Wrap Text
Condensed Consolidated Interim Financial Statements for the Six Months Ended 31 March 2019
Kaap Agri Limited
Incorporated in the Republic of South Africa
Registration number: 2011/113185/06
Income tax number: 9312717177
Share code: KAL
ISIN code: ZAE000244711
Condensed consolidated interim financial statements for the six months ended 31 March 2019
Salient features
Revenue up 28,7% to R4 389 785
Recurring headline earnings per share up 3,2% to 230,34 cents
Headline earnings per share up 1,4% to 224,17 cents
Interim dividend per share up 4,7% to 33,50 cents
COMMENTARY
The Group specialises in trading in agricultural, fuel and related retail markets in Southern Africa. With its strategic footprint, infrastructure,
facilities and client network, it follows a differentiated market approach. In support of the core retail business, the Group also offers financial,
grain handling and agency services. Kaap Agri has over 200 operating points located in all nine South African provinces, as well as in Namibia.
Operating environment
During the period under review, Kaap Agri's performance has been affected by the slower-than-anticipated recovery of agricultural conditions in the
Western Cape and the continued drought conditions in the Northern Cape. The addition of the Forge business in KwaZulu-Natal, as well as market share
gains in the Inland region, have positively impacted the trade division. Although consumer pressure remains, the Group's range expansion and
improvement has generated strong retail growth in non-agri categories. Lower disposable income has also influenced the retail fuel sector. Wesgraan
has performed well off the back of a more favourable wheat position.
Financial results
Kaap Agri increased revenue by 28,7% to R4,4 billion, up from R3,4 billion in the previous comparable financial period, with like-for-like comparable
sales growth of 10,7%. The growth in the value of business transacted was driven by a 21,9% increase in the number of transactions. Product inflation,
excluding the impact of fuel inflation, is estimated at -0,5%.
While the sales growth of the Trade division has been encouraging, the largest impact on revenue came from The Fuel Company ("TFC"), specifically in
newly acquired and non-like-for-like sites. Group fuel volumes increased by 9,2%, of which TFC owned and managed sites have grown fuel volumes by 9,5%.
Growth in fuel site convenience and quick service restaurant retail operations has exceeded fuel volume growth. Revenue from the newly acquired Forge
business is included from 1 October 2018. Mechanisation sales exceeded expectation during the period and Wesgraan has shown a good recovery from the
previous period. The business continues to explore agri, retail and manufacturing expansion opportunities.
Gross profit increased by 15,6% but has not grown in relation to revenue growth. The Group's gross profit margin reduced to 15,5% from 17,3%, impacted
by increased turnover of low-margin agri products, fuel price increases and general retail margin pressure. Return on revenue has decreased to 3,8%
from 4,6% in the previous interim period.
In support of increased revenue and market share gains, expenditure grew 20,5%, a direct result of new acquisitions and the annualisation of non-
like-for-like stores. Also impacting expenditure growth were certain non-recurring costs associated with acquisitions of new businesses and other
restructuring costs. Cost control remains a core focus area to alleviate the impact of suppressed margins. However, the business continues to invest
in human capital and its supply chain, as well as various growth acceleration initiatives in line with our strategic medium-term plan.
Interest received grew by 3,1% due to increased credit sales and a higher average debtors book. Interest paid increased by 16,5% due to higher average
borrowings during the interim period in support of acquisitions and growth. Gearing remains at acceptable levels with sufficient headroom available to
increase borrowings to fund future growth to the extent required.
Headline earnings grew by 3,5% and headline earnings per share grew by 1,4%, while recurring headline earnings grew by 5,2% and recurring headline
earnings per share increased by 3,2%. Once-off items are excluded from headline earnings to calculate recurring headline earnings.
EBITDA has grown by 6,6% and ahead of recurring headline earnings growth due to the impact of growth-related interest paid and depreciation.
Operating results
Revenue from the Trade division, which includes the Agrimark retail branches, Pakmark packaging material distribution centres, Forge, Mechanisation
services and spare parts increased by 24,1% with operating profit before tax increasing by 0,7%. Excluding the impact of the recently acquired Forge
business, non-agri retail sales have performed well, growing at 3,9% on the previous comparable period and with the exception of water storage
categories coming off a large base last year as well as constrained cement sales, non-agri retail sales have delivered growth of 13,4%.
Significant growth was realised in TFC with revenue growing by 45,0% and operating profit before tax increasing by 24,7%. Sites previously operated
under management agreement reflected only a management fee income earned, but subsequent to the required trading licences being issued, these sites
are consolidated as owned sites, hence the disproportionate growth in revenue and operating profit. Growth in fuel site convenience and quick service
restaurant retail operations has exceeded fuel volume growth. Continued strong growth in this division is expected.
