KAL Group diversification efforts yield strong interim results
Posted on: 4 May 2023
KAL Group (“KAL”), previously known as Kaap Agri, has weathered tough economic conditions in the six months to March 2023 with a significantly stronger cash generation ability and a successful diversification business strategy bearing further fruit.
The Group has over the past seven years diversified from a largely agricultural focussed business to a diversified business with trading activities in agricultural, general retail, retail fuel, fuel convenience and quick service restaurant markets (QSR). Non-agri related operations now account for 75% of KAL’s trading profits with 272 business units spread across all nine South African provinces and Namibia.
The results for the six months to March 2023 includes PEG Retail Holdings consisting of 41 retail fuel and convenience business units, acquired in July 2022.
During the period under review, earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by a solid 30.9% from R398.3 million to R521.3 million, indicating financial health and the strong cash-generative nature of the business.
Despite a dampened economic environment, KAL grew its revenue by 68.4% to R12.09 billion, up from R7.18 billion in the previous comparable financial period, with like-for-like comparable revenue growth of 11.8%. This growth was underpinned by a 183.6% increase in the number of transactions (approximately 33 million transactions over the 6-month period).
Recurring headline earnings grew by 18.1%. If the impact of additional direct costs incurred related to loadshedding were excluded, recuring headline earnings increased by 27.2%, while recurring headline earnings per share grew by 8.7% to 381.64 cents.
Recurring headline earnings has grown at a compound annual growth rate of 19.2% since March 2020 (pre-COVID-19 levels).
An interim dividend of 50 cents per share (2022: 46 cents per share) was declared.
In a virtual address to shareholders, KAL CEO Sean Walsh said: “Irrespective of the poor economic conditions and unrelenting loadshedding, and despite 3 challenging years in which the business has had to face disruptions from the impact of COVID-19, widespread looting in KZN and the impact of SOE failure on agricultural customers, KAL has managed to achieve sustainable growth in recurring headline earnings.”
The Group has implemented an action plan to reduce the financial impact of power outages through identifying turnover opportunities, specific expense rationalisation initiatives and deliberate capital expenditure and working capital management.
Group cash generation remains strong and will continue to increase going forward due to the cash generative nature of PEG, and we are particularly pleased with the strong growth coming from the retail convenience and quick service restaurant segments.”
“While the level of investment in terms of footprint growth was high during the previous year, mainly due to the PEG transaction, the current year will see a more normalised pattern of capital expenditure.”
About general economic conditions, Walsh said the wider economic impact of reduced GDP forecasts does not bode well for South African businesses and consumers alike. The impact of the Russia-Ukraine conflict with its negative influence on fertiliser and fuel cost is expected to continue for the foreseeable future.
Although the overall agriculture outlook in the areas where the Group operate is stable, producer cashflow pressure is expected to continue.
Weather patterns are being closely monitored as the likelihood of El Nino seems to be increasing. The agricultural sector may endure more challenging conditions this year with the outlook not only dependent on general weather conditions but also high input costs.
Notwithstanding industry fuel volumes being under pressure due to high inflation, market share gains in group fuel sales has been made, due to product availability and reliability of supply. Whilst moderate growth and margin pressure in general retail is expected, increases in consumer spend on convenience and QSR continue to contribute positively due to the PEG acquisition, with service station convenience and QSR performance exceeding expectations and growing by 335%.
“The addition of PEG to the Group will accelerate the growth in both retail and fuel revenue and will increase the cash component of revenue significantly, boding well for future dividends once the acquisition-related debt has been settled.”
“While operating expenses grew by 72.9% due largely to the inclusion of PEG, like-for-like expenses grew by only 0.4%. Expenditure directly related to loadshedding amounted to R35.2 million for the period. When excluding these costs, like-for-like expenditure decreased by 2.0% which shows that we are able to flex our cost base and still grow the business.”
Income from the Agrimark division increased by 8.9% with operating profit before tax increasing by 1.2%. The key focus areas in this environment continue to be margin enhancement, cost management and stock and footprint optimisation.
Retail fuel & convenience, PEG included, increased income by 252.8% with operating profit before tax increasing by 134.2%. The performance of this division has been encouraging given the economic challenges faced by consumers.
Agrimark Grain experienced a decline in revenue of 16.8% off a lower wheat harvest, with operating profit before tax decreasing by 11.3%, while the Group’s manufacturing operations also experienced pressure.
In line with previous years, the first six months earnings are expected to contribute more to full year earnings than the second six months.
“While there are many challenges, KAL has proven to be resilient throughout and continues to push hard to achieve its stated medium-term growth objectives. We are cautiously optimistic regarding the performance of the business during the coming six-month period given the current economic and power supply challenges,” Walsh said.
Issued by MediaVision on behalf of KAL Group
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