Inqo Investments Ltd - Group Results for the year ended 28 February 2022

Inqo Investments Limited

Unaudited Group Results for the period ended 28 February 2022

Inqo Investments Limited ("Inqo" or "the Group") is a South African based social impact company that acquires and invests in businesses that tackle poverty and the social needs of low-income earners in Sub-Saharan Africa.

The Group remains in a good financial position with total assets of R149,004,595 and minimal debt. 

Subsequent to the year-end, additional funding and cash have been made available to the Group as follows:

·      Directors' loan funds in the amount of R2,031,000 made available to the company.

·      R1,440,000 that will be generated from the sale of the Group's interest in its Bee Sweet Honey Investment.  These funds are due to be settled on 31 August 2022, 31 October 2022 and 31 January 2023.

There are a number of challenges facing the Group currently, but despite these challenges the directors of the company have assessed that it will continue as a going concern.

The results for the year under review showed revenue of R3,872,007 (2021: R4,214,583), reflecting a loss after tax of R12,614,587 (2021 a loss of R11,563,674).  The loss for the year is reported after accounting for the following operating costs:

The Group has suffered the consequences of the Covid-19 pandemic with lower than expected earnings reported in this period. To counter the effects of the pandemic, the Group has taken extensive steps to reduce costs with companies in the Group adopting industry appropriate strategies to operate safely and effectively under challenging conditions. The diverse nature of the Group portfolio has meant that the impacts of the pandemic have varied across investee companies from the severe impacts in the hospitality sector to far less significant impacts to the agricultural sector. Now that most of the world has relaxed Covid-19 restrictions, the companies in the Group are seeing their operations returning to some form of normality, but whilst some were able to grow despite the pandemic, others have yet to return to pre-Covid-19 business levels.

The directors of the holding company review the valuation placed on all income earning assets annually to ensure that they reflect their fair value.  This review was done on 28 February 2022 and, having conducted the review, the directors are of the view that the Group's assets are reflected at fair value.  In the process of carrying out this review it was decided that the following value adjustments should be processed.

·      The Covid-19 pandemic hit the hospitality industry worldwide very hard and at this stage the industry has not yet returned to pre-Covid-19 levels of travel.  Kuzuko Lodge, the Group's five-star Private Game Reserve, has suffered like the rest of the hospitality industry worldwide.  The impact of this is that monies owed by Kuzuko Lodge to Inqo have not been paid as agreed and thus it has been agreed to make a provision for doubtful debts of R1,750,937 against the total amount owing of R2,918,225.

·      When the directors conducted a review of the carrying values of the various investments that the company has made it was agreed that a value adjustment would need to be made in respect of its investments in Four One Financial Services Limited and Bee Sweet Honey Limited.

Ø Four One Financial Services has struggled financially but managed to keep afloat and, in the process, has defaulted on loan and interest payments.  The consequences of this are that the full capital value of two of the loans with a value of R620,722 in 2022 and 25% of the capital value amounting to R157,473 in 2021 have been impaired. A provision for doubtful debts has been raised against interest owing of R770,812 in 2022 and R270,134 in 2021.

Ø Bee Sweet Honey has for the last three years struggled to produce the levels of profit forecast due to poor conditions in the global honey market which caused the US dollar based price of honey to fall. The result is that while the company has continued trading, the value of Inqo's investment has fallen and thus it was decided to impair the value of Inqo's investment in Bee Sweet by R1,894,077.  In the last quarter of the 2021/2 financial year Bee Sweet decided to re-align its business under new management and as a result Inqo has opted to disinvest from the Bee Sweet operation in Zambia.  The proceeds of the sales transaction will be paid to Inqo in the 2022/3 financial year of the Group.

The negative impact of Global Warming that was experienced in the Eastern Cape, where the properties owned by Inqo are situated, reached a high point in September 2021 when drought impacts were exceptionally high.  We are pleased to report that this position has reversed and that Inqo's property has had good rainfall since October 2021.  In spite of this, game prices have not fully recovered and thus the game, including the buffalo herd, had to be impaired by an amount of R129,531 (2021: R566,323).

