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AFGRI produced results for the year Jan van der Schyff, Financial Director |
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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 structure and return its focus to its core agricultural services and requisites businesses and increase its exposure to the foods sector.
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| Source: Abstract of agricultural statistics 2009 by department of agriculture |
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.