I am pleased to present my report for the year ended 31 March 2012.
The macroeconomic environment was ge...
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AICO Holdings Limited FY 2012 results


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AICO Holdings Limited FY 2012 results

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AICO Holdings Limited FY 2012 results

  1. 1. I am pleased to present my report for the year ended 31 March 2012. ECONOMIC OVERVIEW The macroeconomic environment was generally stable during the year under review and is likely to remain the same for the foreseeable future. The economy is showing signs of slow but steady growth. GDP growth to December 2011 is estimated at 8.9% with a further 9% growth expected in the year to December 2012. Inflation has remained, and continues to be, relatively low - within the 5% range year-on-year. However, power tariff increases effected during the year together with imported inflation, especially from South Africa, continue to exert upward pressure on the country's inflation outlook. However, concurrent liquidity challenges coupled with problematic access to capital remain considerable bottlenecks to recovery of business and the economy generally. The Euro-debt crisis has not abated as quickly as originally thought. Consequently, and together with attendant reduction in consumption, some commodity prices have softened. Lint prices that hit record highs of US$2.20 per pound in March 2011, fell to US$1.00 per pound in March 2012 before receding further to US$0.82 per pound at the end of May 2012, and are still falling! Power shortages remain a real problem and, in the absence of a sustainable resolution of this issue, competitiveness and recovery of businesses (especially in the manufacturing sector) will continue to be retarded. The recent increases in the price of fuel will exert upward pressure on logistical costs and operating costs generally, the full impact of which is still to be felt. OPERATIONS The Group's operations experienced mixed fortunes during the year under review. The Seed business continued to do well and recorded a 9% growth in after tax profits to US$19.1 million. Sales volumes grew by 22% over last year to 67,241 tonnes and the new markets in Tanzania, Kenya and Ethiopia continue to grow and should start contributing to the Group's results more significantly in the next few years. However, the above average seed production over the last 2 years has resulted in a build-up of inventories and trade receivables, both of which will be managed down in the course of the new year. The Cotton business posted a profit for the second year running. Nevertheless, this business continues to be weighed down by the heavy debt burden. Interest charges for the year grew to US$18.5 million compared to US$13.6 million last year. This is largely due to the extra borrowing requirements arising from the rise in seed cotton buying prices, propelled as they were by record high lint prices. Intake volumes, however, fell by 7% to 103,224 tonnes. Aggregate lint prices were 104% higher than last year but anticipated benefits were eroded by equally higher seed cotton buying prices which, regrettably, did not recede in sympathy with declining global lint prices. Consequently, revenue rose 44% to US$170.9 million while profit before tax rose by 80% to US$6.1 million. Operating costs were, however, 15% lower than last year. The FMCG business continues to be affected by inadequate working capital and, in particular, liquidity induced supply chain constraints and inefficiencies. Funding that was, in principle, required at the beginning of last year was availed after 16 months - albeit in piecemeal fashion. Consequently, sales volumes declined by 35%, while intermittent running of the plant resulted in suboptimal efficiencies, high unit costs of production and loss of margins. Accordingly, the business recorded a loss before tax of US$5.8 million (last year: US$5.6 million). Due to the accumulation of these losses, coupled with delayed funding of the business, a further capital injection will be required to get this business on its feet. We are currently engaging our counterparty shareholders in this business with a view to ensuring that required funding is injected timeously as a basis of sustainably lifting the fortunes of this business. Efforts are still on-going for the sale of the spinning and frozen vegetables businesses. The spinning business is almost sold and we expect agreements to be signed soon. Interest in Exhort continues to be very strong but suitors appear unable to follow through with required funding due to liquidity issues in the local market. GROUP FINANCIAL PERFORMANCE During the year under review, the Board approved impairment charges of US$10.9 million including US$3.0 million against the Groups investment in the Spinning business. US$5.5 million of these impairments were charged directly to the Group income statement. The balance of US$5.4 million was charged to equity. Group sales volumes fell 5% relative to last year due, mainly, to a decline in sales volumes experienced in the Cotton and FMCG business. Nevertheless, Group revenue of US$293.3 million was 30% higher than last year - courtesy of higher lint prices compared to prior year. Gross profit margin fell to 31% (last year: 39%) weighed down by the Cotton and FMCG businesses that recorded gross margins of 20% (last year: 30%) and 1% (last