Saturday, January 22

Acorn Agri & Food returns to profit

Acorn Agri & Food has remarkably recovered from the trials and challenges of the Covid-19 pandemic with stronger operating performance resulting in an overall profit increase of 519% to a profit of R62 million for the six months. that ended on August 31, 2021, compared to an 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. “The boost in the agricultural inputs and services businesses resulted in an increase in volumes in all businesses, as evident by the increase in revenue from 41% to R4.5 billion and gross profit increased by 28% to R455 million, an improvement of approximately R100 million.

“Our agricultural businesses experienced operating conditions that returned to pre-Covid-19 levels, but the recovery has more to do with favorable agricultural conditions last year than the effect of the pandemic, as agriculture was less affected by the closures, “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 related to accessing international markets.

Acorn has interests in companies that operate in different sectors of the agricultural and food industry, from supplying inputs to farmers to food processing and retail. It owns renowned companies such as Overberg Agri, Moov Fuel, Overberg Meat, and Montagu Snacks.

Sanlam Private Wealth and African Rainbow Capital have become prominent shareholders of Acorn Agri since its inception in its current form in 2018.

However, it has a longer history, whose roots go back to 1918 in the days of Caledon Boeren Koöperatiewe Vereniging and Bredasdorp Boeren Koöperatiewe Vereniging, which was founded in 1926.

It has been built through various 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 customary suspension conditions.

Agricultural inputs and fuel

The administration reports that the agricultural and food value chain remained operational through all levels of trade restrictions imposed to curb the spread of Covid-19. “While we have seen satisfactory performance from most of the companies in our group, the subdued environment for consumer spending has had adverse effects on the rest,” the financial report states.

The agricultural inputs and services group performed well in the six months to the end of 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) beat expectations in the financial year to date.

Moov Fuel benefited from higher sales volume as South Africans began to travel again and the supply of lime to farmers benefited from positive sales momentum, new markets and higher margins.

“We are fortunate that most of our service area is experiencing good growing conditions and we are anticipating another good agricultural year,” says Geertsema, noting however that only part of his business is directly exposed to primary agriculture and associated climatic conditions.

“Our businesses within the agricultural inputs and services sector would see an increase in business activities if agricultural conditions were positive for farmers in general. [as its customers]. If not, our vertically integrated model along the agri-food value chain provides us with 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 revenue in the current financial year through the end of February 2022 than the R7.5 billion the previous year.

Geertsema says that the overall operating margin is also recovering, and that the margin appears lower than it actually is. “A big part of the rationale is that we recognize 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 fuel’s gross sales price.

“This results in a lower margin when analyzing the income statement without normalizing this impact.”

Fresh food and fruit processing

Acorn reported that its fresh fruit interest, ACG Fruit, has been affected by adverse weather conditions. Major rains in the North Cape were followed by extreme cold conditions in the Kakamas area that had adverse effects on grape and citrus crops and exports, respectively.

A stronger rand during the reporting period also negatively affected 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 led to a large spike in lamb and mutton prices during a period when consumers were under pressure.

“Overberg Meat has experienced consumer resistance against higher lamb prices in the retail sector, resulting in a performance below expectations,” management said in its report to shareholders. “Forecasts for the end of the calendar year look more favorable in terms of unit availability and price recovery for the upcoming holiday season.”

Healthy food

The division that produces and supplies snacks and health foods, Grassroots Group and Montagu Snacks, had mixed luck during the six months under review.

“Grassroots is experiencing revenue pressure due to the strengthening of the rand and the longer delivery times of the product list in foreign markets due to pandemic travel restrictions,” says management. However, it reported that deliveries to the international market are on track for the end of this financial year. It exports to Russia and Europe, and now also to the United States.

Montagu Snacks produced satisfactory results that were better than expected in terms of profitability, partly due to the strong rand, according to Geertsema.

Stock trading

Management’s feedback on the results creates the impression that the outlook for the remainder of the financial year is promising.

“The pandemic led us to reassess business models across the group and execute a focused review of cost structures and capital requirements. This unlocked efficiencies and increased use of electronic media, which continue to benefit the group today.

“At the time of writing, South Africa had recently moved to the Level 1 lockdown, which should facilitate a more open economy. However, we expect the consumer spending environment to remain subdued for a considerable future, which is likely to affect some of our group companies.

“We anticipate that good conditions will continue for the next production season after the previous excellent harvest. This should result in sustained favorable side effects to support 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 private shareholder base and offers an over-the-counter (OTC) stock trading service.

Acorn Agri & Food OTC quote

Source: Acorn Agri

Transactions are negotiated directly and bilaterally between buyers and sellers of shares who wish to do so.

Acorn helps buyers and sellers interact directly, with its stock management desktop publishing offers 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 were traded in the last five weeks for between R10 and R13.50 per share.

The latest trades were R10, representing a price-to-earnings ratio of about 10 times based on the annualization of earnings per share for the last six months of 48 cents.

Click here to view provisional results in PDF.

Presented by Acorn Agri & Food.

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