SOUTH AFRICA – Efforts by agribusiness Crookes Brothers to diversify away from its core sugar offering are expected to start paying off in the years ahead.

The company’s mainly Swaziland-based sugarcane operation has in recent years been broadened to include deciduous fruit, bananas and macadamia nuts — as well asan intriguing longer term X-factor in its Rennishaw property development.

Crookes is not watched closely by the mainstream market, which has PSG-controlled Zeder as a default “farming play”.

Agribusiness sources reckon Crookes needs to build more critical mass to appeal to the market, although there is consensus that the company’s cash-flow generation, regular dividends and property underpin are attractive.

Crookes MD Guy Clarke said that although there was plenty on Crookes’ plate at this point, the company, which has maintained a stout balance sheet, was still on the lookout for new opportunities.

“We will look at other agribusiness sectors. Areas that are doing well at the moment include avocados, blueberries and nuts. These niches could offer us new opportunities.”

Clarke said Crookes was now in an enviable position where its various newer projects were either at the formative phase of commissioning or advancing at a reassuring rate.

He said the diversification strategy was aimed at producing a range of crops in diverse regions to mitigate climatic and market risks.

Still, in the six months to September it was the core sugar operations that sweetened the bottom line.

The operating profit contribution from sugar, at R134m, was up more than two-and-half times from the previous interim period – although Clarke was quick to warn against extrapolating the strong half-year performance to the full year to March 2017 with drought conditions still persisting.

Drought conditions saw sugarcane production down 19%, but there was a hefty 30% increase in prices.

Operating profit from the Swaziland operation was R25m higher because of the 30% increase in the Swaziland sucrose price, while the Zambian operations realised an improvement of R4m thanks to a 21% price increase.

Despite sugar’s dominance at profit level, the split at top line does suggest that bottom line earnings might be more balanced in years to come as yields improve in the deciduous fruit, banana and macadamia operations.

In the interim period, sugar generated R266m in revenue, accounting for roughly 59% of total revenue.

But the Western Cape deciduous operations churned R100m, representing about 22% of total revenue. Banana sales – at R75m – represented 17% of total revenue.

In the next two years, the revenue split could be different with Clarke saying Crookes’ macadamia orchard developments in northern Mozambique continue to make good progress. He said the first small crop was expected in March 2017.

He predicted the macadamia operation would become a major contributor to operating profit in future.

In addition, Clarke said the development of a 300ha banana farm in southern Mozambique (in partnership with Crookes shareholder SilverStreet) would see the first 40ha of bananas planted in February 2017.

With newer developments still looking for profitable traction – and the possibility of niche acquisitions – Crookes has retained a conservative dividend policy. A gross interim payout of 50c a share was declared.

December 6, 2016;