Wesgraan, which includes grain handling and storage of grain and related products, seed processing and potato seed marketing, grew revenue by 26,6%
off improved wheat harvests in the Western Cape, resulting in a 16,8% increase in operating profit before tax. Certain transport costs incurred during
the first six months will be recovered through sales in the second half of the financial year. The full impact of the Wesgraan recovery is weighted to
the second half of the current financial year.
Revenue from Irrigation manufacturing decreased by 5,3% due to the lingering drought related impact on capital investments and upgrades. Operating
profit reduced by 27,9%. The sales outlook is, however, improving with increased turnover experienced in the latter part of this period expected to
continue. Investments have been made into this segment to improve manufacturing efficiencies and new product range opportunities are being investigated.
The Corporate division cost, which includes the cost of support services, as well as other costs not allocated to specific segments, increased by 10,9%
for the six-month period.
Treasury income, which represents net internal interest received less external interest paid, remained constant year-on-year.
Financial position
Despite the challenging trading environment, investment activities continued, which included R67,9 million on the expansion and upgrade of properties,
plant and equipment, as well as an additional R91,0 million in acquisitions since the end of the previous financial year.
Working capital has been well-controlled. Debtors have grown in line with credit sales and out-of-term debtors have reduced by 27,6% year-on-year.
Management views the debtors book as being healthy and adequately provided for. Stock has grown at a rate slower than turnover and is turning quicker
as the contribution of retail sales and fuel sales increases. Creditor payment terms have remained relatively constant during the period.
Return on net assets has reduced to 5,2% (2018: 5,8%) due to the full value of increased assets being included with only partial period or delayed
returns.
Net interest-bearing borrowings increased by 20,0% to R1,4 billion year-on-year off the back of investments into expansions, upgrades and acquisitions,
as well as working capital. The Group's debt to equity ratio increased to 70,9% from 65,2% last year with interest cover of 5,9 times (2018: 5,5 times).
This is in line with previous indications that, despite the adverse trading conditions, we will continue with our investments in new TFC sites, as well
as into other agri, retail and manufacturing opportunities. This will result in Kaap Agri's debt to equity position increasing accordingly.
The Group continues to generate strong cash flows from operations and significant investment has been made back into the business to support future
growth.
Dividend
A gross interim dividend of 33,50 cents per share (2018: 32,00 cents) has been approved and declared by the Board from income reserves, which
represents a 4,7% increase on the previous interim period. The interim dividend amount, net of South African dividend tax of 20%, is 26,80 cents per
share for those shareholders that are not exempt from dividend tax. As at the declaration date, the Company had 74 170 277 shares in issue.
The salient dates for this dividend distribution are:
Declaration date Friday, 10 May 2019
Last day to trade cum dividend Tuesday, 4 June 2019
Trading ex dividend commences Wednesday, 5 June 2019
Record date to qualify for dividend Friday, 7 June 2019
Payment date Monday, 10 June 2019
Share certificates may not be dematerialised or rematerialised between Wednesday, 5 June 2019 and Friday, 7 June 2019, both days inclusive.
Outlook
The second half of the year will remain challenging and improved performance will be dependent on normalised weather patterns and increased consumer
confidence. We are committed to growing our market share in the areas where we operate and to enhance our customer offerings. Our core strategic
themes of growth, optimisation, leveraging culture and diversity and digital transformation are aligned to create sustainable value for all our
stakeholders. The recovery in Wesgraan, store upgrades and expansions, as well as the revenue from new TFC sites will contribute more significantly
during the next six months.
Our footprint expansion continues, as will our investment in our people and in selective revenue and cash generating expansion and acquisition
opportunities aligned with our strategic plans. We remain committed to achieving our strategic medium-term growth targets.
Events after the reporting date
There have been no events that may have a material effect on the Group that occurred after the end of the reporting period and up to the date of
approval of the interim financial results by the Board.
On behalf of the Board
GM Steyn S Walsh
Chairman Chief Executive Officer
10 May 2019
STATEMENT OF FINANCIAL POSITION
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
Notes R'000 R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 5 1 185 909 1 016 833 1 097 159
Intangible assets 6 276 684 98 951 168 165
Investment in joint venture 7 10 238 14 243 11 941
Loans 49 913 20 218 26 397
Deferred taxation 788 726 1 234
1 523 532 1 150 971 1 304 896
Current assets
Inventory 880 158 781 204 911 151
Trade and other receivables 8 1 745 613 1 582 067 1 664 483
Derivative financial instruments - 2 401 6 487
Short-term portion of loans 3 127 2 679 -
Cash and cash equivalents 43 046 27 070 40 214
2 671 944 2 395 421 2 622 335
Total assets 4 195 476 3 546 392 3 927 231
EQUITY AND LIABILITIES
Capital and reserves 1 902 570 1 681 929 1 742 746
Non-current liabilities
Deferred taxation 56 902 23 848 41 905
Finance lease liabilities 29 705 20 445 17 402
Employee benefit obligations 16 073 15 405 16 367
102 680 59 698 75 674
Current liabilities
Trade and other payables 9 737 440 602 528 1 095 812
Derivative financial instruments 2 618 2 401 -
Short-term portion of finance lease liabilities 11 668 9 648 8 542
Short-term portion of Employee benefit obligations 1 996 5 045 1 914
Short-term borrowings 1 427 579 1 180 770 1 000 907
Income tax 8 925 4 373 1 636
2 190 226 1 804 765 2 108 811
Total liabilities 2 292 906 1 864 463 2 184 485
Total equity and liabilities 4 195 476 3 546 392 3 927 231
Total shareholders' equity to Total assets employed* (%) 46,3 47,3 45,3
Net interest-bearing debt to Total assets employed* (%) 32,8 30,8 23,8
Net asset value per share (rand) 27,09 23,87 24,84
Shares issued (number - '000) 70 237 70 462 70 162
Total number of ordinary shares in issue** 74 170 74 170 74 170
Treasury shares (3 933) (3 708) (4 008)
* Ratios calculated on average balances.
