Kaap Agri banks on growth of wheat harvest to bag bigger profit
Storage subsidiary Wesgraan has already received 88% more wheat than in the past year
Kaap Agri, which offers retailing and services to the agricultural sector, should reap a bigger profit harvest in financial 2019 on a marked increase in its important wheat business after the prolonged drought in the Western Cape was broken in the 2018 winter.
Speaking after the release of the year to end-September results on Thursday, Kaap Agri MD Sean Walsh reported that storage subsidiary Wesgraan had already received 88% more wheat than in the past year.
The drought in the Western Cape reduced wheat storage in the 2018 financial year to its lowest level since 2005.
He added that wheat seed sales were also up 40%, and that most fruit farmers canvassed by Kaap Agri predicted a normalised harvest in 2019.
“Agricultural conditions in the Western Cape have largely improved year on year and farm dam levels are in a good position.”
Walsh says that a continued focus on Kaap Agri’s strategic goals will also contribute to the business recovering from the subdued 2018 performance. “We remain on track to achieve our strategic medium-term plan target of a minimum 15% compound annual growth rate [CAGR] in recurring headline earnings at a 15% return on equity.”
Aside from Wesgraan, Kaap Agri also operates under brands such as the retail trading brand Agrimark and fuel retailer TFC (including convenience store Expressmark) as well as niche offerings via Pakmark (packaging), Liquormark (bottle stores) and Agriplas (irrigation products).
Walsh noted retail sales remained under pressure but encouraging glimpses are starting to emerge.
He said that trading performances in November and December, traditionally strong retail months, will give a better indication of whether a sustained retail recovery is under way.
In the year under review, revenue increased 8% to R6.55bn on a pro forma basis, with like-for-like comparable sales growth of just less than 6.9%.
Walsh said top-line growth was mainly driven by a 12% increase in the number of transactions and a sprightly 38.5% growth in TFC fuel volumes.
Recurring headline earnings crept up 0.7% to 354c a share, reflecting a five-year CAGR of just more than 14%.
A final dividend of 84.7c a share was declared, pushing the full-year payout up 4% to 116.7c a share.
Walsh maintained the results again demonstrated how important it is to be a diversified business. “Despite the extensive drought, policy uncertainty, and persistent pressures on consumer spend, we experienced strong real revenue growth across all income streams.”
One significant milestone was that Kaap Agri’s retail sales growth continued to outperform agricultural sales growth — albeit from a lower base. Walsh said that for the first time the retail income channel generated trading profits in excess of the agricultural income channel. “We expect this trend to continue,” he said.
Correction: November 30 2018
This article has been updated to reflect the accurate like-for-like comparable sales growth number of just less than 6.9%, rather than the orignally published 79%. We regret the error.