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AFR - AFGRI Limited - Unaudited condensed consolidated financial results for
the six months ended 31 December 2010 and cash dividend declaration
AFGRI LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1995/004030/06)
ISIN number: ZAE000040549
Share code: AFR
Unaudited condensed consolidated financial results for the six months ended 31
December 2010 and cash dividend declaration
- Dividend per share unchanged
- Improved results from AFGRI Foods
- Difficult agricultural year leads to reduced results from AFGRI
Agri-Services
- Headline earnings per share from all operations down 1,3%
- Earnings per share from continuing operations up 8,1%
- BEE structure consolidated
Group balance sheet (R`millions)
Note 31 31 December 30 June
December Unaudited Audited
Unaudited 2009 2010
2010
ASSETS
Non-current assets 2 196 2 146 2 080
Property, plant and equipment 1 512 1 346 1 394
Goodwill 37 37 37
Other intangible assets 286 196 241
Investments in associates 36 36 36
Other financial assets 42 41 52
Financial receivables 161 330 204
Deferred income tax assets 122 160 116
Current assets 5 656 6 574 6 375
Inventories 934 979 900
Biological assets 64 53 57
Trade and other receivables 509 898 545
Trade receivables financed by banks 5 3 290 3 930 3 898
Derivative financial instruments 64 56 50
Current income tax assets 2 27 28
Cash and cash equivalents and cash 793 631 897
collateral deposits
?Cash collateral deposits 399 459 422
?Cash and cash equivalents 394 172 475
Assets of disposal groups 17 508 23
classified as held-for-sale
Total assets 7 869 9 228 8 478
EQUITY
Capital and reserves attributable 1 592 1 583 1 602
to equityholders
Share capital - - -
Treasury shares (90) (90) (90)
Incentive trust shares (151) (185) (171)
Fair value and other reserves (63) 34 43
Retained earnings 1 896 1 824 1 820
Non-controlling interest 6 689 683
Total equity 1 598 2 272 2 285
LIABILITIES
Non-current liabilities 1 016 364 347
Borrowings 832 151 173
Deferred income tax liabilities 184 213 174
Current liabilities 5 255 6 432 5 846
Trade and other payables 1 164 1 836 1 564
Derivative financial instruments 79 90 73
Current income tax liabilities 15 7 2
Short-term borrowings - - 105
Call loans and bank overdrafts 674 573 207
Bank borrowings to finance trade 5 3 323 3 926 3 895
receivables
Liabilities of disposal groups - 160 -
classified as held-for-sale
Total liabilities 6 271 6 956 6 193
Total equity and liabilities 7 869 9 228 8 478
Net asset value per share 446 446 451
attributable to equityholders
(cents)
Group income statement (R`millions)
Note Six months Six months Year
ended ended ended
31 31 December 30 June
December Unaudited Audited
Unaudited 2009 2010
2010
Continuing operations
Sales of goods and rendering of 3 507 3 616 6 797
services
Interest on trade receivables 162 203 383
Total revenue 3 669 3 819 7 180
Cost of sales (2 552) (2 687) (5 006)
Gross profit 1 117 1 132 2 174
Other operating income 16 43 79
Selling and administration expenses (699) (689) (1 340)
Operating profit 434 486 913
Finance costs 2 (205) (235) (439)
Share of profit of associates - - -
Profit before income tax 229 251 474
Income tax expenses (70) (37) (68)
Profit for the period from 159 214 406
continuing operations
Discontinued operations
(Loss)/profit for the period from (12) 21 61
discontinued operations
Profit for the period 147 235 467
Profit for the period attributable
to:
Equityholders of the Company 146 156 305
Non-controlling interest - BEE - 70 129
partners
- Other non-controlling interest 1 9 33
Profit for the period 147 235 467
Number of shares in issue (`m) 375,5 373,8 373,8
Weighted average number of shares 328,7 321,0 321,7
in issue (`m)
Diluted weighted average number of 356,5 354,8 354,8
shares in issue (`m)
Earnings per share from continuing 47,0 43,5 80,9
operations (cents)
(Losses)/earnings per share from (2,6) 4,8 13,8
discontinued operations (cents)
Earnings per share from all 44,4 48,3 94,7
operations (cents)
Diluted earnings per share from 43,4 39,4 73,4
continuing operations (cents)
Diluted (losses)/earnings per share (2,5) 4,3 12,5
