AFGRI Limited Annual Report 2009

The AFGRI Group

• Vision and mission
• Milestones
• 2009 highlights
• AFGRI value chain
• Unaudited business segment results
• Group directorate
• Operational executive
• Our results at a glance
• Value added statement
• Five year financial performance
• Key performance indicators
• Chairman’s report
• Operational and financial review
• Sustainability report
• Corporate governance
• Group annual financial statements
• Separate Company annual
  financial statements 2009
• Directorate profiles
• Shareholder spread analysis
• Shareholders’ diary
• Notice of annual general meeting
• Form of proxy PDF [41kb]
• Administration

Operational and financial review

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.
  • 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.

Source: National crop estimates committee		Source: AFGRI Logistic Services