REG - Agriterra Ltd - Final Results <Origin Href="QuoteRef">AGTAR.L</Origin> - Part 3
18/11/2016 07:05
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money and the risks specific to the cash generating unit. Changes in selling prices are
based on expectations of future changes in the market and, in particular, reflect the expected price rises that should be
achievable given the recent devaluation in the Metical and inflation which have not as yet been reflected in the selling
prices. Daily weight gains in the feedlot are estimated based on past experience. The rate used to discount cash flows was
17.5%, reflecting the estimated real interest rate in Mozambique of 12.5% and a 5% adjustment for risks specific to the
assets which have not been reflected in the underlying cash flows.
The Board notes that the impairment review does not reflect the significant upside potential in Mozambique from the
development of the liquefied natural gas ('LNG') operations in the North. Further detail regarding the current status of
these projects is included in the Chair's statement.
11.2. Impairment of Cocoa division current and non-current assets in the financial year ended 31 May 2015
During the year ended 31 May 2015, and as a result of the Ebola outbreak affecting Western Africa, including Sierra Leone,
the Company suspended development activities at the cocoa plantation in Sierra Leone. In addition to the significant
restrictions in movement in country causing a shortage of labour, the Board assessed that it was unsafe to pursue an
expansion of the plantation at that stage, which could increase the risk of Ebola developing on the plantation site and
place staff at risk. Further, despite significant efforts to eradicate the virus and restore confidence in the country, the
Board was of the opinion that the investment landscape in Sierra Leone had not returned to the favourable environment that
was present pre-Ebola, and, in the Board's opinion, significant further regeneration and international development support
was needed in the short to medium term to facilitate further significant private sector investment.
Activities at the plantation have since been maintained at the level sufficient to protect staff while maintaining the
Group's assets in country.
As required by IFRS, in 2015, the Group conducted an impairment review of all of the Group's Cocoa division assets in
Sierra Leone, which principally comprised goodwill, property, plant and equipment, long term prepayments, and inventory.
The impairment review resulted in an impairment against the Cocoa division's assets in Sierra Leone of $6,791,000, analysed
as follows:
2015
US$000
Impairment of goodwill 575
Impairment of property, plant and equipment 5,998
Impairment of non-current receivables 159
Impairment of inventory 59
6,791
Where assets were capable of generating cash flows that were largely independent from those generated by other assets, the
impairment review compared the carrying value of individual assets to their recoverable amount. Examples of such assets
were warehouses, vehicles, nurseries etc. Where the asset did not generate cash flows that were independent from other
assets, the Group estimated the recoverable amount of the cash-generating unit to which the asset belonged. Examples of
such assets were the plantation development assets, including the land itself, clearing costs, planting, maintenance and
other expenditure related to the growing of cocoa plants at the plantation. Due to the suspension of funding for the cocoa
operations, recoverable amount was generally determined for assets or cash generating units based on fair value less costs
of disposal, where fair value was based on the Directors best estimates of the likely realisable value for individual
assets within Sierra Leone. Where, given the investment landscape in Sierra Leone there was no basis for making a reliable
estimate of fair value less costs of disposal - such as for the plantation development assets - recoverable amount was
measured by reference to value in use alone. This was estimated at $nil because the relevant assets, at their stage of
development, were not capable of generating positive cash returns without further development funding. The impairment
review resulted in a write down of the cocoa divisions goodwill and non-current receivables (which represented long term
land lease rental payments) to $nil, and its property, plant and equipment to $1,180,000.
The impairment of the Cocoa division assets was presented within continuing operations in the year ended 31 May 2015
because, in the medium to long term, the Board remained positive about the future development potential in Sierra Leone for
the cocoa plantation. As more fully described in note 16.3, during the year ended 31 May 2016, the Board made the decision
to dispose of all of the Cocoa division's assets through sale. Accordingly and as required by IFRS 5. 'Non-current Assets
Held for Sale and Discontinued Operations', the comparative amounts, including the impairment charge, have been
reclassified to discontinued operations.
11.3. Impairment of palm activities' non-current assets in the financial year ended 31 May 2015
The Group controls a lease of approximately 45,000 hectares of brownfield agricultural land suitable for palm oil
production in the Pujehun District in the Southern Province in Sierra Leone. The lease was acquired in 2012 and the Board
has continued to evaluate this property and its potential for commercialisation. Due to the factors described above which
resulted in an impairment against the Group's Cocoa division assets in the financial year ended 31 May 2015, the Group
decided to suspend any activity on this lease. The assets were accordingly impaired to $nil and presented within
discontinued operations in the financial year ended 31 May 2015.
