REG - Agriterra Ltd - Final Results
The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.
Agriterra Ltd / Ticker: AGTA / Index: AIM / Sector: Agriculture
25 September 2018
Agriterra Ltd ('Agriterra' or the 'Group')
Final Results
Agriterra Limited, the AIM listed African agricultural company, announces its audited final results for the year ended 31 March 2018.
Chair's statement
I am pleased to present the annual report of the Group for the year ending 31 March 2018 ('FY-2018'). During the year, the Group has focussed on the restructuring of the business to concentrate on the core revenue generative branches of the business, being the Grain and Beef divisions based in Mozambique, and disposal of non-core assets, namely the Sierra Leonean cocoa activities. This, coupled with the strategic investment from Magister Investments Limited ('Magister') in September 2017, is intended to provide a solid platform for future growth and profitability.
As shareholders are aware, the Company changed its accounting reference date to 31 March (from 31 May, with effect from 31 March 2017), to more effectively co-ordinate the Group's annual report and accounts with the business cycle of the Group's underlying operations. Accordingly, the comparative periods presented in this report are for the 10 month period ended 31 March 2017 ('FY-2017').
Mozambique overview
The board believe that, following several years of political and economic instability, the outlook for the Mozambique economy in the short to medium term is encouraging. The continued development of the liquefied natural gas ('LNG') industry in the north of the country will underpin this economic growth and is expected in the future to generate additional demand for the Group's products (in particular our beef).
During FY-2018, there was a strengthening of the Metical against both the US$ and South African Rand experienced early in the period, followed by a period of relative stability in the exchange rate at c.60 Metical / US$ and c.4.5 Metical / ZAR. Being a net importer of most goods, the effect of this has been to continue to put downward pressure on inflation in Mozambique - the annualised rate to 31 December 2017 was c.11% which compares to c.25% for the 12 months ended 31 December 2016. Despite the fall in inflation to current annualised rates of c. 5%, interest rates remain high, with Standard Bank's prime Metical lending rate remaining at 24% at 31 March 2018 (31 March 2017: 28%). This persistently high lending rate has led the board to take actions to decrease our outstanding loan and overdraft balances in the period as more fully described below.
New investment and use of funds
During the year the Group secured new investment of c.US$4.3m from Magister Investments Limited in exchange for a 50.01% shareholding in the Company. Full details regarding Magister were provided to shareholders in the Circular to Shareholders and Notice of General Meeting dated 14 August 2017. As a result, Magister is the ultimate controlling party of the Company.
This new funding is being deployed to strengthen the Group's position in Mozambique, with an initial investment of US$0.75m and US$0.25m into the Grain and Beef divisions respectively to reduce their outstanding bank financing. This repayment is in addition to an earlier repayment of US$0.4m in the Beef division following the Group's disposal of its cocoa assets in Sierra Leone. The related saving in interest costs is expected to amount to approximately US$0.3m per annum, assuming interest rates remain at the current levels.
Review
Grain
Agriterra operates an established Maize buying and processing business with its Desenvolvimento E Comercialização Agrícola Limitada ("DECA") facility in Chimoio, which has a 35,000 tonne storage capacity and its 15,000 tonne capacity Compagri Limitada ("Compagri") facility in Tete, north west Mozambique. Maize is purchased from local out-growers through a network of buying stations, which is then stored and processed before being sold to the wholesale market.
FY-2018 saw a bumper harvest season in Mozambique which resulted in subdued demand for our maize flour. The relative weakness in demand has resulted in a fall in sales volume to 16,472 tonnes of maize flour in FY-2018 (10 months to 31 March 2017: c.18,944 tonnes) and c.23,135 tonnes of all maize products (10 months to 31 March 2017: c.24,705), with revenue decreasing in Metical terms from Metical 636.1m to Metical 323.1m and US$ terms from US$8.9m to US$5.1m. Cost reduction measures restricted the fall in EBITDA to a loss of US$0.67m (10 months to 31 March 2017: loss of US$0.20m). The cost base is now more aligned to the level of business and the division is looking to expand its product range and consequently improve margins.
The natural cycle of maize purchases following the harvest leads to a significant working capital requirement for the Grain division in the first half of the year which unwinds in the second half. During the year c.21,800 tonnes of maize were purchased (10 months to 31 March 2017: 27,000 tonnes). Inventory levels at the year end were reduced to 1,686 tonnes (31 March 2017: 4,954 tonnes). The Grain division's working capital is financed by bank facilities provided by Standard Bank. The high interest rates continue to erode the overall profitability of the division. After an interest charge of US$0.95m (10 months to 31 March-2017: US$0.69m), loss before tax for the Grain division was US$1.6m (10 months to 31 March 2017: US$0.89m). In order to mitigate against this high interest cost, the Group has invested US$0.75m during the period in the working capital requirements of the Grain division to reduce its reliance on overdraft financing. With inflation now stable at around 5% per annum, interest rates are expected to fall further. In addition, the division is reviewing its purchasing practices and sales channels in order to smooth out the peak in the working capital cycle.
