Record results and profit increase for GWK in 2015

Pieter Spies

The number of shareholders increased by 14% from the previous year, the shareholders' rotation fund paid out R6.3 million to shareholders over the past two years, and GWK forecasts over R100 million to be paid out to shareholders over the next five years. Accruals to shareholders amounted to R117,8 million in R81,7 million rebates and R36,1 million in interest.

"We achieved these results with a keen focus on efficiency, without compromising our ability to create value," says GWK Managing Director, Pieter Spies. "Our grain division, including our milling business, as well as our mechanisation business and livestock auctions businesses, also performed extremely well."
May 2015 signified a milestone for GWK with the conclusion of a deal with Landbank, where GWK Finance successfully sold its debtors' book to raise investment capital.

Human capital increased by 189 to 456 seasonal staff members for 2015, with 1,702 permanent staff. In 2015, human development focused on competency management and R4,75 million was spent on 1,398 training interventions with a strong focus on broad-based black economic empowerment.

Grain products

"Our focused management strategy saw us grow market share and maintain a healthy price throughout the year. GWK Grain Products Division was able to unlock additional markets for grain trading divisions and find slight margin benefits for farmers through niche grain products," comments Spies.

Projects to expand silo capacity at Prieska and Modderrivier were successfully completed, with two new bunkers installed at Hopetown and Jan Kempdorp. On the consumer side of the GWK Grain Products Division, construction on GWK's new wheat mill and biscuit and pasta plant near Modderrivier was completed in October 2015, and when production started its name was changed to GWK Farm Foods. GWK Farm Foods will be South Africa's first farmer brand to enter the premium foods category on a large scale and highlight the value of origin to consumer.

Specialist products

GWK Oilseeds repeated the previous year's sterling performance and displayed strong growth in direct exports of peanuts and pecan nuts along with the acquisition of a shareholding in Trio Trade for the processing and marketing of groundnuts. "A record intake of peanuts in 2015 led to our drying facilities being exploited effectively," says Spies. "Nett profit before tax in the Specialist Products Division recorded R48,8 million, a 40 % increase in revenue growth."

The larger volume of seed potatoes handled by the division saw increased movement in GWK's cold room and contributed to increased revenue. GWK's development of export markets has resulted in a revolution in the alfalfa industry and larger revenue margins.

"In recent years GWK Cotton has seen unprecedented growth in the cultivation of cotton, and our cotton ginnery at Modderrivier will soon operate close to capacity for the very first time," says Spies, also adding that GWK Pecan Nuts has completed a new pecan nut plant in Douglas to handle growth in the sector.

Primary products

A growth point for Spies is establishing partnerships to increase scale benefits, with an example being an in-progress transaction with an international partner for international supply chain benefits, specifically the import of raw materials for fertiliser. Primary products experienced a 12% increase in revenue growth, reporting R55,9 million nett profit before tax.

Insurance showed good growth year-on-year, and the well-established life insurance and investment products performed better than budgeted. "The business for precision farming and production research distinguish GWK from any other agricultural business, and the goal is to remain at the forefront of the latest farming practices and methods. The focus for fiscal 2016 is on the cultivation practices of pecan nuts, and experts are involved to assist producers and to obtain optimised results," comments Spies.

Auction, meat and supermarket products

GWK has positioned the Auction division as the preferred auctioneer for livestock. Tri-Star Custom Feeders in the cattle division contributed to overall good performance and profit increase too, and the acquisition of a majority shareholding in Cavalier for supplying packed meat products to major retailers added impetus.

"Selective investment in geographic and product expansion is only implemented where we can add unique value, and all new expansions are performing very well," Spies says. "GWK experienced a R12 million shift in biological investments by acquiring sheep for the GWK Feedlots. As part of the long-term strategy to invest in supply chain efficacy, this investment will provide a cost-effective throughput for the GWK abattoir."

Trade division

GWK Mechanisation performed exceptionally well despite rising equipment prices and the entry of regional competitors. GWK Mechanisation's market share (measured in units of tractors sold in the region where GWK operates), backed by The John Deere agency, increased to 70% at the end of the financial year. Nett profit before tax for fiscal 2015 returned R58,8 million, a 13% revenue growth in the trade division.

GWK Retail has achieved good financial results with its branches in Marydale and Griquatown now operated as franchises. GWK Retail established a commercial branch in Magogong, and upgraded the Kimberley branch, which received a deli and John Deere clothing section.

GWK Fuel Storage facilities concluded the year 19% above budget. Despite falling fuel prices, the service stations in Prieska and Douglas managed to exceed their goals for the year by 5%.

2016 Outlook

"Our forecast for GWK for 2016 includes a revenue growth of 15%, gross margins will remain the same at 12-15%, and operational expenses will increase between 8 and 10 % due to the Modderriver (GWK Farm Foods) project," says Spies.

"In 2015, dry land farmers were truly challenged and South Africa experienced a huge surge in commodity prices. 2016 will see the industry remain under similar pressure with food security becoming a tangible concern to consumers and farmers alike. Achieving a balance between affordability and availability is fast becoming the single most important consideration in agribusiness," says Spies

GWK's role as an intermediary in the agribusiness sector is to work together with government to ensure efficiency in farming. Increased efficiency has resulted in GWK's best year yet, but it also speaks to a serious agri-economic issue facing consumers.

Maize prices increased by 40% within a year, and GWK's strategy is to help ensure efficient controls and practices at every touch point within the value chain. The company believes that this is the only way that South African agriculture can ensure some level of stability and increase food security. "We believe that farming is a great sector to be involved in right now, and with the ever-growing global population, food security and food supply chain management will become a lucrative and rewarding business to engage and invest in," concludes Spies.