** There was no change in the issued share capital between 31 March 2019 and the dividend declaration date, being
74 170 277 shares.
INCOME STATEMENT
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
Notes 2019 2018 2018
R'000 R'000 R'000
Revenue 10 4 389 785 3 410 763 6 548 793
Cost of sales (3 707 950) (2 820 830) (5 446 480)
Gross profit 681 835 589 933 1 102 313
Operating expenses (465 628) (386 421) (787 094)
Operating profit before interest received 216 207 203 512 315 219
Interest received 60 894 59 077 115 840
Operating profit 277 101 262 589 431 059
Finance costs (52 248) (44 843) (82 739)
Share in profit/(loss) of joint venture (1 703) (1 114) (3 416)
Profit before tax 223 150 216 632 344 904
Income tax (61 958) (60 420) (95 947)
Profit for the period attributable to equity holders of the holding company
161 192 156 212 248 957
Attributable to equity holders of the holding company 157 495 156 212 246 247
Non-controlling interest 3 697 - 2 710
Earnings per share - basic (cents) 224,23 221,70 349,80
Earnings per share - diluted (cents) 222,98 219,80 346,90
Dividend per share (cents) 33,50 32,00 116,70
HEADLINE EARNINGS RECONCILIATION
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
R'000 R'000 R'000
Profit for the period 161 192 156 212 248 957
Attributable to equity holders of the holding company 157 495 156 212 246 247
Non-controlling interest 3 697 - 2 710
Net profit on disposal of assets (44) (489) (578)
Gross (61) (679) (803)
Tax effect 17 190 225
Headline earnings 161 148 155 723 248 379
Attributable to equity holders of the holding company 157 451 155 723 245 669
Non-controlling interest 3 697 - 2 710
Headline earnings per share - basic (cents) 224,17 221,00 348,98
Headline earnings per share - diluted (cents) 222,91 219,12 346,09
Weighted average number of shares (number - '000) 70 237 70 462 70 396
Weighted average number of diluted shares (number - '000) 70 633 71 069 70 984
STATEMENT OF COMPREHENSIVE INCOME
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
Notes R'000 R'000 R'000
Profit for the period 161 192 156 212 248 957
Other comprehensive income:
Cash flow hedges (can be classified to profit and loss) - - (394)
Gross - - (547)
Tax - - 153
Total comprehensive income for the period 161 192 156 212 248 563
Attributable to equity holders of the holding company 157 495 156 212 245 853
Non-controlling interest 3 697 - 2 710
STATEMENT OF CHANGES IN EQUITY
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
R'000 R'000 R'000
Share capital 447 101 456 643 443 921
Gross shares issued 480 347 480 347 480 347
Treasury shares (33 246) (23 704) (36 426)
Other reserves 8 063 5 830 9 172
Opening balance 9 172 3 893 3 893
Share-based payments (1 109) 1 937 5 673
Other comprehensive income - - (394)
Retained profit 1 389 764 1 219 456 1 286 943
Opening balance 1 286 943 1 121 445 1 121 445
Effect of adopting IFRS 9 - Financial Instruments 2.1 (815) - -
Gain on partial disposal of subsidiary 5 631 - -
Profit for the period 157 495 156 212 246 247
Dividends paid (59 490) (58 201) (80 749)
Non-controlling interest 57 642 - 2 710
Opening balance 2 710 - -
Non-controlling interest on acquisition of subsidiary 12 014 - -
Non-controlling interest on partial disposal of subsidiary 41 480 - -
Profit for the period 3 697 - 2 710
Dividends paid (2 259) - -
Capital and reserves 1 902 570 1 681 929 1 742 746
STATEMENT OF CASH FLOWS
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
R'000 R'000 R'000
Cash flow from operating activities (106 916) (81 045) 237 025
Net cash profit from operating activities 306 381 246 706 451 431
Working capital changes (372 818) (276 310) (127 150)
Income tax paid (40 479) (51 441) (87 256)
Cash flow from investment activities (184 868) (235 510) (283 503)
Purchase of property, plant and equipment (67 946) (85 092) (130 615)
Proceeds on disposal of property, plant and equipment 702 2 421 2 736
Prepayments made during the year (41 150) (167 400) (52 900)
Decrease/(increase) in loans (26 643) 14 561 11 776
Acquisition of operations (49 831) - (114 500)
Cash flow from financing activities 294 616 308 537 51 604
Increase/(decrease) in short-term loans 412 070 415 878 236 015
Decrease in finance lease liabilities (3 457) (4 297) (8 201)
Interest paid (52 248) (44 843) (82 739)
Treasury shares acquired - - (12 722)
Dividends paid (61 749) (58 201) (80 749)
Net increase/(decrease) in cash and cash equivalents 2 832 (8 018) 5 126
Cash and cash equivalents at the beginning of the period 40 214 35 088 35 088
Cash and cash equivalents at the end of the period 43 046 27 070 40 214
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The unaudited condensed consolidated interim financial statements have been prepared and presented in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the Listings
Requirements of the JSE Limited, the information as required by IAS 34 - Interim Financial Reporting and the requirements of the South African
Companies Act, 71 of 2008. The consolidated interim financial information has been prepared using accounting policies that comply with IFRS, which
are consistent with those applied in the consolidated financial statements for the year ended 30 September 2018, except for instances listed in note 2.
