Kaap Agri grew market share across the board amidst a high inflation cycle during the six months to March 2022. This was achieved against the backdrop of an agricultural sector that may endure more challenging conditions this year and going into 2023.
The outlook for the sector is not only dependent on general weather conditions, but also rapidly rising input costs, particularly fertilizer.
The group’s revenue grew by 26.7% to R7.2 billion from R5.7 billion in the previous comparable financial period, with like-for-like comparable revenue growth of 22.9%. At the same time product inflation was estimated at 20.1% (9.2% inflation when excluding the impact of fuel price inflation).
Revenue growth from the group’s trade division accounted for 49.4% of total revenue growth, driven by a 6.8% increase in retail trade and a 25.0% increase in agri trade.
An interim dividend of 46.00 cents per share (2021: 40.00 cents per share) was declared, representing a 15% increase.
Commenting on the results, Kaap Agri CEO Sean Walsh said: “This is only the second time in 13 years that inflation in many of our categories is above 10%. Our ongoing diversification strategy and resilience nevertheless continue to yield strong revenue and gross profit growth, despite tough trading conditions.”
“Strong revenue growth was generated across the agri and fuel channels during the period under review while pressure remained on retail category growth. Revenue growth was underpinned by increased inflation in most categories with exceptionally high year-on-year inflation in fuel, fertilizer and chemical commodities.
The growth in revenue was also driven by a 7.7% increase in the number of transactions.”
Gross profit increased by a healthy 14.2%.
EBITDA, which excludes both interest received and interest paid, grew by 13.0%.
Headline earnings per share increased by 13.9% to 341.61 cents, while recurring headline earnings per share grew by 15.0% to 351.11 cents. This follows a 13.5% increase in headline earnings and 14.6% in recurring headline earnings. Recurring headline earnings have grown at a compound annual growth rate of 19.7% since March 2020 pre-Covid levels.
Walsh said the impact of the 2021/22 wheat season has been positive and agricultural conditions for the upcoming wheat season look encouraging, although always weather dependent. Fruit and vegetable production has largely been positive, however, significant expansions and infrastructural spend in these sectors have been dampened by weather events and increased input costs due to inflationary pressures.
Fresh fruit exports may be under pressure this year due to additional supply chain related costs and lower market prices. Logistical challenges persist, however, ongoing collaboration between port authorities, logistics operators and farming businesses is expected to assist in improving port efficiency. Industry-wide fuel volume pressures have increased due to consumer resistance as a result of the higher fuel prices.
The overall agricultural outlook is stable to positive, however, wine grape producer cashflow pressure is expected to continue. Although weather patterns have been volatile, the damage to inland crops will have minimal influence on the performance of the group.
The full impact of the Russia/Ukraine conflict is yet to realize with sanctions potentially limiting South Africa’s exports into these markets. Another key concern is that Russia is the world's leading exporter of fertilizer materials.
Moderate growth in general retail is expected, with fuel prices and other inflationary pressures dampening this sector. Quick service restaurant performance continues to recover slowly. The acquisition of PEG Retail Holdings Proprietary Limited (PEG), is expected to contribute three months’ performance during the current financial year. The transaction is currently proceeding but remains subject to certain suspensive conditions. The acquisition focusses on enhancing earnings of the fuel and fuel retail environments and will add 41 service stations, mostly national highway sites, across all major oil company brands to The Fuel Company (TFC).
While group fuel volumes decreased by 1.3% during the period under review, market share gains have been made in non-TFC fuel volumes due to the ability to deliver and product availability.
Cost control remains a focus area, especially given increased inflation and trading margin pressures.
Income from the trade division during the period under review, which includes the Agrimark retail branches, Forge (in KwaZulu-Natal), Agrimark Packaging distribution centres and Agrimark Mechanisation increased by 22.7% with operating profit before tax increasing by 19.9%, while retail fuel and convenience income grew by 31.7% and operating profit before tax increased by 1.7%.
Agrimark Grain services, which includes grain handling and storage of grain and related products, seed processing and potato seed marketing, grew revenue by 38.1% and operating profit before tax by 9.1% due to the increased wheat harvest and higher wheat prices. Manufacturing income reduced by 8.6% with operating profit before tax reducing by R3.8 million.
Walsh said that capital spend during the period returned to more normalised levels and despite the pressure from high inflation, working capital has been managed effectively. Trade debtors grew by 21.1% with debtors not within terms as a percentage of trade debtors reducing from 9.2% to 8.0% year-on-year.
The group’s debt-to-equity ratio, calculated on average balances, improved to 55.8% (2021: 63.1%) with an interim debt-to-ebitda ratio of 3.9 times (2021: 4.2 times) and interest cover of 7.9 times (2021: 8.2 times). Gearing has improved in line with expectation and there is sufficient headroom available to fund identified growth opportunities.
Group cash generation remains strong with an ongoing focus on driving returns on capital already invested in the business.
“In line with previous years, the first six months earnings will contribute more to full year earnings than the second six months. Management is positive regarding the performance of the business during the coming six-month period.
“The overall performance is expected to be in line with management’s upper range of medium-term targets,” Walsh said.
In terms of events occurring after the reporting period, the Zeder unbundling was implemented on 4 April 2022. Share liquidity is expected to increase and Kaap Agri welcomes all new KAL shareholders to the Group.
About Kaap Agri
Kaap Agri mainly trades in retail markets of agricultural, fuel, general and convenience in Southern Africa. With its strategic footprint, infrastructure, facilities and client network, it follows a differentiated market approach. In support of the core retail business, the group also offers financial, grain handling and mechanisation agency services. Kaap Agri has 228 operating units located in eight South African provinces, as well as in Namibia.