Last checked at 27 Nov 2009 10:15
Agriterra Ltd / Ticker: AGTA / Index: AIM / Sector: Agriculture
27 November 2009
Agriterra Ltd ('Agriterra' or 'the Company')
Preliminary Results
Agriterra Ltd, the AIM listed company focussed on the agricultural sector in central and southern Africa, announces its results for the period from 1 July 2008 to 31 May 2009.
Overview
Shift in strategy to focus on agricultural sector in central and southern Africa complete and bearing fruit for the Company
Three established operations, DECA, Compagri and Mozbife
Strengthened position in grain processing market - record buying season achieved at DECA facility in Chimoio (33,000 tonnes of maize)
Compagri facility successfully brought online on time and on budget using internal cash flow and now achieving considerable sales
Rapid expansion of beef herding business through acquisition of Dombe
Movonde now being stocked with quality Beefmaster breeding stock - 275 head already
Completion of placing raising $5.1 million to fund additional expansion of beef business including the construction of an abattoir and feedlot business
Pre-tax loss for the period on continuing activities of $0.2m (2008: loss $1.3m)
Agriterra Executive Director Euan Kay said, "This has been a very strong period of growth for the Company which recently culminated in a record buying season of 33,000 tonnes of maize for DECA, our flagship grain buying and processing operation in Mozambique. We have expanded this business through Compagri, in Tete, and we have aggressively built up our cattle ranching operation Mozbife, through the acquisition of 15,000 hectares of ranching land and 275 head of cattle. We have a highly successful concept which we believe will generate significant revenue and allow us to consolidate our position, identify new opportunities and build a substantial agricultural business focussed in southern Africa."
Chairman's Statement
This has been a transformational year for the Company, and I am pleased to report that we have made substantial progress in re-aligning the business and implementing the Board's new strategy of investing in and acquiring businesses operating in the agricultural sector in central and southern Africa.
As reported in the interims, following a strategic review prompted by both political and economic considerations beyond the control of the Board, the Company changed its focus away from the oil and gas sector to agricultural investment and sustainable development in Africa.
This area, identified by the Board as having potential for rapid growth with the capability of generating significant returns on investment, despite the current economic conditions, is anticipated to provide better near term returns for our shareholders. The ultimate aim is to become one of the largest agri-operations in Africa whilst improving the livelihoods of small holder farmers by increasing access to markets and becoming a leading food provider for the region.
In line with this new strategy, the Company's name was changed to Agriterra Limited, and in February we acquired a 75% interest in the agricultural trading and processing companies Desenvolvimento E Comercialização Agricola Limitada ('DECA') and Compagri Limitada ('Compagri'), as well as the embryonic cattle ranching and feedlot production entity, Mozbife Limitada ('Mozbife'), all located in Mozambique. Importantly, since the acquisition I am pleased to report that we have made strong progress on all fronts in developing these businesses, generating significant cash flow and consolidating our position in Mozambique.
DECA, based at Chimoio, in the Manica Province of Mozambique and founded in 2005, is a well established, cash generative business and represents an ideal agricultural development model for replication in other areas.
Its operations focus on the treatment and processing of grain purchased from local farmers, through specialised buying systems, delivering cash directly to the smallholder farmers. The Company prepares and installs the necessary infrastructure at 'buying points' across the Chimoio region, to which local farmers bring the products which they have cultivated as 'out-growers'. DECA then purchases grain through its efficient buying system, delivering cash directly to the producers, and thereby supporting economic activity in these rural areas.
The grain is transported back to DECA's purpose-built storage and processing facility in Chimoio. At this facility, the grain is dried, fumigated, prepared and processed into maize meal, which is in demand in the local area. DECA's facility currently has a 34,000 tonne storage capacity consisting of seventeen 1,000 tonne silos, seven large warehouses as well as two milling plants, one workshop and a fleet of over 100 vehicles.
Once processed, the products are packaged and transported to appropriate venues for onward sale under DECA branding with 15% of sales attributed to the UN World Food Programme. The Company has a strong brand and a loyal customer base which currently provides a market outlet for some 350,000 farmers and as a consequence has received strong support from local and national government since inception, with the President of Mozambique, Armando Guebuza, opening the facility in 2005.
Post the period end we had a good buying season with in excess of 33,000 tonnes in stock. This was procured at an average price significantly below last year. The revenue growth is seasonal, and in line with expectations. This is starting to ramp up as per the normal cycle and with the increasing maize meal prices, we are hopeful of extremely positive results from the Chimoio operation.
With the success of DECA's operations at Chimoio, Compagri has been established as a second agricultural buying and processing facility in Mozambique. The construction of the Compagri operation, located at Tete, was funded primarily from internal cash flow, delivered under budget and on schedule, to coincide with the advent of the maize buying season in the Tete Province.