The condensed consolidated interim financial statements for the six months ended 31 March 2019 were prepared by GC Victor CA(SA), the Group's
Financial Manager under supervision of GW Sim CA(SA), the Group's Financial Director.
The condensed consolidated interim financial statements have not been audited or reviewed by the Company's auditors.
International Financial Reporting Standards and amendments effective for the first time
- Amendments to IFRS 2 - Share-based Payments (effective from 1 January 2018)
This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from
cash-settled to equity-settled.
- IFRS 9 - Financial Instruments - Financial Assets (effective from 1 January 2018)
This standard replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities;
it also includes an expected credit loss model that replaces the current incurred loss impairment model.
- Amendment to IFRS 9 - Financial Instruments (effective from 1 January 2018)
The IASB has amended IFRS 9 to align hedge accounting more closely with an entity's risk management. The revised standard also establishes a more
principles-based approach to hedge accounting and addresses inconsistencies and weaknesses in the current model in IAS 39.
- IFRS 15 - Revenue from Contracts with Customers (effective from 1 January 2018)
The IASB has amended IFRS 15 to clarify the guidance, but there were no major changes to the standard itself. The amendments comprise clarifications
of the guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment
(gross versus net revenue presentation). New and amended illustrative examples have been added for each of these areas of guidance. The IASB has also
included additional practical expedients related to transition to the new revenue standard.
International Financial Reporting Standards, interpretations and amendments issued but not yet effective
The following standards, amendments and interpretations are not yet effective and have not been early adopted by the Group (the effective dates stated
below refer to financial reporting periods beginning on or after the stated dates):
New standards
- IFRS 16 - Leases (effective from 1 January 2019)
This standard replaces the current guidance in IAS 17 and is a far reaching change in accounting by lessees in particular. Under IAS 17, lessees were
required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to
recognise a lease liability reflecting future lease payments and a "right-of-use asset" for virtually all lease contracts. The IASB has included an
optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors,
the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the
combination and separation of contracts), lessors will also be affected by the new standard.
Amendments
- Amendment to IAS 1 - Presentation of Financial Statements and IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors on the definition
of material (effective from 1 January 2020)
These amendments to IAS 1 and IAS 8 and consequential amendments to other IFRS: use a consistent definition of materiality through IFRS and the
Conceptual Framework for Financial Reporting; clarify the explanation of the definition of material; and incorporate some of the guidance in IAS 1
about immaterial information.
- Amendments to IAS 19 - Employee Benefits on plan amendment, curtailment or settlement (effective from 1 January 2019)
These amendments require an entity to use updated assumptions to determine current service cost and net interest for the remainder of the period after
a plan amendment, curtailment or settlement; and recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any
reduction in a surplus (recognised or unrecognised).
- Amendment to IFRS 3 - Business Combinations (effective from 1 January 2020)
This amendment revises the definition of a business. According to feedback received by the IASB, application of the current guidance is commonly
thought to be too complex, and it results in too many transactions qualifying as business combinations. More acquisitions are likely to be accounted
for as asset acquisitions.
- Amendments to IAS 28 - Investments in Associates and Joint Ventures - Long-term Interests in Associates and Joint Ventures (effective from
1 January 2019)
The amendments clarified that companies account for long-term interests in an associate or joint venture, to which the equity method is not applied,
using IFRS 9.
