March 2, 2010

Afgri seeks to expand poultry business in South Africa

Agricultural services group Afgri intends to focus more strongly on Africa and expand its poultry business in South Africa.

The group will sell its Australian John Deere business, which supplies agricultural equipment.

Afgri's revenue decreased 9.6% to ZAR3.87 billion (US$500 million) from ZAR4.27 billion (US$552 million) and operating margins slid to 12.9% from 14.4%. Profit increased to ZAR235 million (US$30.4 million) from ZAR191 million (US$24.7 million).

Afgri said margins in its grain trading division had come under pressure due to higher premiums for physical corn, but the unit would spearhead the group's expansion into Africa through physical grain trading operations.

The Animal Feeds business saw an improvement in volumes and margins through effective procurement and ongoing improvements in the formulation and manufacturing processes, the company said.

Afgri has been restructuring its balance sheet and selling some of its non-core businesses, particularly retail businesses in non-grain-growing areas.

Chris Venter, Afgri CEO, presenting results for the six months to December, said the Australian venture was not a core business and the group was now looking at expanding into Africa.

"We are a major exporter of grain into the neighbouring counties," Venter said. "We are currently looking at Africa very carefully, that is why we are focusing on the physical movement into Africa."

Afgri already has an operation in Zambia and is awaiting approval from the Competition Commission on the sale of its Tsunami business unit and its Lowveld and KwaZulu-Natal retail stores.

Venter said 85% of the restructuring work had been done, with just a few more businesses to be disposed of.

The group's capital expenditure budget for the full year was ZAR306 million (US$39.5 million) and by the end of December ZAR160 million (US$20.7 million) had been used. Most of this went to the animal feeds division, where a 60,000-tonne factory is being refurbished in Pietermaritzburg and is due to begin production in April.

The expansion of the poultry operations at Daybreak Farms in Mpumalanga, a project that was commissioned in the first half of 2009, has resulted in a 57.4% increase in on-year volume growth in the first six months of the financial year.

Venter said the group intended to process one million birds a week, the same as other industry players. Afgri now processes 650,000 birds a week.

Afgri's foods division grew revenue 21.3% and contributed 38% to the group's total revenue. Afgri Services, which includes the grain storage business, raised revenue 7.1% and contributed 53% of total revenue to the group.