Final Results

R.E.A.Hldgs PLC 29 April 2003 R.E.A. Holdings plc Commentary on preliminary results - 2002 Results The profit on ordinary activities before taxation for 2002, as shown in the accompanying consolidated profit and loss account, and the comparative figure for 2001, may be analysed as follows 2002 2001 £'000 £'000 Normal profits Continuing operations 1,782 (34) Discontinued operations - 13 Sale of assets and investments (326) 448 ----- --- 1,456 427 ----- --- The significant increase in normal profits from continuing operations in 2002 results from a combination of the increasing crops now being harvested from the East Kalimantan project and higher world market prices for crude palm oil, particularly in the second half of the year. Whilst shareholders will hopefully be pleased at the returns that are, at last, beginning to flow from the continuing operations, they should note from the full consolidated profit and loss account that a substantial proportion of 2002 profits was attributable to minority interests. The extent of such interests for the most part reflects the fact that UK overheads are wholly attributable to the group while overseas profits are not. If, as is hoped, UK overheads remain static and overseas profits continue to grow, the proportion of total profits represented by minority interests may be expected to reduce. Group development In April 2002, the company acquired the whole of the issued ordinary share capital of Makassar Participations plc and this resulted in the company increasing its equity interest in Makassar Investments Limited ('Makassar') (the Jersey holding company of PT REA Kaltim Plantations ('REA Kaltim'), the direct owner of the East Kalimantan project) to 51 per cent. Also, in April 2002, the company announced an open offer of convertible loan stock, which, on its completion in May, raised some £3.8 million (before expenses). With these monies, the company supported a rights issue by Makassar. Outside shareholders in Makassar elected not to take up their rights and, in consequence, the company further increased its equity interest in Makassar to its current level of 79 per cent. Makassar was able, with the proceeds of its rights issue, to provide additional financial support to REA Kaltim and this allowed the latter to move forward with proposals for the rescheduling of its indebtedness. Full implementation of such proposals has still to be achieved but a major step forward was taken in December 2002 with the signature of formal rescheduling agreements with a sufficient number of REA Kaltim's Indonesian bankers to ensure that, in relation to REA Kaltim's Indonesian bank borrowings totalling $29.5 million, no event of default can now be declared in respect of events that arose prior to execution of the rescheduling agreements. In May 2002, shareholders approved the divestment of a remaining 25 per cent interest in the former Bangladesh tea operations, the sale of which had been agreed in 2001 but on a basis that was conditional upon shareholder approval. This divestment completed implementation of the group's decision to base its future entirely on the East Kalimantan project and to sell all other interests. Dividends No dividend has been paid on the 9 per cent cumulative preference shares since 30 June 2001 and the fixed cumulative dividend on those shares is therefore in arrears to the extent of the semi-annual dividend that fell due on 31 December 2001 and the dividends due in respect of 2002. The rights of the preference shares provide for accumulation of arrears of preference dividends so that no entitlement to dividends will be lost by preference shareholders. However, the directors recognise that many preference shares are acquired for income and that the postponement of that income is unsatisfactory. Subject to the price of crude palm oil remaining at or above current levels for the remainder of 2003, and provided that any requirement in 2003 to reduce external group obligations can be met substantially by new borrowings and from the cash resources that the group currently has in hand, the directors hope that the company will be able to recommence payment of dividends on the preference shares on 31 December 2003 with a dividend on that date equal to the semi-annual dividend then falling due. Thereafter the directors would hope to be able progressively to reduce the accumulated arrears of dividend on the preference shares. No dividend can be paid on the ordinary shares until all arrears of dividend on the preference shares have been eliminated. Accordingly, no ordinary dividends have been paid or are proposed in respect of 2002. Prospects Looking forward to 2003, the directors hope that the good operational progress achieved in 2002 will continue. Existing planted areas will further mature during the year and with that further maturity, yields should continue to grow. Crude palm oil prices are still at satisfactory levels and, whilst commodity prices are always difficult to predict, look set to remain (at least for the rest of the year) at levels that will be highly remunerative for the group. With increasing crops and better prices, the directors intend that REA Kaltim should, in 2003, recommence extension planting at an initial annual rate of 3,000 hectares. Financially, the group continues to face some challenges with final agreement still to be reached on the restructuring of indebtedness to Commerzbank (South East Asia) Limited and an unresolved outstanding demand, from interests associated with Mr M E Zukerman, for repayment of a loan to REA Kaltim of US$ 8.175 million. In addition, the group still has to contend with the nuisance of the litigation brought in New York against the company and two of its directors by the Zukerman interests. The risks inherent in these uncertainties have, however, been reduced