Zeder Investments Ltd. (ZED) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I welcome you to Zeder's Annual General Meeting of Shareholders via electronic communication. I will be acting Chairman, as Chris Otto is unable to attend due to medical reasons. Since there is a quorum of shareholders present and proper notice of this meeting was given, I declare this meeting properly constituted. The notice commenting this meeting was posted to shareholders on 17th June 2022, which I [indiscernible]. Zeder's shareholders or their representatives who are entitled to vote at this meeting and to follow the registration process detailed in the notice of this meeting. Following the successful registration, the transfer secretary would have provided you with the details on how to access the meeting by means of electronic participate. Zeder shareholders or their representatives locked into the website will be able to: one, view the resolutions; two, vote by selecting for [ guidance or abstain ] in respect of each resolution; three, receive a pop-up message confirming that your vote has been received once your selection has been made; and four, change your vote while the poll remains open. I will read the proposed resolutions in the same order as here in the notice of this meeting. Please select the vote date to cast your vote. After the resolutions have been presented, the voting results will be displayed. The administrator will now open the voting via the website in order for the shareholders or their representative to vote as his or her leisure. Questions. Any shareholder who wish to ask a question can click on the Q&A tab and type your question at the bottom of the screen and press it. Any questions previously submitted to Zeder's company secretary e-mail prior to the AGM will also be addressed after the presentation by Johannes Le Roux, the CEO of Zeder. Presentation of annual financial statements. Zeder's audited annual financial statements, as circulated together with the notice of this meeting are hereby presented to shareholders, which I take as read. We require your approval for the following ordinary resolutions. Ordinary resolutions 1 and 2: to reelect Mr. Otto and Ms. Mjoli-Mncube as Directors. Please record your votes. Ordinary resolution #3, 4 and 5 to reappoint Ms. Cassiem, Mr. Otto and Mr. Mjoli-Mncube as members of the Audit and Risk Committee. Please record your votes. Ordinary resolution #6: to reappoint Deloitte & Touche as external auditor. Please record your vote. Ordinary resolutions #7 and 8, the endorsement of Zeder’s remuneration policy and Zeder’ implementation report on the remuneration policy. Please record your vote. An ordinary resolution #9, the general authority to issue shares for cash. Please record your vote. Requiring approval for the following special resolutions. Special resolution #1, approval of the remuneration of the Non-executive Directors. Please record your vote. Special resolution #2, the general authority to provide intercompany financial assistance. Please record your vote. Special resolution #3, general authority to provide financial assistance for the subscription and/or purchase of shares in the company or related or inter-related company. Please record your vote. Special resolution #4, general authority to the company and its subsidiaries for the repurchase of the company's issued shares. Please record your vote. As you've all recorded your votes, the administrator will now post the voting via the website and I shall announce the results once displayed on the screen. Ladies and gentlemen, I can confirm that all the resolutions voted on have been passed by the requisite majority of shareholders. All decisions have now been finalized. Details of the results will also be released later today on Sens. Johannes Le Roux, the CEO of Zeder, will now provide feedback to shareholders on behalf of Zeder Social and Ethics Committee whereafter the meeting will be closed. Johannes will then also make a short presentation regarding the business and answer any questions shareholders [indiscernible]. Thank you again for everybody's participation.

