The drought ‘will slow growth’
Agri-services specialist Kaap Agri – which has a strong retail offering – expects prolonged drought conditions in certain farming areas of the Western Cape to slow earnings growth in the first half of the financial year to end September 2018.
He said that Kaap Agri’s businesses were feeling the most pressure in rural areas.
"In the country areas, the entire business community is related to the health of the farmers."
However, he pointed out that sales in Kaap Agri’s urban stores were growing at a sprightly 20% a year – mitigating the effect of the drought.
He said the company would only be in a position to provide more accurate full-year growth guidance around July.
Asked to quantify the effect of the drought on the bottom line, Walsh said expected compound annual growth rates of about 15% would be tempered by between 5% and 6%.
That’s a third of our growth rate – and not a third of our earnings," he said.
Although agri-services (irrigation and grain storage) represented 44% of turnover, the segment accounted for only 33% of trading profit.
Walsh reiterated that Kaap Agri was on "a very acquisitive strategy in the retail fuel space".
He said shareholders could expect the portion of capital expenditure earmarked for acquisitions to increase, but said that strict feasibility criteria needed to be met before any deals were struck.