TWK Agriculture: Adapting to a changing environment

Evolution is a word close to the hearts of much of South Africa’s farming community. The advent of scientific solutions to age of problems such as moisture content and soil quality have changed the shape of agriculture and resulted in a need for farmers to adapt.

TWK01Adaptation and evolution have certainly played their part in the story of TWK Agriculture, a company that has sailed through 74 years of hard work, political change and business evolution.

Today, TWK is a diversified agricultural company operating mainly in Mpumalanga, Kwazulu-Natal and the Eastern Cape but with much wider markets. The activities of the company and its subsidiaries include: marketing of forestry and agricultural products, handling and storage of grain, processing of forestry and grain products, provision of agricultural inputs, trade activities, financial and agricultural services and the provision of credit.

Back in the beginning however, the company operated in a very different environment, as Tinus Potgieter, Executive Manager: General and New Business, explains:

“The TWK story is remarkable; the company grew from a very humble beginning in 1940 to the big agriculture company it is today. And the story is far from over.

“In 1940, 52 members of a Wattle Growers Association in Piet Retief gathered and registered the Transvaal Wattle Growers Co-operative Agricultural Company Limited. The primary goal of the cooperation was to promote the marketing of the timber and bark of its members.

“Although this was top priority throughout the years, the board of directors soon realized this should not be their only responsibility. Provision should be made to supply the necessary production materials and related to its members. From this decision more products and services were added on an annual basis and the organization experienced exponential growth.

“In 1982 the name of the cooperation was changed to the Transvaal Wattle Growers Cooperation Limited, abbreviated TWK. Then in 1997 the cooperation was converted to a company named TWK Agriculture Ltd.”

Today the company has become big business; during 2012 the TWK Group turnover exceeded 3 billion Rand and employs roughly 1,700 people. Potgieter suggests that the company is experiencing continual growth. The secret to the company’s success has been diversification as the world around TWK has changed.

Headquartered in Piet Retief, Mpumalanga, the company operates business from many different sites and has become an expert is a range of activities.

In the Trade Division there are 36 branches throughout Mpumalanga, Kwazulu-Natal and the Eastern Cape, whilst the Timber, Grain, Motors and Tyres divisions all operate from a few different sites.

The Timber division is responsible for approximately 16,000 hectares of its own plantations, located across South Africa and Swaziland (where the sawmills are also based). There is a timber chipping plant in Richards Bay, from where products are exported. The Timber division oversees the marketing of the timber and manages the entire timber logistics process.

TWK’s Trade division includes 36 branches which supply a wide range of products to the agriculture market, including: fertilizer, seeds, chemicals and animal feed. This division also operates a fertilizer mixing plant in Richards Bay.

The Mechanization division includes several agency agreements for the supply of all agricultural equipment. Typically this division is responsible for the servicing of agricultural equipment and manufactures the TWK implement range.

The Grain division markets the company’s grain, with a particular focus on maize and soybeans. TWK possesses two Safex-registered silos for grain storage and this division processes the grain in two maize mills and animal feed mills.

TWK demonstrates its diversity by also operating a Motors and Tyres division which includes two Toyota dealerships located in Piet Retief and Standerton, whilst the company holds a majority share in Protea Tyres, a truck tyre retreading plant, based in Ermelo, but also operating four retail tyre outlets.

The company’s Insurance division acts as a broker for short-term, crop and plantation insurance and operates several agency agreements. The financial theme continues with TWK’s Financing division, which provides credit facilities to agricultural producers and support to TWK’s myriad of other divisions.

Recently TWK Agriculture has also restructured its management. Last year when The SA-Mag spoke to Potgieter, he outlined that change was imminent; at that time TWK was owned by approximately 460 shareholders, the majority of whom are producers in the agriculture sector. These shareholders obtained their shares when TWK made the transition from a cooperative into a company in 1997. None of the shareholders held more than 5 per cent of the company.

But that was all set to change, as Potgieter explained:

“The shareholders have approved a corporate restructuring to be implemented on 1st September 2013 which will enable wider shareholder participation. The rationale and objectives of the restructuring are to create a platform to enable existing TWK Shareholders to enhance and unlock value in the foreseeable future through the widening of the shareholder base of the TWK Group, improving the TWK Group’s ability to conclude transactions in which its shares are used as acquisition currency instead of cash. The changes will provide TWK Shareholders with a more liquid investment, whilst retaining control of the TWK Group for TWK Shareholders.

“The restructuring is also required to prepare for the BEE Transaction by creating a separate subsidiary which will house the businesses within the TWK Group that require empowerment.”

Transition duly took place and in June of 2013, news broke that Bravura had helped to restructure the organisation, advising TWK Agriculture Limited in preparation for a broad-based black economic empowerment (B-BBEE) transaction.

“The challenge faced by shareholders in co-operative type businesses is the ability to unlock value for shareholders by creating share liquidity. One must, at the same time, be very sensitive to farmers’ fears of losing control of their shareholding in the co-op – which is often their only supplier and off-taker – to unfriendly shareholders,” stated Stephan le Roux, senior dealmaker in the corporate finance division at Bravura.
Shares in these businesses are generally closely held to protect the farmers’ interest in the agri-co-op. But, the importance of not giving control away to share-price driven outsiders has resulted in the farmer-owned shares often not reflecting the underlying value inherent in the business. This has resulted in shares trading at significant discounts to their net asset value.

“TWK recognised the need for change, and Bravura assisted in the development of a restructuring solution that would increase outside participation in the business as well as address B-BBEE, but without losing the co-operative aspects of the business,” Le Roux added.

The solution proposed by Bravura’s corporate finance team, which is recognised as a market leader in the design and implementation of integrated solutions, will facilitate an increase in future liquidity of share trading as well as creating a B-BBEE solution for the TWK group – all while maintaining control for existing TWK shareholders.

Bravura later confirmed that the restructure went through successfully and that TWK had established a broad based community trust called the Vumbuka Community Trust, which holds 25 per cent of the TWK Group’s South African operations. The Trust is expected to contribute towards making a sustainable difference to the communities where TWK operates.