Agribusiness services specialist Kaap Agri — which owns the Agrimark retail chain — is still on track to reach its “big hairy audacious goal” of R1bn in profit before tax by its 2025 financial year.
Speaking on Thursday after the release of results for the year to end-September, Kaap Agri CEO Sean Walsh said the group will push to achieve a compound annual growth rate of 15 % over the medium term to reach this profit target. The target, he stressed, includes merger & acquisition activities.
In the past financial year, Kaap Agri benefited from the biggest wheat crop in 15 years as well as the R1bn acquisition of fuel and convenience store business PEG to post a 48% increase in revenue to R15.7bn. On a like-for-like basis revenue was up 24%. The group increased profit before tax by more than a third to R557m with group gross profit margins fattening from 14.8% to 16.8%.
Agrimark, which accounts for almost R8bn of turnover, managed to earn R481m in profit before tax — reflecting an enviable pretax margin of just more than 6%. The fuel and convenience retail segment churned out R6.3bn in revenue, but only R100m in profit before tax.
Walsh said in the financial year ahead the group will be “sticking to what we are good at” — driving further market share gains and making selective acquisitions, which it will assess with caution.
Kaap Agri’s operations already stretch across a number of retail formats, quick service restaurants, grain storage, manufacturing and packaging. Walsh said the broader agri-services segment offers more opportunities than Kaap Agri has seen in the past. “But ROIC [return on invested capital] can be problematic in this space with businesses that had been assessed showing low returns.”
On the convenience store front, Walsh said with the PEG acquisition successfully completed there is no real rush to pursue new opportunities. “We will take a selective approach in the next 12 months.”
Prospects for the next financial year look sound with Walsh expecting a stable fruit sector and an average wheat harvest to benefit the core Agrimark division. It could continue margin improvements off central pricing, better product assortment and effective stock replenishment — with Walsh adding that Agrimark’s margin shifted up 2.8% in the last financial year.
Overall, Walsh predicted a stable agricultural sector in 2023 with logistical challenges and high shipping costs likely to dissipate. One area of concern, however, is load-shedding — which has already cost Kaap Agri a small fortune.
In 2022 there was more load-shedding at Kaap Agri operations than in the three previous years combined. The effect on revenue is not quantifiable, Walsh said. He did put the direct cost at R11.9m for generator fuel and another R2.2m for maintaining and renting the relevant equipment.
The group’s capital expenditure on generators was about R4.4m with another R12.5m spent on solar energy capacity. “Load-shedding is driving up costs, driving up capital expenditure and driving down earnings.”
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