Kaap Agri achieves strong growth aligned with pre-COVID levels
Posted on: 6 May 2021
Kaap Agri delivered an exceptional growth performance during the six months to March 2021 as measured against the corresponding interim period in 2020. The impact of the Covid-lockdown on the prior period’s interim results was minimal as only 3.5 days of trading were impacted. Given the healthy results, the 2021 interim performance aligns the group with a normal growth path despite the economic fallout of the pandemic.
Specialising in trading in agricultural, fuel and related retail markets in Southern Africa, the group’s revenue grew by 15.6% to R5.7 billion with like-for-like comparable sales growth of 1,6%. This was driven by an 8.6% increase in the number of transactions.
Recurring headline earnings grew by 25.0% and recurring headline earnings per share by 23.3% to 305.34 cents. Headline earnings per share increased by 24.0% to 299.96 cents.
An interim dividend of 40.00 cents per share (2020: NIL cents per share) has been declared for the period under review.
Commenting on the strong performance, Kaap Agri CEO Sean Walsh said: “The execution of strategic initiatives over a number of years are culminating 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 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. “The recovery in the non-agri retail was quicker, sooner and better than expected, and above pre-Covid-levels,” explained Walsh.
Group fuel volumes increased by 11.9%. Sites owned and managed by The Fuel Company have grown fuel volumes by 8.3%. Fuel site convenience and quick service restaurant performance lagged fuel volume growth in like-for-like sites due to Covid-related restrictions.
Walsh said significant distribution centre throughput growth has been achieved by Kaap Agri during the period under review. “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 benefitted from an improved wheat harvest and earlier realisation of income. Walsh said the group continues to experience the positive impact of the 2020/21 wheat season and conditions for the upcoming wheat season look encouraging, although this is always weather dependant.
Fruit and vegetable production has largely been positive, but significant expansions and infrastructural spend have slowed, partly due to Covid-19 related cashflow curtailment with the main focus being on replacement infrastructure spend at farm level.
Commenting on the second half of the year, Walsh said: “As in previous years, the first six months earnings will contribute more to full year earnings than the second six months. We are positive regarding the performance of the business during the coming six-month period and remain committed to achieving our strategic medium-term growth targets.”
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.
“The fuel industry has experienced significant fuel volume pressures throughout the various Covid lockdown levels but retail fuel sales have 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.”
Walsh says Covid remains an unknown factor. “As a result of Covid, the business has adapted the way in which we interact with customers to ensure we continue to provide a relevant and sustainable offering in a responsible manner. We remain cautious regarding the potential impact of further Covid infection cycles.”
Events after the reporting date consisted of one of the group’s subsidiaries, Partridge Building Supplies (operating as Forge), acquiring another KwaZulu-Natal-based business, Farmsave. Farmsave is an agricultural input and building materials supplier operating in the central to Northern KZN area.
“This acquisition increases our footprint in KZN and is in line with Kaap Agri’s footprint growth strategic initiative and provides the group with a strong entry point into the new generation agri farmer sector in the region,” said Walsh.
The reduction in debt, effective working capital management and continued strong cash generation have contributed to the strong growth in earnings and improved return on invested capital.