Cottco Holdings Limited FY 2009 financial results


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Cottco Holdings Limited leading Agriculture company listed on the Zimbabwe Stock Exchange has released their full year Results . Check out insights into this company in their presentation which appears below.
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Cottco Holdings Limited FY 2009 financial results

  1. 1. OPERATING ENVIRONMENT The year under review was an extremely difficult one. Abridged Results for the Year Ended 31 March 2009 The first half of the year saw an extraordinary acceleration in inflation that peaked at an estimated 600% a day in October 2008. This led to a rapid loss of value in the local currency and significant loss of liquidity for most businesses as well as a severe shortage of cash across the economy. As a result, the second half was characterised by a rapid loss of confidence in the local currency as a mode of payment which, in turn, led to widespread informal use of multiple currencies, and barter trade. Controls over basic commodities prices and exchange rates persisted throughout the year, hurting the profitability of the Group’s local operations. In addition, the introduction of the “zero duty regime” on basic commodities also adversely affected the profitability of local businesses already reeling from the effects of excessive hyperinflation, low capacity utilisation and shortages of power, coal and water. Due to these distortions, suppliers adopted multiple pricing depending on the mode of payment. Furthermore, the distortions gave rise to significant arbitrage opportunities which propelled further growth of the informal sector. These developments led to excessive pricing and unnecessary increases in the cost of production, while at the same time, price controls were maintained on most of the Group’s products. In February 2009, the economy was liberalised. The use of multiple currencies was officially sanctioned by Government. Price controls were dropped while exchange controls were substantially relaxed. However, inadequate foreign currency inflows into the country led to significant liquidity constraints. The world’s major economies were adversely affected by the global financial crisis, which ultimately led to a recession. Global commodity prices fell drastically relative to prior year resulting in both regional and local commodity prices falling, negatively affecting viability of exports out of Zimbabwe. In addition, credit lines became increasingly difficult to access. FINANCIAL PERFORMANCE Change in functional currency During the year, the Group changed its functional currency from the Zimbabwe dollar to the United States dollar (US dollar). The effective date of this change was 1 October 2008. However, this was rolled back to 1 April 2008 for practical reasons. Consequently, the accompanying financial information is presented in US dollars. During the year the Group entered into transactions in different currencies, including the Zimbabwe dollar. Transactions have been recorded based on the originating US dollar values or by converting the original currency values to US dollars using the average market exchange rates applicable in the month of the transaction. The year under review was characterised by acute movements in the Zimbabwe dollar exchange rate relative to the US dollar. While care has been taken to identify the underlying value of all transactions that have been converted from Zimbabwe dollars to US dollars, there could still be some distortions relating to these conversions, particularly in the income statement. Global reach, stronger partnerships 1 Lytton Road, Workington, P O Box 2697, Harare, Zimbabwe; Tel: +263-4-771981-5, 748682-3; Tellular lines: 0912 233547/8; Fax: +263-4-753854, 708573, 707203, 748900 Comparatives Prior year figures have not been presented. It is the view of the Directors that converting transaction sets dated twelve to twenty-four months back may result in potentially misleading information and resultant comparative information would not meet the objective of International Financial Reporting Standard 1 paragraph 1 (c), which is to generate high quality, transparent information at a cost that does not exceed the benefits to users. Consequently a Cash Flow Statement, which is dependent on this comparative information, has not been presented as it would also be potentially misleading as a result. Revaluation of property, plant and equipment The Group’s property, plant and equipment as at 31 March 2009, was valued by independent external valuers. In addition, a Directors valuation amounting to US$5.9 million was carried out as of the same date. Impairment The income statement includes impairment losses of US$15.6 million for the Group, US$12.2 million of which was in the