Final Results

RNS Number : 8304Q

Agriterra Ltd

12 November 2012

 

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

12 November 2012

Agriterra Ltd ('Agriterra' or 'the Group')

Final Results

Agriterra Ltd, the AIM listed pan-African agricultural company, announces its results for the year ended 31 May 2012.

OVERVIEW

·    Increase in Group revenue to US$13.8 million and creation of three revenue streams - beef herding, cocoa buying and trading, and maize buying and processing   

·    Investment programme accelerated to create foundation for sustainable growth and profitability - focussing on expansion of beef operations in Mozambique and cocoa operations in Sierra Leone

Beef Operations

·    Beef herd in Mozambique enlarged to over 4,800 head and increase in capacity of Vanduzi Feedlot to 3,000 head

·    Completion of dam at 1,350 hectare Mavonde Stud Ranch to enable irrigation of 4,000 hectares and continued growth of breeding herd

·    Acquisition of additional 1,300 hectare land package contiguous to Mavonde Stud Ranch under negotiation to support an enlarged breeding herd of up to 13,000 head

·    Completion of 4,000 head per month capacity Chimoio Abattoir post period end and imminent opening of two retail units to provide the full uplift in value for slaughtered and butchered products

Cocoa Operations

·    Rapid expansion of cocoa buying infrastructure in Sierra Leone - buying points increased from four to 41 satellite stores and three main hub sites during the period

·    100% increase in annual cocoa trading volume from pre-acquisition levels - volumes forecast to double again during 2012/2013 financial year

·    Negotiations underway to acquire a 4,400 acre former cocoa and coffee plantation for rehabilitation to enable Group to capitalise on the compelling economics for cocoa farming

Maize Operations

·    Strong harvest in 2011 reduced demand for mealie meal product during the period

·    Encouraging indications for 2012/2013 sales season following a poor harvest - anticipation of increased demand and a more favourable pricing environment

Corporate

·    67% increase in net asset value to US$41.4 million (2011: US$24.8 million)

·    In addition two significant cash injections are awaited which will further strengthen balance sheet and underpin Group value:

o Sale of 20% legacy interest in Ethiopian oil asset for a cash consideration of US$40 million on completion and a further US$10 million on "Commercial Discovery"

o Acknowledgment of Agriterra's entitlement to receive a compensation payment of £11,372,682 as partial recompense for work undertaken and investment on Southern Sudanese oil asset 

CHAIRMAN'S STATEMENT

Our focus during the year has been on the consolidation, expansion and diversification of our businesses in order to create the platform to become a leading African based agricultural company.  As a result of significant investment, the creation of three revenue streams, being beef, grain and cocoa and the implementation of a capital and operational structure suitable for development, we believe we now have the foundation for future sustainable growth and profitability. 

Africa is a dynamic and rapidly developing continent, with unique requirements for food production over the coming decades.  With a current population of over 1 billion and forecasts indicating an increase of more than 20% over the next ten years, and seven out of the world's ten fastest growing economies, food volumes and dietary requirements throughout Africa are expected to continue to change quickly.  These rapidly evolving consumer requirements underline the need for greater agricultural independence and major improvements in productivity.  In line with this, through our operations, we are helping to facilitate the commercialisation of small-scale arable and livestock agricultural practices.  Our maize and cocoa out-growers schemes have helped to improve the lifestyles of thousands of people by raising rural incomes, boosting local economic growth, and creating business opportunities.  In addition, our beef operations, which capitalise on traditionally high levels of beef imports into Mozambique from South Africa, have created a new, high quality source of domestic beef for which there is extremely strong demand.

This is a defining period in Agriterra's development and we remain concentrated on further expanding our operations, particularly our beef ranching and cocoa plantations, in order to achieve critical mass and sustainable profitability.  With this in mind, our attention during the year has been on the development of the necessary infrastructure to support continued growth across our asset portfolio.  Significant investment has been made during the period, including the construction of the abattoir and the 48 billion litre dam at the Mavonde Stud Ranch, the rapid expansion of our beef breeding herd and the considerable increase in cocoa buying infrastructure in Sierra Leone. 