Land and buildings are required to be valued every two years by an independent valuator in terms of Inqo's accounting policies.  The last formal valuation was done in April 2021.  The company had the same valuator carry out a desktop valuation this year and this valuation showed a 4% increase since April 2021, thus the value stated in the company's books of account is considered fair.

Kuzuko Lodge (South Africa)

Kuzuko Lodge ("Kuzuko") re-opened to guests in September 2021 but has not yet reached pre-Covid-19 trading levels.  A real improvement in bookings at the Lodge is not expected to be felt until September 2022, when international bookings for the traditional peak season, a significant source of revenue for Kuzuko, are expected to return closer to pre-pandemic levels.

Pre-Covid, the Lodge had a staff complement of 64, the bulk of whom were drawn from the local community.  Currently the staff complement is 28 who once again are mainly drawn from the local community. The directors of the company and the management company, Legacy Hotels and Resorts, have maintained contact with members of the workforce who were retrenched/laid off and provided them with food parcels during the period that the Lodge has been closed in recent months.  The previously retrenched/laid off staff will be re-employed by the Lodge as soon as occupancies allow.

Spekboom Trading (South Africa)

The company has to date replanted some 500 acres of degraded land with spekboom, an indigenous shrub that naturally sequesters exceptionally high levels carbon, creating 100 job opportunities in the process.

There has recently been a renewed interest in the carbon markets in response to the growing global awareness on the impact of climate change with nature-based solutions, such as spekboom, being a high priority.  Inqo has started scaling up spekboom restoration activities now that the Covid-19 pandemic situation has largely been resolved providing valuable employment opportunities as well as a positive environmental benefit. The outlook for Spekboom Trading looks positive given the buoyant nature of the carbon markets and global interest in reforestation projects.

Bee Sweet Honey (Zambia)

Inqo made a series of investments in the Bee Sweet commercial honey production operation between 2016 and 2019.  Bee Sweet Honey contracts with rural farmers to manage hives placed on farmers' land in return for a share of the profit from the harvest.

Bee Sweet has not been able to operate profitably over the last few years due to a combination of operational issues, challenges in the market and more recently the global pandemic.  In the first quarter of the 2022 year, Bee Sweet decided to change the way the company operated under new management and as a result, Inqo has decided to exit its investment in Bee Sweet effective May 2022.

Four-One Financial Services Limited (Uganda)

Inqo made an initial investment in 2017 and a further investment in 2018 in Four-One Financial Services Limited ("Four-One"), a Ugandan based company that provides micro-pension, savings and short-term loan products to the informal sector.

Prior to the Covid-19 pandemic Four-One was performing well having endured challenging operating conditions for the previous 18 months. In 2019, Four-One diversified into offering micro business lending to support entrepreneurs. The Covid-19 pandemic and resulting lockdowns had a severe impact in Uganda causing an economic downturn, which had major knock-on effects for Four-One, effectively ending their revenue stream.

During the middle of the pandemic, the Four-One management team took the brave decision to pivot the business and leverage their existing experience in finance and the technology platforms they had built to establish a new product called Bitbricks. Bitbricks is a property development company building affordable homes at 20% below the market rate. Micro real estate investors are offered the chance to buy shares in the company and receive a share of the profit on completion. The Four One team are in the process of building a condominium development of 24 two-bedroom homes as a pilot project due to be completed by the end of this year.

South Lake Medical Centre (Kenya)

South Lake Medical Centre ("SLMC") 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 smaller satellite clinics based on surrounding flower farms and in nearby population centres.  Inqo invested in SLMC in the 2019/20 year.

Currently, SLMC offers a range of in and outpatient services including consultations, laboratory testing, radiology and pharmacy services. Following this investment, SLMC expanded its operation with the inclusion of major and minor surgical units that have recently been opened, making the SLMC facility the most advanced hospital at the southern end of Lake Naivasha.  The Naivasha region in Kenya is predominantly populated by low-income workers working in the horticultural, agricultural and tourism industries.