Beef
Agriterra operates its Beef division through Mozbife Limitada ("Mozbife"). The Group has a feedlot facility, abattoir and its own branded retail units.
In respect of the Beef division, demand remains strong. However, a limiting factor to the ability to expand throughput was an outbreak of foot and mouth in February 2018. Although the slaughter herd at the Dombe ranch and feedlot remained disease free, the country-wide disease outbreak severely curtailed the movement of cattle which limited the division's ability to increase the pipeline of cattle in the feedlot, and throughput to the abattoir. Strict Bio security measures are in force at the feedlot and in addition, all cattle movements are currently cleared by Government vets.
Notwithstanding this setback, revenue for the year was US$4.7m (10 months to 31 March 2017: US$4.3m). The operating loss however increased to US$1.59m (10 months to 31 March 2017: US$1.35m). After a fall in finance costs to US$0.14m (10 months to 31 March 2017: US$0.24m), the loss before tax increased slightly to US$1.73m (10 months to 31 March 2017: US$1.59m).
Restrictions on the movement of cattle continue, limiting the division's ability to increase throughput. However new sources of quality cattle have been identified and will be brought into the feedlot as soon as conditions allow. Significant improvements have been made to feed cropping at the Vanduzi farm and feedlot during the year, which together with the pelletised animal feed sourced from the Grain division, has been reflected in improved feedlot performance. This is expected to be reflected in improved margins once volumes increase.
Cocoa
On 1 June 2017 the Group completed the disposal of its Cocoa division operating subsidiaries in Sierra Leone for US$0.5m. The disposal proceeds were applied to reduce the Group's Beef division borrowing facilities in Mozambique and for general working capital purposes. The Group recorded a profit on the disposal of the Cocoa division of US$0.15m, which was reduced by US$0.13m to US$0.02m following the recycling of translation differences previously reflected in the translation reserve.
Board and senior management changes
As a result of the investment by Magister on 14 September 2017, the Group re-structured the Board with the appointments of Mr. H Rudland, Mr. G Smith and Mr. B Scott. Mr. A Groves stepped down from the Board to focus on his other business interests. On 31 December 2017 Mr. D Cassiano-Silva stepped down from his executive role as Finance Director but remained a Non-Executive director. Mr B Scott stepped down on 28 February 2018 and Ms C Havers took on the role of Executive Chair.
Following the disposal of the Group's cocoa activities, the London office has been closed. On 15 January 2018 Mr A Fernandes was appointed Group Finance Director (Mozambique) and is based in Chimoio, Mozambique, the Company's main operational centre.
I would like to once again take this opportunity to thank Dan and Andrew for their considerable input into the development of the Company and wish Brendan the best in his new role.
Results
Revenue for the year ended 31 March 2018 fell to US$9.2m (10 months to 31 March 2017: US$12.8m). The operating loss for the year increased to US$4.0m (10 months to 31 March 2017: US$2.7m). After finance charges of US$1.1m (10 months to 31 March 2017: US$0.9m) the loss for the year from continuing activities increased to US$5.1m (10 months to 31 March 2017: US$3.6m). The loss from discontinued activities for the year fell to US$ 0.03m (10 months to 31 March 2017: US$0.1m). The loss for the year attributable to owners of the company was US$5.1m (10 months to 31 March 2017: US$3.8m). At 31 March 2018, net cash balances were US$3.5m (2017: US$2.4m) and bank borrowings were US$4.2m (2017: US$3.5m). The banking facilities were renewed on 25 May 2018. At the date these facilities were agreed, the Group was in breach of the interest covenant and remains in breach of the covenant. To date the Group has continued to make all repayments of interest and principal and has received no correspondence from the Bank suggesting that the loan might go into default.
Outlook
The recent investment from Magister marks a new period for the Group and we are already benefitting from the experience and connections of our new Board members. With senior executive management now based in Mozambique, supported by regular board meetings in Chimoio, the Group is focussing on addressing the operational issues to move towards profitability and to capitalise on the expected growth from the development of the LNG industry in Mozambique.
CSO Havers
Chair
Independent auditor's report to the members of Agriterra Limited
Opinion
We have audited the financial statements of Agriterra Limited and its subsidiaries (the 'group') for the year ended 31 March 2018 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion:
• the financial statements give a true and fair view of the state of the group's affairs as at 31 March 2018 and of the group's loss for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• the financial statements have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 2.1 concerning the group's ability to continue as a going concern which shows that the group will need to meet its cash flow forecasts, renew its overdraft facility and maintain its current borrowings or raise further finance in order to continue as a going concern. As disclosed in note 7, the Group's overdraft facilities require renewal in May 2019 and its loan is currently in breach of its covenants.
The matters explained in note 2.1 indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group was unable to continue as a going concern. Our opinion is not modified in respect of this matter.