from discontinued operations
(cents)
Diluted earnings per share from all 40,9 43,7 85,9
operations (cents)
Group statement of comprehensive income (R`millions)
Six months Six months Year
ended ended ended
31 31 December 30 June
December Unaudited Audited
Unaudited 2009 2010
2010
Profit for the period 147 235 467
Other comprehensive income
Exchange differences on translating (3) 8 3
foreign operations
Cash flow hedges 2 (24) (16)
Other comprehensive loss for the period, (1) (16) (13)
net of tax
Total comprehensive income for the year 146 219 454
Total comprehensive income attributable
to:
Equityholders of the Company 145 140 292
Non-controlling interest -?BEE partners - 70 129
-?Other non-controlling interest 1 9 33
146 219 454
Business segment results (R`millions)
AGRI SERVICES
Six months ended 31 December 2010 and Retail and Grain
six months ended 31 December 2009 mechanisation Management
Unaudited 2010 2009 2010 2009
Revenue 1 476 1 732 287 283
-?sale of goods and rendering of 1 476 1 732 287 283
services
-?interest on trade receivables - - - -
Operating profit/(loss) (before the 58 104 158 148
items below)
-?other operating income - - - -
-?depreciation and amortisation (6) (10) (9) (9)
-?allocation of corporate costs (14) (14) (18) (17)
Operating profit/(loss) 38 80 131 122
Other items of profit and loss - - - -
-?fair value adjustment to disposal - - - -
Group assets
-?share of profit/(loss) of associates - - - -
Profit/(loss) before finance costs 38 80 131 122
Finance costs (16) (21) (10) (8)
Profit/(loss) before income tax 22 59 121 114
Income tax
Profit after tax
Assets 1 509 1 739 898 1 074
Non-current assets 222 231 378 401
Other current assets 787 1 284 109 154
Trade and other receivables 398 191 358 487
Cash and cash equivalents 102 33 53 32
Liabilities 722 896 318 962
Non-current liabilities 103 5 1 46
Other current liabilities 554 891 317 916
Borrowings to finance trade receivables - - - -
Call loans and overdrafts 65 - - -
Capital expenditure 8 26 16 25
Business segment results (R`millions) (continued)
FINANCIAL
SERVICES
Six months ended 31 December 2010 and six months ended 31
December 2009
Unaudited 2010 2009
Revenue 358 339
-?sale of goods and rendering of services 196 136
-?interest on trade receivables 162 203
Operating profit/(loss) (before the items below) 145 163
-?other operating income 10 36
-?depreciation and amortisation (17) (14)
-?allocation of corporate costs (17) (15)
Operating profit/(loss) 121 170
Other items of profit and loss - -
-?fair value adjustment to disposal Group assets - -
-?share of profit/(loss) of associates - -
Profit/(loss) before finance costs 121 170
Finance costs (96) (163)
Profit/(loss) before income tax 25 7
Income tax
Profit after tax
Assets 3 630 4 719
Non-current assets 554 376
Other current assets 37 241
Trade and other receivables 2 532 3 619
Cash and cash equivalents 507 483
Liabilities 2 714 3 490
Non-current liabilities 19 112
Other current liabilities 102 69
Borrowings to finance trade receivables 2 542 3 258
Call loans and overdrafts 51 51
Capital expenditure 12 1
Business segment results (R`millions)
(continued)
FOODS
Six months ended 31 December 2010 and six Animal protein Oil and protein
months ended 31 December 2009
Unaudited 2010 2009 2010 2009
Revenue 1 390 1 581 264 296
-?sale of goods and rendering of services 1 390 1 581 264 296
-?interest on trade receivables - - - -
Operating profit/(loss) (before the items 157 136 25 20
below)
-?other operating income - - - -
-?depreciation and amortisation (33) (30) (2) (3)
-?allocation of corporate costs (10) (9) (4) (3)
Operating profit/(loss) 114 97 19 14
Other items of profit and loss - - - -
-?fair value adjustment to disposal Group - - - -
assets
-?share of profit/(loss) of associates - - - -
Profit/(loss) before finance costs 114 97 19 14
Finance costs (37) (29) (3) (2)
Profit/(loss) before income tax 77 68 16 12
Income tax
Profit after tax
Assets 1 551 1 488 191 208
Non-current assets 879 873 86 103
Other current assets 260 269 33 45
Trade and other receivables 402 340 72 59
Cash and cash equivalents 10 6 - 1
Liabilities 652 552 76 98
Non-current liabilities 277 133 8 6