by the greater financial flexibility that has been created by the successful completion, in March 2003, of the open offer and placing announced in February, which raised a further £3.4 million (before expenses). Optimism must always be tempered by realism and the financing risks referred to above are but one aspect of the many risks that the group faces. Nevertheless, the directors are becoming increasingly optimistic that, with the recommencement of extension planting now planned, it will yet prove possible to realise the original vision of developing the East Kalimantan project into one of the largest single site oil palm plantations in South East Asia and, in so doing, to generate very significant growth for the company and its shareholders. Consolidated balance sheet 31 December 2002 Unaudited 2002 2001 £000 £000 Fixed assets Tangible fixed assets 49,603 50,304 Investments - 507 ------ ------ 49,603 50,811 ------ ------ Current assets Stocks 857 1,143 Debtors 4,544 2,892 Cash 5,156 5,398 ------ ------ 10,557 9,433 Creditors up to one year (13,765) (39,373) ------ ------ Net current (liabilities) (3,208) (29,940) ------ ------ Total assets less current liabilities 46,395 20,871 Creditors over one year Convertible debt (3,419) - Other creditors (21,134) (1,871) ------ ------ Net assets 21,842 19,000 ------ ------ Capital and reserves Called up share capital 8,887 8,812 Share premium account 1,233 1,178 Capital redemption reserve 3,240 3,240 Warrants 1,218 1,218 Revaluation reserve (532) (2,316) Other reserve 768 - Profit and loss account 2,454 2,465 ------ ------ Shareholders' funds* 17,268 14,597 Minority interests 4,574 4,403 ------ ------ Total capital employed 21,842 19,000 ------ ------ * Shareholders' funds comprise equity interests of £11,653,000 (2001 £8,892,000) and non-equity interests of £5,705,000 (2001 £5,705,000). Consolidated profit and loss account for the year ended 31 December 2002 Unaudited Unaudited 2002 2002 2001 2001 £000 £000 £000 £000 Turnover Continuing 12,831 1,326 Discontinued - 105 ------ ------ 12,831 1,431 Cost of sales (7,897) (403) ------ ------ Gross profit 4,934 1,028 Other operating income and (2,571) (1,223) expenses ------ ------ Continuing 2,363 (241) Discontinued - 46 ------ ------ Group operating profit/(loss) 2,363 (195) Share of operating (loss)/profit of associates - continuing - (29) - discontinued - 151 Disposal of assets and investments (326) 448 Interest receivable and similar income 88 1,131 Interest payable - associates - (807) Interest payable - group (669) (272) ------ ------ Profit on ordinary activities before taxation 1,456 427 Tax on profit on ordinary activities (49) (147) ------ ------ Profit on ordinary activities after taxation 1,407 280 Minority interests (including non-equity interests) (725) (59) ------ ------ Profit for the financial year 682 221 Non-equity dividends (512) (512) ------ ------ Retained profit/(loss) for the year 170 (291) ------ ------ Earnings per ordinary share - basic 1.4p (2.6)p - fully diluted 1.3p (2.6)p Total consolidated recognised gains and losses for the year ended 31 December 2002 Unaudited 2002 2001 £000 £000 Profit for the financial year 682 221 Currency translation and revaluation adjustments 1,659 (2,254) ------ ------ 2,341 (2,033) ------ ------ Consolidated cash flows for the year ended 31 December 2002 Unaudited 2002 2001 £000 £000 Net cash inflow/(outflow) from operating activities 1,035 (2,522) ------ ------ Returns on investments and servicing of finance Interest received 88 1,131 Interest paid (669) (272) Dividends paid to preference shareholders - (256) ------ ------ (581) 603 ------ ------ Taxation (101) (59) ------ ------ Capital expenditure and financial investment Purchase of tangible fixed assets (2,154) (664) Sale of tangible fixed assets 60 2,146 Sale of investments - 406 ------ ------ (2,094) 1,888 ------ ------ Acquisitions and disposals Purchase of further shares in subsidiary companies (560) - Sale of subsidiaries - 3,145 Adjustment of selling price of interests in subsidiaries - 100 ------ ------ (560) 3,245 ------ ------ Equity dividends paid - - ------ ------ Cash (outflow)/inflow before management of liquid resources and financing (2,301) 3,155 ------ ------ Management of liquid resources (3,315) 108 ------ ------ Financing Issue of convertible loan stock and expenses 3,419 - Net (repayment) of debt up to one year - (2,699) Net issue/(repayment) of debt over one year 2,815 (1,064) Finance lease repayments (151) (7) Share issue and expenses (5) 1,268 ------ ------ 6,078 (2,502) ------ ------ ------ ------ Increase in cash 462 761 ------ ------ Notes to the preliminary accounts Basis of preparation The financial statements have been prepared in accordance with accounting standards applicable in the United Kingdom. The principal accounting policies have been applied consistently with the exception of Financial Reporting Standard No. 19 'Deferred Taxation' (which has been adopted this year) the impact of which is not material. Segment information In the tables below the group's net assets, turnover and profit before taxation (excluding the results of sales of assets and investments) are analysed by geographical area and by business class. The element of continuing turnover and profit before taxation (excluding result of sales of assets and investments) included in total, is separately identified. Net assets, in the case of the geographical analysis, are allocated to the area where the main operation of a particular activity is carried out and where the majority of that activity's assets are situated. Unallocated items include general group financing and head office costs; financing which is directly attributable to a particular activity has been allocated to that activity. Unaudited Unaudited (a) Net assets/(liabilities) 2002 2002 2001 2001 Associates