Final Results - Year Ended 31 December 1999

Rowe Evans Investments PLC 5 May 2000 OIL PALM AND RUBBER PLANTATIONS IN INDONESIA ASSOCIATED COMPANIES WITH PLANTATION AND PROPERTY-DEVELOPMENT INTERESTS IN MALAYSIA AND COTTON FARMING IN AUSTRALIA Preliminary announcement of unaudited results for the year ended 31 December 1999 Highlights from the chairman's statement and preliminary announcement as follows:- * dividend maintained at 4.25p * profit before tax £5,375,000 (1998 £6,331,000) - 1998 included exchange gains and 'one-off' interest received * continuing problems in Indonesia but signs of a return to modest economic growth * sharply increased crop of oil palm fresh fruit bunches in 1999 * lower palm oil prices in 1999 * Indonesian Rupiah strengthened - 1999 average £1 = Rp12,672 (1998 Rp16,939) * share of associates' higher, mainly due to PT Agro Muko (30.43% owned) reporting improved operating profit after crop increase and absence of 1998's overseas loan related, unrealised exchange losses * palm oil prices weakened in early 2000 but have since improved * associated companies with Malaysian interests have announced discussions which may lead to an amalgamation EXTRACT FROM CHAIRMAN'S STATEMENT The profit before tax for 1999 was £5,375,000, compared with £6,331,000 in 1998. The Group's estates produced higher crops, but lower palm oil prices and a stronger Rupiah resulted in an estate profit 12.5% lower than last year. Improved results were reported by the associated companies but 1998's exchange gains and 'one-off' interest receivable were not repeated to the same extent. The board recommends that the dividend is maintained at 4.25p per share. As has been widely reported in the press, social, political and economic problems continued in Indonesia during 1999. However, it is pleasing to report that democratic elections for the house of representatives passed off without the disruption many had feared and a new president, Mr Abdurrahman Wahid, was duly elected. Problems with regard to the banking sector and corporate debt remain but there are grounds for cautious optimism that a gradual return to growth is appearing after the dramatic decline of gross domestic product experienced in 1998. REVIEW OF THE YEAR The Indonesian estates Crops Following the downturn in crops in 1998 resulting from the El Nino- induced drought of the previous year, production of oil palm fresh fruit bunches ('f.f.b.') rebounded, as expected, in 1999. I am pleased to report that nearly 124,000 tonnes were harvested in the year which was much in line with expectations and compares with last year's 105,000 tonnes. Commodity prices The price of palm oil, which had been very strong during 1998 because of low world stocks and lack of supply in the market, weakened quite sharply with two, short-lived rallies. The weakening of palm oil prices relieved the pressure on local cooking oil prices in Indonesia and the export levy was progressively reduced from its high point of 60% to the current effective level of approximately 3%. Exchange rates The Rupiah fluctuated within the range of £1 = Rp10,000 to Rp15,000 during 1999. The Rupiah in this range was somewhat stronger than in 1998 during which its low point was some Rp27,000. Towards the end of 1999 and in early 2000, the Rupiah settled into a narrow range around Rp11,000 although in the last few weeks it has weakened again to around Rp12,500. Estate operations Pangkatan Estate Although the estate's f.f.b. crop was ahead of last year, it was a little disappointing when compared with the original estimate. The age profile of the estate is on the old side and the crops are likely to be slightly lower than in previous years until the recent large plantings mature and increase their yields. Simpang Kiri Estate I am pleased to report that the yields on the two divisions of the estate showed a marked improvement in 1999 being some 40% higher than last year and also slightly ahead of estimate. The trough period that the estate, and its neighbours, have experienced for some time now seems to have come to an end for the moment and it is hoped that this improvement will be sustained. Bilah Estate The estate's soils consist largely of peat which makes it more difficult to manage than mineral soils. It is in a low-lying area and has had to be protected from outside flooding by bunds. However, notwithstanding the problems associated with peat management, the estate has consistently achieved respectable yields and 1999 was no exception. The crop was ahead of last year and in line with expectations. Estate profit As a result of all of the above, the Group's estate profit for 1999 amounted to £2,611,000 compared with £2,985,000 last year. ASSOCIATED COMPANIES The Group's share of the profit before tax of the associated companies was £2,790,000, including the share of associates' gains on fixed- asset disposals. This compares with £2,480,000 in 1998. Indonesia PT Agro Muko (30.43% owned) As with the Group's majority-owned estates, PT Agro Muko recorded a substantial increase in its f.f.b. crop from 125,000 tonnes in 1998 to over 160,000 tonnes this year. This increasing trend of production will continue as the young areas mature and further new areas are planted over the next three years or so. The increased crop and the movement of the exchange rate, notwithstanding lower palm oil prices, resulted in a slightly improved operating profit in Sterling terms aided by the absence of the unrealised exchange losses of 1998 which related to the company's US-Dollar and Deutschmark loans. PT Kerasaan Indonesia (36% owned) The f.f.b. crop on Kerasaan Estate fell back particularly sharply in 1998 and the recovery was similarly robust in 1999. As a result, the company's profit in Sterling terms showed a marked improvement over the previous year. Kerasaan continues to be a very well managed, first- class oil palm estate with above average yields and low costs. It is on flat terrain with good volcanic soils. Malaysia Bertam Holdings PLC (33.39% owned) The plantation operations of Bertam Holdings PLC were less profitable in 1999 than the previous year. 1998 had experienced exceptionally high selling prices and, unlike Indonesia, these were not offset by any significant export taxes. 