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Kaap Agri positioned for another year of solid earnings growth

Kaap Agri positioned for another year of solid earnings growth

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Kaap Agri, which trades in the agriculture, general retail and fuel retail sectors, lifted revenue 48.4% to R15.7 million in the year to September 30 off the back of a 54.3% increase in the number of transactions and higher fuel prices.

Compared with pre-Covid-19, revenue increased at a compound annual growth rate of 22.9%. CEO Sean Walsh said in a telephone interview that the sharp increase in fuel prices from the 370 million litres of fuel sold through their service stations drove revenue growth, but like-for-like growth was nevertheless “solid” at 24% over the year.

He said the results were despite significantly higher farm input costs that resulted in pressure on agricultural producer’s cash flow. This was accompanied by tighter consumer spending, while a recovery of fuel volumes was muted by soaring prices and lower consumption.

He said commercial and commuter fuel consumption had slowed between 7% and 13%, and the impact was mainly in commercial diesel consumption.

He said in normal trading periods, fuel volume increases tended to be very low but, for example, the exposure to the 41 PEG Retail Holdings fuel retail sites also gave the group access to 180 retail touch-points, where revenue growth was much faster.

He said Kaap Agri over the past seven years had diversified from a largely agri-focused business to a diversified group with trading activities in agricultural trade, general retail, retail fuel, fuel convenience and quick service restaurant markets.

Seven years ago agricultural trading made up 60% to 70% of the group’s gross profit, but this percentage had reduced to 30% even though their exposure to agriculture had also doubled over the period, said Walsh.

The company’s customer base has expanded from mainly farmers to also include families, friends, and their fur family.

The group’s footprint of 272 business units includes the service stations operated by PEG, which was acquired in July. As such, three months of PEG performance was included in the period under review.

The fuel subsidiary, The Fuel Company (TFC), excluding PEG, had performed well with litres falling by only 2.3%. The addition of PEG was expected to have a significant positive impact on fuel volume growth .

Convenience and Quick Service Restaurant (QSR) offerings had recovered strongly, surging back to above pre-Covid levels, and were expected to continue growing well in the year ahead.

Recurring headline earnings per share increased by 21.1% to 578.23 cents, with recurring headline earnings growing by 24%.

A final dividend of 122c per share (111.00c) was declared to bring the total for the year to 168.00c (151.00c), representing an increase of 11.3%.

Walsh said the outlook for the wheat and wine agriculture sector was good, while the outlook for the fruit sector was stable off the back of higher costs, dissipating supply chain disruptions and likely lower export costs.

“We have once again delivered results ahead of expectation and in support of our strategic growth objectives. Our balance sheet has strengthened during the period under review and cash generation has improved,” said Walsh.

The group launched its first e-commerce store in September 2022. Agrimark Online includes an e-catalogue of more than 40 000 products across 25 categories with a selected range of 7 500 products available for online purchase and delivery, with the rest being available in-store.

The group’s cash generation remained strong and was expected to increase going forward due to the cash generative nature of PEG, he said.

BUSINESS REPORT

Original Article

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