The carrying value of these assets, included within Property, plant and equipment was $6,009,000, which included the
initial purchase price of the lease, deferred consideration, and expenditure incurred on maintaining the lease (such as
annual lease rental payments). The deferred consideration was to be settled in Ordinary Shares in the Company, following
the initial development of 1,000 hectares of the leasehold land. Due to the impairment, the Group no longer intended to
complete this initial development and accordingly the related obligation to issue shares (which was included within the
'Shares to be issued reserve', a component of the Group equity, with a carrying value of $2,940,000) was released to profit
and loss, reducing the impairment arising on the palm activities to $3,069,000, which was included in the results of
discontinued operations (refer to note 16.4).
12. INVESTMENT REVENUES
2016 2015
US$000 US$000
Interest income on bank deposits 11 19
All investment revenues are earned on cash and bank balances which are financial assets classified as loans and
receivables.
13. OTHER GAINS AND LOSSES
2016 2015
US$000 US$000
Decrease in fair value of quoted investments (note 21) 360 849
14. FINANCE COSTS
2016 2015
US$000 US$000
Interest expense on bank borrowings 678 683
15. TAXATION
2016 2015
(re-presented - note 16)
US$000 US$000
Loss before tax from continuing activities (7,643) (8,124)
Tax credit at the Mozambican corporation tax rate of 32% (2015: 32%) (2,446) (2,600)
Tax effect of expenses that are not deductible in determining taxable profit 55 67
Tax effect of losses not allowable 463 1,556
Tax effect of losses not recognised in overseas subsidiaries (net of effect of different rates) 1,928 977
Statutory taxation payments irrespective of income 14 9
Adjustment in respect of prior years 20 72
Tax expense 34 81
The tax reconciliation has been prepared using a 32% tax rate, the corporate income tax rate in Mozambique, as this is
where the Group's principal assets of its continuing operations are located.
The Group has recognised a tax credit of $187,000 (2015: $nil) in respect of the disposal of its Ethiopian oil and gas
interests, reported within discontinued operations.
The Group has operations in a number of overseas jurisdictions where it has incurred taxable losses which may be available
for offset against future taxable profits amounting to approximately $9,652,000 (31 May 2015: $13,460,000). In addition,
the Group has further deductible timing differences amounting to approximately $31,285,000 (31 May 2015: $13,575,000). No
deferred tax asset has been recognised for these tax losses and other deductible timing differences as the requirements of
IAS 12, 'Income taxes', have not been met.
The Company is resident for taxation purposes in Guernsey and its income is subject to Guernsey income tax, presently at a
rate of zero percent. per annum (2015: zero percent. per annum). No tax is payable for the year due to losses incurred.
Deferred tax has not been provided for, as brought forward tax losses are not recoverable under the Income Tax (Zero 10)
(Guernsey) Law, 2007 (as amended).
16. DISCONTINUED OPERATIONS
The loss after tax arising on discontinued operations during the period is analysed by business operation as follows:
2016 2015
(re-presented - note 16.3)
US$000 US$000
Oil and gas activities 187 5,740
Cocoa trading activities - (174)
Other cocoa activities(1) (965) (7,679)
Palm activities - (3,069)
Net loss after tax attributable to discontinued operations (attributable to owners of the Company) (778) (5,182)
(1) The corresponding amounts for 'Other cocoa activities' were previously reported within continuing operations for the year ended 31 May 2015. For the reasons described in note 16.3, these activities are classified as discontinued operations in the year ended 31 May 2016 and, as required by IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations', the comparative amounts have been reclassified.
16.1. Oil and gas
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. At the same time the
Group suspended all exploration activities and reduced 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.
In the financial year ended 31 May 2013 the Group completed the disposal of its oil and gas interests in Ethiopia. The gain
on disposal was taxed in full in Ethiopia in that year, without taking into consideration certain tax deductible
expenditure incurred by the Group. In the current financial year the Group has been successful in recovering $187,000 as
full and final settlement of amounts due to the Group from overpaid tax arising on the aforementioned gain on disposal.
During the year ended 31 May 2015 the Group was paid £3,412,000 (being $5,659,000) in cash as compensation due to the
Company by the Government of the Republic of South Sudan for works undertaken by the Company in the Republic of South
Sudan. A further net credit of $81,000 was recorded in the year ended 31 May 2015 with respect to the re-imbursement of
expenditure incurred in pursuing this claim. No amounts were recorded in respect of this matter in the current financial
year.
