| Wed 7 Sep 2011, 7:05 | | AFR - Afgri Limited - Audited condensed consolidated financial results for the |
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AFR
AFR - Afgri Limited - Audited condensed consolidated financial results for the
year ended 30 June 2011 and cash dividend declaration
AFGRI LIMITED
(Incorporated in the Republic of South Africa) (Registration number:
1995/004030/06)
ISIN number: ZAE000040549
Share code: AFR
Audited condensed consolidated financial results for the year ended
30 June 2011 and cash dividend declaration
- Total HEPS down 30% to 54,7 cents
- Continuing HEPS down 18% to 62,9 cents
- Expansion into the Foods sector
- Strong performance from AFGRI Financial Services
Group balance sheet (R`millions)
Note 30 June 30 June
2011 2010
ASSETS
Non-current assets 2 464 2 080
Property, plant and equipment 2 1 699 1 394
Goodwill 2 118 37
Other intangible assets 2 269 241
Investments in associates 41 36
Other financial assets 41 52
Financial receivables 164 204
Deferred income tax assets 132 116
Current assets 5 474 6 375
Inventories 1 024 900
Biological assets 53 57
Trade and other receivables 450 545
Trade receivables financed by banks 6 3 425 3 898
Derivative financial instruments 91 50
Current income tax assets 26 28
Cash and cash equivalents and cash 405 897
collateral deposits
Cash collateral deposits 147 422
Cash and cash equivalents 258 475
Assets of disposal groups classified as 40 23
held for sale
Total assets 7 978 8 478
EQUITY
Capital and reserves attributable to equity 1 571 1 602
holders
Share capital* - -
Treasury shares (90) (90)
Incentive trust shares (133) (171)
Fair value and other reserves (64) 43
Retained earnings 1 858 1 820
Non-controlling interest 9 4 683
Total equity 1 575 2 285
LIABILITIES
Non-current liabilities 748 347
Borrowings 560 173
Deferred income tax liabilities 188 174
Current liabilities 5 648 5 846
Trade and other payables 1 221 1 564
Derivative financial instruments 41 73
Current income tax liabilities 2 2
Short-term borrowings 10 105
Call loans and bank overdrafts 951 207
Bank borrowings to finance trade 6 3 423 3 895
receivables
Liabilities of disposal groups classified 7 -
as held for sale
Total liabilities 6 403 6 193
Total equity and liabilities 7 978 8 478
Net asset value per share attributable to 441 451
equity holders (cents)
*Share capital issued to the value of R3 755 (2010: R3 738)
Group income statement (R`millions)
Note Year ended Year ended
30 June 30 June
2011 2010
Continuing operations
Sales of goods and services 6 998 6 797
Interest on trade receivables 292 383
Total revenue 7 290 7 180
Cost of sales* (5 231) (5 038)
Gross profit 2 059 2 142
Other operating income 27 79
Other operating expenses* (1 407) (1 310)
Operating profit 679 911
Finance costs 3 (387) (438)
Share of profit of associates 1 -
Profit before income tax 293 473
Income tax expenses (68) (66)
Profit for the year from continuing 225 407
operations
Discontinued operations
(Loss)/profit for the year from 10 (34) 60
discontinued operations
Profit for the year 191 467
Profit for the year attributable to:
Equity holders of the Company 190 305
Non-controlling interest - Agri Sizwe - 129
partners
- Other non-controlling interests 1 33
Profit for the year 191 467
Number of shares in issue (million) 375,5 373,8
Weighted average number of shares in 328,5 321,7
issue (million)
Diluted weighted average number of 356,5 354,8
shares in issue (million)
Attributable to the equityholders of
the company:
Earnings per share from continuing 65,5 81,2
operations (cents)
(Loss)/profit per share from (7,5) 13,5
discontinued operations (cents)
Earnings per share from all operations 58,0 94,7
(cents)
Diluted earnings per share from 60,3 73,7
continuing operations (cents)
Diluted (loss)/profit per share from (6,9) 12,2
discontinued operations (cents)
Diluted earnings per share from all 53,4 85,9
operations (cents)
*Prior year information has been reclassified. Refer to note 12
Group statement of comprehensive income (R`millions)
Year ended Year ended
30 June 30 June
2011 2010
Profit for the year 191 467
Other comprehensive income
Exchange differences on translating foreign 8 3
operations
Cash flow hedges 7 (16)
Other comprehensive income/(loss) for the 15 (13)
