Kaap Agri, the JSE-listed group trading in agricultural, fuel and related retail markets, says it is well positioned and remains on track to achieve inflation beating growth in the medium-term.
Whilst the past two years were not without challenges, Kaap Agri continues to be positive about the medium-term outlook for agriculture in Southern Africa.
Addressing shareholders at Kaap Agri's recent annual general meeting, CEO Sean Walsh said the group achieved growth in profitability in the financial year to September 2019, despite lower infrastructural development on farms, prolonged recovery from the drought, marginal improvements in fruit harvests and a mid-year retail sales slump.
Although revenue growth of 29.1% was above industry trends and shows healthy top-line growth, it was driven by fuel price inflation and growth from investment activities. This resulted in growth of 6.6% in recurring headline earnings.
For reporting purposes, Kaap Agri is structured into four operating segments, namely Trade, The Fuel Company (“TFC”), Wesgraan and Manufacturing.
The Trade segment contributed to 58.8% of revenue and TFC a further 29.1%. Wesgraan’s operating profit grew by 113.8%, a direct result of a recovery in the wheat intake after the prior year’s drought. Manufacturing had a flat year impacted by lower than expected agri-infrastructure spend on farms.
"While drought conditions are continuously experienced in various areas of Southern Africa, the company’s diversified exposure to other retail markets bodes well for sustainable growth," said Walsh.
With the country currently struggling with Eskom’s power crisis and load shedding, Walsh said that from a day-to-day transactional point of view, the group’s trade environment is not significantly impacted. The group has invested considerably in power generation over the last few years, with more than 90% of stores equipped to deal with power outages.
"Of major concern, however, is that the current power crisis challenges the sustainability of food production in the country, particularly in the case of water-intensive farming and agricultural production which is heavily reliant on stable electricity supply. It has a knock-on effect right through the production and manufacturing chain and could ultimately lead to further unemployment," Walsh noted.
Kaap Agri’s BEE accreditation level was also improved from a Level 7 to a Level 3.