Final Results
R.E.A.Hldgs PLC
27 April 2006
R.E.A. HOLDINGS PLC
27 April 2006
Commentary on preliminary results for the year ended 31 December 2005
=====================================================================
Adoption of International Financial Reporting Standards
-------------------------------------------------------
The accompanying financial information for the year ended 31 December 2005 is
presented in accordance with International Financial Reporting Standards
('IFRS') as endorsed by the European Union. The comparative financial statements
for the year ended 31 December 2004 were prepared in accordance with UK GAAP and
have been restated in accordance with IFRS.
The main aspects of the company's consolidated financial statements that have
been affected by the change from UK GAAP to IFRS were summarised in the
company's interim report for the six months ended 30 June 2005 under
'Application of International Financial Reporting Standards'. The new treatment
of biological assets (comprising oil palm plantings and nurseries) is of
particular importance because, under IFRS, depreciation is no longer charged on
such assets but the assets are instead restated at fair value at each reporting
date and the movement on valuation over the reporting period, after adjustment
for additions and disposals, is taken to income.
Results
-------
Profit before tax for 2005, as shown in the accompanying consolidated income
statement, amounted to £9,622,000 representing a modest increase over the profit
before tax of the preceding year, as restated under IFRS, of £9,191,000.
The increase in 2005 profit over that of 2004 would have been greater were it
not that the 2005 profit has been struck after making full provision of some
£1.2 million for the previously unprovided component of the post year end
litigation settlement referred to under 'Litigation' below.
Important components of both the 2005 results and the restated results for 2004
are gains on revaluation of biological assets. These gains, which were not
included in reported profits under UK GAAP, amounted to £4,133,000 in 2005
against £2,986,000 in 2004. The increased gain in 2005 reflected the continuing
extension planting programme and the increasing maturity of existing planted
areas.
A higher rate of tax charge in 2005 than in the preceding year meant that the
profit for the year after tax fell short of that of 2004 at £6,299,000 against
£6,537,000. The higher rate of tax charge was caused by a number of movements
in the deferred tax accounts. The group continues to have substantial tax
losses available to it, mainly due to capital and other expenditure being
allowed for tax ahead of being expensed for reporting purposes. Current tax
actually payable by the group amounted to only £79,000 in 2005 (£118,000 in
2004).
Operations
----------
The fresh fruit bunch ('FFB') crop for 2005 was 313,355 tonnes, representing
94.7 per cent of budget and some 6.6 per cent ahead of the 293,883 tonnes
harvested in 2004.
The failure to achieve the budgeted FFB crop is attributed by the directors to
the level of rain during 2005 which averaged 4,739 mm across the operational
areas as against some 3,877 mm in the preceding year (itself representing a
relatively high level of precipitation). Especially heavy rains during April
and early May 2005 caused the Belayan and Mahakam rivers to flood and resulted
in significant operational disruption. There were then further heavy rains in
November and December (with nearly 1,000 mm in November). Whilst these later
rains did not cause the degree of disruption experienced in April and May 2005,
they did cause delays to harvesting resulting in a harvesting backlog at the
end of December 2005.
The CPO and palm kernel extraction rates for 2005 were, respectively, 23.4 per
cent and 4.0 per cent as compared with the rates of 24.3 and 4.1 per cent
achieved in 2004. The directors attribute the reduction in CPO extraction rate
and sub-optimal palm kernel extraction rate to the very damp conditions during
2005 inhibiting the weevil activity upon which cross-pollination depends,
leading to poor fruit set.
Construction of the group's second oil mill and first palm kernel crushing plant
is proceeding well and the mill and plant should be completed substantially on
schedule during the second half of 2006. The new mill will have a similar
eventual capacity to the existing mill. The additional milling capacity will be
required from 2007 onwards as areas that are currently immature progressively
come into cropping. The kernel crushing plant will process all palm kernel
output from both the existing and the new mill to produce palm kernel oil and
expeller.
