KAL Group grows market share and revenue in challenging conditions
Posted on: 23 November 2023
KAL Group, previously Kaap Agri, continued to show resilience amidst grim economic conditions during the year to September 2023. Despite restrictive loadshedding costs and high interest rates weighing heavily on retail spending, the Group has been resolute in its strategic execution and grew revenue by 42.7%, recuring headline earnings by a pleasing 14.7% and dividends to shareholders increased by 7.1%.
Over the past seven years, the Group has diversified from a largely agricultural focused business to a speciality retailer with a diverse mix of trading activities in agricultural, general retail, retail fuel, fuel convenience and quick service restaurant markets (QSR). Its customer base has expanded from mainly farmers to a lifestyle-minded customer base, which it segments as “farmers, families, friends and the fur-family”.
KAL’s strategic footprint and facilities, which also includes financial, grain handling and agency services, supports its diverse customer network through 268 business units spread across all nine South African provinces as well as Namibia. Collectively, 6 new Agrimark sites were opened during the period under review, including the launch of the Group’s online shopping platform, Agrimark Online.
The footprint includes highway fuel and convenience retailer, PEG Retail Holdings, acquired in July 2022 with a full 12 months of PEG performance included for the year ended 30 September 2023.
Revenue grew to R22.4 billion, up from R15.7 billion in the previous ﬁnancial year. The revenue growth was achieved on the back of 64.4 million transactions.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by 33.5% to R898.6 million. Headline earnings increased by 20.7%. Excluding once-off items, recurring headline earnings grew by 14.7%.
A final dividend of 130.00 cents per share (2022: 122.00 cents per share) was declared for a total dividend of 180.00 cents per share (2022: 168.00 cents per share) representing an increase of 7.1%.
In a virtual address to shareholders, KAL CEO Sean Walsh highlighted the Group’s resilient performance.
“The business has once again delivered growth despite numerous challenges. Our understanding of the market, our close relationships with our customers, and the active management of risks inform our plans and enable us to adapt and pivot timeously. This is the year that loadshedding ate a big piece of our pie. Our performance has shown that we can hold our own against bigger players in the market and we are excited about future prospects to do more business with more customers in more regions through our strategic initiatives.”
“We continued to grow earnings despite restrictive loadshedding costs. In the context of difficult trading conditions, our teams kept operational expenditure growth very low, to navigate the agri and general retail downturn.”
The PEG acquisition has been successfully implemented and the Group is exploring opportunities for synergy and optimisation. The group grew fuel volumes and have capitalised on the uptick in the convenience retail sectors, which performed above expectation and better than the sector.
“The fruit and vegetable farming sectors have been hampered by loadshedding costs, extreme weather events and increased interest rates leading to curtailed farm infrastructure and related spending. The building materials sector has also struggled off the back of higher interest rates, reducing disposable income in this sector. Notwithstanding this, through our value for money offerings, we achieved a 93.4% increase in transactions, and gained market share in the cement, fuel, QSR, general building materials and petfood segments. We remain grateful to our farmers, families and friends who continue to support our branches despite high living and business cost pressures.”
“The Group’s successful diversification strategy has again delivered a sustainable and improved ﬁnancial performance. We are improving balance sheet strength through strong cash generation and despite the challenging business environment, we are very pleased that we can continue to report growth in recurring headline earnings and a consistent dividend to shareholders. As we grow into a Group of over 7 400 employees, we also continue to invest in the quality of our employees’ lives with above inflation increases and beneficiation initiatives through the KAL Trust.”
During the period under review gearing levels and investment returns improved, while effective cost management remained a critical focus area.
Capital investment of R173.1m, a reduction from the R262.1m spent in the prior year, was incurred which included R24.3m for various alternative energy production and storage initiatives. The Group continues to manage working capital effectively, with net working capital increasing by only R85.6 million.
The effective management of working capital and capital expenditure enabled the business to deliver on its commitment to improve its gearing position. Net interest-bearing debt reduced by R133.7m.
Return on invested capital improved from 11.6% last year to 14.3% as a result of the Group’s focused commitment to grow shareholder value.
Cashflow improved during the year and cash generation remains strong. The coming year will see a continued prudent approach to capital spend, with the focus on high return strategic initiatives and low capital-intensive market and footprint growth opportunities being accelerated.
Walsh confirmed that loadshedding had a more severe impact on the Group than the Covid pandemic.
“It is disheartening to realise that if not for loadshedding, our RHEPS growth could have been 5.9% higher.
Our conservative estimate indicates a loss of approximately R140 million in sales. The direct cost incurred by the Group as a result of load shedding is R63 million, with an additional R24 million in extra capital expenditure. Going forward the cost and effect thereof will be annualised and the interventions that have been implemented are expected to limit any significant further negative impact.”
About prospects Walsh said the overall agriculture outlook is positive due to favourable farming conditions. Nevertheless, producer cashﬂow pressure continues with high interest rates and reprioritisation of cashﬂow to alternate energy solutions.
Good rainfall towards the end of the wheat season has resulted in expectations of a higher wheat harvest, with all indications pointing to a favourable 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.
It is expected that pressure will remain on fuel volume sales, largely due to high and volatile prices, partly offset by robust convenience and quick service restaurant (QSR) spend.
“Our focus will remain on driving returns on capital already invested in the business, and further selective high return generating capital investment opportunities will be pursued.
“The addition of PEG has accelerated the growth in both retail and fuel revenue as well as the cash component of revenue. PEG fuel sales have been encouraging and its convenience and QSR performance has exceeded expectations,” Walsh confirmed.
Footprint enhancement opportunities are being pursued. The performance of PEG bodes well for future dividends once the acquisition related debt has been settled.
“We will embrace the challenging environment in which we operate, and in doing so identify growth opportunities to ensure the long-term achievement of our strategic objectives.”
“KAL has again demonstrated its ability to deliver superior performance and is well positioned to capitalize on any improvement in economic and trading conditions in the coming year,” Walsh said.