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Should the climate normalise , the past drought will have a 3-year impact on our business ... depending on how much rain is received and the soil moisture situation , is from October to December and , as was evident during the previous season , even into January .
PERSPECTIVE ON SPENDING The most important aspect relating to the recently published interim results , is that we have experienced a 1 out of 107 years event at Senwes and SA agriculture experienced a 1 out of 109 years event .
I say most important , because it had a huge negative impact on the input side of our business . The spending ability of producers was limited and they experienced severe cash flow pressure . All our input businesses were under pressure as far as volumes and margins were concerned - “ Obviously the stocking cycle also has to normalise - you just don ’ t stock up for such an event . You stock up for a normal year .”
SENWES HAS A HUGE SOCIAL IMPACT / FOOTPRINT Our business is fixed cost driven - " We cannot simply phase out the costs relating to the more than 3 000 employees , assets , machinery , inventory and capital expenditure .”
People with dependants are dependent upon us . Directly and indirectly we touch the lives of between 300 000 and 400 000 people via our customer base , personnel , input suppliers , customers on the processing side , towns and municipalities . We have a huge human and social impact . It has a huge cost effect on our business when sufficient volumes cannot be obtained , as we recently experienced .
THE IMPACT OF THE DROUGHT ON MARKET ACCESS Senwes normally handles approximately 2,5 to 3 million tons of grain . Last year we hardly handled 1 million tons , with a fixed cost structure in excess of 80 %. Should the climate normalise , the past drought will have a 3-year impact on our business to the extent of a R100 million negative impact in the 2014-2015 production year , R150 million in the 2015-2016 production year and R50 million in the 2016-2017 production year - a total impact of R300 million . Our profit is R100 million lower than the previous year . Now , after having received 1 million tons of grain , the impact on our market access business is significant . We have a negative carrycost in the market , exceptionally high premiums have to be paid for white maize and commodity prices and exchange rates are higly volatile . It is a very dangerous situation for a trading business such as Tradevantage .
CREDIT AND FINANCIAL SERVICES The client base is under pressure as far as cash flow is concerned .
“ The producer ’ s next income cycle will only be when this year ’ s planted crop materialises , hopefully after having received good rains . Only then will the next cycle commence .” Our financial services business is under pressure , both as far as repayment ability and margins are concerned .
SURVIVAL AT THE LOWEST POINT OF THE CYCLE Senwes is conservative as far as balance sheet management , cash flow and the cost line are concerned . Personnel should realise that personnel cuts have not been done in a long time . We try to manage our business in such a way as to prevent personnel cuts . If you want to criticise or voice your unhappiness , this is something to remember . “ The reality is that we have to survive , even at the lowest point of the cycle .”
EXPECTATIONS FOR THE REST OF THE FINANCIAL YEAR - A VIEW ON THE NEXT SIX MONTHS The eastern side of the country received normal to above-normal rain and plantings were at a level of almost 100 % during the months of October and
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SENWES Scenario • FEB / MAR 2017
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