Operational and financial review - AFGRI

AFGRI Limited Annual Report 2009
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AFGRI Limited Annual Report 2009
AFGRI is
committed
to the food security
effort in South Africa
and Africa
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AFGRI Limited Annual Report 2009
Operational and financial review
AFGRI produced results for the year
which surpassed those of the
previously reported 16-month period.
Chris Venter, Chief Executive Officer Jan van der Schyff, Financial Director
In a very difficult year for the financial services industry and an
extensive “clean out” of underperforming assets, strong
performances from the traditional agri-services and foods
businesses of AFGRI supported by a strong agricultural year and
some unexpected once-off gains, AFGRI produced results for the
year which surpassed those of the previously reported 16-month
period.
Introduction
2008 will be remembered for the worldwide collapse in financial
markets, governmental support of banks and insurance
companies, and the “credit crunch”. 2009 saw economic
recession set-in in almost all developed nations. To suggest
that AFGRI has not felt the impact of these international
developments would be misleading. However, a good local
agricultural year and, until recently, a generally resilient local
economy helped the Group post strong results and establish
a secure foundation for 2010.
AFGRI’s results have been driven by its traditional agri-services
businesses of grain management and the provision of farming
requisites. Continued good results from the Animal Feeds division
negated a difficult year for the broiler investment. The Group’s
financial services division experienced a difficult year as a result
of the international financial crisis. The severe shortages in
worldwide liquidity in the second half of 2008 arrived during the
summer crop planting season, a time when AFGRI’s lending book
grows to its peak levels. The re-pricing of AFGRI’s facilities
impacted upon AFGRI Financial Services.
The Group revisited its strategy during the year and confirmed its
apathy for involvement in the manufacture or production of
primary agricultural inputs. This is the single area of the food and
agricultural value chain that AFGRI does not wish to participate in
due to the high levels of investment that proceed the production
year. As such, sale agreements for the disposal of the loss making
AFGRI Seed were concluded during the year, with Competition
Commission approval being received in July. Substantial
negotiations were held with regard to the disposal of the Group’s
agricultural chemical subsidiaries, Tsunami, only to be called off
due to liquidity concerns of the buyer. The Tsunami operation has
performed well during the current year and its future will be
re-appraised in the light of recent events.
Strategy
AFGRI’s business strategy is to generate sustainable returns for
shareholders by operating throughout the entire food and
agricultural value chain (excluding the manufacture of primary
inputs). AFGRI seeks to capture an ever larger share of the food
and agricultural value chain through organic growth in its current
areas of operation, through geographical expansion, especially
into southern and eastern Africa, and a greater exposure to the
foods sector of the economy, resulting in a more balanced
investment profile across the Group. The Capital division’s
debtors book will be more closely aligned to the elements of the
food and agricultural value chain, potentially resulting in a
reduction in the total level of lending. The disposal of the
loss-making AFGRI Seed during the current period is consistent
with the Group’s policy of either fixing or exiting underperforming
businesses. The possible disposal of the Tsunami subsidiaries in
the new year will allow the Group to further improve its capital
1972
Silo capacity of the total business was 587 700 metric tons and
there were silos at Marble Hall, Grootvlei, Kendal, Bloekomspruit,
Nigel, Devon, Val, Ogies, Bethal, Kinross, Leslie, Balfour, Glenroy,
Greylingstad, Middelburg, Driefontein, Arnot, Harvard and Holmdene.
1975
OTK’s own cotton ginning mill
at Marble Hall commissioned.
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AFGRI Limited Annual Report 2009
AFGRI capital debtors’ versus total RSA farming debt
R’million
50 000
40 000
30 000
20 000
10 000
0
8% 9%
10%
structure and return its focus to its core agricultural services and
requisites businesses and increase its exposure to the foods
sector.
