Market presentation March 2012


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Market presentation March 2012

  1. 1. IMPORTANT This presentation is podcast in full and will be published on our website www.aicoafrica.comPlease use the microphone and identify yourself before askingquestions.Please note that the information provided in thesepresentations is accurate as of the date of the originalpresentation. Presentations will remain posted on this web sitefrom one to twelve months following the initial presentation,but content will not be updated to reflect new information thatmay become available after the original presentation posting. AUDITED This presentation contains forward‐looking statements, that is, GROUP RESULTSstatements related to future, not past, events. Like otherbusinesses, AICO is subject to risks and uncertainties that could for the year endedcause its actual results to differ materially from its projections 31 MARCH 2012or that could cause other forward‐looking statements to proveincorrect. Reported results should not be considered as anindication of future performance. 27 June 2012
  2. 2. CORPORATE PROFILESeed Co  f S d C is Africas  Cottco is the largest  C h l Olivine Oli i is a dominant, largest proprietary seed  cotton processor and  Zimbabwe‐based breeding, production,  marketer in sub‐ manufacturer & processing and  Saharan Africa marketer of fast moving distribution group,  consumer goods operating in 15  (FMCG)countries Please refer to our Group corporate websites for generic  corporate information:‐ i fi
  4. 4. OVERVIEW• We are disappointed with these results Highlights below expectations due to delayed financing affected by fall in lint prices relative to high seed  cotton prices• Seedco continues to perform well and long term  strategy implementation is proceeding well• Olivine’s performance is improving but continuing Olivine s performance is improving but continuing  losses impacted the group’s earnings ….but, we remain committed to this investment• Cottco’s performance was up 80% on the Cottco’s performance was up 80% on the  previous year …but significantly behind budget due to mid‐ season fall in lint prices f ll i li t i• Interest bill is too high and need urgent  correctionOperational growth strategy remains robust and  on track  ….. but capitalisation is a major issue
  5. 5. BUSINESS ENVIRONMENT• Stable local economic environment• ..but access to capital remains problematic• High  borrowing costs• Low inflation• Stable regional economies ..with good growth prospects and low inflation with good growth prospects and low inflation Malawi a concern But recovery looks imminent• Global economy Affected by euro debt crisis Consumption levels forecast to recede Consumption levels forecast to recede China growth is therefore slowing down  Therefore commodity prices softening Volatility in global cotton markets continuing
  7. 7. FMCG• A poor year, losses same as last year Highlights• Business still undercapitalised Sales volume• Borrowings tenures not matching cash  cycles • 11,798 tonnes• Supply chain not full due to loan  • 35% down on LY repayments Sales Revenue• E i Equipment needs replacing t d l i • USD19.2 million• Money was put in last year by both  • 4% higher than LY shareholders• Came too late and in bits and pieces,  merely plugged the ongoing losses• Very strong need to properly recapitalize: Very strong need to properly recapitalize:  Get working capital pipeline filled and free  of debt Start replacing equipment from finishing  Start replacing equipment from finishing end of business
  8. 8. FMCG – strategic decisions taken• Product rationalization – key product range now: oils, edible fats  yp g – margarine and bakers fats, soaps – toilet and laundry, small  range of canned goods, jams and preserves (outsourced)• Cotton plant closed and written off new arrangement is Surface Cotton plant closed and written off, new arrangement is Surface  do cotton seed and we do soyas as our soya plant is still good• Generators installed at finishing plants and warehouses so can  keep going through power cuts• Working toward outsourcing transport•IImportation of soap chips t ti f hi• This is reducing the working capital cycle• Continue to reduce costs and head count Continue to reduce costs and head count• Numbers show us that the injection of working capital will  restore profitability• New equipment will help us become world class which is the  only way we will succeed
  9. 9. COTTON• Volumes down on last year y Highlights• Market share down due to  competitors paying too much for  seed cotton last year• Profits up on last year but way  below budget due to the rapid fall of  b l b d t d t th id f ll f lint prices from early 2011• Serious cost cuts – head count Serious cost cuts  head count,  Revenue R logistics, procurement • USD170.9 million• Avoided counter party risk by selling  • 44% up on LY p y y g p to major players such as Olam and  Profit before tax Cargill • USD6.1 million US 6 • 80% higher than LY
