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Agriterra (LSE:AGTA), an AIM listed pan-African agricultural company, has released unaudited results for the year ended 31 May 2013.
OVERVIEW
· African focussed multi divisional agricultural Group with vertically integrated operations to maximise margins and revenues
· Defined investment and development programme to provide foundation for sustainable growth and profitability – focussing on expansion of beef operations in Mozambique and cocoa operations in Sierra Leone
– Record revenues of US$21.2m (2012: US$13.8m) reported and increased Net Asset Value (‘NAV’) to US$60.0m (2012: US$41.4m)
– Strong balance sheet to support expansion programme following the sale of legacy oil assets in Ethiopia – further $10m before tax due if a commercial discovery is made in Ethiopia
Beef Operations, Mozambique:
– Revenue from beef operations more than doubled during the year to US$2.2m (2012: US$0.9m) with the slaughter of 2,145 animals (2012: 1076 animals). 1,832 head slaughtered from 1 June to 31 October 2013
– Completion of abattoir and opening of 3 retail butchery units, initiating our “field to fork” strategy
– Improved pregnancy rates with bumper calving season – expect to achieve target of 10,000 head by 2015
– Acquisition of third ranch completed
Cocoa Operations, Sierra Leone:
– Integrated cocoa buying, trading and production divisions in line with strategy of establishing a secure, sustainable and traceable source of supply
– Rapid expansion of cocoa plantation to facilitate commercial large scale cocoa production – 3,200 hectares plantation land acquired to date and negotiations underway to expand further
– Expanding nursery to 2.2 hectares with capacity to cultivate 1.1 million seedlings
– In excess of 250 hectares of land planted, with an additional 750 hectares targeted to be cleared and planted by Q3 2014
– Cocoa trading business with 3 hub stores and a buyer register of over 3,500 farmers
-Improved market share despite poor harvest with revenues generated from cocoa trading of US$3.14m (2012: US$3.25m)
– New warehousing and processing facility in Kenema expected to be commissioned in December 2013
Maize Operations, Mozambique:
– Record revenues of US$15.8m generated from maize division, representing a 61% increase compared to the previous year (2012: US$9.7m)
– Maize milled increased 68% to 46,600 tonnes (2012: 27,690 tonnes) and maize meal sold increased 59% to 34,500 tonnes (2012: 21,717 tonnes)
– Poor harvest impacted the 2013-2014 buying season – however increased demand and a more favourable pricing environment expected as a result
Agriterra CEO Andrew Groves said the the company continues “to develop an integrated African focussed agricultural business that is positioned for long term sustainable growth and profitability. We have invested heavily in building the platform needed to support our expansion plans, with a particular focus on beef and cocoa, where future pricing dynamics are extremely positive. We remain excited about the potential of agri businesses and look forward to achieving our growth targets by implementing our expansion strategy and building shareholder value.”
CHAIRMAN’S STATEMENT (in full):
“Agriterra continues to develop and invest in its agricultural operations in Mozambique and Sierra Leone, building a multiple revenue stream business focussed primarily on beef, cocoa and maize. The Group has benefited greatly from the non-dilutive cash injection of US$28 million from the sale of its legacy oil assets in Ethiopia, which has enabled it to invest further in its expansion programme across all divisions. This included the building of an abattoir and the opening of butchery outlets in Mozambique as well as the establishment of a cocoa nursery and plantation and a new warehousing and processing facility in Sierra Leone.
Underlining the growth that we achieved this year, we reported record revenues of US$21.2m (2012:$13.8m) and increased Net Asset Value (‘NAV’) to US$60m (2012: US$41.4m). The Board recognises the potential for agriculture and has established a development strategy to grow the inherent value of the business by utilising the Group’s framework in place to build a profitable and fully integrated African focussed agricultural company.
