March 19, 2013

South Africa's AFGRI posts a 17.5% increase in revenue

An increase in revenue of 17.5% to ZAR5.4 billion (US$587 million) from all operations and a decline in profit for the period to ZAR116 million (US$13 million), from ZAR134 million (US$15 million) in the previous comparable period was announced by AFGRI Limited.

AFGRI Limited, the leading listed South African agricultural services and diversified foods group also announced that headline earnings per share ("HEPS") from all operations declined to ZAR0.313 (US$0.03) per share from ZAR0.369 (US$0.04) per share in December 2011.

AFGRI CEO, Chris Venter, said, "A good financial performance by the Agri and Financial Services segments was overshadowed by a challenging trading environment in the Foods segment. High input cost pressure and a drop in consumer demand due to historically high levels of poultry imports and an oversupplied market, resulted in a loss making Poultry business unit. The results were further impacted by margin squeeze in the Retail business unit."

An earlier than expected 2012 summer crop, translated into greater storage volumes for the Grain Management business unit. The high corn price which prevailed during the six month period resulted in favourable conditions for farmers with a knock on effect in equipment sales for the Agri Services business unit.

AFGRI continues to focus its activities in three segments, namely: AFGRI Agri Services (including Equipment, Grain Management and International); AFGRI Financial Services (including GroCapital and Unigro); and AFGRI Foods (including Animal Protein and Oil, Milling and Protein).

The Equipment business unit experienced a good performance with steady market share growth to 32% from 31% in the comparative period. The Grain Management business unit started the year with high opening stock levels enhanced by the earlier than expected 2012 summer crop. Average storage days per tonne remained constant and closing stock was 23% higher than the comparable period.

AFGRI bought a 51% interest in Bnot Harel Nigeria Ltd, a service and input provider to the poultry industry in Nigeria as well as the sole agent for a number of products related to the poultry industry. The new entity's business model going forward is to expand the existing product range to include pre-mixes for the poultry, diary and meat producer industries. The focus will fall strongly on expanding the day-old chick operations, to become involved in the provision of storage capacity for strategic reserves, as well as the involvement in the animal feeds industry.

"The Animal Protein division faces major challenges especially with regard to the Poultry business unit," said Venter. AFGRI is working with industry bodies and the Department of Trade and Industry to find a solution to the industry problem however the extent and timing of the import tariffs remains unclear and are expected to not provide any relief for the remainder of the financial year. Although the Poultry business unit managed to keep operational costs at bay, it still reported a loss before taxation of ZAR35.7 million (US$4 million).

Venter warned that AFGRI expects the current environment to have a significant negative impact on the Group's full year earnings and the associated dividend.

The new preparation and extraction plants at the Nedan business unit are well on track and the planned commercialisation date is expected to be 1 September 2013.

Continued sales growth is expected on farming mechanisation with the Group's growing footprint into Africa. An expected 4% increase in crop size for 2013 to 12.4 million tonnes of production will provide the Grain Management business unit with a strong foundation for the coming six months. The new platform within the Financial Services segment provides opportunities to increase fee income through product diversification and an increased geographic footprint. 

"Although discussions with Government continue, the possible implementation and extent of tariffs is unclear and is not expected to provide relief for the remainder of the financial year. Given this we expect the poultry market to have a negative impact on the performance of AFGRI for the full year," Venter said. "Furthermore we do expect overall margin pressure to remain in the Foods segment," Venter went on to say.