Given the conditions and uncertainties noted above, we considered going concern to be a Key audit matter. We critically assessed management's financial forecast over their period of going concern assessment to December 2019. This included consideration of the key underlying assumptions and involved reviewing actual performance against budget. We noted that the forecast is dependent upon the successful execution of the new business plans in both the beef and grain divisions, and the forecasts show a significant increase in revenues and a reduction in costs, as disclosed in note 2.1. We reviewed the recent renewal of the overdraft facility and obtained representations from the Board that there has been no correspondence from the bank in respect of the breach of covenants. We reviewed the letter of support provided by the parent company to the Mozambique subsidiaries of the Group. We discussed these matters with management and the Audit Committee and obtained representations from the Board in respect of the future plans of the group. We evaluated the adequacy of disclosures made in the financial statements. We found that the disclosure of this matter was adequately described.
Key Audit Matter
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Impairment assessment of the beef and grain divisions
As detailed in note 3.1, the Group's principal non-current assets relate to the beef and grain divisions. Management must assess at each reporting date whether there is any objective evidence of impairment of the Group's assets. Management noted that indicators of impairment exist, such as the losses incurred during the year. Management undertook impairment tests using the value in use (VIU) method to determine if as at 31 March 2018 the recoverable amount of each of the divisions was greater than its carrying value. This assessment involved significant Management judgement and estimates, as detailed in note 3. We therefore considered the impairment assessment and the appropriateness of the estimates and disclosures to be a key audit matter.
Our Response Impairment assessment of the beef and grain divisions
We evaluated management's value in use impairment models for the grain and beef divisions and critically challenged the key estimates and assumptions used by management. In doing so, we confirmed that the forecasts were formally reviewed and approved by the Board and were consistent with operational budgets. We reviewed the discount rate used and involved our specialist valuations department. We reviewed the sensitivity analysis over individual key inputs, together with a combination of sensitivities over such inputs. We reviewed the disclosures in the financial statements, particularly the disclosures of key estimates and assumptions which impact the fair values, and the sensitivity analysis thereon.
Our application of materiality
Group materiality $200,000 (2017 - $200,000). Basis for determining materiality 1.5% of total assets.
Group performance materiality $100,000 (2017 - $100,000). Basis for performance materiality 50% of group materiality.
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. We have determined an assets based measure is appropriate as the group is currently loss making and has recently raised significant equity financing. Whilst materiality for the financial statements as a whole was $200,000, each significant component of the group was audited to a lower level of materiality of $120,000. Performance materiality has been set at 50% of materiality, which is used to determine the financial statement areas that are included within the scope of our audit and the extent of sample sizes during the audit. We agreed with the Audit Committee that we would report to the Committee all individual audit differences identified during the course of our audit in excess of $4,000. We also agreed to report differences below these thresholds that, in our view warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including the group's system of internal control, and assessing the risks of material misstatement in the financial statements at the group level. Our group audit scope focused on the group's principal operating businesses being the grain and beef divisions, which were subject to a full scope audit. Together with the parent company and its group consolidation, which was also subject to a full scope audit, these represent the significant components of the group. The remaining components of the group were considered non-significant and these components were principally subject to analytical review procedures. 100% of the group's revenue and 100% of the group's total assets were subject to full audit procedures. The audits of each of the components were principally performed in the United Kingdom and Mozambique. All of the audits were conducted by BDO LLP and BDO Mozambique. As part of our audit strategy, the senior members of the BDO LLP audit team visited each of the principal operating locations in the year.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement int he financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:
• proper accounting records have not been kept by the Company; or
• the financial statements are not in agreement with the accounting records; or
• we have failed to obtain all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, within the Directors' report, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report. The engagement director on the audit resulting in this independent auditor's report is Jack Draycott.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Jack Draycott (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
21 September 2018
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).Consolidated income statement
Consolidated income statement
For the year ended 31 March 2018
Year
ended
10 months ended
31 March 2018
31 March 2017
Note
US$000
US$000
Continuing operations
Revenue
4
9,222
12,807
Cost of sales
(8,184)
(11,915)
Gross profit
1,038
892
Increase in value of biological assets
6
510
487
Operating expenses
(5,619)
(4,532)
Other income