As at Chimoio, operations at Tete are focussed on the purchase of maize from indigenous out-growers. We feel that the model is effective with relatively low upfront capital expenditure and a targeted circa three year payback on the initial investment.
The current total storage capacity for maize at Compagri is 15,000 tonnes, consisting of four 1,500 tonne silos and one 1,000 tonne silo, and an additional two large warehouses with capacity to store 4,000 tonnes each. However, the infrastructure required to increase Compagri to the maximum capacity of 50,000 tonnes has already been developed meaning future expansion can be achieved for the next buying season in 2010, with minimised additional expenditure.
The first phase of the site development is now virtually completed, although there are a few issues to be finalised including increasing the water supply from the Zambezi and the planting of grass and trees and general landscaping of the site to enhance the working conditions for the workforce in an environment where temperatures can regularly reach 40 degrees centigrade.
Compagri is now going through its initial bedding down period where the management is establishing its reputation in the region and educating the local farmers to the benefits of the facility. Buying has commenced and more than 7,000 tonnes of maize has been purchased to date, underpinning our hope for a profitable season, particularly in view of the significant growth in urbanisation in and around Tete.
The Board is currently evaluating additional sites and products in order to strengthen DECA's market presence and geographic reach in south and central Africa. At the Tete facility in particular, the Company plans to diversify its product range to include other agricultural produce such as beans and ground nuts, and in doing so, enabling year round processing of a variety of products, ultimately spreading any potential risk associated with individual commodity production.
Our third business, the cattle ranching and feedlot production entity Mozbife, has also made good progress, with our intention being to expand our activities and capitalise on the growing demand for beef in sub-Saharan Africa.
The 1,000 hectare Movonde Stud Ranch is now being stocked with quality pedigree Beefmaster breeding livestock imported from South Africa. This herd currently stands at 275 head of cattle which we plan to expand to 800 in the next 3 years. An area of irrigated pasture over 150 hectares has recently been established to provide quality pasture. Additionally, we have acquired the circa 15,000 hectare Dombe Ranch, where we are looking to expand the current herd of 450 to 10,000 head in 4 to 5 years. Importantly both ranches are in highly suitable territory with plenty of water and a head to hectare ratio of 1:2. A 200 hectare property close to the town of Chimoio has also been acquired to house the intended abattoir and feedlot business.
In the short term we plan to focus primarily on the market for beef products in Mozambique, as we believe that there is a great deal of opportunity in this area. Currently 90% of all beef is imported into Mozambique from countries such as South Africa, however by offering domestically reared beef to the market place, we feel that we can be extremely price competitive, particularly given the integration with the maize business at Chimoio whereby the bran residues after milling make ideal cattle feed. We also feel that there are very significant export opportunities for beef particularly to the Middle and Far East markets and we will therefore be developing our beef herds and facilities with these export markets in mind.
On the Movonde Ranch, we have also established a grain trial planting programme on 35 hectares of land. We are attempting to improve seed quality which can then be outsourced to the local farmers to enable them to increase their own yields on their individual farms.
Oil & Gas Assets
As shareholders will be aware, in line with our change in strategy we wrote off the majority of the expenditure incurred when reporting our half-year financials in March 2009. We continue to discuss with the Southern Sudanese authorities the possibility of compensation for losses incurred which has recently been sympathetically viewed by the press. However the quantity or timing for any compensation that Agriterra may receive, if any, has not been agreed by any of the parties involved.
Board
We welcomed Euan Kay to the Board as Executive Director in October 2009. Euan has managed DECA since its inception five years ago, and has been invaluable in growing all aspects of Agriterra's business over the past year. I look forward to continuing our work together with him in his new capacity as Executive Director, as we benefit from his considerable business and industry acumen whilst we grow the Company into a leading agri-operator in sub-Saharan Africa.
Financial Results
For the period under review, the Company is reporting a pre-tax loss on continuing activities of $0.2m (2008: $1.3m). The post-tax loss on the discontinued oil and gas activities was $3.5m (2008: $88.4m). Cash balances at the period end were $8.5 million (2008: $13 million).
On 28 October 2009, the Company announced that it had placed 63,950,000 new ordinary shares of 0.1p each at a price of 5p per share raising approximately $5.1 million before expenses.
Outlook
The Board recognises that there is a large opportunity in the agricultural arena in Africa, being generally viewed as the most important sector in the economies of most non-oil exporting African countries and constituting approximately 30% of Africa's GDP. 70% of the continent's population depend on the sector for their livelihood, with the majority of Africans living in the countryside relying on smallholdings of less than a few hectares to feed their families and grow surplus crops for sale. Despite the huge scale of the agricultural sector in Africa, the Board recognised that there was a distinct lack of organised trading platforms for agricultural products in many rural areas of Africa.