In line with this we have made progress across all three of our main divisions. Mozbife Limitada (‘Mozbife’), our beef operation in Mozambique, now has three ranches, a feedlot, an abattoir and three retail butcheries with two satellite units, meaning we have a fully integrated beef operation to capitalise on the full uplift through the value chain from field to fork. As a result, revenues from this division more than doubled during the period, with the slaughter of more than 2,100 animals which generated US$2.2m (2012: $0.9m). With a total herd of 6,879 head at the year end and a high current pregnancy rate from our 4,100 head breeding herd, we expect to achieve our initial target of 10,000 head by 2015. This should provide the critical mass to generate significant returns and profitability in the future.
Also in Mozambique, we achieved record sales in the grain division of US$15.8m (2012: US$9.7m), although we experienced lower margins due to the pricing environment and harvest. Despite a poor harvest in 2013, current grain inventories stand at 19,000 tonnes. With strong demand and improved pricing, margins are anticipated to improve compared with 2013. We maintain a positive outlook for our grain division, which works strategically with our beef operations, as the bran by-product of the milling operation forms an important constituent of feed in the Vanduzi Feedlot operation, thus highlighting the integrated relationship between our Mozambican operations.
In Sierra Leone, under our Tropical Farms Limited (‘TFL’) subsidiary, we continue to develop our 3,200 hectare cocoa plantation with 250 hectares now planted and a further 750 hectares targeted this year. The seedlings are being generated from our own nursery which is being expanded to 2.2 hectares and will hold over 1 million plants. We are building a new warehousing and cocoa processing facility outside Kenema, which we believe will enable us to establish critical mass and build a profitable trading operation. The trading business is focussed on three hub stores in the main buying centres in the cocoa growing region. The early rainy season crop has been poor, with only 200 tonnes purchased to date, however TFL expects to extend its buying network out from these hubs as the dry season crop comes to market. Although this division performed below our expectation with turnover of US$3.14m (2012: US$3.25m), it enables us to establish ourselves as a secure, sustainable and traceable source of cocoa supply in Sierra Leone, which will dovetail with the plantation as it moves into commercial production in 2016.
The commodities outlook in the wider food sector remains highly positive. Demographics suggest that there will be an increasing demand for food as the global population continue to rise. Particularly relevant to Agriterra, the increasing adoption of western diets in eastern and emerging economies has led to a growing demand for beef. Add to this the cocoa market dynamics, where shortages are expanding as chocolate sales climb to record highs, we are confident that we are well positioned to increase revenue and margins over the coming years, as our own high quality product reaches the market.”
Financial Results:
We continue to invest heavily in building the business which has been highlighted by the investment to date. We have reported revenues of US$21.2m (2012: US$13.8m) and a profit of US$21.8m (2012: loss US$6.2m), which has been primarily driven by the funds received for our legacy oil assets. The continued expansion of the ranching and the cocoa trading operations lead to an increased operating loss on continuing activities before finance costs and tax of US$7.3m (2012: US$6.8m). Importantly NAV rose to $60.0m, a 45% increase from $41.4m last year.
Outlook:
“We see strong growth potential for our business as we remain committed to building a sustainable, scalable, profitable and fully integrated African focussed agricultural Group. We see the main growth being achieved through the scaling of our beef operations in Mozambique and our cocoa division in Sierra Leone. Importantly, as we develop these businesses, by expanding our beef “field to fork” strategy where we raise, slaughter and sell to the end customer, and developing our own cocoa plantations, our margins increase significantly, which should translate into increasing profitability.
Importantly, our investment case is aligned with the current global markets where increasingly globalised tastes have seen a rise in meat demand, and reduced cocoa bean production combined with strong processing grind figures, due to increased global demand for chocolate products, have resulted in an underlying change in the fundamentals and higher cocoa bean prices.
With a strong cash position to support development and multiple revenue streams, Agriterra is positioned well for growth. Furthermore, as part of the sale of our legacy oil assets, if there is a commercial discovery on the South Omo Block in Ethiopia, the Company receives a further $10 million (pre-tax).
Finally I’d like to thanks all involved in the Group for their hard work and support as we look towards and exciting future.”