25
29
Profit on disposal of property, plant and equipment and adjustments to the carrying value of assets classified as held for sale
88
439
Operating loss
(3,958)
(2,685)
Investment revenues
13
12
Other gains and losses
-
(16)
Finance costs
(1,097)
(927)
Loss before taxation
(5,042)
(3,616)
Taxation
(4)
(22)
Loss for the year / period from continuing operations
(5,046)
(3,638)
Discontinued operations
Loss for the year / period from discontinued operations
(38)
(136)
Loss for the year / period attributable to owners of the Company
(5,084)
(3,774)
US cents
US cents
LOSS PER SHARE
Basic and diluted loss per share from continuing operations
5
(30.9)
(34.2)
Basic and diluted loss per share from continuing and discontinued operations
5
(31.1)
(35.5)
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
For the year ended 31 March 2018
Year
ended
10 months ended
31 March 2018
31 March 2017
US$000
US$000
Loss for the year / period
(5,084)
(3,774)
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences
764
(1,119)
Other comprehensive income for the year / period
764
(1,119)
Total comprehensive income for the year / period attributable to owners of the Company
(4,320)
(4,893)
Consolidated statement of financial position
Consolidated statement of financial position
As at 31 March 2018
31 March
31 March
2018
2017
Note
US$000
US$000
Non-current assets
Property, plant and equipment
6,315
6,094
Interests in associates
-
4
6,315
6,098
Current assets
Biological assets
6
1,137
746
Inventories
938
1,253
Trade and other receivables
1,096
1,557
Assets classified as held for sale
19
573
Cash and cash equivalents
3,541
2,425
6,731
6,554
Total assets
13,046
12,652
Current liabilities
Borrowings
7
4,235
2,730
Trade and other payables
469
634
Liabilities directly associated with assets classified as held for sale
-
128
4,704
3,492
Net current assets
2,027
3,062
Non-current liabilities
Borrowings
7
-
734
-
734
Total liabilities
4,704
4,226
Net assets
8,342
8,426
Share capital
8
3,373
1,960
Share premium
151,442
148,622
Share based payment reserve
1,988
1,985
Translation reserve
(16,737)
(17,501)
Accumulated losses
(131,724)
(126,640)
Equity attributable to equity holders of the parent
8,342
8,426
Consolidated statement of changes in equity
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2018
Share
capital
Share premium
Share based payment reserve
Translation reserve
Accumulated
losses
Total
Equity
US$000
US$000
US$000
US$000
US$000
US$000
Balance at 1 June 2016
1,960
148,622
1,980
(16,382)
(122,866)
13,314
Loss for the period
-
-
-
-
(3,774)
(3,774)
Other comprehensive income:
Exchange translation loss on foreign operations
-
-
-
(1,119)
-
(1,119)
Total comprehensive income for the period
-
-
-
(1,119)
(3,774)
(4,893)
Transactions with owners
Share-based payments
-
-
5
-
-
5
Total transactions with owners for the period
-
-
5
-
-
5
Balance at 31 March 2017
1,960
148,622
1,985
(17,501)
(126,640)
8,426
Loss for the year
-
-
-
-
(5,084)
(5,084)
Other comprehensive income:
Exchange translation gain on foreign operations
-
-
-
764
-
764
Total comprehensive income for the year
-
-
-
764
(5,084)
(4,320)
Transactions with owners
Issue of shares net of expenses
1,413
2,820
-
-
-
4,233
Share-based payments
-
-
3
-
-
3
Total transactions with owners for the year
1,413
2,820
3
-
-
4,236
Balance at 31 March 2018
3,373
151,442
1,988
(16,737)
(131,724)
8,342
Consolidated cash flow statement
Consolidated cash flow statement
For the year ended 31 March 2018
Year ended
10 months ended
31 March 2018
31 March 2017
US$000
US$000
Cash flows from operating activities
Loss before tax from continuing operations
(5,042)
(3,616)
Adjustments for:
Depreciation
490
445
Profit on disposal of property, plant and equipment
(87)
(460)
Adjustments to the carrying value of assets classified as held for sale
-
21
Share based payment expense
3
5
Foreign exchange (gain) / loss
(181)
104
Net decrease in biological assets
194
1,454
Increase in value of biological assets
(510)
(487)
Finance costs
1,097
927
Investment revenues
(13)
(12)
Decrease in fair value of investments
-
16
Impairment of current and non-current assets
4
-
Operating cash flows before movements in working capital
(4,045)
(1,603)
Decrease / (increase) in inventories
481
(151)
Decrease / (increase) in trade and other receivables
772
(729)
Decrease in trade and other payables
(297)
(13)
Cash used in operating activities by continuing operations
(3,089)
(2,496)
Corporation tax paid
(4)
(22)
Interest received
13
12
Net cash used in operating activities by continuing operations
(3,080)
(2,506)
Net cash used in operating activities by discontinued operations
(38)
(48)
Net cash used in operating activities
(3,118)
(2,554)
Cash flows from investing activities
Proceeds from disposal of subsidiary net of costs and cash balances disposed of
476
-
Proceeds from disposal of property, plant and equipment net of expenses incurred
232
927
Acquisition of property, plant and equipment
(116)
(204)
Net cash from investing activities by continuing operations
592
723
Net cash from investing activities by discontinued operations
-
33
Net cash from investing activities
592
756
Cash flows from financing activities
Issue of shares (net of expenses)
4,233
-
Net draw down of overdrafts
1,506
1,145
Net repayment of loans
(1,035)
(110)
Finance costs
(1,097)
(927)
Net cash from financing activities from continuing operations
3,607
108
Net increase / (decrease) in cash and cash equivalents
1,081
(1,690)
Effect of exchange rates on cash and cash equivalents
35
60
Cash and cash equivalents at beginning of the year / period
2,425
4,055
Cash and cash equivalents at end of the year / period
3,541
2,425
otes to the consolidated financial statements
Notes to the consolidated financial statements
1. GeNERAL INFORMATION
Agriterra is incorporated and domiciled in Guernsey, the Channel Islands, with registered number 42643. The reporting currency for the Group is the US Dollar ('$' or 'US$') 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 financial statements have been prepared in accordance with IFRSs as adopted by the EU.
