Inqo Investments Limited

Interim / Quarterly Report • Aug 30, 2024

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RNS Number : 3537C

Inqo Investments Limited

30 August 2024

Inqo Investments Limited

Group Results for the year ended 29 February 2024

CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT

Inqo Investments Limited ("Inqo" or "the Group") is a South African based social impact company that invests in businesses that tackle poverty and environmental challenges in Sub-Saharan Africa.

COMMENTARY

The Group remains in a strong financial position with total assets of R214 million including cash and cash equivalents of R43.77 million and minimal debt.

The results for the year under review showed revenue of R20.6 million (2023: R11.7 million) with a loss after tax of R5.31 million (2023: Profit of R3.77 million). The Group incurred a loss during the current year, largely due to its Kuzuko subsidiary as the tourism sector in South Africa is still recovering post-Covid. However, trading has significantly improved by 51.24% from 2023. The fair value of the buffalo herd has been marked down due to a drop in the published auction prices for the year.

Kuzuko completed the planting of 30 million spekboom plants on 5,185 hectares (~12,800 acres) of land during this financial year. The total cost of planting the spekboom on the reserve through the Reforest Action carbon credit contract was R118 million. This has not been recognised in the accounts because its long-term value has not been crystallised.

Like businesses around the world, the Group has been heavily impacted by the Covid-19 pandemic with reduced earnings and implementation of cost saving measures. The severity of the impact and corresponding speed of recovery has varied across investee companies. Despite the challenges being faced, the directors of the Company have assessed the Company and its subsidiaries and agree that the operating units will continue as a going concern.

Inqo had been given grant funding of US$4 million over a three-year period for its Conservation and Rural Enterprise (CARE) project in Uganda. The first tranche of US$2 million was received in January 2023. The purpose of the CARE project is to address the interrelated issues of poverty and environmental degradation by infusing private capital into the economy of vulnerable rural communities through investments in sustainable small and medium-sized enterprises (SMEs).

Subsequent to year-end, Inqo has formalised two of its CARE investments in Uganda, namely:

Pabidi Lodge Budongo Limited was formed in June 2023 and the company has a 51% equity stake in the business. The shareholders' agreement has been finalised.   The lodge will be the only luxury accommodation offering sustainable ecotourism to guests within the Budongo Forest.

A company, Flybox Budongo (BSF) Farm Limited was registered in Uganda subsequent to year-end and the company has a 49% equity stake in the business.  Flybox will set up a factory in Budongo to produce Black Soldier Fly (BSF) eggs and 5-day old larvae (called seedlings) using a modular containerised system. The business will initially sell larvae and eggs to farmers to grow to maturity by feeding on market and organic waste. These larvae can then be harvested for use as protein substitute in animal feed.

We expect that these investments will be operational in the Q4 2024.

SHARE ISSUE

In April 2024, the company issued 1,854,646 new ordinary shares, raising gross capital of R 29,985,428. This includes the conversion of two credit loan notes of USD 1,000,000 and R 2,000,000 respectively into equity by the lenders exercising their conversion rights.

FINANCIAL RESULTS

The audited financial results for the year ended 29 February 2024 are as follows:

	February 2024 R'000	February 2023 R'000
Revenue	20,611	11,730
(Loss) / Profit for the year	(5,304)	3,775
Earnings per share	(0.36)	0.27
Total Assets	214,460	210,257
Unutilised Grant Funding	32,847	35,067
Total Liabilities excl Unutilised Grant Funding	29,995	18,268
Net Assets	151,618	156,922
(Loss) / Profit from operating activities includes the following items
Spekboom Credit Contract	Nil	9,090
Grant income	1,697	Nil
Depreciation	(2,937)	(3,791)
Personnel Costs	(5,386)	(4,854)
Directors' Fees and Salaries	(1,610)	(959)
Listing Expenses	(933)	(761)
Professional Fees	(370)	(594)
Impairments of loans: Four One	(1,921)	(108)
Fair value adjustment of the buffalo herd	(1,811)	1,030

A copy of this announcement and the full audited financial statements will be available on the Company's website at Inqo.co.za.

INVESTEE COMPANIES: FINANCIAL, ENVIRONMENTAL AND SOCIAL PERFORMANCE COMMENTARY

·      Kuzuko Lodge (Pty) Ltd (South Africa)

Kuzuko Lodge is a subsidiary entity that operates a five-star luxury game lodge in the Eastern Cape. Kuzuko combines job creation, conservation and transformation in an eco-tourism environment. Kuzuko has been creating sustainable jobs for 20 years.

Despite incurring a loss in the current year, Kuzuko has experienced a 51% increase in revenues and related occupancy levels. Kuzuko transitioned from a hotel management group to independent management, intensified its marketing efforts and implemented key personnel changes, new systems and new cost control measures. These strategic changes will position Kuzuko for a positive financial outlook in the coming years.