The Company has made strong progress since changing its strategy to focus on agriculture and I am confident that our grain processing and cattle herding businesses will continue to perform well over the next financial year. Furthermore, the revenue generated from these investments will also fuel future growth, both in terms of geography and product diversity, all of which creates value for our shareholders.
I'd like to take this opportunity to thank all those involved in Agriterra, particularly our new Executive Director, Euan Kay, who has been instrumental in the success of the Company through his management of DECA since its inception. It is crucial for the business to have people in charge on the ground who understand Africa, its needs, and how to operate successfully, something I believe we have.
** ENDS **
For further information please visit www.agriterra-ltd.com or contact:
| Andrew Groves | Agriterra Ltd | Tel: +44 (0) 845 108 6060 |
| Jonathan Wright | Seymour Pierce Ltd | Tel: +44 (0) 20 7107 8000 |
| Hugo de Salis | St Brides Media & Finance Ltd | Tel: +44 (0) 20 7236 1177 |
| Susie Callear | St Brides Media & Finance Ltd | Tel: +44 (0) 20 7236 1177 |
UNAUDITED CONSOLIDATED INCOME STATEMENT
For the period ended 31 May 2009
| Unaudited | Unaudited | ||||
| Continuing Operations | 11 Months ended 31 May | Year ended 30 June | |||
| 2009 | 2008 | ||||
| Note | $'000 | $'000 | |||
| Revenue | 5 | 4,855 | - | ||
| Cost of sales | (3,483) | - | |||
| Gross profit | 1,372 | - | |||
| Operating expenses | (2,222) | (2,410) | |||
| Other income | 347 | - | |||
| Operating loss | 5 | (503) | (2,410) | ||
| Finance income | 338 | 1,129 | |||
| Finance expenses | (6) | (6) | |||
| Net financing income | 332 | 1,123 | |||
| Loss before taxation | (171) | (1,287) | |||
| Income tax expense | - | - | |||
| Loss for the period from continuing operations | (171) | (1,287) | |||
| Discontinued operations | |||||
| Loss for the period | 6 | (3,519) | (88,395) | ||
| Loss for the period attributable to equity holders of the company | (3,690) | (89,682) | |||
| Loss per share | |||||
| - Basic and diluted (cents) | 7 | (1.05c) | (25.82c) | ||
| Loss per share from continuing operations | |||||
| - Basic and diluted (cents) | 7 | (0.05c) | (0.37c) |
UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the period ended 31 May 2009
| Unaudited 11 Months ended 31 May | Unaudited Year ended 30 June | |||
| 2009 | 2008 | |||
| $'000 | $'000 | |||
| Foreign exchange translation differences | (3,999) | 4,823 | ||
| Net income recognised directly in equity | (3,999) | 4,823 | ||
| Loss for the period | (3,690) | (89,682) | ||
| Total recognised income and expense for the period attributable to the equity holders of the company | (7,689) | (84,859) | ||
UNAUDITED CONSOLIDATED BALANCE SHEET
As at 31 May 2009
| Unaudited 31 May | Unaudited 30 June | ||||
| 2009 | 2008 | ||||
| Note | $'000 | $'000 | |||
| ASSETS | |||||
| Non-current assets | |||||
| Exploration and evaluation costs | - | - | |||
| Property, plant and equipment | 13,397 | - | |||
| Interest in associate | - | - | |||
| Biological assets | 207 | - | |||
| Total non-current assets | 13,604 | ||||
| Current assets | |||||
| Inventories | 2,376 | - | |||
| Trade and other receivables | 1,492 | 88 | |||
| Cash and cash equivalents | 8,517 | 13,047 | |||
| Total current assets | 12,385 | 13,135 | |||
| TOTAL ASSETS | 25,989 | 13,135 | |||
| LIABILITIES | |||||
| Current liabilities | |||||
| Trade and other payables | 3,009 | 679 | |||
| NET ASSETS | 22,980 | 12,456 | |||
| EQUITY | |||||
| Issued capital | 8 | 1,039 | 641 | ||
| Share premium | 119,349 | 101,584 | |||
| Share based payment reserve | 1,281 | 1,231 | |||
| Translation reserve | 824 | 4,823 | |||
| Retained earnings | (99,513) | (95,823) | |||
| TOTAL EQUITY attributable to equity holders of the parent | 22,980 | 12,456 | |||