The Company changed its accounting reference date to 31 March from 31 May, effective from 31 March 2017 in order to more effectively co-ordinate the Group's annual report and accounts with the business cycle of the Group's underlying business operations. Accordingly, these financial statements present the results and cash flows of the Group for the year ended 31 March 2018, with the comparative period being the 10 months ended 31 March 2017.
The financial statements for the year ended 31 March 2018 and the 10 month period ended 31 March 2017 are audited and do not constitute full statutory accounts. The full accounts will be sent to shareholders and posted on the Company's website
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared on a historical cost basis, except for certain financial instruments, biological assets and share based payments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets acquired. The principal accounting policies adopted are set out below in this note.
2.1. Going concern
The Group has prepared forecasts for the Group's ongoing businesses covering the period of at least 12 months from the date of approval of these financial statements. These forecasts are based on assumptions including, inter alia, that there are no significant disruptions to the supply of maize or cattle to meet its projected sales volumes and that key inputs are achieved, such as forecast selling prices and volume, budgeted cost reductions, and projected weight gains of cattle in the feedlot. They further take into account planned disposals of property plant and equipment, general working capital requirements and available borrowing facilities.
With senior executive management now based in Mozambique, the Group's focus is on improving operational performance of the Grain and Beef divisions.
Grain division: Plans show volumes increasing to 24,000 tonnes in the year ending 31 March 2019 ("FY19"), (Year ended 31 March 2018: 16,500 tonnes) supported by a new commercial strategy introducing new product lines and distribution channels. Steps to improve quality have already been well received in the market. In addition, cost savings are budgeted to be realised from reorganising the logistics function in the second half of FY19.
Beef division: The rationalisation of the farms over the last couple of years has already realised significant cost reductions, which together with improved performance in the feedlot are budgeted to show lower costs of production. As well as increasing throughput in our existing retail network, focus will be on expanding our direct sales to larger clients. Margins are expected to improve as demand for our beef continues to be strong, with annualised volumes expected to increase to 2,000 tonnes in FY19 (Year ended 31 March 2018: 1,538 tonnes).
The foot and mouth outbreak in the region, has unfortunately restricted the movement of cattle. This has impacted the ability to secure a reliable and consistent supply into the feedlot. Should these restrictions remain in place throughout the forecast period, these volumes may not be achieved.
These forecasts show a significant improvement in operating performance as compared to that reported for the year ended 31 March 2018. However, there can be no certainty that the turnaround plans will be successful.
As set out in note 9, the Group has reorganised its banking facilities with Standard Bank. The Grain division's Metical 300m (UD$ 4.9m) overdraft has been replaced by an amortising term loan of Metical 240m (US$3,9m) repayable over 5 years and a Metical 60m (US$1m) revolving overdraft facility. The Beef division has a Metical 30m (US$0.5m) revolving overdraft facility. At the date of this report approximately Metical 5m (US$0.08) and Metical 10m (US$0.16m) respectively remain undrawn.
These facilities have an interest covenant in place. As disclosed in note 9, at the date these facilities were agreed, the Group was in breach of the interest covenant and remains in breach of the covenant. As a result of the breach of covenant, the bank could make the loans immediately repayable. To date the Group has continued to make all repayments of interest and principal and has received no correspondence from the Bank suggesting that the loan might go into default. Consequently the forecasts assume that both the term loan and overdraft facilities will continue to be available and will be renewed for a further year when they are reviewed in May 2019. Negotiations with other banks in Mozambique are well advanced but have not yet been finalised.
Based on the above, whilst there are no contractual guarantees, the directors are confident that the existing financing will remain available to the Group. The directors, with the operating initiatives already in place, are also confident that the Group will achieve its cash flow forecasts.
Notwithstanding the confidence that the board has, the directors, in accordance with financial reporting council guidance in this area, agree that at this time there is a material uncertainty that both the current debt and overdraft facilities will remain in place and the Group's losses will reduce such that the Group has sufficient finances to be able to discharge its liabilities in the normal course of business. Failure to achieve these might cast significant doubt upon the Group's ability to continue as a going concern and that the Group may therefore be unable to realise their assets and discharge their liabilities in the normal course of business. These Financial Statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
3. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group's accounting policies, the Directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The effect on the financial statements of changes in estimates in future periods could be material.
3.1. Impairment
Impairment reviews for non-current assets are carried out at each balance sheet date in accordance with IAS 36, Impairment of Assets. Continued losses in both the Beef and Grain divisions were considered to be indications of impairment and formal impairment reviews were undertaken.
The impairment reviews are sensitive to various assumptions, including the expected sales forecasts, cost assumptions, capital requirements, and discount rates among others. The forecasts of future cash flows were derived from the operational plans in place to address the requirement to increase both volumes and margins across the two divisions. Real commodity prices were assumed to remain constant at current levels.
Discount rate: Current central bank prime MIMO benchmark rate is 15% and with inflation at around 5%, the benchmark real interest rate is around 10%. The real rate assumed in in these forecasts is 12.5%, consistent with prior years. A 5% risk premium has been added to give a discount real rate of interest of 17.5%. Current nominal bank borrowing rates are 22.5%, but these are expected to fall further as the economy returns to growth and inflation remains stable. Neither the Grain nor Beef divisions are sensitive to an increase in the discount rate to 30%.
