Neil Oosthuizen, Group MD

Introduction

The year 2008 produced the Capespan Group's best financial result since inception in 1999. Therefore, it's also appropriate that this result is reported in the year of Capespan's 10th anniversary.

It will be remembered as a year starting with some major global concerns, i.e. the USA sub-prime situation, food inflation and rising oil prices. The latter moving from US$99 to US$150/barrel in the first six months. Apart from the aforementioned, global warming also remained top of mind. In South Africa further elements added to the challenging external environment, namely rising inflation, interest rate increases, the energy crisis, crime and political uncertainty.

Nevertheless, the year started with extremely strong prices for most of the South African fruit kinds, enabling the Group to return exceptional payments to growers/suppliers in some cases. This was assisted further by the rand weakening against all our main trading currencies.

During the second part of the year, the global financial crisis had fully manifested itself. Oil prices came down dramatically and pressure on reducing interest rates mounted as part of the various governmental recovery plans.

Because of the changed circumstances, liquidity and credit risks impacted on some of the traditional markets and we had to revise marketing plans and stop procuring certain fruit kinds. The markets which started off very positively in 2008 suddenly had become risky and had to be handled with extreme care. Suffice to say we ended the year without any significant exposure.

Capespan, as most other businesses, is exposed to global trends and the new marketing year will have to be handled very circumspectly as prices, demand patterns, buying power and credit risk will have a definite impact on 2009.

Operations

South African fruit industry volumes exported increased marginally on the 2007 figure, with a total of approximately 2,2 million pallets being shipped. Furthermore, the opportunity to source and market fruit from other countries remained strong, as the global fruit production for export purposes keeps on increasing.

In 2008 the Group marketed 55,2 million cartons of fruit from various sources, compared to 58,7 million in 2007. This represented a 5,9% (3,5 mc) decrease year on year. The total drop could be attributed to the South African fruit kinds with the decrease being because of reduced grape and citrus volumes. As the economic outlook started deteriorating during the second half of 2008, it was also decided to cut back citrus intakes. From the total fruit marketed, 35% was from countries other than South Africa. During the year, Capespan UK and Fisher Capespan showed reduced non-RSA volumes, but growth by Goldspan (Japan) and Capespan Continent compensated for this decrease.

Albeit at a lower rate than previous years, the move from conventional shipping of fruit to containers continued relentlessly. Our port terminal company, FPT, handled 766 000 fruit pallets, which represented a drop of 9,4% on the previous year. However, the company's diversification into handling other products contributed towards posting a positive result. Most notably was the increase in containers handled, from 3 262 boxes in 2007 to 10 570 boxes in 2008.

Shipping company Universal Reefers changed the nature of its operations considerably, with less cargo being booked onto own vessels, as opposed to vessels being placed on time charter under different operators' control. Again the company was successful in being awarded the contract for shipping the Western Cape Citrus Producer Forum's fruit to the USA.

Financials

With its wide variety of activities the Group was able to produce an exceptionally good result as the Adjusted Profit before Tax of R204,4m was a 63,5% improvement on the R125m figure of 2007.

All divisions - Fruit, Logistics and Investments - made positive contributions to the overall result, although Fruit and Investments’ contributions were lower than the previous year. However, the Logistics Division more than made up for this by recording a PBT of R120,4m, which was 129,8% above the previous yea's result.

The major Group companies were all profitable with the exception of Capespan UK, which recorded a loss due to lower volumes, pressure on gross margins and a number of extraordinary items.

Strong performances were posted by Capespan Exports, Capespan Continent, Metspan, The Fresh Chain, FPT, Universal Reefers (Cape Reefers), Matola Cargo Terminal (MCT) and Rapiprop.

Key indicators are summarised for easy reference:

                                                         2007         2008

Change Turnover (Revenue)       R2,143bn R2,424bn    13%

Operating Profit (Adj EBIT)          R98,7m    R168,0m      70%

Nett Profit                                     R49,6m    R129,5m    161%

Headline Earnings/share               20c            32,8c           64%

Return on Equity ROE)                  6,3%       14,1%              -

The Annual Report gives a comprehensive analysis of the 2008 financial performance.

Looking forward

Revenue has grown by 13,1% to R2,4bn year on year. Therefore, our challenge remains to show continued growth going forward.

On the fruit marketing side, growing our existing global customer base and also developing new markets remain a high priority. Sourcing fruit from other countries around the globe maintains its importance, as our target is to handle 30mc by 2012.

As the traditional logistical businesses have come under pressure, different strategies have been adopted. FPT will see growth in the form of handling diversified cargos and increasing its involvement along the supply chain. In Universal Reefers'case, a new business model is being developed to take the company forward after the current long-term charters (Snow-vessels) come to an end in December 2009.

At the beginning of 2008 our associate company Rapiprop acquired a significant apple and pear farm in the Grabouw/Elgin area. This has been followed by a further acquisition in the Vyeboom area during November 2008. These additions now bring the total number of farming units under Rapiprop's control to 14. Our involvement in primary productions will be reviewed continuously to ensure the strategic relevance of such acquisitions.

Another growth area will be our participation in farm management projects. In co-operation with government we plan to assist in providing farm management services to emerging growers/new land owners.

Providing leading supply chain service solutions remains an important growth area and we are pleased with the progress among others by our division The Fresh Chain, showing strong growth year on year. Our Supply Chain Leadership Project has concluded its internal study and proposals will now be taken forward.

Sustainability

During 2008, Capespan expanded its corporate social investment role and introduced the Blue Hand initiative. It symbolises Capespan's strategic intention to make a difference in people's lives in communities in which we operate.

Five Capespan CSI videos were produced and used as part of a Blue Hand awareness drive to inform the international fruit trade community. These also will fulfil a significant informative role in securing future funding by attesting to the progress made with financial contributions.

Deserving projects have been identified as part of a needs assessment according to the Group's Corporate Social Investment strategy. As such Capespan has entered into partnerships with overseas license holders and customers to contribute towards developing these projects.

Other group companies such as Capespan UK are extremely involved in CSI projects and by coordinating the various activities overall, we should be able to augment our efforts.

Apart from contributing to various health, education, basic facilities and general social needs projects, we continued our financial support to the Thembalethu HIV/Aids Trust.

It also has been decided that going forward, all corporate social investment projects will be executed under the auspices of the Capespan Foundation.

Global climatic changes will have a profound impact on fruit production. As part of Capespan's triple bottom-line approach we are acutely aware of our responsibility to protect the environment. 'The Green Supply Chain' initiative, which will coordinate all activities in the Capespan Group, focuses on decreasing the environmental impact of all our supply chain activities.

Our People 

The Group currently employs 684 people in its subsidiary companies world-wide. Including the staff members of significant associate companies, this number moves up to 1 270. Of the latter figures, 527 are based in foreign countries. We are represented by various nationalities, which illustrate the Group’s diverse nature.

As the business evolves around relationships, trust, personal service and excellence, we acknowledge the role everyone has fulfilled in achieving success for the Group.

During 2008 Capespan received the Exporter of the Year award from the Western Cape Chamber of Commerce. We humbly accepted the award as external recognition for a dedicated and committed team of people.

Lastly, thank you to all the different stakeholders for their support during 2008. Our shareholders, customers, suppliers, service providers, communities and government all played an essential role in enabling us to achieve such an excellent result.