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the period ended 31 May 2009
| Unaudited 11 Months ended 31 May | Unaudited Year ended 30 June | ||||
| 2009 | 2008 | ||||
| $'000 | $'000 | ||||
| OPERATING ACTIVITIES | |||||
| Loss before tax | (171) | (1,287) | |||
| Adjustments for: | |||||
| - Depreciation of property, plant and equipment | 164 | - | |||
| - Share based payment charge | 50 | 20 | |||
| - Net interest income | (332) | (1,126) | |||
| Operating cash flow before movements in working capital | (289) | (2,393) | |||
| Working capital adjustments: | |||||
| - Increase in inventory | (1,153) | - | |||
| - Decrease in receivables | (137) | (15) | |||
| - Increase / (decrease) in payables | 1,516 | (178) | |||
| Cash used in operations | (63) | (2,586) | |||
| Finance charges | (6) | (6) | |||
| Interest received | 338 | 1,132 | |||
| Net cash inflow / (outflow) from continuing operating activities | 268 | (1,460) | |||
| Net cash outflow from discontinued operating activities | (1,255) | (2,707) | |||
| Net Cash used in operating activities | (986) | (4,167) | |||
| INVESTING ACTIVITIES | |||||
| Purchase of property, plant and equipment | (4,692) | - | |||
| Purchase of subsidiaries net of cash acquired | 2,162 | - | |||
| Purchase of biological assets | (169) | - | |||
| Net cash used in continuing investing activities | (2,699) | - | |||
| Net cash used in discontinued investing activities | (1,918) | (21,920) | |||
| Net cash used in investing activities | (4,617) | (21,920) | |||
| FINANCING ACTIVITIES | |||||
| Proceeds from issue of share capital | 3,718 | 6,325 | |||
| Share issue costs | - | (361) | |||
| Loan from related party | 127 | - | |||
| Net cash flow from financing activities | 3,845 | 5,964 | |||
| Net decrease in cash and cash equivalents | (1,758) | (20,123) | |||
| Cash and cash equivalents at start of the period | 13,047 | 33,612 | |||
| Exchange rate adjustment | (2,772) | (442) | |||
| Cash and cash equivalents at end of the period | 8,517 | 13,047 | |||
NOTES TO THE FINANCIAL STATEMENTS
For the period ended 31 May 2009
| 1. | Basis of preparation of the preliminary announcement |
The financial information for the period ended 31 May 2009 has not been audited and does not constitute the Company's non-statutory financial statements. This preliminary announcement was approved by the Board on 26 November 2009.
The non-statutory financial statements for the period ended 31 May 2009 have not been reported on by the Company's auditors. They will be circulated to the shareholders in September.
The non-statutory financial statements for the period ended 31 May 2009 will be prepared in accordance with International Financial Reporting Standards (IFRS) in issue and as adopted by the European Union (EU) that were effective at 31 May 2009.
| 2. | General Information |
Agriterra Limited is incorporated in Guernsey. The address of the registered office is 22 Smith Street, St Peter Port, Guernsey GY1 4LX. The nature of the Group's operations and its principal activities are set out in the chairman's statement.
On 1 July 2008, the directors elected to change the reporting currency for the Group from Pounds Sterling (GBP) to the U.S. Dollar (USD). The change is to better reflect the Group's business activities in the Agricultural sector in Africa and reporting in USD will better reflect the Group's financial position and financial performance.
The change of the reporting currency has been accounted for in accordance with IAS 21 "The Effects of Changes in Foreign Exchange Rates". Comparative figures for 2008 previously reported in GBP have been restated to USD. The reporting change has no impact on the underlying business or the associated cash flows of the Group.
The functional currency of the Company still remains GBP.
The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.