16.2. Cocoa trading
Due to the serious and well-publicised Ebola outbreak and the associated precautionary restrictions on travelling in Sierra
Leone, accompanied by the ongoing losses suffered by the cocoa trading operations, the Group ceased its cocoa trading
operations in Sierra Leone in the financial year ended 31 May 2014. The cocoa trading operations represented a significant
component of a business segment of the Group and accordingly the results of the cocoa trading operations were presented as
discontinued operations within the consolidated income statement. No amounts are recorded with respect to the cocoa trading
operations in the current financial year. The amounts recorded in the consolidated income statement in the preceding
financial year, which relate to the winding down of the cocoa trading operations between June and August 2014, were as
follows:
2015
US$000
Expenses (174)
Loss before taxation (174)
Taxation -
Loss after tax and net loss attributable to the discontinued cocoa trading operations in the period (attributable to owners of the Company) (174)
Cash flows pertaining to the cocoa trading operations are presented in the consolidated cash flow statement along with all
cash flows relating to discontinued operations.
16.3. Other cocoa activities
From 1 September 2014 and following the cessation of all cocoa trading related activities (refer to note 16.2), the Cocoa
division focussed its efforts on maintaining the cocoa plantation assets, while undertaking revenue generating logistics
activities, principally providing assistance in the Ebola relief efforts (collectively the 'Other cocoa activities'). Due
to the significant efforts undertaken to control the Ebola epidemic by international aid and health organisations, Sierra
Leone was declared Ebola free during the current financial year, initially in November 2015 and subsequently in March 2016.
Consequently, the logistics activities which were being undertaken to provide cash support for the Cocoa division reduced
in scale such that the available income from these activities no longer substantially covered the costs of the Cocoa
division.
While the Group has successfully established and maintained the necessary infrastructure from which a large scale
commercial cocoa plantation and trading business can be developed in Sierra Leone, the next stage in the development of
these assets requires significant capital investment. Given the impact of Ebola on the West African region as a whole and
the lack of investment appetite from traditional finance sources, the Board formed the view, after due investigations and
careful consideration that the Group would be unlikely to be able to raise the finance to continue with the development of
the cocoa plantation in the foreseeable future. In this context, the Board therefore believed that it was in the best
interests of the Group to sell the Cocoa division to bolster the Group's cash reserves and to enable the Cocoa division to
access other finance sources, such as dedicated development and sustainability funds.
The Other cocoa activities represented a business segment of the Group and accordingly the results of the Other cocoa
activities are presented as discontinued operations within the consolidated income statement. Comparative amounts have been
represented as required by IFRS 5. The amounts recorded in the consolidated income statement related to the Other cocoa
activities were as follows:
2016 2015
US$000 US$000
Revenue 389 904
Cost of sales (277) (260)
Gross profit 112 644
Operating expenses (1,126) (1,558)
Profit on disposal of property, plant and equipment 49 15
Other income - 11
Impairment of current and non-current assets (note 11.2) - (6,791)
Loss before taxation (965) (7,679)
Taxation - -
Loss after tax and net loss attributable to the discontinued Other cocoa activities in the period (attributable to owners of the Company) (965) (7,679)
Cash flows pertaining to the Other cocoa activities are presented in the consolidated cash flow statement along with all
cash flows relating to discontinued operations.
The net assets of the Cocoa division, all of which related to the Other cocoa activities, are classified as held for sale
as at 31 May 2016. Further details are provided in notes 4.5 and 25.
The Cocoa division was sold subsequent to the period end for cash consideration of $750,000. Further details are provided
in note 34.2.
16.4. Palm activities
The amount reported within discontinued operations for palm activities during the year ended 31 May 2015 represents the
impairment against the carrying value of the Group's 45,000 hectare lease in the Pujehun District of Sierra Leone, net of
the release of deferred consideration which was assessed as no longer being due, as more fully described in note 11.3.
17. LOSS PER SHARE
The calculation of the basic and diluted loss per share is based on the following data:
2016 2015
(re-presented - note 16)
US$000 US$000
Loss for the purposes of basic and diluted earnings per share from continuing activities (7,677) (8,205)
Loss for the purposes of basic and diluted earnings per share from discontinued activities (778) (5,182)
Loss for the purposes of basic and diluted earnings per share (loss for the year attributable to equity holders of the Company) (8,455) (13,387)
Weighted average number of Ordinary Shares for the purposes of basic and diluted loss per share 1,061,818,478 1,061,818,478
Basic and diluted loss per share (0.80) (1.26)
Basic and diluted loss per share from continuing activities (0.72) (0.77)
Basic and diluted loss per share from discontinued activities (0.08) (0.49)
18. GOODWILL
The movements in the carrying value of the Group's goodwill are as follows:
US$000
At 1 June 2014 576
Eliminated in the period (575)
Exchange rate adjustment (1)
At 31 May 2015 and 31 May 2016 -
The Group's goodwill balance, which related to the cocoa plantation, was written off in full in the year ended 31 May 2015
as more fully described in note 11.2.