  10. 10. COTTON – strategic issues• Started some corporate farming, will grow next year p g, g y• Current instability in seed cotton marketing must be resolved;  g ginners do not control world markets; first loss is best loss ;• Continuous interrogation of costs in order to be lowest cost  operator• Work with big players like Olam, Cargill, Louis Dreyfuss• Maximizing use of technology:  Cell phone, communication and payments GPS; field sizes, inputs distribution accurate Satellite, crop assessment and forecasting• Regional growth, Malawi, Zambia, Tanzania
  11. 11. SEED• Enjoyed great growth in volumes in  Highlights j y g g FY12• Profit growth good but behind  volume growth due to: Price cutting in a few markets as a  result of increase in stockholdings  result of increase in stockholdings (being managed down)• Problems in Malawi as a result of  Bingu’s confrontation with the  international community• Company is in great shape:• Stock holdings Profit before tax• New factory and research farm in  f d hf • USD23.5 million Zambia • In line with LY
  12. 12. SEED• Research going great guns, new varieties released, “3” series  g gg g , , and “8” series for Kenya Highlands• Management development programs, performance  management etc.• East African expansion on track,  Tanzania, Kenya, Ethiopia, Rwanda etc. h d• West Africa  first steps now taken,  first steps now taken first employee hired,  varieties identified, tested and released.  varieties identified tested and released possible partners identified and DD about to commence• Preliminary work on GMO’s being undertaken Preliminary work on GMO s being undertaken• Cotton seed business growing fast
  13. 13. SEED• Expect growth to continue and possibly accelerate p g p y• New markets are a lot bigger (Strategic views changed from  contiguous view to analysis of populations and demographics)• Increasing spend on Research and Marketing as Co moves to the  next phase of its growth and development
  14. 14. OTHER BUSINESSES• Scottco now sold Scottco now sold deal signed and minor admin details to be taken care of• Exhort still for sale many interested parties but we need to see their money not costing us a lot (security and insurance)
  15. 15. OUTLOOK• We now feel that the group is correctly structured g p y• The key issue is to get the balance sheet in shape• Will be embarking on a capital raise, Cottco debt, Olivine debt  g p , , and later re‐equipping Olivine
  17. 17. BASIS OF PREPARATION•Accounting policies gp – Consistent with those used in prior year Group financial  statements•Presentation – Financial statements are presented in US$, which is the  p , Group’s functional currency•Compliance with IAS/IFRS•Compliance with IAS/IFRS – Compliant•Audit opinion – Clean, with emphasis of matter in respect of going concern  issues in Olivine issues in Olivine
  18. 18. HIGHLIGHTS 9% 9 EBITDA Sales  volumes 5% 30% 16% Revenue Operating  p g Profit • Strong steady growth in revenue and operating profits • But interest bill is a major concern • Diluting earnings and earnings per share
  19. 19. SALES VOLUME 2 5 42 % % %Key Issues• Low intake and sales volumes in Cotton,• Lower sales volumes Working capital and supply chain constraints in FMCG• Good persistent growth in Seed
  20. 20. REVENUE 30 % 39 % 35 %Key Issues• Lint prices were 104% higher in Cotton• Renegotiated lint contracts – “discounted” discounted To avoid structural defaults• FMCG focus on high margin products paying off
  21. 21. INCOME STATEMENT SUMMARY % • Firm prices during the year Mar-12 Mar-11 Change • High production/procurement Sales volumes 180.5 189.9 (5) costs, discounting and low  efficienciesRevenue 293.3 293 3 225.9 225 9 30 • Working capital induced supply Operating profit 38.5 33.2 16 chain constraints and lower Profit before tax 18.1 20.0 (9) volumesProfit after tax 15.4 18.6 (17) • Lower margins than last year, EBITDA 47.6 43.8 9 generallyAttributable earnings 6.2 62 8.9 89 (31) • Includes  Impairment charges of USD5.5m EPS (US cents) 1.16 1.68 (31) Interest charges of USD24.4 m Profit for the year weighed down by: y g y • Corporate overheads 1% down Corporate overheads 1% down  • interest costs, to USD56.7 m (incl.  • impairment charges impairments) • losses in Spinning – USD2.6 m after tax • low throughput and sales volumes and 3% lower (excl. impairments) ( p ) • supply chain inefficiencies • Reversal of tax credit in Cotton  • high seed cotton prices affected overall PAT
  22. 22. MARGINS G oup Cotto Group Cotton Seed FMCG CGGross margins (%)FY2012 31 21 45 1FY2011 39 30 51 8Key issues• Cotton: High seed cotton buying prices vs g y g p declining global lint prices• Seed: Price discounting to capture volume in depressed markets• FMCG: working capital induced supply chain inefficiencies, …but focus on high volume high margin products proving beneficial Group Cotton Seed FMCGGross profit • FMCG margin currently g yFY2012 89.9 89 9 36.1 36 1 53.0 53 0 0.3 03 19%FY2011 89.1 36.7 49.7 1.3 • Need to improve andY-o-y growth (%) 1% (2%) 7% (77%) sustain this