Grain division: The forecasts for the Grain division show a return to the 10 year moving average with meal sales increasing to 24,000 tonnes in FY19 (Year ending 31 March 2018: 16,500). A shortfall in the projected volumes of 50% or a reduction in the gross margin of more than 11% would lead to an indication of impairment.
Beef division: The forecasts for the Beef division show volumes improving to 2,000 tonnes (Year ending 31 March 2018:1,538 tonnes) in FY-19 and to 2,100 tonnes in FY-20. A fall in forecasted sales volumes of 10% or a reduction in the average daily weight gains in the feedlot of 9% would be required to trigger the need for a further impairment. The assets of the Beef division were impaired by $3.1m in the year ended May 2016 following the decision to destock the ranches. The board continues to evaluate the development of these assets, however it is too early to consider whether or not the previous impairment charge should be reversed.
No impairments were recorded in the year ended 31 March 2018 or the 10 month period ended 31 March 2017.
3.2. Biological assets
Cattle are accounted for as biological assets and measured at their fair value at each balance sheet date. Fair value is based on the estimated market value for cattle in Mozambique of a similar age and breed, less the estimated costs to bring them to market, converted to US$ at the exchange rate prevailing at the period end. Changes in any estimates could lead to the recognition of significant fair value changes in the consolidated income statement, or significant changes in the foreign currency translation reserve for changes in the Metical to US$ exchange rate.
The herd may be categorised as either the breeding herd of slaughter herd, depending on whether it was principally held for reproduction or slaughter. At 31 March 2018 the value of the breeding herd disclosed as a non-current asset was $nil (31 March 2017: $nil). The value of the herd held for slaughter disclosed as a current asset was $1.1m (31 March 2017: $0.75m).
During the year, the Group has increased its capacity to produce sufficient forage to meet its requirements in the feedlot. Accordingly forage crops have been valued at 31 March 2018 at $28,000 (31 March 2017 $nil), bringing the total biological assets to $1.14m (31 March 2017: $0.75m).
4. Segment reporting
The ExCom consider that the Group's operating activities comprise the segments of Grain, Beef and Cocoa, all undertaken in Africa. In addition, the Group has certain other unallocated expenditure, assets and liabilities, either located in Africa or held as support for the Africa operations.
4.1. Segment revenue and results
The following is an analysis of the Group's revenue and results by operating segment:
Year ending 31 March 2018
Grain
Beef
Cocoa
Unallo-cated
Discon-
tinued
Elimina-tions
Total
US$000
US$000
US$000
US$000
US$000
US$000
US$000
Revenue
External sales(2)
4,519
4,703
-
-
-
-
9,222
Inter-segment sales(1)
680
-
-
-
-
(680)
-
5,199
4,703
-
-
-
(680)
9,222
Segment results
- Operating (loss) / profit
(747)
(1,588)
(31)
(1,630)
38
-
(3,958)
- Interest (expense) / income
(951)
(140)
-
7
-
-
(1,084)
(Loss) / profit before tax
(1,698)
(1,728)
(31)
(1623)
38
-
(5,042)
Income tax
(2)
(2)
-
-
-
-
(4)
(Loss) / profit for the year from continuing operations
(1,700)
(1,730)
(31)
(1,623)
38
-
(5,046)
10 month period ending 31 March 2017
Grain
Beef
Cocoa(3)
Unallo-cated
Discon-
tinued
Elimina-tions
Total
US$000
US$000
US$000
US$000
US$000
US$000
US$000
Revenue
External sales(2)
8,468
4,339
25
-
(25)
-
12,807
Inter-segment sales(1)
446
-
-
-
-
(446)
-
8,914
4,339
25
-
(25)
(446)
12,807
Segment results
- Operating (loss) / profit
(204)
(1,346)
(136)
(1,135)
136
-
(2,685)
- Interest (expense) / income
(686)
(241)
-
12
-
-
(915)
- Other gains and losses
-
-
-
(16)
-
-
(16)
(Loss) / profit before tax
(890)
(1,587)
(136)
(1,139)
136
-
(3,616)
Income tax
(6)
(1)
-
(15)
-
-
(22)
(Loss) / profit for the period from continuing operations
(896)
(1,588)
(136)
(1,154)
136
-
(3,638)
(1)
Inter-segment sales are charged at prevailing market prices.
(2)
Revenue represents sales to external customers and is recorded in the country of domicile of the group company making the sale. Sales from the Grain and Beef divisions are principally for supply to the Mozambique market.
(3)
$25,000 revenue reported in the Cocoa segment for the period ended 31 March 2017 arises on the rental of certain of the Cocoa division's assets.
