AICO analyst presentation - 31 March 2011

AUDITED GROUP RESULTS

for the year ended31 MARCH 2011

AGENDA

•Introduction and Overview

•Business Environment

•Operations Review

•Financial Review

•Outlook

•Discussion

INTRODUCTIONAND

OVERVIEW

INTRODUCTION & OVERVIEW•Have substantially better results this year•Future looks bright•Have turned around in Cottco•…and looking ahead to further growth

•Seed Co is doing very well•…with volume, revenue and profit growth throughout

•Olivine still has challenges•…mostly funding related•These are being resolved •… so we expect good performance in future

• Disposing of sub-scale units•Progress to date is slow, but interest is good

BUSINESSENVIRONMENT

BUSINESS ENVIRONMENT

•Stable macro-economic environment•Y-o-y inflation for March 3%•Modest economic growth recorded•…. But access to capital still problematic

•Bank deposits rose steadily during the year•…but will be retarded by shortage of capital

•Liquidity remains a major concern•…and tightened in 2nd half of the year•Therefore, cost of borrowings remains high

•Power shortages remain unresolved

Local Perspective


•Manufacturing output still low•Access to capital a major constraint•Industry competitiveness still very low, generally•Potentially rising US dollar inflation •..a major concern•…civil service salaries will be a major determinant

•Agro- sectors are steadily recovering•…and crop production is increasing

Local Perspective (Cont’d)


•Relatively, low inflation in SADC/COMESA•…but Malawi economy highly volatile

•Vibrant economies through out•Zimbabwe showing signs of recovery, albeit slowly•Malawi stung by high sovereign risk following recent developments in that country

•Strengthening Rand a major challenge•Re: imported inflation into regional economies•…resulting in loss of competitiveness

• Strong prospects for agro sectors

Regional Perspective


•Major economies now moving out of recession•Commodity prices have improved•Global agro-commodity prices are firming•Weather induced supply constraints are a factor•Global lint prices rose to record high prices

•US260 cents/pound in April 2011 (Jun 2011: US140/lb)

•Crude oil costs remain high•…and there will be pressure on transport costs

• Firm global focus on agriculture in Africa•Prospects for funding and growth are high

Global Perspective

OPERATIONS

OPERATIONS REVIEW

•National crop recovered to 268 000 tons (LY:210 000)•Intake volumes grew 13% to reach 111 075 tons•Market share fell to 41%•Working to recover lost ground

Cotton

Cottco National Crop - 50

100 150 200 250 300

80

198 135

260

119

254

123

230

98

211

111

268

139

273

Intake and Crop Production Volumes

(in ‘000 tonnes)

FY2006 FY2007 FY2008 FY2009FY2010 FY2011 FY2012 (Fcst)

Axis Title

FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 (Fcst)

30.0%35.0%40.0%45.0%50.0%55.0%60.0%

40.3%

51.8%

46.9%

53.0%

46.5%41.4%

51.0%

Market share

OPERATIONS REVIEW

•Revenue was 38% higher than last year• due to increase in lint volumes•….and firmer lint prices

•Lint stocks sold out before, high 3rd/4th Quarter prices•Volumes affected by low carryover stocks

Cotton

FY2007 FY2008 FY2009 FY2010 FY2011 -

20.0

40.0

60.0

80.0

100.0

120.0

140.0

102.1

69.8 72.5

124.9 114.3

Cotton Sales Volumes (in '000 tonnes)

FY2009 FY2010 FY20110

20

40

60

80

100

120

78.8 77.8

103.8

Cotton Revenue (US$ millions)

OPERATIONS REVIEW

•SI 142(of 2009) amended during the year•Will consolidate industry viability and orderliness

•Invested US$11.7 m in inputs (LY: US$10.9 m)•Had budgeted to spend over US$15m•Slowed down to reduce effect of side marketing•Carried over US$7.0 m of inputs stocks

•Carried out a voluntary retrenchment exercise•Reduced permanent numbers from 540 to 220•Now have leaner and more cost effective structure•Paid US$2.7 m in severance costs

Cotton

OPERATIONS REVIEW

•Despite receding prices, lint prices are still favourable•Good basis for bigger crop and intake volumes•…plus further improvement in profits

