Neels Blom
8 November 2007
Johannesburg — A RESURGENCE of confidence among farmers means a good outlook for integrated agricultural firm Afgri's business for the half-year ahead, says MD Jeff Wright.
Afgri reported an 18,9% increase in headline earnings per share yesterday for the six months to August 31, from 19,1c to 22,7c. It comes on a 16,7% increase in revenue, from R2,8bn in the previous comparable period to R3,2bn.
A number of issues affected agricultural business performance over the past season, including the volatility of the rand and commodity prices. The start of maize-ethanol production in the US, and underplanting in SA's summer-crop regions followed by a mid-season drought, has seen the maize price nearly quadruple in two years.
Although revenue was boosted by higher maize prices, two seasons of small crops meant Afgri's logistics business -- the storage and handling of grain -- took a beating and profit fell 51% to R28m. It nevertheless maintained its market share.
While Afgri's operations serve farming across the spectrum of act- ivities, including retail, broiler production and financial services, it is particularly vulnerable to a poor maize crop.
Farmers cut back on spending after a poor season or in anticipation of lower earnings, such as when a season of overproduction is expected to put pressure on the maize price or after a drought.
These conditions during the past two seasons meant farmers bought less seed and fertiliser and delayed the replacement of equipment. In addition, higher interest rates put pressure on credit extension, a big part of the business, and not all rate increases could be passed on to customers. Profit from financial services dropped 50% to R11m.
Afgri's operations were thus affected across the board. But the results were satisfactory, said Wright, pointing out that the business was linked to the summer-growing season and that the first half was traditionally the poorer.
He noted, however, that the seasonally dependent producer-services business also reported a 50% improvement following operational improvements and an increased market share in John Deere equipment sales. He also said the past two poor crops were extraordinary, and good rains early in the season now meant farmers were spending more.
Discussing the outlook for the six months ahead, corporate affairs director Moji Mogari referred to talks in which it was proposed that Afgri act as an agent for the government to facilitate acquisition of farms and to provide mentorship and services.
"The idea is to help to develop emerging farmers into commercial farmers," Mogari said.
The group had especially high expectations for the new banking model introduced to its financial services business. "We don't necessarily want to apply for a banking licence, but would probably seek a partner in the business. We want to provide exactly the services our customers would get from a commercial bank," Mogari said.
Be the first to Write a Comment!
Copyright © 2007 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