As a result of these advances and developments in Mozambique, the Group has established a fully vertically integrated beef operation.  The components of this "field to fork" operation are:

·   established dry and irrigated ranches supporting a growing breeding herd;

·   an expanding feedlot operation;

·   a recently commissioned state of the art abattoir with an ultimate capacity of 4,000 head per month; and

·   an embryonic retail operation with two shops opening shortly. 

In Sierra Leone, we have expanded our buying infrastructure and out-growers operations considerably and are now in the process of concluding the absorption of a former cocoa and coffee plantation (with appropriate rehabilitation works to re-establish the plantation) together with adjoining land to enable us to meet the growing demand for sustainable and traceable cocoa.

Our impressive investment programme has now laid the foundations to enable accelerated growth for Agriterra.  Initial indications for trading during the first half of the 2012/2013 financial year are looking extremely encouraging, and I am confident in our ability to create further value during the year ahead.    

The positive expansion objectives for Agriterra will be underpinned upon receipt of the funds from the sale of its legacy oil asset in Ethiopia to Marathon Oil Corp. ('Marathon Oil').  Under the terms of the agreement, the Group's 20% legacy interest in the South Omo Block will be sold to Marathon Oil for a cash consideration of US$40 million on completion and a further US$10 million on Marathon Oil's participation in a "Commercial Discovery".  Also in respect of Agriterra's legacy oil interests, as announced on 25 May 2012, the Ministry of Petroleum and Mining of the Republic of South Sudan ('MPM') has acknowledged in writing the Company's entitlement to receive a compensation payment of £11,372,682.  This compensation payment is as partial recompense for the work undertaken and the substantial investment made by the Company on the Block Ba oil concession area in Southern Sudan, during its previous incarnation as White Nile Limited.  The MPM acknowledged the compensation should have been paid much earlier and confirmed that it will be paid to the Company within one year. The board are seeking to expedite this timeline for payment but remain cognisant of the challenges faced by the world's newest country in its early development.

Following these dramatic cash injections, Agriterra will be in a strong position to accelerate its ambitious development programme, achieve critical mass and invest in new projects and geographic areas in order to achieve its objective of becoming a significant profitable pan-African agricultural company. 

Results

Despite a fall in demand in the grain business, initial revenues from the beef and cocoa operations resulted in turnover for the Group increasing to US$13.8m (2011: US$13.6m).  Investment in building the beef and cocoa operations resulted in an increase in the reported loss on continuing activities after tax of US$6.9m (2011: US$2.3m)

Outlook

Following periods of intensive investment over the past four years, the Group has built a solid agricultural footprint in both Mozambique and Sierra Leone, and will benefit from a strong balance sheet moving forward, ensuring that we have all of the necessary resources to deliver on our growth objectives of building a significant pan-African agriculture business.

I would like to take this opportunity to thank my fellow board members, the members of the Agriterra team based in Mozambique and Sierra Leone, in addition to our valued shareholders.  I look forward to providing further updates regarding our expansion strategy and operational achievements over the coming weeks and months.

Phil Edmonds

Chairman

12 November 2012

OPERATIONS REVIEW

Agriterra currently has four agricultural divisions:

·   Mozbife Limitada ('Mozbife') which conducts cattle ranching, feedlot and abattoir operations

·   Tropical Farms Limited ('TFL') which manages the Group's cocoa sales, trading and farming activities

·   Desenvolvimento E Comercialização Agricola Limitada ('DECA') and Compagri Limitada ('Compagri') which operate maize farming and processing businesses

·   Red Bunch Ventures (SL) Limited which houses Agriterra's palm oil operations

Beef Operations

Following three years of intensive investment and expansion at the Company's beef operations in Mozambique, Mozbife now boasts a total herd in excess of 4,800 head across two ranches covering over 16,000 hectares, a 48 billion litre irrigation dam, a 3,000 head capacity feedlot and a 4,000 head per month capacity abattoir.  Completing the Group's "field to fork" beef business, two retail units in Chimoio and Tete are due to open in the coming weeks.

