Cottco Holdings Limited FY 2013 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 2013 financial results

  1. 1. Abridged Audited Group Results for the year ended 31 March 2013 Directors: B.L. Nkomo; P.St L Devenish*; B. Mudzimuirema*; I. Chagonda; C. Chitiyo; L. Preston; A. Nhau; J.P. Rooney; F. Rwodzi. *Executive 1st Floor, SAZ Building, Northend Close, Northridge Park, Borrowdale, Harare. Box BW537, Borrowdale, Harare, Tel: 263-4-852795, 853054-6, 853059 Fax: 263-4-850705, Email: info@aicoafrica.com
  2. 2. CHAIRMAN’S STATEMENT ECONOMIC OVERVIEW The macro-economic environment remained stable throughout the year. However, there also appeared to be some signs of declining economic activity during the year, although GDP growth was estimated at 9% for the year to December 2012. Inflation remained low at 4.2% (December 2012). Annual inflation to March 2013 was estimated at 2.8% while the inflation outlook for the year to December 2013 remains at 5% or lower. The liquidity crunch that the economy has endured over the years persists. The operating environment, therefore, remains problematic, particularly in the absence of adequate funding to correct, turn around, expand and/or re-equip/modernise operations. There is an apparent resurgence in tobacco and the mining sector (led by the gold, platinum and diamond subsectors) which should help the country's export earnings. However, this will be eroded by the country's overreliance on imports occasioned by inability of local companies to fully supply and support the local market. On the other hand, unemployment is still a major concern although there is a very apparent and exponential growth in informal sector activity. Properly managed and supported, this could significantly support economic recovery initiatives in the country. In the region, Zambia remains largely stable with growth forecasts of about 7% for 2013. In Kenya, elections that were held earlier in the year have been hailed as credible and a new government is now in place. In Malawi, inflation is high, foreign currency shortages persist while elections are due early next year. In Tanzania, the economy continues to perform strongly with the recent discovery of natural gas set to support and drive its economy in the medium to long term. OPERATIONS The Group's operations performed below expectation during the year under review, due to the 34% decline in Seed business profits and posting of losses in both the Cotton and FMCG businesses, although the FMCG business did improve by 53% over prior year losses. Cotton The Cotton business recorded intake volumes of 150,000 tonnes - a 45% growth over last year, while sales volumes grew 42% as a result. However, international lint prices came down significantly from highs of above 240 US cents per pound last year to around 80 US cents per pound. As a result, revenue fell 20% over prior year despite the increase in sales volumes. Below par inputs scheme recoveries resulted in the raising of US$12.0 million of impairment charges against the income statement. This business posted a loss of US$7.8 million as a result. Improvements in inputs scheme recoveries and on-farm yields remain a focus area as does the elimination of core debt which is costing this business approximately US$6.0 million in finance costs a year. Ongoing cost reduction measures are bearing fruit and will continue into the future. However, these benefits continue to be eroded by the high interest bill (this year: US$16.8 million versus US$18.5 million last year). Seed The Seed business suffered a 12% fall in volumes to 59,406 tonnes, mostly as a result of sales volume shortfalls in Seed Co Zimbabwe. Slow payment of trade receivables by key customers together with high inventory levels resulted in interest charges escalating by 73% to US$7.4 million (last year: US$4.3 million). Consequently, profit for the year fell 34.9% to US$12.6 million. Key focus areas in this business are centred around recovery of sales volumes in Zimbabwe, collection of trade receivables and downward management of inventory levels, together with sustaining growth in new territories. FMCG (49.31% share) Despite well documented working capital constraints, the FMCG business recorded a 2% increase in volumes. Revenue improved to US$24.4 million (last year: US$19.2 million). Loss for the year of US$2.0 million improved 53% compared to last year's loss of US$4.2 million, driven by improvements in production throughput and gross margins. Capitalisation of this business, as well as volume and margin growth, remain key priorities. GROUP FINANCIAL PERFORMANCE Group sales volumes rose 18% above last year to reach 213,720 tonnes driven by the 45% improvement in Cotton intake volumes. However, Group revenue of US$263.9 million was 10% lower than last year, largely due to much softer lint prices compared to last year. Aggregate lint prices for the year were 45% lower than prior year. Group gross profit margin rose to 36% (last year: 31%) driven mostly by margin improvements in the FMCG business which recorded an aggregate gross margin of 13% (last year: 1%). Group operating costs of US$73.4 million were 29% higher than last year. Group operating profit of US$24.2 million was 37% lower than last year after accounting for impairment
