THE BUSINESS
REFLECTIONS FROM
THE CHAIRMAN
DANIE MINNAAR, SENWES CHAIRMAN
50 years ago
Danie Serfontein, a former chairman of Sentraalwes, wrote in
his 1969 chairman’s report: “Our farming practices in South
Africa need to adjust to drought conditions, since droughts are
a regular occurrence”. He also mentioned that crop selection,
drought-resistant hybrid maize varieties as well as research
into plant cultivation and diseases could possibly be options to
counter the impact of a drought.
Extensive development has since taken place. Robust seed tech-
nology, proven mechanisation development, improved farming
practices in respect of particularly moisture management, nitrate
manage
ment, crop and variety selection, soil health, conservation
farming, plant nutrition and various other precision farming techniques,
have mitigated the impact of drought on the production of cash crops.
Add to this the free-market system, where a low supply is mostly rec-
tified by a better price, the continuous consolidation of farming units
in order to ensure critical mass and the distribution of risk, then the
current producer is in a much better position than 50 years ago. as before the collapse of land prices. Organisations which aggressively
provided financing at market value during this period, will probably still
experience deficits in respect of security for a long time to come.
Although the impact of the drought is mitigated for the primary pro-
ducer as a result of improved technology and the market development
referred to above, it still remains the top risk for an organisation such as
Senwes. Lower yields mean lower income from storage services, lower
input margins and usually a smaller appetite of producers to replace
capital goods. In addition, cash flow pressure arises and the producer’s
spending ability is curbed, as his credit obligations need to be met. The group’s results declined by 9,0% to R283 million. This is largely at-
tributable to the decline in storage income after a smaller crop, which,
in addition, was received, on average, six weeks late. R45/tonne on
grain deliveries at Senwes Grainlink, 0,35% on interest-bearing trans-
actions at Senwes Credit and 0,25% of turnover on new whole goods
at Senwes Equipment, were allocated to clients registered for the Agri-
Rewards loyalty scheme.
Dear shareholder, 2019 had its own challenges. Ever-decreasing hec
tares under production of cash crops, unplanned load shedding, a de
clining rural infrastructure, political policy uncertainty, an unstable rail
infrastructure, increasing labour unrest, unemployment, exceptionally
high input inflation, interference in the local market by international
grain traders, ineffective duplication in the supply chain, a weakening
exchange rate, erratic climate and the increased cost of compliance.
Maybe the biggest challenge is volatility as well as the frequency of
these incidents and the extreme nature thereof.
The exchange rate increased by 14% against the US-dollar, the oil price
decreased by 16% from its highest level, the maize price moved by 66%
between its lowest and highest level and within months, government
changed the land reform policy from radical to moderate.
This appears to be the new normal and companies nowadays are ex-
pected to analyse the realities quickly and to respond accordingly in
order to overcome challenges and mitigate risks timeously. Quick deci-
sion-making is at the order of the day and business plans requiring long
investment terms, are increasingly at risk in the sector.
Repercussions of expropriation without
compensation
Unfortunately, radical political statements about the expropriation of
land without compensation had a destructive impact on confidence in
the sector. Agricultural land prices declined by 45% between 2012 and
2018, destroying approximately R990 billion of market value. Should
the sector manage to recover, even at historic growth rates, it will take
approximately five years to adjust the market value to the same level
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SENWES INTEGRATED REPORT 2019
Senwes intentionally decided to place its own support value, based
on the earning ability of land, on bonds awarded against land. Fortu-
nately, no farm has realised values below the support value to date.
Results
Focus Areas of the Board
The board and its committees paid specific attention to the recovery and
repositioning of the input channel, in particular to the Hinterland, Prodist
and the Equipment business units. Focus was also placed on various
risk aspects in order to maintain the residual risk within the required
bands and at acceptable levels. Various capital upgrading programmes
were undertaken and progress was measured scrupulously. More grain
with a higher moisture content was received this year and the board is
keeping track of the progress in respect of this programme. Silos filled
to capacity and slow withdrawal of grain by the market, brought new
and unique challenges and I have to compliment the manner in which
this was managed. As mentioned in the previous annual report, Senwes
launched a customer integration programme, which is still rendering
positive results and which will receive continuous attention.
though Senwes is reflecting a flat growth trend, a lot has been achieved
at strategic level. Larger agriculture environments experienced crisis
upon crisis over the past nine years, but Senwes managed to outper-
form the circumstances to a large extent. When the tide turns, Senwes
will be well-positioned to utilise opportunities optimally.
Senwes expanded the product range of its mechanisation business
over the past year, with the acquisition of a controlling interest in Staal-
meester. We are also looking forward to the reorganisation of the sec-
tor, since management and compliance costs are increasing to levels
which are very high compared to available margins in the sector.
As part of its consolidation and diversification strategy, Senwes ac-
quired a 57,44% interest in KLK Limited during June 2019. Focus will
be placed on proper alignment and the exploration of joint opportuni-
ties in the new financial year.
The 2020 season is at risk and a difficult next year is foreseen due to
the fact that producers planted late and fewer hectares - a smaller
summer grain crop is consequently expected. Focused attention will
therefore be placed on cost saving, improved margins, discerning ap-
plication of operating capital and making use of the few opportunities
which may arise.
Acknowledgement
When things are difficult, we fall back on our support system. I would
like to acknowledge our clients, personnel, shareholders, members
of management and co-board members. You take a stand when the
situation calls for it and it is a privilege to have you as part of the
Senwes family. I have been on the board for 20 years and was once
again privileged this year to experience the Hand of protection over the
organisation, especially in difficult times.
All honour be to God.
Corporate Citizen
Senwes, and particularly the CEO, in his role as chairman of Agbiz
as well, were instrumental in trying to find middle ground in the nego
tiations with government and other stakeholders regarding the expro-
priation of land.
It is a thankless position, but Senwes did not shy away from the de-
bate and negotiations. The best outcome for agriculture, in our opin-
ion, is negotiation and although it has not been finalised, we are satis-
fied with the progress thus far.
____________________________
JDM Minnaar
Chairman
27 June 2019
Klerksdorp
Strategy and Outlook
We are one year away from the completion of the 2020 plan and al-
SENWES INTEGRATED REPORT 2019
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