year, net of tax
Total comprehensive income for the year 206 454
Total comprehensive income attributable to:
Equity holders of the Company 205 292
Non-controlling interest - Agri Sizwe partners - 129
- Other non-controlling interests 1 33
206 454
Group statement of changes in equity (R`millions)
Share Fair value Retained Treasury Incentive
capital and other earnings shares trust
reserves share
Balance 30 June 2009 - 47 1 722 (90) (192)
(audited)
Profit for the year - - 305 - -
Other comprehensive - (13) - - -
loss for the year
Disposal of incentive - - - - 21
shares
Dividends paid - - (133) - -
Payment to non- - - - - -
controlling interests
Share based payments - 9 - - -
Transaction with non- - - (74) - -
controlling interests
Balance 30 June 2010 - 43 1 820 (90) (171)
(audited)
Profit for the year - - 190 - -
Other comprehensive - 15 - - -
income for the year
Disposal of incentive - - - - 38
shares
Dividends paid - - (137) - -
Payment to non- - - - - -
controlling interests
Share based payments - 6 - - -
Transaction with non- - - (23) - -
controlling interests
Consolidation of BEE - (120) - - -
SPVs
BEE partners share to - (8) 8 - -
non-distributable
reserve
Balance 30 June 2011 - (64) 1 858 (90) (133)
(audited)
Group statement of changes in equity (R`millions)
Total Agri Other Total
share- Sizwe non-
holders partners controlling
equity interests
Balance 30 June 2009 (audited) 1 487 619 27 2 133
Profit for the year 305 129 33 467
Other comprehensive loss for (13) - - (13)
the year
Disposal of incentive shares 21 - - 21
Dividends paid (133) - - (133)
Payment to non-controlling - (78) (11) (89)
interests
Share based payments 9 - - 9
Transaction with non- (74) - (36) (110)
controlling interests
Balance 30 June 2010 (audited) 1 602 670 13 2 285
Profit for the year 190 - 1 191
Other comprehensive income for 15 - - 15
the year
Disposal of incentive shares 38 - - 38
Dividends paid (137) - - (137)
Payment to non-controlling - - (10) (10)
interests
Share based payments 6 - - 6
Transaction with non- (23) - - (23)
controlling interests
Consolidation of BEE SPVs (120) (670) - (790)
BEE partners share to non- - - - -
distributable reserve
Balance 30 June 2011 (audited) 1 571 - 4 1 575
Group cash flow statement (R`millions)
Year ended Year ended
30 June 30 June
2011 2010
Operating activities
Cash generated by operations before changes in 381 522
working capital and tax paid
Changes in working capital (360) 33
Tax paid (48) (71)
Net cash (utilised in)/generated by operating (27) 484
activities
Net cash (utilised in)/generated by investing (467) 55
activities
Net cash utilised in financing activities (467) (155)
Net (decrease)/increase in cash and cash (961) 384
equivalents
Cash and cash equivalents at the beginning of 268 (116)
year
Cash and cash equivalents at the end of the (693) 268
year
Cash collateral deposits 147 422
Cash and cash equivalents and cash collateral (546) 690
deposits
Business segment results (R`millions)
Agri-Services Financial
Services
Retail and Grain
Equipment Management
2011 2010 2011 2010 2011 2010
Revenue 3 112 3 277 396 492 408 507
- sale of goods and 3 109 3 275 396 492 119 126
services
- interest 3 2 - - 289 381
Operating profit/(loss) 66 168 200 216 233 298
(before the items below)
- other operating income - - - - 15 60
- depreciation and (13) (13) (17) (20) (24) (27)
amortisation
Operating profit/(loss) 53 155 183 196 224 331
Other items of profit and - - 1 - - -
loss
- fair value adjustment to - - - - - -
disposal group assets
- share of profit/(loss) - - 1 - - -
of associates
Profit/(loss) before 53 155 184 196 224 331
finance costs
Finance costs (38) (57) (16) (12) (180) (298)
Profit/(loss) before 15 98 168 184 44 33
income tax
Income tax
Profit after tax
Assets 1 406 1 832 961 1 011 3 553 3 730
Non-current assets 244 236 401 445 338 196
Other current assets 757 835 183 147 144 19
Trade and other 357 721 280 346 2 919 3 090
receivables
Cash and cash equivalents 48 40 97 73 152 425
Liabilities 458 841 406 554 3 024 3 248
Non-current liabilities 3 3 2 20 20 13
Other current liabilities 444 833 404 534 133 298
Borrowings to finance - - - - 2 871 2 937
trade receivables
Call loans and overdrafts 11 5 - - - -
Capital expenditure 22 39 39 59 30 24