1999 prices were much lower. Crops were higher in 1999 after the drought-affected crops of the previous year. Bertam Holdings PLC's 40% property associate, Bertam Properties Sdn. Berhad, reported a slightly improved performance over the previous year. Generally, there were signs of a slow recovery in the Malaysian property market and activity picked up. The land continues to be a very valuable piece of real estate, located in an ideal position next to the North South Highway with easy access to Penang Island. There is therefore enormous potential to be realised in the forthcoming years. Other Malaysian associates The three small Malaysian associated companies, Beradin Holdings PLC (19.75% owned), Padang Senang Holdings PLC (29.37% owned) and The Singapore Para Rubber Estates, PLC (42.03% owned) all reported lower profits for the same reasons that applied to the Group's own Indonesian estates, namely higher crops but lower commodity prices. Lendu Holdings PLC (35.11% owned) Lendu Holdings PLC's Australian cotton operations for the 1998/99 season proved to be somewhat more difficult than the previous year. Despite plentiful water in the farm's storages, there was too much rain at the time of planting the cotton, which prevented adequate land preparation. In addition to this, there was unusually high insect pressure the combating of which increased costs substantially. Although the cotton price was reasonably strong during the year, the results reported were lower than the previous year. The operations for the 1999/2000 season have progressed well with adequate water and significantly less insect problems than the previous season. However, the cotton price has not been as strong and the Australian Dollar has weakened markedly against Sterling. Interest Interest receivable for the year amounted to £260,000 compared with £1,020,000 last year. 1998 included interest on loans to the minority shareholders in PT Simpang Kiri Plantation Indonesia and PT Bilah Plantindo. This was dealt with on a 'received' rather than 'receivable' basis due to the uncertainty over the timing of repayments. During 1998, the loans and accumulated interest were repaid and, as a result, several years' interest amounting to £689,000 was credited in the profit and loss account in that year. CURRENT TRADING The estimated crops for the Group in 2000 are approximately 133,000 tonnes of f.f.b. and 890,000 kg of rubber. Crops have so far in 2000 been ahead of last year and this trend has also been apparent on the estates of the associated companies. The palm oil price dropped sharply in February to as low as US$280 per tonne but fortunately has recovered to the current level of around US$365. The Rupiah has been under pressure in the early part of 2000 as the Indonesian government and the World Bank continue negotiations with regard to the re- financing of the banking sector. The current level is around £1 = Rp12,500, having been at Rp11,390 at the end of 1999. BERTAM HOLDINGS PLC It was announced on 28 February 2000 that the Group had acquired a further 600,000 shares in Bertam Holdings PLC at a price of £1.50 per share. This increased the Group's holding from 33.39% to 36.23%. It was announced at the same time that the Group had subscribed for its pro rata entitlement under a rights issue by Sungkai Holdings Limited at a cost of £767,000. The proceeds of the Sungkai Holdings Limited rights issue were applied towards the purchase of 1,960,000 shares in Bertam Holdings PLC. Your board regarded this as a good opportunity to acquire, at a discount to asset value, a sizeable parcel of shares both directly, and indirectly through associates, in a company in which a substantial stake is already held. FUTURE STRATEGY This is my first statement in the annual report since I was honoured to be invited to take on the post of executive chairman. Taking over as chairman seems an appropriate time to take stock of where and what the Group is and where it is going. The Group directly owns a majority stake in plantation assets in Indonesia and, through its associated companies, agricultural and property assets in Malaysia, Indonesia and Australia. First the directly-held assets. The three estates are now virtually mature producing healthy profits and positive cash flows. There have been many difficulties and problems in Indonesia over the past two or three years and foreign investment has dropped sharply. However, your board regards this as an opportunity to acquire plantation assets at favourable prices. This is not easy to achieve but your board will endeavour to make plantation investments when suitable opportunities arise. Your board has confidence that investment in palm oil production is a sound one. The consumption of vegetable/cooking oil is rising, particularly in the emerging economies of Asia such as India and China. These are already huge markets with great potential for further growth and demand for cooking oil is rising rapidly. In world production terms, palm oil is the second largest with soya oil in first place but palm oil is not only the most traded oil it is the cheapest to produce, with a yield per hectare far in excess of its rivals. Indonesia is one of the most suitable countries in which to grow oil palm from both a climatic and soil point of view. It is also economically suitable with relatively low labour costs. Oil palms can only be grown between latitudes of approximately 100 north and south of the equator at altitudes from sea level up to 500 metres with well- distributed rainfall. Malaysia is the biggest palm oil producer with