the decline in egg and live bird prices were mostly driven by increased supply. Revenue from the other African operations increased by 21.8%, mainly driven by higher day-old chick volumes and prices as well as higher feed volumes in both Zambia and Uganda. Headline earnings per share increased by 15.6% to ZAR 0.865 as the company delivered a strong performance in the first half of the year. Trading conditions during this reporting period were generally more favorable supported by higher demand for poultry products, lower feed input costs and low levels of electricity disruption and continued recovery following the impacts of the highly pathogenic avian influenza in the prior year. Cash generation remained strong within the company, and cash flow from operating activities amounted to ZAR 409 million during this reporting period. The Board of Quantum Foods has also declared an interim dividend to shareholders of ZAR 0.22 per share. Raw material costs eased meaningfully year-on-year, with SAFEX yellow maize declining by approximately 31% versus the comparative period as the 2025 maize crop improved to 16.6 million tonnes, up from the previous 12.8 million tonnes of 2024. Landed soybean meal prices declined by 14% in rand terms as international prices remained fairly stable, while the rand strengthened against the U.S. dollar. The world soybean and maize stock levels were also at very comfortable levels during the reporting period. I referred earlier to the strong demand for poultry products, and we believe that the strong demand was supported by the outbreak of foot and mouth disease in South Africa that resulted in reduced red meat supply. The 2 broiler breeder farm conversions in the North had been completed and were in production during this period, and the company was able to increase supply of day-old chicks and capture some of the strong demand. When looking at layers, the South African layer flock towards the end of last year peaked at record levels of just over 30 million hens. The increase in egg supply that ensued led to a decline of 8.8% in average egg selling prices. The company previously reported on the highly pathogenic avian influenza outbreak in early October 2025, and we are pleased to report that the company experienced no further outbreaks during this reporting period. I've briefly touched on the overall low levels of load shedding in South Africa, but the company experienced some electricity supply challenges as there were regional electricity disruptions in certain areas. The trading conditions in the group's other African operating countries have also generally improved from the previous reporting period. In Zambia, feed raw material cost declined and electricity supply improved, which in turn, stimulated demand for day-old chicks, feed and eggs. In Uganda, the feed costs remained stable, while the demand for day-old chicks and feed increased. I now hand over to André Muller, who will do the financial overview.