The impact of Covid-19 has been economically challenging for SLMC.  The major industry in the area being cut flowers for the European market - a sector that has experienced variable sales during the Covid-19 pandemic period.  Fortunately, there is a strong vegetable growing industry in Naivasha that continues to trade and provides medical appointments for SLMC. Through the strong leadership of the management team, SLMC has endured the challenging conditions of 2021 and 2022 and has continued to grow throughout. Patient visit numbers have increased from 71,930 between Feb 20 - Feb 21 to 88,035 between Feb 21 and Feb 22. In addition to their regular service, SLMC operates a health outreach program funded by the Waterloo Foundation, which grew from serving 8,275 people in 2020, to 18,561 people in 2021. The hospital is now in a strong position to achieve its objectives as the Kenyan economy begins to recover.

Kentegra Biotechnology Limited (Kenya)

Kentegra Biotechnology Limited ("Kentegra") is a Kenyan based biotechnology firm owned by the US holding company, Kentegra Biotechnology Holdings LLC.  Kentegra produces pyrethrum, a natural active ingredient from the chrysanthemum flower, for the use in biocide, agricultural and pharmaceutical pesticide markets.  The chrysanthemum flowers must be grown in specific conditions to produce pyrethrum. These conditions are found only in a few places around the world, predominantly East Africa (Tanzania, Uganda, Rwanda and Kenya) and Australia.  With ideal growing conditions, Kenya was once the largest producer of pyrethrum in the world until management issues and synthetic alternatives led to a major decline in the nationalised industry in the early 2000s.  In 2013, the Kenyan government liberalised the pyrethrum sector in a concerted effort to revive the industry and support the growing worldwide "organic" movement.  Kentegra is one of the six companies in Kenya with a licence to produce pyrethrum.

As an essential industry, Kentegra had been able to operate normally and continues to report demand despite the Covid-19 pandemic.  The senior management team have responded quickly and professionally drawing up well considered contingency plans for all eventualities and are re-evaluating the situation on a continual basis.  Kentegra has shown a strong commitment to both their smallholder farmer partners and their employees during this time, going above and beyond to minimise the economic impact while ensuring safety for the organisation. Kentegra's recently built factory has been successfully in production for over a year now. At the end of this period, the company has recruited over 10,000 farmers. Kentegra has also raised additional funds to expand flower production and the expansion of their factory in order to produce more active ingredient and so meet the increasing worldwide demand for PRE (Pale Refined Extract).

Sanergy Incorporated (Kenya)

Sanergy Incorporated ("Sanergy") is a Nairobi based firm using an innovative approach to safely recycle organic waste from agricultural, commercial, sanitation, and municipal sources into insect protein, organic fertilizer and biomass briquettes.

Since our investment into Sanergy Inc in October 2020, Sanergy have made significant progress despite the challenges of COVID. Highlights include the completion and opening of their Nairobi based factory, closing of a successful Series B investment round in November 2020 and being recognized by the World Economic Forum as one of its 15 BioDiverCITIES innovators - the only Africa based company to receive this distinction.

In 2021, Sanergy recycled a total of 39,841 tons of organic waste and produced 131 tons of KuzaPro high protein animal feed from black soldier fly larvae, 2,162 tons of Evergrow fertilizer and 256 tons of biomass briquettes - some of which were used to power the factory. Part of Sanergy's organic waste comes from their Fresh Life franchisees who operate invaluable sanitation services in the slum areas of Nairobi. In 2021, Sanergy had a total of 2,390 Fresh Life franchisees, providing approximately 4,000 toilets to serve over 125,000 people per day.

At full capacity, Sanergy's Nairobi facility can recycle 90,000 tons of organic waste per year. Sanergy's organic waste recycling service helps to tackle environmental pollution caused by poor waste management and so its associated healthcare issues. The by-products of Sanergy's recycling activities also offer major environmental benefits with insect protein offering a substitute for unsustainable fishmeal in animal feeds, organic fertilizer offering a substitute to energy intensive nitrogen-based fertilizers and biomass briquettes offering a sustainable alternative to fossil fuels. Sanergy has plans to replicate their model across Africa and Asia, which would produce significant environmental and social benefits through a sustainable business model.

