Agriterra Ltd : Final Results

Agriterra Ltd / Ticker: AGTA / Index: AIM / Sector: Agriculture

4 November 2013

Agriterra Ltd ('Agriterra' or 'the Group')

Preliminary Results

Agriterra Ltd, the AIM listed pan-African agricultural company, announces its unaudited results for the year ended 31 May 2013.

OVERVIEW

·    African focussed multi divisional agricultural Group with vertically integrated operations to maximise margins and revenues

·    Defined investment and development programme to provide foundation for sustainable growth and profitability - focussing on expansion of beef operations in Mozambique and cocoa operations in Sierra Leone

·    Record revenues of US$21.2m (2012: US$13.8m) reported and increased Net Asset Value ('NAV') to US$60.0m (2012: US$41.4m)

·    Strong balance sheet to support expansion programme following the sale of legacy oil assets in Ethiopia - further $10m before tax due if a commercial discovery is made in Ethiopia

Beef Operations, Mozambique

·    Revenue from beef operations more than doubled during the year to US$2.2m (2012: US$0.9m) with the slaughter of 2,145 animals (2012: 1076 animals).  1,832 head slaughtered from 1 June to 31 October 2013

·    Completion of abattoir and opening of 3 retail butchery units, initiating our "field to fork" strategy

·    Improved pregnancy rates with bumper calving season - expect to achieve target of 10,000 head by 2015

·    Acquisition of third ranch completed

Cocoa Operations, Sierra Leone

·    Integrated cocoa buying, trading and production divisions in line with strategy of establishing a secure, sustainable and traceable source of supply

·    Rapid expansion of cocoa plantation to facilitate commercial large scale cocoa production - 3,200 hectares plantation land acquired to date and negotiations underway to expand further

·    Expanding nursery to 2.2 hectares with capacity to cultivate 1.1 million seedlings

·    In excess of 250 hectares of land planted, with an additional 750 hectares targeted to be cleared and planted by Q3 2014

·    Cocoa trading business with 3 hub stores and a buyer register of over 3,500 farmers

·    Improved market share despite poor harvest with revenues generated from cocoa trading of US$3.14m (2012: US$3.25m)

·    New warehousing and processing facility in Kenema expected to be commissioned in December 2013

Maize Operations, Mozambique

·    Record revenues of US$15.8m generated from maize division, representing a 61% increase compared to the previous year (2012: US$9.7m) 

·    Maize milled increased 68% to 46,600 tonnes (2012: 27,690 tonnes) and maize meal sold increased 59% to 34,500 tonnes (2012: 21,717 tonnes)

·    Poor harvest impacted the 2013-2014 buying season - however increased demand and a more favourable pricing environment expected as a result

Agriterra CEO Andrew Groves said, "We continue to develop an integrated African focussed agricultural business that is positioned for long term sustainable growth and profitability.  We have invested heavily in building the platform needed to support our expansion plans, with a particular focus on beef and cocoa, where future pricing dynamics are extremely positive.  We remain excited about the potential of agri businesses and look forward to achieving our growth targets by implementing our expansion strategy and building shareholder value."   

CHAIRMAN'S STATEMENT

Agriterra continues to develop and invest in its agricultural operations in Mozambique and Sierra Leone, building a multiple revenue stream business focussed primarily on beef, cocoa and maize.  The Group has benefited greatly from the non-dilutive cash injection of US$28 million from the sale of its legacy oil assets in Ethiopia, which has enabled it to invest further in its expansion programme across all divisions.  This included the building of an abattoir and the opening of butchery outlets in Mozambique as well as the establishment of a cocoa nursery and plantation and a new warehousing and processing facility in Sierra Leone.

Underlining the growth that we achieved this year, we reported record revenues of US$21.2m (2012:$13.8m) and increased Net Asset Value ('NAV') to US$60m (2012: US$41.4m).  The Board recognises the potential for agriculture and has established a development strategy to grow the inherent value of the business by utilising the Group's framework in place to build a profitable and fully integrated African focussed agricultural company.

In line with this we have made progress across all three of our main divisions.  Mozbife Limitada ('Mozbife'), our beef operation in Mozambique, now has three ranches, a feedlot, an abattoir and three retail butcheries with two satellite units, meaning we have a fully integrated beef operation to capitalise on the full uplift through the value chain from field to fork.  As a result, revenues from this division more than doubled during the period, with the slaughter of more than 2,100 animals which generated US$2.2m (2012: $0.9m).  With a total herd of 6,879 head at the year end and a high current pregnancy rate from our 4,100 head breeding herd, we expect to achieve our initial target of 10,000 head by 2015.  This should provide the critical mass to generate significant returns and profitability in the future.

Also in Mozambique, we achieved record sales in the grain division of US$15.8m (2012: US$9.7m), although we experienced lower margins due to the pricing environment and harvest.  Despite a poor harvest in 2013, current grain inventories stand at 19,000 tonnes.  With strong demand and improved pricing, margins are anticipated to improve compared with 2013.  We maintain a positive outlook for our grain division, which works strategically with our beef operations, as the bran by-product of the milling operation forms an important constituent of feed in the Vanduzi Feedlot operation, thus highlighting the integrated relationship between our Mozambican operations. 