At the date of authorisation of these financial statements, the following Standards and Interpretations that have not been applied in these financial statements were in issue but not yet effective or endorsed (unless otherwise stated):
| IFRS 1 | First time Adoption of IFRS - Amendment; Cost of an investment in a subsidiary, jointly-controlled entity or associate (endorsed) |
| IFRS 1 | Revised IFRS 1 First-time Adoption of IFRS |
| IFRS 2 | Share Based Payment - Amendments relating to vesting conditions and cancellations (endorsed) |
| IFRS 3 | Business Combinations - Comprehensive revision on applying the acquisition method |
| IFRS 7 | Financial Instruments: Disclosures - Amendment; Reclassification of Financial Assets (endorsed) |
| IFRS 7 | Financial Instruments: Disclosures - Amendment; Reclassification of Financial Assets - Effective date and transition |
| IFRS 7 | Financial Instruments: Disclosures - Amendment; Improving Disclosures About Financial Instruments |
| IFRS 8 | Operating Segments (endorsed) |
| IAS 1 | Presentation of Financial Statements - Comprehensive revision including requiring a statement of comprehensive income (endorsed) |
| IAS 1 | Presentation of Financial Statements - Amendments relating to Puttable Financial Instruments and obligations arising on liquidation (endorsed) |
| IAS 23 | Borrowing Costs - Comprehensive revision to prohibit immediate expensing (endorsed) |
| IAS 27 | Consolidated and Separate Financial Statements - Amendments arising from IFRS 3 |
| IAS 27 | Consolidated and Separate Financial Statements - Amendment; Cost of an investment in a subsidiary, jointly-controlled entity or associate (endorsed) |
| IAS 28 | Investments in Associates - Consequential amendments arising from amendments to IFRS 3 |
| IAS 31 | Interest in Joint Ventures - Consequential amendments arising from amendments to IFRS 3 |
| IAS 32 | Financial Instruments: Presentation - Amendments relating to Puttable Financial Instruments and obligations arising on liquidation (endorsed) |
| IAS 39 | Financial Instruments: Recognition and Measurement - Amendment; Reclassification of Financial Assets (endorsed) |
| IAS 39 | Financial Instruments: Recognition and Measurement - Amendment; Reclassification of Financial Assets - Effective date and transition |
| IAS 39 | Financial Instruments: Recognition and Measurement - Amendment; Eligible hedged items |
| IFRIC 15 | Agreements for the construction of real estate assets |
| IFRIC 16 | Hedges of net investment in a foreign operation |
| IFRIC 17 | Distributions of Non-cash Assets to Owners |
| IFRIC 18 | Transfers of Assets from Customers |
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group, except for some additional segment disclosures and changes in the presentation of comprehensive income when IFRS 8 and IAS 1 (revised) come into effect for periods commencing on or after 1 January 2009.
| 3. | Significant accounting policies |
Basis of accounting
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below.
Basis of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 May. Control is recognised where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
(ii) Associates
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.
(iii) Transactions eliminated on consolidation
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.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of acquisition is measured as the aggregate of the fair values, at the date of acquisition, of assets given, liabilities incurred or assumed and equity instruments issued by the group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.
The assets, liabilities and contingent liabilities of the acquiree are measured at their fair value at the date of acquisition irrespective of the extent of any minority interests. Any excess of the fair value of the consideration paid over the fair value of the identifiable net assets acquired is recognised as goodwill. If the fair value of the consideration is less than the fair value of the identifiable net assets acquired, the difference is recognised directly in the income statement.
Losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the subsidiary's equity. The excess, and any further losses applicable to the minority, are allocated against the majority interest except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority interest until the minority's share of losses previously absorbed by the majority has been recovered.
Foreign currency translation
(i) Functional and presentation currency
The individual financial statements of each subsidiary company are presented in the currency of the primary economic environment in which it operates ("the functional currency"). The consolidated financial statements are presented in US Dollars. The functional currency of the Company is pounds sterling and its financial statements are presented in US Dollars.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency of the entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at period end exchange rates are recognised in the income statement.
(iii) Consolidation
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 the period, unless exchange rates fluctuate significantly during the period, in which 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 the Group's and Company's translation reserve respectively, a separate component of equity. Such translation differences are recognised as income or expense in the period in which the operation or branch is disposed of.
The following exchange rates have been used in preparing the consolidated financial statements:
| Average Rate | Closing Rate | |||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |
| USD : GBP | 1.5896 | 2.0044 | 2.0043 | 1.6194 | 1.9954 | 2.0092 |
| Mozambican Meticais: USD | 25.05 | - | - | 26.77 | - | - |
Revenue recognition
Revenue is recognised when revenue and associated costs can be measured reliably and future economic benefits are probable. 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, VAT 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.
Interest income
Interest income is accrued on a time-apportioned basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.
Leasing
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.
Taxation
The Company is resident for taxation purposes in Guernsey and its income is subject to income tax, presently at a rate of zero. The income of overseas subsidiaries will be subject to tax at the prevailing rate in each jurisdiction.
The tax expense represents the sum of the current tax expense and deferred tax expense.
Tax currently payable is based on the taxable profit for the period. 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. The Group's liability for current tax is measured using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax relates to income tax levied by the same tax authorities on either: the same taxable entity or different taxable entities which intend to settle current tax assets and liabilities on a net basis or to realise and settle them simultaneously in each future period when the significant deferred tax assets and liabilities are expected to be realised or settled.
Deferred exploration and evaluation costs
The Group follows the full cost method of accounting under which all costs relating to the exploration for, and development of, oil and gas interests, whether productive or not, are capitalised.
All costs incurred prior to obtaining the legal right to undertake exploration and evaluation activities on a project are written-off as incurred.
Exploration and evaluation costs arising following the acquisition of an exploration licence are capitalised on project-by-project basis, pending determination of the technical feasibility and commercial viability of the project. Costs incurred include seismic data, technical expenses, license acquisition costs, exploration and appraisal drilling, general technical support and directly attributable administrative overheads. These costs are initially classified as intangible assets and are only carried forward to the extent that they are expected to be recouped through the successful development of the area, or where activities have not yet reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves.