Total Associates Total Net assets - by £m £m £m £m geographical area United Kingdom - (2.8) - 5.7 Bangladesh - 0.5 - 0.5 Indonesia - 23.8 - 12.8 ------ ------ ------ ------ - 21.5 - 19.0 ------ ------ ------ ------ Net assets - by business class Agriculture - 23.6 - 13.3 Other activities - - - - Unallocated - (2.1) - 5.7 ------ ------ ------ ------ - 21.5 - 19.0 ------ ------ ------ ------ Unaudited (b) Turnover Unaudited 2002 2001 2002 of which 2001 of which Total continuing Total continuing Turnover - by geographical area £m £m £m £m United Kingdom 0.2 0.2 0.3 0.3 Indonesia 12.1 12.1 0.8 0.8 Other Asia 0.5 0.5 0.1 0.1 Africa - - 0.2 0.1 ------ ------ ------ ------ 12.8 12.8 1.4 1.3 ------ ------ ------ ------ Turnover - by geographical area, by origin of transaction United Kingdom 0.2 0.2 0.7 0.6 Indonesia (2001 - 1 month) 12.6 12.6 0.7 0.7 ------ ------ ------ ------ 12.8 12.8 1.4 1.3 ------ ------ ------ ------ Turnover - by business class Merchanting - - 0.1 - Agriculture (2001 - 1 month) 12.6 12.6 0.7 0.7 Other activities 0.2 0.2 0.6 0.6 ------ ------ ------ ------ 12.8 12.8 1.4 1.3 ------ ------ ------ ------ (c) Profit before taxation excluding sales of assets and investments Unaudited 2001 2002 2001 2001 of which All continuing Associates Total continuing £000 £000 £000 £000 United Kingdom (380) - 527 489 Bangladesh - 35 35 - Indonesia 2,162 (660) (523) (523) America - (56) (56) - Africa - (4) (4) - ------ ------ ------ ------ 1,782 (685) (21) (34) ------ ------ ------ ------ Profit - by business class Merchanting - - 45 - Agriculture 2,162 (685) (548) (523) Other activities - - 118 125 Unallocated (380) - 364 364 ------ ------ ------ ------ 1,782 (685) (21) (34) ------ ------ ------ ------ Unaudited Taxation 2002 2001 £000 £000 UK Corporation tax - (122) Foreign taxation (59) (97) Share of taxation of associated companies - (13) Previous years 10 85 ------ ------ (49) (147) ------ ------ Financial condition and contingent liability The group's operations in Indonesia continue to be exposed to the economic, political and social situation of Indonesia. The directors have considered the adequacy of disclosures made in the financial statements concerning this situation and its effect on the group. The Indonesian rupiah was stable and other Indonesian economic indicators moderately positive during the year but it remains impossible to determine the effect that a deterioration in Indonesian economic, political or social conditions, which are outside the control of the group, might have on future values of assets, earnings, profitability or cash flows of the group. There is therefore a fundamental uncertainty as to the effect on the group's operations of the economic, political and social conditions in Indonesia. However the group is shielded to an extent from the effect of some of these factors because palm oil is traded using worldwide US dollar based commodity prices. The financial statements have been prepared on the going concern basis which assumes that the company and its subsidiaries will continue in operational existence for the foreseeable future. The validity of this assumption depends on the successful conclusion of negotiations to reschedule loans to the company's subsidiary, PT REA Kaltim Plantations ('REA Kaltim'). The likelihood of achieving such a conclusion has been increased by the successful offer and placing in March 2003, which have provided the group with additional working capital resources and should assist the the group in accessing other sources of finance, if required. The financial statements do not include any adjustments that would result if negotiations to reschedule loans to REA Kaltim are not concluded successfully. In November 2001, entities associated with Mr M E Zukerman ('the plaintiffs') commenced an action in New York against the company and two of its directors personally ('the defendants') asserting claims ('the claims') for fraud, fraudulent inducement, breach of contract, promissory estoppel and tortious interference in relation to a purported oral contract between the company and the plaintiffs to cause Makassar and/or REA Kaltim to pay a return of 30 per cent per annum on monies lent to REA Kaltim by, or with the support of, the plaintiffs. The company entered into no such agreement as is alleged by the plaintiffs. Accordingly, the directors consider that the claims are without merit and, on the basis of legal advice received, the defendants filed a motion to have the claims dismissed in their entirety. A magistrate judge (to whom the motion for dismissal was referred) recommended that, save for one minor component of one claim for fraud, all claims for fraud, fraudulent inducement and tortious interference should be dismissed but that the remaining claims, which are all contract related, should proceed (on the grounds that such claims could not be dismissed without investigation of the factual background which is not possible on a motion for dismissal). The plaintiffs have objected to the magistrate's recommendations as respects most of the claims recommended for dismissal and the defendants have objected as respects the magistrate's recommendation to retain the minor component of one claim for fraud. A final ruling on these matters is still awaited. Announcement based on draft accounts The financial information set out in the announcement does not constitute the company's statutory accounts for the year ended 31 December 2002 or 2001. The financial information for the year ended 31 December 2001 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 s237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2002 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. This information is provided by RNS The company news service from the London Stock Exchange UUUACUPWPUB

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