  23. 23. OVERHEADS•Group overheads were USD56.7 m (last year: USD57.5 m) p ( y ) 1% lower than last year • 19% of revenue (LY: 25%) • 15% down on last year Cotton • 11% of revenue (LY: 19%) • Savings in non-recurrent costs • 5% higher than last year • 25% of revenue (LY: 29%) Seed • Costs running ahead of production and sales • 7% lower than last year • 20% of revenue (LY23%) FMCG • …but need significant growth in revenue
  24. 24. IMPAIRMENT Cotton Seed FMCG Spin’g TotalPPE - - 0.6 - 0.6Trade and other receivables - 2.4 - 0.7 3.1Input scheme receivables 1.8 - - - 1.8Investments in subsidiaries - - - - -Total 1.8 18 2.4 24 0.6 06 0.7 07 5.5 55• Impairment provisions charged to income statement amounted to USD5.5 USD5 5 m• USD3.0 m in respect of AICO’s investment in spinning subsidiary charged directly to equity• A further USD2.4 m charged to equity Being impairment of FMCG cotton seed plant – now old and inefficient
  25. 25. INTEREST COST•Group interest costs were USD24.4 m (last year: USD17.2 m) p ( y ) 42% higher than last year • 8% of revenue (LY: 8%) • USD18.5 m • 36% up on llast year Cotton • 11% of revenue (LY: 11%) • Higher seasonal borrowings • USD4.3 m • 49% higher than last year Seed • 4% of revenue (LY: 3%) • High inventory & t d receivables Hi h i t trade i bl • USD2.3 m • 28% up on last y p year •xx FMCG • 12% of revenue (LY10%) • Higher local borrowing costs
  26. 26. PROFITS AND EPS Operating profit up 16% • Propelled by higher revenue and gross profit value • Weighed down by impairments PBT down 10% • Retarded by high interest cost PAT down 15%AE & EPS down 31% • l lower t credits, hi h t tax dit higher tax FY2012 % FY2011 % %• US1.16 cents PBT USD m Cont USD m Cont g Change versus US1 68 LY US1.68 Cotton 6.1 34% 3.4 17% 80%• Lower earnings• Impairments Seed 23.5 130% 23.4 117% 0% FMCG (5.8) (5 8) (32%) (4.5) (4 5) (23%) (29%) Spinning (3.1) (17%) 0.8 4% (388%) Other (2.6) (15%) (3.1) (16%) 61%
  27. 27. EBITDA % FY2012 FY2011 Ch Change Cotton 23.7 17.7 34% Seed S d 29.8 29 8 29.3 29 3 2% FMCG (1.8) (2.2) 18% • EBITDA grew 9% over LY • Generally improving • Seed and Cotton nearly comparable But, interest bill in Cotton is an issue • Weighed down by FMCG and Spinning businesses • Significant improvement in FMCG required Value lost in production Funding, raw material availability and supply chain efficiencies critical
  28. 28. BALANCE SHEET SUMMARY % • Spinning businessAsset category Mar-12 Mar 12 Mar-11change Mar 11 change classified as h ld f l ifi d held forNon-current assets 105.6 104.5 1% sale together with ExhortAssets held for sale 5.3 2.4 120% • Deferred tax assets grew 24% t USD9.6 m to USD9 6Other current assets 201.6 144.8 39% • Deferred tax liabilitiesTotal Assets 312.5 251.7 24% grew 2% to USD26.6 mEquity 124.8 124 8 116.6 116 6 7% • Total borrowingsNon current Liabilities 28.0 33.5 (16%) increased by 49% toLiabilities held for sale 2.9 0.6 383% USD137.7 millionOther Current Liabilities 156.8 101.0 55%Total Equity & Liabilities 312.5 251.7 24% Equity up 7% over last year • Affected by low attributable earnings • USD5 4 m impairment charges via reserves USD5.4
  29. 29. TOTAL ASSETSAsset category Mar-12 Mar-11 % changePPE 105.0 104.2 1%Inventory 81.6 55.7 46%Input SchemesI tS h 29.2 29 2 21.4 21 4 36%Trade receivables 70.2 43.0 63%Other 26.5 27.4 ( ) (3%)Total Assets 312.5 251.7 24%• Total assets grew by 24%• Spent USD17.8 m in capex Last year: USD12.8 m• High inventories and trade receivables Bumper crop in Seed SBU Renegotiated lint contacts in Cotton g• Also, high input scheme advances• Will be run down in new financial year
  30. 30. BORROWINGSTotal borrowings were USD137.7 m• 49% higher than LY g• 60% cheaper offshore loans• Propelled by higher working capital requirements• Does not include USD5.3 m of shareholder loans to FMCG
  31. 31. PERFORMANCE STATISTICS FY2012 FY2011 FY2010Interest cover (times) 1.61 2.10 1.40Equity/total assets 0.40 0.46 0.51Current ratio 1.30 1.45 1.28Quick ratio 0.52 0.53 0.57Return on total assetsR l 13% 14% 8%Return on equity 7% 11% (1%)Return on capital employed 26% 24% 11%•Gearing going up Interest cover weakening Equity/total assets ration going down•Working capital a concern low quick ratio: hi h i l i k ti high inventory l t levels l•Financial returns largely stable•Possible undervaluation of counter
  32. 32. KEY ISSUES – Focus areas Cotton • Reduction of debt levels and annual interest bill • Downward management of inventory levels and Seed collection of outstanding trade receivable g balances • Recovery of sales volumes FMCG • Raw material supply, margin improvement • funding and supply chain efficiencies • Harness supply chain based synergies Group • Fund raising: reduction of Groupwide debt levels and aggregate gearing
  33. 33. THANK YOU
  34. 34. AUDITED  AUDITED DISCUSSIONGROUP RESULTS for the year ended for the year ended 31 MARCH 2012 27 June 2012