Business outlook remains cautiously optimistic in 2025
KAL Group, one of South Africa’s leading agri, fuel & convenience speciality retailers listed on the JSE, has delivered a solid start to the first three months of the 2025 financial year (Q1 or this period), and, encouraged by green shoots emerging in the operating environment, is cautiously optimistic about the 2025 outlook.
“Our streamlined balance sheet, disciplined capital expenditure, robust cash flow and our lowest debt levels in a decade create a solid foundation for expansion and diversification, enabling accelerated future growth ahead of plan. We have set an aggressive growth target for 2030 of R1.5bn profit before tax, targeting a debt-to-equity ratio of 40%, and a return on equity of 15%, as well as a return on invested capital of 14%,” said Sean Walsh, CEO of KAL Group at its annual general meeting in Paarl today.
Performance indicators
Highlights for this period include that the Group reduced debt by R141m, and its debt-to-equity is significantly better than a year ago at 49% (reducing from 59%), despite the business not having expanded its fuel and convenience footprint during the quarter. EBITDA improved 1.8% for the period.
When comparing the year-on-year (YOY) Q1 trading profit growth to the last three months of the 2024 financial year (LY Q4), an overall upward trend is evident, with total trading profit having improved by 4.1%. Retail saw a 3.2% increase, recovering from a 0.3% decline in LY Q4. The Agri sector improved by 1.5%, rebounding from an 11.4% drop in LY Q4. Fuel experienced the most significant growth at 7.6%, reversing an 8.5% decline in LY Q4.
Walsh said that during the period, FMCG was the star of the show.
“The positive momentum in Retail is primarily driven by strong performance in our FMCG business segment, particularly in convenience retail, supported by our service station footprint. This has contributed to trading profit growth outpacing turnover growth,” said Walsh, adding however, that the building and cement categories disappointed, and flattened in Q1.
He added that turnover in the Agri category grew by 5.7% after a period of volatility. “While margins remain under pressure due to competition and other factors, trading profit has remained positive. Additionally, we saw a strong rebound in January packaging material sales following a slow start in the first quarter, due to harvest season starting later than usual.”
He said that a bright spot that bodes well for the Agri category is that farmers appear to be recovering and resuming spending after a challenging period of high interest rates and loadshedding-related costs, which strained debt repayments. Additionally, they are emerging from the impact of loadshedding, a recovery that will take up to three years.
This trend is echoed in the Fuel category, which almost doubled its trading profit growth over the period.
“The price of fuel was 18% lower on average during the quarter. Encouragingly, our fuel volumes were up 0.7%. We are experiencing higher volume sales in commercial agri diesel, consumer diesel, and petrol volumes, likely indicating that more people are travelling and driving, which importantly drives higher retail spend at fuel sites. However, it seems that commercial diesel is under pressure, as lower volumes were sold in this channel,” said Walsh. “Positively, less sites were impacted by road closures and revamps than the prior year, as the severe disruptions from road closures across different parts of the country are dissipating.”
Outlook in 2025 – preparing for varying scenarios
He added that the business is encouraged by the decelerating interest rate cycle that was initiated in 2024 and continues in 2025, which bodes well for an improved consumer and farmer outlook. “If this continues, it is likely to have positive spin offs for our Agri, Retail, Convenience and Fuel categories.”
He said that while the business is influenced by market drivers such as weather conditions, interest rates, inflation, fuel prices, commodity pricing, consumer and farm spending, KAL Group has specific strategies in place to either mitigate their impacts on the business, or capitalise on opportunities these impacts offer.
“Firstly, our diversification across agri, retail, fuel, and convenience sectors is a deliberate strategy designed to mitigate the inherent seasonality of agriculture. Moreover, our Agrimark footprint is 70% focussed on water intensive farming areas of SA. Our customer base in these areas have more predictable harvests than dryland maize production areas, because they use established infrastructure and water management systems to manage irrigation, rather than being overly reliant on rainwater,” said Walsh.
He added that another key strategy for competing in South Africa’s well-established retail sector is the business’s entrepreneurial approach.
“At Agrimark, management is measured and incentivised as if they owned the business. Similarly, most of The Fuel Company sites are partner-managed and participate in profit-sharing, ensuring a strong focus on both the customer experience and operational excellence. We believe this – together with our expansion strategy for the remainder of the financial year – sets us up for success.”
“We have a healthy pipeline of upgrades and expansions planned for this year, including the addition of five new service stations to our network and several enhancements to our quick service restaurants and convenience offerings,” concluded Walsh.