Thank you, Mr. Chairman. Good morning, ladies and gentlemen, and thank you for your time today. As Piet mentioned, I will do a short presentation today and also provide some feedback from the social and ethics committee. On the agenda today, in other words, feedback from the social and ethics committee, I'll discuss some post-balance sheet events, some material transactions that happened post our 28th February year-end. I'll give you a bit of a view of our Sum-of-the-Parts, what it looks like after these transactions. I'll spend some time on our remaining investment portfolio. The matters that's topical to them, strategy and prospects and then I'll have the opportunity to answer questions. So please, if you would, during the presentation, e-mail or send your questions through, and I will respond to them at the end of my presentation. In terms of the social and ethics feedback, Zeder implements our adherence to social and ethics obligations through deliberate participation at investee company level and also aligning and monitoring at the holding company level. Our social and ethics and governance reports are available in our 2022 annual report. We are a responsible investor. And together with our investee companies, we consistently aim to apply best practice from an ESG perspective. We are in agriculture. We are in the farming. So we understand that the environment is critical to the long-term sustainable operations of our investee companies. In terms of our portfolio investments, Kaap Agri is our only listed company and unlisted companies that all have formally constituted social and ethics committees. You'll be able to see more information on Kaap Agri's social and ethics feedback in their integrated annual report. In terms of our unlisted companies, in terms of Agrivision Africa specifically, there, we also find compliance with the IFC global ESG guidelines with IFC [indiscernible] shareholders. It's impossible to record all the initiatives across the group, below is just a few examples of our actions and intentions. We focus on those specific 4 pillars of education, skills development, sustainability and community outreach. In terms of education, investments in bursaries, pledges and support to make schools economically self-sustainable, early language, literacy development courses. In terms of skills development, as I said, we're in agriculture and farming. Farmer developmental programs is very important to us, also skills development of scholars and teachers. We have schools on many of our farms and then also occupational health and safety training. In terms of sustainability, from our seed business, distribution of vegetable garden kits to disadvantaged communities, sponsorship of seeds for impoverished communities and then also support and report initiatives to try and mitigate the effects of climate change. In terms of community outreach, contribution for meals for schools, orphanages, basic health services, sponsors of sports, and obviously during the COVID pandemic provision of food and water to disadvantaged communities. So we believe we contribute significantly to society. We view ourselves as good corporate citizens, and we're dedicated to making a positive contribution to the environment, our communities and our stakeholders. In terms of the post balance sheet events, these are all transactions happen post our year-end. As I reported on our year-end results, the disposal of the investment in The Logistics Group took place at the end of March for consideration of ZAR 1.6 billion. Of those funds, we've received ZAR 1.35 billion to date. That's enabled us to pay for the special dividends. There are some earn-out payments due of about ZAR 218 million and these are linked to extensions or renewals of agreements. It's not linked to profit warranties. Even though the timing is uncertain, we're optimistic that these earnouts will still be paid during this current financial year, and that will just be over ZAR 200 million. Then the unbundling of Kaap Agri that effective date was the 4th of April. The value was more or less ZAR 1.6 billion. Also, we believe the unbundling was in the best interest of Zeder shareholders. Zeder shareholders now have a direct interest in Kaap Agri. We've got a long history with Kaap Agri, and we're proud to have been associated with this group, the Board and the management team. And as I mentioned, the sale of the logistics business enabled us to pay a further special dividend as part of our February '22 year-end. That dividend of $0.925 was paid in May. That was an additional ZAR 1.42 billion of cash that was returned to shareholders. And if you take this current special dividend and also the 2 dividends from the prior year as a result of the Pioneer Foods disposal and Quantum Foods disposal, it's just over ZAR 5.66 billion that has been returned to shareholders. The recent corporate actions and all these dividends had a positive impact on Zeder's value creation for shareholders. I mean our strategy is to create shareholder wealth. If you were a shareholder 3 years ago, on the 28th of February 2019, you would have had a Zeder share price of ZAR 4.23 per share. Since then, if you add all the special dividends and then bundling of Kaap Agri, you would have received around ZAR 4.46 per share and then also have a remaining stake in our current portfolio. So if you work that back in terms of the same discount applied that would have been growth of 53% in your shareholding over those 2 years. And we must remember that, that was also during the main COVID pandemic period. In terms of Sum-of-the-Parts, as I mentioned, on the left-hand side is our year-end results and the right is Sum-of-the-Parts as last week. We don't revalue our investments only at an interim on a full year basis. The reason for the increase in the Zaad valuation is as a result of the Zeder bridge loan that was converted to equity. So you'll see currently, obviously, the Logistics Group and Kaap Agri no longer part of our group. The Logistics earnout is under the other bucket there. It's included in that ZAR 267 million. So yes, you'll see we're a much smaller business, but we still have a very good portfolio companies. In terms of our portfolio, just quickly going to touch on COVID and the Russian-Ukraine conflict, all the COVID restrictions of South Africa has all gone now, but our portfolio is still feeling certain pressures. Our management teams must be commended for how they handle the pandemic with their proactive measures. We still see the significant supply chain constraints leading to increased costs and margin erosion. We've got significant efficiencies at our South African ports and that is an obstacle that obviously increases costs and results and delays, and that mainly affects our Capespan business. But our portfolio has been resilient. I think they are performing well. And hopefully, we can put COVID behind us. In terms of the Russian-Ukraine conflict, the impact on our portfolio, obviously, you have pressure on agri input costs. I