Other current liabilities 372 419 68 92
Borrowings to finance trade receivables - - - -
Call loans and overdrafts 3 - - -
Capital expenditure 46 101 11 6
Business segment results (R`millions) (continued)
OTHER
Six months ended 31 Corporate BEE SPVs Intergroup
December 2010 and six eliminations
months ended 31 December
2009
Unaudited 2010 2009 2010 2009 2010 2009
Revenue - 1 - - (106) (413)
-?sale of goods and - 1 - - (106) (413)
rendering of services
-?interest on trade - - - - - -
receivables
Operating profit/(loss) (53) (57) - - - -
(before the items below)
-?other operating income 6 7 - - - -
-?depreciation and (5) (5) - - - -
amortisation
-?allocation of corporate 63 58 - - - -
costs
Operating profit/(loss) 11 3 - - - -
Other items of profit and - - - - - -
loss
-?fair value adjustment - - - - - -
to disposal Group assets
-?share of profit/(loss) - - - - - -
of associates
Profit/(loss) before 11 3 - - - -
finance costs
Finance costs (3) (12) (40) - - -
Profit/(loss) before 8 (9) (40) - - -
income tax
Income tax
Profit after tax
Assets 526 409 (256) - (180) (409)
Non-current assets 333 162 (256) - - -
Other current assets 35 39 - - (180) (409)
Trade and other 37 132 - - - -
receivables
Cash and cash equivalents 121 76 - - - -
Liabilities 1 470 1 322 550 - (231) (364)
Non-current liabilities 63 62 545 - - -
Other current liabilities 71 70 5 - (231) (364)
Borrowings to finance 781 668 - - - -
trade receivables
Call loans and overdrafts 555 522 - - - -
Capital expenditure 78 1 - - - -
Business segment results (R`millions) (continued)
TOTALS
Six months ended 31 Continuing Discontinued All operations
December 2010 and six operations operations
months ended 31 December
2009
Unaudited 2010 2009 2010 2009 2010 2009
Revenue 3 669 3 819 36 591 3 705 4 410
-?sale of goods and 3 507 3 616 36 591 3 543 4 207
rendering of services
-?interest on trade 162 203 - - 162 203
receivables
Operating profit/(loss) 490 514 (13) 46 477 560
(before the items below)
-?other operating income 16 43 - - 16 43
-?depreciation and (72) (71) (2) (6) (74) (77)
amortisation
-?allocation of corporate - - - - - -
costs
Operating profit/(loss) 434 486 (15) 40 419 526
Other items of profit and - - - - - -
loss
-?fair value adjustment to - - - - - -
disposal Group assets
-?share of profit/(loss) - - - - - -
of associates
Profit/(loss) before 434 486 (15) 40 419 526
finance costs
Finance costs (205) (235) (2) (16) (207) (251)
Profit/(loss) before 229 251 (17) 24 212 275
income tax
Income tax (70) (37) 5 (3) (65) (40)
Profit after tax 159 214 (12) 21 147 235
Assets 7 869 9 228 7 869 9 228
Non-current assets 2 196 2 146 2 196 2 146
Other current assets 1 081 1 623 1 081 1 623
Trade and other 3 799 4 828 3 799 4 828
receivables
Cash and cash equivalents 793 631 793 631
Liabilities 6 271 6 956 6 271 6 956
Non-current liabilities 1 016 364 1 016 364
Other current liabilities 1 258 2 093 1 258 2 093
Borrowings to finance 3 323 3 926 3 323 3 926
trade receivables
Call loans and overdrafts 674 573 674 573
Capital expenditure 171 160 171 160
Group statement of changes in equity (R`millions)
Share Fair Retained Treasury
capital value earnings shares
and other
reserves
Balance 30 June 2009 (audited) - 47 1 722 (90)
Total comprehensive income - (16) 156 -
Sale of incentive shares - - - -
Dividends paid - - (54) -
Payment to minorities - - - -
Share-based payments - 3 - -
Balance 31 December 2009 - 34 1 824 (90)
(unaudited)
Total comprehensive income - 3 149 -
Sale of incentive shares - - - -
Dividends paid - - (79) -
Payment to minorities - - - -
Share-based payments - 6 - -
Transaction with minorities - - (74) -
Balance 30 June 2010 (audited) - 43 1 820 (90)
Total comprehensive income - (1) 146 -
Payment to minorities - - - -
Share-based payments - 2 - -
Dividends paid - - (57) -
Sale of incentive shares - - - -
Consolidation of BEE SPVs - (120) - -
BEE partners share to NDR - 13 (13) -
Balance 31 December 2010 - (63) 1 896 (90)
(unaudited)
Group statement of changes in equity (R`millions) (continued)
Incentive Total BEE Other Total
trust share- partners non-
share holders controll
equity ing
interest
