Farming community retailer and agri-services specialist Kaap Agri, which listed on the JSE earlier in 2017, believes it can still achieve double-digit growth in the financial year ahead despite the prolonged drought slowing business activity in the Western Cape.
On Wednesday, Kaap Agri, which owns the Agrimark retail brand, reported a 12% hike in the value of business transacted to R8.6bn, with comparable stores growing turnover 9.4%.
CEO Sean Walsh said the growth in the value of business transacted was spurred mainly by a 16% increase in the number of transactions, with product inflation estimated at 3.9%.
Gross profit rose 18.5%, but he cautioned that the improved retail margins were expected to be partially offset by the higher growth in lower-margin fuel sales in the years ahead.
Recurring headline earnings increased 18% to 352c per share. A final dividend of 82.6c was declared, raising the full-year payout 18.5% to 112c per share.
Looking ahead, Walsh believed the effects of the drought would be felt by Kaap Agri’s operations around April or May 2018.
He said drought conditions in the Western Cape would have an effect on the fruit industry and might slow revenue growth from this sector in 2018.
"The drought will have an impact, but we will not see negative growth," he said.
"We have a 18.9% compound annual growth rate over the longer term and will be tempering expectations. But we think we can still achieve double-digit growth in the year ahead."
The company has its roots in the Western Cape but in recent years has expanded the operational footprint to 190 operating points in seven provinces as well as Namibia.
Kaap Agri’s retail thrust has been boosted by a successful diversification into fuel sales via subsidiary The Fuel Company. Walsh said nine new fuel sites were opened in the year under review, with total fuel volumes increasing 10.9% in the year. He said retail fuel growth would remain an aggressive part of the group’s expansion strategy.
Another significant development was the extension and upgrading of the Paarl Agrimark to reflect Kaap Agri’s new urban-format retail offering.
Walsh disclosed that trading profit from general retail was similar to that of agricultural-related retail. "Indications are that general retail growth will exceed growth in agricultural retail in future."
Vunani Securities analyst Anthony Clark said the results showed the inherent strength in Kaap Agri’s retailing side.
"This performance puts JSE peers like Massmart and Cashbuild to shame."
He expected growth on the retail and fuel segments in the financial year ahead, pencilling in earnings of 422c per share.
Walsh said the diversification drive in the past few years — mainly in general retail, agricultural-related retail and fuel retail — had gained further traction. "With nearly 90% of Kaap Agri’s business flowing from these areas, we are set to continue to deliver ongoing growth."