Kaap Agri has succeeded in its immediate focus to protect and stabilise the business, save livelihoods and avoid the COVID-19 iceberg.

Despite a relatively slow start to its agri and retail trade during the first six months of the year, and a further constrained consumer environment as a result of COVID-19 during the second half of the financial year to September 2020, the group’s business performance has been encouraging with results ahead of expectations.

Read more about Omnia’s performance here.

Recurring headline earnings per share increased by 4,6% to 392,52 cents, resulting in a five-year compound annual growth rate of 8,6% to September 2020. Revenue increased by 1,5% to R8,6 billion with like-for-like comparable growth declining by only 0,6%.

The 1,5% revenue growth was achieved despite a 2,9% decrease in the number of transactions, notwithstanding an estimated -6,6% impact due to COVID-19. Excluding the negative impact of COVID-19 and the adoption of IFRS 16, both of which are non-comparable with the prior year, recurring headline earnings would have grown by 15,4% year-on-year.

Gross profit increased by 4,7% due to an improvement in sales mix and agri trading margins, while expenses, which include unbudgeted COVID-related expenses, grew by only 2%. While the group did not declare an interim dividend at mid-year due to the uncertainty surrounding COVID-19, the full-year results have highlighted exceptional working capital management, strong cash generation and resilient earnings growth. As a result, a final total dividend of 50 cents per share (2019: 123,50 cents per share) was declared, representing a dividend cover of 7,4 times (2019: 2,9 times).

Kaap Agri showed resilience

Commenting on the results, Kaap Agri CEO Sean Walsh said: “The group has shown a high degree of resilience under exceptionally challenging trading conditions. It was a year of two distinct halves for our business. We experienced a slow start with the results of the first six months being hampered by constrained retail consumer spending, adverse weather conditions, suppressed gross domestic product (GDP) growth and increased competitor activity.

“The second six months of the financial year bore the brunt of COVID-19’s impact with the effects having been felt across the organisation. We were fortunate in that most parts of the business continued to trade as an essential service provider, albeit under certain limitations during the different levels of lockdown. Fuel sales, quick service restaurants (QSR) and convenience store sales were adversely affected, particularly due to reduced footfall as well as the inability to sell tobacco and other non-essential products.”

Agri sales growth outperformed retail sales growth, largely due to COVID-related trading restrictions which affected retail sales to a larger degree than agri sales growth.

Optimism abounds for 2021

Walsh remains cautiously optimistic about the year ahead. “Our ongoing strategy of diversification is expected to generate improved results in the year ahead, as income streams, which were constrained during harsher COVID-19 lockdown levels, continue to recover.

“The business environment in which we operate will nevertheless continue to be constrained and it remains to be seen what the long-term effects of COVID-19 will be on general consumer behaviour. For the short-term one can expect that general retail performance will remain subdued.”

The lockdown-related reduction in travel and road transport significantly influenced fuel sales. In addition, QSR trade remained suppressed despite restaurants reopening under level 3.

“It is expected that fuel litre sales will remain under pressure with a longer recovery period anticipated in business and leisure travel. However, we will continue to capitalise on convenience store and QSR revenue and any margin opportunities at current sites.”

During the first half of the year, a decision was taken to slow down The Fuel Company (TFC) footprint expansion across the business and to focus on delivering returns on previously invested capital. The onset of COVID-19 has reinforced this decision.

“A cautious approach will be followed regarding acquisitions in the retail fuel and convenience segment in the short-term as energy is focused on maximising returns on capital already invested in this segment.”

Agri conditions in the Western Cape

Walsh said that while agricultural conditions in the Western Cape have largely improved, certain areas remain under pressure, particularly the northern regions of the country. Good rainfall throughout the wheat season has resulted in an increase in the anticipated wheat harvest compared to that of last year.

All indications point to an above-average yield across the Swartland region. Farm dam levels have largely recovered in the areas in which the group operates, while conditions in KwaZulu-Natal are also encouraging. Due to a very good fruit export season, as well as an above-average wheat harvest, Walsh expects agri input and infrastructure sales to be buoyant in the new year.

In support of its growth ambitions, Kaap Agri enters its new financial year with a refreshed logo and streamlined brand architecture. Going forward, Agrimark will be positioned as the main retail consumer-facing brand and all the group’s trade, retail and value-added businesses will be consolidated under the Agrimark brand name. This means that existing brands such as Wesgraan, Pakmark, Liquormark, and Kaap Agri Mechanisation will now be positioned under the Agrimark brand. Kaap Agri retains its position as the parent brand.

“Apart from achieving cost efficiencies, moving from several different brands to one main customer-facing brand will ensure our one-stop agri-lifestyle offering becomes more recognisable.” – Press release, Kaap Agri

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