Balance 30 June 2009 (192) 1 487 619 27 2 133
(audited)
Total comprehensive - 140 70 9 219
income
Sale of incentive shares 7 7 - - 7
Dividends paid - (54) - - (54)
Payment to minorities - - (33) (3) (36)
Share-based payments - 3 - - 3
Balance 31 December 2009 (185) 1 583 656 33 2 272
(unaudited)
Total comprehensive - 152 59 24 235
income
Sale of incentive shares 14 14 - - 14
Dividends paid - (79) - - (79)
Payment to minorities - - (45) (8) (53)
Share-based payments - 6 - - 6
Transaction with - (74) - (36) (110)
minorities
Balance 30 June 2010 (171) 1 602 670 13 2 285
(audited)
Total comprehensive - 145 - 1 146
income
Payment to minorities - - - (8) (8)
Share-based payments - 2 - - 2
Dividends paid - (57) - - (57)
Sale of incentive shares 20 20 - - 20
Consolidation of BEE - (120) (670) - (790)
SPVs
BEE partners share to - - - - -
NDR
Balance 31 December 2010 (151) 1 592 - 6 1 598
(unaudited)
Group cash flow statement (R`millions)
Six months Six months Year
ended ended ended
31 December 31 December 30 June
Unaudited Unaudited Audited
2010 2009 2010
Operating activities
Cash generated by operations before 279 288 522
changes in working capital and tax paid
Changes in working capital (554) (384) 33
Tax paid (12) (36) (71)
Net cash (utilised in)/generated by (287) (132) 484
operating activities
Net cash (utilised in)/generated from (122) (96) 55
investing activities
Net cash utilised in financing (139) (57) (155)
activities
Net (decrease)/increase in cash and cash (548) (285) 384
equivalents
Cash and cash equivalents at the 268 (116) (116)
beginning of year
Cash and cash equivalents at the end of (280) (401) 268
the period
Cash collateral deposits 399 459 422
Cash and cash equivalents and cash 119 58 690
collateral deposits
Notes to the condensed consolidated interim financial statements
1. Basis of preparation and accounting policies
These condensed consolidated interim financial statements have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") IAS 34 under the historical cost convention, as
modified by the revaluation of available-for-sale financial assets and
financial liabilities (including derivative financial instruments) and
biological assets at fair value through profit or loss, the Listing
Requirements of the JSE Limited ("JSE") and the South African
Companies Act (Act 61 of 1973) as amended, on a basis consistent with
that of the prior period.
2. Finance costs
(R`millions) Six months Six months
ended ended
31 December 31 December
2010 2009
Interest paid on bank borrowings used to (105) (169)
finance trade receivables
Other interest paid to financial institutions (100) (66)
Finance cost - continuing operations (per (205) (235)
income statement)
Finance cost - discontinued operations (2) (16)
Finance cost - total (207) (251)
3. Reconciliation of headline earnings per share
(Cents) Six months Six months
ended ended
31 December 31 December
2010 2009
Earnings 44,4 48,3
Impairment of assets 0,0 0,4
Loss/(profit) on disposal of assets 0,2 (3,5)
Headline earnings 44,6 45,2
Diluted headline earnings 41,2 40,9
4. Business segment results
The pre-tax segment results are presented without taking into account
any headline earnings adjustments, and before the allocation of any
minority share of profits. Operating profits after finance costs are
shown after a charge for internal interest based on each operating
unit`s net assets throughout the period. With the exception of the
restructuring of AFGRI Trading no other significant changes to the
Group`s structure and operations have occurred during the period.
However, some of the smaller less material operations (Broking in
Financial Services and Primary Inputs in Agri Services) have been
amalgamated with their larger sister divisions. The continuing aspects
of AFGRI Trading are reported under the Grain Management division.
5. Trade receivables financed by banks and related liability
The only security for the liability is the trade receivables
themselves, and in certain cases, additional cash collateral deposits
or cash trade receivables of between 10% and 15% of the facility. The
Group carries the risk of loss on these trade receivables.
