Agriterra Ld Regulatory News (AGTA)

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

18 July 2017

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

Final Results

Agriterra Limited, the AIM listed African agricultural company, announces its audited final results for the 10 month period ended 31 March 2017.

Chair's Statement

On 28 February 2017, the Agriterra Limited ('Agriterra', or the 'Company') group (the 'Group') changed its accounting reference date to 31 March (from 31 May) to more effectively co-ordinate the Group's annual report and accounts with the business cycle of the Group's underlying operations. This change was implemented as at 31 March 2017, and I am now pleased to announce the results of the 10 month period ended 31 March 2017 ('FY-2017'), together with the comparative figures presented for the 12 month period ended 31 May 2016 ('FY-2016').

Outlook

As shareholders will be aware, during FY-2017 we have focussed our efforts on our Grain and Beef operations in Mozambique, following the decision to dispose of our interests in the Cocoa operations in Sierra Leone, which was completed in June 2017 (as more fully described below).

The Agriterra board has always held the opinion that there is significant development potential in Mozambique's agricultural markets, as a result of the natural growth in demand which will develop as the local population gains spending power, coupled with the growth uplift that has long been expected from the development of the liquefied natural gas ('LNG') industry in the north of the country. I am pleased to report that steps towards the development of the LNG industry have now been taken by a consortium of companies, led by ENI S.p.A (and including Galp Energia, ExxonMobile and others), which in early June 2017 announced a final investment decision to proceed with a $7bn offshore LNG platform off the coast of Cabo Delgado, in North East Mozambique. Significant infrastructure and construction contracts are reported to have been awarded for the development of this project, which is expected to produce its first exports, destined for Asian markets, in 2021/22. This important development has already started to generate positive economic effects within Mozambique, both on a macro-economic level in terms of positive sentiment regarding the country's return to high growth rates as well as at the more granular level of anticipated demand for our products (in particular, our beef).

This progress is particularly encouraging for the Group which has survived a very difficult period in Mozambique over the last two years. As has been noted in previous reports, the recent macro-economic conditions in Mozambique have been very challenging, most notably due to the combination of a decline in commodity prices, a prolonged and severe drought and the significant weakening of the Mozambique Metical ('Metical' of 'MZN') against the United States $ (50% devaluation in the 12 months ended 31 December 2016) and the South African Rand (73% devaluation in the 12 months ended 31 December 2016). As a result of these economic changes, Mozambique has experienced high inflation rates (reaching c25% for the 12 months ended 31 December 2016, and 21% for the 12 months ended 31 March 2017), accompanied by a rapid rise in interest rates (prime lending rates are now at 27.75%, having recently peaked at 28.00% compared to 16.00% at 31 May 2015 and 19.50% at 31 May 2016). In addition to these economic complexities, Mozambique experienced further political and military tensions during the period, particularly in the centre of the country.

From January 2017, the macro-economic and political environment has improved as a result of a number of factors, including a cease-fire agreement between FRELIMO and RENAMO, combined with the relative strengthening (and stability) of the Metical to c60 Metical per United States $ as at the date of this report. Furthermore, the prevailing sentiment now is that the donor community and the IMF may soon resume much needed support to the Mozambique government, which is a significant positive change. In addition, two years of drought have now come to an end, with a return to normal or higher than normal rainfall in Central to Northern Mozambique, and Sub-Saharan Africa in general. The risk of damage to the maize harvest in Mozambique from armyworm infestation has also been alleviated and the crop is now being harvested with no evidence of any significant effect; the result is a sizeable harvest in many of the key staple agricultural products, including maize, in Mozambique and the wider region, which can only be beneficial to the poorer households who have been facing ever rising prices.

While these circumstantial improvements since January 2017 are expected to lead to an improvement in trading conditions going forwards, FY-2017 as a whole has been significantly and negatively impacted by the difficult trading conditions.

Grain division

In respect of our Grain operations, the drought conditions in the region have been a major factor in the results for the period. In particular there was a significant increase in the cost of raw maize, with a knock on effect on the price of maize meal, the primary product of our Grain division. Consistent with the normal price pattern, maize flour prices rose steadily throughout the year; price rises far outstripped inflation though and by December 2016 were 70% higher than December 2015. Despite the significantly higher price, demand was sustained over this period - maize flour is a key staple foodstuff and prices of competing products which are mainly imported (such as rice) were rising in Metical terms due to the weakening of the currency.

