Half-year Report
30/11/2021 06:59
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RNS Number : 8856T Inqo Investments Limited 30 November 2021
Inqo Investments Limited
Unaudited Group Results for the period ended 31 August 2021
CHAIRMAN AND CHIEF EXECUTIVE STATEMENT
Inqo Investments Limited ("Inqo" or "the Group") is a South African based
social impact company that acquires and invests in businesses that tackle
poverty and the social needs of low-income earners in Sub-Saharan Africa.
COMMENTARY
The Group remains in a good financial position with total assets of
R155,990,835 and minimal debt. Funds provided by shareholders of R2,066,862
and the proceeds of R5,612,447 from the sale of land to South African National
Parks (SANParks) have provided the Group with the funds to support
subsidiaries and investments during the difficult Covid-19 pandemic.
Kuzuko Lodge, the main subsidiary of Inqo Investments, has required
substantial financial support through the Covid-19 pandemic period. Travel
restrictions, lockdowns and consumer confidence in travel has significantly
impacted the business throughout 2020 and 2021 - as it has for the hospitality
industry around the world. A recent easing of travel restrictions by the UK
government, Kuzuko's largest market, is a positive sign for the lodge.
However, due to an announcement on 25 November, that a new potentially more
contagious Covid-19 variant had been identified in South Africa, the UK placed
South Africa on the travel red list on 26 November.
Therefore, despite the challenges that have been faced by the investments held
by the Group, the directors of the company have assessed that it will continue
as a going concern.
The results for the six months under review showed revenue of R607,688 (August
2020: R1,746,170) and incurred a loss after tax of R5,060,946 (August 2020:
R4,760,046). The loss for the period is reported after accounting for the
following operating costs:
August 2021 August 2020
Depreciation 1,659,770 1,743,117
Listing expenses 357,806 528,106
Directors' fees and salaries 348,000 259,500
Professional fees 321,415 259,942
Like businesses around the world, the Group has been heavily impacted by the
Covid-19 pandemic. All businesses in the Group have reported reduced
earnings during the pandemic and have taken extensive steps to reduce
operating costs to the minimum and adapt to the realities of operating a
business during the ongoing Covid-19 pandemic.
The directors of the holding company review the valuation placed on all income
carrying assets to ensure that they reflect their fair value. This review
was done at 31 August 2021 and having conducted the review, the directors are
of the view that the Group's assets are reflected at fair value.
INVESTEE COMPANIES
Kuzuko Lodge (South Africa)
Kuzuko Lodge ("Kuzuko") only traded for 3 months of this financial period as
the directors of the company and Kuzuko's management company decided to
mothball the operation during the South African winter season from May to
September. The Lodge reopened for business on 1 September 2021 to local
South African guests and a small number of European travellers. The decision
by the British government to lift the ban on travel to South Africa on 11
October 2021 was a major boost for Kuzuko Lodge as the United Kingdom market
has historically provided 25 to 30% of the annual occupancy for the Lodge.
Kuzuko Lodge has started to receive enquiries for accommodation from British
based travellers, which is a very positive sign for the business.
The directors of the company and the management company, Legacy Hotels and
Resorts, have maintained contact with members of the workforce who were
retrenched/laid off and provided them with food parcels during the period that
the Lodge has been closed in recent months. The previously retrenched/laid
off staff will be re-employed by the Lodge as soon as occupancies allow.
Spekboom Trading (South Africa)
The company has to date replanted some 500 acres of degraded land with
spekboom, an indigenous shrub that naturally sequesters exceptionally high
levels carbon, creating 100 job opportunities in the process.
A memorandum of understanding is being negotiated with a leading carbon fund
to restore 3,000 acres of spekboom on the Kuzuko property in order to generate
carbon credits. There has recently been a renewed interest in the carbon
markets in response to the growing global awareness of the impact of climate
change with nature-based solutions, such as spekboom, being a high priority.
