KAL Group cautiously optimistic about outlook
Posted on: 8 February 2024
KAL Group, previously Kaap Agri, achieved a promising start to the fiscal, efficiently converting revenue into significant profit growth in the first three months of its 2024 financial year. The core agri-related business staged a significant upward trajectory, contributing to the overall positive outcome.
The stronger growth in profit provides the Group with cautious optimism and positivity for the year ahead with its strategic focus on diversification the last few years continuing to bear fruit.
Revenue increased by 3.4% to R6.52 billion in the first quarter compared to the same period last year. Gross profit showed even stronger growth, expanding by 7.0% surpassing the rate of revenue growth despite a constrained economy. Notwithstanding general retail and convenience pressure, the Group continued its upward trend in gross profit growth with January 2024 year to date gross profit growth higher than the first quarter at 8.4% due to improved margin management, good expense controls and strong working capital management.
Recurring headline earnings, the Group’s accepted performance benchmark, followed with growth of 6.9% from R169.9 million to R181.5 million and recurring headline earnings per share grew by 5.7% from 214.88 cents to 227.11 cents.
This follows as the Group's overall gearing position improved during the period, with net interest-bearing debt reducing by R286.7 million when compared to last year. The business continued to generate strong cashflow and comparable debt ratios improved. Capital expenditure amounted to R43.2 million, down from R52.0 million last year, while working capital was thoroughly managed.
Total Group fuel litres were down 0.8%, with The Fuel Company (TFC Group) litres down 1.3%, whilst non-TFC Group litres increased by 0.6%. Fuel litre performance was encouraging when considering the fuel volume decreases experienced in the wider fuel industry.
Addressing shareholders at the Group’s annual general meeting in Paarl today, CEO Sean Walsh said: “The overall agricultural outlook continues to improve with the fruit and wine sectors showing better yields, good quality and lower costs. Port logistical challenges however, still remain.”
“The most recent wheat, barley and canola harvest delivered an average to good yield and quality, but at lower prices.”
“Agricultural performance remains weather dependent, and the impact of El Nino is being closely monitored, specifically in the Northern Cape livestock and North West grain areas.”
“Most high agri input costs are dissipating but have not normalised yet.”
Walsh said general retail performance, albeit showing signs of recovery, remained sluggish. On the positive side, the Group achieved above-sector growth in various building material categories. While pet, pool and garden categories performed strongly, outdoor categories underperformed, impacted by high generator sales last year.
Convenience retail performance was very much route dependent, with quick service restaurants outperforming convenience stores as commuter footfall slowed.
Fuel volume sales to farmers grew compared to last year. Within the retail fuel environment, diesel volumes increased year-on-year, however petrol volumes continued to decrease.
“Inflation is expected to soften and interest rate reductions are anticipated later in the year rendering increased disposable income and a more favourable economic climate for consumers. As planned, we will continue to reduce debt in line with commitments, execute on opportunities for retail network optimisation and identify synergies across the TFC Group.
“Whilst the Group’s investment pipeline is healthy, it remains very selective about prospective transactions and will maintain its focus on value enhancing opportunities.”
“We will remain focussed on capitalising on new routes to market and profitable revenue streams, supported by our ongoing technological innovation and stakeholder collaboration,” Walsh said.
A presentation relating to the voluntary business update is available on the company’s website at kalgroup.co.za/s3/AGM2024-Presentation.pdf