Thank you, Adel. Good morning, ladies and gentlemen, and welcome to the financial overview section of the results presentation. Group revenue decreased by 4.8% to ZAR 3.4 billion with decreased revenue from South African operations and increased revenue from businesses outside of South Africa. Operating profit, that includes the profit and loss on sale of assets, increased from ZAR 205 million to ZAR 241 million, mainly due to improved profits from other African operations. Profits were also higher in the animal feed and farming businesses but were lower in the egg business. Net finance income of ZAR 3 million was earned resulting in profit before tax of ZAR 244.4 million. The effective tax rate was 24.8%, benefiting from higher profits in Zambia taxed at a lower rate, and we are very pleased to report headline earnings per share of ZAR 0.865 compared to ZAR 0.748 per share for the previous period. Adjusted operating profit that excludes the profit and loss on sale of assets in the reporting period mainly from the sale of a dormant farm in Kampala previously reported as assets held for sale increased from ZAR 205 million to ZAR 232 million at a very satisfactory margin of 6.8%, up from 5.7% in the previous reporting period. Eggs reported a profit of ZAR 41.5 million compared to a profit of ZAR 71.9 million in the previous period. The benefits of a 4% increase in sales volumes, lower feed cost, excellent efficiencies and well-controlled costs were outweighed by the negative effect of a 9% decline in egg selling prices. Farming reported a profit of ZAR 92.8 million compared to a profit of ZAR 79.8 million in the previous period. Earnings improved from the broiler farming business mainly due to increased volumes and margins on day-old chicks sold from the Hartbeespoort hatchery. Hatching egg costs were lower due to the higher hatching egg production on breeder farms near this hatchery following completion of 2 projects to convert farms used previously for layer rearing and broiler production to breeder farms that we completed in the previous financial year. Previously, the majority of eggs was sent to this hatchery from breeder farms in the Western Cape at higher logistical costs and weaker efficiency. Earnings improved slightly from the layer farming business where lower profits from the external sale of livestock were offset by improved production performance on commercial egg farms and proceeds from an insurance claim. Profits from the external sale of livestock decreased due to weaker and variable demand as well as increased costs incurred to complete the regional distribution of breeder stock and during the start-up period of a newly rented layer hatchery in the Western Cape. Animal feeds profit increased despite a decrease of 2.6% in volumes. External sales volumes were down 3.8% and volumes used internally were lower by 0.2%. During the previous period, additional costs were incurred while the repairs to the Malmesbury feed mill raw material intake area damaged during the explosion in June 2024 was being completed. In the current period, efficiencies improved and cost and margin management was well executed, leading to a satisfactory result. Earnings from the other African countries increased from ZAR 14.1 million to ZAR 51.5 million. Profits were higher in both Zambia and Uganda. In Zambia, feed costs were lower, electricity supply improved, stimulating demand for day-old chicks and feed and leading to higher margins on the sale of eggs. In Uganda, demand for day-old chicks and feed was strong with higher volumes and increased selling prices on especially day-old chicks leading to improved financial performance. Earnings were lower in Mozambique, where egg selling prices reduced, but egg volumes were higher following recovery of the company's layer flock, which was impacted in the previous period by a looting incident on the farm. Head office costs decreased on corporate and legal matters, but was higher with the valuation adjustment of the company's now cash-settled share appreciation rights scheme caused by share price changes not allocated to segment results. Turning to the statement of financial position. Noncurrent assets increased by ZAR 116 million from September 2025. This included CapEx investment of ZAR 152 million, a depreciation charge of ZAR 60 million and the conversion effect of a stronger Zambian kwacha. The Najjera farm in Kampala, Uganda previously reported as assets held for sale, was sold for ZAR 17 million in the current reporting period. Net working capital, excluding lease liabilities, decreased by ZAR 126 million, mainly due to a reduction in accounts receivable resulting from lower revenue and payments received from animal feed customers for the sale of the maize component of their future fee deliveries. Noncurrent liabilities increased by ZAR 47 million. This change includes an increase in the liability for deferred tax, mainly due to capital expenditure wear and tear allowances. It also includes increased liabilities for long-term management incentives. The liability in terms of a value appreciation rights scheme increased due to higher earnings and a third award in February 2026 with the first vesting in terms of the scheme being in February 2028. It also includes an actuarial valuation of obligations in terms of the company's share appreciation rights scheme, where the remaining future vestings will be settled on a cash and not equity basis following the share appreciation rights scheme, reaching the maximum number of shares that could be transferred to participants. Cash increased by ZAR 201 million to ZAR 476 million at the reporting date. Borrowings decreased by ZAR 10 million following the third 6 monthly repayment and the ZAR 100 million term facility drawn in the 2024 financial year. Lease liabilities declined with repayments and no major new lease agreements being entered into. Total equity was at ZAR 2.548 billion at reporting date of 31 March 2026. Looking at the statement of cash flow. Cash operating profit of ZAR 324 million was recorded for the period, while the cash inflow from lower working capital investment was ZAR 125 million. Income tax payments of ZAR 40 million was made resulting in a cash inflow from operating activities of ZAR 408.7 million. Capital expenditure of ZAR 152 million was incurred with more details on the next slide. The capital portion of lease liability settled in the period amounted to ZAR 10 million and ZAR 10 million was repaid on the term loan. Finance income earned amounted to ZAR 4.4 million and a dividend of ZAR 0.34 per share declared in November 2025 was paid. The rand value of cash held in foreign currencies increased by ZAR 11 million. The net effect of these cash flows in the reporting period was an increase of ZAR 200.6 million. More details of capital expenditure in the reporting period and future capital expenditure on items approved by the Board at the reporting date is reflected on this slide. Of the ZAR 152 million spent in the period, ZAR 41 million was on the project to build a third feed mill on the Malmesbury premises, which was commissioned in February 2026. ZAR 15 million was spent on the conversion of a previous broiler breeder farm in the Western Cape to a commercial broiler farm, and ZAR 36 million was spent on the project to expand feed and egg production capacity in Zambia. Future capital expenditure includes at the feed mills final payments on the Malmesbury expansion project, a project to improve stormwater management, raw material intake, storage and production capacity at the feed mill in Paterson and upgrading production capacity at the George feed mill. At the farms, completion of the first phase of the broiler farm conversion project in the Western Cape. In Uganda, an upgrade of raw material storage at the feed mill, and expansion of production capacity at the breeder farm and at the Kampala hatchery. And then in Zambia, the multiyear project to expand feed and egg production capacity in the Copperbelt. That brings me to the end of the financial overview, and I will now hand back to Adel for the operational review.