year: 8%), respectively. Margin losses in the Cotton business were due to inordinately high prices paid for seed cotton relative to declining global lint prices. The FMCG gross margin was affected, in the main, by inconsistent availability of raw materials, lack of funding and concomitant supply chain inefficiencies. Overall, gross margin value of US$89.9 million was 1% higher than last year on account of higher aggregate revenue. Group operating costs were 1% lower than last year. Key savings were in non-recurring redundancy costs (US$2.7 million) charged against income last year. Group operating profit of US$38.5 million was 16% higher than last year, after accounting for impairment charges of US$5.5 million. However, profit before tax of US$18.1 million was 10% behind last year, after charging interest costs of US$24.4 million (last year: US$17.2 million), and accounting for pretax losses of US$3.1 million for the spinning business and US$5.8 million for the FMCG business. Interest income for the year amounted to US$3.1 million (last year: US$1.1 million). Consequently, profit after tax fell 15% to US$14.8 million with attributable earnings falling 31% from US$8.9 million last year to US$6.2 million this year. Earnings per share fell 31% to 1.16 cents per share this year. Shareholders' funds and equity rose by 4% and 7%, respectively. Capital expenditure for the year amounted to US$17.8 million (last year: US$12.8 million) and total assets of US$312.5 million grew by 24% over last. Net cash utilised in operations amounted to US$27.4 million. Net increase in loans during the year amounted to US$17.4 million and is driven, in the main, by build up of inventory and trade receivable balances. Going forward, stock reduction and diligent management of the debtors’ book will be critical in containing growth of aggregate loan exposures in the Group. TREASURY After about a year of discussions, negotiations on a transaction that would have seen injection of cash into AICO and, subsequently, other Group operations collapsed. Accordingly, the Board is considering other options for resolving the funding issues within the Group and will advise the market of final agreed proposals in due course. OUTLOOK We expect continued strong performance from the Seed business underpinned by growth of the East African businesses together with establishment of operations in West Africa though this is still at the prospective stage. Performance in the FMCG business will depend on timely availability of funding and uninterrupted plant operations. Demand for the company's products is good but consistent and continuous running of the plant to ensure lower unit costs will be critical. In turn, this will facilitate better margins and constant shelf presence and, with it, much improved financial performance. Considering present volatility in the global cotton industry, performance in the Cotton business will depend on striking a competent balance between growth in intake volumes, seed cotton buying prices and the dynamics of global lint prices in the first instance. Thereafter, the high interest bill will continue to weigh down this business until the attendant capital structure issues are resolved. Equally, concurrent cost reduction and efficiency improvements together with a sustainable improvement in intake volumes will guarantee required operating efficiencies and further improvements in profit. Overally, the Group has very good prospects for growth in all its businesses. However, funding issues, especially in the Cotton and FMCG businesses, will have to be resolved and timeously executed for this potential to be realised. Accordingly, we look to the support of our shareholders and other stakeholders as we work on procuring required funding for the Group. DIVIDEND Due to the prevailing liquidity challenges, and in consideration of the need to reduce borrowing costs throughout the Group, the Directors have not declared a dividend. ACKNOWLEDGEMENTS I wish to extend my sincere appreciation and that of the Board to the Group Chief Executive, his management team and staff across the entire Group for their invaluable service and contribution. I also want to take this opportunity to thank my colleagues on the Board for their wise counsel and continued support. BL Nkomo CHAIRMAN 27 June 2012 Directors: BL Nkomo (Chairman), P St. L Devenish* (Group Chief Executive), I Chagonda, CC Chitiyo (Ms), BC Mudzimuirema*, AF Nhau, LF Preston, JP Rooney, F Rwodzi (*Executive) ADrenalinAdvertising984427 CHAIRMAN'S STATEMENT ABRIDGED GROUP INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2012 Restated 31 Mar 31 Mar 2012 2011 US$'000 US$'000 Revenue 293,292 225,939 Profit from operations 38,537 33,245 Investment income 3,147 1,066 Other gains 752 2,906 Finance costs (24,363) (17,199) Profit before taxation 18,073 20,018 Income tax expense (2,716) (1,450) Profit after tax from continuing operations 15,357 18,568 Loss from discontinued operations (509) (1,089) Profit for the year 14,848 17,479 Profit attributable to: Equity holders of the parent 6,156 8,946 Non-controlling Interest 8,692 8,533 14,848 17,479 Weighted number of shares in issue 532,673 530,650 Basic earnings (loss) per share (US cents) 1.16 1.68 Diluted earnings (loss) per share (US cents) 1.12 1.62 ABRIDGED GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2012 31 Mar 31 Mar 2012 2011 US$'000 US$'000 Cash flow from operating activities Operating cash flow