| Wed 17 May 2006, 12:03 | | Afgri Limited - Afgri Produces 19 |
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AFR
AFR
Afgri Limited - Afgri Produces 19,6% Earnings Growth In Tough Year For
Agriculture
Afgri Limited
Share code: AFR
Isin: ZAE000040549
Afgri Limited
AFGRI PRODUCES 19,6% EARNINGS GROWTH IN TOUGH YEAR FOR AGRICULTURE
HIGHLIGHTS
* Group earnings up 19,6%
* Continuing operations headline earnings up 144%
* Capital distribution of 21,18 cents per share
* Cotton ginning interests sold to Cargill
* Re-entry into broiler business through Daybreak Farms acquisition
Agricultural services group Afgri Limited has posted an increase of 19,6% in
earnings for the financial year to February 2006, with continuing operations"
sales at R5,4 billion more or less unchanged from the previous year.
Headline earnings increased by 8,8% over the previous year. Headline operating
profit from continuing operations - after interest and dividends - was up a
creditable 19%.
Earnings per share increased 19,6% to 39 cents over the prior year"s pro forma
earnings per share of 32.6 cents. This was due largely to improved performances
in the Handling & Storage and Producer Services" Retail and Equipment
businesses. Prior year earnings were impacted by the once-off R35 million
Secondary Tax on Companies (STC) charge on the special dividend paid as a
consequence of the group"s BEE transaction.
Afgri Managing Director Jeff Wright says the results are particularly pleasing
in the light of the difficult conditions prevailing in the agricultural sector.
"The strong rand resulted in a drop in maize prices to below R600 a ton during
the past year compared with a price of R1 800 a ton three years ago.
Consequently, many farmers found it uneconomic to plant maize, resulting in a
45% decrease in planted hectares. This had a negative impact on our Financial
Services business and also impacted Equipment and Primary Inputs" sales."
The record maize crop of over 11 million tons produced in the 2005 season and
the resultant over-supply contributed to the drop in commodity prices. Though
farmers switched to other crops because of the reduced maize price, these crops
typically require less demand for inputs such as fertilizer, seed, chemicals and
fuel. This accounts for the 6% drop in sales in the Primary Inputs business.
The Logistics business, which comprises 64 silo complexes and 4 million tons of
capacity countrywide, had a good year, due largely to the surplus maize crop and
the consequent need for storage and handling services. Capacity utilisation in
Afgri"s silo complexes improved to 85% from 75% the previous year.
Sales from continuing operations in the Products business were up on the
previous year, due mainly to the acquisition of the remaining interest in Nedan
Oil Mills. Animal Feeds" sales were down mainly due to lower maize prices.
There was a 52% improvement in the performance of the Producer Services" Retail
and Equipment business following a 25% reduction in fixed costs, substantial
lowering of stock levels and the phasing out of non-viable retail branches. All
remaining branches are now profitable and this business is expected to make a
positive contribution to earnings in the coming financial year.
Two major developments were the disposal of the cotton ginning interests in
Clark Cotton to Cargill Incorporated, and the acquisition of Daybreak Farms.
Wright says the cotton ginning interests, which were sold subsequent to the
financial year end, were not part of Afgri"s core business, and the decision to
sell was consistent with the group"s philosophy of exiting businesses that fail
to meet its required rate of return. "Clark Cotton has suffered considerable
financial losses in recent years due to its exposure to multi-currency risks and
international cotton commodity markets. Cargill has the critical mass to make a
success of this business," he says.
The acquisition of Daybreak Farms for R120 million marks the group"s re-entry
into the broiler industry following the sale of its 50% interest in Earlybird
Farm in 2004. The acquisition has the dual advantage of furnishing Afgri with a
solid foothold in an expanding market segment, while providing an opportunity
for expansion. The group sold its 50% interest in Earlybird because of the
restrictive conditions placed on Afgri by the partnership agreement. It was
announced to shareholders at the time that Afgri intended to re-enter the fast
growing broiler market at the soonest available opportunity.
The group"s net cash position was about R100 million lower at year-end compared
to the prior year-end due to the higher investment in working capital of R145
million caused by lower sales in a difficult agricultural year and the
investments of R153 million in acquisitions, facility upgrades, new technology
and the establishment of an animal feed plant in the Western Cape, all of which
will enable Afgri to further grow its core operations. The feed plant was
commissioned on 1 October 2005.
Afgri"s board has evaluated the group"s cash flow requirements for the year
ahead after taking into consideration the sale of the cotton ginning interests
and the acquisition of Daybreak Farms and has decided to declare a capital
distribution of 21,18 cents per share. This distribution and the interim
dividend of 9,05 cents per share are in excess of the normal dividend of two
times cover and are 15% higher than the normal dividend for the prior year.
Wright says the outlook for agriculture in the year ahead is much improved due
to heavy rains in recent months which have filled most dams across the country.
"Early indications are that farmers will increase maize plantings in the coming
season. The broiler market is enjoying particularly strong growth and the
disposal of the cotton ginning interests in Clark Cotton will curtail the losses
from this source. These factors should contribute to a year of significant
earnings growth for Afgri," concludes Wright.
ENDS
ISSUED FOR: AFGRI LIMITED
CONTACT: Jeff Wright, Managing Director: 011 549 0606 / 082 806
1284
Dominic Sewela, Deputy Managing Director: 012 643 8000
/ 083 625 2280
De Wet Goosen, Financial Director: 011 549 0602 / 082
770 7859
FAX NO: 011 463 4139
E-MAIL: jwright@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: 17 May 2006
Date: 17/05/2006 12:03:31 PM Produced by the JSE SENS Department
