Zeder Investments CEO Norman Celliers. Picture: SUPPLIED
Zeder Investments CEO Norman Celliers. Picture: SUPPLIED

Norman Celliers, CEO of Zeder, takes Business Day TV through results for the year to end-February

BUSINESS DAY TV: Flat recurring headline earnings growth for the year ended February, thanks to a 45% profit at Capespan and muted trading at Pioneer, belie some big improvements in Zeder’s underlying portfolio of smaller assets.

Joining us now to discuss the year’s results is CEO Norman Celliers. Norman … just on that Capespan performance because it was one of the big drags along with Quantum Foods, and an increase in shares in issue over the period, do you expect that to turn around given that the drought, especially in the eastern parts of the country seems to have broken?

NORMAN CELLIERS: Yes, you’re right. We are disappointed with the Capespan results but we do believe that there’s a great degree of nonrecurring elements there. We had a huge impact on the heat that was associated with last year’s winter and the actual volume decline on the fruit vines and trees. So Capespan lost 20%-30% of available volume, which we think is climatic. We hope it doesn’t recur. We think it will recover this year and so we remain very optimistic going forward.

And then secondly, in the UK, Capespan experienced some challenges with one or two of the big contracts that we lost in the UK markets. We’re currently working on those and we believe that we can either sort them out or have them replaced in this calendar year.

BDTV: Just on climatic conditions, what is your feeling? Because you start reading farmers’ reports that they’ve never seen the weather patterns, which have really changed substantially in the last few years. Is that going to make a business like Zeder’s increasingly susceptible to factors that it cannot control?

NC: It is very difficult to make any long-term promises or projections that are exposed to the climate and I certainly don’t want to do that. Our strategy is diversification in order to mitigate the impacts. If you look at agriculture broadly it’s a wonderful industry to be invested in, but if you look at specific areas at specific points in time its very volatile. So what we try and do with our portfolio and even within our companies like Capespan, we try do portfolio construction that can mitigate the volatility.

So in Capespan’s case we have great farms in the Orange River; in Namibia, we’ve got apple farms, we’ve got citrus farms and hopefully as an overall basket you can weather the volatility. But you’re 100% right, the weather patterns at the moment have been very challenging over the last 24 months.

BDTV: Let’s talk about some of the smaller businesses in the portfolio, because they all seemed to have a pretty good year, Kaap Agri the HEPS (headline earning per share) up 15%, Zaad recurring HEPS up 13%, Agrivision swung massively from R60m loss to R40m profit. Was there any recurring theme between those three businesses?

NC: No, it’s very difficult. Again, Kaap Agri is nicely diversified and it’s got an exposure to irrigated agriculture, so it wasn’t as directly affected as some of the other competitors that have single grain exposure. Kaap Agri’s basket of products that it sells span agriculture, building materials, fuel and irrigation-related elements, so it’s been more able to weather the storm.

Zaad has also got a basket, its investment in Farm-AG that it made during the year came through very nicely, which contributed to profits. But Zaad also felt the impact of the drought and we think that next year should be a much better year.

Agrivision was a wonderful swing and we take our hats off to that management team. It’s been very difficult in Zambia and they delivered a wonderful profit — it’s the first profit that we’ve had in that company so there is a lot of excitement in Zambia. Going forward we remain cautiously optimistic about the opportunities in Africa, but for now we would like to say to that team, well done. We think the investment is well-embedded and we look forward in the next year to see whether we can grow from that.

BDTV: If we look specifically at Kaap Agri and Zaad, you say that there are plans to list it on the JSE sometime this year. Zeder as far as I understand, owns a 39.4% stake. Would you exit your stake once you list it? Would you hold onto it and so what would the impact of that listing be on Zeder itself?

NC: Okay, from a strategic point of view at this stage the listing does not correlate with an exit at all. In fact we liked the company a lot and we just believe that in the listed environment, it will be allowed to grow without being constrained. So from that point of view it’s definitely not an exit but in fact it’s putting the company on a platform that can facilitate further growth and for us it will remain an important investment.

BDTV: But you obviously won’t want to increase your stake because it will probably make tradability of Kaap Agri quite tricky.

NC: Yes, we don’t have a specific strategy in that regard, it will probably be valuation and timing specific.

BDTV: Can you give us any indication of what the timing might be?

NC: I’m not sure what the final dates are. It will definitely be in 2017, this year, but we haven’t had the final dates yet.

BDTV: And as far as Zaad is concerned, it bought a 35% interest in a Turkish seed company called May Seed. Turkey is in a really strategically tough area of the world right now, there’s a lot of political uncertainty, if not more so than in SA. Why did you buy this business?

NC: I understand that there may be questions as to why we would make an investment like this, and it is important to perhaps sketch a bit of background. We are building a portfolio of complementary seed companies with seed genetics, intellectual property that we believe we can scale into global markets. This particular investment gives us access to seed genetics that is very relevant in that part of the world, but not only in Turkey, mainly in its neighbouring markets that are some of the largest agricultural producers in the world.

And so to us it was an investment that we had to make to get our hands on good intellectual property, great management teams, a family-owned business with access to those markets that we think for the long run are somewhere where we need to play if we’re going to build our seed business into a global company.

BDTV: Just to end off with, all things being equal as they stand at the moment, is 2017 likely to be a better year for Zeder?

NC: I believe 2017 will see the signs of a better year from a profitability point of view, but the financial numbers that you report often lag the actual events on the ground. So the events on the ground are definitely improving. The drought has ended in the north and the effect on agriculture will be an improving one. Whether that will go through the financial results from an earnings point of view in 2017 or in 2018, we will have to wait and see, but I am certainly very optimistic about the period that is lying ahead.

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