Business segment results (R`millions)
Foods
Animal Protein Oil and Protein
2011 2010 2011 2010
Revenue 2 929 2 627 514 544
- sale of goods and services 2 929 2 627 514 544
- interest - - - -
Operating profit/(loss) (before the 296 292 36 38
items below)
- other operating income - - - -
- depreciation and amortisation (65) (58) (6) (7)
Operating profit/(loss) 231 234 30 31
Other items of profit and loss - - - -
- fair value adjustment to disposal - - - -
group assets
- share of profit/(loss) of - - - -
associates
Profit/(loss) before finance costs 231 234 30 31
Finance costs (68) (56) (6) (4)
Profit/(loss) before income tax 163 178 24 27
Income tax
Profit after tax
Assets 1 877 1 523 302 150
Non-current assets 1 098 882 97 77
Other current assets 247 240 131 26
Trade and other receivables 519 395 74 46
Cash and cash equivalents 13 6 - 1
Liabilities 677 675 168 77
Non-current liabilities 118 253 7 7
Other current liabilities 559 422 161 70
Borrowings to finance trade - - - -
receivables
Call loans and overdrafts - - - -
Capital expenditure 86 145 26 21
Business segment results (R`millions)
Other
Corporate BEE SPVs Inter-group
eliminations
2011 2010 2011 2010 2011 2010
Revenue - 1 - - (69) (268)
- sale of goods and - 1 - - (69) (268)
services
- interest - - - - - -
Operating profit/(loss) (36) (44) - - - -
(before the items below)
- other operating income 12 19 - - - -
- depreciation and (18) (11) - - - -
amortisation
Operating profit/(loss) (42) (36) - - - -
Other items of profit and - - - - - -
loss
- fair value adjustment to - - - - - -
disposal group assets
- share of profit/(loss) of - - - - - -
associates
Profit/(loss) before (42) (36) - - - -
finance costs
Finance costs 2 (11) (81) - - -
Profit/(loss) before income (40) (47) (81) - - -
tax
Income tax
Profit after tax
Assets 500 736 (33) - (588) (504)
Non-current assets 319 259 (33) - - (15)
Other current assets 39 49 - - (267) (258)
Trade and other receivables 47 76 - - (321) (231)
Cash and cash equivalents 95 352 - - - -
Liabilities 1 621 1 276 538 - (489) (478)
Non-current liabilities 64 66 534 - - (15)
Other current liabilities 65 50 4 - (489) (463)
Borrowings to finance trade 552 958 - - - -
receivables
Call loans and overdrafts 940 202 - - - -
Capital expenditure 95 67 - - - -
Business segment results (R`millions)
Totals
Continuing Discontinued All
operations operations operations
2011 2010 2011 2010 2011 2010
Revenue 7 290 7 180 59 1 146 7 349 8 326
- sale of goods and 6 998 6 797 59 1 120 7 057 7 917
services
- interest 292 383 - 26 292 409
Operating profit/(loss) 795 968 (26) 123 769 1 091
(before the items below)
- other operating income 27 79 - 2 27 81
- depreciation and (143) (136) (6) (6) (149) (142)
amortisation
Operating profit/(loss) 679 911 (32) 119 647 1 030
Other items of profit 1 - (2) - (1) -
and loss
- fair value adjustment - - (2) - (2) -
to disposal group assets
- share of profit/(loss) 1 - - - 1 -
of associates
Profit/(loss) before 680 911 (34) 119 646 1 030
finance costs
Finance costs (387) (438) (12) (51) (399) (489)
Profit/(loss) before 293 473 (46) 68 247 541
income tax
Income tax (68) (66) 12 (8) (56) (74)
Profit after tax 225 407 (34) 60 191 467
Assets 7 978 8 478 7 978 8 478
Non-current assets 2 464 2 080 2 464 2 080
Other current assets 1 234 1 058 1 234 1 058
Trade and other 3 875 4 443 3 875 4 443
receivables
Cash and cash 405 897 405 897
equivalents
Liabilities 6 403 6 193 6 403 6 193
Non-current liabilities 748 347 748 347
Other current 1 281 1 744 1 281 1 744
liabilities
Borrowings to finance 3 423 3 895 3 423 3 895
trade receivables
Call loans and 951 207 951 207
overdrafts
Capital expenditure 298 355 298 355
Notes to the condensed consolidated annual financial statements
1. Basis of preparation and accounting policies
The directors of AFGRI Limited ("AFGRI" or "the Company") present
these audited condensed consolidated financial results of the
AFGRI group of companies ("the Group") for the year ended 30 June
2011. These condensed consolidated annual 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 Listings Requirements of the JSE
Limited ("JSE") and the South African Companies Act (Act 71 of
2008) as amended, on a basis consistent with that of the prior
period.