Comparative figures
During the 2008 financial year, the Group changed its year-end
from 28 February to 30 June to more closely align its financial
period with the South African summer crop cycle. Last year, the
Group reported a 16-month period ended 30 June 2008. The
annual financial statements included here have been prepared in
terms of International Financial Reporting Standards and as such
provide the prior period 16 months as comparatives, in both the
income statement and the segmental information. The Group’s
management reviews financial information based on a 12-month
comparable prior period, using consistently prepared
management accounts. The following commentaries on the
results and activities of the Group’s operating segments are
based on this management information and not the 16-month
comparatives. With the approval of the JSE, this unaudited
management information has been provided to users on
pages 5 to 8.
AFGRI Financial Services
This segment includes:
• AFGRI Capital, comprising:
11%
2005 2006 2007 2008
RSA AFGRI
Source: Abstract of agricultural statistics 2009
by department of agriculture
– AFGRI Credit, a provider of finance to the agricultural
sector, including producers and processors of agricultural
commodities.
– AFGRI Insurance Brokers, providing a range of insurance
solutions, from crop to short term, hail and input cost
insurance, as well as credit life insurance.
– Africa, representing the Group’s Zambian operations
(excluding the international grain-trading results).
– AFGRI Broking, providing SAFEX brokerage services to
clients. It does not engage in any proprietary trading.
AFGRI Capital
Being directly exposed to the financial sector, AFGRI Credit felt
the impact of the world “credit crunch” more severely than any
of the Group’s other divisions. The sudden and extensive
limitation on credit, the limited availability of funding under
existing facilities as well as the regular re-pricing of the division’s
underlying facilities required a response involving pro-active
liquidity and cash management, reduced marketing and
ultimately the re-pricing of customers. During 2008 the division
began diversifying its funding and was pleased to conclude the
Rabobank securitisation in February this year. This and other new
facilities have provided the division with additional debtors’
funding facilities of some R2,25 billion whilst diversifying the
facilities by both price and supplier and creating a platform to
continue its debtors’ funding strategy. The tenure of the division’s
funding has also been extended through the introduction of
these facilities and the renewal of existing facilities.
The division’s interest revenue during the 12 months grew by
some 2%. In a year of generally decreasing interest rates this
growth was driven by a larger average debtors book. Seasonal
contracts with customers delayed the passing on of this
re-pricing by between six to eight months. This and the fact that
the entire increased cost of facilities could not be passed on to
customers resulted in a reduction in the division’s gross interest
margin. The re-pricing of facilities was not applied to the cash
collateral deposits provided by AFGRI as security. The traditional
benefit of higher gross interest income in a declining interest rate
cycle was surrendered with the introduction of more regular MPC
meetings. The division’s gross interest margin has already begun
to improve following further customer re-pricing.
There has been a clear disconnect between the sharply
deteriorating world economy and a very successful local
agricultural season. This has seen farmers invest in new
equipment and strengthen their balance sheets. AFGRI Credit’s
debtors book remains of a high quality reflected in the bad debt
1980
Grain silo and milling business at Leslie
known as E Kagan (Pty) Ltd and Kagan
Mills (Pty) Ltd purchased.
1983
New silo with a capacity of 78 000 tons, commenced
at Overvaal, bringing the total bulk handling capacity
to 2 772 800 tons.
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AFGRI Limited Annual Report 2009
Operational and financial review continued
AFGRI sales: customer satisfaction index
(John Deere equipment)
90
50
AFGRI Market share:
Tractors & Combine harvestors
%
89
88
87
%
40
30
20
2006
2007
2008
2009
86
10
85
84
2008-2 2008-3 2008-4 2009-1 2009-2
0
Tractors
Combine harvesters
Source: John Deere
Source: John Deere
write-offs 0,3% of the book. The division’s impairment allowance
has been increased by R24,9 million to R124,2 million (2008:
R99,3 million).
Having learnt valuable lessons during the international financial
crisis, AFGRI Credit looks forward to a promising future armed with
the necessary longer term facilities and a focused strategy to align
the debtors book with the food and agricultural value chain.
highly unregulated and volatile environment. After returning to
profitability in 2008, the Zambian subsidiary’s overall result was
satisfactory despite limited liquidity for its Credit division and
cancelled equipment orders, also due to the availability of credit
in the market.
Overall this segment reported a loss before tax of R9,5 million,
a reversal on last year’s result of a profit of R42,4 million.