  3. 3. charges of US$19.2 million. Consequently, loss before tax of US$0.5 million fell 103% relative to last year after charging interest costs of US$25.4 million (last year: US$24.4 million). Higher interest charges are due to higher loan facilities necessitated by the need to increase working capital financing to cope with late payment of trade receivables in the Seed business. Similarly, profit after tax fell 114% to a loss of US$2.1 million this year with attributable earnings falling 209% from US$6.2 million profit last year to a loss of US$6.7 million this year. EBITDA of US$32.7 million is 31% lower than last year. Shareholders' funds and equity fell by 12% and 9% since March 2012, respectively. Capital expenditure for the year amounted to US$10.9 million (last year: US$17.8 million). Of this amount, US$0.8 million and US$9.6 million was spent in the Cotton and Seed businesses, respectively. GROUP RESTRUCTURING The fund raising and group restructuring initiatives announced last year have proved to be protracted. The Company's Board is pursuing these initiatives with some of the discussions and/or negotiations now at a fairly advanced stage. More detailed information will be given in due course. OUTLOOK The Group expects a resurgent performance from the Seed business driven by recovery of sales volumes in Zimbabwe and complemented by growth in the East African business and the establishment of operations in West Africa, although this is still at a prospective stage. Performance in the FMCG business will depend on timely availability of funding. Demand for this company's products is good but consistent and continuous running of the plant to ensure lower unit costs is critical. Cotton business performance will depend on striking a competent balance between intake volumes, inputs scheme recoveries, seed cotton buying prices and the dynamics of global lint prices, as well as procuring a final and lasting resolution to the long outstanding funding issues in this business. Overall, the Group has good prospects for growth in all businesses. However, funding of these businesses, particularly the Cotton and FMCG businesses, is the nexus to realising this potential. DIVIDEND Due to the lower than expected performance by the Group, the directors have not declared a dividend. ACKNOWLEDGEMENTS I wish to extend my gratitude and appreciation and that of the Board to the Group Chief Executive, his management team and staff across the Group for their dedicated service and contribution. I also want to take this opportunity to thank my colleagues on the Board for their valuable contributions and wise counsel. BL Nkomo CHAIRMAN 26 June 2013
  4. 4. Abridged Group Income Statements for the year ended 31 March 2013 Group 31 March 31 March 2013 2012 US$'000 US$'000 Revenue 263,922 293,292 Profit from operations 24,183 38,537 Investment income 552 3,147 Other gains and losses 120 752 Interest expense (25,392) (24,363) (Loss)/profit before taxation (537) 18,073 Income tax expense (1,538) (2,716) (Loss)/profit after tax from continuing operations (2,075) 15,357 Loss from discontinued operations (16) (509) (Loss)/profit for the year (2,091) 14,848 Attributable to: Equity holders of the parent (6,711) 6,156 Non-controlling interest 4,620 8,692 (2,091) 14,848 Basic (loss)/earnings per share (US cents) (1.26) 1.16 Diluted (loss)/earnings per share (US cents) (1.21) 1.11 Abridged Group Statements of Comprehensive Income for the year ended 31 March 2013 Group 31 March 31 March 2013 2012 US$'000 US$'000 (Loss)/profit for the period (2,091) 14,848 Other comprehensive income Impairment charge against revaluation reserve - (2,374) Revaluation of property, plant and equipment 1,208 (196) Exchange differences on translating foreign operations (7,268) (2,995) Income tax on other comprehensive income (311) 662 Other comprehensive loss for the period (6,371) (4,903) Total comprehensive (loss)/income for the period (8,462) 9,945 Total comprehensive (loss)/income attributable to: Equity holders of the parent (9,389) 2,743 Non-controlling Interest 927 7,202 (8,462) 9,945
  5. 5. Abridged Group Statements of Financial Position as at 31 March 2013 Group 31 March 31 March 2013 2012 US$'000 US$'000 ASSETS Non-current assets Intangible assets 20 25 Property, plant and equipment 103,321 105,017 Investment property 332 332 Other financial assets 1,157 268 Other receivables 997 - Total non-current assets 105,827 105,642 Current assets Assets classified as held for sale 1,454 5,318 Other current assets 181,003 201,582 Total current assets 182,457 206,900 Total assets 288,284 312,542 EQUITY AND LIABILITIES Capital and reserves Share capital 5,341 5,341 Capital reserves 21,190 26,515 Retained earnings 46,777 51,695 Equity attributable to equity holders of the parent 73,308 83,551 Non-controlling interest 39,944 41,243 Total equity 113,252 124,794 Non-current liabilities Borrowings 11,805 11,659 Deferred tax liabilities 14,144 16,313 Finance lease liabilities - third party 314 66 Total non-current liabilities 26,263 28,038 Current liabilities Liabilities classified as held for sale 467 2,909 Other current liabilities 148,302 156,801 Total current liabilities 148,769 159,710 Total equity and liabilities 288,284 312,542 Abridged Group Statements of Cash Flows for the year ended 31 March 2013 Group 31 March 31 March 2013 2012 US$'000 US$'000 Cash flows from operating activities Operating cash flows before reinvesting in working capital 31,277 48,535 Movement in working capital 20,931 (47,001) Interest paid (24,090) (22,942) Net taxation paid (5,433) (5,990) Net cash generated from/(utilised in) operations 22,685 (27,398) Net cash outflow from investing activities (11,281) (12,156) Net cash (outflow)/inflow from financing activities (5,422) 15,120 Effect of exchange rate fluctuations on cash held (701) - Increase/(decrease) in cash and cash equivalents 5,281 (24,434)
