Kaap Agri Achieves Exceptional Results In Trying Conditions
Posted on: 25 November 2021
Kaap Agri delivered an outstanding financial performance for the year ended September 2021 achieving double digit earnings growth in an extraordinary year characterised by suppressed GDP growth, record high fuel prices, changing consumer patterns and a reduction in travel due to the lingering effects of Covid-19.
- Revenue increased by 23.4% to R10.6 billion
- EBITDA grew by 19.2%
- Gross profit grew by 20.2%
- Recurring headline earnings increased by 23.8%
- Recurring headline earnings per share grew by 21.7%
- Prudent management of working capital and capital expenditure
- Significant debt reduction
- Return to normal dividend payment
Commenting on the positive performance, Kaap Agri CEO Sean Walsh said: “Kaap Agri performed at consistently strong levels throughout the year. Despite tough trading conditions, the group has delivered outstanding results even when measured against pre-Covid levels. I’m very proud of our performance and achievements which were driven by disciplined execution of our strategic priorities and confirms the resilience of our growth and diversification strategy. The results are not only pleasing, but reflects the group’s sustainability during extraordinary times, reaffirming our longevity and 100-year heritage, the value of our brand and customer relationships, and the quality of our people.”
This strong performance is measured against the 2020 financial year in which, despite a significant negative Covid impact, revenue still reflected a positive growth of 1.5% compared to 2019.
Specialising in trading in agricultural, fuel and related retail markets in Southern Africa, the group’s revenue increased by 23.4% to R10.6 billion, up from R8.6 billion in the previous financial year, with like-for-like comparable growth of 12.6%. This was achieved off the back of a 17.0% increase in the number of transactions.
Recurring headline earnings per share (RHEPS) grew by a solid 21.7% to 477.55 cents. Relative to 2019, a non-Covid reporting period, RHEPS grew a hefty 27.3%.
A final dividend of 111.00 cents per share (2020: 50.00 cents) has been declared, with a total dividend of 151.00 cents per share (2020: 50.00 cents) having been declared for the full financial year.
Walsh said the operating conditions in which the group traded for the year, continued to be impacted by Covid-19, however the impact on agri and general retail trade was limited due to the easing of the most stringent lockdown restrictions.
The fuel industry faced ongoing fuel volume decreases driven by record high prices, changes in consumer driving patterns, as well as lockdown-related reductions in travel and road transport. The Fuel Company (TFC), the Group’s retail fuel and convenience store business was hardest hit by Covid-19 restrictions but through a focussed approach, succeeded in achieving 23.3% higher sales than 2019 levels. Group fuel volumes increased by 13.0% in the year under review, whilst TFC increased annual fuel volumes by 9.7%. Retail fuel and convenience revenue increased by 31.2% with operating profit before tax increasing by 66.1%. The revenue increases can be attributed to a combination of non like-for-like sites, fuel price increases, improved contributions from convenience stores and quick service restaurant offerings, while good expense management and fuel price increases contributed to higher profitability.
“Retail sales growth outperformed agri sales growth,” remarked Walsh. “Whilst agri trade has been the least impacted by Covid due to the essential nature of food production, it has been encouraging to see areas within our retail trade returning to pre-Covid levels.”
Kaap Agri is on a sound financial footing with a compound annual growth rate in recurring headline earnings per share of 15.1% over the past 10 years.
Working capital has been well managed and only increased by R108.1 million year-on-year. Net interest bearing debt decreased by 8.9% to R1.2 billion and gearing has reduced due to a prudent approach to capital expenditure. Debtors have grown at a rate lower than credit sales with out of terms debtors only growing by 3.3%, highlighting the effectiveness of lending processes and the quality of the debtors book.
Group cash generation remained strong with a focus on driving returns on capital previously invested in the business and the focus on effective cost management remained a key focus area with comparable like-for-like expenditure only having grown by 7.3%. Return on equity increased to 15.3% (2020:13.8%) with the debt-to-equity ratio decreasing to 56.1% (2020: 64.9%).
“Agricultural conditions in the areas in which we operate have largely been positive. Certain areas remain under pressure, particularly the Eastern Cape and northern regions of the country. Good rainfall throughout the wheat season has resulted in high expectations for the coming wheat harvest, with all indications pointing to an above average yield across the total Swartland region.”
Walsh said that there are nevertheless concerning trends in the agri environment with regard to rising input costs, curtailed capacity expansion and logistics challenges, specifically those related to exports.
Looking forward, Walsh confirms the group is embracing the opportunities that a new normal Covid-19 environment presents. “The Covid-19 situation is monitored closely, and all necessary protocols remains embedded in our daily operations. The group’s balance sheet has strengthened during the period under review and cash generation has improved. We will continue to investigate value enhancing opportunities and we will soon be completing a new store format concept in the urban area of Somerset West”.
“We remain committed to our growth and diversification strategy and will continue the drive to reduce our overall group risk position and enhance value creation”.
“The group is well positioned and equipped to capitalise on any improvement in trading conditions and look forward to the challenges of the new year,” Walsh said.
Events after the reporting date consist of the disposal of TFC Properties (Pty) Ltd for R445.6 million, and the conclusion of long-term leases to ensure tenure on its fuel retail sites. The disposal has no impact on the ongoing trading of TFC Operations (Pty) Ltd, whilst proceeds of the disposal will in the interim be used to reduce borrowings and to fund higher return generating acquisition opportunities.
About Kaap Agri
Kaap Agri specialises in trading in agricultural, fuel and related retail markets in Southern Africa. With its strategic footprint, infrastructure, facilities and client network, it follows a differentiated market approach. In support of the core retail business, the Group also offers financial, grain handling and agency services. Kaap Agri has 226 business units located in eight South African provinces as well as in Namibia.