Kaap Agri holds on to cash to avoid COVID-19 iceberg

Agri-business Kaap Agri has made a strategic decision to preserve cash in the midst of the uncertain economic landscape triggered by the COVID-19 pandemic. Despite seeing an increase in revenue and profits, the company has opted to withhold its interim dividend to ensure liquidity and financial stability moving forward. Sean Walsh, CEO of Kaap Agri, recently discussed the company's financial strategy in an interview with CNBC Africa. Walsh expressed that given the current circumstances of the pandemic, the board felt it was crucial to prioritize cash preservation and liquidity. The decision to forego the interim dividend was made in light of the ongoing uncertainty and the need to have sufficient reserves for any potential challenges that may lie ahead. The company plans to reassess the dividend situation at the end of the year, taking into account the evolving economic conditions. Amidst the COVID-19 crisis, Kaap Agri has implemented various measures to manage its cash position and ensure operational efficiency. These measures include aggressive working capital management, labor cost reductions, procurement spend cuts, and CapEx freezes. By streamlining operations and focusing on cost-saving initiatives, the company aims to navigate through the economic downturn and safeguard its business stability. Despite the challenges posed by the lockdown restrictions, Kaap Agri has been able to operate during the past five weeks, albeit facing varying demand dynamics across different sectors. While agricultural demand remained relatively stable, retail and fuel sectors experienced significant declines in consumer activity. Retail demand dropped by 50%, while the fuel sector reported a staggering 70% decrease in overall demand. However, as South Africa gradually moves towards reopening its economy, Kaap Agri anticipates a more positive outlook for its business operations. Regarding concerns raised by analysts about the company's capital expenditure in the fuel business and its level of debt relative to its market capitalization, Walsh addressed these issues with confidence. Kaap Agri's strategic focus on expanding its fuel footprint has been part of its growth strategy, aiming to enhance its market presence and generate positive cash flows. Despite the challenges posed by COVID-19, the company remains optimistic about its cash generation potential and plans to reduce its debt levels over the coming months. In conclusion, Kaap Agri's cautious approach to financial management in the face of the pandemic reflects its commitment to long-term sustainability and resilience. By prioritizing cash preservation and efficiency, the company aims to weather the uncertainty of the current economic climate and emerge stronger in the post-COVID era.