Inqo anticipates scaling up spekboom restoration activities once the Covid-19
pandemic situation has resolved providing valuable employment opportunities as
well as a positive environmental benefit.
Small scale plantings have continued to take place during the Covid-19
pandemic period and it is anticipated that larger scale planting trials will
take place in the near future. Pilot plantings will maximise chances of
success when more widescale replanting operations take place as part of the
company's conservation and land regeneration plans.
Bee Sweet Honey (Zambia)
Inqo made a series of investments in the Bee Sweet commercial honey production
operation between 2016 and 2019. Bee Sweet Honey contracts with rural
farmers to manage hives placed on farmers' land in return for a share of the
profit from the harvest.
The Bee Sweet operation currently has 61,203 bee hives in the field with over
8,000 beekeepers in its programme. Inqo has invested in 14 150 hives and
receives a return on investment as a profit share on the yield produced by
these hives.
The hives are harvested twice a year, generally in May and November.
Four-One Financial Services Limited (Uganda)
Inqo made an initial investment in 2017 and a further investment in 2018 in
Four-One Financial Services Limited ("Four-One"), a Ugandan based company that
provides micro-pension, savings and short-term loan products to the informal
sector.
Prior to the Covid-19 pandemic Four-One was performing well having endured
challenging operating conditions for the previous 18 months. The senior
management team have a strong track record in navigating a difficult business
environment through lean operations and have developed an agile response to
market demands. However, the impact of the lockdown and subsequent economic
downturn has been severe in Uganda, which has impacted Four-One. It will take
time before the full impact to the business and Ugandan economy is known. In
the meantime, Inqo continues to work with the management team to assist where
possible.
South Lake Medical Centre (Kenya)
South Lake Medical Centre ("SLMC") is a private healthcare provider in the
Naivasha region of Kenya serving predominantly low-income flower farm workers.
SLMC operate a 'hub and spoke' model around a 27-bed private referral-level
hospital with smaller satellite clinics based on surrounding flower farms and
in nearby population centres. Inqo invested in SLMC in the 2019/20 year.
This hospital receives large numbers of patient visits per annum with the
capacity to treat three times this number. Currently, SLMC offers a range of
in and outpatient services including consultations, laboratory testing,
radiology and pharmacy services. Following this investment, SLMC expanded its
operation with the inclusion of major and minor surgical units that have
recently been opened, making the SLMC facility the most advanced hospital at
the southern end of Lake Naivasha. The Naivasha region in Kenya is
predominantly populated by low-income workers working in the horticultural,
agricultural and tourism industries.
The impact of Covid-19 has been economically challenging for SLMC. The major
industry in the area being cut flowers for the European market - a sector that
has experienced variable sales during the Covid-19 pandemic period.
Fortunately, there is a strong vegetable growing industry in Naivasha that
continues to trade and provides medical appointments for SLMC. Through the
strong leadership of the management team, SLMC has endured the challenging
conditions of 2020 and 2021 whilst still implanting the required development
for their growth plans. The hospital is now in a strong position to achieve
its objectives as the Kenyan economy begins to recover.
Kentegra Biotechnology Limited (Kenya)
Kentegra Biotechnology Limited ("Kentegra") is a Kenyan based biotechnology
firm owned by the US holding company, Kentegra Biotechnology Holdings LLC.
Kentegra produces pyrethrum, a natural active ingredient from the
chrysanthemum flower, for the use in biocide, agricultural and pharmaceutical
pesticide markets. The chrysanthemum flowers must be grown in specific
conditions in order to produce pyrethrum. These conditions are found only in a
few places around the world, predominantly East Africa (Tanzania, Uganda,
Rwanda and Kenya) and Australia. With ideal growing conditions, Kenya was
once the largest producer of pyrethrum in the world until management issues
and synthetic alternatives led to a major decline in the nationalised industry
in the early 2000s. In 2013, the Kenyan government liberalised the pyrethrum
sector in a concerted effort to revive the industry and support the growing
worldwide "organic" movement. Kentegra is one of the six companies in Kenya
with a licence to produce pyrethrum.