think we all see the inflation pressure on the consumer and also on the agri sector currently. There's some further additional risk, and that's the availability of agri inputs, especially if you've got planting seasons, things like seed and fertilizer need to be delivered in specific windows. But then again, the counter to that is that currently, we see high soft commodity prices, especially wheat and soya, and that bodes well for Agrivision. In terms of Zaad and specifically May Seed, it's our investment in Turkey. It's quite close to the Ukraine and Russia. And we are -- that business is a trading partner, only 7% of their revenue -- of May Seed's revenues trading to those markets. We actually see significant benefits for May Seed, as certain seed companies start moving the operations to Turkey away from those countries where the conflict currently is. In terms of our portfolio, Zaad, the business run by Antonie Jacobs. You'll see in the left top logo, the East African Seed. It's our new acquisition in the prior financial year. As I mentioned, that loan of ZAR 330 million was converted into equity via the rights issue on the 30th of April, and as a result, the increase in the valuation. We've seen good performances from Agricol. Agricol is our sunflower business with the higher input costs, farmers move away from maize, moving into sunflower, into commodities that require fewer inputs. So that's done well for Agricol. Our agrichemical business, Farm-Ag, has done very well. They're making very good inroads into the Western Cape, and our Turkish business also performed satisfactory. EAC is now also contributing to earnings and that investment will be a key growth asset for Zaad in terms of distribution of our own IP products through the East African channel. Bakker is still feeling the niggling effects of COVID. There are some trading issues in North Africa and the Middle Eastern markets. So we're focusing on those. As I mentioned, the Russian-Ukraine conflict, very minimal impact on May Seed, even though we see opportunities. But I mean, I think going forward, there will be a higher input costs but the focus of this business is on margin enhancement and obviously, our own IPC varieties. In terms of valuation, we don't adjust formally in terms of valuation model. We only do it at interim and instrument full year, but as I mentioned before, obviously, the rights issue had an effect on the valuation in our books. The valuation for Zaad, at our year-end, we're doing it on a EV/EBITDA multiple. We apply specific factors for seed and chemicals. We normalize the EBITDA downwards to strip out the effects of hyperinflation. Obviously, there's -- Zimbabwe is in hyperinflation environment, and then we deduct the net debt from this valuation. In terms of Capespan, our business run by Tonie Fuchs. Well, the farming operations, the citrus and pome had very good agricultural seasons and they were very, very good volumes, and that's specifically on the farms. But I think this industry is really feeling that the pinch of supply chain constraints and inefficiencies at our ports. As a perishable product, longer lead times and delays leading to quality control issues and as a result, therefore, you realize a lower price in the market. Capespan focus on 3 divisions. The pome division is largely immune due to some of these delays because you can keep apples and pears in a controlled atmosphere environments. You don't have to deliver to the market, but commodities like citrus and grapes, they're more perishable and therefore, more risk and to all the supply chain challenges. I think it's important to note that these dynamics are not unique to Capespan. It's an industry-wide dynamic and challenges. And going forward, the focus for this business on managing good volumes, good quality and obviously, the current market risk out there. In terms of valuations, also not adjusted at interim and full year. Our valuation on Capespan is based on the group NAV adjusted for company-specific factors. We do independent third-party valuations on all our farming assets and peck houses. And then our associated investments, we value at pie multiple but that's a much smaller part of the business. And then obviously, we apply a market-related discount to the Capespan Group NAV. In terms of Agrivision, the business in Zambia, that's run by Stuart Kearns. We've sold the milling operation. We've signed agreements. And as I mentioned, the higher soft commodity prices currently bodes well for the farming operations. Our Mkushi farming operation, we have 2 big farming blocks. One is Mkushi. And one is in the Mpongwe area. Even though the summer rainfall was sporadic and our dams less water, we're still plant in full wheat there. Mpongwe milling operation has been mothballed in anticipation of the sales. There are no more losses coming from that business into our books. And yes, the commodity price is high at the moment, and we think that, that will remain in the medium term. Similar as the farming operation, obviously, we'll have a focus on inflation cost management and timely availability of agri inputs and equipment for these key planting seasons. The sale at the Mpongwe milling operation and the good operational performance from the business will result in further reduce debt. The valuation also unchanged from our year-end, even though this business is in a far better places what it was 2 years ago, also based on the valuation of NAV -- based on Agrivision Group NAV adjusted for specific factors. And we once again do independent third-party evaluations on all these farms. In terms of our strategy and prospects. Our strategy hasn't changed. Objective remains to maximize shareholder wealth. We need to grow our portfolio of companies. We need to ensure that we can pay dividends to our shareholders. And then we also evaluate disposals when appropriate. And we believe that we fulfilled on that strategy over the past year. I think the TLG Group disposal, unbundling also the special dividends had a positive impact on Zeder's value creation for shareholders and also on our share price. In terms of the prospects going forward, we're sitting in a good agricultural cycle. That's obviously very good for our portfolio companies. Yes, we have supply chain risks and challenges and the Russian-Ukraine conflict also has implication portfolio, but they're being monitored and they're being managed well. In terms of the approaches, we have on our portfolio investments, we remain engaged with third parties on our portfolio assets. As I said before, our strategy is to maximize shareholder wealth in an appropriate and responsible manner. If there are transactions to be done, we want to do good transactions for shareholders. These take time and we will obviously report back to the market when appropriate. Ladies and gentlemen, this brings me to the end of my presentation. I'll be available to answer questions now if you can maybe just give us a minute or so just to collate all the questions. Thank you.