The segment’s insurance broking business turned in a very
satisfying year after the inclusion of last year’s acquisitions.
Despite cancellations of short-term personal lines, the strong
agricultural year saw significant increases in crop and hail
insurance.
The Group’s Treasury also falls under this segment. This division
manages the Group’s funding lines, the allocation of capital and
internal interest charges based on working capital utilisation by
individual divisions. Internal interest is charged at the average
cost of Group funding plus a margin to cover operating costs. In
addition, the division charges for specific treasury services such
as arranging forward exchange contracts.
The Group’s expansion into Africa continues with the extension
of its Zambian operation’s involvement in a 30 000 ton storage
facility in the Mkushi farming block and its active participation in
regional maize trading (the results of which are included under
the AFGRI Trading division). It remains difficult to operate in this
AFGRI Broking
AFGRI Broking, now reported on separately from AFGRI Trading,
saw a significant decline in volumes in line with the lower
volumes traded on the SAFEX exchange. The division remains the
largest trader in SAFEX contracts. Cost-cutting measures limited
the impact of these declining volumes to some extent although
the segment reported a 89% reduction in its profit before tax.
AFGRI Producer Services
AFGRI Producer Services, being part of the larger AFGRI Agri
Services grouping, consists of:
• The Primary Inputs operation supplies fertiliser, chemicals, fuel
and seed directly to the farmer and includes the Tsunami
agricultural chemical manufacturing subsidiaries.
• The Retail division comprises:
– Retail and Equipment, with 58 Town and Country retail
outlets and five Farm City stores, supplying requisites and
equipment to farming communities across the country.
1985
Acquired a 40% interest in Earlybird Farms (Pty)
Ltd and Earlybird Chicks (Pty) Ltd
Amalgamation of Delmas Kooperasie Limited
and Oostelike Transvaalse Kooperasie Limited
1988
Name of Oostelike
Tranvaalse Kooperasie
Limited changed to
OTK (Co-ops) Ltd.
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AFGRI Limited Annual Report 2009
– Through 11 dedicated mechanisation centres across four
provides and supports John Deere self-propelled equipment
and implements.
– Partrite, a national supplier of agricultural spare parts.
– T&H Walton Stores, the largest distributor of John Deere
farming equipment in Western Australia.
AFGRI Primary Inputs
Despite the large area planted for the 2008/09 summer crop the
Primary Inputs business reported a 12% reduction in revenue.
Anticipated price increases towards the end of 2008 encouraged
early buying. The opposite effect was experienced during the
winter planting season as farmers anticipated price reductions
based on international commodity prices and the strong rand.
Operating margins in this division improved by 1,4% to 6,3%
increasing operating profits by 14%. A higher interest charge
resulted in this division reporting a 24% decrease in profit before
tax to R37,5 million (2008: R49,3 million).
The sale of the loss-making AFGRI Seed, previously housed in this
segment, was successfully negotiated and concluded after
year-end. The assets of AFGRI Seed are reflected as a disposal
group held-for-sale and the results of its operations included
under discontinued operations.
AFGRI Retail
Not only did the current year’s strong agricultural performance
of high yields and firm commodity prices result in AFGRI Retail
stores reporting a very profitable year, but the strengthening
balance sheets of farmers, following two good seasons, saw a
substantial increase in the investment of new equipment such as
tractors, combine harvesters and implements. As such, both the
retail and equipment aspects of the business performed well.
The division now includes 58 Town and Country branches in the
more rural areas served by AFGRI and five Farm City stores
situated in urban centres. The entire retail network operation
leverages off a cost-effective wholesale operation having a
distribution centre in Bethlehem. The Town and Country stores
offer a unique shopping experience for those closely associated
with agriculture and the availability of credit in these stores
supports this experience (70% of sales are on credit). Retail sales
at these stores remained resilient during the period despite the
depressed conditions in the rest of the economy. The Farm City
stores experienced a sharp reduction in sales in line with other
retailers in the urban areas.