Management considered all new accounting standards, interpretations and amendments to IFRS that were issued prior to 31 March 2019 but not yet
effective on that date. The most significant of these standards is IFRS 16, which will be effective for the Group's 2020 financial year.
The new standard for leases, IFRS 16, requires a lessee to recognise a right-of-use asset and corresponding lease liability on the balance sheet
for almost all lease contracts. Currently operating lease expenses are charged to the income statement on a straight line basis over the term of
the lease. The Group leases various properties, machinery, equipment and vehicles under operating lease agreements. A more detailed assessment of
the impact is under way as the Group will evaluate the effect of IFRS 16 on its consolidated financial statements.
2. ACCOUNTING POLICIES
The accounting policies applied in the preparation of the condensed consolidated interim financial statements are in terms of IFRS and are consistent
with those accounting policies applied in the preparation of the previous Group annual financial statements except the instances listed below.
2.1 Effect of adopting IFRS 9 - Financial Instruments
IFRS 9 replaces IAS 39: Financial Instruments: Recognition and Measurement. It addresses the classification, measurement and derecognition of financial
assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.
The adoption of IFRS 9 with effect from 1 October 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the
financial statements. The Group has elected not to restate its comparative information as permitted by IFRS 9. Accordingly, the impact of IFRS 9 has
been applied retrospectively with an adjustment to opening retained earnings on 1 October 2018. Therefore comparative information in the prior period
annual financial statements has not been amended for the impact of IFRS 9.
The total impact on the Group's retained earnings as at 1 October 2018 is as follows:
Notes R'000
Closing retained earnings on 30 September 2018 as previously reported 1 286 943
Adjustments to retained earnings on initial application of IFRS 9 2.1.2 (815)
Increase in impairment allowance for trade and other receivables
Opening retained earnings on 1 October 2018 1 286 128
The application of IFRS 9 had no material impact on the reported earnings or financial position for the interim period under review.
2.1.1 Classification and measurement of financial instruments
IFRS 9 requires all financial assets to be classified and measured on the basis of the entity's business model for managing the financial assets and
the contractual cash flow characteristics of the financial assets.
Management has assessed which business models apply to the financial assets held by the Group at the date of initial application of IFRS 9 and has
classified its financial instruments into the appropriate IFRS 9 categories. It was determined that all of the Group's financial assets which were
measured at amortised cost under IAS 39, satisfy the conditions for classification at amortised cost under IFRS 9. Hence there is no change to the
measurement of these assets.
There has been no change to the classification of the Group's financial liabilities and they continue to be classified and measured at amortised cost.
2.1.2 Impairment of financial assets under the expected credit loss model
IFRS 9 has introduced new expected credit loss (ECL) impairment requirements, as opposed to an incurred loss model applied in terms of IAS 39. The ECL
requirements apply to all financial assets measured at amortised cost and will result in the earlier recognition of credit provisions.
At a minimum, an impairment provision is required to be measured at an amount equal to the 12-month ECL for financial assets measured at amortised
cost. A loss allowance for full lifetime ECLs is required for a financial asset if the credit risk of that financial instrument has increased
significantly since initial recognition.
The impact of the change in impairment methodology on the Group's retained earnings and equity is disclosed in the table above.
For trade and other receivables, the Group has adopted the simplified approach which recognises lifetime ECLs regardless of stage classification.
The Group has established a provision matrix that is based on risk factors per type of debtor, adjusted for forward-looking factors specific to such
trade and other receivables and the economic environment.
2.2 Effect of adopting IFRS 15 - Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 - Revenue. It addresses the classification, measurement and disclosure of revenue from contracts with customers. It
establishes a five-step model to account for revenue from contracts with customers, based on the principle that revenue is recognised either over
time or at a point in time, as or when the Group satisfies performance obligations and transfers control of goods or services to its customers.
The Group's revenue consists mostly of sales of products delivered to customers at the point of sale and does not have multiple element arrangements
included in it. It is therefore assessed that the timing and measurement of the Group's revenue will not change as a result of the implementation of
IFRS 15.
2.2.1 Agent versus principal assessment
IFRS 15 provides new guidance for the Group's assessment of whether it acts as principal or agent when recognising revenue from certain value-added
services. Management assessed these changes and has concluded that Kaap Agri is acting as an agent in this scenario and revenue will be accounted
for on a net basis. The same conclusion was reached under the current revenue standard and thus there will be no change in treatment upon
implementation of IFRS 15.
3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's
accounting policies of estimation uncertainty were the same as those that applied to the Group annual financial statements for the year ended
30 September 2018. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are discussed below.
Provision for impairment of trade receivables
In estimating the provision for impairment of trade receivables, management makes certain estimates and judgements relating to the estimated
recovery rate of debtors who are deemed to be impaired. This includes an assessment of current and expected future payment profiles and
customer-specific risk factors such as economic circumstances, geographical location and the value of security held.