Aquis Exchange PLC (AIM: AQX) acquired the NEX Exchange in March 2020, which has now been renamed The Aquis Stock Exchange (AQSE).  Shares on AQSE will remain exempt from Capital Gains Tax and Inheritance Tax as they were on the NEX Exchange.

Kuzuko Lodge - The Lodge reopened in September 2021 and while there has been a regular flow of guests since that date, occupancies have not yet reached pre-Covid-19 levels and are not expected to until the 2023/4 financial year.  There has been an upturn in booking enquiries experienced with booking enquiries indicating that the property should see an increase in occupancy levels from September 2022.

Bee Sweet Honey - Inqo has decided to exit its investment in Bee Sweet Honey.  The amount agreed as to the exit payment will be paid to the company during the 2022/23 year.

Spekboom Trading - Spekboom Trading continues to explore the options available with a positive outlook given the currently buoyant carbon markets.

Four-One Financial Services - This business has been especially hard hit because it serves the informal sector in Uganda with savings and short-term loans products. The Covid-19 pandemic has been extremely challenging for the informal sector in Uganda with many traders going out of business. Four One have pivoted towards a new direction in the property development sector and it will take time to establish if this move has been successful

South Lake Medical Centre - As an essential service, SLMC has been able to continue trading throughout the pandemic. Despite the challenges, management have been able to continue to implement development plans putting SLMC in a strong position as the Kenyan economy begins to recover.

Kentegra Biotechnology - As an Agri-business, Kentegra was deemed an essential service by the Kenyan government and has been able to continue operations during the lockdown. During this period, the company has on-boarded a significant number of new out-grower farmers as well as installed and commissioned their new factory and made their first export sale. The company currently has a strong order book.

Sanergy Incorporated - The company is receiving strong demand for its product and is confident that this operation will expand as budgeted despite the impact of the Covid-19 pandemic in Africa.

·      39,000 acres of former farmland restored as a game reserve in a region of endemic poverty in the poorest province in South Africa.

·      Increased VAT and income tax paid by Kuzuko year on year.

·      Currently, Kuzuko has a reduced staff complement due to Covid-19.

·      All staff living at Kuzuko in standard housing with flush toilets, power, water and solar panels.

·      Conservation of 3 endangered species.

·      Re-wilded, bred and released 15 adult cheetah and 15 cheetah cubs with new genetics into the metapopulation in Sub-Saharan Africa.

·      Reforestation of 500 acres of degraded land with spekboom providing work for 100 part-time staff and sequestering carbon.

·      15 hectares of land between the reception area of the Lodge and the Lodge area has have been replanted with various forms of vegetation to recover heavily degraded land on the property. As part of this erosion recovery process 100,000 spekboom cuttings have been planted

·      48,853 beehives in the field with positive impact on bee populations and retention of forests.

·      2,100+ voluntary low-income savers in micro-pension and loan schemes.

·      73,124 patient visits between January and December 2020 including 121 safe deliveries, 324 HIV patients receiving care and counselling, 1,204 infants immunised, 468 mothers receiving antenatal care and 8,275 people receiving health education including, Covid-19 education, through community outreach programs in Kenya.

·      Increased the economic livelihoods of over 17,000 farmers and their families in Zambia and Kenya.

·      4,000 toilets serving 125,000 people daily in Nairobi.

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.

The financial information set out in this announcement does not constitute statutory financial statements. This financial information has been extracted from Inqo's unaudited group financial statements for the period ended 28 February 2022.

The company has not declared a dividend in the year ended 28 February 2022.

K.S Tan                                                                                              C.J Bertie

Chairman                                                                                       Chief Financial Officer

Enquiries

Inqo Investments Limited Group

Condensed consolidated statement of profit or loss and other comprehensive income

For the year ended 28 February 2022

Inqo Investments Limited Group

Condensed consolidated statement of profit or loss and other comprehensive income

For the year ended 28 February 2022

Inqo Investments Limited Group

Statements of cash flows

For the year ended 28 February 2022