Thank you, Johannes. Good morning, ladies and gentlemen. Just to remind that please post your questions while we go through the questions that we received. I note that there are some questions that overlap or may have been addressed by the presentation of Johannes, but I'll go through them and you can decide whether you want to expand on what you presented. So the first question is, please, can you give an update on how Zaad and Capespan are doing given the current environment? I think you may have touched on it, but if you want to elaborate. How are the current logistics challenges in Europe impacting Zaad.

Yes. I think both companies is in a good space. I think on Capespan specifically, as I mentioned, we have got very, very good performance on the farms. The problem is logistic challenges. Citrus is a smaller part of Capespan's business. So currently, we are in the citrus market. I think the key thing will be is how the grape pan out towards the end of the year. But I mean that's 6 months away. And then hopefully, some of these challenges in the ports have been alleviated by that time. Zaad's having a good year. We've got EACs on our books at the moment. They have a June year-end. So we'll report the full year results as part of our interim results. Logistics in Europe in the EU, it has an effect on Zaad, specifically the availability of seed in key markets in those specific windows. I think that's probably our biggest challenge, is to make sure that we can somehow get the seeds in the specific countries in time to be planted. So yes, the business has got challenges, but I think overall, we're in a good macro agricultural environment and our businesses are well positioned.

Thank you. Are there any specific next steps in unlocking further value, which you can share? And I think that your answer to say you remain engaged with third parties and when appropriate and firm, one will come back.

Yes. That's correct. I think as I said, we want to do good transactions if we do transactions with shareholders and we're patient. We're not under any pressure to sell any specific assets. If we can do a good transaction for shareholders, then we will engage.

I think there's a further question on Capespan and EU issues regarding citrus and exports, but that I believe you've just addressed.

Yes.

The next question is on Zaad. So -- is it correct that ZAR 1 billion of -- sorry, could I please ask on Zaad, correct me if I'm wrong, but I seem to recall that Zaad has around ZAR 1 billion of debt. And Zeder has extended Zaad a loan of ZAR 300 million. That loan, I think, has been repaid. I think you said it's been converted to equity, ZAR 300 million. What is the current position on debt with regard to Zaad.

Yes. So Zaad's current debt is just under ZAR 1 billion. So it was much higher than that prior to the conversion of the loan. So currently, the debt position is just under ZAR 1 billion.

There's a further question on the global demand for seeds remains robust due to Ukraine war, edible oil, sunflower is in high demand. Can you give us an update on Zaad and its current prospects. I think you have addressed that in the previous question.

Yes, I think so.