As an essential industry, Kentegra had been able to operate normally and
continues to report demand despite the Covid-19 pandemic. The senior
management team have responded quickly and professionally drawing up well
considered contingency plans for all eventualities and are re-evaluating the
situation on a continual basis. Kentegra has shown a strong commitment to
both their smallholder farmer partners and their employees during this time,
going above and beyond to minimise the economic impact while ensuring safety
for the organisation. Kentegra's recently built factory has been successfully
in production for several months. At the end of this period, the company has
recruited around 7,000 farmers cultivating 1,700 acres of chrysanthemum
flowers. Kentegra has also raised over US$2m in a mix of grants and loans.
Further funding is being raised to install a second production line.
Sanergy Incorporated (Kenya)
Sanergy Incorporated ("Sanergy") is a Nairobi based firm recycling sanitation
and organic waste into high protein animal feed, fertilizer and biomass
briquettes using an innovative circular economy approach. Sanergy currently
recycles 12,000 tons of organic waste per year.
We closed our investment in Sanergy Inc in October 2020. When the pandemic
struck, Sanergy were in the process of raising funds for a Series B investment
round with a proportion of the funding already secured from Novastar
Ventures. The challenges of conducting a due diligence in a pandemic meant
the funding round was paused and Sanergy sought additional investors for a
bridging round. Investment timing was critical as Sanergy were in the
process of completing their first major expansion in Nairobi and required
funds to finish the build. Following the closing of the bridging round in
October 2020, Sanergy were able to find additional funding for their Series B
and our convertible loan note converted to equity in November 2020.
Since the investment, Sanergy have completed and opened their new factory.
At full capacity, the factory is capable of processing 72,000 tons of organic
waste per annum. Waste collection has remained slightly unpredictable
throughout the pandemic. The hospitality industry is a major source of organic
waste for Sanergy and a combination of lockdowns, travel restrictions and slow
economic growth have meant that supply is hard to predict. Sanergy continue
to take a methodical approach to refining their methodology on a larger scale
and remain optimistic for the remainder of the year. With around 4,000
toilets, Sanergy serves over 125,000 people daily. Sanergy was also one of 5
finalists in this year's prestigious Earthshot Prize
(https://earthshotprize.org/finalists/sanergy/).
STOCK EXCHANGE LISTING
Aquis Exchange PLC (AIM: AQX) acquired the NEX Exchange in March 2020, which
has now been renamed The Aquis Stock Exchange (AQSE). Shares on AQSE will
remain exempt from Capital Gains Tax and Inheritance Tax as they were on the
NEX Exchange.
OUTLOOK
Kuzuko Lodge - The Lodge reopened for guests on 1 September 2021 and has to
date received mainly South African and a small number of European visitors to
the property. The decision by the British government to remove South Africa
from their red list was a major boost to the business as it is Kuzuko's most
important market. While the directors expect to see an increase in bookings
to the Lodge in the short term, they do not expect occupancies to return to
pre-Covid occupancy levels until late in 2022 as consumer confidence will take
time to return, although the reimplementation of travel restrictions on 26
November, by the UK and EU may slow down this anticipated growth.
Bee Sweet Honey - The market in which Bee Sweet is currently operating is very
challenging but in spite of this management is making good headway on both the
production and sales front. The company has recorded good sales and is
currently negotiating with a buyer for the sale of a large quantity of stock
that will provide the company with the cash flow needed to fund the harvesting
of the honey crop in November and December this year.
Spekboom Trading - The Covid-19 pandemic has meant that re-planting activity
had to cease. However, discussions have been on-going with a number of
environment-focussed investment funds to start the re-planting of spekboom.
Four-One Financial Services - This business has been especially hard hit
because it serves the informal sector in Uganda with savings and short-term
loans products. The Covid-19 pandemic has been extremely challenging for the
informal sector in Uganda with many traders going out of business. We are
pessimistic about the outlook given the overall economic impact of the
pandemic in Uganda.