The full benefits of store rationalisation and other cost-focused
initiatives over the past two years was realised for the full year
for the first time. Although the division closed 22 stores in the
prior year as part of a rationalisation programme, revenue grew
by 4% to R2,96 billion (2008: R2,85 billion). The implementation
of a centralised supply chain resulted in an improved product
offering but reduced inventories. This, together with improved
margins through the elimination of non-profitable lines and
focused management allowed the division to report a
considerable improvement in profits.
Equipment sales throughout the AFGRI region grew substantially.
AFGRI sold 641 tractors (2008: 497) and 48 combine harvesters
(2008: 32) at a market share of 35% (2008: 29%) and 44%
(2008: 37%) respectively. These sales are not expected to be
repeated in the new year as equipment sales were already down
35% nationally in June. AFGRI is one of the largest John Deere
dealerships in the world and the marks reputation for quality,
reliability and low running costs have underpinned these sales.
John Deere is also the market leader when it comes to
technology and its JD Agricultural Management System is
installed and maintained at AFGRI’s specialised workshops.
During the trading period, Partrite, a national supplier of
agricultural wear parts, broadened its range to include retail
products that leverage off the existing logistical infrastructure
in Bethlehem with huge success. Demand for parts was
buoyant during the period, due to the aforementioned bumper
maize crop.
The Australian subsidiary produced a good year after many
years of severe drought in Western Australia. As in South Africa,
equipment sales increased over the previous year although many
orders were also cancelled due to the shortage of available
credit. In total, turnover for this operation increased 64% and its
contribution to the Group’s profit before tax increased by 203%.
Overall, the Retail division achieved a profit before tax of
R138,1 million, an increase of R106,7 million or 240%. Included in
this increase is a once-off after tax gain of R29,6 million resulting
from the Tobacco transaction more fully described below and in
note 5 to the annual financial statements. The division’s operating
margin percentage increased to 6,3% from 2,7% in 2008.
1996
Listed on the JSE Securities Exchange.
Largest John Deere agency in the world.
Acquisition of SOK in Eastern Free State with
effect from 1 March.
2000
OTK becomes the first company listed on the JSE
to acquire some of its own issued shares and
repurchased 4,25%. OTK acquires a SAFEX seat and
provides a complete hedging solution to clients.
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AFGRI Limited Annual Report 2009
Operational and financial review continued
Yields per ton: RSA vs AFGRI
8
5000
AFGRI silo capacity
Yields per ton
6
4
Thousand tons
4000
3000
2000
2
1000
0
2006 2007 2008 2009
RSA
AFGRI regions
Source: National crop estimates committee
0
2006 2007 2008 2009
AFGRI managed facilities AFGRI bunker facilities
AFGRI silo facilities
Source: AFGRI Logistic Services
AFGRI Logistics Services
This segment, being part of the larger AFGRI Agri Services
grouping, includes:
• AFGRI Logistics comprises:
– The Handling and Storage division, having 65 silo complexes
and six bunker locations providing in excess of four million
tons of storage countrywide.
– The Logistics division provides third and fourth-party logistic
services to the agricultural community and allied industries.
• AFGRI Trading represents the Group’s commodity trading
activities – the matching of grain production with demand in a
fully hedged environment, trade execution and administration,
and the Group’s procurement of strategic raw materials. It does
not engage in any proprietary trading.
AFGRI Logistics
This is the largest supplier of handling and storage services to
the South African agricultural community and represents
approximately 30% of South Africa’s total silo capacity of
14 million tons.
the 2007 opening stock. This increase, together with grain
receipts being more than twice the previous year’s, resulted in an
excellent year for the Handling and Storage operation. Turnover
for the Handling and Storage and Logistic businesses combined
increased by more than 58% over the prior year and, although
the average storage period reduced slightly through strong local
demand and exports, operating profit improved some 113%.
The freight or logistics division grew its volumes by 21% in a year
in which it made no new investment in vehicles and surplus
capacity existed in the total freight market. Again this is an
indication of the disconnect between the South African
agricultural sector and the overall economy and particularly the
world economy. The surplus capacity did impinge on margins
somewhat.
A reduction in the allocation of Group equity to this segment
resulted in an increased internal interest charge. Overall this
segment improved its overall profit before tax to R138,9 million
(2008: R75,6 million), an increase of 84%.