Deferred exploration costs are carried at historical cost less any impairment losses recognised. An impairment review is carried out at each balance sheet date. Upon cessation of exploration on a license or if an area of interest is determined to be non-commercial, deferred exploration costs are written off. Any proceeds from farm-out of assets is deducted from the relevant cost pool.
If an exploration project is successful and it is confirmed to be commercially viable, the costs will be transferred to depreciable pools within property, plant and equipment and amortised over the expected life of the area according to the rate of depletion of the economically recoverable reserves.
The recoverability of deferred exploration and evaluation costs is dependent upon the discovery of economically recoverable reserves, the ability of the Group to obtain the necessary financing to complete the development of the reserves and future profitable production or proceeds from the disposal thereof.
Property, plant and equipment
All items of property, plant and equipment are stated at historical cost less 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.
Assets in course of construction for production, rental or administrative purposes not yet determined are carried at cost, less any identified impairment loss. Cost includes professional fees and associated administrative expenses.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each item, as follows:
| Land | Nil | |
| Buildings and leasehold improvements | 5% | - 25% |
| Assets in course of construction | Nil | |
| Plant and equipment | 10% | - 25% |
| Motor vehicles | 20% | - 25% |
| Office furniture and equipment | 10% | - 33.3% |
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 with carrying amount and are included in the income statement.
Impairment of property, plant and equipment and intangible assets excluding goodwill
Whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable an asset is reviewed for impairment. An asset's carrying value is written down to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use) if that is less than the asset's carrying amount.
Impairment reviews for deferred exploration and evaluation costs are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise but typically when one of the following circumstances apply:
unexpected geological occurrences that render the resource uneconomic;
title to the asset is compromised;
variations in oil and gas prices that render the project uneconomic;
variations in the currency of operation; and
the Group determines that it no longer wishes to continue to evaluate or develop the property.
Biological assets
A biological gain or loss is measured in accordance with IAS 41 on consumer biological assets which are classified as current assets where they are expected to be sold within a year of the balance sheet date and as non-current assets where they are expected to be sold after more than one year.
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.
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 FIFO principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.
Financial assets
Investments
Investments in subsidiaries, associates and joint ventures are recorded at cost in the Company balance sheet. They are tested for impairment when there is objective evidence of impairment. Any impairment losses are recognised in the income statement in the period they occur.
Trade and other receivables
Trade and other receivables are not interest bearing and are initially recognised at their fair value and are subsequently stated at amortised cost using the effective interest method as reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less which are subject to an insignificant risk of changes in value.
Financial liabilities
Trade and other payables
Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.
Provisions
Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, it is probable that an outflow of the resources will be required to settle the obligation and the amount can be reliably estimated.
Equity Instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Share-based payments
The Group issues equity-settled share-based payments to certain employees. 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.
| 4. | Critical accounting estimates and judgements |
The preparation of financial statements in conformity with 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.
On 5 December 2008, the Company announced that it proposed to change its name from White Nile Limited to Agriterra Limited and adopt the investing strategy to acquire or invest in businesses or projects operating in the agricultural and associated civil engineering industries in Southern Africa.
Capitalised exploration and evaluation expenditure
The directors decided to suspend exploration activities and reduce expenditure to the minimum required in order to retain exploration licenses. Negotiations continue with the Governments of Ethiopia, Kenya and the license holders in Nigeria, to revise the terms of these licenses. Until the Company successfully resolves these and the uncertainties concerning its exploration rights in Southern Sudan, the directors consider that the value of exploration and evaluation and other related assets is impaired. The impairment charge comprises:
| Unaudited 2009 | Unaudited 2008 | ||
| $'000 | $'000 | ||
| Impairment of exploration and evaluation assets | 1,746 | 81,750 | |
| Impairment of property, plant and equipment | 130 | 2,255 | |
| Impairment of investment in associate | 1,047 | 2,663 | |
| Impairment of inventory | - | 664 | |
| Disposal of inventory impaired in prior year | (135) | - | |
| Impairment of other assets | 47 | 199 | |
| 2,835 | 87,531 |
| 5. | Segment reporting |
The directors consider that, the Group's continuing activities comprise one business segments, agriculture and other unallocated expenditure in one geographical segment, Africa.
| Unaudited | |||
| Continuing activities | |||
| Period ending 31 May 2009 | Agriculture | Other | Total |
| $'000 | $'000 | $'000 | |
| Revenue | 4,855 | - | 4,855 |
| Segment results | |||
| - Operating profit / (loss) | 200 | (703) | (503) |
| - Interest (expense) / income | (67) | 399 | 332 |
| Loss before tax | 133 | (304) | (171) |
| Income tax | - | ||
| Loss for the period from continuing activities | (171) | ||
For the year ended 30 June 2008, there was one business segment; oil and gas exploration in Africa.