Indonesia second and these two countries account for 80% of world production. It is anticipated that Indonesia will become the number- one producer during the next decade or so. With regard to the associated companies, the boards of Bertam Holdings PLC, Beradin Holdings PLC, Padang Senang Holdings PLC and The Singapore Para Rubber Estates, PLC have announced that they intend entering into negotiations which may lead to proposals to amalgamate. These four companies operate in Malaysia and, given the level of common shareholdings, it seems to make sense to put them under one roof providing, of course, that acceptable terms can be agreed. Your board supports the idea of an amalgamation. The investments in the associated companies are backed by substantial assets and there are particularly exciting prospects for those estates in Malaysia with property-development potential. It is the intention not only to realise this underlying potential at the most appropriate and profitable time but also to encourage the market to appreciate this value so that it is more fairly reflected in the price at which the shares are traded on the Stock Exchange. P A Fletcher Chairman PRELIMINARY RESULTS (UNAUDITED) The board announces the following unaudited results and proposed dividend for the year ended 31 December 1999. 1999 1998 £'000 £'000 £'000 £'000 Turnover 4,756 4,201 Cost of sales (2,145) (1,216) ------ ------ Estate profit 2,611 2,985 Administrative expenses (362) (370) Exchange gains 39 266 ------ ------ Group operating profit 2,288 2,881 Share of operating profit in associates 2,644 2,480 ------ ------- Total operating profit 4,932 5,361 Gain on sale of fixed assets 167 - ------ ------- Profit on ordinary activities before interest 5,099 5,361 Interest receivable and similar income 276 1,037 Interest payable and similar charges - (67) ------ ------- 276 970 ------ ------- Profit on ordinary activities before taxation 5,375 6,331 Tax on profit on ordinary activities (note 2) (1,364) (1,519) ------ ------- Profit on ordinary activities after taxation 4,011 4,812 Equity minority interests (379) (499) ------ ------- Profit on ordinary activities attributable to the members of Rowe Evans Investments PLC 3,632 4,313 Equity dividend proposed (note 1) (2,057) (2,048) ------ ------- Profit retained for the financial year 1,575 2,265 ====== ====== Earnings per 10p share - pence (note 3) 7.53 8.91 Diluted earnings per 10p share - pence (note 3) 7.53 8.91 ====== ====== All operations are classed as continuing. The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 December 1999 or 1998. The financial information for the year ended 31 December 1998 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 1999 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting. The financial information set out in the announcement has been prepared on the basis of the accounting policies as stated in the previous year's financial statements. Statement of total recognised gains and losses 1999 1998 £'000 £'000 Profit attributable to the members of the Company 3,632 4,313 Unrealised share of associated undertakings' reserves 560 2,376 Exchange differences on foreign- currency net investments 106 (930) ------ ------ Total recognised gains and losses for the year 4,298 5,759 ====== ====== NOTES 1 Equity dividend proposed The board recommends a dividend of 4.25p per share (1998 - 4.25p) 1999 1998 Amount per 10p share 4.25p 4.25p Cost £2,057,000 £2,048,000 Payable on or after 01/08/00 02/08/99 Record date 19/05/00 10/05/99 Ex-dividend date 15/05/00 04/05/99 2 Taxation 1999 1998 £'000 £'000 United Kingdom corporation tax at 30.25% (1998 - 31%) 319 804 Double taxation relief (319) (803) ----- ------ - 1 Overseas taxation 829 1,008 Advance corporation tax 2 (1) Consortium relief (2) - ------ ------ 829 1,008 Adjustment in respect of prior year 4 1 ------ ------ 833 1,009 Associated undertakings' taxation 531 510 ------ ------ 1,364 1,519 ====== ====== 3 Earnings per share The calculation of earnings per 10p share is based on profits of £3,632,000 and on 48,210,278 shares which was the average number of shares in issue during the year. The calculation of earnings per share in 1998 was based on profits of £4,313,000 and on 48,386,114 shares which was the average number of shares in issue during the year. The calculation of diluted earnings per 10p share is based on profits of £3,632,000 and on 48,220,256 shares which was the average number of shares in issue during the year. The calculation of diluted earnings per share in 1998 was based on profits of £4,313,000 and on 48,402,180 shares which was the average number of shares in issue during the year. The additional shares used in the calculation of diluted earnings per share represent an adjustment made for the number of shares under option. 4. Millennium compliance Following their initial review, the directors continue to be alert to the potential risks and uncertainties surrounding the year 2000 issue. As at the date of this report, the directors are not aware of any significant factors which have arisen or that may arise, which will affect the activities of the business; however, the situation is still being monitored. Any future costs associated with this issue cannot be quantified but are not expected to be significant. 5. Timetable The report and financial statements will be despatched to shareholders on Friday 12 May 2000 and the annual general meeting will be held on Monday 12 June 2000. 6. Accounts Copies of the full report and financial statements for the year ended 31 December 1999 will be available from M.P. Evans (UK) Limited, 3 Clanricarde Gardens, Tunbridge Wells, Kent TN1 1HQ on and after 12 May 2000. By order of the board M.P.Evans (UK) Limited Secretaries 5 May 2000 Enquiries: Mr P E Hadsley-Chaplin Telephone: 01892 516333 Fax: 01892 518639 E-mail: annak@mpevans.co.uk
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