·      Inqo Africa (Pty) Ltd (South Africa) , is a wholly owned subsidiary formed on 27 October 2020 to facilitate with the acquisition of investments in Kenya and Uganda. The group investment in Sanergy Incorporated is held by Inqo Africa (Pty) Ltd.

·     Spekboom Trading (Pty) Ltd (South Africa) is owned by Inqo Investments (50.1%) and AfriCarbon (49.9%), a company specialising in facilitating and implementing investments in ecosystem restoration projects with a positive impact for carbon and community.

The Kuzuko Thicket Restoration Project commenced in September 2022 after an agreement was reached with an international third party, Re'Forest Action, to finance the project through forward sold carbon credit rights. The project will restore damaged ecosystems, benefit poor communities through job creation and capture carbon from the atmosphere. At 31 December 2023, the planting project was successfully concluded having planted 30 million spekboom cuttings across 5,185 hectares. The total cost of planting these cuttings amounted to R118M. During the height of the project, 350 people were involved in the project of which 250 people were housed and fed on the property.  Planters were trained not only on the skills required for the project but also life skills. 

·     Four One Financial Services Limited (Uganda) is a financial services company offering specially designed products for the underserved low-income demographic in Uganda. Four One was particularly hard hit by the pandemic with its loan portfolio highly impaired resulting in a pivot towards property development. We are pessimistic about the outlook of the company due to the damage to their loan portfolio. We have now provided for a full impairment of the convertible loan note and the loans payable.

·   Kentegra (Kenya) is a Kenyan based biotechnology firm owned by the US holding company, Kentegra Biotechnology Holdings LLC, producing pyrethrum, a natural biocide and pesticide. The company has seen significant growth over the last 12 months and has now built and commissioned a second extraction factory in the Naivasha Export Processing Zone (EPZ).

In terms of the unaudited management accounts, Kentegra realised a positive EBITDA in 2023 and revenue increased by 100% from 2022 to 2023.  Kentegra employs 300 people and have contracted to 26,000 farmers. Two surveys were commissioned to measure the impact of the company on the contracted farms during the financial year. The studies revealed that:

o  60% of the farmers' main source of income was from pyrethrum.

o  60% of the farmers have commenced other income generating projects from the pyrethrum income.

o  96% of the farmers would recommend Kentegra to a friend.

·     South Lake Medical Centre - SLMC (Kenya) is a private healthcare provider in the Naivasha region of Kenya serving predominantly low-income flower farm workers. SLMC operate a 'hub and spoke' model around a 27-bed private referral-level hospital with 5 satellite health posts in nearby population centres.

SLMC's unaudited management accounts for 2023 reflect a positive EBITDA, 5% higher than 2022. Despite ongoing challenges regarding delays in the payments from the National Health Insurance, SLMC performed well against their KPIs year on year; most notably safe deliveries 217 (2022: 156); surgeries 205 (2022: 61); patient visits 98,719 (2022: 82,387) and community outreach 69,726 (2022: 44,505).  Declines noted include antenatal care (ANC) to safe delivery of 39% and HIV program of 25%.

Through Pfizer, SLMC successfully implemented a cervical cancer screening and HPV vaccination project aimed at enabling access to 2,000 women. By January 2024, 83% of the target had been met. In addition, 20 healthcare workers had been trained, 9 clinics were operationalised, the program was integrated into SLMCs service delivery for sustainability and extensive collaboration with communities, health care clinics and government had taken place.

·      Sanergy Incorporated (Kenya) operates an innovative circular economy approach to recycling organic waste by feeding the waste to Black Soldier Flies (BSF) to produce a high protein animal feed in the form of BSF larvae. Organic fertilizer and biomass briquettes are also produced as a by-product of this process.

Sanergy's Fresh Life toilets are now in Nairobi, Kisumu and Eldoret serving 270,000 people daily and has created 500 direct jobs. Its RegenOrganics operation that produces the BSF insect protein and organic fertiliser supplies 8,000 farms and has 500 full time equivalent employees (FTEs) and 2,000 indirect jobs.

·      Kuzuko Foundation Trust (South Africa)

Kuzuko Private Game Reserve was founded with the expressed aim of creating jobs in an area of exceptionally high unemployment. Kuzuko Foundation Trust (KFT) was established to continue and further that social mission through environmental education, mentoring, youth empowerment, job preparedness training, supporting local schools and supporting our local communities.

The Kuzuko Foundation manages the 14,414 hectares, which makes up the Kuzuko Private Game Reserve. The land is managed for conservation with the aim of rewilding and restoring the land to its natural state, fostering the return of native flora and fauna and creating a self-sustaining ecosystem.