The group had planned further extension planting of oil palms during 2005
totalling 4,500 hectares. Land clearing operations were delayed by
representations from certain affected local villagers seeking to renegotiate
compensation payments agreed on their behalf by their village head and then,
after the concerns of the affected individuals had been successfully allayed, by
abnormally high rainfall in the last quarter of 2005. As a result, land clearing
completed by end 2005 amounted only to 2,250 hectares. The balance of 2,250
hectares of the 2005 development programme has therefore been carried forward.
Given that a limited delay in the transfer of oil palm seedlings from nursery to
field should have no effect on the maturing of the resultant plantings, the
directors are confident that the late completion of the 2005 programme will have
no material long term adverse effect on future crops.
For 2006, it is planned to complete the balance of the 2005 programme and to
develop a further 3,750 hectares giving a total target of 6,000 hectares.
Seedling availability at, and planting preparatory work completed by, end 2005
were sufficient to permit implementation of this programme and development
to-date is progressing satisfactorily. Provided that CPO prices continue at
current levels or better, the directors, while recognising that such a target is
ambitious, intend that in 2007 the group should aim to plant an additional 7,000
hectares.
Litigation
----------
In September 2005, the group commenced mediated discussions with Mr M E Zukerman
and associated interests (the 'MEZ group') regarding the longstanding dispute
between the group and the MEZ group. The discussions were successfully
concluded in January 2006 with the group and the MEZ group agreeing to settle
all actual and threatened litigation claims between them. Under the terms of
settlement, the group paid $6 million to the MEZ group in settlement of various
MEZ group claims (including claims for amounts totalling $3.7 million for which
the group had made provision by 30 June 2005) and the company acquired the 12.3
per cent minority interest in the group's Indonesian operations owned by the
MEZ group for a consideration comprising $19 million nominal of 7.5 per cent
dollar notes 2012/14 of the company ('dollar notes').
Finance
-------
On 17 August 2005, the company submitted to shareholders and holders of other
securities of the company proposals for a reorganisation of the company's former
4 per cent convertible loan stock 2012. The proposals were duly approved on 12
September 2005 and resulted in the outstanding £3,050,497 nominal of convertible
loan stock being exchanged for a total of 5,002,587 new ordinary shares and
$4,972,281 nominal of dollar notes.
Later in September 2005, the group was successful in finalising the arrangement
of new loan facilities in Indonesia totalling US$45 million with a consortium of
three banks. An immediate drawdown was made of $38 million of the facilities of
which some $29 million was applied in repaying bank indebtedness and the balance
was used to augment the group's working capital. A further $3 million has been
drawn in 2006 to-date.
Also in 2006 to-date, a total of £10.24 million, net of estimated expenses, has
been raised by issues at 260p per share of 1,372,000 new ordinary shares
pursuant to a placing completed on 22 February 2006 and 2,828,000 new ordinary
shares pursuant to a placing and open offer completed on 19 April 2006. The
proceeds of the first placing were substantially applied in refunding the
$6 million paid to the MEZ group pursuant to the litigation settlement. The
balance of the monies raised has been earmarked to fund the planned extension
planting programme.
Subject to confirmation of the reduction of capital referred to under
'Dividends' below and to satisfaction of other usual conditions, the company has
agreed to issue 3,000,000 new 9 per cent cumulative preference shares at a price
of 105p per share pursuant to a further placing. If that issue becomes
unconditional, it is proposed that the group structure should be simplified by
winding up the company's subsidiary, Makassar Participation plc, in which a
proportion of the preference share capital is held by third parties. The net
proceeds of the preference share placing would be utilised in substantially
funding the net cash outflow from the group that discharge of the liquidation
entitlement of such third party holders would entail.
The transactions described in the immediately preceding paragraphs have together
significantly enhanced both the group's capital base and its immediate cash
resources and facilities. Whilst future operating cash flows will be dependent
upon a number of factors, the directors expect that such cash flows and the
available cash resources and facilities will be sufficient to enable the group
to fund both the planned development programme up to 31 December 2007 and debt
repayments up to that date.
