Forafric Global PLC — 2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023; filed April 30, 2024. This is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under U.S. GAAP. Unless noted otherwise, amounts below are USD millions.
Business context
Forafric is an integrated agricultural-products processor and trader, principally milling wheat and selling flour and semolina, as well as pasta and couscous. Morocco is its main market and operating base; it also operates in Mali, Burkina Faso and Angola and sells products in approximately 45 countries. In July 2023, it acquired 90% of SIMS, a Marrakech-area soft-wheat mill, and increased its Sanabil ownership to 80%.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $305.5 | $289.8 | +5.4% |
| Gross profit | $30.6 | $29.4 | +4.2% |
| Gross margin | 10.0% | 10.1% | Down 0.1 percentage point |
| Operating income (loss) | $1.1 | $(1.4) | Improved $2.6 |
| Net loss | $(12.5) | $(19.2) | Loss narrowed $6.7 |
| Net margin | (4.1%) | (6.6%) | Improved |
| Cash from (used in) operations | $33.3 | $(57.6) | Improved $90.9 |
| Cash and cash equivalents at year-end | $24.0 | $24.8 | Down $0.8 |
Revenue growth was attributed mainly to higher sales volumes. Cost of sales rose 5.6% to $274.9 million, reflecting higher crushed volumes and freight costs; management said raw-material prices fell significantly during 2023 but remained above 2018–2021 levels. SG&A declined 4.3% to $29.5 million, attributed mainly to lower compensation and lease costs. Interest expense increased to $14.0 million from $12.5 million. Other expense declined to $13.7 million, helped by a $10.6 million year-over-year swing in foreign-exchange results, from a $10.4 million loss to a $0.2 million gain.
By product, soft-wheat sales were $218.8 million (+2.3%), durum-wheat sales $51.8 million (+16.4%) and couscous and pasta sales $31.4 million (+15.7%). Soft-wheat segment operating income fell to $2.3 million from $9.0 million, while durum wheat and couscous/pasta returned to operating profit.
Liquidity, debt and cash flow
Current assets were $121.2 million and current liabilities $253.3 million, producing a reported working-capital deficit of $132.0 million, versus $94.6 million in 2022. Cash was $24.0 million; receivables were $34.7 million and inventory $28.4 million.
At year-end, working-capital credit lines totaled $50.0 million, of which $48.5 million was drawn, leaving $1.5 million available. Inventory-backed wheat facilities totaled approximately $142.0 million, with $126.5 million drawn and $15.5 million available; these facilities require semiannual renewal. Separate term-loan and lease obligations totaled $22.3 million, including $10.5 million current and $11.8 million long-term. The company reported $14.0 million of interest expense and $15.8 million of interest paid.
Operating cash flow was $33.3 million, compared with cash use of $57.6 million in 2022. The filing attributes much of the swing to working-capital movements, including a $26.7 million cash inflow from other receivables, versus a $26.1 million outflow in 2022. Investing activities used $9.8 million, including $9.5 million of property and equipment purchases; financing activities used $21.2 million. Cash declined by $0.8 million during the year.
Management says cash on hand, operating cash flow and extended credit lines are expected to fund operations for at least one year after the financial statements’ issuance. The filing also states that the company believes it has sufficient capital to meet its obligations.
Material changes and other notable items
- Operating results improved from a 2022 operating loss to modest operating income in 2023, and the net loss narrowed; the company nevertheless remained loss-making.
- The SIMS transaction was accounted for as an asset acquisition. The filing reports approximately $5.3 million of assumed debt and approximately $56,000 of cash consideration and noncontrolling interest.
- Moroccan government subsidies and import-tax relief received totaled $99.5 million in 2023, compared with $38.4 million in 2022, as reported in the notes. The filing records flour subsidies against the related costs.
- The company repurchased and retired all 29,999,990 Class Z shares during 2023. It had 26,879,202 ordinary shares outstanding at year-end.
- The company had 15,750,842 warrants outstanding, exercisable at $11.50 per share through June 2027. The filing reports a December 29, 2023 ordinary-share closing price of $10.59; warrant exercise proceeds are therefore uncertain, and exercise would dilute shareholders.
- The seller is owed $8.0 million of business-combination consideration plus 8% annual interest; the accrued amount was $8.84 million at year-end. A further 500,000 shares may be due if 2023 Adjusted EBITDA met the $33 million earnout threshold; the filing reports no earnout shares issued through year-end.
Outlook, risks and contingencies
No formal revenue or earnings guidance is provided. Management said it believed raw-material supplies would be adequate for 2024, citing diversified sourcing; the company reported no 2023 purchases or contracts to purchase from Russia or Ukraine. It describes potential growth from African population growth, urbanization, Moroccan market expansion and increased capacity, but these are forward-looking expectations, not quantified guidance. The filing also cites a USDA-linked forecast that Moroccan wheat production could rise to 7.54 million tons with abundant rains.
Key risks include wheat-price, freight, energy and currency volatility; limited ability to pass input-cost changes through to selling prices; Moroccan seasonal import restrictions and flour subsidies; and reliance on related-party supplier Millcorp, which provided 100% of imported grain. The supply agreement requires at least 80% of annual cereal needs to be sourced from Millcorp and runs through March 2026; 2023 purchases were $147.3 million. Other risks include high working-capital needs, near-full credit-line utilization and renewal risk, climate and regional disruption, competition, and food safety and regulatory exposure.
The filing identifies three pending former-employee unfair-dismissal actions, which management says would not be material even if decided adversely. It reports no other material litigation and no material impact from environmental compliance in 2023. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023; the auditor did not provide an internal-control attestation because of the company’s emerging-growth-company status. The company does not expect to pay dividends in the foreseeable future.
Most important facts for investors to verify
- Reconcile the reported $99.5 million of 2023 government subsidies and import-tax relief to the underlying amounts, timing, accounting treatment and cash receipts.
- Assess the $132.0 million working-capital deficit, availability and renewal terms of credit facilities, and the assumptions behind management’s one-year liquidity assessment.
- Review related-party grain sourcing from Millcorp, including pricing, the 100% imported-grain concentration and the agreement’s terms through March 2026.
- Confirm the outcome of the 2023 Adjusted EBITDA earnout test and any resulting share issuance; assess potential dilution from outstanding warrants and employee awards.
- Track whether volume growth translates into sustainable margins, given modest gross margin, low operating income and $14.0 million of interest expense.