Ginneries business and US$3.2 million in the Seed business. Impairments were in respect of input scheme receivables, trade receivables, inventories as well as property, plant and equipment. Cost of sales During the year, the Ginneries business bought seed cotton at an underlying producer price of US21 cents converted at applicable exchange rates. Upon conversion of actual local currency amounts paid to growers to US dollars, and due to violent fluctuations in exchange rates on a day to day basis, the resultant producer price was understated. Upon review of this, the Directors were of the view that this neither correctly nor fairly represented the cost of buying seed cotton during the year. Accordingly the Directors effected an adjustment to cost of sales whose effect was to increase cost of sales by US$15.0 million and reduce profit before tax by the same amount. Directors’ responsibility statement While the income statement audit opinion may be modified on account of some distortions therein and/or the unique circumstances prevailing in Zimbabwe during the year, in the opinion of the Directors the financial information presented in US dollars herein fairly represents the underlying performance of the Group and its entities for the year ended 31 March 2009 and its financial position as of that date. Accordingly, this will form an appropriate accounting base for the reporting of results in future periods. Audit opinion The audit opinion on the financial statements is modified on the basis that they do not present a true and fair view of the financial status of the Group. The Zimbabwe Accounting Practices Board is putting together guidelines on the wording of the modification on the audit opinion as this will affect the majority of organisations reporting in Zimbabwe. The unique circumstances prevailing in the Zimbabwe economy over the last twelve months have made it impossible to provide meaningful financial reporting in respect of the year. Financial performance Due to the absence of comparative information, the Directors will restrict their analysis and commentary to volumes, except to record that Group revenue for the year amounted to US$120.7 million while profit before tax was US$16.8 million. Attributable earnings for the year were US$7.8 million. OPERATIONS REVIEW Ginnery sales volumes were 26% lower than last year due to the low domestic lint and ginned seed offtake. 23 935 tonnes of ginned seed, delinted seed (5 415) and lint (8 804) were carried forward into the new financial year. The crop intake of 122 000 tonnes was 2.5% higher than last year. Planting seed volumes were 46% lower than last year due to lower production in Zimbabwe. This was caused mainly by grower apathy and unavailability of key inputs. Overall, seed sales volumes for the year were 45 142 tonnes compared to 83 131 tonnes last year. Zimbabwe seed sales volumes were 13 751 tonnes relative to prior year sales volumes of 37 634 tonnes, a decline of 63%. Fast Moving Consumer Goods volumes decreased by 71%. Price controls and the attendant effects on liquidity, working capital adequacy and inconsistent availability of supplies restricted the ability of this business stream from operating at significant capacities. Significant plant rehabilitation work was carried out during the year and we expect plant throughput to increase significantly over prior years. DIVIDEND Due to concurrent operating challenges and attendant uncertainties in the economy, the Directors are of the opinion that it is not appropriate to declare a dividend for the year ended 31 March 2009. PROSPECTS Recent policy changes coupled with the use of fairly stable currencies presents a real opportunity for economic recovery. However, due to concomitant liquidity constraints, the envisaged recovery may be long, slow and painful. Significant improvement in the operating environment will only be achieved once substantial foreign currency flows into the country. In the short term, the Group will focus on improving its competitiveness, volumes and capacity utilisation. The likely recovery of world commodity prices brings with it better prospects for the Group. For and on behalf of the Board P. Sithole CHAIRMAN 17 June 2009 Incorporating 100% 100% 50.86 % 75% 49% 100% Directors: P Sithole (Chairman), H Mapara* (Group Chief Executive), C Chitiyo (Ms), B Mudzimuirema*, A Nhau, B L Nkomo, L Preston. (*Executive) Zambrano Investments (Private) Limited Cottco International Limited 100% COMMENTARY Group Statement of Changes in Equity for the Year Ended 31 March 2009 Notes to the financial statements 1. Presentation The financial statements are presented in United States dollars, which is the Group's functional currency. The financial information presented in United States dollars has been rounded to the nearest thousand. Transactions have been recorded based on the originating US dollar values or by converting the original currency values to US dollars using the average market exchange rates applicable in the month of the transaction. Market exchange rates were determined by reference to the Old Mutual Implied Rate (OMIR). 