Trading Update

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:

  • 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;
  • 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
  • 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
31 March 2022