Fuelling Kaap Agri’s top-line growth
Agricultural services group has been aggressively acquiring new fuel sites, helping to lift revenue 45%
Agricultural services group Kaap Agri is accelerating growth in its fuel-retail division, which already accounts for more than a quarter of total revenue.
Kaap Agri’s results for the six months to end-March released on Friday showed the recently formed The Fuel Company (TFC) having the biggest effect on top-line growth.
TFC, which has been aggressively acquiring new fuel sites, pushed revenue up 45% to R1.2bn. The subsidiary’s operating profit before tax was up by a quarter to R54m.
While fuel volumes were up only 9.5%, CEO Sean Walsh noted growth in fuel-site convenience and quick-service restaurant retail operations had exceeded fuel-sales growth.
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He pointed out that revenue from the newly acquired Forge business was included in TFC’s results from the beginning of October 2018.
Walsh was also encouraged by TFC’s ongoing thrust into urban areas where petrol-to-diesel sales mix was more favourable. “We get a better petrol sales mix in urban areas, which means we earn a better margin from these sites.”
He believed a key issue in the success of TFC was a centralised support-service approach. “This allows site managers to concentrate customer service and improve margins.”
Expansion at TFC is likely to continue at pace for the foreseeable future with Kaap Agri reporting six new fuel sites in the pipeline in the short term.
Walsh believed TFC could grow total fuel litres sold 20% to 30% a year by making smart acquisitions.
“Obviously we will be a lot more selective in our site acquisitions now. We still have parties approaching us for deals, and there’s plenty scope for expansion….”
Walsh said TFC had set a medium term sales target of 300-million litres a year.
Overall, Kaap Agri – which earns most of its keep from its trading segment, which includes the Agrimark retail outlets – saw revenue up 28.7% to R4.389bn and recurring headline earnings up 3.2% to 230c a share. The interim payout was hiked almost 5% to 33.5c a share.
Looking ahead, Walsh said an improved second-half performance would be dependent on normalised weather patterns and increased consumer confidence.
Specifically, he said the recovery in grain-storage specialist Wesgraan, store upgrades and expansions as well as the revenue from new TFC sites would contribute more significantly during the next six months.