From January 2017, short term trading conditions worsened, with a sizeable drop in demand (to c 4,000 tonnes of maize flour in the period January to March compared to c 6,700 tonnes in the same period of FY-2016) and simultaneous lower prices (when compared to December 2016) - this is anomalous to a normal year when prices and demand rise in the period immediately preceding the new harvest, which started in May 2017.

A number of factors led to this abnormal reduction in demand and price, including a lack of cash resources for a sizeable proportion of the population, significant rainfall which made access to key selling points difficult, and the flooding of some markets with surplus maize inventory (either held on a speculative basis by traders or held at Beira port for delivery to neighbouring countries that were then unable to complete on their purchases).

This latter part of the yearly cycle is when the Grain division typically makes most of its profit and therefore these adverse trading conditions have inevitably impacted performance. As a result, the Grain division returned a small EBITDA loss of $81,000 (FY-2016: EBITDA profit of $1,050,000) on sales of $8,468,000 (FY-2016: $12,246,000) being 18,900 tonnes of maize flour (FY-2016: 27,900 tonnes) and 24,900 tonnes of all maize products (FY-2016: 39,400). Included within the results of the division is a provision of $769,000 (FY-2016: $nil) against the carrying value of maize inventory. The provision is required under IFRS to write the carrying value of this inventory down to net realisable value at the period end. Adjusted EBITDA for the Grain division, excluding this provision, is a profit of $688,000 (FY-2016: $1,050,000).

In common with many agricultural products, the working capital requirements in the Grain division are significant, principally due to the natural cycle of maize purchases peaking between April and August, while peak maize flour sales are normally between December and March. During FY-2017 we purchased c 27,200 tonnes of maize (FY-2016: c 33,100 tonnes). The Grain division's working capital is financed by bank facilities provided by Standard Bank which, with a current interest rate of 26.25%, continues to impact the profitability of the division. After an interest charge of $686,000 in FY-2017 (FY-2016: $473,000), loss before tax for the Grain division was $890,000 compared to a profit of $338,000 in FY-2016.

While the loss in the Grain division, resulting from a combination of factors including the high interest rate and abnormal fall in demand in January to March 2017, resulting in the provision against maize inventory, is disappointing, it should be noted that the cost savings generated in this division in early 2016, and during the current financial period, have been critical in mitigating the adverse effect of these factors. The cost base of the Grain division is now at a more appropriate level for the business and, in the Board's opinion, still provides a platform for future growth.

Grain division strategy and outlook

As the economic situation in Mozambique improves, interest rates return to more normal levels and maize prices (and consequently maize flour prices) return to levels that are more sustainable for the population, we expect to see improvements in net profit generated by this division.

The development of appropriate animal feed products (primarily for poultry and beef) which are produced by our animal feed pelletizer (using maize bran, a by-product of the maize milling process) has now finished and we expect to start commercial supplies of animal feed in August 2017. In addition to this new product line, we believe that the development of further product lines is critical to the maize division. We are currently assessing the viability of additional "value add" products, including porridge, maize based drinks and maize based snacks and hope to be able to introduce additional products in the near future.

Beef division

In respect of our Beef division, the reduced price competitiveness of imported products (arising from the devaluation of the Metical) has provided certain opportunities for us to grow our markets. Given these favourable conditions, we commenced supplying into the Maputo market (the largest and most affluent market in Mozambique), which was previously dominated by South African imports. Accessing this market has helped to increase our volumes of beef products sold and Metical revenues, which have averaged 227 tonnes and 30,400,000 Metical per month compared to 186 tonnes and 22,100,000 Metical in FY-2016. Despite a strong revenue performance in Metical terms, this translates to a fall in average monthly dollar denominated revenues to $434,000 from $522,000 in FY-2016, due to the substantial depreciation in the Metical during the period. The first three months of 2017 have also seen a temporary fall in sales volumes in our Beef division to c 173 tonnes a month of beef products, principally due to our efforts to improve the productivity in our feedlot where we are focussing on increasing the average stay of our animals to increase their weight. These efforts to improve feedlot productivity are in response to the reduction in internal animal stocks and the fact that traditional sources of supply from the rural community are only now beginning to return following the cessation of military activity in the country. Once the average stay of animals in the feedlot is increased, we expect to return to supplying approximately 230 tonnes a month of beef products from our existing operations.