19. PROPERTY, PLANT AND EQUIPMENT
Land and buildings Plant and machinery Motor vehicles Aviation Other assets Assets under construction Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
Cost
At 1 June 2014 24,377 10,569 5,870 1,178 595 2,395 44,984
Additions 1,039 529 38 10 85 - 1,701
Disposals (1) (291) (241) - (18) - (551)
Transfers 2,195 200 - - - (2,395) -
Exchange rate adjustment (2,425) (1,483) (735) (202) (87) - (4,932)
At 31 May 2015 25,185 9,524 4,932 986 575 - 41,202
Additions 124 151 92 78 20 - 465
Disposals (5) (297) (427) - - - (729)
Transfer to assets classified as held for sale (4,510) (1,020) (623) (1,000) (53) - (7,206)
Exchange rate adjustment (6,858) (3,471) (1,722) (64) (213) - (12,328)
At 31 May 2016 13,936 4,887 2,252 - 329 - 21,404
Accumulated depreciation and impairment
At 1 June 2014 864 3,067 4,187 341 257 - 8,716
Charge for the year 421 1,101 645 174 77 - 2,418
Disposals - (112) (219) - (5) - (336)
Impairment loss (note 11) 11,766 175 32 - 34 12,007
Exchange rate adjustment (160) (456) (620) (72) (41) - (1,349)
At 31 May 2015 12,891 3,775 4,025 443 322 - 21,456
Charge for the year 283 762 417 44 45 - 1,551
Disposals - (209) (361) - - - (570)
Impairment loss (note 11) 2,497 546 25 - 1 - 3,069
Transfer to assets classified as held for sale (4,182) (996) (538) (434) (53) - (6,203)
Exchange rate adjustment (2,245) (1,491) (1,490) (53) (125) - (5,404)
At 31 May 2016 9,244 2,387 2,078 - 190 - 13,899
Net book value
31 May 2016 4,692 2,500 174 - 139 - 7,505
31 May 2015 12,294 5,749 907 543 253 - 19,746
Additions to land and buildings include $nil (2015: $399,000) of acquisition and development costs of the Group's cocoa
plantation in Sierra Leone. Included in this sum is $nil (2015: $146,000) of depreciation in respect of plant and
equipment and $nil (2015: $169,000) of wages and salaries.
A depreciation charge of $1,160,000 (2015: $1,644,000) has been included in the consolidated income statement within
operating expenses and $391,000 (2015: $628,000) has been included within discontinued operations.
Property, plant and equipment with a carrying amount of $5,311,000 (2015: $2,173,000) have been pledged to secure the
Group's bank overdrafts and loans (note 26). The Group is not allowed to pledge these assets as security for other
borrowings or sell them to another entity.
At 31 May 2016 and 31 May 2015, the Group had no contractual commitments for the acquisition of property, plant and
equipment.
20. INTERESTS IN ASSOCIATES
The Group's interest in associates represents a 40% equity investment in African Management Services Limited ('AMS'). The
Group's share of the result of AMS for all periods presented was $nil. The share of the cumulative results and net assets
of AMS is $4,000 (2015: $4,000). The Group's initial investment in AMS was $nil.
21. INVESTMENTS IN QUOTED COMPANIES
'Investments in quoted companies' comprise financial assets at FVTPL. Changes in market value are recorded in profit and
loss within other gains and losses. As at 31 May 2016 and 31 May 2015, these investments comprise 8,337,682 ordinary shares
in Atlas African Industries Limited (formerly Atlas Development & Support Services Limited) ('AAI'), an AIM quoted company.
Movements in the value of the investment in AAI were as follows:
US$000
At 1 June 2014 1,225
Decrease in fair value (note 13) (849)
At 31 May 2015 376
Decrease in fair value (note 13) (360)
At 31 May 2016 16
The fair value has been determined based on quoted market prices in an active market and comprises a level 1 fair value in
the IFRS 13 fair value hierarchy.
22. BIOLOGICAL ASSETS
US$000
Fair value
At 1 June 2014 4,272
Purchase of biological assets 1,666
Sale, slaughter or other disposal of biological assets (3,947)
Change in fair value 1,910
Foreign exchange adjustment (636)
At 31 May 2015 3,265
Purchase of biological assets 2,815
Sale, slaughter or other disposal of biological assets (4,407)
Change in fair value 1,637
Foreign exchange adjustment (1,316)
At 31 May 2016 1,994
Biological assets comprise cattle in Mozambique held for breeding purposes (the 'Breeding herd') or for slaughter (the
'Slaughter herd'). The Slaughter herd has been classified as a current asset. The Breeding herd is classified as a
non-current asset. Biological assets are accordingly classified as current or non-current assets as follows:
2016 2015 2016 2015
Head Head US$000 US$000
Non-current asset 3,564 4,395 888 2,246
Current asset 3,216 2,772 1,106 1,019
6,780 7,167 1,994 3,265
For valuation purposes, cattle are grouped into classes of animal (e.g. bulls, cows, steers etc). A standard animal weight
per breed and class is then multiplied by the number of animals in each class to determine the estimated total live weight
of all animals in the herd. The herd is then valued by reference to market prices for meat in Mozambique, less estimated
costs to sell. The valuation is accordingly a level 2 valuation in the IFRS 13 hierarchy whereby inputs other than quoted
prices that are observable for the asset are used.