Higher yields from the hectares planted in the 2008/09, the
summer crop was estimated at 13,2 million tons, of which
11,5 million tons was maize. In the AFGRI region an increase in
production of 0,2% was experienced across all grain and seed
crops. The opening stock in the AFGRI silos on 1 July 2008 of
more than 1,5 million tons represented an increase of 20% over
The business continues to benefit from the use of electronic silo
certificates, strengthening AFGRI’s competitive position in the
market. Through the implementation of an electronic grain stock
measuring and management silo system, grain stock variances
have all but been eliminated, making AFGRI the industry leader in
silo management.
2001
Shareholders urge the re-constitution of the board, in an
effort to encourage OTK to reach its full potential. New
vision to transform OTK from a regionally bound agri
company to a world-class international agri-business.
2002
Debtors’ book with a value of R937 million
sold to banking institutions.
Special dividend of R832 million paid.
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AFGRI Limited Annual Report 2009
Through the planned investment in bunker facilities at strategic
partnership sites and at strategic production locations throughout
southern and eastern Africa the business looks to grow its
capacity by 60 000 tons per annum. This physical growth in
capacity will enable AFGRI to provide services throughout the
food and agricultural value chain. There are early indications that
plantings for the 2009/10 summer crop will be lower than those
of last year because of the recent decline in grain prices.
However, assuming rain is received during the growing months of
January to March and further yield improvements are realised,
another good crop can be expected.
AFGRI Trading
Previously reported including the AFGRI Broking business (now
reported separately), AFGRI Trading provides a fundamental
service to the agricultural and food sectors of the South African
economy. By forward buying grain production and hedging these
purchases on SAFEX and also forward selling grain to millers, also
hedging these sales on SAFEX, AFGRI Trading is able to act as the
risk-free bridge between the two economic sectors.
AFGRI Trading procured some 2,5 million tons and marketed
2,7 million tons during the year. Procurement and marketing
volumes combined increased by some 124% despite there being
a noticeable reticence in the market due to credit constraints. The
“credit crunch” had less of an impact on stock financing although
AFGRI carried stock for longer at a higher cost.
Demand in the regional market has been high with millers
operating at capacity and the surplus production volumes being
exported to southern and eastern Africa. AFGRI Trading exported
some 225 000 tons of maize during the period, approximately
10% of the country’s total export volumes. Despite all the activity
at AFGRI Trading, the division reported a reduction in profit before
tax to R12,5 million (2008: R23,8 million). In the main, this decline
in profitability was driven by a mark-to-market gain of
R29,9 million included the prior year results in terms of IFRS.
The recent late rains will boost the winter crop and encourage
farmers to plant summer crops. The decline in grain prices has
been balanced by recent reductions in input costs and the
prospects are for a good 2009/10 summer crop (weather
excepted).
AFGRI Foods
• The Animal Protein division comprises:
– AFGRI Animal Feeds, having seven production facilities
throughout the country with a total production capacity of
approximately 1,2 million tons.
– The Daybreak group, a vertically integrated broiler production
and processing business having a capacity of 650 000 birds
per week.
– Labworld, a supplier of a wide range of laboratory equipment
used in the agricultural, food and beverage, mining and
petrochemical industries as well as academic institutions.
• The Oil and Protein division is comprised of Nedan, a bulk
supplier of edible oils and fats, soya and cotton protein for
animal feed and texturised soya protein for human
consumption.
Animal Protein
The world’s financial crisis has been felt throughout the protein
production sector, but especially in the United States and Europe
where broiler placements have declined by between 5 – 7%. This
reduction in protein demand and the depressed economy (lower
ethanol production) saw commodity prices decline in the second
half of the year. In the United States, the world’s largest poultry
operation (Pilgrim’s Pride) applied for chapter 11 bankruptcy
protection. A reduction in US exports was accommodated by
increased exports from Brazil.
The South African food production chain has similarly seen lower
grain prices and input costs in the second half of the year. The
large South African maize crop has resulted in local maize prices
approximating export parity, further limiting input costs. The local
poultry industry has therefore seen improved margins during the
year through an increase in net sales value of approximately 19%.