The segment items included in the consolidated income statement for the year are as follows:
Year ending 31 March 2018
Grain
Beef
Cocoa
Unallo-cated
Discon-tinued
Elimina-tions
Total
US$000
US$000
US$000
US$000
US$000
US$000
US$000
Depreciation
152
338
-
-
-
-
490
Period ending 31 March 2017
Grain
Beef
Cocoa
Unallo-cated
Discon-tinued
Elimina-tions
Total
US$000
US$000
US$000
US$000
US$000
US$000
US$000
Depreciation
123
322
-
-
-
-
445
4.2. Segment assets, liabilities and capital expenditure
Segment assets consist primarily of property, plant and equipment, biological assets, inventories, trade and other receivables and cash and cash equivalents. Segment liabilities comprise operating liabilities, including an overdraft financing facility in the Grain segment, and bank loans and overdraft financing facilities in the Beef segment.
Capital expenditure comprises additions to property, plant and equipment.
The segment assets and liabilities at 31 March 2018 and capital expenditure for the year then ended are as follows:
Grain
Beef
Cocoa
Unallocated
Total
US$000
US$000
US$000
US$000
US$000
Assets
4,984
4,918
-
3,144
13,046
Liabilities
(3,981)
(528)
-
(195)
(4,704)
Capital expenditure
(9)
(107)
-
-
(116)
Segment assets and liabilities are reconciled to Group assets and liabilities as follows:
Assets
Liabilities
US$000
US$000
Segment assets and liabilities
9,902
4,509
Unallocated:
Other receivables
22
-
Cash and cash equivalents
3,122
-
Trade payables
-
72
Accrued liabilities
-
123
13,046
4,704
The segment assets and liabilities at 31 March 2017 and capital expenditure for the period then ended are as follows:
Grain
Beef
Cocoa
Unallocated
Total
US$000
US$000
US$000
US$000
US$000
Assets
5,456
4,713
-
2,483
12,652
Liabilities
(2,806)
(1,178)
-
(242)
(4,226)
Capital expenditure
(130)
(74)
-
-
(204)
Segment assets and liabilities are reconciled to Group assets and liabilities as follows:
Assets
Liabilities
US$000
US$000
Segment assets and liabilities
10,169
3,984
Unallocated:
Investments and interests in associates
4
-
Other receivables
13
-
Assets classified as held for sale
453
-
Cash and cash equivalents
2,013
-
Liabilities directly associated with assets classified as held for sale
-
128
Trade payables
-
11
Accrued liabilities
-
103
12,652
4,226
5. LOSS per share
The calculation of the basic and diluted loss per share is based on the following data:
Year ended
10 months ended
31 March 2018
31 March 2017
US$000
US$000
Loss for the year / period for the purposes of basic and diluted earnings per share from continuing activities
(5,046)
(3,638)
Loss for the year / period for the purposes of basic and diluted earnings per share from discontinued activities
(38)
(136)
Loss for the year / period for the purposes of basic and diluted earnings per share attributable to equity holders of the Company
(5,084)
(3,774)
Weighted average number of Ordinary Shares for the purposes of basic and diluted loss per share
16,351,388
10,618,185
Basic and diluted loss per share - US cents
(31.1)
(35.5)
Basic and diluted loss per share from continuing activities - US cents
(30.9)
(34.2)
Basic and diluted loss per share from discontinued activities - US cents
(0.2)
(1.3)
At the Annual General Meeting held on 30 November 2017, the shareholders approved a resolution to consolidate 100 existing ordinary shares of 0.1p each ("Existing Ordinary Share") into one new ordinary share of 10p each ("New Ordinary Share"). The weighted average number of ordinary shares used for the purposes of calculating loss per share for the year ending 31 March 2018 and period ending 31 March 2017 refer to New Ordinary Shares.
The company has issued options over ordinary shares which could potentially dilute basic loss per share in the future. There is no difference between basic loss per share and diluted loss per share as the potential ordinary shares are anti-dilutive.
6. Biological assets
US$000
Fair value
At 1 June 2016
1,994
Purchase of biological assets
1,667
Sale, slaughter or other disposal of biological assets
(3,121)
Change in fair value of the herd
487
Foreign exchange adjustment
(281)
At 31 March 2017
746
Purchase of biological assets
2,913
Sale, slaughter or other disposal of biological assets
(3,107)
Change in fair value of the herd
510
Foreign exchange adjustment
75
At 31 March 2018
1,137
Biological assets comprise cattle in Mozambique held for breeding purposes (the 'Breeding herd') or for slaughter (the 'Slaughter herd'). At 31 March 2018 and 2017, all cattle are held for slaughter. The Slaughter herd has been classified as a current asset. The Breeding herd is classified as a non-current asset. Forage crops included in current assets are US$ 28,000 (31 March 2017 US$ nil). Biological assets are accordingly classified as current or non-current assets as follows:
31 March 2018
31 March
2017
31 March 2018
31 March
2017
Head
Head
US$000
US$000
Non-current asset
-
-
-
-
Current asset
4,190
3,475
1,137
746
4,190
3,475
1,137
746
For valuation purposes, cattle that are not in the feedlot are grouped into classes of animal (e.g. bulls, cows, steers etc) and a standard animal weight per breed and class was then multiplied by the number of animals in each class to determine the estimated total live weight of all animals in the herd. For animals in the feedlot, their weight has been estimated based on their individual weigh in data at the closest weigh in date to the period end.