•Recorded a US$13.5 million turnaround•…and looking up

Cotton

OPERATIONS REVIEW

•Seed sales volumes increased in all SBU’s•Aggregate growth in sales volumes = 15%•Revenue grew by 27% to reach US$98 m•Maize and cotton seed the biggest contributors

Seed

FY2009 FY2010 FY20110

20

40

60

80

100

120

53.9

77.0

97.8

Seed Revenue (US$ million)

FY2007 FY2008 FY2009 FY2010 FY2011 -

10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

61.7

83.1

45.1 47.9 55.1

Seed Sales Volumes('000 tonnes)

OPERATIONS REVIEW

•Seed production increased by 45%•More hectarage allocated to hybrid seed•….and better yields

•Production bottlenecks have been resolved•Well positioned to meet regional demand•…expect steady and persistent growth in volumes

Seed

OPERATIONS REVIEW

•Strong regional demand for cotton and soya bean seed•Marketing functions strengthened across the Group•Market leader in key markets

Seed

Seed Co2nd Biggest Competitor

Zimbabwe 70% 10% 7.0 Zambia 50% 17% 2.9 Malawi 50% 23% 2.2 Tanzania 46% 11% 4.2

Relative Market share

Market shareMarket

OPERATIONS REVIEW

•Seed production activity in East Africa in intensifying•Demand for Seed Co’s varieties continues to grow•Market prospects for Tanzania and Ethiopia are bright

•PAT increased 30% to US$17.4 m•Provided for RBZ credit losses: US$4 m•included profit on disposal of property: US$2 m

•Commissioned new plant in Zambia•New plant for Malawi on course•New acid-delinting plant for Quton Tanzania approved

Seed

OPERATIONS REVIEW

•Suffered from liquidity and working capital constraints•Resulted in low production levels•…and stagnation of sales volumes

•Revenue of US$18.3m was 23% higher than prior year•…benefited from relatively firmer prices

FMCG

FY2007 FY2008 FY2009 FY2010 FY2011 -

5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 40.8

14.5 9.3

18.4 18.3

FMCG Sales Volumes(‘000 tonnes)

FY2009 FY2010 FY201102468

101214161820

2.6

14.3

18.3

FMCG Revenue(US$ millions)

OPERATIONS REVIEW

•Working capital cycle is long•Affected by funding constraints•Can be shorter with adequate resourcing

•Short term funding a limiting factor•Need longer term funding•To cope with long working capital cycle

•Recorded loss before tax of US$4.5 m (LY: US$3.5 m loss)•Due to low margins – low throughput levels•…and high operating costs relative to revenue

FMCG

OPERATIONS REVIEW

•Capacity utilisation and Market share still low•Volumes and shelf availability affected by working capital constraints•To improve post-funding•To engage consultants to help establish market share statistics

•Demand for Olivine products is strong•Strong top of mind awareness

•Will record a profit in the new year•Subject to timely availability of funding

FMCG

OPERATIONS REVIEW

•Shareholders have now agreed to put in the required funding•US$10 m by end of June 2011•US$5 million by end of July 2011•…to be used for working capital•…and debt restructuring

•Good competitive position against imports•…albeit at lower margins•..which can improve with higher throughput

•Very good prospects going forward.

FMCG

OPERATIONS REVIEW

•Disposal in progress•Yarn prices lagged lint prices for most of year•Resulted in marketing and profitability problems•Therefore volumes were low

•Business put into care and maintenance•To avoid addition borrowings and attendant costs

•Otherwise,•Volumes were in line with last year•Revenue of US$6.2 m was 6% higher than prior year

•Profit for the year was US$0.8 m (LY:US$0.8 m)•No outstanding loans as at 31 March 2011.

