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AFGRI - Consolidated interim financial results for the six months ended 31
August 2005
AFGRI LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1995/004030/06)
ISIN number ZAE000040549
Share code AFR
CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2005
GROUP BALANCE SHEET
Six months
ended Year ended
31 August 28 February
(Reviewed) (Unaudited) (Reviewed) (Unaudited) (Audited)
Actual Pro forma Actual Pro forma Actual
2005 2004 2004 2005 2005
Note Rm Rm Rm Rm Rm
ASSETS
Non- 1 193 996 896 1 102 1 102
current
assets
Property, 2 766 689 689 688 688
plant and
equipment
Goodwill 39 22 22 23 23
Intan- 2 76 54 54 55 55
gible
assets
Interest 7 10 10 20 20
in asso-
ciates
Invest- 63 18 18 96 96
ments
available
for sale
Recei- 120 116 16 121 121
vables
Deferred 122 87 87 99 99
income
tax
assets
Current 2 805 2 571 2 558 2 772 2 770
assets
Invento- 1 393 1 135 1 135 1 081 1 081
ries
Trade and 5 673 803 803 919 919
other
recei-
vables
Financial 5 3 3 36 36
recei-
vables
Current 123 88 80 122 121
income
tax
assets
Bank and 611 542 537 614 613
cash
Total 3 998 3 567 3 454 3 874 3 872
assets
EQUITY
Capital
and
reserves
Attribu-
table to
equity 1 121 1 048 1 480 1 005 1 047
holders
Share - - - - -
capital
Share 30 - 89 - -
premium
Reserves (3) (11) (11) (42) (42)
Retained 1 332 1 277 1 620 1 261 1 303
earnings
Treasury (155) (128) (128) (155) (155)
shares
Incentive (83) (90) (90) (59) (59)
trust
shares
Minority 523 546 1 559 514
interests
Total 1 644 1 594 1 481 1 564 1 561
equity
LIABILI-
TIES
Non- 116 130 130 113 114
current
liabili-
ties
Borrowing 18 27 27 17 17
s
Deferred 73 70 70 73 74
tax
liabili-
ties
Provi- 25 33 33 23 23
sions
Current 2 238 1 843 1 843 2 197 2 197
liabili-
ties
Trade and 1 657 1 462 1 462 1 740 1 740
other
payables
Financial 8 6 6 24 24
liabili-
ties
Current - - - 8 8
income
tax
liabili-
ties
Borrowing 573 375 375 425 425
s
Total 2 354 1 973 1 973 2 310 2 311
liabili-
ties
Total 3 998 3 567 3 454 3 874 3 872
equity
and
liabili-
ties
Net
tangible
asset
value per
share
Attribu- 302 298 431 284 296
table to
equity
holders
(cents)
GROUP INCOME STATEMENT
Six months
ended Year
ended
31 August 28
February
(Reviewed) (Unaudited) (Reviewed) (Unaudited) (Audited)
Actual Pro forma Actual Pro forma Actual
2005 2004 2004 2005 2005
Note Rm Rm Rm Rm Rm
Revenue 2 674 2 939 2 849 6 247 6 247
Cost of goods (2 271) (2 486) (2 396) (5 316) (5 316)
and services
Gross profit 403 453 453 931 931
Dividend income 13 14 14 32 32
Interest and 16 13 13 22 22
preference
dividends
received
Interest paid (48) (44) (44) (80) (80)
Other operating (284) (311) (311) (701) (701)
expenses
Operating profit 100 125 125 204 204
from operations
Share of
operating
(losses)/profits
of associates (2) 3 3 3 3
Net profit on
disposal of
shares in
joint ventures - 55 55 46 46
Loss from 3 (7) (13) (13) (23) (23)
discontinued
operations
Profit before 91 170 170 230 230
tax
Tax (11) (59) (32) (66) (69)
Net profit for 80 111 138 164 161
the period
Attributable to:
Equity holders 59 68 137 108 148
of the Company
Minority 21 43 1 56 13
interest
80 111 138 164 161
Weighted average
number of shares
in
issue (m) 329,7 332,3 332,3 331,1 331,1
Earnings per 18,1 20,4 41,4 32,6 45,1
share (cents)
Headline 4 15,2 13,0 30,9 34,2 46,9
earnings per
share (cents)
GROUP CASH FLOW STATEMENT
Six months Year
ended ended
31 August 28 February
(Reviewed) (Reviewed) (Audited)
Actual Actual Actual
2005 2004 2005
Rm Rm Rm
Operating
activities
Net profit 91 172 233
before tax
Changes in (161) 61 (20)
working capital
Other non-cash 30 (25) (45)
flow items
Dividends paid (30) (80) (137)
Profit share (13) - -
paid to BEE
Tax paid (29) (49) (92)
Net cash (112) 79 (61)
(utilised
in)/generated
from operating
activities
Net cash
(utilised
in)/generated
from
investing (45) (156) 9