Property, plant Other intangible
and equipment assets
and goodwill
(R`millions) Year Year Year Year
ended ended ended ended
30 June 30 June 30 June 30 June
2011 2010 2011 2010
2. Property, plant and
equipment, other intangible
assets and goodwill
Carrying value beginning of 1 394 1 346 278 275
year
Additions 224 282 74 74
Disposals at book value (49) (101) - (28)
Foreign currency differences 3 1 1 -
Depreciation/amortisation (103) (99) (46) (43)
Purchase of subsidiaries 255 - 80 -
Net sale of subsidiary (25) (32) - -
(including assets held for
sale)
Impairment - (3) - -
Carrying value end of period 1 699 1 394 387 278
(R`millions) Year Year
ended ended
30 June 30 June
2011 2010
Finance costs
3.
Interest paid on bank borrowings used to (205) (366)
finance trade receivables
Other interest paid to financial institutions (101) (72)
Other interest paid to financial institutions (81) -
as a result of the consolidation of the BEE
SPVs
Finance cost - Continuing operations (387) (438)
(per income statement)
Finance cost - Discontinued operations (12) (51)
Finance cost - Total (399) (489)
(Cents) Year Year
ended ended
30 June 30 June
2011 2010
4. Reconciliation of headline earnings
per share (cents)
Earnings 58,0 94,7
Impairment of assets 0,3 2,4
Profit of the sale of business (1,0) (12,1)
Profit on disposal of assets (2,6) (6,4)
Headline earnings 54,7 78,6
Diluted headline earnings 50,4 71,2
5. 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
year. 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
Group did change the way it allocates Head Office expenses during
the year. Although the allocation basis stayed consistent with
prior years, only centralised costs are now distributed with
corporate head office cost remaining in the Corporate segment.
Comparatives have been restated to ensure comparability.
6. 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 of 20% and/or cash trade receivables of up to 15% of the
facility. The Group carries the risk of loss on these trade
receivables.
7. Agency agreements
The Group manages agri debtors on behalf of third party financial
institutions to the amount of R1 401 million (2010: R1 181
million). Management fees are paid by these third parties. The
Group is liable for bad debts to a maximum of between 10% and 15%
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 R3 419 million (2010: R2 927 million).
8. Business combinations
On 16 September 2010 the Group acquired a 100% shareholding in
Crystal Holdings (Pty) Limited, a sugar cane farm, as
compensation by converting a debt owed by the company to one of
the Group`s subsidiaries into equity. In terms of IFRS the
company`s underlying assets and liabilities were fair valued at
acquisition date which resulted in no goodwill. Fair values were
as follows: property, plant and equipment of R111,5 million,
investment in associates of R4,3 million, financial receivables
of R0,2 million, biological assets of R13,6 million, trade and
other receivables of R0,2 million, cash and cash equivalents of
R1,4 million, deferred tax liabilities of R13,9 million, trade
and other payables of R6,8 million, income tax liabilities of
R0,4 million and the loan to the Group subsidiary of R110,3
million. Revenue amounting to R15,1 million and a net loss of
R7,0 million were included in the current year results.
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) Limited as a going concern for a purchase
consideration of R223,2 million. The transaction was approved by
the South African Competition Authorities and the conditions
precedent to the transaction were fulfilled on 28 January 2011.
In terms of IFRS the company`s underlying assets and liabilities
were fair valued at acquisition date which resulted in goodwill
of R80,0 million. Fair value of property, plant and equipment was
R143,2 million. 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. Revenue amounting to R116,4 million and net
loss of R9,9 million were included in the current year results.
