Acorn Agri & Food has remarkably recovered from the trials and challenges of the Covid-19 pandemic with a stronger operating performance resulting in an overall profit increase of 519% to profit of Rand 62 million for the six months ended August 31, 2021 – compared to a 15 rand. million losses during the comparative semester.
CFO Andries Geertsema said Acorn had a very positive start to the new fiscal year. “The dynamics of the agricultural inputs and services business led to an increase in volumes across all companies as evidenced by the 41% increase in revenues to 4.5 billion rand and a 28% increase in margin. gross to R455 million, an improvement of about R100 million.
“Our agricultural businesses have experienced a return of operating conditions to pre-Covid-19 levels, but the recovery is linked more to favorable agricultural conditions last year than to the effect of the pandemic, as the agriculture was less affected by the blockages, ”explains Geertsema.
However, he notes that Acorn’s businesses in the food and consumer markets are still feeling the effects of the pandemic, which has resulted in a depressed consumer environment, including market access challenges. international.
Acorn has stakes in companies operating in different sectors of the agriculture and food industry, from supplying inputs to farmers to food processing and retail. It owns well-known companies such as Overberg Agri, Moov Fuel, Overberg Meat and Montagu Snacks.
Sanlam Private Wealth and African Rainbow Capital have become major shareholders of Acorn Agri since its inception in its current form in 2018.
It has a longer history, however, with its roots going back to 1918, the days of Caledon Boeren Koöperatiewe Vereniging and Bredasdorp Boeren Koöperatiewe Vereniging, founded in 1926.
It was built through several mergers and acquisitions over the past 100 years, a process that continues. The group recently announced the acquisition of Ascendis Animal Health, which is still subject to the usual conditions precedent.
Agricultural inputs and fuel
Management reports that the agriculture and food value chain has remained operational with all levels of trade restrictions imposed to curb the spread of Covid-19. “Although we have seen satisfactory performance from most of the companies in our group, the moderate consumer spending environment has negatively impacted the rest,” the financial report says.
The agricultural inputs and services cluster performed well in the six months ending August 2021 thanks to the record harvest produced in calendar year 2020.
Geertsema says Overberg Agri, Moov Fuel, and P&B Lime Works (better known as Overberg Meat) have all exceeded expectations in the fiscal year to date.
Moov Fuel benefited from higher sales volumes as South Africans resumed traveling and the lime supply to farmers benefited from positive sales momentum, new markets and higher margins.
“We are fortunate that most of our service area has good growing conditions and we anticipate another good agricultural year”, says Geertsema, stressing however that only part of its activity is directly exposed to primary agriculture. and associated climatic conditions.
“Our businesses in the agricultural inputs and services sector would see an increase in their business activities if farming conditions were positive for farmers in general. [as its customers]. Otherwise, our vertically integrated model along the agro-food value chain offers us diversification. “
The income statement shows that the income is significantly better than in the first half of the previous year.
However, the improvement from 3.1 billion rand to 4.4 billion rand only tells part of the story.
The recovery in the first half of the year indicates that Acorn can achieve much higher revenues in the current fiscal year to the end of February 2022 than the 7.5 billion Rand of the previous year.
Geertsema claims that the overall operating margin is also picking up, with the margin appearing to be lower than it actually is. “A big part of the reasoning is that we count the gross fuel sales as part of the revenue, but we only provide a transport logistics solution for this business segment and the margin is very low compared to the price. gross fuel retail.
“This results in a lower margin when analyzing the income statement without normalizing this impact. “
Fresh fruit and food processing
Acorn said its interest in fresh fruit, ACG Fruit, suffered from adverse weather conditions. Heavy rains in the North Cape were followed by extremely cold conditions in the Kakamas region which respectively had negative effects on harvests and exports of grapes and citrus fruits.
A stronger rand during the review period also had a negative impact on export earnings. The rand has weakened recently which will help in the current six months.
Overberg Meat’s meat processing operations struggled as a shortage of sheep drove prices for lamb and mutton up sharply during a time when consumers were under pressure.
“Overberg Meat has seen resistance from consumers against higher retail sheep prices, resulting in below-expected performance,” management noted in its report to shareholders. “The forecasts for the end of the calendar year are expected to be more favorable in terms of availability of units and price recovery for the next holiday season.
The division that produces and supplies healthy snacks and foods – Grassroots Group and Montagu Snacks – has seen mixed fortunes during the six months under review.
“The base is under revenue pressure from the strengthening rand and longer delivery times to list products in overseas markets due to pandemic travel restrictions,” management said. However, he indicated that deliveries to the international market are on track for the end of the fiscal year. It exports to Russia and Europe, and now also to the United States.
According to Geertsema, Montagu Snacks produced satisfactory results, better than expected in terms of profitability, in part due to the strength of the rand.
Management’s comments on the results give the impression that the outlook for the remainder of the year is bright.
“The pandemic has prompted us to reassess business models across the group and conduct a focused review of cost structures and capital requirements. This unleashed efficiencies and increased use of electronic media, both of which continue to benefit the group today.
“At the time of writing, South Africa had recently moved to Level 1 foreclosure, which should facilitate a more open economy. However, we expect the consumer spending environment to remain subdued for the considerable future, which will likely impact some of our group companies.
“We anticipate that good conditions will continue for the next production season after the previous bumper harvest. This should translate into sustained favorable ripple effects supporting our performance for the remainder of fiscal 2022, ”according to management.
Although Acorn Agri is not listed on the JSE, the group has a large base of private shareholders and offers an over-the-counter (OTC) share trading platform.
Acorn Agri & Food OTC share price
Transactions are negotiated directly and bilaterally between willing buyers and sellers of shares.
Acorn helps buyers and sellers interact directly, with its share administration office posting bids and offers.
Currently there are offers for almost 15,000 shares at R10 and 55,000 at R9. Offers start at R12.
Stock trading statistics on Acorn’s website reveal that more than 250,000 shares have traded in the past five weeks at between R10 and R13.50 per share.
The last trades were at R10, which represents a price-earnings ratio of approximately 10 times based on the annualized earnings per share of the last six months of 48 cents.
Click here for interim results in PDF.
Presented by Acorn Agri & Food.
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