| Wed 8 Nov 2006, 11:31 | | AFGRI - Improving agricultural outlook boosts AFGR |
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AFR
AFR
AFGRI - Improving agricultural outlook boosts AFGRI
AFGRI LIMITED
Incorporated in the Republic of South Africa)
Registration number: 1995/004030/06
Share Code: AFR
ISIN: ZAE000040549
("AFGRI" or "the company")
IMPROVING AGRICULTURAL OUTLOOK BOOSTS AFGRI
- Improved agricultural economic climate in 2006/7
- Headline Earnings per Share (HEPS) up on prior year by 24,9%
- Forecast of significant increase of maize plantings in 2006/7
- Cash generation positive
- Disposal of underperforming cotton ginning businesses
- Acquisition of Daybreak broiler business
Agricutural services group AFGRI has announced a 24,9% increase in headline
earnings per share to 19 cents (2005: 15,2 cents) for the six months ended
31 August 2006.
Managing director Jeff Wright says the group is reaping the benefits of a
major cost cutting exercise initiated during the prior financial year,
accompanied by a substantial improvement in the agricultural economic
climate during the period under review. "Last year we embarked on a
programme to cut our fixed overhead costs by R80 million and this stood us
in good stead over the last six months. A second factor contributing to the
good result was our focus on efficiencies at the operational level.
"This result was achieved despite a nearly 50% reduction in maize plantings
for the 2005/6 summer season, which negatively impacted the earnings of the
Producer and Logistics Services businesses. Since then we"ve seen a marked
improvement in the agricultural economic climate for the 2006/7 summer
season, with a healthy recovery in maize prices leading to the expectation
of a return to a more normalised maize crop for the upcoming planting
season."
There was a marked improvement in cash generation from operational
activities to R164million during the reporting period. This compares to
cash usage of R150 million for the prior comparable period. Wright says the
improvement was due to improved profitability and working capital
management. The net cash position, including cash collateral deposits, was
a positive R63 million at 31 August 2006 compared to a negative R5 million
for the prior period. During the period the group decided to exit its
cotton ginning businesses, housed in Clark Cotton, as they did not meet the
required return on investment.
Revenue from AFGRI"S continuing operations increased by 11,6% to R2,7
billion (2005: R2,4 billion) compared to the same period in the prior year.
The main contributors to this increase were Producer Services (with a 14,3%
increase in revenue), Financial Services (21,3%) and Products (8,4%). This
growth in revenue was achieved despite a 12,7% decrease of Logistics
Services due to lower maize plantings and a late harvest.
The turnaround in agricultural confidence was reflected in the increase in
Producer Services" revenue during the period. The indications are that
farmers are intending to increase maize plantings in the coming season, as
reflected in the improving sales of agricultural equipment, spares,
chemicals, fertiliser, seed and diesel. Producer Services" result would
have been better but for the decline in sales of agricultural equipment in
AFGRI"S wholly-owned Australian subsidiary, due to the worst drought in
recorded history in Western Australia, which has reduced wheat crop
estimates by 50%, and up to 80% in some areas.
The Products business increased sales in its Foods (10,3%) and its Protein
(7,9%) businesses compared to the same period in the prior year. The latter
increase was buoyed by the acquisition of the Daybreak broiler business,
which helped offset lower animal feed prices as a result of the reduction
in maize prices. The headline earnings before tax and BEE profit share for
the Products business has improved by R26 million during the reporting
period, helped by the Daybreak acquisition, improved factory efficiencies
and raw material procurement in the Animal Feeds business, and lower
procurement costs in the Foods business.
Logistics Services reported a 12,7% decline in revenue during the period,
following a 48% decline in grain received at AFGRI"s silos due to the
aforementioned drop in maize plantings and the late harvest. Headline
earnings before tax and BEE profit share decreased by R33m as a result of
Logistics Services . Conditions in Logistics Services are expected to
normalise in the upcoming season.
Producer Services posted a R41 million improvement in headline earnings
before tax and BEE profit share during the period, notwithstanding the poor
result from the Australian subsidiary. This improvement was achieved
through revenue growth, margin improvement and the effect of the prior year
cost cutting exercise, which included the closure of uneconomic retail
shops. "What is encouraging about this result is that the first half of
the financial year is always slower than the second half, so we are looking
forward to a bumper second half," says Wright.
Financial Services reported a R3 million reduction in headline earnings
before tax and BEE profit share, despite higher utilisation of credit
facilities granted to grain customers. The prior year"s results were
bolstered by some large bad debt recoveries which will not be repeated in
the current year. The results were also weighed down by a poor performance
in the Zambian operation. Actions are currently in place to restructure
this business, reduce overheads and improve management.
Looking forward, Wright says the second half of the financial year is
traditionally better than the first half. Further encouraging factors are
the improved general agricultural outlook, firmer maize prices, and the
expectation of higher maize plantings in the forthcoming growing season.
"We are well positioned for further growth after the cost cutting exercise
initiated during the prior financial year, and the healthy recovery in
confidence in the agricultural sector. We therefore expect further
improvement in our financial results in the second half of the year."
ENDS
ISSUED FOR: AFGRI LIMITED
CONTACT: Jeff Wright, Managing Director:
011 549 0606 / 082 806 1284
Dominic Sewela, Deputy Managing Director:
011 549 0601/ 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: LETSEMA COMMUNICATIONS
CONTACT: Tish Stewart
011 325 4195 / 082 443 6399
FAX NO: 011 325 4199
E-MAIL: tish@letsemacom.co.za
DATE: 08 November 2006
Date: 08/11/2006 11:31:37 AM Produced by the JSE SENS Department