before reinvesting in working capital 48,535 41,732 Movement in working capital (47,001) (44,285) Net finance costs (22,942) (16,562) Taxation paid (5,990) (9,842) Net cash utilised in operations (27,398) (28,957) Net cash outflow from investing activities (12,155) (8,928) Net cash inflow from financing activities 15,120 11,871 Decrease in cash and cash equivalents (24,433) (26,014) ABRIDGED GROUP STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH 2012 31 Mar 31 Mar 2012 2011 US$'000 US$'000 ASSETS Non-current assets Property, plant and equipment 105,017 104,203 Investment property 332 310 Other financial assets 268 - Intangible assets 25 9 Investment in associate - 39 Total non-current assets 105,642 104,561 Current assets Assets classified as held for sale 5,318 2,402 Other current assets 201,582 144,772 Total current assets 206,900 147,174 Total assets 312,542 251,735 EQUITY AND LIABILITIES Capital and reserves Shareholders' funds 83,551 80,595 Non-controlling interest 41,243 35,957 Total equity 124,794 116,552 Non-current liabilities Borrowings 11,659 14,480 Deferred tax liabilities 16,313 18,793 Finance lease liabilities 66 194 Total non-current liabilities 28,038 33,467 Current liabilities Liabilities classified as held for sale 2,909 640 Other current liabilities 156,801 101,076 Total current liabilities 159,710 101,716 Total equity and liabilities 312,542 251,735 GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2012 Attributable to equity holders of the parent Minority Total Share Capital Revenue Total Interest Equity Capital Reserves Reserves US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Balance at 31 March 2010 - 52,536 29,919 82,455 32,117 114,572 Changes in equity for 2011 Share based payment transactions 2 810 - 812 307 1,119 Redenomination of share capital 5,311 (7,172) - (1,861) (95) (1,956) Acquisition of interest(s) in foreign subsidiary - 745 576 1,321 (1,129) 192 Dividend paid and received within the group - - 1,352 1,352 - 1,352 Dividend paid - - - - (1,321) (1,321) Total comprehensive income for the year (net of tax) - (13,870) 10,386 (3,484) 6,078 2,594 Balance at 31 March 2011 5,313 33,049 42,233 80,595 35,957 116,552 Changes in equity for 2012 Share based payment transactions 28 145 735 908 446 1,354 Acquisition of interest(s) in foreign subsidiary - - 16 16 16 32 Disposal of interest(s) in foreign subsidiary - (1) - (1) (31) (32) Impairment of investment in subsidiary - (3,000) - (3,000) - (3,000) Dividend paid and received 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 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 2011. 3. Basis of preparation The basis of preparation of these financial statements is the International Financial Reporting Standards (IFRS). 4 Statement of compliance The financial statements have been prepared in conformity with International Financial Reporting Standards. 5 Results of discontinued operations In compliance with the requirements of International Financial Reporting Standards 5 (IFRS 5), the assets and liabilities of the discontinued operations amounting to US$5.2 million and US$2.9 million have been included in 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 of US$0.5 million which has been included in the Group Income Statement as 'loss from discontinuing operations'. The analysis of assets, liabilities and performance of the discontinued operations is shown below. 31 Mar 31 Mar 2012 2011 US$'000 US$'000 Property, plant ad equipment 3,207 2,223 Current assets 1,983 70 Total assets 5,190 2,293 Deferred tax 444 612 Current liabilities 2,465 28 Total liabilities 2,909 640 Net assets 2,281 1,653 Revenue - 464 Profit/(loss) from operations 477 (1,060) Loss for the year (509) (1,089) 6. Supplementary Information 6.1 Profit from operations is stated after the following impairment losses Impairment Losses by Operating Segment Operating Segment Cotton Seed FMCG Spinning Other Total 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 2012 2012 2012 2012 2012 2012 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Property, plant and equipment - 41 3,028 - - 3,069 Trade and other receivables 25 2,369 - 655 - 3,049 Inputs receivables 1,764 - - - - 1,764 Impairment of investment in subsidiary - - - - 3,000 3,000 Total 1,789 2,410 3,028 655 3,000 10,882 Charged to equity - - 2,374 - 3,000 5,374 Charged to profit 1,789 2,410 654 655 - 5,508 31 Mar 31 Mar 2012 2011 US$'000 US$'000 6.2 Depreciation 8,333 7,650 6.3 Capital expenditure 17,822 12,776 6.4 Commitments for capital expenditure Contracted for - 3,961 Approved by the Directors but not yet contracted for 2,385 3,160 Total 2,385 7,121 ABRIDGED GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2012 31 Mar 31 Mar 2012 2011 US$'000 US$'000 Profit for the period 14,848 17,479 Other comprehensive income Impairment charge against revaluation reserve (2,374) (2,952) Transfer to revaluation reserve (196) (14,618) Transfer from revaluation reserve - (3) Exchange differences on translating foreign oparations (2,995) (26) Prior year inventory adjustment - (849) Income tax related to components of other comprehensive income 662 3,563 Other comprehensive loss for the period (4,903) (14,885) Total comprehensive income for the period 9,945 2,594 Total comprehesive income/(loss) attributable to: Equity holders of the parent 2,743 (3,484) Non-controlling Interest 7,202 6,078 9,945 2,594 Abridged Group Audited Results for the Year Ended 31 March 2012