Whilst average feed prices were 15% higher for the period, they
have declined substantially from their peak in the first six months.
The same cannot be said for the South African dairy industry
which is currently under severe pressure due to the low producer
prices. There has been some improvement through declining feed
prices and higher milk prices although the industry continues to
face competition from heavily subsidised imports.
Once again the Animal Feeds made a considerable contribution
to the Group’s results. The division saw a slight (3%) reduction in
volumes as some customers purchased feed based on price
rather than performance. In a declining commodity price market,
2003
Name changed to AFGRI – in an effort to move away
from co-operative structure to world class agri-services.
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AFGRI Limited Annual Report 2009
Operational and financial review continued
smaller opposition feed manufacturers are able to buy at spot
and, temporarily offer a cheaper product. This is especially true
for poultry feeds. The market for dairy feeds saw a decline as the
customer base itself is under pressure. Invariably these
customers return once the benefit of short-term spot prices
evaporates and there is a fuller appreciation of AFGRI’s feed
technology resulting in lower costs of production.
Despite this reduction in volumes the division returned a 21%
increase in profit before tax due to a tight focus on maintaining
margins and cost control. Margin maintenance was achieved
through a managed procurement strategy, improved formulation
technology and developments in the manufacturing process. A
thorough review and upgrade of the division’s vehicle fleet over
the last two years resulted in transport efficiencies being
achieved.
Tons
300000
240000
180000
120000
60000
Annual poultry imports
0
2002 2003 2004 2005 2006 2007 2008
Annual poultry imports
R/$ exchange rate (average)
Source: Southern African Poultry Association
12
10
8
6
4
2
0
R/$ exchange rate (average)
During the coming year the division expects to complete the
establishment of a new feed mill, having a 60 000 ton capacity in
Pietermaritzburg. Although this is only expected to begin
production in January 2010, distribution of bulk product from the
site will commence well before this date.
Daybreak Farms has been a hive of activity over the past year.
The expansion project increasing weekly capacity to
650 000 birds was commissioned in March. Overall, the year saw
a 10% increase in volumes. Besides the improved NSV, the
operation has contributed to improved financial results through
improved on-farm and abattoir performances driven by capital
expenditure complementary to the expansion project spend.
Overall the PEF ratio was improved by 31 points (approximately
13%) and abattoir yields have improved by 6% since the
completion of the project. These activities allowed the operation
to return to profitability in the current year.
The operation is seeking accreditation by major retail companies
with the intention of broadening its customer base and reducing
distribution costs. The operation continues in its attempts to
dispose of certain of its farms to BEE candidates and is currently
assisting in the operation of three environmentally controlled
houses in conjunction with the local community and the
department of agriculture.
A steady year from the laboratory equipment distributor and a
restriction on pure research contributed to the overall segment
result.
Overall, the Animal Protein segment produced a profit before tax
of R153,7 million (2008: R119,8 million), a 28% increase.
Oil and Protein
The collapse of soft oil prices during the latter part of 2008 and a
softening in the retail environment resulted in pressure on the
margins of the Nedan operation. Conditions have subsequently
improved although the division’s results reflect a difficult year
with a 45% reduction in profit before tax.
In the coming year capital expenditure will be invested at Nedan to
increase the flexibility of the plant to process a wide range of seed.
Discontinued and held-for-sale operations
During the year management continued with the Group’s policy
to exit non-core and under-performing businesses. Some time
ago a new strategy was adopted for AFGRI Seed which included
the development of our own seed cultivars. Although successful
in developing promising strains of seed for the AFGRI region the
costs associated with this development, the relatively small size
of the regional market, the non-transferability of these products
to other regions and competition from large international
companies meant that this research and development strategy
could not be successfully adopted. This realisation has also
contributed to the Group’s refined strategy of inclusion in the
entire food and agricultural value chain except for the
manufacture of primary agricultural inputs.
26,77% of AFGRI Operations sold to a broad-based
2005
BEE consortium – Agri Sizwe.
