Agriterra's cocoa expansion shows its African growth ambitions

Pan African food producer Agriterra's recent expansion of its cocoa farming efforts is a good example of the firm's current focus on investment, now in full swing.


Pan African food producer Agriterra's (LON:AGTA) recent expansion of its cocoa farming efforts is a good example of the firm's current focus on investment, now in full swing.

The firm is looking to build the foundation on which it grows and is pumping resources and funds into its core operations.

From initially building what was primarily a cocoa trading business, it now has bought its own 1,200 hectare plantation in Sierra Leone and last month, unveiled a large scale acceleration of efforts.

Clearing the site is ongoing and Agriterra expects to have planted the whole 1,200 hectare by the fourth quarter of next year.

Meanwhile, subsidiary Tropical Foods is in "advanced" negotiations to try and get its hands on a further 1,600 hectares north east of the current site to allow planting in 2016 and an additional 1,550 hectares to the south-east, which will be earmarked for coffee.

To support the plantation's development, a new cocoa nursery is also being planned.

Agriterra's chief executive Andrew Groves tells Proactive the aim is to secure 6,000 hectares in the next three years and is in no doubt that the scheme bolsters the group's long term position.

"We are now the largest agri business in Mozambique - with the milling and the beef. We wanted to expand into something, which over time has good long term cash flow, which is cocoa," he says.

"We can forward sell it. There's a massive off-take market and if you have your own plantation, it's like an annuity from a cash flow point of view."

The plantation gives the firm secure cash flow in the next three-four years, he adds.

And the timing couldn't be better. The company pointed out in its last statement that the International Cocoa Organisation forecasts demand for cocoa will exceed production by 45,000 tonnes in the season to September 2013. 

Agriterra's expansion strategy into its core revenue generating businesses of cocoa, beef and maize was also given a shot in the arm earlier this year - with a US$28 million payout.

It came from Marathon Oil Corporation after the sale of Agriterra's 20% legacy interest in the South Omo oil block in Ethiopia and leaves the firm in the enviable position of having no debt and a growing asset base - its net asset value now stands at US$64.5 mln.

Meanwhile, its Mozbife operation in Mozambique is making great strides and is now eyeing a national chain of butchers shops servicing its expanding cattle herd - which aims to have a head count of 10,000 by 2015.

The firm has now a finished abattoir in Chimoio and to boost its margins, has opened two shops - one in Chimoio and one in Tete selling beef produce.

Another four retail units are scheduled to open this year, Groves tells Proactive, while the firm is hoping to roll out 20 butchers shops across the country, which should really boost the group's top line.

The third revenue stream - the group's maize and milling operation - is also doing well.

It saw improved revenues in 2012 after reduced sales in 2011 after a strong harvest reduced demand.

For the six months to November 30 last year, the group saw revenue from continuing operations shoot up to US$11.49mln from US$5.29mln the year before, with revenue for the year to May 31, 2012 coming in at around US$13 million.

And Groves is confident that 2013 results will tell the same story.

"I think we are extremely  undervalued. We've got no debt. We've got a huge asset base and business is growing," he added.

The chief executive also pointed out that as Africa itself grows on the world stage, economically and socially, Agriterra could not be in a better place to capitalise.

"If you look at the rest of the world, there's a declining economy whereas if you look at the African states, it's different. Mozambique's pushing 11/12% growth, Sierra Leone's got huge growth, most of them have (the states)- and it's not leveraged growth - it's cash growth, which makes a big difference.

"I think it's the place to be. You've got a fast-growing consumer market and it keeps increasing," he says, also highlighting the oil and gas discovered in Mozambique along with coal.

"In the last ten years, Africa has changed completely and I think Agriterra's a good foundation to capitalise on that."

To that end, Groves says the company is always on the lookout for further acquisitions, though nothing has as yet come "across the radar".

"We'd look at further acquisitions but they've got to be earnings accretive. We're not going to go into too much greenfield stuff where we've got to plough $10/$20 mln into greenfield business but if we can buy an earnings-accretive business and finance it with cheap debt we'd probably look at doing that."

So there is much to look forward to as Agriterra continues to grow and furthers its reach into Africa's food production business.

Quick facts: Agriterra

Price: 5.475 GBX

Market: AIM
Market Cap: £1.16 m

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