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As noted by the Chairman, we have made significant progress
in the achievement of our medium-term strategic objectives,
establishing community joint ventures, exiting under performing
businesses and expanding our footprint in Africa. I am
confident that the initiatives taken will give the group a solid
platform from which to undertake future growth.
In view of the substantial decline in earnings in the year
under review, I have taken the opportunity to report on our
operations in some detail, identifying the key drivers of
profitability in each division. |
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Good results were achieved by our cane operations, with
total production of 617 916 tons compared with 594 894
tons in the previous year. The results were boosted by
excellent yields on our irrigated Komati and Swaziland
Estates, although production at Renishaw and KwaCele
(Langespruit) was below expectations. As a result the
operating profit from cane increased from R46.2 million to
R54.4 million.
The year introduced a significant change in our cane
operations, with the sale of the farm Cedars at the beginning
of the year, the first year of operation of our Langespruit
Estate as a joint venture with the KwaCele community and
the first year of production from the group’s Mthayiza joint
venture in Malelane, Mpumalanga.
During the year the group’s operations on the Riversbend
Estate at Nkwalini in KwaZulu-Natal, were taken over by
Tongaat Hulett Sugar (THS), which leased the land for a
15 year period.
This estate has been a persistent under performer in our
portfolio, suffering from poor soils and irrigation
infrastructure, and being located more than 60km from the
Felixton mill.
The transaction makes good sense for both parties, as the
operation is not viable for the group, while THS is critically
dependent on the cane supply for the mill, and can increase
production by replanting citrus orchards to cane. The group
will receive a fixed proportion of revenue from the estate in
terms of the lease.
During the year the group also made its first acquisition in
Zambia of the Hagiar Kim farm near Mazabuka, with 438 ha
planted to cane under furrow irrigation. The farm benefits
from excellent growing conditions, having achieved a yield of
more than 150 tons per hectare in the past year.
The income from this farm will boost returns in the 2011
financial year. This acquisition presents the first phase of a
strategy to increase cane farming assets in good growing
areas outside of South Africa, although we will have to
exercise patience if we are to acquire the right farms.
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| Following the outstanding results of the 2009 financial
year, our deciduous farms experienced an extremely
disappointing year, despite record production of nearly
20 000 tons. The reduction in operating profit from R28.3
million to a loss of R10.2 million in the current year was
almost entirely due to the decline of the global deciduous
market, aggravated by the strengthening of the Rand in the
same period, the net result of which was a 43% decline in
farm-gate prices. |
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| The market weakness has unfortunately persisted into the
current year. Analysis of historic price trends shows that
prices are close to 15 year lows in real terms. However, the
volatility is typical of the export fruit market, and the group’s
ability to weather these extremely low prices bodes well for
the future of its operations in this industry. |
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| The estate’s management is focused on maintaining
standards despite the profit pressures, and will be well
positioned to take advantage of a market turnaround. The
group’s product and geographic diversification to an extent
mitigates these market and climatic risks. |
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| We have also not deviated from our plans to increase our
deciduous orchards from 390 to 500 hectares with the
development of vacant land on our Vyeboom farm between
2011 and 2014. |
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| We are confident that we own good quality land and that our
strong management team, in co-operation with our
marketing partner Two-A-Day, will be able to deliver the
expected returns over time. |
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Our banana production was negatively impacted by cold
damage incurred during the abnormally severe winter
experienced in the Lowveld, resulting in reduced production
of 734 000 cartons compared with 912 000 in the previous
year.
Production throughout the region was lower than normal
which resulted in compensating firmer prices. Operating
profit of R9.5 million is marginally higher than the R9.1 million
achieved in the previous year.
A concerted effort is being made to improve quality and
production levels, which currently lag those of industry
leaders, by relocating plantations to better soils and
reviewing management procedures against industry best
practices. We aim to achieve a significant improvement in
this area in the next year.
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Profits from grain declined from R6.0 million to R3.3 million
primarily due to a reduction in the average price received
from R2 502 to R2 159 per ton. Production was also 4%
lower than the record levels of the previous year.
We do not expect any relief from the low prices in the 2011
financial year, although the recently introduced revised
import tariff will limit the downside should prices decline
further. It is small consolation to note that many wheat
producers are operating at a loss at current price levels.