Agri Sizwe transaction financed by Land Bank
and a R361 million special dividend distributed to
shareholders.
2006
Acquisition of 100% of Daybreak
Farms for R120 million.
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AFGRI Limited Annual Report 2009
The assets of the AFGRI Seed were re-valued to fair value during
the first quarter of 2009 and following negotiations with a
prospective purchaser transferred to “non-current assets and
assets of a disposal group held-for-sale”. The negotiations have
now been concluded and a sales transaction, at approximately
the fair value, concluded after year-end. The AFGRI Seed division
reported an after-tax loss of R61,6 million for the year (2008:
R12,2 million) of which R36,2 million represents losses on the
revaluation to fair value which have been added back for the
purposes of calculating headline earnings per share.
During 2008 a total of four operations were sold or discontinued.
Losses from the finalisation of these sales or closures are also
included in the current year’s discontinued operations. The
additional after-tax loss of R30,8 million arises from the AFGRI
Farming division (R18,0 million), the Snacks business
(R12,4 million), Citrifruit (R1,3 million), Cotton (R1,9 million),
Deposita (R1,0 million) and a R3,8 million profit from the
11 Lowveld retail branches sold subsequent to year-end.
The Financial Services investment in Deposita Systems (Pty)
Limited continues to be classified as “non-current assets and
assets of a disposal group held-for-sale”. During 2008 a sale
agreement had been drafted but due diligence identified
weaknesses in the internal controls of this associate the sale was
not concluded. The business is currently being restored to a
saleable condition.
Group financial results
Profit before tax from continuing operations increased by
R136,4 million or 33% to R552,7 million based on the results
reported for the previous 16 months. The increase in profit from
continuing operations includes certain once-off gains including
the negative goodwill arising on the acquisition of the share of
the tobacco associate (R29,6 million) and a R58,6 million gain
arising from the apportionment of the Group’s Pension Fund
surplus. Ignoring these once-off gains, the Group reported a
12% increase in pre-tax profits from continuing operations for
the year when compared to the prior 16-months period.
Despite this much higher tax charge and absorbing R92,4 million
in after-tax losses from discontinued operations the Group’s
overall profit for the year increased by 18% to R353,9 million.
AFGRI’s earnings attributable to ordinary shareholders grew by
5% to R233 million. The Group achieved earnings per share of
72,7 cents (2008: 69,5 cents).
The 37% (R1,35 billion) significant growth in the Group’s financed
debtors was funded by facilities raised for this specific purpose.
The cash generated from operating activities of R875 million has
been applied to capital expenditure (R384,5 million), cash
collateral deposits to support growth in the debtors book
(R43,8 million), distributions to shareholders (R88,9 million) and
the Agri Sizwe partners (R84,9 million), and an overall increase in
cash and cash equivalent balances of R227,1 million.
Prospects
The difficult global economic conditions have impacted on the
Group’s lending margins and limited the planned growth in its
debtors book. This has been countered by a strong agricultural
year in South Africa. The Group’s management continues to
aggressively control working capital and cash flows, and has
adopted an extensive cost control programme. A Group strategy
review has resulted in a clearer focus and the discontinuance of
underperforming business units has now come to an end. The
Financial Services division has seen off the worst of the “credit
crunch” and, with lessons learnt, emerged a more focused
business than before. A further deterioration in the South African
economy may impact the Foods division. The recently lower grain
prices may result in a reduction in the area to be planted for the
summer season, impacting upon the Producer Services division.
The current year’s large crop will support the Logistic division’s
results through the forthcoming financial year.
This improved performance did not fully flow through to profit
after tax due to a 167% increase in the average tax rate. A current
year STC charge of R13 million and the raising of a R23 million
deferred tax asset in the previous year were the main reasons for
the increase in the tax charge.
Chris Venter
Chief Executive Officer
1 September 2009
Jan van der Schyff
Financial Director
Record maize crop in AFGRI regions.
2008
Debtors book grows to R4,6 billion.
2009
Daybreak expands to 650 000 birds per week.
Loss making AFGRI seed disposed of.
Trade receivable facilities increased by
R2,25 billion.
33
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