9. Non-controlling interests
During the financial year, the Group`s broad-based black economic
empowerment structure was modified. To facilitate this
modification, GroCapital Financial Services (Pty) Ltd, (a wholly
owned subsidiary), funded the transaction, advancing R211 million
to Izitsalo Employee Investment (Pty) Limited 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)
Limited. The consolidation resulted in the pre-tax profit share
of the Agri Sizwe Trust of R76,1 million no longer being
reflected as a minority interest, an increase in finance costs of
R80,6 million and an increase in taxation of R3,9 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 R50,2
million, a decrease in non-controlling interest of R669,5
million, an increase in borrowings of R545,0 million and an
increase in trade and other payables of R0,1 million. At
acquisition reserves of R91,1 million have been classified as non-
distributable under general reserves. Post acquisition reserves
of R8,4 million loss have also been classified as non-
distributable under general reserves. The R211 million payment to
the 80,1% investor in Agri Sizwe Trust has been accounted for
under equity as a transaction with equity holders.
10. Discontinued operations
During the financial year a decision was taken to close the loss
making business unit of the Trading division as the fully hedged
business model was not sustainable. These assets contributed
R59,4 million (2010: R79,0 million) to the Group`s revenue and a
loss of R32,1 million (2010: R15,3 million loss) to the Group`s
profit before tax.
The Group is in the process of concluding a sale agreement of one
of its poultry breeder farms "Uitkyk" situated near Mokopane to
Mike`s Chicken (Pty) Limited. The assets will only be transferred
to the buyer over the next 12 months and are therefore disclosed
as held-for-sale. The related borrowings will be settled once the
sales price has been received.
During the previous financial year the Group concluded the sale
agreement of the Tsunami business unit with Oninamix (Pty)
Limited trading as Arysta Lifescience South Africa. One of the
assets disclosed as held-for-sale has not been transferred during
the current financial year due to administrative delays and will
be transferred in the next financial year.
The trading results of the loss making business unit of the
Trading division are disclosed as discontinued operations. The
comparative reclassification between continuing and discontinued
operations in the Income Statement and Business Segment Results
has been made. Included in the loss from discontinued operations
is the loss on the remeasurement of assets of the poultry breeder
farm "Uitkyk" to fair value due to its held-for-sale
classification.
11. Subsequent event
As part of AFGRI`s growth strategy to expand its industrial
processing capacity of its Foods segment, AFGRI announced on 15
June 2011 that AFGRI Operations Limited and GroCapital Financial
Services (Pty) Ltd (a wholly owned subsidiary) had entered into a
binding sale of business agreement to acquire the yellow grits
and by-products milling business of Pride Milling Company (Pty)
Limited conducted at Ermelo, Kinross and Bethal as a going
concern.
The purchase price, which is subject to adjustment, is R220
million. The transaction is subject to the fulfilment of various
suspensive conditions, in particular the unconditional approval
of the South African Competition Authorities and AFGRI`s
satisfaction with the results of financial, legal and technical
due diligence. More details regarding this transaction were
published on SENS on 15 June 2011.
In addition, GroCapital Financial Services (Pty) Ltd (a wholly
owned subsidiary) is in the process of negotiating the disposal
of its farmers lending book to the Land and Agricultural
Development Bank of South Africa. Cautionary statements were
released on SENS on 14 July 2011 and 17 August 2011.
12. Comparative figures
During the current financial year certain costs, that have
previously been disclosed as other operating expenses, have now
been disclosed as part of cost of sales. The prior year
information has been reclassified to ensure comparability and a
total amount of R32,4 million has been reclassified from other
operating expenses to cost of sales.
13. Going concern
The Board of Directors is satisfied that, after taking into
account the current banking facilities, its utilisation thereof
and the budgeted profit and cash flows for the year ending 30
June 2012, the working capital available to AFGRI will be
sufficient to meet its requirements for the next 12 months.
14. Corporate governance and JSE Limited ("JSE") compliance
The Group`s applications of the principals and recommendations of
King III is to be reported in the Integrated Annual Report. The
Group complies with the JSE Listings Requirements regarding the
contents of the condensed consolidated annual financial
statements.
15. Audit opinion
These condensed consolidated financial results have been audited
by our auditors, PricewaterhouseCoopers Inc., who have performed
their audit in accordance with the International Standards on
Auditing. A copy of their unqualified audit report is available
for inspection at the registered office of the company.
Commentary
The directors of AFGRI Limited ("AFGRI") are pleased to present the audited
condensed consolidated financial results of the AFGRI group of companies ("the
Group") for the year ended 30 June 2011.