Mozbife remains on track to achieve its expansion objectives of building a total herd of 6,000 head by the end of 2012 and 10,000 by 2015.

The Mavonde Stud Ranch

The primary objectives at the Mavonde Stud Ranch have been to enlarge the Mozbife breeding herd, and increase capacity to accommodate future expansion.  With this in mind, the pedigree breeding herd at Mavonde had grown to 978 by the year end, up from 492 in 2011.  An additional 350 hectare package of land was acquired during the period, enlarging the total Mavonde Stud Ranch to over 1,350 hectares.  In addition the acquisition of a further and much larger land package of 1,300 hectares is currently being negotiated.  Once this additional land is acquired, the Mavonde Stud Ranch would be able to support a breeding herd of 13,000.  The ultimate aim for Mavonde is to expand the ranch to 4,500 hectares, which, if properly irrigated, would be able to support approximately 27,000 head of cattle.

A key development during the year was the construction and completion of a 48 billion litre dam with capacity to irrigate in excess of 4,000 hectares.  The construction of the Group's dam, which was delivered on budget and on schedule, is a demonstration of the Company's ability to execute large scale infrastructure projects to facilitate rapid expansion.  In addition, as part of the Company's Social Responsibility and Uplift Programme, two million tilapia fingerlings have been released into the reservoir by the Governor of the Manica Province.  A further 1.75 million fingerlings are planned over the next six months and a fishing co-operative with the local community will be established.  The Group will provide the local community with a small boat and gill nets to catch fish for themselves in addition to catching additional fish for sale back to the Group for inclusion in animal feed. 

With full irrigation from the reservoir, the head to hectare ratio at Mavonde is expected to increase from 1.5 to 6 head per hectare.  In addition to increasing the head to hectare capacity, irrigation is also of particular importance on the stud ranch, as with good quality and plentiful grass, pregnancy rates in excess of 80% should be achievable.  At present, Mozbife is operating a once a year bulling season, taking place between December and February, with calves born nine months later.  2012 breeding has been highly successful with over 200 calves born to date this calving season.

The expansion of the herd at Mavonde will continue through the rearing of Mozbife born cattle, in addition to purchasing premium quality F1 imported animals, and top quality pedigree Beefmaster cows from South Africa.  The imported animals are prized for their top weight gaining ability and quality of meat, in addition to their adaptability to hot climates.     

The Dombe Ranch

The focus at the 15,000 hectare Dombe Ranch during the period has been on investment into central farm infrastructure, including housing for employees, spray dipping, borehole and kraal installations.  The significant job of fencing the entire ranch was also completed, with over 96km of fence constructed.

In tandem with the infrastructure improvements, the expansion of the Dombe herd has also continued at a fast pace, with the ranch supporting 2,752 head at the end of the period, up from 832 in 2011.  This ranch, which does not have irrigation, can support 1 animal for every 5 hectares.  To increase the capacity, the Group is negotiating the acquisition of a further 6,000 adjacent hectares, which would support a further 1,200 head.  In the longer term, the Company will actively look to substantially increase the total ranch size through land acquisitions to accommodate a much larger herd.

The herd, which comprises principally local and F1 commercial cattle, will be augmented as part of a cross-breeding programme with Beefmaster cattle to create a bloodline with good meat yields and high disease resistance. 

The Vanduzi Feedlot

As a crucial component in Mozbife's "field to fork" business, significant investment has been made in the Vanduzi Feedlot, both to increase the rolling capacity of the feedlot pens, and also through development of the surrounding land for growing crops for use in animal feed.

