Kaap Agri continues to deliver stellar performance
Posted on: 24 November 2022
Kaap Agri delivered a strong financial performance in the year to September 2022 amid significantly higher farm input costs resulting in pressure on agricultural producer’s cashflow. This was accompanied by a continued burden on general consumer spending, whilst a recovery of fuel volumes was muted by soaring prices and lower consumption.
Kaap Agri has over the past seven years diversified from a largely agri-focused business to a diversified group with trading activities in agricultural trade, general retail, retail fuel, fuel convenience and quick service restaurant markets. The company’s customer base has expanded from mainly farmers to also include families, friends, and their fur family.
The group’s footprint of 272 business units also includes service stations operated by the fuel retailer, PEG Retail Holdings, which was acquired in July 2022. As such, three months of PEG performance is included in the period under review.
The group maintained strong performance throughout the year, increasing revenue by 48.4% to R15.70 billion with like-for-like comparable growth of 24.0%. This was achieved on the back of a 54.3% increase in the number of transactions (7.9% increase excluding PEG). Compared to pre-Covid-19, revenue has grown at a compound annual growth rate of 22.9%.
Notwithstanding immense challenges, the group’s agri trading has shown impressive real growth of 14.7%. Excluding the acquisition of PEG, retail-trading continued to grow market share with real growth in turnover of 1.5% year-on-year.
Although the retail fuel industry has experienced severe fuel volume decreases stemming from changed consumer behaviour due to high fuel prices, the group’s fuel subsidiary, The Fuel Company (TFC), excluding PEG, has performed well with litres decreasing by only 2.3% and showing continuous improvement. The addition of PEG will have a significant positive impact on fuel volume growth in this income channel.
Convenience and Quick Service Restaurant (QSR) offerings have recovered strongly, surging back to above pre-Covid levels.
Recurring headline earnings per share increased by a solid 21.1% to 578.23 cents with recurring headline earnings growing by 24.0%. This follows a headline earnings increase of 23.5% and headline earnings per share growth of 22.3% to 556.30 cents. Recurring headline earnings per share has grown at a compound annual growth rate of 15.5% when compared to pre-Covid 2019.
A final dividend of 122.00 cents per share (2021: 111.00 cents) was declared to bring the total dividend for the year to 168.00 cents per share (2021: 151.00 cents), representing an increase of 11.3%.
Commenting on the results, Kaap Agri CEO Sean Walsh said: “We have once again delivered results ahead of expectation and in support of our strategic growth objectives. Our balance sheet has strengthened during the period under review and cash generation has improved.”
“The overall agriculture outlook is in general terms, stable. However, producer cashflow pressure continues due to high input costs and logistical and export payment challenges.”
“Below average rainfall towards the end of the wheat season has resulted in expectations of a more normalized wheat harvest compared to the prior year, with all indications pointing to an average yield across the total Swartland region.”
“Although always weather dependent, the outlook for fruit and vegetable production in the upcoming agricultural season looks encouraging with good yields expected, but at a higher cost to the farmer.”
Trends in respect of rising input costs, curtailed capacity expansion and export related logistical challenges are being monitored closely. It is also expected that pressure will remain on fuel volume sales partly offset by constantly improving convenience and QSR spend.
Walsh said the addition of PEG will accelerate the growth in both retail and fuel revenue in the coming year. This will increase the cash component of revenue significantly, boding well for future dividends once the acquisition related debt has been settled.
Product inflation is estimated at 24.2% for the year. Excluding the impact of fuel inflation in the revenue basket, inflation was 9.3%.
Various business-to-business and business-to-customer initiatives are expected to further enhance the group’s market reach.
In line with its digital transformation strategic objective, the group launched its first e-commerce store in September 2022. Agrimark Online includes an e-catalogue of over 40,000 products across 25 categories with a selected range of 7,500 products available for online purchase and delivery with the rest being available in-store.
While only one new site was added to TFC, the acquisition of 41 PEG business units contributed to group fuel volumes increasing by 21.1% during the year. Collectively, 6 new retail and agri trade sites were added to the Agrimark division and 2 smaller unviable trade offerings were closed.
Effective cost management remained a key focus area during the period with like-for-like expenditure growing by 12.2%. EBITDA grew by 21.8% and lower than gross profit growth, due largely to increased non like-for-like expenditure like bank costs and costs of load shedding.
Capital investment amounted to R262.1 million with a further net R654.4 million spent on the acquisition of PEG and the buyout of minorities in Partridge Building Supplies (Trading as Forge). The disposal of TFC Properties generated R455.9 million.
Although working capital increased significantly due to abnormally high inflation and real growth, the business has managed the impact thereof effectively. Trade debtors have grown at a rate marginally above the increase in credit sales, but out of terms have decreased by 0.6% of trade debtors, which further highlights the quality and resilience of the debtors’ book.
The group’s cash generation remains strong and will increase going forward due to the cash generative nature of PEG. The focus on driving returns on capital previously invested in the business continues. Whilst the level of investment in terms of footprint growth was high this year mainly due to the PEG transaction, the coming year will see a more normalised pattern of capital expenditure.
In line with its ongoing growth and footprint expansion, both from a sectoral and regional perspective, the group intends changing the company’s name from “Kaap Agri Limited” to KAL Group Limited. This name change, which incidentally also mirrors the company’s JSE share code, will be voted on by shareholders at the Annual General Meeting in February 2023.
“We believe the group is well positioned and equipped to capitalize on any improvement in economic and trading conditions and are cautiously optimistic for the coming year. By ending the year employing more than 7 000 people, celebrating key growth acquisitions and initiatives and doing about 5 million transactions per month, we have much to be thankful for,” Walsh said.