KAL Group (KAL), previously known as Kaap Agri, saw its diversification strategy bear further fruit in the six months to March 31, with revenue up sharply and in spite of a knock in recurring earnings from load shedding.
“Irrespective of poor economic conditions and unrelenting load shedding, and three years where business has had to face disruptions from Covid-19, looting in KZN (KwaZulu-Natal) and the impact of SOE (state-owned enterprise) failure on agricultural customers, KAL has managed to achieve sustainable growth in recurring headline earnings,” CEO Sean Walsh said in a telephone interview yesterday.
Recurring headline earnings grew 18.1%, but if load shedding costs were excluded, recurring headline earnings increased by 27.2%. An interim dividend of 50 cents per share (46c) was declared.
Walsh said there were plans to reduce the impact of power outages through identifying turnover opportunities, specific expense rationalisation initiatives and deliberate capital expenditure and working capital management.
He said load shedding was hitting fruit farmers particularly hard, with many facing a situation where they had full dams but no way to get enough water to feed their fruit and vegetable crops.
More positively however, he said, South African farmers were resilient, fertiliser prices had come down, agri-chemical prices had fallen, fuel prices were lower than a year ago and seaborne costs of exporting produce had fallen.
Group revenue increased 68.4% to R12.09 billion, with like-for-like comparable revenue growth of 11.8%. For comparison purposes, the building material sector sales were down 10% over the same period. Group revenue growth was underpinned by a 183.6% increase in the number of transactions over the six months.
KAL has over seven years diversified from a largely agricultural-focused business to a diversified business with trading activities in agriculture, general retail, retail fuel, fuel convenience and quick-service restaurant markets.
Non-agri related operations now account for 75% of KAL’s trading profit, with 272 business units spread across all the provinces and Namibia.
The results include PEG Retail Holdings, acquired in July last year. PEG has 41 retail fuel and convenience business units. Walsh said the acquisition was performing to expectations in spite of a comparatively larger impact on its operations of load shedding compared with the rest of the group.
Group earnings before interest, taxes, depreciation and amortisation (Ebitda) increased 30.9% to R521.3 million.
Recurring headline earnings have grown at a compound annual growth rate of 19.2% since March 2020.
Walsh said they were particularly pleased with the strong growth from the retail convenience and quick-service restaurant segments.
He said the wider economic impact of reduced GDP forecasts did not bode well for businesses and consumers. The Russia-Ukraine conflict with its negative influence on fertiliser and fuel cost was also expected to continue for the foreseeable future.
Weather patterns were being closely monitored as the likelihood of El Niño seemed to be increasing.
“The agricultural sector may endure more challenging conditions this year with the outlook not only dependent on general weather conditions but also high input costs,” he said.
Agrimark division income increased by 8.9% with operating profit before tax increasing by 1.2%. Retail fuel & convenience, PEG included, increased income by 252.8% with operating profit before tax increasing by 134.2%.
Agrimark Grain saw a decline in revenue of 16.8% off a lower wheat harvest, with operating profit before tax decreasing by 11.3%. The group manufacturing operations also experienced pressure in line with previous years.
Anthony Clark, an independent analyst at Small Talk Daily, tweeted,“H1 results from $JSEKAL Kaap Agri saw RHEPS +8.7% to 381.64cps with a 50c divi. Inclusion of PEG fuel + convenience stores (outperformed) BUT loadshedding slammed overall earnings 50% from 27.2% growth to 18.1%. Expect slower H2 but Co as retailer remains more resilient than most.”
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