Grain recovery offsets Kaap Agri’s drought-related challenges

10th May 2019

By: Marleny Arnoldi

Deputy Editor Online

     

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JSE-listed agricultural retailer Kaap Agri reported a solid set of results for the six months ended March 31, on the back of revenue growth in its Wesgraan grain handling and storage division.

Wesgraan’s revenue grew by 26.6% year-on-year on the back of improved wheat harvests in the Western Cape, which also resulted in a 16.8% year-on-year increase in the division’s pre-tax operating profit.

Certain transport costs incurred during the reporting period would be recovered through sales in the second half of the financial year, said Kaap Agri on Friday, with the full impact of the Wesgraan recovery weighted to the second half of the financial year.

Kaap Agri reported that its headline earnings a share were up 1.4% to 224c, while recurring headline earnings a share were up 3.2% to 230c, resulting in the declaration of an interim dividend a share of 33.5c apiece, which is 4.7% up year-on-year.

During the reporting period, Kaap Agri’s performance was affected by a slow recovery of agricultural conditions in the Western Cape following the 2016/17 drought and the continued drought conditions in the Northern Cape.

However, the addition of the company’s Forge business, in KwaZulu-Natal, as well as market share gains in the inland region, positively impacted on the trade division.

While the sales growth of the trade division had been encouraging, the largest impact on revenue came from The Fuel Company (TFC), specifically in

newly acquired and non-like-for-like sites.

Group fuel volumes increased by 9.2%, of which TFC-owned and -managed sites have grown fuel volumes by 9.5%. Growth in fuel site convenience and quick service restaurant retail operations exceeded fuel volume growth.

Mechanisation sales also exceeded expectations during the period. The business continued to explore agricultural, retail and manufacturing expansion opportunities.

Revenue from the company’s irrigation manufacturing business decreased by 5.3% owing to the lingering drought-related impact on capital investments and upgrades. Operating profit reduced by 27.9%.

The sales outlook was, however, improving, with the higher turnover experienced in the latter part of 2018 expected to continue. Kaap Agri said investments had been made into this segment to improve manufacturing efficiencies and new product range opportunities were being investigated.

“Although consumer pressure remains, the company’s range expansion and improvement has generated strong retail growth in non-agricultural categories.

“Lower disposable income has also influenced the retail fuel sector, whereas Wesgraan performed well on the back of a more favourable wheat position,” summarised Kaap Agri.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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