In Sierra Leone, under our Tropical Farms Limited ('TFL') subsidiary, we continue to develop our 3,200 hectare cocoa plantation with 250 hectares now planted and a further 750 hectares targeted this year.  The seedlings are being generated from our own nursery which is being expanded to 2.2 hectares and will hold over 1 million plants.  We are building a new warehousing and cocoa processing facility outside Kenema, which we believe will enable us to establish critical mass and build a profitable trading operation.  The trading business is focussed on three hub stores in the main buying centres in the cocoa growing region.  The early rainy season crop has been poor, with only 200 tonnes purchased to date, however TFL expects to extend its buying network out from these hubs as the dry season crop comes to market.  Although this division performed below our expectation with turnover of US$3.14m (2012: US$3.25m), it enables us to establish ourselves as a secure, sustainable and traceable source of cocoa supply in Sierra Leone, which will dovetail with the plantation as it moves into commercial production in 2016.  

The commodities outlook in the wider food sector remains highly positive. Demographics suggest that there will be an increasing demand for food as the global population continue to rise.  Particularly relevant to Agriterra, the increasing adoption of western diets in eastern and emerging economies has led to a growing demand for beef.  Add to this the cocoa market dynamics, where shortages are expanding as chocolate sales climb to record highs, we are confident that we are well positioned to increase revenue and margins over the coming years, as our own high quality product reaches the market. 

Financial Results

We continue to invest heavily in building the business which has been highlighted by the investment to date.  We have reported revenues of US$21.2m (2012: US$13.8m) and a profit of US$21.8m (2012: loss US$6.2m), which has been primarily driven by the funds received for our legacy oil assets.  The continued expansion of the ranching and the cocoa trading operations lead to an increased operating loss on continuing activities before finance costs and tax of US$7.3m (2012: US$6.8m).  Importantly NAV rose to $60.0m, a 45% increase from $41.4m last year.

Outlook

We see strong growth potential for our business as we remain committed to building a sustainable, scalable, profitable and fully integrated African focussed agricultural Group.  We see the main growth being achieved through the scaling of our beef operations in Mozambique and our cocoa division in Sierra Leone.  Importantly, as we develop these businesses, by expanding our beef "field to fork" strategy where we raise, slaughter and sell to the end customer, and developing our own cocoa plantations, our margins increase significantly, which should translate into increasing profitability.

Importantly, our investment case is aligned with the current global markets where increasingly globalised tastes have seen a rise in meat demand, and reduced cocoa bean production  combined with strong processing grind figures, due to increased global demand for chocolate products, have resulted in an underlying change in the fundamentals and  higher cocoa bean prices. 

With a strong cash position to support development and multiple revenue streams, Agriterra is positioned well for growth.  Furthermore, as part of the sale of our legacy oil assets, if there is a commercial discovery on the South Omo Block in Ethiopia, the Company receives a further $10 million (pre-tax).

Finally I'd like to thanks all involved in the Group for their hard work and support as we look towards and exciting future.

Phil Edmonds

Chairman

4 November 2013

For further information please visit www.agriterra-ltd.com or contact:

CONDENSED UNAUDITED FINANCIAL STATEMENTS

CONSOLIDATED UNAUDITED INCOME STATEMENT

For the year ended 31 May 2013

CONSOLIDATED UNAUDITED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 May 2013

CONSOLIDATED UNAUDITED STATEMENT OF FINANCIAL POSITION

As at 31 May 2013

CONSOLIDATED UNAUDITED CASH FLOW STATEMENT

For the year ended 31 May 2013

NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS

For the year ended 31 May 2013

1. General Information

Agriterra Limited is incorporated and domiciled in Guernsey.  The nature of the Group's operations and its principal activities are set out in the Chairman's Statement

The reporting currency for the Company and Group is the US Dollar as it most appropriately reflects the Group's business activities in the agricultural sector in Africa and therefore the Group's financial position and financial performance.

The results for the year have been prepared using the recognition and measurement principles of international financial reporting standards as adopted by the EU.

The audited financial information for the year ended 31 May 2012 is based on the statutory accounts for the financial year ended 31 May 2012. The auditors reported on those accounts: their report was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying the reports and (iii) did not contain statements where the auditor is required to report by exception.

The financial information for the year ended 31 May 2013 is unaudited and the statutory accounts for the year ended 31 May 2013 are expected to be finalised and signed following approval by the board of directors on 12 November 2013. 

The financial information contained in this announcement does not constitute statutory accounts for the year ended 31 May 2013 or 2012 as defined by the Companies (Guernsey) Law 2008.