The financial performance for AFGRI for the year under review was impacted by
the discontinuation of the grain trading business as highlighted in the
discontinued operations line in the income statement. The results of the
continuing operations were impacted by: agricultural conditions and its effect
on the retail and equipment divisions both in South Africa and Australia, an
increased tax rate, the consolidation of the BEE minorities and the
Competition Commission settlement.
South Africa produced a large maize crop for the fourth year in a row.
However, the crop was smaller than originally anticipated and in certain
areas, in particular Mpumalanga and Gauteng, a mid-season drought followed by
an above average late rainy season negatively influenced both yield and
quality. Maize farmers, in the face of low maize prices, opted to plant a
smaller area of maize, preferring alternative crops such as soya. In addition
to this farmers reduced spending on capital equipment and other expenses.
International commodity prices, including the prices of grains and food in
general, only began to increase in early 2011.
The combined result of these factors was that the Group`s overall performance
was lower than prior year.
Operational review
The Group manages its operations in three segments - Agri Services, Financial
Services and Foods. Within these segments are divisions and smaller individual
business units. The financial results of these three segments and their
individual divisions appear in the Business segment results. Minor changes
have been made to the Group`s segments during the year. Africa is now included
with Retail and Equipment (2010: Financial Services). The procurement element
of the Group`s Grain Trading business unit is included with Grain Management
and the marketing element with Financial Services where it complements the
activities of the Broking business. Prior year comparatives have been restated
for these changes. The consolidation of the Agri Sizwe partnership is
reflected in a dedicated column on the segment report, whilst centralised
costs are still charged to the segments as in the past, the corporate costs
now remain in the corporate segment and certain logical changes have been made
to some of the divisions underlying the three operating segments.
AFGRI Agri Services
The 2010/11 agricultural year was erratic. Late pre-season rains, the large
2009/10 summer crop and the strong rand which limited grain prices, all
contributed to an uncertain start to the season with approximately 13% of the
available land transferred from maize to other crops, such as soya. Heavy post
planting rainfall restricted access to lands for fertilising and an extended
mid-season drought and heavy late rains impacted on the final crop size and
quality in many of the AFGRI regions.
These early season factors above led to a reduction in volumes through the
Group`s retail stores and lower commodity prices resulted in a reduction in
profitability despite the maintenance of retail margins. In particular, the
low grain prices resulted in reduction in retail turnover and a move towards
lower kilowatt tractors leading to a reduction in AFGRI`s market share.
Severe drought in Western Australia resulted in the Australian subsidiary
reporting its first ever loss, further contributing to the disappointing
results.
Although the Grain Management business began the year with silo stock levels
higher than in July 2009, the increased export of grain and the smaller, lower
quality summer crop in the main AFGRI areas resulted in lower storage revenues
and handling fees in the second half of the year. The provision of value-added
services and strict cost control allowed this division to limit the impact on
its results.
Overall the Agri Services segment produced a profit before tax of R183 million
(2010: R282 million) a decline of 35%. This result includes a R15,6 million
settlement paid to the Competition Commission relating to its investigation
into the recommendation of standard storage tariffs by members of the Grain
Silo industry to SAFEX, at the request of SAFEX.
AFGRI Financial Services
The 2011 financial year for the Group`s Financial Services segment was
characterised by generally improved results through the renegotiation of
facilities and the cost benefits of the 2010 restructuring.
During the year, GroCapital increased its lending to processors and end users
of agricultural products by 5%. The closer matching of facilities with lending
reduced commitment fees. This saving, together with improved margins through
appropriate re-pricing resulted in an increase in the profitability of the
corporate debtors` book.
The division grew its fee income through expanding its international
agricultural trade financing services and related foreign exchange products.
The discontinuance of an element of the Group`s Grain Trading division and the
lower agricultural futures volumes traded on SAFEX saw a decline in the
contribution from the Group`s Broking business.
In line with the Group`s strategy to reduce the size of its farmer lending
book, the AFGRI Capital division further reduced the average size of its
debtors` book by approximately R530 million (to R2,6 billion) or 20% year-on-
year.
AFGRI Capital benefited for the full year from re-pricings and the
restructuring finalised towards the end of the 2010 financial year. The
renegotiation of facilities resulted in a release of cash collateral deposits,
lower costs and reduced commitment fees. The division reported a considerable
turnaround in its performance during the year.
