TWK posts lower earnings amid global market pressures

Diversified agriculture and forestry company TWK Agri has posted lower earnings before interest, taxes, depreciation and amortisation (Ebitda) of R620-million from continuing operations, marking a 7.1% year-on-year decrease for the financial year ended August 31.

The group generated Ebitda of R673-million in the 2022 financial year.

CEO André Myburgh says the 2023 financial year was challenging, with the company facing some strong headwinds including volatility in the macroeconomic environment and with exchange rates, lower commodity prices, weaker demand, and delayed or cancelled sales of woodchips to China. These factors all affected volumes sold and placed pressure on margins.

Basic headline earnings a share decreased by 37% year-on-year to 549.5c

The company’s net asset value per share was up by 8.8% year-on-year to R57.16, while it declared a dividend of 115c apiece.

This compares with a dividend of 150c apiece paid in the prior financial year.

While revenue from the continued operations increased by 4.5% year-on-year from R9.2-billion in the prior year to R9.6-billion in the reporting year, primarily owing to strong growth in the Timber segment, the performance of the Retail and Mechanisation segment came under severe pressure. The Financial Services and Grain segments also performed well in the year under review.

The main factors that contributed to the lower profitability of the group were declines in fertiliser product prices and sales volumes, as well as product price inflation.

TWK is in the process of disposing its dealerships, with the Motors segment having been classified as discontinued operations and assets held for sale as of August 31.

The group generated a solid R673-million of cash from operations, after working capital, which was 81% higher than the prior year.

TWK CFO Eddie Fivaz says the company has proven its ability to succeed within the sectors it operates in and is capable of adopting and moving forward with strategic objectives.

“We are constantly looking for expansion opportunities to enhance profitability and will continue to evaluate the return on the different investments and will act in the appropriate manner in a drive to unlock stakeholder value over the long term.”

SEGMENT PERFORMANCE
The Timber segment reported an increase of 35.8% in revenue to R2.9-billion for the year under review. This was mainly owing to the growth in wood chip exports and local timber sales.

During the year under review, 684 711 t were exported from TWK’s facility, compared with 634 664 t exported in the prior year, representing a 7.8% increase in export sales.

The improvement was mainly the result of the demand from pulp manufacturers in Japan. No woodchips were exported to the Chinese market and woodchip exports to Europe did not materialise during the second half of the financial year, owing to the economic declines in these countries and the negative impact of the prolonged Russia-Ukraine war on the demand for paper and packaging.

The depreciation of the rand supported the woodchip export margins.

Total sales volumes increased by 5.3% to 1.5-million tonnes mainly on the back of international woodchip demand.

Revenue for the Retail and Mechanisation segment decreased by 8.2% from R5-billion last year to R4.6-billion in the reporting year.

This division’s results came under severe pressure mainly as a result of the financial performances of Constantia Fertiliser, as well as Mechanisation. This segment’s Ebitda decreased by 78% to R48-million from R227-million in the prior year, with the Ebitda margin also decreasing to 1.03% from 4.49%.

The main factors contributing to the decrease in profit were the continuous declines in fertiliser product prices and sales volumes as well as product price inflation.

Fertiliser product sales, the largest sales contributor for TWK Retail, were negatively impacted on by volatile local and global fertiliser conditions which resulted in severe margin pressure on the overall business.

Throughout the financial year, Constantia Fertiliser encountered supply chain challenges as well as experienced high volatility in nitrogen, phosphate and potassium prices.

The volatile rand:dollar exchange rate also contributed to a much more complex fertiliser planning environment to enable the business to source raw materials at reasonable prices.

Fertiliser sales declined by 10.7% from 208 955 t in the prior year to 186 501 t in the year under review. 

Lower sales volumes were attributed mainly to farmers postponing the purchase of fertiliser products owing to high selling prices in the first half of the year, lower fertiliser application rates throughout the year and planted crops using less fertiliser in the second half of the year.

Mechanisation sales, through the New Holland agencies, decreased by 5.8% to 209 units primarily as a result of the decline in sales in the Pietermaritzburg area owing to the financial problems experienced by sugar cane farmers and the availability constraints on imported high kilowatt equipment from New Holland. 

The Financial Services segment’s revenue increased by 23.3% year-on-year to R271-million, which was mainly driven by the Insurance division. The Insurance division reported a 7.3% growth in short-term insurance premiums written in the year under review, compared with the prior financial year.  

The Grain segment’s revenue increased by 0.8% from R1.7-billion in the prior financial year to R1.7-billion in the year under review, as a result of the performance by the Grain Marketing business and the increase in maize product and animal feed prices.

In turn, the segment’s Ebitda increased by 12.59% from R50.4-million in the prior financial year to R56.7-million in the reporting year, with the Ebitda margin having increased to 3.2%.

TWK explains that the disparity between revenue and Ebitda growth was mainly attributable to the impact of the high average grain prices, increasing selling prices, offset by the inability to recover some of these costs, specifically the animal feed business, and other variable cost hikes such as fuel and interest rate.