Spinning

FINANCIALREVIEW

FINANCIAL REVIEW

•Accounting policies–Consistent with those used in prior year Group financial statements

•Presentation–Financial statements are presented in US$, which is the Group’s functional currency

•Compliance with IAS/IFRS–Compliant

•Audit opinion–Clean, but may be modified in respect of going concern issues in Olivine

Basis of preparation

FINANCIAL REVIEWHighlights

Revenue

Sales volumes

2%

29 % 160 %

309 %

FINANCIAL REVIEW

•Sales volumes stagnated in FY2011•Went down in Cotton – low intake and carry over stocks•Working capital contraints in FMCG

•..But trending upwards generally•Revenue rising steadily – 29%•Average selling prices rising – 31% higher than LY

•And 18% higher than FY2009

Volume and Revenue

FY2007 FY2008 FY2009 FY2010 FY2011 -

50.0

100.0

150.0

200.0

250.0 207.6

169.9

129.0

193.6 190.2

Group Sales Volumes

Sale

s Vo

lum

es (

‘000

ton

nes)

FY2009 FY2010 FY20110

50

100

150

200

250

120.7

162.9

210.6

Group Revenue (US$ mil-lion)

Reve

nue

(US$

mill

ion)

FINANCIAL REVIEW

•Cotton and Seed are the dominant SBU’s•…but no major shift in contribution to revenue

•Working on enhancing contribution of FMCG•Expect 3 similar size businesses in 2 years•Despite high revenue contribution,

•Cotton earnings contribution is too low•Will correct in next 18 months

Revenue – Segment Review

Cotton; 103.73185204;

46%Seed ; 97.825504455

3596; 43%

FMCG; 18.26198598;

8%

Spinning; 6.23283787; 3%

Revenue Contribution: March 2011

Cotton Seed FMCG Spinning

Cotton; 77.77; 44%Seed;

76.99; 44%

FMCG; 14.251; 8%

Spinning; 5.896; 3%

Revenue ContributionMarch 2010

Cotton Seed FMCG Spinning

FINANCIAL REVIEW

•Revenue up 29%

•38% Cotton•27% Seed•23% FMCG•6% Spinning

•Gross margin up to 41% (LY: 33%)

•Cotton 32%•Seed 51%•FMCG 8%•Spinning 35%

Income StatementMar-11 Mar-10

Revenue 210.6 162.9 Operating profit 33.2 12.8 Profit before tax 20.0 4.9 Profit after tax 18.6 4.5 Discontinued operations (1.1) (2.1) Net profit for the year 17.5 2.4 Attributable earnings 8.9 (4.3) EPS - cents 1.68 (0.80)

FINANCIAL REVIEW

•Operating profit up 160%•PBT up 311%•US$13.5 m turnaround in Cottco•US$4.5m loss in FMCG

•US$13.2 m increase in AE (309% incr.)

Income StatementMar-11 Mar-10

Revenue 210.6 162.9 Operating profit 33.2 12.8 Profit before tax 20.0 4.9 Profit after tax 18.6 4.5 Discontinued operations (1.1) (2.1) Net profit for the year 17.5 2.4 Attributable earnings 8.9 (4.3) EPS - cents 1.68 (0.80)

FINANCIAL REVIEW

•Significant improvement in Cotton•Steady persistent rise in Seed•Working on improving FMCG performance

Profit Analysis

Group Cotton Seed FMCG Spinning Other

-15

-10

-5

0

5

10

15

20

2.4

-8.9

13.4

-1.2 -1.7

0.109

17.5

6.8

17.4

-4.6

0.3 0

Analysis of PAT by SBU

PAT 2010 PAT 2011

Profi

t af

ter

tax

(US$

mill

ion)

FINANCIAL REVIEW

•Notable improvement in Cotton business•FMCG went down•Work is in progress to bring this back to profit

•Spinning contribution is small•..but still a good indicator

Profit – Segment Review: PBTy-o-y

growthCotton 2 514 12.6% (9 896) -203% 125%Seed 22 955 114.7% 18 013 370% 27%FMCG (4 514) -22.6% (1 472) -30% -207%Spinning 745 3.7% (2 196) -45% 134%Other (329) -1.6% 426 9% -177%Unallocated Cons. Adjustments (1 352) -6.8% - 0%Total PBT 20 019 100.0% 4 874 100% 311%

Mar-11 Mar-10

FINANCIAL REVIEW

•EBITDA rose 95% to reach US$43.6 m•535% increase in Cotton, ..and 43% in Seed

•Notable improvements in EBITDA margin•Static FMCG performance•Set to improve with injection of funding

EBITDA

Group Cotton Seed FMCG Spinning

(10.0)

-

10.0

20.0

30.0

40.0

50.0

25.0

2.8

19.6

(0.1) (2.1)

43.6

17.7

28.1

-1.1

1.2

Analysis of EBITDA by SBU

EBIT

DA

(US$

mill

ion)