In line with our overall Group strategy, we have continued to implement significant cost savings in the Beef division during the period. Despite the positive effect of cost savings, the Beef division returned a loss before tax during FY-2017 of $1,587,000 (FY-2016: loss of $6,186,000) and an EBITDA loss of $1,024,000 (FY-2016: $2,023,000). In part this loss reflects the ongoing farming costs incurred during the de-stocking process of the cattle farms; as previously announced, and in light of the military tension in country and the need to protect the value of the herd and security of our employees, the Board took the decision in June 2016 to de-stock the cattle farms and place them in "care and maintenance". This de-stocking programme is well under way, and the Inhazonia and Mavonde ranches are now de-stocked, with c 1,000 animals remaining on our Dombe ranch at the date of this report. Due to the de-stocking of the cattle farms, we expect to exhaust our current cattle asset inventory within 12 months. Accordingly all cattle inventory is presented as a current asset in the statement of financial position as at 31 March 2017.

Although placing the farms into "care and maintenance" is a significant shift in our strategy for the Beef division, it has the positive effect of reducing the cash requirements of the ongoing development of these assets and providing cash inflow through the slaughter and sale of our remaining own herd. This cash inflow, along with income from the disposal of surplus, non-revenue generating assets is permitting the reduction of the Beef division's existing bank finance (taken during the Group's expansion period, prior to the development of the current economic and political situation in country). The Beef division's bank borrowings stood at 66,400,000 Metical as at 31 March 2017 ($998,000 at the 31 March 2017 Metical to US$ exchange rate) and have now been reduced to c 17,800,000 Metical as at the date of this report ($297,000 at the current Metical to US$ exchange rate). This compares to 100,500,000 Metical as at 31 May 2016 ($1,687,000 at the 31 May 2016 Metical to US$ exchange rate).

Beef division strategy and outlook

Looking forwards, we see good growth potential in North Mozambique, both from the development of the camps to service the construction of the LNG facilities as well as the general spill-over effects of greater prosperity into and within the local community. We are therefore assessing the potential for a small feedlot and abattoir facility close to our Nampula distribution centre which, if implemented, would increase our overall supply capacity in Mozambique as a whole.

In accordance with our previous strategy, we will continue to assess new retail units in strategic locations to take advantage of regional development opportunities. While the initial focus is likely to be in North Mozambique, we remain open to opportunities countrywide.

We will also continue to assess our farming estate which, in the longer run, remains an important asset in order to supply our retail outlets and capitalise on potential export opportunities with high quality beef products. This established infrastructure and capacity potential mean that we are well placed for growth once appropriate investment conditions for this more rural infrastructure are re-established in Mozambique.

Cocoa division

Turning to our Cocoa division, as previously announced, on 5 October 2016 the Group agreed the sale of its Sierra Leone Cocoa division in a management buy-out transaction (the 'MBO'), which was ultimately unsuccessful. The Cocoa division principally comprised a 3,200 hectare cocoa plantation in the Kenema district of Sierra Leone, a 2,000 m2 warehouse, and related support infrastructure and vehicles. The MBO team failed to secure the necessary finance and on 16 January 2017, the Group took back the ownership of the relevant local operating subsidiaries. Following this disappointment, we immediately initiated actions to market the Cocoa division's assets to interested parties, culminating in the disposal of the Group's operating subsidiaries in Sierra Leone on 1 June 2017 for $500,000. The purchasers were local Sierra Leone businessmen who have existing cocoa production, purchasing and distribution operations in country. The disposal proceeds have been applied subsequent to the period end to reduce the Group's Beef division borrowing facilities in Mozambique and for general working capital purposes.

Conclusion

Having rationalised our cost base and improved efficiencies, while reducing our outstanding debt obligations and related interest payments, we have been able to improve the underlying profitability of our businesses, and working capital position such that we have a sustainable business that can now capitalise on the growth that will inevitably come from the development of the LNG industry.

The past three years have been a particularly difficult period and I must thank our management and staff for their strong commitment to the business which has allowed it to push through the challenging business environment in which we have been operating.

CSO Havers

Chair

17 July 2017

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THE ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.