Following the construction of additional pens, the Vanduzi Feedlot now has an 18 pen line with rolling capacity of approximately 3,000 head every 90 days.  An additional six pen lines may be constructed in H2 2013 to increase the total capacity to 4,000 head to provide further throughput for the abattoir.  In order to support the increasing number of cattle at the feedlot, additional investment will be made in a new silo on site to store animal feed, which will be made, in part, from the bran by-product from the Group's maize milling operation at DECA.  The animal feed will be augmented with locally grown crops including soy beans and sunflowers, in addition to roughage, such as grass and hay, which will be grown on the Group's 1,000 hectare land holding surrounding Vanduzi. 

During the animals' 90 day stay in the feedlot, they are provided with a high quality diet enabling them to put on around 1.5kg per day.  On completion of the period in the feedlot, the animals will typically weigh up to 500kg with the carcass fetching in excess of US$1,100.  As the Mozbife herds at Mavonde and Dombe mature and expand, and additional throughput can be sourced from Mozbife reared animals, margins will be further enhanced; however the Group is already achieving strong economic benefits through the purchase of local animals for use in the feedlot.

The Chimoio Abattoir & Retail Units

The construction of the Group's 4,000 head per month capacity abattoir was completed post period end, with commissioning and training taking place in October 2012.  Commercial production is anticipated to commence by the end of November 2012, slaughtering animals from the feedlot (both Mozbife reared and locally sourced), in addition to animals from third parties.  As the largest facility of its kind in Mozambique, the abattoir will be capable of servicing the needs of the country, and will dramatically reduce the current requirement for the country to import meat from South Africa.  As a Halal certified facility, in addition to providing meat for domestic requirements, the Company would also be able to export beef to markets in the Middle East.

The abattoir is a key value trigger in the full "field to fork" value chain, with a standard 450kg steer fetching in the region of US$1,100.  Whilst the highest margins are achieved from Mozbife reared animals, where margins could be in excess of 50%, followed by locally sourced animals, where margins would be approximately 25%, the Group will also cover all costs associated through the slaughter of third party animals from the value of the "5^th quarter", i.e. the skin, offal, hooves and head. 

To obtain the maximum sale price for the meat sourced from the abattoir, the Group is currently in the process of establishing a chain of retail units.  The initial two units, located in Chimoio and Tete, are expected to commence business by the end of November 2012, and a third unit, in Beira, may be opened in H2 2013.  The economics of the butchery business are compelling - the value of the dressed meat when it leaves the abattoir is approximately US$4.48/kg, however the retail price in a butcher shop would average US$8.40/kg, and could be up to US$16/kg for selected cuts.

Cocoa Sales & Trading

Agriterra's cocoa division has rapidly expanded during the period.  Following TFL's acquisition by Agriterra in July 2011, when the business operated four buying points, considerable investment has been made into the business's infrastructure and TFL now has three main hub stores and 41 satellite stores with a direct buying register of more than 3,500 farmers across the country.  This rapid ramp up of buying infrastructure has enabled TFL to double its pre-acquisition annual trading volume during the period.  This increase is expected to continue, with total trading volumes for the current financial year forecasted to double the volume of the 2011/2012 financial year.  TFL continues to develop relationships with blue chip groups as off takers for its cocoa sales, in addition to initial coffee sales from its recently established coffee operation.  Although coffee volumes are currently small, the Company expects sales to increase during the 2012/2013 financial year as TFL focuses on diversifying its product range and expanding its trading operations.

Whilst cocoa trading and sales have proved lucrative for the Company during the period, the longer term goal for TFL is to develop independent plantations in order to capitalise on the compelling economics for cocoa growing.  Cocoa prices currently stand at approximately US$2,300/tonne, and with plantation costs being estimated at around US$800/tonne, the high margin nature of the business is clearly evident.

In order to establish independent cocoa farms, the Group is currently in negotiations to acquire a 4,400 acre former cocoa and coffee plantation for rehabilitation; however the Board will remain proactive in evaluating and leasing significantly more land in the longer term.  In tandem with this, the Group continues to invest in supporting infrastructure, including the construction of a 2,000m² processing facility in Kenema, which is anticipated to be completed before the cocoa buying season in August 2013.  Development of a larger collateral management warehousing facility, located on the 15 acre site acquired by TFL in Freetown, will commence thereafter, effectively linking up-country cocoa growing and buying infrastructure at Kenema with the export markets through the port at Freetown.

