PAARL-based agri-service giant Kaap Agri – which owns the well-known Agrimark retail chain – appears to be miss-firing on its expansion into the fuel sector.
In the six months to end March, Kaap Agri’s petrol and diesel selling subsidiary, The Fuel Company (TFC) saw profits decelerating to R52 million (from R54 million previously). This was despite a slight increase in revenues to R1.28 billion on a 12.6% increase in fuel volumes to 139.4 million litres.
Kaap Agri CEO Sean Walsh reported price deflation of -1% in fuel sales. He also indicated that new sites would only kick in their profit contributions in the second half of the financial year.
Walsh said revenue growth had been slow due to low volume growth in like-for-like sites and delays in newly acquired sites. “The reduction in profitability is due largely to a combination of fuel price decreases impacting inventory valuation, increased costs and the impact of managed sites converting to owned sites.”
He pointed out that managed site profitability was included in the base, but the actual revenue from this was only recorded once sites are officially owned.
The good news was that the TFC fuel forecourts – which host Expressmark convenience stores and Fego café quick service restaurants – did benefit. Walsh said these brands performed strongly.
TFC’s footprint now extends to 43 fuel units – the bulk of which are located in the Western Cape (17) and Northern Cape (10).
There is a worry that the heavy investment in TFC is yielding low returns – remembering the fuel business operates on lower margins than Kaap Agri’s traditional Agrimark retail core.
Walsh stressed the six month period was characterised by a “no return” capital situation on R49 million invested in new TFC site deposits.
He said the strategy for TFC remained unchanged – most notably the pursuit of national footprint.
He said TFC had added five new fuel sites since the first half of the 2019.
The TFC pipeline held three new sites, but Walsh said Kaap Agri was cautious on the effects of Covid-19.
Overall, Kaap Agri performed soundly with revenue increasing 11,6% to R4.9 billion. Like-for-like comparable sales growth came in at 4,8% – buoyed by a 5% increase in the number of transactions.
Walsh said sales growth across all trade divisions – which comprise Agrimark, Pakmark, Liquormark and Forge Build – was strong and accounted for 66.5% of total revenue growth.
Revenue for the trade segment came in higher at R2.93 billion (R2.6 billion) with profit before tax up markedly at R170 million (R152 million).
Looking ahead, Walsh said the trading division priorities would be reinforcing the building materials offering and retail optimisation as well as the centralisation of replenishment, assortment and pricing.
Interestingly Walsh reported that growing categories were hardware, homeware, pet supplies, FMCG (fast moving consumer goods) and gas. He said there would be a continued focus on category winners.
The unsung hero of the Kaap Agri interim performance was grain storage business Wesgraan, which chipped in a healthy R15 million to profits.
Walsh did, however, warn that the strong Wesgraan performance might not be repeated in the second half of the financial year.