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

Consolidated income statement

Consolidated income statement

For the 10 month period ended 31 March 2017

Consolidated statement of comprehensive income

For the 10 month period ended 31 March 2017

Consolidated stat

ement of financial position

Consolidated statement of financial position

As at 31 March 2017

The financial statements of Agriterra Limited were approved and authorised for issue by the Board of Directors on 17 July 2017. Signed on behalf of the Board of Directors by:

Consolidated statement of changes in equity

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 10 month period ended 31 March 2017

Consolidated cash flow statement

For the 10 month period ended 31 March 2017

Notes to the consolidated financial statements

1. GeNERAL INFORMATION

Agriterra is incorporated and domiciled in Guernsey, the Channel Islands, with registered number 42643. Further details, including the address of the registered office, are given on page 42. The nature of the Group's operations and its principal activities are set out in the Directors' report. A list of the investments in subsidiaries and associate companies held directly and indirectly by the Company during the period and at the period end, including the name, country of incorporation, operation and ownership interest is given in note 3.2.

The reporting currency for the Group is the US Dollar ('$' or 'US$') as it most appropriately 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 IFRSs as adopted by the EU.

The Company changed its accounting reference date to 31 March from 31 May, effective from 31 March 2017 in order to more effectively co-ordinate the Group's annual report and accounts with the business cycle of the Group's underlying business operations. Accordingly these financial statements present the results and cash flows of the Group for the 10 month period ended 31 March 2017, with the comparative period being the 12 months ended 31 May 2016.

2. ADOPTION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS

2.1. New Standards and Interpretations adopted with no significant effect on the financial statements

The following new and revised Standards and Interpretations have been adopted in these financial statements. Their adoption has not had any significant impact on the amounts reported in these financial statements, but may impact the accounting for future transactions and arrangements.

2.2. New Standards and Interpretations in issue but not yet effective

At the date of authorisation of these financial statements, the following Standards and Interpretations are in issue but not yet effective (and in some cases had not yet been adopted by the EU):

The Directors do not anticipate that the adoption of these Standards and Interpretations will have a material impact on the Group's financial statements in the period of initial application.

3. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared on a historical cost basis, except for certain financial instruments, biological assets and share based payments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets acquired. The principal accounting policies adopted are set out below in this note.

3.1. Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has 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 financial statements. Further detail is provided in note 4.1 to the financial statements.

3.2. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March 2017 (or 31 May for periods up to and including the year ended 31 May 2016). Control is achieved when the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised income and expenses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an associate, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has a binding obligation to make payments on behalf of an associate.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

As at 31 March 2017, the Company held equity interests in the following undertakings:

Direct investments

Indirect investments of Agriterra (Mozambique) Limited

Indirect investments of West Africa Cocoa Services Limited

Indirect investments of Baranca Tide Limited

Indirect investments of Shawford Investments Inc.

3.3. Foreign currency

The individual financial statements of each company in the Group are prepared in the currency of the primary economic environment in which it operates (its 'functional currency'). The consolidated financial statements are presented in US Dollars.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's operations are translated at exchange rates prevailing at the balance sheet date. Income and expense items are translated at the average exchange rates for each month, unless exchange rates fluctuate significantly during the month, in which case exchange rates at the date of transactions are used. Exchange differences arising from the translation of the net investment in foreign operations and overseas branches are recognised in other comprehensive income and accumulated in equity in the translation reserve. Such translation differences are recognised as income or expense in the period in which the operation or branch is disposed of.

The following are the material exchange rates applied by the Group:

3.4. Operating segments

The Chief Operating Decision Maker is the ExCom. The ExCom reviews the Group's internal reporting in order to assess performance of the business. Management has determined the operating segments based on the reports reviewed by the ExCom which consider the activities by nature of business.

3.5. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, net of discounts, value added taxes and other sales related taxes.

Sales of goods are recognised when goods are delivered and title has passed. Delivery occurs when the products have arrived at the specified location, and the risks and rewards of ownership have been transferred to the customer.

Income arising from the rental of surplus plant and machinery, or the rental of land and buildings, is stated on an accruals basis at the amount due for rental until the relevant financial period end.

3.6. Operating loss

Operating loss is stated before investment revenues, other gains and losses, finance costs and taxation.