6. Agency agreements
The Group manages Agri debtors on behalf of third-party financial
institutions to the amount of R1 546 million (2009: R1 277 million).
Management fees are paid by these third parties. The Group is liable
for bad debts to a maximum of between 5% and 10% of the value of
debtors administered.
The Group receives a fee for the handling, grading, storing and
administration of commodities on behalf of third parties. The value of
these commodities is R2 412 million (2009: R3 905 million).
7. Business combinations
On 16 September 2010 the Group acquired a 100% shareholding in Crystal
Holdings (Pty) Ltd, a sugarcane farm, as compensation of a debt owed
by the company to one of the Group`s subsidiaries. In terms of IFRS
the company`s underlying assets and liabilities were fair valued at
aquisition date which resulted in no goodwill. Fair values were as
follows: property, plant and equipment of R103,0 million, financial
receivables of R0,2 million, biological assets of R19,6 million, trade
and other receivables of R0,3 million, cash and cash equivalents of
R1,5 million, deferred tax liabilities of R6,4 million, trade and
other payables of R7,4 million, income tax liabilities of R0,4 million
and the loan to the Group subsidiary of R110,3 million. From the date
of acquisition to 31 December 2010, Crystal Holdings (Pty) Ltd
reported turnover of R6,0 million and a profit after tax of R1,3
million. These figures are included in the Group`s results. The Group
will revisit the assumptions and impact of IFRS 3 in the forthcoming
year.
During the period under review, the Group`s broad-based black economic
empowerment structure was modified. To facilitate this modification,
Gro Capital (Pty) Ltd, a Group subsidiary, funded the transaction,
advancing R211 million to Izitsalo Employee Investment (Pty) Ltd to
buy out the remaining 80,1% beneficial interest it did not own in the
Agri Sizwe Trust. This transaction, and specifically the funding
thereof by the Group, has necessitated the consolidation of both the
Agri Sizwe Trust and Izitsalo Employee Investment (Pty) Ltd. The
consolidation resulted in the pre-tax profit share of the Agri Sizwe
Trust of R61,4 million no longer being reflected as a minority
interest, an increase in finance costs of R39,9 million and an
increase in taxation of R8,2 million. Assets and liabilities have been
recognised at fair value at acquisition date which resulted in an
increase in deferred tax assets of R17,4 million, a decrease in
financial receivables of R46,7 million, a decrease in non-controling
interest of R669,1 million, an increase in borrowings of R545,0
million and an increase in trade and other payables of R3,6 million.
At acquisition reserves of R91,1 million have been classified as non-
distributable under general reserves. Post-acquisition reserves of
R13,3 million have also been classified as non-distributable under
general reserves. The R207 million payment to the 80% investor in Agri
Sizwe Trust has been accounted for under equity as a transaction with
equityholders.
8. Discontinued operations
During the period under review a decision was taken to close the loss-
making business unit of the Trading division as the fully hedged
business model was not sustainable. The comparative reclassification
between continuing and discontinued operations in the income statement
and business segment results has been made.
9. Subsequent event
As part of its growth strategy, the Group entered into a purchase
agreement on 6 August 2010 to obtain the business of Rossgro Chickens
(Pty) Ltd as a going concern for a purchase consideration of R220
million. The transaction was approved by the South African Competition
Authorities and the conditions precedent to the transaction were
fulfilled on 28 January 2011. This event constitutes a non-adjusting
event after the reporting period in terms of IAS10. The initial
accounting for this business combination in terms of IFRS 3 is
incomplete as the purchase price allocation exercise is still to be
finalised. The Group will revisit the assumptions and finalise the
impact of IFRS 3 in the forthcoming year. More details regarding this
transaction were published on SENS on 11 August 2010 and 1 February
2011.
In addition, the Group is in the process of negotiating the
acquisition of the yellow maize milling business of Pride Milling
Company (Pty) Ltd. This event constitutes a non-adjusting event after
the reporting period in terms of IAS10. A cautionary statement was
released on SENS on 1 March 2011.
10. Contingent liabilities
In March 2009 the Competition Commission initiated an investigation
into the common use of a grain-storage tariff by grain-storage
companies - the "Safex" rate. AFGRI is co-operating fully with the
authorities in their ongoing investigation. While AFGRI denies any
purposeful contravention of the Competition Act, there remains the
possibility that the Competition Tribunal could impose a fine of not
more than 10% of the affected business`s annual revenue.