4. FAIR VALUE ESTIMATION
Financial instruments measured at fair value are disclosed by level of the following fair value hierarchy:
- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities
- Level 2 - Inputs (other than quoted prices included within level 1) that are observable for the asset or liability, either directly (as prices)
or indirectly (derived from prices)
- Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs)
The only financial instruments that are carried at fair value are derivative financial instruments held for hedging. The fair value is based on quoted
market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price (Level 2).
Level 2 hedging derivatives comprise forward purchase and sale contracts and options. The effects of discounting are generally insignificant for
Level 2 derivatives.
The fair value of the following financial instruments approximate their carrying amount at the reporting date:
- Trade and other receivables
- Trade and other payables
- Short-term borrowings
- Loans
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
R'000 R'000 R'000
5. PROPERTY, PLANT AND EQUIPMENT
Reconciliation of movements in carrying value:
Carrying value beginning of period 1 097 159 947 617 947 617
Additions 71 501 94 870 140 148
Land and buildings 11 185 16 624 31 275
Grain Silo's 3 512 - 4 122
Machinery and equipment 9 810 8 526 13 027
Vehicles 9 920 9 078 10 397
Office furniture and equipment 5 232 6 122 11 198
Leasehold properties 4 884 4 281 433
Assets under construction 26 958 50 239 69 696
Additions through business combinations 46 740 - 61 017
Disposals (657) (1 742) (1 933)
Depreciation (28 834) (23 912) (49 690)
Carrying value end of period 1 185 909 1 016 833 1 097 159
Land and buildings 863 090 685 071 807 595
Grain silos 25 972 15 986 21 636
Machinery and equipment 100 263 87 760 95 877
Vehicles 45 744 32 270 28 915
Office furniture and equipment 96 683 75 476 87 116
Leasehold properties 22 244 17 600 22 568
Assets under construction 31 913 102 670 33 452
Vehicles include the following amounts where the Group
is a lessee under a finance lease:
Cost 71 023 38 327 39 451
Accumulated depreciation (29 341) (12 838) (16 826)
Carrying value 41 682 25 489 22 625
6. INTANGIBLE ASSETS
Reconciliation of movements in carrying value:
Carrying value beginning of period 168 165 99 482 99 482
Additions through business combinations 108 707 - 69 744
Amortisation (188) (531) (1 061)
Carrying value end of period 276 684 98 951 168 165
Goodwill 276 402 97 950 167 695
Customer relations 282 1 001 470
7. INVESTMENT IN JOINT VENTURE
Kaap Agri (Namibia) (Pty) Ltd
Carrying value beginning of period 11 941 15 357 15 357
Share in total comprehensive income/(loss) (1 703) (1 114) (3 416)
Carrying value end of period 10 238 14 243 11 941
8. TRADE AND OTHER RECEIVABLES
Trade debtors 1 658 613 1 413 588 1 549 498
(40 764) (44 859) (39 909)
Provision for impairment
1 617 849 1 368 729 1 509 589
VAT 14 714 9 191 45 932
Prepayments 41 150 167 400 52 900
Other debtors 71 900 36 747 56 062
1 745 613 1 582 067 1 664 483
9. TRADE AND OTHER PAYABLES
Trade creditors 696 093 550 478 1 000 982
Employee accruals 31 796 28 776 42 177
Other creditors 9 551 23 274 52 653
737 440 602 528 1 095 812
10. REVENUE
Sale of goods and services 4 337 465 3 362 369 6 448 084
- Trade 2 538 767 2 039 633 4 021 209
- The Fuel Company (TFC) 1 221 149 842 105 1 802 049
- Wesgraan 491 125 387 647 438 071
- Irrigation manufacturing 86 424 91 302 186 755
- Corporate - 1 682 -
Margin on direct transactions 52 320 48 394 100 709
- Trade 52 042 47 877 99 659
- Wesgraan 278 517 1 050
Total 4 389 785 3 410 763 6 548 793
11. INFORMATION ABOUT OPERATING SEGMENTS
Management has determined the operating segments based on the reports reviewed by the Executive committee that are used to make strategic decisions.
The Executive committee considers the business from a divisional perspective. The performance of the following divisions are separately considered:
Trade, The Fuel Company (TFC), Wesgraan as well as Irrigation manufacturing. The performance of the operating segments is assessed based on a
measure of revenue and net profit before taxation.
Trade provides a complete range of production inputs, mechanisation equipment and services, and other goods to agricultural producers as well as
the general public.
TFC provides a full retail fuel offering to a diverse range of customers, including convenience store and quick- service restaurant outlets.
Wesgraan provides a complete range of marketing options, as well as handling grain products between producer and buyer.
Irrigation manufacturing manufactures dripper pipe and other irrigation equipment and distributes franchise and other irrigation parts.