The Group's biological assets have been pledged in full to secure the Beef division's bank overdraft and loans (see note
26).
Subsequent to the period end and for the reasons described in note 34.1, the Board made the decision to close the breeding
farms. Accordingly, the breeding herd are being moved to the Vanduzi feedlot where they are being fattened and will
eventually be slaughtered.
23. INVENTORIES
2016 2015
US$000 US$000
Consumables and spares 139 120
Raw materials 1,028 2,452
Work in progress 14 27
Finished goods 176 293
1,357 2,892
During the year inventories amounting to $14,267,000 (2015: $8,191,000) were included in cost of sales and $127,000 (2015:
$nil) were included within discontinued operations.
Inventories with a carrying amount of $1,022,000 (2015: $2,140,000) have been pledged to secure the grain division's bank
overdraft and inventories with a carrying value of $134,000 (2015: $nil) have been pledged to secure the Beef division bank
overdraft and loans (see note 26).
24. TRADE AND OTHER RECEIVABLES
2016 2015
US$000 US$000
Trade receivables 678 1,018
Other receivables 580 492
Prepayments 32 84
1,290 1,594
'Trade receivables' and 'Other receivables' disclosed above are classified as loans and receivables and measured at
amortised cost.
Included in 'Trade receivables' and 'Other receivables' are receivables which have been provided against. Movements in the
allowance account against these receivables are as follows:
US$000
At 1 June 2014 1,345
Charged to profit and loss 224
Foreign exchange gain (250)
At 31 May 2015 1,319
Charged to profit and loss 182
Written off in the period (96)
Foreign exchange gain (495)
At 31 May 2016 910
$837,000 (2015: $1,319,000) of the allowance account relates to input IVA recoverable in Mozambique (refer to note 4.4).
The movement in the allowance account against the IVA recoverable during both periods presented principally reflects the
increase in the underlying input IVA balance recorded by the Group offset by the effect of the devaluation of the
Mozambique Metical against the United States Dollar.
Other receivables include $361,000 (2015: $350,000) due from related parties (see note 32).
Trade receivables with a carrying amount of $496,000 (2015: $nil) have been pledged to secure the grain division's bank
overdraft and trade receivables with a carrying value of $182,000 (2015: $nil) have been pledged to secure the Beef
division's bank overdraft and loans (see note 26).
The Directors consider that the carrying amount of financial assets approximates their fair value. Included within Other
receivables are $385,000 of receivables which are past due but not impaired (2015: there are no significant amounts past
due which have not been provided against). The ageing of past due but not impaired receivables is as follows:
2016
US$000
Greater than 120 days 385
Further details on the Group's financial assets are provided in note 28.
25. DISPOSAL GROUPS HELD FOR SALE
The major classes of assets and liabilities comprising the operations classified as held for sale as at 31 May 2016 are as
follows:
Cocoa disposal group Aircraft disposal group Total
US$000 US$000 US$000
Assets classified as held for sale:
Property, plant and equipment 436 285 721
Inventories 126 - 126
Trade and other receivables 2 - 2
Cash and cash equivalents 11 - 11
Total assets classified as held for sale 575 285 860
Liabilities associated with assets classified as held for sale:
Trade and other payables (142) - (142)
Total liabilities associated with assets classified as held for sale (142) - (142)
Net assets of the disposal group 433 285 718
There were no assets classified as held for sale as at 31 May 2015.
Assets and associated liabilities within the 'Cocoa disposal group' represent the net assets of the Group's Cocoa division.
As more fully described in note 16.3, all activities in the Cocoa division were discontinued in the period. This division
was sold subsequent to the period end realising gross proceeds of $750,000 (refer to note 34.2). No impairments were
recorded against the assets in the Cocoa division during the year, or subsequent to the period end.
