| Fri 25 Jul 2008, 12:33 | | CKS - Crookes Brothers Limited - Chairman`s Address |
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CKS
CKS
CKS - Crookes Brothers Limited - Chairman`s Address
CROOKES BROTHERS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1913/000290/06)
Share code: CKS & ISIN: ZAE000001434
("Crookes")
ANNUAL GENERAL MEETING - CHAIRMAN`S ADDRESS
I welcome the opportunity to give you a brief review of the year to March 2008
and of the company`s prospects for the 2008/2009 financial year.
The year ended March 2008 was highly satisfactory in that sugar cane production
of 642 188 tonnes and RV/sucrose of 80 773 tonnes were records for the group as
a whole and reflect the company back at full production. In spite of these
records, sugar cane, the mainstay of group activities, produced only 55% of
group operating profits. This resulted from a static sugar cane price and an
increase in the returns from other operations. The group was fortunate in that
rising input costs, though well above inflation, were offset generally by
improved production volumes and with increases in most product prices (except
for citrus), resulted in higher operating profits. Bananas, grown in Mpumalanga,
have for some years been the second highest contributor to profit, but following
a couple of below average seasons, this segment has been overtaken by the
deciduous fruit operation in the Western Cape.
In concluding this brief summary of the past year, the details of which are
fully documented in the annual financial statements that you have received and
which will be open for discussion following this report, I repeat, and I am sure
you will concur, that Mr Guy Clarke, our Group Managing Director, and all his
staff should receive our congratulations for the excellent results achieved for
the year ended March 2008.
What about the year ahead?
The global agricultural environment is currently experiencing a period of
exceptional volatility, with food prices reaching unprecedented levels and input
costs rising rapidly. In South Africa the volatile environment is complicated by
the demands of land restitution and empowerment.
There has been wide press coverage, both in the written and visual media, of
global food shortages caused by natural disasters, rising demand especially in
India and China, and the diversion of land from food crops to biofuels. Economic
commentators generally agree that the shortages will continue in the medium term
and food prices will remain at high levels. While the impact thereof could be
disastrous in the short term on poor communities, especially in Africa, there is
no doubt that this offers third world countries an opportunity to rejuvenate
their ailing agricultural industries, which have for many years been hampered by
low prices caused by large scale subsidies in the Western World. We believe too
that this will offer development opportunities for CBL, possibly outside of
South Africa in our neighbouring SADC countries.
Then what about biofuel production to save the use of high cost petrol and
diesel? Brazil is a good example of efficient production of ethanol from sugar
cane grown on land not previously used for cane production. It has been able to
maintain its position as the leading exporter of sugar as well as being a major
user of ethanol. Certainly at current oil prices, the production of bio-ethanol
from cane would appear to be highly feasible, and to offer the most efficient
alternative for biofuel production. Biofuel development is equally dependant on
establishing an appropriate regulatory environment. In SA itself state
initiatives in this direction have been slow to materialise. In the long term,
however, we believe that the production of bio-ethanol will provide impetus to
cane farming in South and Southern Africa.
The present structure of land reform, whilst admirable in principle, could pose
a threat to the food security situation in South Africa. Current evidence
suggests that small growers will be unable to produce efficiently on small areas
or in sufficient volumes to feed our growing population. We believe that CBL has
a part to play in addressing the shortage of skills in the agricultural sector
and to provide support for community beneficiaries of land claims. Thus
management are taking the bold step to establish joint venture schemes to assist
new owners of land to remain highly productive in a sound and efficient manner.
There has also been much written and spoken about the rising costs of
electricity, fuel and property rates amongst others, which costs affect us all
individually in one way or another. These cost increases, plus those of other
specific farming input costs such as chemicals and fertiliser, affect food
prices, adding to the burden to the consumer and the resultant inflation.
What about the impact on the farming community (of which CBL is a part) and the
effect on profitability and sustainability? To some extent farmers have been
cushioned, because there has been an improvement in prices received for produce
sold. Many of our product prices are based on world commodity prices, which have
increased considerably over the past year, especially in respect of grain and
deciduous fruit. However, our main crop, sugar cane, has not benefited to the
same extent. The price to growers in fact remained static from the 2006/7 season
to 2007/8. There is an intimation that prices to be received from the millers
for this current season may rise in the region of 10 to 12 %, which will bring
some relief to growers, but which will be inadequate to cover cost increases
estimated as high as 41% year on year by Canegrowers.
The impact of the increased input costs is particularly severe in the dryland
cane farming areas of Kwa-Zulu Natal, where it will seriously affect the
economic viability of cane growing and exacerbate the problems posed by
declining production and under-utilised mills. Unless the sugar price increases
substantially, a radical restructuring of the KZN industry is expected.
It is early in the year for management to make accurate profit projections
especially as only 3 months of the financial year have passed. Indications are
that sugar cane yields will be similar to last year, but the anticipated price
increases mentioned will be inadequate to overcome cost increases, resulting in
a decrease in income from cane.
The Banana crop looks promising but prices in the local market are volatile.
The volume of apples picked in the recent season exceeded expectations, and
high selling prices are expected to remain firm for the rest of the year.
Grain is still in its early growth stage and with late winter rains, production
is unlikely to reach last years levels, but prices are expected to remain
higher, on average, than last year.
In terms of citrus, excellent grapefruit yields have been achieved thus far in
the season, but the average fruit size has been small with an adverse impact on
the export pack-out. Oranges are still to be picked and volumes are expected to
be similar to last year. Indications are that good export prices will be
achieved for citrus, and the company should benefit from revised marketing
arrangements.
While JSE rules prevent me from making a forecast of next year`s profit,
shareholders should not expect surprises either positive or negative. We are on
track to hold our own against the headwind of cost pressure.
I need to mention that on the 2 July 2008 a company statement was made in the
written and electronic press on three different matters:
- Firstly; the company has acquired the Farm Vyeboom in the Western Cape;
this farm is very close to our present operations at Grabouw. The price
paid was R52 m and this was reduced by R10m by the immediate sale of the
packing operations on that farm to the Two-a-Day group, in which CBL has a
financial share, and which packs all our fruit for both export and local
markets.
- Secondly; the company, after lengthy negotiations, has concluded the sale
of its cane farms known as Langespruit, inland from Stanger, to the
National Department of Land Affairs for a price of R49m. (This price
excludes all movable assets).
- Thirdly, mention has been made before, as well in cautionary announcements
that land claims have been gazetted over the whole of our farming
operations in Mpumalanga. This is a material claim over the company`s most
productive and profitable operation. As soon as some conclusive decisions
have been finalised, shareholders will be informed and a special meeting of
shareholders will have to be arranged in order to obtain shareholder
approval of the transaction.
Finally I would mention very briefly that the Board continues to review the
potential for alternative property development at Renishaw. In view of the
current downturn in the property market, however, we do not believe that there
is any urgency to make a commitment in this regard. We are proceeding carefully
with the advice of real estate consultants to consider the proposals we have
received from potential development partners. In any event, any such projects
would only be implemented over an extended period of 10 to 20 years. Until such
time as some firm ideas have been formulated for the project, agricultural
activities continue and current operations will not be affected.
Renishaw
25 July 2008
Date: 25/07/2008 12:33:02 Produced by the JSE SENS Department.
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