3.7. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. The Group did not incur any borrowing costs in respect of qualifying assets in any period presented.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

3.8. Share based payments

The Company issues equity-settled share-based payments to certain employees of the Group. These payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant and the value is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest and adjusted for non-market based vesting conditions.

Fair value is measured by use of the Black Scholes model. The expected life used in the model is adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

3.9. Employee benefits

3.9.1. Short term employee benefits

Short-term employee benefits include salaries and wages, short-term compensated absences and bonus payments. The Group recognises a liability and corresponding expense for short-term employee benefits when an employee has rendered services that entitle him / her to the benefit.

3.9.2. Post-employment benefits

The Group does not contribute to any retirement plan for its employees. Social security payments to state schemes are charged to profit and loss as the employee's services are rendered.

3.10. Leases

Leases that transfer substantially all the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases. As at 31 May 2016 and 31 March 2017 the Group does not have any finance leases. During the periods presented in these financial statements, the Group was counterparty to certain operating lease contracts. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

3.11. Taxation

The Company is resident for taxation purposes in Guernsey and its income is subject to income tax, presently at a rate of zero per cent per annum. The income of overseas subsidiaries is subject to tax at the prevailing rate in each jurisdiction.

The income tax expense for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity, when tax is recognised in other comprehensive income or directly in equity as appropriate. Taxable profit differs from accounting profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

Current tax expense is the expected tax payable on the taxable income for the period. It is calculated on the basis of the tax laws and rates enacted or substantively enacted at the balance sheet date, and includes any adjustment to tax payable in respect of previous periods. Deferred tax is calculated using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the asset can be utilised. This requires judgements to be made in respect of the availability of future taxable income.

The Group's deferred tax assets and liabilities are calculated using tax rates that are expected to apply in the period when the liability is settled or the asset realised based on tax rates that have been enacted or substantively enacted by the reporting date.

Deferred income tax assets and liabilities are offset only when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

No deferred tax asset or liability is recognised in respect of temporary differences associated with investments in subsidiaries, branches and joint ventures where the Group is able to control the timing of reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

3.12. Property, plant and equipment

All items of property, plant and equipment are stated at historical cost less accumulated depreciation (see below) and impairment. Historical cost includes expenditure that is directly attributable to the acquisition. Subsequent costs are included in the asset's carrying value when it is considered probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Depreciation is charged on a straight-line basis over the estimated useful lives of each item, as follows:

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds received with the carrying amount of the asset immediately prior to disposal and are included in profit and loss.

3.13. Impairment of property, plant and equipment

At each balance sheet date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit and loss because the Group does not record any assets at a revalued amount.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit and loss.

3.14. Biological assets

Consumer biological assets, being the beef cattle herd, are measured in accordance with IAS 41, 'Agriculture' at fair value less costs to sell, with gains and losses in the measurement to fair value recorded in profit and loss. The herd comprised breeding and non-breeding cattle. The breeding cattle comprised bulls, cows and heifers. As these were expected to be held for more than one year, breeding cattle were classified as non-current assets. The non-breeding cattle comprise animals that will be grown and sold for slaughter and are classified as current assets. Subsequent to the decision to close the cattle farms during the period, all cattle are classified as non-breeding animals and disclosed as a current asset.

Cattle are recorded as assets at the period end and the fair value is determined by the size of the herd and market prices at the reporting date.

Cattle ceases to be a biological asset from the point it is slaughtered, after which it is accounted for in accordance with the accounting policy below for inventories.

The cost of forage is charged to profit or loss over the period it is consumed.

3.15. Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

3.16. Non-current assets held for sale

Non-current assets (and disposal groups) held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving the loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria above are met.

A non-current asset is not depreciated (or amortised) while it is classified as held for sale, or while it is part of a disposal group classified as held for sale.

Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale are recognised in profit or loss.

3.17. Financial instruments

Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

3.17.1. Financial assets

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit and loss ('FVTPL'), which are initially measured at fair value.

Financial assets are classified into the following specified categories: financial assets at 'FVTPL', 'held-to-maturity' investments, 'available-for-sale' financial assets and 'loans and receivables'. The classification depends on the nature and purpose of the financial asset and is determined at the time of initial recognition. The Company and Group currently have financial assets in the category of 'loans and receivables' and FVTPL.