activities
Net cash 7 4 5
generated from
financing
activities
Net decrease in (150) (73) (47)
cash and cash
equivalents
Movement in cash
and cash
equivalents
Beginning of 188 235 235
year
Net decrease (150) (73) (47)
End of period 38 162 188
GROUP STATEMENT OF CHANGES IN EQUITY
Incentive
Share Share Retained Treasury trust Minority
capital premium Reserves earnings shares shares interest Total
Rm Rm Rm Rm Rm Rm Rm Rm
Balan- - 89 372 1 134 (122) (93) - 1 380
ce 29
Feb-
ruary
2004
(audi-
ted)
Re- - - (459) 459 - - - -
classi
ficati
on of
reser-
ves
Re- - - (42) - - - - (42)
state-
ment
of
trans-
lation
re-
serves
IFRS
impact
:
-
Adopti
on of
the
histo-
rical
cost
method
and
fair
value
valua-
tion
method - - - 100 - - - 100
for
assets
(Note
2)
- - - 1 (1) - - - -
Share-
based
pay-
ments
(Note
4)
- - - - (1) - - - (1)
Opera-
ting
leases
(Note
6)
-
Trans-
fer of
fo-
reign
curren
cy
reser-
ves
on - - 127 (127) - - - -
tran-
sition
date
(Note
3)
Adjust
balan-
ce 29
Feb-
ruary
2004
(audit - 89 (1) 1 564 (122) (93) - 1 437
ed)
Net - - - 145 - - 1 146
profit
Curren - - (11) - - - - (11)
cy
trans-
lation
differ
ences
Fair - - (2) - - - - (2)
valu-
ing of
cash
flow
hedges
Normal - - - (80) - - - (80)
divi-
dends
paid
Dispo- - - - - - 3 - 3
sal of
incen-
tive
shares
Pur- - - - - (6) - - (6)
chase
of
trea-
sury
shares
Balan- - 89 (14) 1 629 (128) (90) 1 1 487
ce 31
August
2004
(revie
wed)
IFRS
impact
:
- Busi-
ness
combi-
na-
tions
- - - (10) - - - (10)
(Notes
1 and
5)
- Adop-
tion
of the
histo-
rical
cost
method
and
fair
value
valua-
tion
method - - 2 2 - - - 4
for
assets
(Note
2)
- - - 1 (1) - - - -
Share-
based
pay-
ments
(Note
4)
Adjus-
ted
balan-
ce 31
August
2004
(revie - 89 (11) 1 620 (128) (90) 1 1 481
wed)
Net - - - 6 - - 12 18
profit
Pur- - - - - - - 501 501
chase
of
share
in
busi-
ness
by BEE
Curren - - (31) - - - - (31)
cy
trans-
lation
differ
ences
Fair - - 2 - - - - 2
valu-
ing of
cash
flow
hedges
Normal - - - (57) - - - (57)
divide
nds
paid
Spe- - (89) - (272) - - - (361)
cial
divi-
dend
paid
Dispos - - - - - 31 - 31
al of
incen-
tive
shares
Pur- - - - - (27) - - (27)
chase
of
trea-
sury
shares
Balan- - - (40) 1 297 (155) (59) 514 1 557
ce 28
Feb-
ruary
2005
(audit
ed)
IFRS
impact
:
-
Busine
ss
combi-
na-
tions
- - - 2 - - - 2
(Notes
1 and
5)
- Adop-
tion
of the
histo-
rical
cost
method
and
fair
value
valua-
tion
method
for
assets - - (3) 6 - - - 3
(Note
2)
- Ope- - - - (1) - - - (1)
rating
leases
(Note
6)
- - - 1 (1) - - - -
Share-
based
pay-
ments
(Note
4)
Adjus-
ted
balan-
ce 28
Feb-
ruary
2005
(audit - - (42) 1 303 (155) (59) 514 1 561
ed)
Net - - - 59 - - 21 86
profit
Profit - - - - - - (12) (12)
share
paid
to BEE
Curren - - 39 - - - - 39
cy
trans-
lation
diffe-
rences
Divi- - - - (30) - - - (30)
dends
paid
Issue
of
shares
to
share
Incen- - 30 - - - (30) - -
tive
trust
Dispo- - - - - - 6 - 6
sal of
incen-
tive
shares
Balan- - 30 (3) 1 332 (155) (83) 523 1 644
ce 31
August
2005
(revie
wed)
Retai-
ned
ear-
nings
compri
ses:
- 1 144
Distri
buta-
ble
reser-
ves
- Self 188
insu-
rance
reser-
ve
BUSINESS SEGMENT RESULTS
Six months ended 31 August 2005 (Reviewed)
Operating Operating
profit Net profit
before interest after
interest and interest
and divi- and
Revenue dividends dends dividends Assets Liabilities
Rm Rm Rm Rm Rm Rm
AFGRI 1 719 86 (14) 72 2 071 852
Services
Producer 1 324 (34) (11) (45) 1 090 535
Services
Financial
Services
(Note 1) 253 28 (1) 27 636 235
Logistics 142 92 (2) 90 345 82
Services
AFGRI 954 24 (16) 8 1 466 792
Products
Foods and 91 (15) (6) (21) 309 180
Seed
Cotton 291 11 (8) 3 804 396
Animal 572 28 (2) 26 353 216
Feed
Other 1 - - - 461 710
Consolidated 2 674 110 (30) 80 3 998 2 354
Capital
expenditure Depreciation Amortisation
AFGRI 24 11 1
Services
Producer 11 7 1
Services
Financial 5 1 -
Services
Logistics 8 3 -
Services
AFGRI 35 11 1
Products