Additionally, the Kuzuko Foundation works actively in the surrounding communities to further Kuzuko's social goals through an environmental education program, a mentoring scheme, work preparedness training, support for local farm schools and developing and supporting positive community initiatives. Kuzuko Lodge and Inqo continue to support the important work of the Kuzuko Foundation Trust.

SUMMARY OF SOCIAL & ENVIRONMENTAL METRICS SINCE PROJECT COMMENCEMENT

·      Kuzuko Lodge

o  35,617 acres (14,414 hectares) of former farmland restored and protected as a game reserve

o  70 km of game fencing erected

o  45 FTE staff at Kuzuko in standard housing with flush toilets, power, water and solar panels

o  120 fixed term jobs

o  Conservation of 2 endangered species, 8 endangered species protected, 23 species introduced

o  Re-wilded 18 adult cheetahs with diverse genetics to bolster the meta-population in southern Africa

·      Southlake Medical Centre

o  98,719 patient visits including 386 HIV patients receiving care and counselling, 5,599 people receiving health education including through community outreach, 217 safe deliveries, 205 surgeries, 2,000 cervical cancer screens and 700+ HPV vaccinations

·      Kentegra

o  300 FTE and 26,000 contracted out-growers

·      Sanergy

o  1,000 FTE, 2,000 indirect jobs, 5,000 toilets serving 270,000 people Nairobi, Kisumu and Eldoret

·      Spekboom Trading

o  5,185 hectares degraded land planted with 30 million spekboom; 350 fixed term jobs

STAFF

The directors would like to take this opportunity to thank all the operating staff in the Group for their contribution and commitment to the Group's objectives during this challenging time.

KS Tan

Chairman                                                                               

Issued on: 30 August 2024

Enquiries

Inqo Investments Limited	Tel: +44 7768 613346
Dr Kim Tan, Chairman	Email: [email protected]
Hobart Capital Markets LLP
AQSE Corporate Adviser and Broker	Tel: +44 (0)20 7070 5665
Dr Wang Chong	Email: [email protected]

Condensed consolidated and separate Annual Financial Statements for the year ended 29 February 2024

Statements of Financial Position 

		Group	Group	Company	Company
Figures in R		2024	2023	2024	2023
Assets Non-current assets
Property, plant and equipment		151,980,925	154,054,726	150,894,906	152,888,843
Right-of-use assets		68,147	236,171
Intangible assets		840	1,840
Investments in subsidiaries				1,503	1,503
Trade and other receivables				238,570	849,417
Other investments		7,306,227	9 , 017,656	5,638,507	7,349,936
Loans to subsidiaries				22,059,056	14,990,626
Total non-current assets		159,356,139	163,310,393	178,832,542	176,080,325
Current assets
Inventories		4,295,937	4,862,236	3,702,582	4,194,454
Trade and other receivables		6 , 059,424	3,124,989	4,306,972	1 , 710,486
Biological assets		977,000	2,788,980	977,000	2,788,980
Cash and cash equivalents		43,771,590	36,170,112	41,873,765	35,729,803
Total current assets		55,103,951	46,946,317	50,860,319	44,423,723
Total assets		214,460,090	210,256,710	229,692,861	220,504,048

		Group	Group	Company	Company
Figures in R		2024	2023	2024	2023
Equity and liabilities
Equity
Ordinary  share capital		72,584,925	72,584,925	72,584,925	72,584,925
Share premium		87,585,270	87,585,270	87,585,270	87,585,270
Accumulated loss		(95,364,654)	(90,101,796)	(77,755,359)	(72,960,353)
Revaluation reserve		86,693,347	86,693,347	86,693,347	86,693,347
Total equity attributable to owners of the parent		151,498,888	156,761,746	169,108,183	173,903,189
Non-controlling  interests		119,507	160,218
Total equity		151,618,395	156,921,964	169,108,183	173,903,189
Liabilities
Non-current liabilities
Deferred tax liabilities		3,809,117	4,814,985	3,809,117	4,814,985
Loans from  related  parties		3,423,672	4,511,589	3,423,672	4,363,278
Other loans		18,931,500		18,931,500
Lease liabilities			76,859
Total non-current liabilities		26,164,289	9,403,433	26,164,289	9,178,263
Current liabilities
Trade  and  other  payables		3,683,552	8,503,452	1,573,818	2,355,670
Lease liabilities		80,155	214,080
Unutilised  grant  funding		32,846,571	35,066,926	32,846,571	35,066,926
Bank overdraft		67,128	146,855
Total current liabilities		36,677,406	43,931,313	34,420,389	37,422,596
Total liabilities		62,841,695	53,334,746	60,584,678	46,600,859
Total equity and liabilities		214,460,090	210,256,710	229,692,861	220,504,048

Statements of Profit or Loss and Other Comprehensive Income

Group	Group	Company	Company
Figures in R                                                                                      2024	2023	2024	2023