Assets classified as held for sale within the 'Aircraft disposal group' comprise all of the Group's aircraft assets, being
one fixed wing plane and two helicopters, which were identified as being surplus to requirements. The aircraft were sold
subsequent to the period end, realising gross proceeds of $570,000. No impairments were recorded against the aircraft
assets upon transfer from property, plant and equipment. Subsequent revisions to the expected sales proceeds from the
disposal of the fixed wing aircraft, offset by favourable exchange rate movements, resulted in a net write down in the
carrying value of the Aircraft disposal group by $125,000 (refer to note 7). No further adjustments have been made to the
carrying value of the Aircraft disposal group subsequent to the period end.
26. BORROWINGS
2016 2015
US$000 US$000
Non-current liabilities
Bank loans 1,105 -
-
Current liabilities
Bank loans 137 -
Overdraft 1,675 3,079
1,812 3,079
2,917 3,079
As at 31 May 2016, the Group has overdraft and bank loan facilities to finance the Beef division provided by Standard Bank
S.A. ('Standard Bank'), and overdraft facilities to finance the Grain division provided by ABC Bank MZ ('ABC Bank') and
Standard Bank. Further details are provided below.
Beef division
On 24 June 2015, the Group agreed lending facilities totalling 105,000,000 Metical with Standard Bank to finance the Beef
division in Mozambique. The facilities comprise 75,000,000 Metical ($1,258,000 at the 31 May 2016 US$ to MZN exchange rate)
of term loans for the purchase of cattle, irrigation equipment, butchery equipment, refrigerated vehicles and general
capital purposes, and a 30,000,000 Metical ($503,000 at the 31 May 2016 US$ to MZN exchange rate) overdraft. The term loans
carry interest at the bank's prime lending rate plus 0.25% (being a rate of 19.75% as at 31 May 2016), and have a five year
term from draw down with a moratorium on capital repayments of 15 months. Capital repayments on these loans commence in
October 2016. The overdraft renews annually, with the latest renewal on 29 September 2016, and carries interest at the
bank's prime lending rate (being a rate of 19.5% as at 31 May 2016). The lending facilities are secured with a fixed charge
against certain of the Group's property, plant and equipment with a carrying value of $2,137,000 (2015: $nil) (refer to
note 19), and with floating charges against all cattle and meat inventories with a carrying value of respectively
$1,994,000 (2015: $nil) (refer to note 22) and $134,000 (2015: $nil) (refer to note 23), and trade receivables with a
carrying value of $182,000 (2015: $nil) (refer to note 24).
As at 31 May 2016, the Beef division had available, undrawn borrowing facilities of approximately 4,477,000 Metical
($75,000 at the 31 May 2016 US$ to MZN exchange rate).
Grain division
At 31 May 2016, the Group had an overdraft facility of 179,000,000 Metical ($3,003,000 at the 31 May 2016 US$ to MZN
exchange rate) (2015: 179,000,000 Metical) provided by ABC Bank for working capital funding in the Grain division,
principally for the purchase of maize and related operating expenditure. It was secured by a fixed charge against
$1,273,000 (2015: $2,173,000) of the Group's property, plant and equipment (refer to note 19) and by a floating charge over
all maize inventory and finished maize products totalling $1,022,000 (2015: $2,140,000) (refer to note 23). Interest was
charged at ABC Bank's prime lending rate less 3% (2015: counterparty bank's prime lending rate less 3%), being a rate as at
31 May 2016 of 13% (2015: 13%). As at 31 May 2016, this overdraft facility was in the process of being settled in full,
with a new overdraft facility being provided by Standard Bank. This process was completed subsequent to the period end.
On 19 May 2016, the Group entered into a separate 300,000,000 Metical ($5,034,000 at the 31 May 2016 US$ to MZN exchange
rate) overdraft facility with Standard Bank (the 'Facility') to provide working capital funding, principally for the
purchase of maize and related operating expenditure. It is secured by a fixed charge against $3,174,000 (2015: $nil) of the
Group's property, plant and equipment (refer to note 19), and by floating charges against all maize inventory and finished
maize products totalling $1,022,000 (2015: $nil) (refer to note 23) and trade receivables totalling $496,000 (2015: $nil)
(refer to note 24). Interest is charged at the counterparty bank's prime lending rate less 1.75%, being a rate as at 31 May
2016 of 17.75%. Unless it is cancelled by either party, the facility will renew on 25 March 2017. Fees of approximately
$33,000 were recorded in connection with the Facility in the year ended 31 May 2016. These fees were paid subsequent to the
period end.
The first drawdowns on the Facility were made in May 2016; subsequent to the period end, the Facility was in part utilised
to discharge the Group's obligations to ABC Bank on the overdraft disclosed above at which point the ABC Bank overdraft
facility was extinguished and ceased to be available to the Group. The Group completed the provision of the new security
over its land and buildings and the discharge of the security to ABC Bank subsequent to the period end (note 34.3).
