BRENDON DE BOER: Why Country Bird aims to remove Quantum’s chair and directors

Listed companies in SA should improve their responsiveness to shareholders. This is good for governance and for the companies and the people who depend on them.

As a matter of principle any listed company board should be comfortable explaining their decisions to shareholders, because they are the custodians of other people’s money. Without transparency and accountability capital markets can’t work properly, and investments will be more vulnerable.

If a big shareholder questions the strategy, governance or performance of a company, it can mostly be asked and answered simply by meeting the board or management. This should be uncontroversial and normal business practice.

It is partly why in SA it is so rare to call an extraordinary general meeting for shareholders of a JSE-listed company specifically to remove the chair and two directors. But that is exactly what Country Bird Holdings (CBH) has done. This is why we were forced to take this extraordinary step.

CBH is a fully integrated regional poultry business. It is SA’s third-biggest producer and has the largest Africa footprint of any poultry producer. We are also now an 18% shareholder in Quantum Foods (QFH), also a poultry company. Given our experience, track record and strong financial performance we believe we are well qualified to provide strategic input, guidance and value to Quantum.

But the chair and lead independent director of Quantum do not believe so, and refuse to meet. Since acquiring a shareholding in Quantum in 2020 we have continuously been rebuffed in our attempts to engage and provide an opinion on how best to turn the company about for the mutual benefit of all shareholders.

One of reasons given for refusing to engage is that we are supposedly in competition with them. But if this were the real reason it has not been applied to other poultry companies. The Quantum board has seen fit to interact with Astral and Sovereign Foods, both of which are poultry companies that are presumably also competitors.

Dismal performance

We want to improve Quantum because its financial performance has been dismal: 

• Over the past four years reported revenue grew an average of just 16.3%, while reported ebitda for the same period declined an average 38.2%. 
• In 2019 reported operating profit was R243m. It has fallen every year since, plummeting to a loss of R36m last year. 
• The ebitda margin declined from 7.1% in financial year 2019 to just 1.1% in 2023.
• Return on capital employed has collapsed from 10% in 2019 to 1% in 2023.

Yet the total executives’ remuneration was a disproportionate 21% of ebitda profits in 2023. Good governance requires executive rumination to be closely linked to company performance. With governance, performance and strategy all in question and our attempts to get answers denied, we therefore felt we had no option but to ask for an extraordinary general meeting to remove the chair, lead independent director and a newly appointed director.

At the shareholder meeting scheduled for September 11 we planned to explain these concerns. This is where we should naturally be given a platform to express our views to the shareholders and allow them to exercise their vote.  But even this has been denied.  The Quantum board has decided it will be an electronic only extraordinary general meeting, with no indication (despite our request) that there will be any opportunity to present our case, ask questions or have it answered. This further frustrates shareholders’ ability to engage meaningfully with each other and the company. 

Options exercised

In the continuing saga of intrigue within Quantum, on Monday last week it announced that several executives and board members of the company granted someone the option to buy their shares at R8 each at any time between now and December 2025. This was not only below the prevailing market price at the time of the announcement but at a material discount to the price they paid over various transactions within the last three months. The chair is also being paid about R3m for his options, yet the other participants are not receiving any payment.

One would wonder why the apparent preferential financial incentive is granted to the chair but not to the other participants. By Friday last week, it appears that these options had been exercised, and that the executives and board members had sold their shares. So is it not natural to conclude that with these latest moves the chair and these executives have given up in their belief in the QFH assets? This simply provides us with a new and further justification to seek their removal from the board. 

We still think Quantum could be a good company with great assets. We like the company’s management and believe there is wasted talent in the business. But the board has in effect sent a message of negative growth and abandonment of the company assets. So we in turn have lost confidence in the leadership of the board. We believe change is needed and that with the correct leadership Quantum could experience real growth of the underlying business.

We simply seek good governance and a dynamic board that listens to shareholders. We would like to assist in putting Quantum on a sustained growth path in SA and Africa, where all stakeholders can share in its success. 

De Boer is CEO at Country Bird Holdings.