-40%-30%-20%-10%

0%10%20%30%40%

16%2%

26%

-6%

-35%

21% 17%29%

-6%

19%

Analysis of EBITDA Margin

EBITDA Margin - 2010 EBITDA Margin - 2011

EBIT

DA

Mar

gin

(%)

FINANCIAL REVIEW

•Total assets up 12%

•marked down Olivine PPE by US$12 m•Capex = US$12.8 m

•Increased stocks and receivables

•Reduced after year end

•Deferred tax asset of US$7m

•Cotton US$6m

Balance SheetMar-11 Mar-10

PPE 104.2 116.8 Other - current assets 0.3 0.8 PPE & Non-current assets 104.5 117.6 Curent assets 147.2 107.1 Total Assets 251.7 224.7 Total Equity 116.6 114.6 Non-current liabilities 33.5 26.2 Current borrowings 47.4 48.5 Other current liabilities 54.2 35.4 Total equity and liabilities 251.7 224.7

FINANCIAL REVIEW

•Equity up by 1.7%•Revaluation reserve down by US$14.6 m

•Redenominated share capital – US$5.3 m



FINANCIAL REVIEW

•Total borrowings = US$92 m

•Increased by US$34m

•Seed US$22m•FMCG US$4m•Cotton US$ 8m

•Incl. o/drafts of US$30m

•Seed US$23m•Cotton US$6m

•Accessed US$15m in l/term debt •Core debt down by US$20m



FINANCIAL REVIEW

•12% growth in assets•Reasonable improvement in ROTA•Need to increase volumes to harness further improvements•…especially in FMCG

Asset Performance

Group Cotton Seed FMCG Spinning -

50.0 100.0 150.0 200.0 250.0 300.0

Analysis of Total Assets by SBU

Total assets - FY2010 Total assets - FY2011

Valu

e (U

S$ m

illio

ns)


-40.0%-30.0%-20.0%-10.0%

0.0%10.0%20.0%30.0%

5.9%-1.0%

20.6%

-6.1%

-35.5%

13.6% 11.4%20.7%

-9.8%

10.3%

Anaysis of ROTA by SBU

ROTA - FY2010 ROTA - FY2011

Peec

enta

ge

FINANCIAL REVIEW

•Reasonable improvement in performance•Interest cover up •ROTA and ROE up•..but still need further improvement in working capital

Performance StatisticsMar-11 Mar-10

Interest Cover 2.10 1.40 Equity/total assets 0.46 0.51 Current ratio 1.4 1.3 Quick ratio 0.53 0.57 Return on total assets 14% 7%Return on equity 11% -5%Return on capital employed 26% 10%

FINANCIAL REVIEW

•Access to capital is problematic•…and often long and drawn out•With no guarantee of success

•Apparent lack of support for raising equity•Must now focus on internal cash generation•…complemented by long term debt•Underwritten by anticipated strong performance across the Group

•Expect to come out of Cottco legacy debt in 12 to 18 months time

Treasury

FINANCIAL REVIEW

•Will apply Seed Co dividend (circa: US$2.3 m) to Olivine equity requirements•..together with disposal of investment property worth US$2.7m

•Will apply Exhort and Scottco disposal proceeds (Circa: US$7.5 m) to Cottco debt reduction•Total anticipated cashflows under this plan = US$12.5 m•…plus internally generated cash to March 2012

•Will continue evaluating other complimentary options

Treasury

FINANCIAL REVIEW

•The directors have not declared a dividend•…due to prevailing liquidity challenges and …•...concurrent funding requirements in the Group

Dividend

OUTLOOK

OUTLOOK•Seed Co will continue to do well in existing markets•…and prospects in new markets are promising

•Cottco has turned around•Cotton and Seed businesses well positioned to increase volume, revenue and profits•Recent funding initiatives in Olivine are fairly advanced, •will see this business return to profitability

•Expect much stronger performance ahead•Driven by two main variables:•…volume growth and efficiency improvements

•Anticipate revenue of about US$300m•…at PAT of between 10% and 15%•…plus at least double the attributable earnings

THANKYOU

DISCUSSION

AICO analyst presentation - 31 March 2011

Investor Relations

Transcript of AICO analyst presentation - 31 March 2011