Commentary
The directors of AFGRI Limited ("AFGRI") are pleased to present the unaudited
condensed consolidated interim financial results of the AFGRI Group of
companies ("the Group") for the six months ended 31 December 2010.
Financial review
Overall operations
The consolidation of the Agri Sizwe Trust makes comparison of selected
individual income statement lines somewhat difficult. Headline earnings per
share from all operations of 44,6 cents per share reflect a 1,3% decrease for
the period.
The consolidation of the Agri Sizwe partnership results in the reallocation of
the major portion of the minority interest in the Group to borrowings. For
further details refer to note 7 of the notes of these condensed consolidated
financial results.
In line with historical trends and the Group`s business model, the first six
months of the financial year reflect an outflow of cash. During the current
period, the outflow of R548 million is some R263 million higher than in the
prior year of which R207 million arises from the consolidation of the Agri
Sizwe partnership. The majority of the balance was applied to the
commissioning of the Pietermaritzburg feed mill and the SAP implementation.
Excluding the debt to fund the debtors` book of R3 323 million, the Group`s
net cash position at 31 December is R61 million better than at the same point
in 2009. The debt to fund the debtors` book is R603 million less than on 31
December 2009 due to the smaller size of the debtors` book.
Continuing operations
Earnings per share from continuing operations for the period reflect an
increase of 8,1% over the prior comparative period.
These results have been achieved through the refocusing of the Group on the
grain value chain, appropriate and necessary restructurings, and the disposal
of non-core and under-performing businesses in the previous period. The
increased contribution to profits from AFGRI Foods support management`s
strategy to expand into this sector. The Foods segment made a 36% contribution
to the Group`s operating profiting before tax, an increase of 5% on 2009. The
strategy to expand further into the foods sector is designed to reduce the
variability of the Group`s results, which for so long have been dependent on
agricultural conditions, and to provide shareholders with an added stability
of earnings.The results of the AFGRI Agri-Services businesses were impacted by
the sustained period of low maize prices following the large crop.
Group revenue from the sales of goods and services from continuing operations
reflects a decline of 3%. This is a result of lower volumes in the Group`s
retail stores, lower farming mechanisation sales and, most importantly, lower
commodity prices which drive both the Agri Services` and Foods sector`s
revenue. Lower interest earned on trade receivables arises from the lower
interest rate environment and the managed reduction in the size of the
debtors` book. The gross profit percentage, ignoring interest earned on trade
receivables, has increased slightly from 31,3% to 31,9%. This increase is due
to an improved performance from the Group`s Poultry operation.
Other operating expenses for the period at R699 million (2009: R689 million)
reduced in real terms. This has been achieved through cost savings arising
from the prior year`s restructuring and improved efficiencies.
During the period under review, the Group`s Broad-based black economic
empowerment structure was modified in terms of a circular issued on 27 August
2010. The 20% investors in Agri Sizwe, being Izitsalo Employee Investment
(Pty) Ltd and having as beneficiaries the AFGRI Employee Empowerment and the
AFGRI Charitable Trusts, acquired the 80% disposed of by the exiting partners.
A subsidiary of AFGRI, Gro Capital (Pty) Ltd funded this transaction,
advancing Izitsalo Employee Investment (Pty) Ltd approximately R211 million.
This transaction, and specifically the funding of it by the Group, has
necessitated the consolidation of the results of the Agri Sizwe Trust and
Izitsalo Employee Investment (Pty) Ltd (under IAS27 and SIC12), resulting in
the pre-tax profit share of the Agri Sizwe Trust, amounting to R61,4 million,
no longer being reflected as a minority interest, increasing the Group`s
finance charge by R39,9 million, being the interest charge on the total debt
funding attributable to the structure, and increasing the Group`s tax charge
by R8,2 million. The net profit after tax of R13,3 million has been
transferred to a non-distributable reserve. For further details refer to note
7 of the notes of these condensed consolidated financial results.
The profit before income tax from continuing operations of R229 million,
including the additional finance charge of R39,9 million on the B-BBEE
structure, reflects an 8,8% decrease on the prior year.
The current period`s effective tax rate of 31% is higher than the Group`s
anticipated long term tax rate due to the unavailability of STC tax credits
and notable non-deductable expenses arising from corporate activities. As
reported before, the prior year tax rate was reduced due to a once off STC
benefit.
