Diversified agriculture and forestry company TWK Agri has posted a 13% year-on-year decrease in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R372-million on the back of tough economic conditions in the six months ended February 28.

The group, which operates through its timber, retail and mechanisation, financial services, grain and motors segments, did, however, record an 8.8% increase in its net asset value a share to R54.68.  

Basic earnings a share decreased by just under 21% year-on-year to 447c.

Although revenue from continuing operations increased by 7.5% to R5.2-billion in the six months under review, Ebitda suffered from a decrease in both sales volumes and margins in fertiliser sales; the impact of loadshedding on operations along with diesel costs incurred to minimise its impact; higher interest rates; and price inflation.

The timber segment saw growth in wood chip exports and local timer sales, having posted a 28% year-on-year increase in revenue to R1.4-billion.

The company exported 384 978 t of wood chip and timber in the reporting period, mainly to China, Japan and new European customers.

Total sales volumes increased by just under 20% to 771 536 t, which includes domestic sales.

The timber segment managed to grow its Ebitda by 21% year-on-year to R197-million; however, the margin decreased to 13.3% as a result of costs and loadshedding.

Revenue in the retail and mechanisation segment decreased by less than 1% to R2.5-billion. Ebitda, however, decreased by 72% to R47-million in the six months under review, compared with the six months ended February 28, 2022.

TWK cites the main reasons for the segment’s Ebitda decrease as being significant fertiliser product price and sale volume declines, the negative impact of loadshedding on retail outlets, high interest rates and production price inflation.

The group assures it has been able to maintain market share, however, not without placing profit margins under pressure.

TWK advises that fertiliser prices have been decreased as of October, following significant highs from early in 2022. On average, the fertiliser market has experienced a decrease of 45% in raw material prices. Fertiliser sales declined by 22% to 94 604 t.

Margins came under severe pressure and certain fertiliser products were sold well below cost price to ensure stock levels are reduced, the company states.

Mechanisation sales decreased by 7% to 134 units in the period under review, mainly owing to sugarcane farmers in KwaZulu-Natal experiencing decreased volumes and prices, and not spending on capital equipment.

Moreover, the financial services segment reported increased Ebitda of 35% to R60-million, particularly owing to a strong performance in the insurance division.

The grain segment’s Ebtida decreased by 48% to R11.2-million in the six months under review, despite a robust performance by the grain marketing business and an increase in maize product and animal feed prices. TWK says the high average grain price and inability to recover some of the costs, specifically in animal feeds, coupled with high fuel and energy costs, gnawed at profitability.

The motors segment posted a decrease in Ebitda of 70% to R6.6-million, owing to severe vehicle stock shortages in the major vehicle brands, which is, in turn, mainly as a result of the KwaZulu-Natal flooding experienced last year.

For example, Toyota’s manufacturing plant was closed for a few months while flood damage was assessed and repaired.

Additionally, the segment suffered from the ongoing worldwide semiconductor shortage crisis and lower consumer spending activity. TWK has also been selling off filling stations, with the majority of filling stations having been sold as of February this year.

TWK CFO Eddie Fivaz expects the next six months to remain challenging, but he is positive about the longer-term outlook, especially as strong local and global demand for wood chips continues.