Thank you, André. On the operational front, the management team continued with a good operational performance of the previous year, and I would like to highlight some points that contributed to the financial performance. Starting with the Nova Feeds business. It is good to report that the production efficiencies in this business not only remained at high levels, but also improved on the comparative period. The team did well on achieving the improvement while executing and completing the expansion project at the Malmesbury site, and the third factory was completed, and as André stated, commissioned during February of this year. Earlier in the presentation, I refer to the loss of feed volumes, and André also provided further detail, but margin management remained a focus area and supported the stable contribution from external volumes. In the farming segment, the broiler breeder efficiencies with regards to chicks per hen housed remained on par with the comparative period and also above breed standard. The broiler team, however, not only focused on the breeder efficiencies but also on the quality of chicks which the breeders produce. We've already provided detail on the increase in day-old chick volumes in this segment, but it remains important as an independent day-old chick supplier to have the ability to service the increased demand from our existing customers in the North. The broiler management team also improved the performance efficiencies on our broiler farms in the Western Cape with further improvements recorded in feed conversion and daily growth rates. The focus on continuous improvement enables the business to remain competitive as a contract broiler producer. The company has previously reported on the rightsizing and regional diversification of its layer breeder flocks, and Bergvlei is now in a much better position to service the layer industry should a highly pathogenic avian influenza outbreak reoccur in South Africa as we have contracted a hatchery in the Western Cape and supply day-old pullets from 2 different hatcheries in the country. The volume of day-old pullets during the reporting period has remained stable, but the sale of point-of-lay hens declined as the company now only produces point-of-lay hens on confirmed orders from customers. The commercial layer farms have improved on the comparative period's production performance, which for the full year last year was the second best performance since the company's listing on the JSE. The improved production performance contributed to the increase in egg volumes, which assisted in mitigating the impact on earnings from the lower selling prices. The quarantine of the site on the Western Cape layer farm, which was impacted by highly pathogenic avian influenza during 2025, has also been lifted, and the site is now repopulated and back in production. Due to the cyclicality of the egg industry, focus on operational efficiencies in this business is of utmost importance, and the [ newly ] management team have once again achieved improvement in the operational metrics, which are already at historical high levels. Cost management during this reporting period was once again effective throughout the group. And in most business segments, the costs were below budget. In the other African operations, the farming efficiencies improved, especially on the commercial egg production farms in both Zambia and Uganda, while the broiler breeder flocks in Uganda also reported production efficiency improvement. The strong demand for poultry products in both Zambia and Uganda also led to higher volumes of day-old chicks and feed being sold in those countries. Looking ahead to the remainder of the financial year, the priorities are well defined, and I'm now only going to highlight some of the key priorities for the next few months. As stated earlier, the Malmesbury third feed mill is now operational, and the focus will be to gain volumes in the region to improve the factory utilization. The addition of the third factory gives the Malmesbury complex the unique ability to supply species-specific feed from dedicated production lines. As we are now entering the winter period, one of the focus areas of the broiler management team will be to maintain the production efficiencies on the broiler farms in the Western Cape. The cold weather does seem to have a negative effect on production efficiencies, but the focus will be to improve last year's winter production performance and thereby maintain the momentum of continuous improvement. We reported previously on the approved broiler breeder to broiler conversion project, and the focus will be to complete this project on time and within budget to ensure that we are able to supply the increased demand from our customer in the Western Cape. The third focus area for the broiler management team is to secure a breeder rearing farm that will supply the breeder laying farms in the North. For the Bergvlei team, the focus remains on the marketing of the Lohmann breed to increase our day-old pullet market share. The priorities for the layer farming management team will be to maintain the very good layer farm performance during the winter period while remaining vigilant on all farm biosecurity measures and control access to the layer farms to limit the risk of avian influenza outbreak. In the other African operations, an area of focus is centered around the completion of our expansion projects. The focus of the Zambian management team will be to also improve the production performance on our breeder farm in Lusaka while progressing with the greenfield egg expansion project in Zambia. Turning to Uganda. The completion of the maize storage and breeder expansion projects will be a focus area for management in that country as it will enable the business to capitalize on the strong day-old chicks demand. We thank you for attending the results presentation, and we will now take questions on the financial and operational performance.