Segment revenue and results
Segment revenue Segment results
Restated Restated
Unaudited Unaudited Audited Unaudited Unaudited Audited
31 March 31 March 30 September 31 March 31 March 30 September
2019 2018 2018 2019 2018 2018
R'000 R'000 R'000 R'000 R'000 R'000
Trade 2 590 809 2 087 510 4 120 868 152 413 151 347 241 947
TFC 1 221 149 842 105 1 802 049 53 796 43 153 85 809
Wesgraan 491 403 388 164 439 121 28 885 24 736 23 611
Irrigation manufacturing 86 424 91 302 186 755 9 315 12 925 25 952
Total for reportable segments 4 389 785 3 409 081 6 548 793 244 409 232 161 377 319
Corporate - 1 682 - (52 374) (47 228) (94 237)
Treasury - - - 32 818 32 813 65 238
Share in profit/(loss) of joint venture - - - (1 703) (1 114) (3 416)
Total external revenue 4 389 785 3 410 763 6 548 793
Profit before tax 223 150 216 632 344 904
Income tax (61 958) (60 420) (95 947)
Profit after tax 161 192 156 212 248 957
Segment assets and liabilities
Segment revenue Segment results
Restated Restated
Unaudited Unaudited Audited Unaudited Unaudited Audited
31 March 31 March 30 September 31 March 31 March 30 September
2019 2018 2018 2019 2018 2018
R'000 R'000 R'000 R'000 R'000 R'000
Trade 1 401 769 1 260 066 1 430 303 607 625 530 927 888 404
TFC 679 124 554 059 546 449 86 475 33 803 121 215
Wesgraan 126 651 92 596 97 440 50 435 30 897 12 638
Irrigation manufacturing 74 695 70 988 71 740 13 156 12 311 25 925
Total for reportable segments 2 282 239 1 977 709 2 145 932 757 691 607 938 1 048 182
Corporate 284 362 184 985 258 535 50 734 51 907 93 491
Trade debtors 1 617 849 1 368 729 1 509 589 - - -
Investment in joint venture 10 238 14 243 11 941 - - -
Short-term borrowings - - - 1 427 579 1 180 770 1 000 907
Deferred taxation 788 726 1 234 56 902 23 848 41 905
4 195 476 3 546 392 3 927 231 2 292 906 1 864 463 2 184 485
12. BUSINESS COMBINATIONS
In line with the Group's growth strategy to acquire businesses in the fuel sector, certain retail fuel operations and accompanying retail fuel
properties were acquired. Goodwill on acquisition was paid on these businesses as the price is competitive in the context of other retail fuel
operations and the business combinations present synergies within the Group and have further earnings potential.
A purchase price allocation as required by IFRS 3 - Business Combinations was provisionally performed and no material intangible assets were
identified, other than fuel site operating licences, which are recognised with the property that it relates to as one asset as these assets have
similar useful lives.
The Group also acquired a 60% shareholding in Partridge Building Supplies (Pty) Ltd in line with the Group's growth strategy and to expand its
footprint and range of products.
A purchase price allocation was provisionally performed and possible other intangible assets might be raised as the valuations are still pending.
Thus the purchase price allocation is deemed to be provisional and will be finalised in the financial statement for the year ending 30 September 2019.
The Group acquired the following assets through business combinations:
A 60% shareholding in Partridge Building Supplies (Pty) Ltd - October 2018 Sasol
Verbaard service station - October 2018
Sasol East Rand Mall service station - November 2018
Total Summit Road service station - December 2018
Partridge
Building Sasol Sasol Total
Total Supplies Verbaard East Rand Mall Summit
R'000 R'000 R'000 R'000 R'000
Carrying value
Assets
Moveable assets 19 460 18 593 230 123 514
Property 40 900 - - - 40 900
Trade and other receivables 43 606 43 606 - - -
Inventory 39 751 37 735 1 217 799 -
Liabilities
Trade and other payables (54 017) (54 017) - - -
Deferred taxation (1 279) (1 279) - - -
Bank overdraft (14 602) (14 602) - - -
73 819 30 036 1 447 922 41 414
Fair value
Assets
Moveable assets 19 460 18 593 230 123 514
Property 27 281 - - - 27 281
Trade and other receivables 43 606 43 606 - - -
Inventory 40 340 37 735 1 217 799 589
Liabilities
Trade and other payables (54 017) (54 017) - - -
Deferred taxation (8 918) (1 279) - - (7 639)
Bank overdraft (14 602) (14 602) - - -
Goodwill 108 707 29 204 36 109 10 649 32 745
Equity
Non-controlling interest (12 014) (12 014) - - -
Purchase consideration 149 843 47 226 37 556 11 571 53 490
- paid in cash (current period) 49 831 47 226 1 217 799 589
- paid in cash (previous period) 52 901 - - - 52 901
- paid through issue of subsidiary shares 47 111 - 36 339 10 772 -
The acquired businesses contributed as follows since acquisition to the Group's results:
Partridge
Building Sasol Sasol Total
Total Supplies Verbaard East Rand Mall Summit
R'000 R'000 R'000 R'000 R'000
Revenue 307 207 177 462 78 258 14 210 37 277
Net profit/(loss) 6 936 2 002 3 871 (39) 1 102
13. RESTATEMENT OF COMPARATIVE AMOUNTS
Classification of leases
During the prior year, the Group reassessed the classification of leases relating to their vehicle fleet and identified that a number of leases
previously classified as operating leases should be classified as finance leases.