A copy of this announcement can be viewed on the Group's website

2. Critical accounting estimates and judgments

The preparation of financial statements in conformity with EU adopted IFRS requires the use of certain critical accounting estimates.  It also requires management to exercise its judgement in the process of applying the Group's accounting policies.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Going concern

The board has prepared forecasts for the Group's ongoing businesses covering the period of 12 months from the date of approval of these financial statements.  These forecasts are based on assumptions that there are no significant disruptions to the supply of maize or cocoa to meet its projected sales volumes and take into account the investment in the beef herd, cocoa plantation, other working capital and additional property plant and equipment that are expected to be required. 

The directors believe that, with the receipt of funds from the disposal of the legacy oil and gas assets, together with existing resources, the Group and Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.  The directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Impairments

Impairment reviews on non-current assets are carried out on each cash-generating unit identified in accordance with IAS 36 "Impairment of Assets".  At each reporting date, where there are indicators of impairment, the net book value of the cash generating unit is compared with the associated fair value.

During the previous financial year, licenses to import maize meal into Zimbabwe were withdrawn.  With no renewal likely in the foreseeable future, during the period the board has closed the operations and all assets have been fully impaired.  The loss on discontinued operations was $276,000 (2012: $nil).

With the focus on establishing the Group's agricultural activities, the directors have decided not to proceed with the Company's concession agreement to develop the East zone of the port of Conakry and therefore the asset has been written off.  The loss on discontinued operations was $234,000 (2012: $nil).

Biological assets

Biological assets (cattle) are measured at their fair value at each balance sheet date. The fair value of cattle is based on the estimated market value for cattle of a similar age and breed, less the estimated costs to bring them to market.  Changes in any estimates could lead to recognition of significant fair value changes in the income statement.  At 31 May 2013 the value of the breeding herd disclosed as a non-current asset was $2,060,000 (2012: $1,642,000). The value of the herd held for slaughter disclosed as a current asset was $1,947,000 (2012: $1,018,000).

Income tax

In order to obtain clearance from the Ethiopian Government for the disposal of the Group's oil and gas interests, income tax at a rate of 30% was withheld and paid over to the Ethiopian tax authorities.  A refund of $1m (2012: $nil) has been recognised during the period as the directors best estimate of the tax charge for the disposal.  The Ethiopian tax returns are in the process of being finalised and there remains uncertainty surrounding the exact magnitude and timing of receipt following the submission and agreement of the actual tax charge.

3. Segment reporting

As set out in the operating review, the directors consider that the Group's continuing activities comprise the segments of grain processing, beef production and cocoa businesses, and other unallocated expenditure in one geographical segment, Africa. 

Revenue represents sales to external customers in the country of domicile of the group company making the sale.

Unallocated expenditure relates to central costs and any items of expenditure that can not be directly attributed to an individual segment.

The segment items included in the income statement for the year are as follows:

The segment items included in the income statement for the year are as follows:

Segment assets consist primarily of property, plant and equipment, inventories and trade and other receivables and cash and cash equivalents.  Segment liabilities comprise operating liabilities.

Capital expenditure comprises of additions to property, plant and equipment and intangibles.

The segment assets and liabilities at 31 May 2013 and capital expenditure for the year then ended are as follows:

Segment assets and liabilities are reconciled to Group assets and liabilities as follows:

The segment assets and liabilities at 31 May 2012 and capital expenditure for the year then ended are as follows:

Segment assets and liabilities are reconciled to Group assets and liabilities as follows:

Unallocated property, plant and equipment includes $5.9m (2012: $5.9m) in respect of the lease over 45,000 hectares of brownfield land suitable for Palm oil production.

Significant customers

In the year ended 31 May 2013 no customers generated more than 10% of group revenue (2012: two customers generated $4,811,000 being 34.8% of group revenue).

4. Discontinued operations

On 6 January 2009, the shareholders approved the adoption of the investing strategy to acquire or invest in businesses or projects operating in the agricultural and associated civil engineering industries in Southern Africa.  The directors decided to suspend exploration activities and reduce expenditure to the minimum required in order to retain exploration licenses and extract potential value for shareholders.  Consequently the oil and gas activities were reclassified as a discontinued operation and the discontinued operations' trading results are included in the income statement as a single line below the loss after taxation from continuing operations.  The directors consider that the value of exploration and evaluation and other related assets of $49.4m (2012: $79.6m) is fully impaired.  Provisions for impairment will be written back as appropriate as gains from discontinued activities upon receipt of funds.

On 17 January 2013, the Company completed the disposal of its oil and gas interests in Ethiopia, realising a gain after tax of $29.4m. This gain has been written back against the impairment provision made in prior years. 

As set out in note 4, the Group has closed its maize meal importation business in Zimbabwe and its port development concession in Conakry is not being taken forward.

Cash flows from discontinued operations included in the consolidated statement of cash flows are as follows:

The Group continues to negotiate with the Government of Southern Sudan for compensation is respect of work undertaken.  The timing of receipt of the compensation payment together with the amount to be received remains uncertain.  Therefore the remaining oil and gas interest remains fully impaired

5. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

There is no dilutive effect from potential ordinary shares on the loss per share on continuing activities.

6. Property, plant and equipment