Afgri soars as it diversifies

Afgri has recorded excellent results in the past year, despite the fact that it
was a tough year for agriculture as a whole. Headline earnings were up 65,6% on the previous year, while group earnings per share went up
by 45,4%. Operating activities generated a net of R537 million.
Gwenda van Zyl talks to managing director Jeff Wright (left) about
their success and finds out what Afgri’s plans are for the coming year.
Issue date 8 June 2007

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You have mentioned that the previous ­financial year was a tough one for agriculture.

Did you ­nevertheless expect good results?

Afgri is pretty reliant on what happens in the grain industry, and we’ve had a lot of really good maize plantings this last year, so on the back of that we did expect good results. We’ve taken a lot of fixed costs out of the retail business from the year before, so we expected margins to be higher. So yes, we were expecting a good year.

Which Afgri divisions did well, and which struggled?

All the divisions except the handling and storage businesses did well, but these ­divisions didn’t do well as a result of low capacity utilisation. That was the result of a maize crop of 11,5 million tons the previous year, and 6,5 million tons in the current year. But what’s important to us in these divisions is the market share rather than ­throughput. We’ve ­introduced temporary storage ­solutions such as silo bags into our area, and despite that, our market share was very ­similar to what it was the year before. We’re pleased with these results, as it ­obviously means we’re doing something right.

What are your forecasts for the coming year?

I think we’ll have another good year on the retail and equipment side. Direct inputs will be good again, because we think ­summer plantings will be at the same kind of levels as they were last year. The finance business is well poised and it will do well. We anticipate problems on the handlings and storage side again, given the fact that the crop is going to be small due to the drought. So we’ll see earnings slightly up on last year. We do not expect huge growth, as a result of the non-performance of the handling and storage divisions.

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In light of your predictions for the coming year, how will you ­organise your various divisions?

In order not to be too grain-­dependent, we keep moving into different ­geographies and different products. We bought Lowveld Co-op, which is more tobacco, sugar, citrus, exotics, and export-­orientated. We also bought Natal Agri, which is more sugar-­orientated. We want to grow our book in areas other than grain. We have a huge market share in grain, but we want to see ourselves growing, as we have been every year.

Afgri is set to launch a ­closed-loop credit card. How will this work?
This will give farmers a lot more flexibility, as we give them credit enabling them to buy from affiliated operations. The payment will then come back through to us. However, this is not a general credit card to be used anywhere.

How do your retail stores like Farm City fit into this vision?

Effectively we are putting more critical mass through our current capabilities. So our supply chain logistics operates through 80-odd stores. We’ve found that good old farm-style value has worked really well for us in the towns. It’s an awesome ­concept, and we’ve got some unique items in these stores, like John Deere clothing and novelties. It also stocks products that smallholders can use, so it could almost be called a fallback if agriculture doesn’t do well in a particular year. If grain doesn’t do well, it doesn’t mean that we’re not doing well. We want to grow the ­non-farming side of the business as well.

The Democratic Alliance has ­submitted documents to independent forensic investigators, claiming that Land Bank loaned R2,2 billion to Afgri, which was then lent out and used for non-­agricultural purposes. How does this affect Afgri?
Afgri Operations sources ­funding facilities from several SA financial institutions to fund its ­customer base of 19 000 farmers and more than 60 corporate ­customers. Land Bank is one these institutions.

The Land Bank facility of R2,2 billion is ­managed in accordance with a specific credit policy incorporated in Land Bank facility agreements, which prescribe how Afgri may utilise the facility to fund its customers. Each customer loan, with its security documentation, is ­individually ceded to Land Bank. Land Bank is ­therefore not exposed to Afgri, as the risk in respect of the facility is spread over a much broader customer base. The exposure is further limited by Afgri providing a 10% cash guarantee to Land Bank as security for the facility. There is daily ­communication between Land Bank and Afgri on the facility and Afgri manages the individual customer facilities. The annual write-offs on the facility have on average been below 1% and there has been no claim on the Afgri cash guarantee in the six years the facility has been in operation. |fw