South Lake Medical Centre - As an essential service, SLMC has been able to
continue trading though footfall to the hospital declined with patients
hesitant about attending the hospital for treatment due to fear of being
infected with Covid-19. Despite the challenges, management have been able to
continue to implement development plans during 2020 and 2021 putting SLMC in a
strong position as the Kenyan economy begins to recover.
Kentegra Biotechnology - As an Agri business, Kentegra was deemed an essential
service by the Kenyan government and has been able to continue operations
during the lockdown. During this period, the company has on-boarded a
significant number of new out-grower farmers as well as installed and
commissioned their new factory and made their first export sale. The company
has a strong order book for the rest of 2021.
Sanergy Incorporated - The company is receiving strong demand for its product
and is confident that this start-up operation will expand as budgeted in spite
of the impact of the Covid-19 pandemic in Africa.
SUMMARY OF SOCIAL & ENVIRONMENTAL METRICS SINCE PROJECT COMMENCEMENT
· 39,000 acres of former farmland restored as a game reserve in a
region of endemic poverty in the poorest province in South Africa.
· Increased VAT and income tax paid by Kuzuko year on year.
· Currently, Kuzuko has a reduced staff complement due to Covid-19.
· All staff living at Kuzuko in standard housing with flush
toilets, power, water and solar panels.
· Conservation of 3 endangered species.
· Re-wild, bred and released 6 cheetahs with new genetics into the
metapopulation in South Africa, with a further 4 cheetahs still to be
released.
· Reforestation of 500 acres of degraded land with spekboom
providing work for 100 part-time staff and sequestering carbon.
· 61,203 beehives in the field with positive impact on bee
populations and retention of forests.
· 2,100+ voluntary low-income savers in micro-pension and loan
schemes.
· 73,124 patient visits between January and December 2020 including
121 safe deliveries, 324 HIV patients receiving care and counselling, 1,204
infants immunised, 468 mothers receiving antenatal care and 8,275 people
receiving health education including, Covid-19 education, through community
outreach programs in Kenya.
· Increased the economic livelihoods of over 17,000 farmers and
their families in Zambia and Kenya.
· 4,000 toilets serving 125,000 people daily.
STAFF
The directors would like to take this opportunity to thank all the operating
staff in the Group for their contribution and commitment to the Group's
objectives during this challenging time.
FINANCIAL INFORMATION
The financial information set out in this announcement does not constitute
statutory financial statements. This financial information has been extracted
from Inqo's unaudited group financial statements for the period ended 31
August 2021.
DIVIDEND
The company has not declared a dividend the period ended 31 August 2021.
K.S
Tan
C.J Bertie
Chairman
Chief Financial Officer
Issued on: 26 November 2021
Enquiries
Inqo Investments Limited Tel: +27 (0)83 6254069
Chris Bertie, Chief Financial Officer and Chief Operating Officer Email: cbertie@acland.co.za (mailto:cbertie@acland.co.za)
Hobart Capital Markets LLP
AQSE Corporate Adviser and Broker Tel: +44 (0)20 7070 5665
Dr Wang Chong Email: wang.chong@hobartcapital.com
Condensed consolidated statement of profit or loss and other comprehensive income
for the six months ended 31 August 2021
Six Months ended Six Months ended
31 August 2021 31 August 2020
R R
Revenue 607 688 1 746 170
Cost of Sales (112 692) (240 331)
Gross profit 494 996 1 505 839
Other income 44 773 1 252 416
Personnel expenses (1 700 366) (2 700 788)
Depreciation (1 659 770) (1 743 117)
Loss on disposal of land (82 898) -