Foods and 10 2 -
Seed
Cotton 4 5 1
Animal 21 4 -
Feed
Other - 2 5
Consolidated 59 24 7
Six months
ended 31
August 2004
(Pro forma
unaudited)
Operating Operating
profit Net profit
before interest after
interest and interest
and divi- and
Revenue dividends dends dividends Assets Liabilities
Rm Rm Rm Rm Rm Rm
AFGRI 1 622 96 (10) 86 1 684 1 019
Services
Producer 1 266 (28) (7) (35) 1 039 680
Services
Financial 238 48 (3) 45 336 236
Services
Logistics 118 76 - 76 309 103
Services
AFGRI 831 10 (7) 3 1 175 573
Products
Foods and 67 (5) (1) (6) 179 102
Seed
Cotton 121 (15) (5) (20) 624 259
Animal Feed 643 30 (1) 29 372 212
Broilers 466 43 - 43 233 6
Other 3 - - - 475 375
Consolidated 2 922 149 (17) 132 3 567 1 973
Capital
expenditure Depreciation Amortisation
AFGRI 13 8 -
Services
Producer 9 4 -
Services
Financial 1 1 -
Services
Logistics 3 3 -
Services
AFGRI 60 10 2
Products
Foods and 19 2 -
Seed
Cotton 21 3 2
Animal 20 5 -
Feed
Broilers 9 7 -
Consolidated 82 25 2
Note 1
Included in Financial Services is a preference dividend received of R11 million
as a result of a change in the debtor financing structure. To ensure
comparability with the prior period an adjustment of R7 million was made to
operating profit. This restatement was made to ensure the after-tax operating
interest earned in the prior period is comparable to the after-tax dividend
received in the current year.
Note 2
The pre-tax business segment results are presented after taking into account the
pre-tax headline earnings adjustments before allocation of the BEE share in
profits. This methodology results in the restatement of the segmental analysis
of the previous interim period. This restatement makes the segmental profit more
comparable after adjustments for the profit/(loss) of discontinued operations
and disposal of businesses and assets.
Revenue from discontinued operations is not included in the segmental revenue.
Operating profit is shown after the allocation of the cost of capital based on
each division"s net assets. The prior period pro forma revenue has been restated
to reflect the gross revenue from debtor financing to be comparable with the
current period.
NOTES TO THE GROUP INTERIM RESULTS
1 Basis of Preparation and Accounting policies
These consolidated interim financial results have been prepared in accordance
with IFRS and the South African Companies Act (Act 61 of 1973), as amended ("the
Companies Act"). These consolidated interim financial results have been prepared
under the historical cost convention, as modified by the revaluation of
available for sale securities, financial assets and financial liabilities
(including derivative instruments) at fair value through profit or loss. The
accounting policies correspond with those applied in 2004, except for the
adoption of IFRS. The effect of the adoption of IFRS is discussed under the
heading "Impact of IFRS".
2 Property, plant and equipment and intangible assets
Property, plant Intangible
and equipment assets
Rm Rm
Carrying value beginning 688 55
of year
Additions 59 28
Disposals at book value (4) -
Foreign currency 2 2
differences
Depreciation/amortisation (24) (6)
and negative goodwill
Net purchase of 45 (15)
subsidiaries
Carrying value end of 766 76
interim period
3 Discontinued operations
The loss from discontinued operations resulted from the closure of the Western
Free State retail branches and the distribution centre.
4 Reconciliation of headline earnings per share
31-08-2005 31-08-2004
Cents Cents
Earnings 18,1 20,4
Loss from discontinued 1,0 3,9
operations
Impairment of assets - 0,4
Negative goodwill and (3,3) 2,2
impairment of goodwill
Profit on disposal of (0,6) (13,9)
businesses
Headline earnings 15,2 13,0
The headline earnings
of the prior year have
been
adjusted to take into
account the pro forma
effect
of the BEE transaction
and once-off STC.