The sheep operation performed well in the past year, with an
increase in operating profit from R0.3 million to R1.1 million
due to improved lambing rates and fewer mortalities. |
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The market for crocodile skins all but collapsed with the
global financial crisis, with the result that the group did not
export a single skin during the year. We are closely
monitoring market conditions in conjunction with our
marketing partners, SA Croc Traders (SACT), to determine a
strategy to address the problem. For the present our
saleable crocodiles are being housed by SACT at its cost.
The tourism operation of Crocworld experienced a good
year with many improvements made to the facility.
The cattle operations in Swaziland experienced a difficult year,
with high levels of redwater/heartwater disease, high mortalities
and theft. Since year-end the cattle have been sold and the
ranch land leased to a third party to enable management to
focus on the core business of farming sugar cane.
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Our citrus exports were severely impacted by the strong
Rand and weak market conditions to such an extent that
product exported in the latter half of the season achieved
negative gross returns. The situation was aggravated by a
below average production season and cold damage incurred in transit to Japan.
The poor performance of our citrus over many years was a
significant factor in deciding to terminate our Riversbend
operations and lease the farm to THS.
The operating loss of R6.8 million combined with a write-off
of the citrus assets amounting to R10.7 million and a
reduction in the value of biological assets (crop) of
R5.5 million resulted in a net loss for the year of 23.0 million,
compared with a profit of R1.2 million in the past financial
year. The citrus business is accordingly reported as a
discontinued operation and this loss will not recur.
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Renishaw Property Developments (Pty) Limited was
established in the past year, to undertake the evaluation of
the group’s 1 800 ha Renishaw and Clansthal cane farms on
the south coast of KZN for commercial, industrial or
residential development.
Vista Construction was selected as our preferred partner
after an extensive search and selection process because of
its presence in KZN and its excellent fit with the Crookes
culture and values.
The project team led by Vista has since made good
progress in drawing up an environmental management
framework (EMF) for the whole area, which will be
completed by mid-July 2010. The EMF outlines the draft
town planning for the region, including the allocation of
parcels of land for different uses.
The EMF evaluation includes studies by experts into
engineering, economic, social, market, town planning,
environmental and other factors. The team has consulted
widely with various stakeholders, including government
bodies, conservation groups, municipalities and
communities, and thus far its process and proposals have
been very well received.
The team’s brief is to ensure that any proposed
development enhances the Crookes family legacy in the
area, complements and upgrades the natural environment
and contributes to the upliftment of local communities.
When the EMF is completed, Environmental Impact
Assessment (EIA) studies will commence on individual
parcels of land in order to obtain the necessary regulatory
approvals. We must emphasise that this is a long-term
project, with physical development unlikely to start within
the next 2 years, and an ultimate time horizon of 20 years or
more.
The development will have a negligible impact on cane
production in the medium term.
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Despite the continued strength of the Rand and weakness in
the international deciduous fruit and grain markets, with our
exit from under performing operations and the expectations
of a good cane crop and relatively firm prices, management
are cautiously optimistic in terms of the group’s prospects
for the financial year ending March 2011.
Unfortunately, the sale of the group’s Komati Estate to the
National department of Land Affairs has not been
concluded due to the well-publicised shortage of state
funds for land restitution. We have initiated legal action
against the state for specific performance and hope for a
satisfactory conclusion to the matter before the end of the
current calendar year.
When the Komati Estate is transferred this will contribute
significantly towards cementing our strategy to assist the
state in its land restitution efforts and to become a service
providing partner in our South African cane operations. As
stated previously, the intention is to lease-back the estate
from the beneficiaries and ultimately establish a joint venture
with the new owners, and to transfer farming skills to the
community. The funds released from the Komati sale will
also provide the capital resources to continue the expansion
of the group’s operations, including those outside of
South Africa. |
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I would like to thank my management team for their
continued enthusiasm and commitment in a year in which
we experienced difficult market conditions. I would like to
offer special thanks to Bruce Roberts, who retired as an
executive director at the end of May, and Bruno Casarin,
who retired as group Transport Manager at the end of
March. Both Bruce and Bruno made exceptional
contributions to the group throughout their long careers. We
wish them a happy and rewarding retirement. I also extend
my thanks to Guy Wayne and the board for their strong
support during the year.
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Guy Clarke
Managing Director
21 May 2010 |
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