Listing expenses (357 806) (528 106)
Professional fees (321 415) (259 942)
Impairment (16 196) -
Other expenses (2 361 669) (2 921 969)
Operating loss (5 960 351) (5 395 667)
Net financing 122 757 355 206
income
Finance income 217 629 424 966
Finance costs (94 872) (69 760)
Loss before taxation (5 837 594) (5 040 461)
Taxation credit 776 648 280 415
Loss for the period (5 060 946) (4 760 046)
Loss attributable to:
Equity holders (4 938 836) (3 587 714)
Non-controlling interest (122 110) (1 172 332)
(5 060 946) (4 760 046)
Other comprehensive income:
Other comprehensive income - -
Total comprehensive income for the period (5 060 946) (4 760 046)
Total comprehensive income attributable to:
Equity holders (4 938 836) (3 587 714)
Non-controlling interest (122 110) (1 172 332)
(5 060 946) (4 760 046)
Condensed consolidated statement of financial position
as at 31 August 2021
Reviewed Audited
31 August 2021 28 February 2021
R R
Assets
Non-current assets 141 662 382 143 346 953
Property, plant and equipment 129 893 594 131 315 802
Intangible assets 5 854 8 517
Right of use asset 425 059 505 421
Other investments 11 337 875 11 517 213
Current assets 14 328 453 11 702 363
Inventories 4 119 836 4 264 824
Trade and other receivables 3 097 180 3 139 521
Other investments 440 388 440 388
Biological assets 2 864 694 2 864 694
Cash and cash equivalents 3 806 355 992 936
Assets held for sale - 5 695 345
Land held for sale - 5 695 345
Total current assets 14 328 453 17 397 708
Total assets 155 990 835 160 744 661
Equity and liabilities
Capital and reserves
Ordinary share capital 72 584 925 71 809 195
Share premium 87 585 270 86 294 138
Revaluation reserve 72 015 535 72 015 535
Accumulated loss (86 522 896) (81 584 061)
Equity attributable to equity holders of:
Inqo Investments Limited 145 662 833 148 534 807
Non-controlling interest 360 054 482 164
Total equity 146 022 887 149 016 971
Non-current liabilities 3 809 633 4 632 671
Loans from related parties 167 845 167 845
Other long-term loans 740 384 707 185
Deferred taxation 2 568 257 3 344 896
Lease liability 333 147 412 745
Current liabilities 6 158 315 7 095 019
Trade and other payables 5 788 110 6 695 255
Provision 215 347 253 341
Lease liability 154 858 146 423
Total liabilities 9 967 948 11 727 690
Total equity and liabilities 155 990 835 160 744 661
Condensed consolidated statement of cash flows
for the six months ended 31 August 2021
Six months ended 31 August 2021 Six months ended 31 August 2020
R R
Cash flows from operating activities
Net loss before tax (5 837 594) (5 040 461)
Amortisation 2 663 2 215
Depreciation 1 576 747 1 637 795
Depreciation of right of use asset 80 360 103 107
Finance cost on lease liability 29 817 50 055
Impairments and loan write off 44 586 -
Loss on disposal of assets 82 898 22 385
Unrealised forex loss 220 186
Net working capital changes
Inventory 144 988 (100 156)
Trade payables (945 130) (4 323 365)
Trade receivables (2 244) 669 987
Net cash outflow from operating activities (4 602 723) (6 978 438)
Cash flows from investing activities
Acquisition of investments - (699 969)
Acquisition of property, plant and equipment and intangible assets (162 187) (990 368)
Proceeds from disposal of property, plant and equipment and intangible assets 5 612 447 185 682
Finance lease payments (100 980) (135 296)
Net cash outflow from investing activities 5 349 280 (1 639 951)
Cash flows from financing activities
Proceeds of shares issued 2 066 862 -
Loans and borrowings raised - 19 370
Net cash inflow from financing activities 2 066 862 19 370
Net movement in cash and cash equivalents 2 813 419 (8 599 019)
Cash and cash equivalents at beginning of period 992 936 15 671 786
Cash and cash equivalents at end of period 3 806 355 7 072 767
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