Maize Processing & Farming

The Group's maize buying and processing operations are centred on the 35,000 tonne capacity DECA facility and the 15,000 tonne capacity Compagri facility, located in Chimoio in central Mozambique and Tete in north-west Mozambique respectively.

At the larger DECA facility, the Group has built a mature business based on buying maize from local out-growers through a network of buying stations, which is transported back using DECA's 100 strong fleet of trucks, before processing and storing the product and selling it to the retail market.  Based on the successes experienced at DECA, the Group opened the Compagri facility in Tete to capitalise on the rapid influx of people to the area, driven by the mining boom experienced in the province in recent years.

The Group's maize operations during the year were affected by a very strong harvest in 2011, which subsequently reduced demand for the mealie meal product made by DECA and Compagri.  This situation resulted in both companies selling reduced volumes at reduced prices.  Indications for this year have been much more positive for the Company - in anticipation of a difficult harvest this season, the Company began buying early and stockpiles now stand at 25,000 tonnes.  Because of the poor harvest, the grain operations should see a substantial increase in demand this year, combined with a more favourable pricing environment during its next milling season, which runs from December until February.

Palm Oil Operations

Building on the Group's growing range of agricultural commodities, the Group acquired control of a lease of approximately 45,000 hectares of brownfield agricultural land in an area suitable for palm oil production in Sierra Leone in December 2011.

The land is located in the Pujehun District in the Southern Province of Sierra Leone.  This area, which is close to the Liberian border, is suitable for palm oil production.  The region receives one of the highest levels of rainfall in Sierra Leone, which in itself, receives some of the highest rainfall globally.  In addition, the lease area is located on the equatorial belt, which is the most favourable geographical location for palm oil production.  The Board believes that as the most important and widely produced edible oil in the world, demand for palm oil is projected to continue to grow, driven by demand in Africa, India, China and the US, making it an important new target of for Agriterra's investment strategy. 

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

Andrew Groves	Agriterra Ltd	Tel: [phone]
Jonathan Wright	Seymour Pierce Ltd	Tel: [phone]
David Foreman	Seymour Pierce Ltd	Tel: [phone]
Andy Cuthill	MC Peat & Co LLP	Tel: [phone]
Hugo de Salis	St Brides Media & Finance Ltd	Tel: [phone]
Susie Geliher	St Brides Media & Finance Ltd	Tel: [phone]

FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

For the year ended 31 May 2012

			Year ended 31 May		Year ended 31 May
			2012		2011
Continuing Operations	Note		$'000		$'000
Revenue	3		13,826		13,588
Cost of sales			(11,913)		(10,372)
Gross profit			1,913		3,216
Increase in value of biological assets	6		400		214
Operating expenses			(8,851)		(6,109)
Other expenses			(318)		(233)
Other income			47		582
Share of profit from associate			9		-
Operating loss			(6,800)		(2,330)
Finance income			48		159
Finance costs			(164)		-
Loss before taxation			(6,916)		(2,171)
Income tax expense	4		(26)		(168)
Loss after tax			(6,942)		(2,339)
Discontinued operations
Profit / (loss) for the year			721		(89)
Loss for the year attributable to owners of the parent			(6,221)		(2,428)
Loss per share
- Basic and diluted (cents)	5		(0.7c)		(0.4c)
Loss per share from continuing operations
- Basic and diluted (cents)	5		(0.8c)		(0.4c)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 May 2012

		Year  ended 31 May		Year  ended 31 May
		2012		2011
		$'000		$'000
Loss for the year		(6,221)		(2,428)
Foreign exchange translation differences		2,078		3,399
Other comprehensive income for the year		2,078		3,399
Total comprehensive income for the year attributable to owners of the parent company		(4,143)		971

