Agriterra Ld Regulatory News (AGTA)

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of the European (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Agriterra Limited ('Agriterra' or the 'Company')

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

Trading update

Agriterra Limited, the AIM listed African agricultural company, provides the following unaudited trading update for the period up to March 2021.

This update is provided in advance of the financial statements for the year ended 31 March 2021 which will be issued in due course in accordance with the AIM Rules for Companies. The information and commentary provided is based on unaudited management accounts and other internal performance measures and is subject to concluding the routine annual accounting adjustments as well as any adjustments that arise as a result of the external audit process. The Company expects to release FY21 results in early September.

Highlights

· Grain division sales volume increased 25% on FY 2020 to 25,389 tonnes

· Despite reduced demand (see below), new sales strategies and cost cutting measures implemented by Mozbife are anticipated to produce an expected reduction the reported loss of up to 33% over FY 2020

· Business strategy for FY 2022 aiming to minimise the long-term impacts of the COVID-19 pandemic on business, and improve margins and overall business performance

Grain division

The Company's Grain division has performed better than the previous financial year, with meal sales exceeding FY2020 volumes by more than 5,000 tons (25,389 tons in FY2021 vs. 20,240 tons in FY2020). This has been driven by the ability to maintain our stronghold in the central region of Mozambique and the continued commitment to cater to our clients' needs. The recommissioned 1kg bag packaging line and shift to delivery directly to retailers has begun paying off, as monthly sales increased from a mere 1 ton per month in FY2020 to a high of 20 tons in February 2021. We will continue to develop this offering and expect to realise higher margins during FY2022.

In early 2020 the Company entered into "pre-paid" contracts which were necessary to resolve our short-term cash flow challenges; we completed these as required, but at a lower price than we would have ordinarily achieved on the open market, which resulted in a lower sales margin. Delays in receiving funds in August 2020, forced us to continue buying maize late into 2020, when prices were as much as 30% higher than budgeted, thus negatively impacted sales margins.

The DECA SNAX initiative (production and manufacture of puffed corn snacks for sale into the Mozambican market) began in December 2020, being a joint venture with a Zimbabwean snacks producer. Sales and demand have been increasing steadily to date and the production team is looking to double production, by introducing a second shift, to meet demand.

Beef division

COVID-19 restrictions and a slowdown in the Oil & Gas sector, caused by the pandemic and security issues in the Cabo Delgado province, have negatively impacted the Mozbife performance. Sales volumes were 19% below the previous year with 1,331 tons in FY2021 (FY2020 1,652 tons), but the bottom-line results are expected to be 33% better than 2020. The overall improvement is driven by the aggressive cost cutting and efficiency improvements that management implemented in mid-2020. These initiatives resulted in an 18% reduction in the cost of goods sold per ton of meat sold and an increase in the dress out percentage from 50% to 51.7% (equating to an increase in average meat price by 12%).

Mozbife had implemented three new sales strategies in early 2020, which have continued to pay off and increase the demand for our meat products:

· The Maputo depot opened in October 2020 and sales here have increased to an average of 16 tons per month of mostly carcasses, whilst larger supermarkets and restaurants are now ordering and collecting weekly from this facility;

· Sale of prime cuts to large processors in Maputo, who in the past relied on South African sourced supplies for their meat. This action has resulted in an additional 10 tons of meat sales per month being processed and sold in the local restaurants and supermarkets; and

· Upgrading the factory shop in Chimoio has built a greater awareness of our processed meat products, such as sausages and burgers. This facility has doubled in size and sales now average US$3,000 per day, an increase from US$1,000 in the past.

At the farm level operations, we introduced a new cropping programme to improve our silage production and to increase the use of our existing production assets (land, water and infrastructure). The production of silage from Bana grass is now paying off, with yields exceeding 40 tons per hectare.

A re-branding exercise was initiated in early 2021, which will be fully implemented during FY 2022.

Impact of COVID-19 and the recent surge in violence in Northern Mozambique

COVID-19 has had a significant negative impact globally, both economically and socially. The virus infection rate escalated in Mozambique, following the Christmas holidays and the influx of tourists (local and international). Mozambique saw the number of infected persons quadruple in January 2021 and the government reacted by implementing several restrictions (curfews, limited use of beaches, and stopping any form of grouping of persons). The actions have paid off, as daily infections are now significantly reduced. Our operating companies continue with the training and awareness programmes implemented at the start of the pandemic. The training and practical measures taken to protect staff health have resulted in no significant cases amongst the staff. We remain alert to the fast-changing environment and are prepared to put in place mitigating actions as events develop.

Beef sales have been negatively affected by the pandemic, as most tourist, restaurant and MICE (Meetings, Incentives, Conferences and Events) facilities remain closed or restricted.

Recent news coverage has highlighted the escalation and spread of the four-year conflict taking place in Mozambique's northernmost province, Cabo Delgado (1,500km north of Chimoio). The situation has recently deteriorated, with over 500,000 internally displaced refugees fleeing the affected areas and Oil & Gas projects in the area having been suspended until the Government is able to ensure security for the companies operating in those areas. As such, TOTAL has cancelled all supplier contracts, including the catering support for at least 7,000 staff. This has in turn heavily impacted the Company's beef sales by removing 20 tons of monthly sales.

Outlook for FY 2022

Grain division

Management is looking to buy c.40,000 tons of maize and process this into c.27,000 tons of meal in the new season. FY 2021 has confirmed that our margins remain lower than expected and as such we continued to struggle meeting financial targets. The board and management have agreed to implement three new strategies aimed at improving the margin and overall performance in FY 2022:

· The negotiations are well advanced to secure all working capital finance needed before the end of May 2021 in order to be able to buy maize early in the season, when it is abundant and competitively priced;

· Sourcing more affordable maize by returning to the rural centres, where we will buy maize directly from the farmers, rather than through traders; and

· Drive the sales of the 1kg meal packs, through activations and promotions.

Beef division

The restricted Oil & Gas business in northern Mozambique and the continued COVID-19 measures will continue to negatively impact the business. Management needs to identify new business opportunities to replace these losses. Four strategies are being implemented to address this:

· Introducing stricter cattle buying practises, that will secure better quality animals from farmers and as such reduce the time and costs related to preparing the cattle for the abattoir;

· Beef cuts and preferences are very personal in this market, so we will employ an experienced sales manager to focus on quality and individual needs of the higher income clients;

· Drive more value-added sales in Maputo and Beira, where we will be able to increase the margins earned per ton of meat sold; and

· Re-branding exercise to encourage consumers to seek out our product and demand a local Mozambican product.

Caroline Havers, Non-Executive Chair, commented:

"Recent months have posed numerous challenges to our businesses operating in Mozambique. Despite the significant and broad ranging difficulties, taking all factors into account, I believe that our whole team has performed fantastically to address these challenges. Moreover, the management team have now laid the foundations for positive results in FY2022 and have adopted a strategy which gives every opportunity for successful trading over the next financial year."

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