2. Accounting policies Accounting policies have been applied consistently with those used in the Group financial statements of The Cotton Company of Zimbabwe Limited, prior to the scheme of arrangement. 3. Scheme of arrangement Following the Group's progressive growth, the Group was restructured resulting in the acquisition of the entire issued capital of The Cotton Company of Zimbabwe Limited (Cottco) by a newly established holding company AICO Africa Limited (AICO). Subsequently, AICO was reverse listed on the Zimbabwe Stock Exchange, thus constituting Cottco as a wholly owned subsidiary and establishing AICO as the holding company. Shareholders were alloted 2 AICO shares for every 3 Cottco shares held. As part of the scheme, Cottco, now a wholly owned subsidiary of AICO, then transferred all its investments in subsidiaries and joint venture to AICO. The operative date of the scheme was 1 September 2008. Subsequent to this transaction, effective control of all shareholders and their voting rights remained unchanged. The total net assets of the Group also remained unchanged. 4. Supplementary information 4.1 Cost of sales During the year, the Ginneries operating segment purchased seed cotton in Zimbabwe dollars. The price paid in Zimbabwe dollars at the time had an underlying value of US21 cents per kilogram of seed cotton. Accordingly, the seed cotton has been charged to cost of sales at this price. Had the equivalent cost of seed cotton in United States dollars been determined by converting Zimbabwe dollars at the monthly average rates, cost of sales would have decreased by US$15.0 million. 4.2 Impairment losses Profit from operations is stated after the following impairment losses: Impairment Losses by Operating Segment Operating Segment Ginneries Seed Other Total 31-Mar-2009 31-Mar-2009 31-Mar-2009 31-Mar-2009 US$'000 US$'000 US$'000 US$'000 Trade receivables - 1,257 95 1,352 Input scheme receivables 7,338 - - 7,338 Inventories 4,810 563 - 5,373 Property, plant and equipment - 1,416 - 1,416 Other 72 - - 72 Total 12,220 3,236 95 15,551 4.3 Revaluation of property, plant and equipment In accordance with the Group's accounting policy on property, plant and equipment, the assets in Zimbabwe were revalued by independent external valuers on 31 March 2009, except regional operations where the Directors felt they were fairly valued. The revaluation resulted in a Group revaluation surplus of US$7.1 million. Property, plant and equipment amounting to US$5.9 million was valued by the Directors. The method of valuation applied was consistent with that adopted by the independent valuer. 31-Mar-2009 US$'000 4.4 Depreciation 7,850 4.5 Capital expenditure 5,030 4.6 Commitments for capital expenditure Contracted for 291 Approved by the Directors but not yet contracted for 15,127 Total 15,418 Attributable to Equity Holders of the Parent Share Minority Total Capital and Revenue Total Interest Equity Reserves Reserves US$'000 US$'000 US$'000 US$'000 US$'000 Balance at 1 April 2008 83,642 25,738 109,380 17,486 126,866 Changes in equity for the year Share based payment transactions 3,777 - 3,777 99 3,876 Revaluation of property, plant and equipment (1,516) - (1,516) 8,601 7,085 Deferred taxation on revaluation 618 - 618 (2,465) (1,847) Exchange differences arising from change in functional currency (34,378) - (34,378) (1,652) (36,030) 52,143 25,738 77,881 22,069 99,950 Profit for the year - 7,774 7,774 7,552 15,326 Balance at 31 March 2009 52,143 33,512 85,655 29,621 115,276 Abridged Group Income Statement for the Year Ended 31 March 2009 31-Mar-2009 US$'000 Revenue 120,677 Profit from operations 26,886 Investment income 275 Other gains/(losses) (1,350) Finance costs (8,966) Profit before taxation 16,845 Income tax expense (1,519) Profit for the year 15,326 Attributable to: Equity holders of the parent 7,774 Minority interest 7,552 15,326 Basic earnings per share (US cents) 1.47 Diluted earnings per share (US cents) 1.42 Abridged Group Balance Sheet as at 31 March 2009 31-Mar-2009 US$'000 ASSETS Non-current assets Property, plant and equipment 132,770 Investment property 1,141 Investment in associate 65 Deferred tax assets 1,629 Total non-current assets 135,605 Total current assets 78,934 Total assets 214,539 EQUITY AND LIABILITIES Capital and reserves Shareholders’ funds 85,655 Minority interest 29,621 Total equity 115,276 Non-current liabilities Borrowings 189 Deferred tax liabilities 41,218 Total non-current liabilities 41,407 Current liabilities 57,856 Total equity and liabilities 214,539