VENTURES: The New 'Boere Massmart'
Recent Western Cape Business News
BOLAND-based agricultural services company Kaap Agri looks like it is ready to capitalise on a formidable retail presence.
Kaap Agri recently underwent an inevitable restructuring when it split off its valuable stake in Pioneer Foods. But unlike KWV (which underwent a similar exercise when it split off its holding in Distell), Kaap Agri’s operations are highly profitable. In fact, it seems Kaap Agri has set some ambitious growth targets for the next few years, which could culminate in a JSE listing once profits top the R150 million mark.
In the interim report to end March 2012 it is the retail presence – that incorporates Agrimark as well as newer formats like VillageMart, Pakmart, SaveMart and LiquorMart - that really impresses.
Half-year turnover grew a sprightly 20% to R1.36 billion with pre-tax profits coming in at R70 million. That’s a trading margin of around 5.2%, which is rather impressive for the retail sector.
Well regarded investment analyst Anthony Clark of Vunani Securities – a specialist observer in the agribusiness field - has described Kaap Agri as the ‘Massmart of the agricultural sector’.
With its sprawling trading base serving mainly the Swartland and Boland regions the Massmart comparison is not at all far fetched. While providing the usual gamut of trade products and equipment for the farming community, there is also seemingly a conscious attempt to broaden the retail offering to that of a more general consumer offering.
Clark has noted an increase in cash sales, outside of the traditional farming or agricultural client base as Kaap Agri’s stores cater to a wider demographic in larger towns.
That would explain the shift towards the separately branded liquor stores and convenience outlets as well as fuel depots (which is showing promising growth as fuel forecourts are added to the retail network).
Kaap Agri MD Sean Walsh noted in his interim commentary that new expansions since the previous year contributed 4% to the revenue growth.
While the 5.2% margin is impressive Walsh did note a slight weakening of the margin compared to the previous interim period as the composition of revenue changed and more lower margin (presumably general merchandise) constituents came into the mix.
A recent Kaap Agri presentation showed just how impressive the retail footprint is - with 62 Agrimarks holding 250 000 sq m of trading space.
The retail offering could also be diversified even further with Walsh recently indicating Kaap Agri is looking at trading formats in building materials and DIY.
With the rapid expansion in retail formats CBN wonders whether Kaap Agri will give consideration to hiving off its much smaller non-retail interests.
In the interim period the retail and trading formats accounted for around 80% of Kaap Agri’s turnover and pre-tax profits.
The mechanisation division generated R96 million in top line and a mere R3 million in profits, while products and seed processing showed turnover of R18 million and profits of R14 million.
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