REG - Agriterra Ltd - Trading Update

AgriterraAnnouncement

31/03/2022 07:00

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RNS Number : 6824G  Agriterra Ltd  31 March 2022

 

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

 

Agriterra Limited ('Agriterra' or the 'Company')

 

Trading update

 

Agriterra Limited, the AIM listed African agricultural company, announces its
trading update for the period as of March 2022.

 

This update is provided in advance of the financial statements for the year
ended 31 March 2022 which will be issued in due course in accordance with the
AIM Rules for Companies. The information and commentary provided is based on
unaudited management accounts and other internal performance measures and is
subject to concluding the routine annual accounting adjustments as well as any
adjustments that arise as a result of the external audit process. The Company
expects to release FY-22 results in early September.

 

Grain division

 

Upgrades to both mills improved the overall extraction rate from 75% in FY21
to 79%, while the cheaper maize purchases have improved this year's overall
gross margin to 26.7% against the 15.4% achieved in the prior period. These
efficiencies have not translated into improved bottom line results or overall
performance, as the total sales have continued to be much lower than
forecasted.

 

The continued drop in sales has been caused by the excessive volume of maize
being imported from Malawi and Zambia, where favourable climatic conditions
and government subsidised fertilizer schemes resulted in exceptionally high
maize production. The supply continues to be far greater than the local demand
in these countries and as such, the grain is still entering Mozambique and
eventually making its way towards Maputo. Latest figures confirm that a ton of
maize in Malawi costs c.$151, a significant reduction on the import parity
price of $310 in Maputo, resulting in consumers buying cheaper maize rather
than sourcing locally processed meal. The low sales have impacted all millers
across the central and southern regions of the country.

 

A total facility of $6.1m was secured from First Capital Bank, S.A., which
assisted in the purchase of the 30,000 tons of maize needed for milling this
season. The business also has in silo 9,000 tons of maize (FY-2021: 1,500
tons), which will enable the business to mill through to July 2022, when the
new crop will be available to purchase.

 

The numerous initiatives discussed in the HY-22 report have helped drive
sales, but the Company continues to be behind its expectations, as the cheap
maize from Zambia and Malawi continues to enter the market. The campaign to
push the new 1kg DECA meal packages did not realise the higher sales
anticipated. However, a new recipe that differentiates the meal from that of
the larger 25kg and 50kg bags was launched in February and this is starting to
result in a lift in the 1kg DECA meal package sales.

 

Grain division generates c.80% of the Group consolidated revenue.

 

Beef division

 

The Beef division was subject to a reduction in demand between March and April
2021, and as a consequence the division was forced to focus on new customers,
improving operating margins and cutting overheads. With a new feedlot and
sales teams, these initiatives are delivering improvements. These improvements
were picked up in the HY-22 report and have now begun to produce the
anticipated results.

 

Sales and value per kilogram of meat increased in the second half of the year
and the demand for Agriterra's beef is now growing as the markets in the
northern and southern regions begin to recover from the impact of the COVID-19
pandemic. The Company is encouraged by these positive changes and is working
diligently to ensure that it can continue to supply the market with the
quantities and quality that are required.

 

Beef division generates 20% of the Group consolidated revenue.

 

Snax Division

 

One year into this venture and the Company is encouraged by the uptake of its
Snax products. The second half of FY-2022 is proving to be much better than
that of the first. A considerable number of COVID-19 restrictions have been
lifted, with schools and recreational centres (bars, restaurants and activity
centres) being allowed to reopen. As a result, demand is quickly returning and
the Company is in the process of ramping up its distribution systems (vehicles
and warehousing).

Snax division is a joint venture and is expected to generate US$ 61 000 profit
to offset group accumulated losses in its first year of operations.

 

Impact of COVID-19, climatic change, security and the war in the Ukraine

 

In the last eight weeks, three tropical storms have hit the central and
northern regions. Fortunately, none of the Company's installations have been
affected and all Agriterra's staff are safe. April is typically the month for
cyclones, and further weather events are anticipated. On a more positive note,
the COVID-19 pandemic appears to be under control now in Mozambique. Although
a number of restrictions remain in place, these are more manageable, and
people's lives are returning to normal. The education, tourism, entertainment,
and events industries have re-opened, offering jobs and restoring the demand
for services and food. It is anticipated that the increase in gas prices and
EU requirements to diversify sources of gas will motivate the oil and gas
sector to return and reach extraction faster. If this happens, it will be a
boost to the economic sector in Mozambique.

 

Security in the north of the country has improved, as the Southern African
Development Community forces slowly dominate the region. This too, has
encouraged the oil and gas sector to return and continue the development
process.

 

Outlook for the new year (FY-2023)

 

The outlook for the new FY-2023 is encouraging for all sectors of Agriterra's
business:

 

Ø The combined effect of a below average rainfall and the increased price of
wheat and oil (due to the ongoing conflict in Ukraine), will reduce the
availability of local food and cause a higher demand for the Company's
products;

Ø Import restrictions on meat from South Africa and the growing demand from
Maputo and the oil and gas sectors are likely to drive up demand for the
Company's beef; and

Ø The Snax division is successfully penetrating the markets, plus the
introduction of new flavours will allow the Company to further establish its
position in the market.

 

 

   Caroline Havers
 Chair

 31 March 2022

 

The information communicated within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulations (EU) No.
596/2014 as it forms part of United Kingdom domestic law by virtue of the
European (Withdrawal) Act 2018, as amended. Upon the publication of this
announcement, this inside information is now considered to be in the public
domain.

 

 

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

 

 Agriterra Limited                                               Strand Hanson Limited
                                                                 (Nominated & Financial Adviser and Broker)
 Caroline Havers                                                 James Spinney / Ritchie Balmer
 caroline@agriterra-ltd.com (mailto:caroline@agriterra-ltd.com)  Tel: +44 (0) 207 409 3494

 

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