Kaap Agri ploughs up profits

Kaap Agri
CBN Audio:

AGRICULTURAL services conglomerate Kaap Agri – which owns the well-known Agrimark retail brand – has reaped a bountiful interim profit harvest.

In the half year to end March, Kaap Agri increased revenue almost 16% to R5.7 billion on the back of an 8.6% increase in transactions. The group also felt confident enough in its immediate prospects to resume the interim dividend pay-out – which was set at a decent 40c / share.

The performance was helped by positive fruit and vegetable production – although Kaap Agri did note that significant expansions and infrastructural spend have slowed due to Covid-19 related cash flow curtailment. The group said the main focus at farm level was on replacement infrastructure spend.

Kaap Agri CEO Sean Walsh said the execution of strategic initiatives over a number of years had culminated in exciting improvements in various parts of the business. “Our ongoing diversification strategy and resilience continue to yield strong revenue growth despite the current tough trading conditions.”

Revenue growth from the trade division – which is underpinned by Agrimark – accounted for 47.9% of total revenue growth, driven by a 15.4% increase in retail business and a 6.7% increase in agri business.  Walsh noted that the recovery in the non-agri retail was “quicker, sooner and better than expected, and above pre-Covid-levels.”

There was even encouraging news in the fuel business, which has earned its share of detractors in recent years.  Group fuel volumes in The Fuel Company (TFC) increased by 11.9% – although Walsh admitted forecourt convenience and quick service restaurant performance lagged fuel volume growth in like-for-like sites due to Covid-related restrictions.

Perhaps the most encouraging news was that Walsh confirmed significant distribution centre throughput growth has been achieved by Kaap Agri during the interim period. “Retailers with good supply chain systems have prevailed better than others during Covid. Our healthy retail sales growth and resilience in non-agri trade have been underpinned by robust distribution centre supply abilities.”

Grain Services subsidiary, Wesgraan, benefitted from an improved wheat harvest and earlier realisation of income. Walsh said Wesgraan continued to experience the positive impact of the 2020/21 wheat season, and added that conditions for the upcoming wheat season looked positive, albeit always weather dependant.

Looking at second half prospects, Walsh reminded that Kaap Agri’s first half trading traditionally contributed more to annual profits than the second half.  But he was positive about the performance of the business during the second half and was still committed to achieving strategic medium-term growth targets.

He pointed out that consumer confidence, although low, has seen an improvement in the past few months. “Retail sales have rebounded, especially building materials, and general agricultural conditions remain positive in the areas in which the group operates which bodes well for the second half of the financial year.”

As regards the fuel business, Walsh said the fuel industry had experienced significant fuel volume pressures throughout the various Covid lockdown levels. But he added that retail fuel sales had improved as Covid-related restrictions eased. “Fuel price inflation will weigh on trading margins. No new retail fuel sites are planned for the remainder of the financial year.”

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