STRATEGIC AND OPERATING CONTEXT
ECONOMIC OUTLOOK OF OUR SECTOR
The sobering thought within any strategic conversation in the food
and fibre value chain is the FAO Food Price Index, shown here in both
nominal and real terms.
250.00
200.00
150.00
FAO Food Price Index in nominal and real terms
2002-2004 = 100
Nominal
Real*
The reality is that in real terms, we are at the same level as 1960 –
1970, which has the following consequences:
� The supply side of food commodities is, for the most part, in an
oversupply situation.
� Farmers have become so effective through technology, management
practices, size, genetic improvements and in some international
production areas and subsidies, that they consistently produce
more from less hectares.
� It has the effect that the Input Channel is oversupplied and will
continue to restructure and consolidate.
This means that commodity prices of most grain and protein products
will remain under pressure. Input Channel businesses will be under
100.00
50.00
-
1961
1965
1970
1975
1980
1985
1990
1985
2000
2005
2010
2015
*The real price index is the nominal price index deflated by the World Bank Manufacturers Unit Value Index (MUV).
financial stress, which will lead to further consolidation of not only that
sector, but also to much lower liquidity in the financial services sector
and therefore agri-businesses in general.
At primary producer level, the ability to produce at export parity will
remain the norm and will also have a direct effect on marginal areas
of production of grains and subsequently land values in those areas.
2020
FINANCIAL OVERVIEW OF OUR SENWES GROUP
The Senwes Group delivered satisfactory results in a difficult environment
and sector. The fundamental driver of the group’s results remains
grain volumes. The constant and maintained dividend flow of the Senwes
Group reflects the nature of the share value as a defensive equity
in an investment portfolio.
� Input Supply Channel
393,3% �
The Input Supply Channel continues to perform better year on year,
but the primary producer remains under financial pressure and consequently
his capital expenditure is limited, which directly affected our
equipment business. Both the new acquisitions, namely Staalmeester
and Falcon, are performing well and according to schedule, given the
specific market and client segments they target.
Hinterland’s operational performance is much better than the previous
year and the strategic overview of the partnership with AFGRI is constantly
being reviewed.
Bastion performed well, given timeous cost restructuring work done
and is in the process of considering further acquisitions to add volume
to its portfolio.
� Financial Services Channel
19,6% �
The Financial Services Channel continues to perform well, despite the
challenges of lower commodity prices, client cash flow pressure compared
to the previous year, and the lack of clarity on land ownership
policies implemented by the government.
Senwes Credit performed better than the previous year, but there is
still some concern regarding individual accounts, where cash flow and
balance sheet risks are involved.
The Certisure Group paid specific attention to cost control, which reflects
positively in this year’s results. The longer-term business model
challenge remains to be addressed.
� Market Access Channel
37,9%
The Market Access Channel’s results are driven by volume and the
lower result than the previous year concurs with the lower volumes in
this business channel. Grain quality problems experienced by the client
base of this channel, reflected throughout the grain value chain and
had a negative financial impact on all concerned.
Silo operations were influenced by lower volumes, Eskom load shedding,
rural infrastructure decline and massive failure by Spoornet in
respect of rail deliveries. Regional and geographic challenges relating to
specifically grain quality, influenced the whole sector and losses were,
and still are, experienced by role-players in this business segment.
Tradevantage was also negatively impacted by Transnet Freight Rail
infrastructure failure, particularly in respect of contract deliveries, while
they also elected not to tender for specific contracts which posed inherent
risks.
ESC delivered the same results as the previous year, while Senwes Seed
continued to deliver satisfactory growth and returns. Grainovation delivered
better results than the previous year and acts as the consolidation
link between Grainlink and Tradevantage.
SENWES INTEGRATED REPORT 2020
41