As at 31 May 2016, the Grain division had available, undrawn borrowing facilities of approximately 224,756,000 Metical
($3,771,000 at the 31 May 2016 US$ to MZN exchange rate).
27. TRADE AND OTHER PAYABLES
2016 2015
US$000 US$000
Trade payables 266 314
Other payables 125 623
Accrued liabilities 317 440
708 1,377
'Trade payables', 'Other payables' and 'Accrued liabilities' principally comprise amounts outstanding for trade purchases
and ongoing costs. No interest is charged on any balances.
The Directors consider that the carrying amount of financial liabilities approximates their fair value.
28. FINANCIAL INSTRUMENTS
28.1. Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while
maximising the return to shareholders. The capital structure of the Group comprises its net debt (the borrowings disclosed
in note 26 after deducting cash and bank balances) and equity of the Group as shown in the Statement of financial position.
The Group is not subject to any externally imposed capital requirements.
The ExCom reviews the capital structure on a regular basis and seeks to match new capital requirements of subsidiary
companies to new sources of external debt funding denominated in the currency of operations of the relevant subsidiary.
Where such additional funding is not available, the Group funds the subsidiary company by way of loans from the Company.
The Group places funds which are not required in the short term on deposit at the best interest rates it is able to secure
from its bankers. In accordance with this policy, the Group has maintained its overdraft facility in Mozambique to finance
its Grain operations and has secured additional borrowing facilities in Mozambique for its Beef operations (note 26).
28.2. Categories of financial instruments
The following are the Group financial instruments as at 31 May:
2016 2015
US$000 US$000
Financial assets
Cash and bank balances 4,055 6,421
Fair value through profit and loss:
Held for trading 16 376
Other loans and receivables 1,257 1,510
5,328 8,307
Financial liabilities
Amortised cost 3,560 4,456
3,560 4,456
1,768 3,851
28.3. Financial risk management objectives
The Group manages the risks arising from its operations, and financial instruments at ExCom and Board level. The Board has
overall responsibility for the establishment and oversight of the Group's risk management framework and to ensure that the
Group has adequate policies, procedures and controls to manage successfully the financial risks that the Group faces.
While the Group does not have a written policy relating to risk management of the risks arising from any financial
instruments held, the close involvement of the ExCom in the day to day operations of the Group ensures that risks are
monitored and controlled in an appropriate manner for the size and complexity of the Group. Financial instruments are not
traded, nor are speculative positions taken. The Group has not entered into any derivative or other hedging instruments.
The Group's key financial market risks arise from changes in foreign exchange rates ('currency risk') and changes in
interest rates ('interest risk'). To a lesser extent the Group is exposed to other price risk in respect of its investments
in quoted companies. The Group is also exposed to credit risk and liquidity risk. The principal risks that the Group faces
as at 31 May 2016 with an impact on financial instruments are summarised below.
28.4. Market Risk
The Group is exposed to currency risk, interest risk and other price risk (in respect of its investments in quoted
companies). These are discussed further below.
28.4.1. Currency risk
Certain of the Group companies have functional currencies other than US$ and the Group is therefore subject to fluctuations
in exchange rates in translation of their results and financial position into US$ for the purposes of presenting
consolidated accounts. The Group does not hedge against this translation risk. The Group's financial assets and liabilities
by functional currency of the relevant Group company are as follows:
Assets Liabilities
2016 2015 2016 2015
US$000 US$000 US$000 US$000
United States Dollar ('US$') 3,877 6,880 222 786
Mozambique Metical ('MZN') 1,450 1,143 3,336 3,524
Sierra Leone Leones ('SLL') - 284 - 146
Other 1 - 2 -
5,328 8,307 3,560 4,456
The Group transacts with suppliers and / or customers in currencies other than the functional currency of the relevant
group company (foreign currencies), and hold investments in quoted companies which are traded in currencies other than US$.
The Group does not hedge against this transactional risk. As at 31 May 2015 and 31 May 2016, the Group's outstanding
foreign currency denominated monetary items were principally exposed to changes in the US$ / GBP and US$ / MZN exchange
rate.
The following tables detail the Group's exposure to a 5, 10 and 15 per cent increase in the US$ against GBP and separately
to a 10, 20 and 30 per cent increase against MZN. For a weakening of the US$ against the relevant currency, there would be
a comparable impact on the profit and other equity, and the balances would be of opposite sign. The sensitivity analysis
includes only outstanding foreign currency denominated items and excludes the translation of foreign subsidiaries and
operations into the Group's presentation currency. The sensitivity also includes intra-group loans where the loan is in a
currency other than the functional currency of the lender or borrower. A negative number indicates a decrease in profit and
other equity.
