Kaap Agri on track to achieve growth targets
Posted on: 9 February 2023
The Kaap Agri group expects full year profitability to be in line with the upper range of the group’s medium-term target of a compound annual growth rate of approximately 15%.
Addressing shareholders at the group’s AGM in Paarl today, Kaap Agri CEO, Sean Walsh, said the company is on track to achieve growth targets despite the combination of lingering high input costs, rising interest rates and loadshedding costs having a detrimental effect on the agricultural sector.
In the general and convenience retail environments, high inflation, increased interest rates and high fuel prices have led to increased pressure on consumers.
“We expect that overall inflation will normalise during the second quarter of the group’s current financial year, but that loadshedding will impact full year profitability negatively. However, certain operational interventions are being implemented to partially mitigate this impact.”
“The acquisition of PEG Retail Holdings will contribute an additional nine months of profitability to the group this year compared to last year with convenience and quick service restaurant performance having returned to pre-COVID levels, with all sites being open during loadshedding.”
The overall fruit sector outlook is stable despite lower yields, with an improvement in logistics and input costs. Wine grape harvests are expected to be lower, however prices are more favourable. Lower wheat, canola and barley harvests are currently in storage.
A conservative approach is being applied to new retail fuel sites, while Agrimark Online, launched in September 2022, is gathering momentum.
“Given the above and assuming loadshedding continues at similar levels as during the first quarter, profitability is expected to remain on track according to our medium-term targets.”
The group said in a voluntary business update for the ﬁrst three months of the 2023 ﬁnancial year to September 2023 that while expenditure was well managed with a like-for-like expenses growth of 2.5%, loadshedding costs have increased signiﬁcantly, totaling R15.9 million for the quarter.
This had an impeding effect on earnings growth. Excluding the impact of loadshedding costs, expenditure would have reduced by 1.8% compared to last year.
Recurring headline earnings, the group’s benchmark measure of performance, grew by 30.9% from R130.5 million to R170.8 million, while recurring headline earnings per share grew by 19.8% from 179.72 cents to 215.27 cents (excluding the newly acquired PEG Retail Holdings, it amounted to a 6.5% increase).
This growth was driven by strong gross proﬁt performance, as well as effective operational and support service cost management.
The group’s statutory revenue increased by 73.8% (17.8% if the PEG transaction is excluded) compared to the ﬁrst three months of the prior year. This is off the back of slow retail and agri performance as well as 26.0% inﬂation (12.5% inﬂation when excluding the impact of fuel price inﬂation). Transaction growth was nevertheless encouraging at 6.3% and increased by 193.6% when including PEG.
Fuel litres grew by 82.9% (3.2% excluding PEG). Fuel litre performance was pleasing when considering the fuel volume decreases experienced in the wider fuel industry. Excluding PEG for comparable purposes, retail-related revenue grew by 7.5% and agri-related revenue grew by 7.2% compared to last year.
Within the Agrimark Grain division, the drier weather conditions in the Western Cape weighed on the 2022/23 wheat harvest, resulting in a more normalised wheat harvest compared to the previous two record years. Given the more normalised wheat harvest, full year profitability will be more aligned to prior years with similar wheat yields.
Kaap Agri said the business continued to generate strong cashﬂow and comparable debt ratios improved during the period under review with an increase in return on invested capital during the first quarter.