Subsequent to year end, the Group reported on SENS that it was in negotiations
with the Land and Agricultural Development Bank of South Africa to dispose of
its farmers lending book. This transaction, if concluded, will result in AFGRI
disposing its existing performing farmers lending book to the Land and
Agricultural Development Bank of South Africa and originating farmer debt on
behalf of the Land and Agricultural Development Bank of South Africa, while
AFGRI will continue to administer the book. As a consequence of this
transaction, AFGRI`s gearing will reduce.
Low maize prices and difficult economic conditions affected the Group`s
insurance broking business unit. This impact was moderated by expanding the
product offering and managing costs.
In total AFGRI`s Financial Services segment reported a profit before tax of
R44 million (2010: R33 million), an increase of 33%.
AFGRI Foods
Increased competition from a new independent manufacturer of animal feeds in
the marketplace and the loss of volumes due to the vertical integration of
smaller poultry producers resulted in a decline in independent volumes for
AFGRI Animal Feeds. However, the 2010 expansion of AFGRI`s Daybreak abattoir
and the current year`s acquisition of the operations of Rossgro contributed to
an overall net increase of 3% in the division`s volumes. Volume growth was
also achieved in the Western Cape and KwaZulu-Natal with the recently acquired
Pietermaritzburg factory.
While there existed significant commodity price volatility during the year,
procurement was well managed with the result that margins were not affected
substantially.
With the exception of energy costs (driven by price increases), operating
costs at all AFGRI Animal Feeds` factories were well controlled. There are
ongoing efforts to identify energy efficiencies and cost savings within the
division.
During 2010 AFGRI Poultry expanded its Daybreak abattoir`s capacity to 770 000
birds per week. The acquisition of Rossgro`s facility added a further 350 000
birds per week from 1 March 2011. Capacity utilisation at the two abattoirs
since March has averaged 91%.
The challenge for the poultry industry is the continuing low level of selling
prices. Current year prices are only marginally above those of 2010 and lower
than 2009. Low selling prices are the result of a variety of factors from
increased production capacity, and the level of imports. It is estimated that
the current level of imported chicken into South Africa represents some 3,7
million chickens per week, equivalent to nearly four AFGRI Poultry operations.
The strong rand continues to support these imports. Although trading
conditions remained difficult during the year the increased capacity and
production contributed to improved results from the Group`s poultry operation.
The Group`s Oil and Protein division, Nedan reported a decline in its profit
before tax which is attributed to lower crushing volumes as the crush margin
turned negative in the second half of the year and increased energy costs.
In total the AFGRI Foods segment reported a profit before tax of R187 million
(2010: R205 million), a decrease of 9%.
Financial review
Continuing operations
The Group`s revenue from continuing operations increased by 2%. This
disappointing growth in revenue is mainly attributable to low commodity prices
which impacted on farmer spending and furthermore led to low animal feed and
poultry prices, both large contributors to Group revenue. In addition, lower
interest rates and a smaller debtors` book contributed to the low rate of top
line growth.
The Group`s cost of sales from continuing operations increased by 4% reducing
the gross profit percentage (excluding interest income) from 26% to 25%. The
first ever loss by the Australian subsidiary accounts for a considerable
portion of this lost margin.
Selling and administration cost increases were well managed, restricting the
increase to just over 7% despite significant increases in administered prices
such as electricity, the settlement with the Competition Commission and an
increase in transaction costs as a result of an increase in corporate actions.
During the year, the Group was able to restructure its B-BBEE partnership
structure, seeing the original core partners exiting and the Group`s employees
and charitable trusts increasing their ownership. This transaction
necessitated the consolidation of the Agri Sizwe partnership for the first
time. This accounting treatment makes comparison of selected income statement
lines difficult and results in the reallocation of a major portion of the
minority interest in the Group to borrowings. For further details refer to
note 9 of the notes to these condensed consolidated results.
Due to the consolidation of the Agri Sizwe partnership the Group`s finance
charges now include the cost associated with the external borrowings of the
Agri Sizwe Empowerment Trust, amounting to R81 million (2010: R nil). Ignoring
the impact of this consolidation, the Group`s borrowing costs decreased by
30%, in line with lower interest rates and the reduced debtors` book.