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 May 2012

			2012		2011
	Note		$'000		$'000
ASSETS
Non-current assets
Intangible assets			963		271
Property, plant and equipment			26,243		13,264
Investment in associate			9		-
Biological assets	6		1,642		631
Total non-current assets			28,857		14,166
Current assets
Biological assets	6		1,018		157
Inventories			6,701		2,976
Trade and other receivables			3,628		2,039
Cash and cash equivalents			3,553		8,172
Total current assets			14,900		13,344
TOTAL ASSETS			43,757		27,510
LIABILITIES
Current liabilities
Trade and other payables			(2,361)		(2,678)
NET ASSETS			41,396		24,832
EQUITY
Issued capital			1,957		1,387
Share premium			148,530		131,593
Shares to be issued			2,940		-
Share based payment reserve			1,620		1,360
Translation reserve			296		(1,782)
Retained earnings			(113,947)		(107,726)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT			41,396		24,832

	Attributable to equity holders of the parent
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	Ordinary share capital $'000	Deferred share capital $'000	Share premium $'000	Shares  to be issued $'000	Share based payment reserve $'000	Translation  reserve $'000	Retained earnings $'000	Total $'000
Balances at 1 June 2010	923	238	125,184	-	1,360	(5,181)	(105,298)	17,226
Loss for the year	-	-	-	-	-	-	(2,428)	(2,428)
Other comprehensive income
Exchange translation differences on foreign operations	-	-	-	-	-	3,399	-	3,399
Total comprehensive income for the year	-	-	-	-	-	3,399	(2,428)	971
Transactions with owners
Share issues	226	-	6,570	-	-	-	-	6,796
Issue costs	-	-	(161)	-	-	-	-	(161)
Total transactions with owners	226	-	6,409	-	-	-	-	6,635
Balances at 1 June 2011	1,149	238	131,593	-	1,360	(1,782)	(107,726)	24,832
Loss for the year	-	-	-	-	-	-	(6,221)	(6,221)
Other comprehensive income
Exchange translation differences on foreign operations	-	-	-	-	-	2,078	-	2,078
Total comprehensive income for the year Transactions with owners	-	-	-	-	-	2,078	(6,221)	(4,143)
Share issues	570	-	17,707	-	-	-	-	18,277
Shares to be issued	-		-	2,940				2,940
Issue costs	-	-	(770)	-	160	-	-	(610)
Share based payment charge	-	-	-		100	-	-	100
Total transactions with owners	629	-	19,818	2,940	260	-	-	20,707
Balances at 31 May 2012	1,719	238	148,530	2,940	1,620	296	(113,947)	41,396

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 May 2012

			Year ended 31 May		Year ended 31 May
			2012		2011
			$'000		$'000
Operating activities
Loss before tax			(6,916)		(2,171)
Adjustments for:
- Depreciation of property, plant and equipment			1,878		1,228
- Loss on disposal of property, plant and equipment			12		5
- Share based payment charge			100		-
- Increase in Biological assets			(400)		(214)
- Foreign exchange			149		(141)
- Net interest expense / (income)			116		(159)
Operating cash flow before movements in working capital			(5,061)		(1,452)
Working capital adjustments:
- (Increase) / decrease in inventory			(3,505)		1,973
- Increase in receivables			(1,545)		(547)
- (Decrease) / increase in payables			(690)		261
Cash (used in) / from operations			(10,801)		235
Finance charges			(164)		-
Interest received			48		159
Net cash (used in) / from continuing operating activities			(10,917)		394
Net cash from / (used in) discontinued activities			721		(198)
Net cash (used in) / from operating activities			(10,196)		196
Taxation
Corporate tax paid			(60)		(38)
Net cash outflow from taxation			(60)		(38)
Investing activities
Purchase of intangible asset			-		(250)
Purchase of subsidiary net of debt acquired			(283)		-
Purchase of property, plant and equipment			(7,575)		(2,568)
Proceeds on sale of property, plant and equipment			96		38
Purchase of biological assets			(1,428)		(255)
Proceeds on sale of investment in financial assets			-		128
Net cash used in investing activities			(9,190)		(2,907)
Financing activities
Proceeds from issue of share capital			15,000		6,883
Share issue costs			(610)		(161)
Draw down of bank loan			123		-
Net cash from financing activities			14,513		6,722
Net (decrease) / increase in cash and cash equivalents			(4,933)		3,973
Cash and cash equivalents at start of the year			8,172		3,442
Exchange rate adjustment			314		757
Cash and cash equivalents at end of the year			3,553		8,172