  6. 6. Group Statements of Changes in Equity for the year ended 31 March 2013 Attributable to equity holders of the parent Minority Total Share Capital Revenue Total Interest Equity Capital Reserves Reserves US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Balance at 31 March 2011 5,313 33,049 42,233 80,595 35,957 116,552 Changes in equity for 2012 Share based payments transactions 28 145 735 908 446 1,354 Acquisition of interest(s) in foreign subsidiary/asociate/joint venture - - 16 16 16 32 Disposal of interest(s) in foreign subsidiary/asociate/joint venture - (1) - (1) (31) (32) Impairment of investment in subsidiary - (3,000) - (3,000) - (3,000) Dividend paid and recieved within the group - - 2,290 2,290 - 2,290 Dividend paid - - - - (2,347) (2,347) Total comprehensive income for the year (net of tax) - (3,678) 6,421 2,743 7,202 9,945 Balance at 31 March 2012 5,341 26,515 51,695 83,551 41,243 124,794 Changes in equity for 2013 Share based payments transactions - 97 - 97 86 183 Acquisition of interest(s) in foreign subsidiary/asociate/joint venture - (45) (50) (95) 95 - Disposal of interest(s) in local subsidiary/asociate/joint venture - (2,454) - (2,454) (822) (3,276) Impairment of investment in subsidiary - - - - - - Dividend paid and recieved within the group - - 1,598 1,598 - 1,598 Dividend paid - - - - (1,585) (1,585) Total comprehensive (loss)/income for the year (net of tax) - (2,923) (6,466) (9,389) 927 (8,462) Balance at 31 March 2013 5,341 21,190 46,777 73,308 39,944 113,252 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 off to the nearest thousand. 2. Accounting policies Accounting policies have been applied consistently with those used in the Group financial statements of AICO Africa Limited for the year ended 31 March 2012. 3. Basis of preparation The basis of preparation of these financial statements is International Financial Reporting Standards (IFRS). 4. Statement of compliance The financial statements have been prepared in conformity with International Financial Reporting Standards. 5. Disposal of a subsidiary At the beginning of the year, the Group disposed of the Spinning business, Scottco (Private) Limited, at a loss amounting to US$10,823, after the subsidiary had been impaired by US$3.0 million in the previous year. As a result of this disposal, the Group's reserves were also adjusted by US$3.3 million. 6. Capital injection in Olivine Holdings (Private) Limited (Olivine) The Group injected additional capital in Olivine amounting to US$5.6 million, raising its shareholding in the company to 49.31% and increasing the total investment to US$12.5 million. 7. Results of discontinued operations In compliance with the requirements of International Financial Reporting Standard 5 (IFRS 5) Non-current Assets Held for Sale and Discontinued Operations, the assets and liabilities of the discontinuing operations amounting to US$1.5 million and US$0.5 million have been included in the Group Statement of Financial Position as 'assets classified as held for sale', and as 'liabilities classified as held for sale', respectively. During the year, discontinued operations recorded a loss amounting to US$16,089 which has been included in the Group Income Statement as '(loss)/profit from discontinuing operations'.
  7. 7. Notes to the financial statements (continued) 7. Results of discontinued operations (continued) The analysis of assets, liabilities and performance of the discontinued operations is shown below. Property, plant and equipment 1,372 1,372 Current assets 15 15 Total assets 1,387 1,387 Deferred tax 439 444 Current liabilities 28 28 Total liabilities 467 472 Net assets 920 915 Revenue - 4,463 Loss from operations (20) (476) Loss for the year (16) (509) 8. Supplementary Information 8.1 Profit from operations is stated after the following impairment losses 31 March 31 March 2013 2012 US$'000 US$'000 Impairment Losses by Operating Segment Operating Segment Cotton Seed FMCG Other Total 31 March 31 March 31 March 31 March 31 March 2013 2013 2013 2013 2013 US$'000 US$'000 US$'000 US$'000 US$'000 Property, plant and equipment - 687 50 - 737 Trade and other receivables 495 3,071 - - 3,566 Inputs scheme receivables 11,980 - 131 - 12,111 Inventory 1,701 - 1,102 - 2,803 Other intangibles 36 - - - 36 Total 14,212 3,758 1,283 - 19,253 Charged to equity - - 50 - 50 Charged to profit and loss 14,212 3,758 1,233 - 19,203 31 March 31 March 2013 2012 US$'000 US$'000 8.2 Depreciation 8,376 8,333 8.3 Capital expenditure 10,931 17,822 8.4 Commitments for capital expenditure Contracted for - - Approved by the Directors but not yet contracted for 16,875 2,385 Total 16,875 2,385 9. Included in the assets classified as held for sale are assets worth US$67,532 relating to the Cotton business. 10. Audit of the financial statements These financial statements have been audited by the Group external auditors, KPMG, and have been extracted from the company's annual report. KPMG has issued an unmodified opinion with an emphasis of matter regarding the going concern status of Olivine Holdings (Private) Limited.

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