| Wed 9 Nov 2005, 12:27 | | AFGRI reports 16 |
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AFGRI reports 16,9% growth in headline EPS at interim stage
AFGRI LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1995/004030/06)
ISIN number: ZAE000040549
Share code: AFR
AFGRI REPORTS 16,9% GROWTH IN HEADLINE EPS AT INTERIM STAGE
HIGHLIGHTS
Headline earnings per share up 16,9%
Clark Cotton and Natalagri restored to profitability
Dividend remains at cover of two times
Agricultural services group Afgri reported a 16,9% increase in headline earnings
per share on an 8,5% decline in revenue for the six months ended 31 August 2005
as maize farmers almost halved the amount of land they intend to plant for the
current season.
Managing director Jeff Wright explains that while an 8,5% decline in revenue is
reflected in the figures, if they are adjusted for last year"s disposal of the
Early Bird Farm broiler business and the Natalagri acquisition, revenue has in
fact almost remained constant.
Wright says that the group"s Retail and Financial Services businesses were
negatively affected by farmer sentiment during the period. "The current
unfavourable agricultural climate resulted in reduced farmer spending compared
to the same period in the prior year. However, Afgri"s underlying businesses,
Clark Cotton and Natalagri, were restored to profitability during the period
under review which bolstered the results," he says.
The summer planting area is currently facing a highly unusual set of
circumstances: a bumper crop last year created a large maize stock surplus
which, with the strong rand, depressed the commodity price from R1 200/ton in
December 2004 to just under R600/ton by March 2005. Furthermore, the rains are
late this year and between low commodity prices and a concern over a possible
drought, farmers are not motivated to plant.
Revenue in the Retail division fell by 9% overall. The pure retail business was
on par with the same period last year; sales of non-planting agricultural
products improved; sales of core agricultural inputs such as seed and fertiliser
were down; and equipment sales were 45% below the same period last year.
"Recognising that agriculture is a cyclical business, Afgri"s retail strategy is
to at least break even during downturns," says Wright. "We have reacted swiftly
to significantly reduce fixed costs by closing 12 marginal and loss-making
retail stores during the six months, which makes a total of 25 retail store
closures in the past year. Customers of closed stores will be serviced from the
nearest outlet. This rationalisation improves the future health of our retail
operations."
The Financial Services business was under pressure as a result of lower grain
prices. This led to lower utilisation of grain debtor facilities and reduced bad
debt recoveries. The business was also negatively affected by significantly
lower agricultural equipment hire purchase sales.
Cash utilised by operating activities of R112 million for the six-month period
reflected higher working capital as a result of slower retail sales. Stock
levels are being aligned to sales, but this takes time, says Wright. The cash
position is still a positive R38 million. The interest cost was higher than in
the same period last year due to the weakened cash flow.
Investments and achievements
The group spent R58 million in facility upgrades, new technology and the
establishment of an animal feed plant in the Western Cape.
"Within the overall performance there were pockets of achievement," says Wright.
The group"s silos are at record levels of utilisation and are benefiting from
the storage of the bumper crop. The Logistics business consequently performed
well, despite margins coming under pressure due to some discounting of prices to
provide relief to farmers.
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. Wright says that the strategy to
move to new geographies and into new agricultural products has helped reduce the
risk of seasonality to Afgri"s profits. This has been proven correct by the
results of LK (acquired in 2002) and Natalagri (acquired in 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,
fertiliser and seed. Wright further says that the group"s Australian business
reflected an acceptable profit performance.
The Products business increased revenue, mainly due to improved cotton sales
achieved through the slight weakening of the rand exchange rate.
Revenue trebled off a low base in the Malawian and Zambian subsidiaries. "These
made significant strides towards achieving a positive contribution to the
group," says Wright.
Outlook and dividend
Subsequent to the reporting date, the broiler business Daybreak Farms, which
slaughters about 500 000 birds a week, was acquired for R110 million. A feed
mill with an annual capacity of 150 000 tons was commissioned in the Western
Cape on 1 October.
In the short-term, Wright says the current agricultural climate will continue to
depress commodity prices and farmer spending. Focus for the next six months will
be on further cost reductions in the drive for a lower fixed cost base, while
the new acquisitions will have an increasingly positive impact on the group"s
business.
Afgri will pay an interim cash dividend of 9,05 cents per share based on a
dividend cover of two times.
Ends
ISSUED FOR: AFGRI LIMITED
CONTACT: Jeff Wright, Managing Director:
082 806 1284 / 011 549 0606
Dominic Sewela, Deputy Managing Director:
083 625 2280 / 012 643 8000
De Wet Goosen, Financial Director:
082 770 7859 / 011 549 0602
FAX NO: 011 463 4139
E-MAIL: jwright@afgri.co.za; dsewela@afgri.co.za;
idgoosen@afgri.co.za
WEBSITE: www.afgri.co.za
ISSUED BY: TISH STEWART PR ASSOCIATES
CONTACT: Tish Stewart 011 325 4195 / 082 443 6399
FAX NO: 011 325 4199
E-MAIL: tish@tspr.co.za
DATE: 09 October 2005
Date: 09/11/2005 12:27:08 PM Produced by the JSE SENS Department