3.17.1.1. Loans and receivables

Trade receivables, loans receivable, bank balances, cash in hand and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

3.17.1.2. Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or is designated as at FVTPL upon initial recognition. The Group holds certain investments in companies which were previously quoted on AIM and were designated as held for trading. Financial assets at FVTPL are stated at fair value, with any gains and losses arising on re-measurement recognised in profit or loss. The net gain or loss incorporates any dividends, interest earned, or foreign exchange gains and losses on the financial asset and is included within other gains and losses in the income statement. Fair value is determined in the manner described in note 20.

3.17.1.3. Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been affected.

For loans and receivables carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced through the use of an allowance account. When a financial asset is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit and loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

3.17.1.4. De-recognition of financial assets

The Group de-recognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

3.17.2. Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

3.17.2.1. Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

3.17.2.2. Financial liabilities

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities'. The Group only has financial liabilities in the category of other financial liabilities.

3.17.2.2.1. Other financial liabilities

Other financial liabilities are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

3.17.2.2.2. De-recognition of financial liabilities

The Group de-recognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

3.18. Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

For all other financial instruments not traded in an active market, the fair value is determined by using valuation techniques deemed to be appropriate in the circumstances. Valuation techniques include the market approach (i.e., using recent arm's length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (i.e., discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible).

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing the categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group's accounting policies which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The effect on the financial statements of changes in estimates in future periods could be material.

4.1. Going concern

The Group has prepared forecasts for the Group's ongoing businesses covering the period of at least 12 months from the date of approval of these financial statements. These forecasts are based on assumptions including, inter alia, that there are no significant disruptions to the supply of maize or cattle to meet its projected sales volumes and that key inputs are achieved, such as forecast selling prices and volume, budgeted cost reductions, and projected weight gains of cattle in the feedlot. They further take into account the expected meat to be obtained by de-stocking the remaining beef herd from the beef ranches (being approximately 1,500 animals at 31 March 2017), planned disposals of property plant and equipment, general working capital requirements and available borrowing facilities.

The Directors believe that with existing resources, including available undrawn borrowing facilities, the Group and Company is able to manage its business risks. 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 these financial statements.

4.2. Impairment

Impairment reviews for non-current assets are carried out at each balance sheet date in accordance with IAS 36, Impairment of Assets. Where there are indicators of impairment, the net book value of the asset or cash generating unit is compared with its fair value. The impairment review is sensitive to various assumptions, including the expected sales forecasts, cost assumptions, capital requirements, and discount rates among others.

No impairments were recorded in the 10 month period ended 31 March 2017. Details of impairments recorded in the 12 month period ended 31 May 2016 are included in note 11.

4.3. Biological assets

Cattle are accounted for as biological assets and measured at their fair value at each balance sheet date. Fair value is based on the estimated market value for cattle in Mozambique of a similar age and breed, less the estimated costs to bring them to market, converted to US$ at the exchange rate prevailing at the period end. Changes in any estimates could lead to the recognition of significant fair value changes in the consolidated income statement, or significant changes in the foreign currency translation reserve for changes in the Metical to US$ exchange rate.

In prior periods, the herd was further categorised as either the breeding herd of slaughter herd, depending on whether it was principally held for reproduction or slaughter. During the period the Group has started to de-stock its cattle farms (where the breeding herd was held) into the feedlot, where the animals were, or are, being fattened for slaughter. The herd on the farms has decreased in the period from approximately 4,200 animals as at 31 May 2016, to approximately 1,500 animals as at 31 March 2017. The de-stocking is expected to be complete before 31 March 2018 and accordingly, the value of the breeding herd will be realised within 12 months of the balance sheet date; the herd is therefore disclosed as a current asset. At 31 March 2017 the value of the breeding herd disclosed as a non-current asset was $nil (31 May 2016: $888,000). The value of the herd held for slaughter disclosed as a current asset was $746,000 (31 May 2016: $1,106,000).

4.4. Recoverability of input Value Added Tax

Mozambique Value Added Tax ('IVA') operates in a similar manner to UK Value Added Tax ('VAT'). The Group is exempt from IVA on its sales of maize products under the terms of Mozambique tax law. The Group is able to recover input sales tax on substantially all of the purchases of the Grain division. The Group is always therefore in a net recovery position of IVA in respect of its Grain operations. To date the Group has not succeeded in recovering IVA from the Mozambique Government. Due to the significant uncertainty over the recoverability of these IVA balances, the Group has provided in full against the assets as at 31 May 2016 and 31 March 2017. As at 31 March 2017, the gross and net IVA recoverable assets are respectively $857,000 (31 May 2016: $837,000) and $nil (31 May 2016: $nil) at the US$ to Metical exchange rate of 66.51 (31 May 2016: 59.61) at that date.