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 slaughter herd have been pledged in full to secure the Beef division's bank overdraft and loans (see note 7).
7. Borrowings
31 March 2018
31 March
2017
US$000
US$000
Non-current liabilities
Bank loans
-
734
Current liabilities
Bank loans
50
264
Overdraft
4,185
2,466
4,235
2,730
4,235
3,464
Beef division
On 27 April 2017, the Group agreed revised lending facilities with Standard Bank to finance the Beef division in Mozambique. The existing term loans were consolidated into one loan repayable in twelve monthly instalments commencing May 2017. At 31 March 2018, the remaining balance was $0.05m (2017: $1.0m). The renewal date of the overdraft facility of 30 million Metical ($0.49m) was extended to 25 March 2018 and further extended to 25 May 2018. The amount drawn down at 31 March 2018 was $0.34m (2017: $nil).
On 25 May 2018, the overdraft facility has been renewed for a further 12 months and carries an interest rate at the Bank's prime lending rate (24%) at 31 March 2018.
The facilities are secured as follows:
31 March 2018
31 March
2017
US$000
US$000
Fixed Charge
Property, plant and equipment
1,913
1,848
Floating Charge
Cattle
1,109
746
Meat Inventories
166
126
Trade receivables
249
381
3,437
3,101
Grain division
On 27 April 2017, the Group formally completed the renewal of the Grain division's 300 million Metical overdraft facility to provide working capital funding, principally for the purchase of maize and related operating expenditure. The amount drawn down at 31 March 2018 was $3.84m (2017: $2.47m).
On 25 May 2018 the facility was restructured into a 240 million Metical ($3.91m) 5 year term loan with an interest rate of the Bank's prime lending rate +0.25% and a 12 month 60 million Metical ($0.98m) overdraft facility at the Bank's prime lending rate less 1.75%.
The facilities are secured as follows:
31 March 2018
31 March
2017
US$000
US$000
Fixed Charge
Property, plant and equipment
2,761
2,631
Floating Charge
Maize and Maize product inventories
452
917
Trade receivables
799
1,078
4,012
4,626
As further security to these borrowings, Agriterra Limited has issued a Corporate guarantee in favour of the bank. Under the terms of the guarantee, it may only be called upon once the bank has exhausted all possible means of recovering the debt in Mozambique.
8. Share capital
Authorised
Allotted and fully paid
Number
Number
US$000
At 31 March 2017 and 31 May 2016
Ordinary shares of 0.1p each
2,345,000,000
1,061,818,478
1,722
Issue of shares
-
1,062,243,291
1,413
At 30 November 2017
2,345,000,000
2,124,061,769
3,135
Consolidation 1 new ordinary share of 10p each for 100 ordinary shares of 0.1p each
(2,321,550,000)
(2,102,821,151)
-
At 31 March 2018
23,450,000
21,240,618
3,135
At 31 March 2018 and 31 March 2017
Deferred shares of 0.1p each
155,000,000
155,000,000
238
Total share capital
178,450,000
176,240,618
3,373
The Company has one class of ordinary share which carries no right to fixed income.
On 30 November 2017, the shareholders approved a resolution to consolidate 100 existing ordinary shares of 0.1p each ("Existing Ordinary Share") into one new ordinary share of 10p each ("New Ordinary Share"). All references to the number of shares in issue at 31 March 2018 and in the comparative period relate to New Ordinary Shares.
The deferred shares carry no right to any dividend; no right to receive notice, attend, speak or vote at any general meeting of the Company; and on a return of capital on liquidation or otherwise, the holders of the deferred shares are entitled to receive the nominal amount paid up after the repayment of £1,000,000 per ordinary share. The deferred shares may be converted into ordinary shares by resolution of the Board.
9. Events subsequent to the balance sheet date
9.1. Re-structuring of the Company's borrowing facilities with Standard Bank
On 25 May 2018, the Group and Standard Bank agreed to modify the terms of the Group's borrowing facilities as follows:
Beef Division: On 25 May 2018, the overdraft facility has been renewed for a further 12 months and carries an interest rate at the Bank's prime lending rate (24%) at 31 March 2018.
Grain Division: On 25 May 2018, the 300 million Metical overdraft facility was restructured into a 240 million Metical 5 year term loan with an interest rate of the Bank's prime lending rate +0.25% and a 12 month 60 million Metical overdraft facility at the Bank's prime lending rate less 1.75%.
The Term loan and overdraft facilities have an interest covenant in place. At the date these facilities were agreed, the Group was in breach of the interest covenant. To date the Group has continued to make all repayments of interest and principal and has received no correspondence from the Bank suggesting that the loan might go into default.
For further information please visit www.agriterra-ltd.com or contact:
Caroline Havers
Agriterra Ltd
Tel: +44 (0) 20 7408 9200
David Foreman
Cantor Fitzgerald Europe
Tel: +44 (0) 20 7894 7000
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR DBGDCRBDBGIS
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