The segment items included in the income statement for the period ended 31 May 2009 are as follows:
| Unaudited | |||
| Period ending 31 May 2009 | Agriculture | ||
| $'000 | |||
| Depreciation | 532 |
Segment assets consist primarily of property, plant and equipment, inventories and trade and other receivables and cash and cash equivalents.
Segment liabilities comprise operating liabilities
Capital expenditure comprises of additions to property, plant and equipment and intangibles
The segment assets and liabilities at the 31 May 2009 and capital expenditure for the year then ended are as follows:
| Unaudited | Unaudited | Unaudited | ||
| Continuing | Discontinued | |||
| Period ending 31 May 2009 | Agriculture | Unallocated | Oil and gas | Group |
| $'000 | $'000 | $'000 | $'000 | |
| Assets | 21,121 | 4,498 | 370 | 25,989 |
| Liabilities | 1,523 | 840 | 646 | 3,009 |
| Capital expenditure | 4,686 | - | 1,885 | 6,571 |
Segment assets and liabilities are reconciled to Group assets and liabilities as follows:
| At 31 May 2009 | Unaudited Assets | Unaudited Liabilities | ||
| $'000 | $'000 | |||
| Segment assets and liabilities | 21,121 | 1,523 | ||
| Discontinued activities | 370 | 646 | ||
| Unallocated: | ||||
| Other receivables | 621 | - | ||
| Cash | 3,877 | - | ||
| Amounts due to related parties | - | 578 | ||
| Accruals and deferred income | - | 262 | ||
| Total | 25,989 | 3,009 | ||
There was no segment reporting information in the prior period, as the directors considered that the Group's oil and gas exploration activities in Africa were one business segment. The prior year financial statements can be used for the comparatives purposes.
| 6. | Discontinued operations |
As set out in note 4, on 5 December 2008, the Company announced that it proposed to adopt the investing strategy to acquire or invest in businesses or projects operating in the agricultural and associated civil engineering industries in Southern Africa. Consequently the oil and gas activities have been reclassified as a discontinued operation and this segment's trading results are included in the income statement as a single line below the loss after taxation from continuing operations with comparatives restated accordingly.
The results for the discontinued operations as follows:
| Unaudited 2009 | Unaudited 2008 | ||
| $'000 | $'000 | ||
| Operating expenses | (1,463) | (1,018) | |
| Other income | 778 | 311 | |
| Operating loss | (685) | (707) | |
| Finance income | 1 | 2 | |
| Impairment of oil and gas interests | (2,835) | (87,531) | |
| Share of loss of associate | - | (159) | |
| Loss before taxation | (3,519) | (88,395) | |
| Taxation | - | - | |
| Loss after taxation | (3,519) | (88,395) |
| 7. | Earnings per share |
The calculation of the basic and diluted earnings per share is based on the following data:
| Unaudited 2009 | Unaudited 2008 | ||
| $'000 | $'000 | ||
| Loss for the purposes of basic earnings per share (loss for the period attributable to equity holders of the parent) | 3,690 | 89,682 | |
| Loss for the purposes of basic earnings per share from continuing activities | 171 | 1,287 | |
| Loss for the purposes of basic earnings per share from discontinued activities | (3,519) | (88,395) | |
| Number of shares | |||
| Weighted average number of ordinary shares for the purposes of basic and diluted loss per share | 352,921,478 | 347,386,222 | |
| Loss per share | 1.05c | 25.82c | |
| Loss per share from continuing activities | 0.05c | 0.37c | |
| Loss per share from discontinued activities | 1.00c | 25.45c |
Due to the loss incurred in the period, there is no dilutive effect of share options.
