TIDMAGTA
RNS Number : 4659Z
Agriterra Ltd
21 May 2021
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
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information is now considered to be in the public domain.
Agriterra Limited ('Agriterra' or the 'Company')
Agriterra Limited / Ticker: AGTA / Index: AIM / Sector:
Agriculture
Trading update
Agriterra Limited, the AIM listed African agricultural company,
provides the following unaudited trading update for the period up
to March 2021.
This update is provided in advance of the financial statements
for the year ended 31 March 2021 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 FY21 results in early September.
Highlights
-- Grain division sales volume increased 25% on FY 2020 to 25,389 tonnes
-- Despite reduced demand (see below), new sales strategies and
cost cutting measures implemented by Mozbife are anticipated to
produce an expected reduction the reported loss of up to 33% over
FY 2020
-- Business strategy for FY 2022 aiming to minimise the
long-term impacts of the COVID-19 pandemic on business, and improve
margins and overall business performance
Grain division
The Company's Grain division has performed better than the
previous financial year, with meal sales exceeding FY2020 volumes
by more than 5,000 tons (25,389 tons in FY2021 vs. 20,240 tons in
FY2020). This has been driven by the ability to maintain our
stronghold in the central region of Mozambique and the continued
commitment to cater to our clients' needs. The recommissioned 1kg
bag packaging line and shift to delivery directly to retailers has
begun paying off, as monthly sales increased from a mere 1 ton per
month in FY2020 to a high of 20 tons in February 2021. We will
continue to develop this offering and expect to realise higher
margins during FY2022.
In early 2020 the Company entered into "pre-paid" contracts
which were necessary to resolve our short-term cash flow
challenges; we completed these as required, but at a lower price
than we would have ordinarily achieved on the open market, which
resulted in a lower sales margin. Delays in receiving funds in
August 2020, forced us to continue buying maize late into 2020,
when prices were as much as 30% higher than budgeted, thus
negatively impacted sales margins.
The DECA SNAX initiative (production and manufacture of puffed
corn snacks for sale into the Mozambican market) began in December
2020, being a joint venture with a Zimbabwean snacks producer.
Sales and demand have been increasing steadily to date and the
production team is looking to double production, by introducing a
second shift, to meet demand.
Beef division
COVID-19 restrictions and a slowdown in the Oil & Gas
sector, caused by the pandemic and security issues in the Cabo
Delgado province, have negatively impacted the Mozbife performance.
Sales volumes were 19% below the previous year with 1,331 tons in
FY2021 (FY2020 1,652 tons), but the bottom-line results are
expected to be 33% better than 2020. The overall improvement is
driven by the aggressive cost cutting and efficiency improvements
that management implemented in mid-2020. These initiatives resulted
in an 18% reduction in the cost of goods sold per ton of meat sold
and an increase in the dress out percentage from 50% to 51.7%
(equating to an increase in average meat price by 12%).
Mozbife had implemented three new sales strategies in early
2020, which have continued to pay off and increase the demand for
our meat products:
-- The Maputo depot opened in October 2020 and sales here have
increased to an average of 16 tons per month of mostly carcasses,
whilst larger supermarkets and restaurants are now ordering and
collecting weekly from this facility;
-- Sale of prime cuts to large processors in Maputo, who in the
past relied on South African sourced supplies for their meat. This
action has resulted in an additional 10 tons of meat sales per
month being processed and sold in the local restaurants and
supermarkets; and
-- Upgrading the factory shop in Chimoio has built a greater
awareness of our processed meat products, such as sausages and
burgers. This facility has doubled in size and sales now average
US$3,000 per day, an increase from US$1,000 in the past.
At the farm level operations, we introduced a new cropping
programme to improve our silage production and to increase the use
of our existing production assets (land, water and infrastructure).
The production of silage from Bana grass is now paying off, with
yields exceeding 40 tons per hectare.
A re-branding exercise was initiated in early 2021, which will
be fully implemented during FY 2022.
Impact of C OVID-19 and the recent surge in violence in Northern
Mozambique
COVID-19 has had a significant negative impact globally, both
economically and socially. The virus infection rate escalated in
Mozambique, following the Christmas holidays and the influx of
tourists (local and international). Mozambique saw the number of
infected persons quadruple in January 2021 and the government
reacted by implementing several restrictions (curfews, limited use
of beaches, and stopping any form of grouping of persons). The
actions have paid off, as daily infections are now significantly
reduced. Our operating companies continue with the training and
awareness programmes implemented at the start of the pandemic. The
training and practical measures taken to protect staff health have
resulted in no significant cases amongst the staff. We remain alert
to the fast-changing environment and are prepared to put in place
mitigating actions as events develop.
Beef sales have been negatively affected by the pandemic, as
most tourist, restaurant and MICE (Meetings, Incentives,
Conferences and Events) facilities remain closed or restricted.
Recent news coverage has highlighted the escalation and spread
of the four-year conflict taking place in Mozambique's northernmost
province, Cabo Delgado (1,500km north of Chimoio). The situation
has recently deteriorated, with over 500,000 internally displaced
refugees fleeing the affected areas and Oil & Gas projects in
the area having been suspended until the Government is able to
ensure security for the companies operating in those areas. As
such, TOTAL has cancelled all supplier contracts, including the
catering support for at least 7,000 staff. This has in turn heavily
impacted the Company's beef sales by removing 20 tons of monthly
sales.
Outlook for FY 2022
Grain division
Management is looking to buy c.40,000 tons of maize and process
this into c.27,000 tons of meal in the new season. FY 2021 has
confirmed that our margins remain lower than expected and as such
we continued to struggle meeting financial targets. The board and
management have agreed to implement three new strategies aimed at
improving the margin and overall performance in FY 2022:
-- The negotiations are well advanced to secure all working
capital finance needed before the end of May 2021 in order to be
able to buy maize early in the season, when it is abundant and
competitively priced;
-- Sourcing more affordable maize by returning to the rural
centres, where we will buy maize directly from the farmers, rather
than through traders; and
-- Drive the sales of the 1kg meal packs, through activations and promotions.
Beef division
The restricted Oil & Gas business in northern Mozambique and
the continued COVID-19 measures will continue to negatively impact
the business. Management needs to identify new business
opportunities to replace these losses. Four strategies are being
implemented to address this:
-- Introducing stricter cattle buying practises, that will
secure better quality animals from farmers and as such reduce the
time and costs related to preparing the cattle for the
abattoir;
-- Beef cuts and preferences are very personal in this market,
so we will employ an experienced sales manager to focus on quality
and individual needs of the higher income clients;
-- Drive more value-added sales in Maputo and Beira, where we
will be able to increase the margins earned per ton of meat sold;
and
-- Re-branding exercise to encourage consumers to seek out our
product and demand a local Mozambican product.
Caroline Havers, Non-Executive Chair, commented:
"Recent months have posed numerous challenges to our businesses
operating in Mozambique. Despite the significant and broad ranging
difficulties, taking all factors into account, I believe that our
whole team has performed fantastically to address these challenges.
Moreover, the management team have now laid the foundations for
positive results in FY2022 and have adopted a strategy which gives
every opportunity for successful trading over the next financial
year."
**S **
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
/ Rob Patrick
caroline@agriterra-ltd.com Tel: +44 (0) 207 409 3494
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