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MD’s report

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Coming together is a beginning; keeping together is progress; working together is success (Henry Ford). Isn’t it ironic that in times of hardship, character comes to the fore – whether good or bad? On the one hand you have ‘who’s to blame?’ (the so-called blame culture), and on the other ‘how can we work together’ to find solutions?. The latter is the NWK way. It is embodied in the assistance given to producers over the past few difficult years.

For example, NWK has created consolidation accounts to the value of R140 million for the payment of unpaid production loans and other short-term financing – which benefited 69 customers. Over and above this concession, settlement agreements for instalment arrangements involving roughly R50 million were concluded with 47 producers.

Agriculturists and agricultural businesses have probably never found themselves in more uncertain times. Land reform and the accompanying uncertainty make it difficult to justify long-term investment. Despite this the counterbalance, namely food security, is the ultimate objective that will allow common sense to prevail – let us trust that this will take hold in agricultural policy as well.

NWK commits itself to orderly reform and makes its contribution and inputs to organised agriculture, Agbiz and banking groups to communicate a consolidated view to the government as far as possible.

Service delivery by local governments, particularly in the North West Province, is a serious threat to the sustainable production of food. Poor water supply, wastewater management, poor or no maintenance of infrastructure and months of waiting for approval of, for example, licenses make it expensive and uncompetitive to do business. Load shedding has also had a paralysing effect on productivity. Continued investment in the area is therefore becoming risky.

Over the past year NWK was involved in various projects to confirm the group’s corporate social contribution in our area. This included the donation of 17 laptops to top matriculants and donations to cancer clinics and old-age homes. NWK is also involved in a school shoe
project that annually donates about 600 pairs of shoes to needy schoolchildren.

NWK received the ‘Top Employers’ award this year, which indicates that NWK’s human capital management is at a high level.

During the past year, 180 training opportunities were offered to a total of 1 304 employees through a variety of platforms – proof of NWK’s continued investment in its staff.

Financial and operational performance

The year under review was volatile, with an increase of 89% in profit after tax from continuing operations – from R57 million to R108 million. The drought conditions early in the year clearly showed that the corporate farming enterprise, namely NWK Boerdery, would suffer a material loss, and after having conducted a proper risk analysis, the board had no choice but to discontinue these operations. A net loss of R47,4 million was consequently incurred from discontinuing operations.

The results reflect earnings on equity of only 4,2%. Cash flow was negative by R440 million, mainly as a result of a major investment in grain inventory. The net asset value increased by 16,5 cents per share to 1 000,3 cents per share. Share prices traded drastically lower and create an opportunity for purchases at a great discount.

Operating results

For the grain segment the past financial year was characterised by higher grain receipts and generally better profitability than in the previous year. This was due to favourable rainfall and better harvests in NWK’s operating area. In the midst of a dynamic and highly variable market environment, the grain segment could nevertheless succeed in realising a profit of R114 million.

The trade segment in general performed well and contributed R60 million to the profit of the group.

The industrial segment achieved variable results. Opti Feeds failed to make a contribution due to low capacity utilisation. The focus fell on cost management and on moving the market to bagged products.

Noordfed once again had a poor business year. The purchase of the Empangeni mill, with a market of roughly 6 500 tons/month and the utilisation of the synergies in the NWK group, should place the mill on the road to profit. The management team was replaced during the last few months of the financial year.

Epko, the oil crusher, succeeded in making a positive contribution to the group’s results. The group further expanded its business relationship with Louis Dreyfus Commodities in that this global role player in commodity trading acquired a 50% equity interest. The parties agreed that the plant would be modernised and capacity expanded.

The crop and stock farming was discontinued due to the great loss.

Opti Chicks performed well during the year, despite difficult market conditions, and contributed R21 million to the group’s profit.

The financial services segment performed well. Outstanding debt is at the lowest level in many years due to the stringent recovery policy maintained over the past five years.

The Africa businesses, namely Mont-Trade (Botswana) and NWK Agri-Services in Zambia, achieved satisfactory results. Two of the business units in Botswana, namely Feed Centre Botswana and Opti Feeds Botswana, performed well. The results of the South African business, Montenegro, were not satisfactory and are being addressed. NWK Agri-Services, in which NWK has a 60% interest, succeeded in turning around the substantial negative result of the previous year to almost a break-even situation for the current year.

Prospects

The devastating drought, together with low grain production and receipts, limited spending capacity and repayment ability of producers will have a material effect on the profitability of the group. Industries that are dependent on grain may achieve lower margins due to the higher raw material prices. Cost-saving measures to mitigate the influence of lower volumes and margins to some extent have already been put into effect.

NWK’s approach of supporting the primary producer, adding value to primary agricultural products, bolstering consolidation in the South African agricultural sector and becoming increasingly involved in other African countries to extend NWK’s footprint, is a model that will ensure NWK’s long-term sustainability.

Acknowledgements

Thank you to Heinrich Krüger, chairperson of the board, members of the board and the management of NWK and its subsidiaries for the leading role they played during the year. To the employees for the contribution they made, as well as to our producers and customers for their business, and to everybody who has some connection to NWK, a big thank you. Above all, thank you to our Creator for strength and guidance.

Danie





DF Marais
Managing director

14 July 2015

 

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