The inclusion of the R81 million Agri Sizwe Empowerment Trust finance costs
amplifies the Group`s decline in results at the profit before and after income
tax levels. This impact is largely reversed when one considers the profit
attributable to equity holders as the financial results now include the
consolidation of the Agri Sizwe partnership and therefore no longer reflect a
minority balance attributable to the Trust. The net impact for the year of the
consolidation of the Agri Sizwe Empowerment Trust on profit attributable to
equity holders is a loss of R8 million.
The Group`s effective tax rate for all operations is 23% (2010: 20%).
Profit after tax from continuing operations totalled R225 million (2010: R407
million), a decline of 45%. Approximately 20% of this decline is due to the
consolidation of the Agri Sizwe partnership.
Discontinued operations
A lengthy and detailed investigation into the profitability of aspects of
AFGRI Trading concluded that the fully hedged business model is not
sustainable. A decision was taken to discontinue this particular product line
and reallocate the remaining grain trading activities to the Grain Management
and GroCapital divisions. The benefits of this are reduced costs, the
elimination of uncontrollable risks and a more sustainable business model for
our customers.
The loss after tax from discontinued operations of R34 million (2010: profit
of R60 million) relates only to the aspect of AFGRI Trading discussed above.
The prior year`s results from discontinued operations include capital and
trading profits attributable to the sale of businesses.
All operations
The Group reported profit for the year attributable to equity holders of R190
million (2010: R305 million) a decline of 38%.
Earnings and headline earnings
Earnings per share from all operations for the period of 58,0 cents (2010:
94,7 cents) reflect a 39% decline.
AFGRI`s total headline earnings per share of 54,7 cents (2010: 78,6 cents) are
30% lower than the prior year.
The result is that headline earnings per share from continuing operations
declined by 18,1% to 62,9 cents (2010: 76,8 cents). The reduction in the
profitability of continuing operations may be attributed to the poor retail
trading conditions in South Africa and Australia, lower stock levels in the
silo`s during the second half of the year, the R15,6 million settlement with
the Competition Commission and the higher tax rate from the prior year`s low
base.
Cash flow
In total the Group had a decrease in cash and cash equivalents of R961 million
which resulted in an increase in net debt.
Apart from the reduced profit, various cash outflows occurred. The closure of
a part of AFGRI Trading, the sale of the Tsunami business in 2010 and reduced
activity in the retail stores are the main contributors to the reduction in
creditors resulting in the outflow of working capital.
R223,2 million was invested in acquiring Rossgro Chickens (Pty) Limited and a
further R298 million was invested in the expansion of the Group`s operations.
The Group further funded R207 million to the BEE partners which was used to
buy out the remaining minorities.
Changes to the Board of Directors
Due to the restructuring of the black economic empowerment structure discussed
above, Messrs MI Mogari, MM Moloele and Ms 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.
Prospects
Assuming higher maize prices and a strong rand remain with us through the
forthcoming year, maize plantings should return to normal and weather
permitting, a further good crop is expected. Increased agricultural confidence
should improve demand at AFGRI`s retail and equipment operations in South
Africa and Australia.
With the lower opening stock at 1 July 2011, the Grain Management business
will need to once again carefully manage its costs and provide value-added
services such as collateral management of storage facilities where AFGRI`s
knowledge, experience and proprietary technology can be applied.
In the Financial Services segment, the focus will be on finalising and
implementing the proposed sale of the farmers lending book, where AFGRI
retains the relationship with its farming clients. This is expected to improve
the Group`s gearing and provide it with a strong base to expand further into
the Foods sector.
The Foods segment will continue to focus on product quality and customer
service. Bedding down this year`s two acquisitions and extracting every
synergy from the AFGRI value chain will be key focus areas.
By order of the Board
JPR Mbau CP Venter (Chairman) (Chief Executive Officer)
6 September 2011
Declaration of final cash dividend
Notice is hereby given that the directors of AFGRI have declared a final cash
dividend of 3,20 cents per share for the year ended 30 June 2011. In
accordance with settlement procedures of STRATE, the following dates will
apply to the final dividend:
Last day to trade cum the dividend Friday, 11 November 2011
Trading ex dividend commences Monday, 14 November 2011
Record date Friday, 18 November 2011
Dividend payment date Monday, 21 November 2011
There will be no dematerialisation or rematerialisation of AFGRI shares
between Monday, 14 November 2011 and Friday, 18 November 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, 0157?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, Menlyn Park, 0102, PO
Box 35296, 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: 07/09/2011 07:05:02 Produced by the JSE SENS Department.
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employees and agents accept no liability for (or in respect of) any direct,
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