| 8. | Share capital |
| Unaudited | |||
| Group and company | |||
| Authorised | Allotted and fully paid | ||
| Ordinary shares of 0.1p each | Number | Number | $'000 |
| At 1 July 2007 | 1,000,000,000 | 347,000,000 | 635 |
| Issue of shares | - | 3,132,688 | 6 |
| At 1 July 2008 | 1,000,000,000 | 350,132,688 | 641 |
| Division of share capital | (155,000,000) | (155,000,000) | (238) |
| Issue of shares | - | 278,688,866 | 398 |
| At 31 May 2009 | 845,000,000 | 473,821,554 | 801 |
| Deferred shares of 0.1p each | |||
| At 1 July 2007 and 2008 | - | - | - |
| Division of share capital | 155,000,000 | 155,000,000 | 238 |
| At 1 July 2008 | 155,000,000 | 155,000,000 | 238 |
| Total share capital | |||
| At 31 May 2009 | 1,000,000,000 | 628,821,554 | 1,039 |
| At 30 June 2008 | 1,000,000,000 | 350,132,688 | 641 |
At the Extraordinary General Meeting held on 11 November 2008, resolutions were passed to amend Article 4 of the Company's Articles of Incorporation to divide the authorised share capital of £1,000,000 into 845,000,000 Ordinary Shares of 0.1p each and 155,000,000 Deferred Shares of 0.1p each. The deferred shares carry no right to any dividend; no right to receive notice, attend, speak or vote at any general meeting of the Company; and on a return of capital on liquidation or otherwise, the holders of the deferred shares are entitled to receive the nominal amount paid up after the repayment of £1,000,000 per ordinary share. The 155,000,000 Ordinary Shares of 0.1p each held by Nile Petroleum Corporation Limited were converted into 155,000,000 Deferred shares of 0.1p each. The Deferred shares may be converted back to Ordinary shares by resolution of the board once complete clarity of title can be given as to the Company's position within Block Ba or an acceptable position within a consortium to develop the enlarged Block B is granted.
The Company has one class of ordinary share which carries no right to fixed income.
On 16 May 2008, the company allotted 3,132,688 ordinary shares of 0.1p each as part of the consideration for the acquisition of PA Energy Africa Limited.
On 5 February 2009 the Company issued 200,000,000 Ordinary shares of 0.1p each as consideration shares for the acquisition of DECA, Compagri, Mozbife and the associated debt from CAMEC plc (see note 9).
On 5 February 2009 the Company issued 78,688,866 Ordinary shares of 0.1p each for cash at 3p per share raising gross cash proceeds of $3.75million to provide funding for the development of its agricultural activities.
Share Options:
At 31 May 2009, the following options over ordinary shares of 0.1p each have been granted to directors and employees and remain unexercised:
| Date of grant | Number of shares | Exercise price | Exercise period |
| 4 February 2005 | 10,000,000 | 10p | 8 February 2005 to 7 February 2010 |
| 3 October 2005 | 1,000,000 | 90p | 3 October 2006 to 2 October 2010 |
| 9 January 2009 | 5,750,000 | 3p | 9 January 2010 to 9 January 2014 |
Once sufficient clarity of title has been established such that the Deferred shares are converted to Ordinary shares, Nile Petroleum Corporation Limited has the right, exercisable at any time, to transfer the remaining interest in Block Ba or in the enlarged Block B to the Company in exchange for the issue of 206,666,667 ordinary shares of 0.1p each.
| 9. | Acquisition of subsidiary |
On 5 February 2009, the Company though its wholly owned subsidiary Agriterra Mozambique Limited, acquired 75 per cent of the issued share capital of DECA, Compagri and Mozbife, together with the debt due from these companies to CAMEC plc. The transaction has been accounted for as a business combination.
| Unaudited On | Unaudited Fair value | Unaudited | |
| acquisition | adjustments | Total | |
| $'000 | $'000 | $'000 | |
| Property plant and equipment | 15,716 | (4,528) | 11,188 |
| Biological assets | 38 | - | 38 |
| Other Current Assets | 2,776 | (604) | 2,172 |
| Cash | 4,987 | - | 4,987 |
| Current Liabilities | (485) | (75) | (560) |
| Debt | (19,052) | - | (19,052) |
|
|
|
| |
| Net Assets Acquired | 3,980 | (5,207) | (1,227) |
| Debt Acquired | 19,052 | ||
| 17,825 | |||
| Satisfied by | |||
| Cash | 2,339 | ||
| Equity (see note 8) | 15,000 | ||
| Issue costs | 486 | ||
| 17,825 |
The fair value of the acquisition was determined by reference to an independent valuation report. The fair value of the consideration paid in equity shares was based on a share price greater than the quoted market price at the date of the acquisition by reference to the net asset value, primarily comprising cash held which was considered to be a reliable indicator of fair value.
Included in the above costs are $40,100 of costs in relation to Baker Tilly Corporate Finance LLP.
Between the date of acquisition and the balance sheet date, DECA, Compagri and Mozbife made a profit before tax amounting to $383,000 on revenue of $4,855,000. Had they been included in the consolidated accounts from the 1 July 2008, revenue would have increased by a further $8,167,000 and the loss before tax would have been reduced by $556,000.
| 10. | Post balance sheet events |
On 28 October 2009, the Company announced that it had placed 63,950,000 Ordinary shares of 0.1p each at a price of 5p per share raising gross cash proceeds of approximately $5.1 million to provide funding for the continued development of its agricultural activities.