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 May 2012

1. General Information

Agriterra Limited is incorporated and domiciled in Guernsey.  The nature of the Group's operations and its principal activities are set out in the Chairman's Statement and Operations Overview above.

The reporting currency for the Group is the U.S. Dollar (USD) as it better 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 International Financial Reporting Standards ("IFRS") as adopted by the European Union. 

The financial statements for the year ended 31 May 2012 have been reported on by the Group's auditors and contain an unmodified opinion.

The full audit report is contained in the Company's Annual Report, which will be available on the Company's website by 30 November 2012.

2. Critical accounting estimates and judgments

The preparation of financial statements in conformity with EU adopted IFRS requires the use of certain critical accounting estimates.  It also requires management to exercise its judgement in the process of applying the Group's accounting policies.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Going concern

The board has prepared forecasts for the Group's ongoing businesses covering the period of 12 months from the date of approval of these financial statements.  These forecasts are based on assumptions that there are no significant disruptions to the supply of maize or cocoa to meet its projected sales volumes and take into account the investment in the beef herd, other working capital and additional property plant and equipment that are expected to be required. 

As outlined in the chairman's statement, agreements have been reached which will monetise the Group's legacy oil and gas assets.  The agreement to assign the remaining interest in South Omo is contingent upon the receipt of approval for the transaction from the Government of Ethiopia.  An application has been filed with the Ministry of Mines and Energy.  The directors have met with the minister and expect approval to be forthcoming; however its timing remains uncertain.  The agreement requires that the Group be reimbursed for its share of any expenditure on the South Omo block from 17 August 2012.  Notwithstanding this, the directors are confident that in the event that additional payments fall due under the joint operating agreement for the block, they will be able to secure any bridging finance required.  Furthermore in reviewing the working capital requirements of the Group, the directors have identified planned items of expenditure which can be deferred without having a detrimental impact on the ongoing operations of the Group.

The directors believe that, with the receipt of funds from the disposal of the legacy oil and gas assets, together with existing resources, the Group and Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.  The directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Impairments

Impairment reviews on non-current assets are carried out on each cash-generating unit identified in accordance with IAS 36 "Impairment of Assets".  At each reporting date, where there are indicators of impairment, the net book value of the cash generating unit is compared with the associated fair value.

On 6 January 2009, the shareholders approved the adoption of the investing strategy to acquire or invest in businesses or projects operating in the agricultural and associated civil engineering industries in Southern Africa.  The directors decided to suspend exploration activities and reduce expenditure to the minimum required in order to retain exploration licenses.  Consequently the directors consider that the value of exploration and evaluation and other related assets of $79,580,000 is fully impaired.  As outlined above, agreements have been reached which will monetise the Group's legacy oil and gas assets.  The provisions for impairment will be written back as appropriate as gains from discontinued activities upon receipt of funds.

Biological assets

Biological assets (cattle) are measured at their fair value at each balance sheet date. The fair value of cattle is based on the estimated market value for cattle of a similar age and breed, less the estimated costs to bring them to market.  Changes in any estimates could lead to recognition of significant fair value changes in the income statement.  At 31 May 2012 the value of the breeding herd disclosed as a non-current asset was $1,641,000 (2011: $631,000). The value of the herd held for slaughter disclosed as a current asset was $1,018,000 (2011:$157,000).

3. Segment reporting

As set out in the operating review, the directors consider that the Group's continuing activities comprise the segments of grain processing, beef production and cocoa businesses, and other unallocated expenditure in one geographical segment, Africa. 