Discontinued operations
A lengthy and detailed investigation into the profitability of aspects of
AFGRI Trading has concluded that the fully-hedged business model is not
sustainable. The Group has decided to exit this part of the trading business
with the profitable part being integrated into the Grain Management division
(previously the Logistics division).
The loss from discontinued operations of R12 million (2009: profit of R21
million) relates only to the aspect of AFGRI Trading discussed above.
Operational review
AFGRI continues to focus its activities in three segments - AFGRI Financial
Services, AFGRI Agri Services and AFGRI Foods. With the exception of the
restructuring of AFGRI Trading, no other significant changes to the Group`s
structure and operations have occurred during the period. However, some of the
smaller, less material operations (broking in financial services and primary
inputs in Agri Services) have been amalgamated with their larger sister
divisions. The continuing aspects of AFGRI Trading are reported under the
Grain Management division. The consolidation of the Agri Sizwe partnership is
reflected in a dedicated column on the segment report and certain logical
changes have been made to the names of the divisions underlying the three
operating segments.
AFGRI Financial Services
After refocusing and restructuring its activities during 2009 and 2010 the
farmer lending element of the financial services arm of AFGRI has shown
improved results during the period. Following the credit crisis of late 2008,
this division exited non-core areas including the Lowveld, Cape and northern
parts of Natal, and focused its efforts on the grain value chain, aligning
itself with the Group`s strategy. Necessary retrenchments and other cost-
cutting initiatives accompanied this realignment. The change in growth
strategy following the credit crisis and the focus on reducing the size of the
book, allowed the division to right-size its facilities, reducing commitment
fees considerably during the six-month period. The smaller staff compliment
also gave rise to cost savings in other areas.
Despite increasing competition, the specialised (corporate) lending arm of
AFGRI Financial Services continues to negotiate and implement specialised
credit facilities for major grain processing enterprises, including in- and
out-of-silo funding. The activities of this operation underpin grain exports
into Africa.
The Group`s Africa operation is also reported with AFGRI Financial Services
and has performed satisfactorily during the period. While low grain prices
have limited its grain trading and storage activities, a total of 79 tractors
were sold during the fourth quarter of 2010.
While the lower maize price and lower SAFEX volumes have negatively impacted
upon AFGRI Broking`s results, the Group`s insurance brokerage arm has
performed better than the prior comparative period on the back of higher crop
insurance sales.
These combined activities have generated a profit before income tax of R25
million (2009: R7 million) - a very satisfying 257% increase.
AFGRI Agri Services
Farmers adopted a cautious approach to the 2010/2011 season due to the
uncertainty caused by the previous bumper maize crop, the resulting depressed
maize prices and concerns over the weather. Input purchases were delayed, and
initial indications are that maize plantings declined nationally by
approximately 8%. The total area planted is expected to be comparable with the
prior year through soya and sunflower substitution. The recent rains and the
improvement in international prices on the back of low international stocks,
have restored a level of optimism to the sector with expectations for another
above-average crop for the 2010/2011 season.
The severe drought in Western Australia has undermined the Group`s operation.
The strong Australian currency negatively impacts on wheat exports and the
purchase of farming mechanisation equipment. At the interim stage, this
operation finds itself reporting a loss for the first time.
The final 2009/2010 summer maize crop was estimated at 12,8 million tons,
slightly lower than the 13,0 million tons originally estimated. Receipts into
the Group`s storage facilities have been lower than in the prior year, and the
rate of despatch higher, resulting in lower net stocks and marginally shorter
storage periods. Winter wheat receipts into the silos are down significantly
following an estimated 42% reduction in the crop size. The challenges facing
the South African production of this strategic crop need to be addressed in
order to support food security. The division`s focus on the provision of
additional value-added services to producers, together with strict cost
control, has resulted in a 6% improvement in its profit before tax.
Overall, the Agri Services segment produced a profit before tax of R143
million (2009: R173 million), a decline of 17,3%.
AFGRI Foods
Volumes for both the Animal Feeds and Poultry divisions grew by more than 5%
on the prior year. The growth in Animal Feeds` volumes can be partly
attributed to the commissioning of the new feed mill in Pietermaritzburg,
while the growth in poultry volumes represent the realisation of the greater
processing capacity at the Daybreak plant. The implementation of the Rossgro
acquisition, effective from 1 February 2011, will further increase volumes for
both these divisions.
