Kaap Agri reports revenue growth; returns to normal dividend payments

FIFI PETERS: Kaap Agri, a company that specialises in retailing and trading agriculture and fuel-related products, paid out a dividend of R11.10/share this time around. This is more than double the payment in 2020. That is as the group’s revenues jumped 23% to R10.6 billion, and profits shot past pre-pandemic levels.

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Let’s speak to Sean Walsh, the CEO of Kaap Agri to dig further into the numbers. Sean, thanks so much for your time. Just what is driving your profits so strongly, and how sustainable is this growth momentum?

SEAN WALSH: Good evening, Fifi, and thank you. Yes, we believe it is sustainable. We are finding that our diversified-footprint growth strategy over the last few years is delivering – [with] Agri Retail activity growth of 14%, general retail activity growth of 18%, and fuel volume growth of 13% for this year, with a forward-looking litre growth of 12% expected next year. We are finding that from a divisional point of view we’ve got a whole lot of stars this year, but as well as that all channels are working very well for us.

FIFI PETERS: In that you are growing so strongly and that you’ve even grown past pre-pandemic years, would you say that your business is immune from the pandemic, even as we have this conversation with news and confirmation of the discovery of a new [Covid] variant here in South Africa?

SEAN WALSH: Well, we’ve been fortunate that throughout the pandemic agriculture has held its head up, and really performed well. We supply inputs into that sector and therefore cannot fault the pandemic in that channel of our income streams. Yes, it could have an effect on our general retail revenues, but what we have found is that we’ve normalised, we’ve reset our costs. Our operational expenditures on a like-for-like basis are now sort of actually equal to pre-pandemic levels. So that prudent approach is now showing up on our bottom line and I believe we will be able to survive additional lockdowns. But I believe they will be lighter than in the past.

FIFI PETERS: What also stands out in your performance, Sean, is just how you are containing and weathering the inflation storm. We have heard a whole host of companies talking about how rough it is out there in terms of higher pricing, and yet you’ve managed to keep price pressures contained, particularly price pressures coming out from the fuel sector, with the petrol price or Brent crude having leapt almost 80% this past year. What does this mean? Does this mean that this is a delayed reaction in your numbers presently, and the effects are still going to show?

SEAN WALSH: I think that there has been, on the fuel volume side, a pandemic recovery in these numbers. Although we have been very conservative on predicting the next year on fuel programmes, what we are finding is changing consumer patterns where your middle- to lower-income person, who has budgeted R200 a week for his fuel still only has R200 a week, and now it’s at a higher price; so he is forced to buy fewer litres. So yes, I think we are going to feel that general consumer fuel pressure in the next year. But fortunately for us, our footprint in the fuel game is diversified between agriculture and the general consumer. I think what’s going to play into our hands is our extremely efficient supply-chain system in the fuel space.

FIFI PETERS: You have a guidance that you will be selective in your pursuit of investment opportunities out there. Do you presently have anything on the table that you’re reviewing?

SEAN WALSH: Fifi, yes. We already have signed one pipeline site for the fuel company, which will land in the first half of next year. Then we are investigating other opportunities in that space and we continuously, as you know, have over the years increased our footprint in the agricultural retail space, and we’ll continue to do so.

There’s some quite exciting stuff happening in the business-to-business interface with our customers. as well as the business-to-customer side on the e-commerce side.

FIFI PETERS: These exciting opportunities – are they all based in South Africa, or are you looking outside of the country into the rest of the continent?

SEAN WALSH: Fifi yes, I might sound too different from others, but we believe that there are huge opportunities to still growing South Africa. We believe our market share is not yet optimal on many of the channels that we serve. So my team is hell-bent on increasing market share in the current markets, where we are executing our growth strategies.

FIFI PETERS: How much have you set aside for acquisitions?

SEAN WALSH: Fifi, about two or three years ago we were spending R250-plus [million] capex per year. We curtailed that back in the last year-and-a-half to R120 or R130 million. We will probably lift that a bit going forward.

You must recall that we’ve just concluded a deal to sell off our 21 properties in TFC or The Fuel Company, which is going to realise R450 million in the first half of next year and puts us in a position of much lower debt. I think by the end of the first half of next year our debt levels will be at 2017 levels, which puts us in a position to have strong cash flow to expand the business.

FIFI PETERS: Just in terms of the online offering of the business that you referred to previously, what are the plans in strengthening this side of the business? What kind of further investments are you making in digitising Kaap Agri?

SEAN WALSH: It’s interesting that we are following a very conservative approach to create a virtual store over the next year. We are busy with our e-catalogue at the moment, and will hopefully be launching, by the end of next year, an e-commerce facility for geo-located customers, very similar to the Takealots and other offerings from retail operators.

FIFI PETERS: Very interesting. We will be looking for that launch, Sean. But we’ll leave it there for now, sir. Sean Walsh is CEO at Kaap Agri.