Revenue		20,610,801	11,730,190	5,159,563	952,647
Cost of sales		(2,421,823)	(1,514,608)
Gross profit		18,188,978	10,215,582	5,159,563	952,647
Other income		3,630,200	11,198,922	1,944,872	10,076,244
Personnel expenses		(6,420,077)	(5,813,170)	(921,973)	(905,084)
Depreciation and amortisation		(2,936,964)	(3,790,520)	(2,617,434)	(3,395,008)
Listing expenses		(933,451)	(760,765)	(933,451)	(760,765)
Professional fees		(945,650)	(593,633)	(945,650)	(593,633)
Bad debt			(231,385)		(231,385)
Provision for doubtful debts		(319,841)	(286,490)	(2,429,904)	(1,286,490)
Impairment and fair value adjustment		(1,920,552)	(107,993)	(1,920,552)	(1,584,875)
Other expenses		(12,836,487)	(9,339,646)	(2,236,734)	(1,938,776)
(Loss) / profit from operating activities		(4,493,844)	490,902	(4,901,263)	332,875
Inventory write (down)/up		(832,272)	767,774	(832,272)	767,774
Fair value adjustment		(1,811,980)	1,029,940	(1,811,980)	1,029,940
Finance income		995,676	506,642	1,807,315	1,087,555
Finance costs		(167,020)	(169,675)	(62,675)	(41,293)
(Loss) / profit before tax		(6,309,440)	2,625,583	(5,800,875)	3,176,851
Income tax credit		1,005,869	1,149,324	1,005,869	1,149,324
(Loss) / profit for the year		(5,303,571)	3,774,907	(4,795,006)	4,326,175

		Group	Group	Company	Company
Figures in R		2024	2023	2024	2023
(Loss) / profit for the year attributable to:
Owners of Parent		(5,262,858)	3,862,532	(4,795 , 006)	4,326,175
Non-controlling interest		(40 , 713)	(87,625)
		(5,303,571)	3,774,907	(4,795,006)	4,326,175
Earnings per share from continuing and discontinuing
operations attributable to owners of the parent during
the year
Basic earnings per share
Basic (loss)/ earnings per share		(0.36)	0.27	(0 . 33)	0.30
Diluted earnings per share
Diluted (loss)/ earnings per share		(0.36)	0.27	(0 . 33)	0.30
Other comprehensive income net of tax
Components of other comprehensive income that will not
be reclassified to profit or loss
Revaluation of land and buildings			18,904,001		18,904,001
Deferred taxation			(4,226,189)		(4,226,189)
Total other comprehensive income that will not be reclassified to profit or loss			14,677,812		14,677,812
Total comprehensive income		(5,303,571)	18,452,719	(4,795,006)	19,003,987
Comprehensive income attributable to:
Comprehensive income, attributable to owners of parent		(5,262,858)	18,540,344	(4,795,006)	19,003,987
Comprehensive income, attributable to non-controlling interests		(40,713)	(87,625)
		(5,303,571)	18,452,719	(4,795,006)	19,003,987

Statements of Cash Flows
	Group	Group	Company	Company
Figures in R	2024	2023	2024	2023
Net cash flows (used in)/ from operations	(11,800,817)	(1,449,746)	(7,620,425)	734,120
Interest paid	(143,656)	(169,674)	(62,675)	(41,293)
Interest received	995,676	506,642	952,982	504,453
Net cash flows (used in)/ from operating activities	(10,948,797)	(1,112,778)	(6,730,118)	1,197,280
Cash flows from/ (used in) investing activities
Proceeds from sales of property, plant and equipment	(17,103)		(17,011)
Purchase of property, plant and equipment	(677,038)	(269,388)	(606,486)	(200,904)
Proceeds from sales of biological assets		150,000		150,000
Increase in loans to subsidiary			(6,214,097)	(3,350,470)
Loans (extended to)/repaid by other investments		1,214,514		1,136,490
Grant funding received	1,397,799	33,409,740	1,397,799	33,409,740
Cash flows from/ (used in) investing activities	703,658	34,504,866	(5,439,795)	31,144,856
Cash flows from financing activities
Payments to related parties	(1,087,917)		(939,606)
Loans received related parties	17,786,900	2,839,253	17,786,900	2,818,616
Repayments of finance lease	(234,148)	(191,564)
Cash flows from financing activities	16,464,835	2,647,689	16,847,294	2,818,616
Net increase in cash and cash equivalents before effect of exchange rate changes	6,219,696	36,039,777	4,677,381	35,160,752
Effect of exchange rate changes on cash and cash
equivalents	1,461,509		1,466,581
Net increase in cash and cash equivalents	7,681,205	36,039,777	6,143,962	35,160,752
Cash and cash equivalents at beginning of the year	36,023,257	(16,520)	35,729,803	569,051
Cash and cash equivalents at end of the year	43,704,462	36,023,257	41,873,765	35,729,803

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