4.5. Presentation of 'Cocoa activities' as discontinued operations and classification of related assets and liabilities as held for sale

The results of the Group's Cocoa division are presented as discontinued operations in the period and the related assets and liabilities are classified as a disposal group held for sale (refer to notes 16 and 24). This classification was initially adopted as at 31 May 2016 for the reasons described below. The classification requires, inter alia, that:

· the disposal group is available for immediate sale in its present condition, subject only to terms that are usual and customary for the sale of such a group; and

· the sale of the disposal group must be highly probable.

On 5 October 2016, the Group agreed the sale of its Sierra Leone Cocoa division in a management buy-out transaction (the 'MBO').The Cocoa division principally comprised the 3,200 hectare cocoa plantation in the Kenema district of Sierra Leone, a 2,000 m2 warehouse, and related support infrastructure and vehicles.

Under the terms of the MBO, the Group would dispose of its interests in Baranca Tide Limited and West Africa Cocoa Services Limited (the intermediate holdings companies which held the assets comprising the Group's cocoa business in Sierra Leone, the 'Target Companies') with immediate effect; payment by the MBO team was deferred for a period of 65 business days from completion of the MBO (i.e. until 9 January 2017). The MBO team failed to secure the necessary finance and, following an extension to 16 January 2017, the Group took back the ownership of the Target Companies.

The Group immediately initiated actions to market the Cocoa division's assets to interested parties. Advanced discussions with interested parties, including on site due diligence, were underway at the period end, culminating in the disposal of the Group's operating subsidiaries in Sierra Leone (being Tropical Farms Limited and Tropical Farms Plantation (SL) Limited) on 1 June 2017 for $500,000. The purchasers were local Sierra Leone businessmen who have existing cocoa production, purchasing and distribution operations. The Group has now initiated the solvent liquidation of the Target Companies, which is expected to be completed during the financial year ended 31 March 2018.

The Directors are of the opinion that the conditions for classification as held for sale were met as at 31 March 2017 and accordingly continued to adopt that classification. The sale of these assets is part of the Group's ongoing rationalisation programme; $400,000 of the proceeds from the sale of these assets have been applied to reduce the Group's borrowing facilities in the Beef division, with $100,000 applied for general working capital purposes.

5. Revenue

An analysis of the Group's revenue is as follows:

6.  Segment reporting

The ExCom consider that the Group's operating activities comprise the segments of Grain, Beef and Cocoa, all undertaken in Africa. In addition, the Group has certain other unallocated expenditure, assets and liabilities, either located in Africa or held as support for the Africa operations.

6.1. Segment revenue and results

The following is an analysis of the Group's revenue and results by operating segment:

The segment items included in the consolidated income statement for the period are as follows:

6.2. Segment assets, liabilities and capital expenditure

Segment assets consist primarily of property, plant and equipment, biological assets, inventories, trade and other receivables and cash and cash equivalents. Segment liabilities comprise operating liabilities, including an overdraft financing facility in the Grain segment, and bank loans and overdraft financing facilities in the Beef segment.

Capital expenditure comprises additions to property, plant and equipment.

The segment assets and liabilities at 31 March 2017 and capital expenditure for the period then ended are as follows:

Segment assets and liabilities are reconciled to Group assets and liabilities as follows:

The segment assets and liabilities at 31 May 2016 and capital expenditure for the year then ended are as follows:

Segment assets and liabilities are reconciled to Group assets and liabilities as follows:

6.3. Significant customers

In the 10 month period ended 31 March 2017, one customer of the Grain division generated revenue of $2,484,000 amounting to 19.4% of Group revenue (12 month period ended 31 May 2016: no single customer contributed more than 10% of the Group's revenue).

7. Operating loss

Operating loss has been arrived at after charging / (crediting):

8. Auditors Remuneration

Amounts payable to RSM UK Audit LLP and their associates in respect of audit services are as follows: