Senwes Scenario August / September 2016 | Page 6

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Financial Results with Francois Strydom

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IN ORDER TO PUT A YEAR SUCH AS THIS INTO PER- SPECTIVE , NOTH- ING SHOULD BE
EVALUATED IN ISOLATION . YOU
FIRST HAVE TO ESTABLISH WHERE
AUBREY KRUGER
YOU ARE IN A LONGER CYCLE .
LOOKING BACK ON THE SUPER COMMODITY CYCLE UNTIL 2010 A super commodity cycle was experienced from 2000 to 2010 , due to the fact that these were good rainfall years . The best of two worlds was experienced , characterised by higher production due to higher prices , increased volumes and a growing GDP .
2010 TO 2015 CYCLE However , the cycle changed from 2010 / 2011 . Over the past six production seasons we experienced three bad years , the last having been the worst , as well as one normal and one average year . This situation was worsened by the fact that it followed on 2014 / 2015 , which had been a sub-optimal year .
For Senwes it meant that our
AUG / SEP 2016 • SENWES Scenario
grain carry-over stock levels decreased in terms of utilisation capacity . Secondly our client base is under pressure . Producers are cutting back on capital items and cost savings are the order of the day . Volumes are lower and margins are shrinking , which are preventing stock levels from increasing . This is putting pressure on the balance sheet due to higher costs . All these things resulted in a lower profit , the R156 million net profit reflected for the past financial year .
THE EFFECT OF TWO SEASONS We are experiencing the effect of two seasons - the previous year ' s crop and the new year ' s plantings . A very small crop with low volumes are expected for the new year , due to the fact that planting levels were 32 % lower . The 68 % hectares which were planted also rendered sub-optimal yields . Where we normally handle approximately 2,6 million tons of grain , we will only be handling approximately 1 million this year .
WHAT IS THE EFFECT OF THE ABOVE ? The effect on the net profit Iine was R100 million in the 2015 / 2016 financial year . The potential for the current year is R150 million less . In reality the drought will have an impact on three years . The effect for the 2017 / 2018 year is estimated at R40 million to R50 million - a total potential impact of R300 million .
2015 / 2016 FINANCIAL YEAR Senwes had a turnover of R9,2 billion and a net profit of R156 million and cash of R500 million was generated from our operating activities . The cash is critical for our interest account , with clients being under severe cash flow pressure , an increased balance sheet and more money being spent on financing costs . In addition the dividend policy has to be maintained . We still delivered a return on equity of 8,5 %. The net asset value was 48,7 cents per share higher , despite the difficult conditions , which means that Senwes is still increasing shareholder value . A final dividend of 20 cents per share was declared , which brings the total dividend for the year to 45 cents per share . A dividend yield of 3,9 % on opening market price is therefore reflected .
THE DIFFERENT BUSINESSES DURING THE PAST YEAR Grain flows were lower , but still good over the past year . Grainlink delivered relatively good results and we are well-positioned as far as grain management ability is concerned and cost efficiency is receiving focused attention . Input businesses were under pressure , but Grainovation and Certisure managed to deliver good results . Senwes Credit was also under pressure .
EXPECTATIONS FOR THE NEW YEAR Lower grain volumes will result in pressure on divisions . Clients will have less available capital and the repayment ability of clients will also be under pressure . We are facing a difficult year and we will have to be very effective .
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