Revenue represents sales to external customers in the country of domicile of the group company making the sale.

Unallocated expenditure relates to central costs and any items of expenditure that can not be directly attributed to an individual segment.

Year ending 31 May 2012	Grain	Beef	Cocoa	Unallocated	Total
	$'000	$'000	$'000	$'000	$'000
Revenue	9,681	895	3,250	-	13,826
Segment results
- Operating loss	(1,203)	(2,310)	(578)	(2,709)	(6,800)
- Interest (expense) / income	(138)	-	-	22	(116)
Loss before tax	(1,341)	(2,310)	(578)	(2,687)	(6,916)
Income tax	(26)	-	-	-	(26)
Loss after tax	(1,367)	(2,310)	(578)	(2,687)	(6,942)

Year ending 31 May 2011	Grain	Beef	Cocoa	Unallocated	Total
	$'000	$'000	$'000	$'000	$'000
Revenue	13,533	55	-	-	13,588
Segment results
- Operating profit / (loss)	270	(958)	-	(1,642)	(2,330)
- Interest income	141	0	-	18	159
Profit / (loss) before tax	411	(958)	-	(1,624)	(2,171)
Income tax	(168)	-	-	-	(168)
Profit / (loss) after tax	243	(958)	-	(1,624)	(2,339)

4. Income tax expense

	2012		2011
	$'000		$'000
Loss before tax from continuing activities:	(6,916)		(2,171)
Tax at the Mozambican corporation tax rate 32% (2011: 32%)	(2,214)		(695)
Tax effect of expenses that are not deductible in determining taxable profit	78		21
Tax effect of utilisation of losses	(57)		(90)
Tax effect of losses not allowable	768		341
Tax effect of losses not recognised in overseas subsidiaries (net of effect of different rates)	1,533		503
(Credit) / charge in respect of prior years	(82)		88
Tax expense for the year	26		168

The tax reconciliation has been prepared using a 32% tax rate, the corporate income tax rate in Mozambique, as this is where the Group's principal assets of its continuing operations are located. 

5. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

	2012		2011
	$'000		$'000
Loss for the purposes of basic earnings per share (loss for the year attributable to equity holders of the parent)	6,221		2,428
Loss for the purposes of basic earnings per share from continuing activities	6,942		2,339
Profit / (loss) for the purposes of basic earnings per share from discontinued activities	721		(89)
Number of shares
Weighted average number of ordinary shares for the purposes of basic and diluted loss per share	874,483,042		625,894,111
Loss per share	(0.7c)		(0.4c)
Loss per share from continuing activities	(0.8c)		(0.4c)
Earnings / (loss) per share from discontinued activities	0.1c		(0.0c)

Due to the loss incurred in both years, there is no dilutive effect of share options.

6. Biological assets
			$'000
At 1 June 2010			236
Purchase of biological assets			289
Sale of biological assets			(34)
Change in fair value			214
Foreign exchange			83
At 1 June 2011			788
Purchase of biological assets			1,428
Sale of biological assets			(5)
Change in fair value			400
Foreign exchange			49
At 31 May 2012			2,660

Biological assets comprise a breeding herd of cattle.  Certain livestock is held for slaughter and has been classified as a current asset.  The remainder is expected to be held for more than one year and has been classified as a non-current asset, as follows:

		2012	2011	2012	2011
		Head	Head	$'000	$'000
Non-current asset		2,704	1,153	1,642	631
Current asset		1,897	292	1,018	157
		4,601	1,445	2,660	788

7. Events after the reporting period

On 3 October 2012, the Company announced that it had entered into an agreement to sell its remaining interest in its oil and gas asset in Ethiopia to Marathon Ethiopia Limited BV (Marathon).  Consideration of $40m is receivable on completion of the sale and $10m upon Marathon's participation in a commercial discovery.  Completion is contingent upon the receipt of formal approval of the agreement from the Government of Ethiopia. 

 

END

 

 

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