Forafric Global PLC — FY2022 Form 20-F
Reporting period: Year ended December 31, 2022; filed May 1, 2023. This is an audited annual report, not a standalone fourth-quarter earnings release. The filing does not provide a clear value for Q4-only financial results. Amounts below are in U.S. dollars unless stated otherwise.
Business context
Forafric processes and sells wheat flour, semolina, couscous and pasta, primarily in Morocco, with sales to customers in approximately 45 countries. It completed its SPAC business combination on June 9, 2022; the financial statements treat the transaction as a reverse recapitalization, with FAHL as the accounting acquirer. Accordingly, 2022 results include the public-company transaction, while comparative operating results principally reflect FAHL.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $289.8 million | $261.7 million |
| Cost of sales | $260.4 million | $219.3 million |
| Gross profit / margin | $29.4 million / 10.1% | $42.4 million / 16.2% |
| Operating income (loss) / margin | $(1.4) million / (0.5)% | $3.4 million / 1.3% |
| Net loss | $(19.2) million | $(7.8) million |
| Net loss attributable to Forafric | $(19.1) million | $(8.0) million |
| Basic and diluted loss per share | $(0.72) | $(0.38) |
| Cash from operating activities | $(57.6) million | $(26.0) million |
| Cash and cash equivalents at year-end | $24.8 million | $14.4 million |
Year-end working-capital deficit was $94.6 million, compared with $85.3 million in 2021. The company had $47.0 million drawn on working-capital credit lines and $137.5 million drawn on inventory-secured wheat facilities, with only about $11.6 million of combined unused capacity at year-end. Other reported debt was $15.2 million, including leases; a further $1.8 million related-party loan was outstanding. The filing reports $12.5 million of interest expense and a $10.4 million foreign-exchange loss in 2022.
Changes versus the prior year
- Revenue rose $28.1 million, or 10.7%, reflecting increased sales volumes and higher selling prices amid elevated wheat commodity prices. Soft-wheat revenue increased 22.3% to $216.7 million; durum-wheat revenue fell 17.3% to $45.3 million, and couscous and pasta revenue declined 6.5% to $27.8 million.
- Cost of sales increased 18.7%, faster than revenue, and gross profit fell $13.0 million, or 30.7%. The resulting gross-margin contraction was about 6.1 percentage points.
- SG&A declined 21.0% to $30.8 million, mainly due to lower compensation and bad-debt expense, but did not offset weaker gross profit.
- Operating results shifted from $3.4 million of income to a $1.4 million loss. Net loss widened by $11.4 million, with higher interest and foreign-exchange expense partly offset by a $4.7 million fair-value gain on derivatives and contingent consideration.
- Operating cash outflow more than doubled. A $26.1 million increase in other receivables was a major use of cash; the balance includes Moroccan government subsidies and supplier advances. Cash increased overall to $24.8 million, supported mainly by financing activity, including increased borrowings.
Outlook, risks and notable items
- Outlook: The filing gives no formal revenue or earnings guidance. Management stated that cash on hand, operating cash and extended credit lines were expected to fund operations for at least one year after the financial statements’ issuance, based on current assumptions. In April 2023, the company added $17 million of borrowing capacity. Management said wheat prices had begun to decline in early 2023 but could not establish whether the trend would continue; it expected adequate raw-material supply for 2023.
- Commodity exposure and margins: Wheat is a major cost input, while the company has limited ability to pass price increases through to customers. Freight, energy, currency movements, weather, and the Russia-Ukraine war could affect supply and costs. Moroccan flour-market competition and regulation also constrain pricing.
- Supplier concentration and related parties: Millcorp, a seller-affiliated supplier, provided 100% of imported grain in 2022. The supply agreement was extended through March 31, 2026. Purchases from Millcorp were $207.2 million in 2022. This creates operational and related-party conflict risks.
- Government support: The company recorded $38.4 million of Moroccan government subsidies and import-tax relief in 2022. Subsidies are tied to affordable-flour production and related conditions; the filing notes changes to the government subsidy framework may affect competition.
- Liquidity and obligations: Credit facilities were substantially drawn, and the working-capital deficit widened. An $8.0 million payment to the seller, plus 8% annual interest, was due on the first anniversary of the June 2022 closing; $8.2 million was recorded in accrued expenses at year-end. The company also relies on semi-annual renewal of wheat facilities.
- Unusual items: The company recorded $4.7 million of expenses and losses from non-conforming imported wheat and recognized a corresponding insurance-recovery asset, while the amount recoverable was still being assessed. The business combination included share issuances, warrants, contingent consideration and seller earnout provisions.
- Controls and audit: The auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls were effective, but did not include an assessment of internal control over financial reporting because the business combination had only recently closed; no auditor attestation was provided. Management said it would include its assessment in the next annual report.
- Other investor risks: The seller held approximately 71.6% of ordinary shares, and the company qualified as a Nasdaq controlled company. Potential warrant exercises could dilute shareholders; 15.75 million warrants were outstanding at year-end with an $11.50 exercise price. The company did not expect to pay dividends in the foreseeable future.
Most important facts to verify
- Reconcile the severe operating cash outflow and working-capital deficit with near-term facility availability, renewal terms, and the company’s liquidity forecast.
- Review the collectability and timing of government subsidy receivables and the recognized wheat-damage insurance recovery.
- Assess the economics, continuity and governance safeguards of the Millcorp supply relationship, including the 2026 expiry.
- Confirm payment or refinancing of the seller’s $8.0 million obligation and accrued interest, and track any earnout or contingent-consideration effects.
- Compare subsequent quarterly results and cash flows with the 2022 annual trends; the filing does not provide standalone Q4 results or quantified forward guidance.
- Review the forthcoming internal-control assessment and monitor ownership concentration, potential share resales and warrant dilution.