2016 2016
US$000 US$000
GBP Impact
Profit or loss
5% Increase in US$ (4) (10)
10% Increase in US$ (7) (20)
15% Increase in US$ (11) (30)
Other equity
5% Increase in US$ (69) -
10% Increase in US$ (138) -
15% Increase in US$ (208) -
MZN Impact
Profit or loss
10% Increase in US$ 23 -
20% Increase in US$ 46 -
30% Increase in US$ 69 -
Other equity(1)
10% Increase in US$ (6,039) (5,820)
20% Increase in US$ (12,078) (11,640)
30% Increase in US$ (18,117) (17,460)
(1) This is mainly due to the exposure arising on the translation of US$ denominated intra-group loans provided to MZN functional currency entities which are included as part of the Group's net investment in the related entities.
28.4.2. Interest rate risk
The Group is exposed to interest rate risk because entities in the Group hold cash balances and borrow funds at floating
interest rates. As at 31 May 2015 and 31 May 2016, the Group has no interest bearing fixed rate instruments.
The Group maintains cash deposits at variable rates of interest for a variety of short term periods, depending on cash
requirements. The Grain operations in Mozambique are also financed through the overdraft facility. The rates obtained on
cash deposits are reviewed regularly and the best rate obtained in the context of the Group's needs. The weighted average
interest rate on deposits was 0.23% (2015: 0.59%). The weighted average interest on drawings under the overdraft
facilities and bank loans was 16.42% (2015: 14%). The Group does not hedge interest rate risk.
The following table details the Group's exposure to interest rate changes, all of which affect profit and loss only with a
corresponding effect on accumulated losses. The sensitivity has been prepared assuming the liability outstanding at the
balance sheet date was outstanding for the whole year. In all cases presented, a negative number in profit and loss
represents an increase in finance expense / decrease in interest income. The sensitivity as at 31 May 2016 is presented
assuming interest rates on cash balances remain constant, with increases of between 20bp and 1000bp on outstanding
overdraft and bank loans. This sensitivity to interest rate rises is deemed appropriate because the Group interest bearing
liabilities are Metical based. The current macroeconomic circumstances in Mozambique, particularly due to the significant
weakening of the Metical, have led to a rapid increase in interest rates following the year end to a prime rate of 28.0% by
the date of this report. This alone is an 850 bp increase compared to 31 May 2016.
2016(2) 2015(1) (2)
US$000 US$000
+ 20 bp increase in interest rates (6) (7)
+ 50 bp increase in interest rates (15) (17)
+100 bp increase in interest rates (29) (34)
+200 bp increase in interest rates (58) (68)
+500 bp increase in interest rates (146) (170)
+800 bp increase in interest rates (233) (272)
+1000 bp increase in interest rates (291) (340)
(1) The sensitivity as at 31 May 2015 was prepared on the basis of changes to interest rates affecting both interest income and expense.
(2) The table above is prepared on the basis of an increase in rates. A decrease in rates would have the opposite effect.
28.4.3. Other price risk
The Group is exposed to equity price risk on its investments in quoted securities which are measured at fair value (refer
to note 21). Investments in quoted companies comprise investments in one company, AAI. If AAI's share price increased /
(decreased) by 10% and the US$ / GBP exchange rate remained unchanged, the Group's net profit would increase / (decrease)
by $2,000 (2015: $38,000).
28.5. Credit risk
Credit risk arises from cash and cash equivalents, and deposits with banks and financial institutions, as well as
outstanding receivables. The Group's principal deposits are held with various banks with a high credit rating to diversify
from a concentration of credit risk. Receivables are regularly monitored and assessed for recoverability.
The maximum exposure to credit risk is the carrying value of the Group financial assets disclosed in note 28.2. Details of
provisions against financial assets are provided in note 24.
28.6. Liquidity risk
The Group policy throughout the year has been to ensure that it has adequate liquidity by careful management of its working
capital. The ExCom continually monitors the Group's actual and forecast cash flows and cash positions. The ExCom pays
particular attention to ongoing expenditure, both for operating requirements and development activities, and matching of
the maturity profile of the Group's overdrafts to the processing and sale of the Group's maize and beef products.
At 31 May 2016 the Group held cash deposits of $4,055,000 (2015: $6,421,000). At 31 May 2016 the Group had overdraft and
bank loans facilities of approximately $6,800,000 (2015: overdraft facility of approximately $4,850,000) of which
$2,950,000 (2015: $3,079,000) was drawn. As at the date of this report the Group has adequate liquidity to meet its
obligations as they fall due.
The following table details the Group's remaining contractual maturity of its financial liabilities. The table is drawn up
utilising undiscounted cash flows and based on the earliest date on which the Group could be required to settle its
obligations. The table includes both interest and principal cash flows.
2016 2015
US$000 US$000
1 month 689 1,410
2 to
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