Headline earnings 30,9
previously reported
BEE and STC effect (17,9)
Pro forma headline 13,0
earnings for 2004
5 Receivables
Included in receivables are the following which have been financed through the
Landbank:
31-08-2005 31-08-2004
Rm Rm
Liability Landbank (2 380) (1 967)
Asset Trade 2 475 2 008
receivables
Net 95 41
The above asset and liability have been offset and the net amount disclosed in
the balance sheet as there is a legally enforceable right to set-off the
recognised amounts and the intention is to realise the asset and settle the
liability simultaneously. The Group"s liability for bad debts is limited to a
maximum of 10% of the gross trade receivables financed through the Landbank. The
net interest income from this structure is included in the operating profit of
AFGRI Financial Services.
6 Agency agreements
The Group manages agri debtors on behalf of third party financial institutions
to the amount of R584 million (2004: R453 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
371 million (2004: R2 924 million).
7 Corporate governance and JSE Limited compliance
The principles of corporate governance were adhered to. The Group complied with
the JSE Limited"s Listing Requirements regarding the contents of the interim
financial results.
8 Interim review and IFRS Audit opinion
The 31 August 2005 interim financial statements and the 31 August 2004
restatement of financial statements have been reviewed by the Group"s external
auditors, PricewaterhouseCoopers Inc, and their review opinion is available for
inspection at the Group"s registered office.
The restatements of financial information for the opening IFRS balance sheet as
at 1 March 2004, the IFRS balance sheet and income statement as at and for the
year ended 28 February 2005 and the opening IFRS balance sheet at 1 March 2005
have been audited by the external auditors and their audit opinion is available
for inspection at the Group"s registered office.
Their reports include an emphasis of matter that amendments to the interpretive
guidance issued by the IASB, between the date of this announcement and the
finalisation of the financial statements for the year ending 28 February 2006,
may result in changes to the restatements published.
COMMENTS
The directors of AFGRI Limited present the interim financial results of the
AFGRI Limited group of companies ("the Group") for the six months ended 31
August 2005. This period has remained challenging on an operational level. The
low agricultural commodity prices and large carry-over of maize stock affected
farmer confidence and has resulted in reduced farmer spending.
OPERATIONAL REVIEW
Revenue
Revenue from continuing operations was down by 8,5%. However, adjusting for the
disposal of the broiler business in the prior year and the effective date of the
acquisition of Natalagri, revenue has remained constant.
The current unfavourable agricultural climate resulted in reduced farmer
spending compared to the same period in the prior year. This was the main
contributing factor to the decrease in revenue in the Producer Services Pillar
and Seed Division after taking the timing of the acquisition of Natalagri into
account.
Start-up business Farm City performed well, Natalagri made a small profit
recovering from a loss in the same period of the previous year and Laeveld
Korporasie ("LK") almost doubled its profit. The strategy to move to new
geographies and agricultural products has helped reduce the seasonality risk to
Afgri"s profits and was proven correct by the results of LK (acquired 2002) and
Natalagri (acquired 2004) in a period when the grain reliant businesses of the
old OTK and SOK performed poorly as a result of significantly reduced sales of
agricultural equipment, chemicals, fertilizer and seed. The Group"s Australian
business reflected an acceptable profit performance.
The Products Pillar"s revenue increased compared to the prior period, mainly as
a result of improved cotton sales achieved through the weakening of the Rand/US
Dollar exchange rate, higher selling prices and larger carry-over stock
available for sale. Animal Feeds recorded lower revenue compared to the prior
period as a result of lower maize prices.
The increased revenue in Logistics Services is attributable to higher capacity
utilisation in the silo complexes.
It is pleasing to note the trebling in revenue of the Zambian and Malawian
businesses, which replicates the AFGRI business model in Sub-Saharan Africa and
is included in the Financial Services Pillar. This business has made significant
strides and is expected to make a positive contribution to the Group"s
profitability in the coming year.
HEADLINE EARNINGS PER SHARE UP 16,9%
Headline earnings per share of 15,2 cents is 16,9% higher than that achieved for
the comparative prior-year period. The comparative numbers and therefore the
previous year"s and corresponding interim headline earnings per share have been
restated ("pro forma") from those previously reported to take into account from
1 March 2004 the impact of the BEE transaction and the STC effect on the special
dividend paid.
The lower margins experienced by the Group are indicative of the adverse trading
conditions mentioned earlier, as well as the disposal of the broiler business.
The Financial Services" business was under pressure as a result of lower grain
prices. This led to lower utilization of grain debtor
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