The correction of the incorrect classification has been applied retrospectively. This has resulted in the restatement of the comparative
consolidated interim financial statements for the period ended 31 March 2018, with the impact on the respective financial statement line items
as follows:
31 March 2018
Original Restated
balance Restatement balance
R'000 R'000 R'000
Effect on Statement of financial position
Non-current assets
Property, plant and equipment 991 344 25 489 1 016 833
Current assets
Trade and other receivables 1 578 086 3 981 1 582 067
Non-current liabilities
Finance lease liabilities - (20 445) (20 445)
Deferred taxation (23 839) (9) (23 848)
Current liabilities
Short-term portion finance lease liabilities - (9 648) (9 648)
Capital and reserves
Retained profit (1 220 088) 632 (1 219 456)
Effect on Statement of comprehensive income
Operating expenses (388 078) 1 657 (386 421)
Finance costs (43 216) (1 627) (44 843)
Profit before tax 216 602 30 216 632
Profit attributable to shareholders of the holding company 216 602 30 216 632
Effect on Statement of cash flows
Cash flow from operating activities
Net cash profit from operating activities (85 601) 4 556 (81 045)
Working capital changes (276 280) (30) (276 310)
Cash flow from investment activities
Increase/(decrease) in finance lease liabilities - (4 297) (4 297)
Interest paid (43 216) (1 627) (44 843)
Basic earnings per share (cents) 221,67 0,03 221,70
Diluted earnings per share (cents) 219,77 0,03 219,80
Basic headline earnings per share (cents) 220,97 0,03 221,00
Diluted headline earnings per share (cents) 219,09 0,03 219,12
14. RECURRING HEADLINE EARNINGS
Kaap Agri considers recurring headline earnings to be a key benchmark to measure performance and to allow for meaningful year-on-year comparison.
The pro forma adjustments below regarding recurring headline earnings are shown for illustrative purposes only and, because of their nature, may
not fairly present Kaap Agri's financial position, changes in equity, results of operations or cash flows. These adjustments relate to non-recurring
expenses and consist predominantly of once-off costs associated with acquisitions of new businesses and other restructuring costs.
The pro forma financial effects are presented in accordance with the JSE Listings Requirements, the Guide on Pro Forma Financial Information issued
by SAICA and the measurement and recognition requirements of International Financial Reporting Standards. The accounting policies applied in
quantifying pro forma adjustments are consistent with Kaap Agri's accounting policies at 31 March 2019. The pro forma financial information is the
responsibility of the directors and has not been reviewed or reported on by the company's external auditors.
Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2019 2018 2018
R'000 R'000 R'000
Headline earnings 161 148 155 723 248 379
Attributable to equity holders of the holding company 157 451 155 723 245 669
Non-controlling interest 3 697 - 2 710
Non-recurring expenses 4 335 1 513 3 604
Recurring headline earnings 165 483 157 236 251 983
Attributable to equity holders of the holding company 161 786 157 236 249 273
Non-controlling interest 3 697 - 2 710
Recurring headline earnings per share (cents) 230,34 223,15 354,10
CORPORATE INFORMATION
Directors
GM Steyn (Chairman)*#
S Walsh (Chief Executive Officer)
GW Sim (Financial Director)
BS du Toit*# D du Toit*#
JH le Roux* EA Messina*#
WC Michaels*# CA Otto*#
HM Smit*#
JH van Niekerk*#
I Chalumbira*
* Non-executive
# Independent
Transfer Secretaries
Computershare Investor Services (Pty) Ltd
Registration number: 2004/003647/07
Rosebank Towers, 15 Biermann Avenue, Rosebank, Johannesburg, 2196
PO Box 61051, Marshalltown, 2107
Fax number: 086 636 7200
Company Secretary
RH Kostens
Registered address
1 Westhoven Street, Paarl, Western Cape, 7646
Suite 110, Private Bag X3041, Paarl, Western Cape, 7620
Telephone number: 021 860 3750
Fax number: 021 860 3314
Website: www.kaapagri.co.za
Auditors
PricewaterhouseCoopers Inc.
Sponsor
PSG Capital (Pty) Ltd
Registration number: 2006/015817/07
1st Floor, Ou Kollege, 35 Kerk Street, Stellenbosch, 7600
PO Box 7403, Stellenbosch, 7599
and
2nd Floor, 11 Alice Lane, Sandhurst, Sandton, 2196
PO Box 987, Parklands, 2121
www.kaapagri.co.za
Date: 10/05/2019 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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