Thank you, Adel. We have two questions from Mr. Nick Wilson from News24. The first question, starting off by stating the impact of foot and mouth disease on the demand for poultry as well as the high prices of beef that has resulted in a shift to chicken. The question being to update on the current situation, what we are experiencing, and if we are still finding consumers buying more poultry.

Thank you, Mr. Wilson, for the question. Yes, there is no change currently in the demand for poultry. I think it is important to be aware of the fuel price increases and the effect we think it will have on the consumer spending and economic activity. So I think the next 6 months will be something to be concerned about.

Thank you, Adel. The second question also from Mr. Wilson. Talking about poultry prices having been stable for the last 8 months. And the question regarding our concern about potential avian influenza impacts in the rest of the year.

Mr. Wilson, I think our concern always remains for avian influenza outbreaks, especially what we've seen what's been happening internationally with the recent outbreaks in Europe and in Africa as well. So our concern remains, but the management team are trying to control what is within our control, especially focusing on biosecurity measures. And all the mitigating measures we've previously implemented so that the company is better situated to deal with avian influenza outbreaks. I've already alluded to the concern around the fuel price increases and the overall effect on consumer expenditure and economic activity. So that is a concern for management.

Thank you, Adel. And then there's a further question from Mr. Wilson about the impact of recent fuel price increases and whether the company will have to pass this on to consumers.

Mr. Wilson, yes, as fast as possible, the company will have to pass on fuel price increases to our customers. Although in the egg business, egg prices are not typically driven by input costs. It's mostly driven by supply and demand. And as stated earlier, we reached very high levels of our national layer flock. So we do expect some pressure on egg prices going forward.

Thank you, Adel. And we've got a question from Mr. Brendon De Boer from Country Bird. The first question talking about benchmarking our performance, the Quantum Foods performance against listed South African peers in terms of margins, stating that the 6 monthly performance appears relatively soft in comparison, and asking us to outline the principal factors that contributed to this, and commenting on what management can do about it.

Thank you, Mr. De Boer for the question. If you look at the segmental results, our egg business declined year-on-year. The egg industry is always a cyclical industry. And as stated previously, prices are not driven by input costs, but by supply and demand. So we have seen elevated levels of supply of eggs in the market. And as stated, egg prices declined by 8.8%. When looking at competitors in the market, I think the egg business, I think we're the only listed company that has got an egg segment, and that is what makes us different to other competitors in the market. However, if we look at our feed business and our broiler business, we are fairly comfortable with the margins that we achieved in those businesses when compared to competitors in the market.

Thank you, Adel. Then a further question from Mr. De Boer from Country Bird, whether the Board can provide an update on the Tanya Golden matter. And I think that it has been 2 years since the resignation, which subsequently became the subject of court proceedings. And the question is, has this matter now being concluded?

Mr. De Boer, it has not. I think we referred to the Tanya Golden matter previously, but you are welcome to put that question in writing to the company, and we will respond accordingly.

Adel, we currently have no further questions in the chat room.

Okay. Thank you, everybody, for your attendance, and we therefore now close this results presentation.