Acorn Agri & Food has recovered remarkably from the trials and challenges of the Covid-19 pandemic with stronger operational performance resulting in headline earnings increasing by 519% to a profit of R62 million for the six months ended August 31, 2021 – compared with a R15 million loss in the comparative six months.
Chief financial officer Andries Geertsema says Acorn had a very positive start to the new financial year. “Momentum on the agricultural inputs and services businesses resulted in increased volumes across all businesses, as is evident by the increase in revenue of 41% to R4.5 billion and gross profit rising 28% to R455 million, an improvement of approximately R100 million.
“Our agricultural businesses experienced operating conditions returning back to pre-Covid-19 levels, but the recovery has more to do with the favourable agricultural conditions this past year rather than the effect of the pandemic, as agriculture was less affected by lockdowns,” says Geertsema.
However, he notes that Acorn’s businesses in the food and consumer markets are still experiencing the effects of the pandemic, which resulted in a depressed consumer environment, including challenges pertaining to access to international markets.
Acorn holds interests in businesses operating in different sectors of the agricultural 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 prominent shareholders in Acorn Agri since its inception in its present form in 2018.
It has a longer history though, tracing its roots back to 1918 in the days of the Caledon Boeren Koöperatiewe Vereniging and the Bredasdorp Boeren Koöperatiewe Vereniging which was founded in 1926.
It has been built through several mergers and acquisitions over the last 100 years, a process that continues. The group recently announced the acquisition of Ascendis Animal Health, which is still subject to customary suspensive conditions.
Agri inputs and fuel
Management reports that the agriculture and food value chain remained operational through all levels of business restrictions imposed to curb the spread of Covid-19. “While we have seen pleasing performance from most of our group companies, the subdued consumer spending environment has caused adverse effects for the remainder,” the financial report states.
The agricultural inputs and services cluster performed well in the six months to end August 2021 on the back of the record harvest produced in the 2020 calendar year.
Geertsema says Overberg Agri, Moov Fuel and P&B Lime Works (better known as Overberg Meat) all exceeded expectations in the financial year to date.
Moov Fuel benefitted from higher sales volumes as South Africans started to travel again and the supply of lime to farmers benefitted from positive sales momentum, new markets and higher margins.
“We are fortunate that most of our service area is experiencing good growth conditions and we are anticipating another good agricultural year,” says Geertsema, pointing out however that only a portion of its business is directly exposed to primary farming and associated weather conditions.
“Our businesses within the agricultural inputs and services sector would see an increase in business activities should agricultural conditions be positive to farmers in general [as its customers]. If not, our vertically integrated model throughout the agri and food value chain gives us diversification.”
The income statement shows that revenues are significantly better than in the first half of the previous year.
However, the improvement to R4.4 billion from R3.1 billion tells only part of the story.
The recovery in the first half indicates that Acorn can achieve much higher revenues in the current financial year to end February 2022 than the R7.5 billion of the previous year.
Geertsema says the overall operating margin is recovering as well, with the margin looking lower than it actually is. “A big part of the reasoning is that we recognise gross fuel sales in revenue, but we only provide a transportation logistics solution for this business segment and the margin on this is very low compared to the gross fuel retail price.
“This results in a lower margin when analysing the income statement without normalising this impact.”
Fresh fruit and food processing
Acorn reported that its fresh fruit interest, ACG Fruit, has suffered under adverse weather conditions. Significant rainfall in the Northern Cape was followed by extreme cold conditions in the Kakamas area that respectively had adverse effects on the grape and citrus harvests and exports.
A stronger rand during the reporting period also negatively affected export revenue. The rand has weakened recently, which will help in the current six months.
The meat processing operations of Overberg Meat struggled as a shortage of sheep led to a big increase in lamb and mutton prices during a period when consumers were under strain.
“Overberg Meat has experienced consumer resistance against higher prices for mutton on the retail side, which has resulted in performance that is below expectations,” noted management in its report to shareholders. “Forecasts for the end of the calendar year are looking more favourable in terms of availability of units and recovery of prices for the coming festive season.”
The division that produces and supplies healthy snacks and foods – Grassroots Group and Montagu Snacks – had mixed fortunes during the six months under review.
“Grassroots is experiencing revenue pressure due to the strengthening of the rand and longer lead times listing products in overseas markets due to pandemic restrictions on travel,” says management. However it reported that deliveries to the international market are on track for later this financial year. It exports to Russia and Europe, and now also to the US.
Montagu Snacks produced pleasing results which were better than expected in terms of profitability, partly due to the strong rand, according to Geertsema.
Management’s commentary on the results creates the impression that prospects for the rest of the financial year are promising.
“The pandemic caused us to re-evaluate business models throughout the group and to execute a focused review of cost structures and capital requirements. This unlocked efficiencies and increased the 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 lockdown 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 continued good conditions for the coming production season following the previous bumper harvest. This should result in sustained favourable knock-on effects supporting our performance for the remainder of the 2022 financial year,” according to management.
While Acorn Agri is not listed on the JSE, the group has a large private shareholder base and offers an over-the-counter (OTC) share trading facility.
Acorn Agri & Food OTC share price
Transactions are negotiated directly and bilaterally between willing buyers and sellers of shares.
Acorn helps buyers and sellers to interact directly, with its share administration desk publishing bids and offers.
Currently, there are bids for nearly 15 000 shares at R10 and 55 000 at R9. Offers start at R12.
Share trading statistics on the Acorn website disclose that more than 250 000 shares traded in the last five weeks at between R10 and R13.50 per share.
The last few deals were at R10, representing a price-earnings ratio of around 10 times based on annualising the last six months’ earnings per share of 48 cents.
Click here for the interim results in PDF.
Brought to you by Acorn Agri & Food.
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