While margins were maintained at Animal Feeds, the lower maize prices,
following the large crop, resulted in a lower cost of feed for the Poultry
division. Poultry prices remain depressed, on average 10% below the prices of
two years ago, but slightly higher than 2009 for selected products. As such,
the Poultry division has returned much improved results for the six months
under review. The Poultry division has also produced a notably improved on-
farm performance when compared to the prior year.
At the Oil and Protein division soya crush volumes are slightly ahead of the
prior year, while the unavailability of quality cotton seed saw a decline in
the volumes crushed of this commodity. The commissioning of a sunflower
crushing unit in March will result in overall volumes being restored.
In total, the Foods segment generated a profit before tax of R93 million
(2009: R80 million); a 16,3% increase.
Changes to the Board of Directors
Due to the restructuring of the black economic empowerment structure discussed
above, MI Mogari, MM Moloele and KL Thoko resigned as directors with effect
from 3 September 2010.
Messrs JJ Claassen, DD de Beer, JJ Ferreira and FJ van der Merwe retired as
directors with effect from 15 October 2010 after many years of loyal and
dedicated service.
Mr CT Vorster and Ms BA Mabuza were appointed as non-executive directors with
effect from 15 November 2010.
Ms NL Shirilele was appointed as an independent non-executive director on 26
January 2011.
Outlook to June 2011
The recent good rains and increases in international soft commodity prices
have introduced new optimism to the agricultural sector. The excessive rain
has caused very little damage thus far and an above average crop is expected
once again.
AFGRI Financial Services have established a strong foundation following two
years of difficult restructuring. The quality of the debtors` book has been
maintained during this period and future organic growth, focused on young and
new entrants into agriculture, should see the current level of results
maintained.
Sales in the Group`s retail stores have recorded an improvement in January
2011 over January 2010, and the improved grain prices should encourage farmers
to invest in mechanisation equipment in the second quarter of 2011.
Subject to recovery in the country`s macro-economy being sustained, continued
good results are expected from AFGRI Foods.
Without changing the Group`s dividend policy of between 2 and 3 times dividend
cover, the board has decided to maintain the dividend per share for this
interim dividend.
By order of the Board
JPR Mbau CP Venter
Chairman Chief Executive Officer
1 March 2011 1 March 2011
Declaration of cash dividend
Notice is hereby given that the directors of AFGRI have declared an
interim cash dividend of 24.15 cents per share for the six months ended
31 December 2010. In accordance with settlement procedures of STRATE, the
following dates will apply to the interim dividend:
Last day to trade cum the dividend Friday, 13 May 2011
Trading ex dividend commences Monday, 16 May 2011
Record date Friday, 20 May 2011
Dividend payment date Monday, 23 May 2011
There will be no dematerialisation or rematerialisation of AFGRI shares
between Monday, 16 May 2011 and Friday, 20 May 2011, both dates
inclusive.
By order of the Board
N van Wyk
Group Company Secretary
Centurion
Administration
Business address and registered office: AFGRI Building, 12 Byls Bridge
Boulevard, Highveld Ext 73, Centurion, Tel (011) 063 2347,
Fax (087) 942 5010
Company Secretary: Ms N van Wyk, PO Box 11054, Centurion 0046
Bankers: ABSA Bank Limited, Co-operatieve Centrale Raiffeisen-Boerenleenbank
B.A. trading as Rabo Bank, FirstRand Bank Limited, Hong Kong and Shanghai
Banking Corporation, Investec Bank Limited, Land and Agricultural Development
Bank of SA Limited, Nedcor Limited, Standard Bank of SA Limited, Standard
Chartered Bank
Auditors: PricewaterhouseCoopers Inc, 32 Ida Street, Menlo Park 0102
Transfer secretaries: Computershare Investor Services (Proprietary) Limited,
70 Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown 2107, Tel
(011) 370 5000
Sponsor: Investec Bank Limited, 100 Grayston Drive, Sandton 2196,
PO Box 785700, Sandton 2146
Directorate
Non-executive: JPR Mbau (Chairman), DD Barber, LM Koyana, L de Beer,
BA Mabuza, CT Vorster,NL Shirilele
Executive: CP Venter (Chief Executive Officer), JA van der Schyff (Financial
Director)
This announcement is available on SENS and afgri`s website at
www.afgri.co.za
Date: 02/03/2011 07:05:03 Produced by the JSE SENS Department.
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