Dividends
---------
The fixed semi-annual dividends on the 9 per cent cumulative preference shares
that fell due on 30 June and 31 December 2005 were duly paid.
The developments described under 'Litigation' and 'Finance' above have reduced
the uncertainties faced by the group and improved its financial stability.
Nevertheless the group will continue to face significant potential demands on
cash for both the planned continuing development of the group's operations and
to meet scheduled repayments under the Indonesian consortium loan facilities.
Accordingly, the directors do not recommend the payment of a dividend on the
ordinary shares in respect of 2005. The directors remain committed to the
restoration of ordinary dividends as soon as they are confident that the group's
cash flow can safely support the payment of such dividends.
To reduce the possibility that a technical limitation might inhibit the future
payment of dividends (especially dividends on the preference shares) which the
directors would, from a commercial viewpoint, feel able to recommend, the
directors have proposed a £6 million reduction in the capital of the company and
the release of that amount to distributable reserves. This proposal was
approved by shareholders and warrant holders on 18 April 2006 but remains
subject to confirmation by the High Court. An application for such confirmation
is expected to be heard on 18 May 2006.
Prospects
---------
The extension planting programme in respect of which planting out commenced in
2004 will not make any worthwhile contribution to crops until 2007.
Accordingly, the group is budgeting for an FFB crop in 2006 of 353,000 tonnes.
Crops to end March 2006 were approximately 15,000 tonnes ahead of budget but, as
the monthly phasing of each year's crop varies from year to year, this should
not be taken as indicating any likelihood that the FFB crop for 2006 as a whole
will be above budget. Moreover, an element of the surplus over budget reflects
the harvesting backlog at end December 2005.
Higher operating costs in US dollar terms and, in particular, the increased cost
of diesel following the removal of government subsidies, will have some adverse
effect on operating margins going forward. Against this, recent weeks have seen
some softening in world freight rates which, if maintained, should be reflected
in the differential between CPO prices CIF Rotterdam and FOB East Kalimantan,
such differential having been at historically high levels for most of 2005.
Moreover, the directors believe that the outlook for CPO demand is positive
given the increasing use of CPO as a bio-fuel. Accordingly the directors
believe that, absent further weather abnormalities, 2006 will prove a
satisfactory year for the group.
Beyond 2006, the directors foresee significant year on year increases in output
as new plantings under the extension planting programme progressively come into
production and move to full yield. This should be positive for the group's
future.
Consolidated income statement
for the year ended 31 December 2005 2005 2004
=================================== £'000 £'000
Revenue 14,944 16,052
Cost of sales (6,641) (6,072)
------ ------
Gross profit 8,303 9,980
Net gain arising from changes in fair value of
biological assets 4,133 2,986
Other operating income 6 1,059
Distribution costs (190) (32)
Administrative expenses (1,572) (2,918)
Other operating expenses - (285)
------ ------
Operating profit 10,680 10,790
Investment revenues 98 157
Finance costs (1,156) (1,756)
------ ------
Profit before tax 9,622 9,191
Tax (3,323) (2,654)
------ ------
Profit for the year 6,299 6,537
====== ======
Attributable to:
Ordinary shareholders 4,520 4,783
Preference shareholders 765 639
Minority interests 1,014 1,115
------ ------
6,299 6,537
====== ======
Earnings per 25p ordinary share
Basic 20.0p 24.2p
Diluted 16.7p 18.0p
All operations in both years are continuing
Consolidated balance sheet at 31 December 2005 2005 2004
============================================== £'000 £'000
Non-current assets:
Biological assets 68,192 51,765
Property, plant and equipment 10,565 7,497
Prepaid operating lease rentals 661 294
Deferred tax assets 5,619 7,642
Non-current receivables 1,193 490
------ ------
Total non-current assets 86,230 67,688
------ ------
Current assets:
Inventories 2,017 1,744
Trade and other receivables 2,854 2,817
Assets held for resale - 1,067
Cash and cash equivalents 5,007 1,061
------ ------
Total current assets 9,878 6,689
------ ------
Total assets 96,108 74,377
------ ------
Current liabilities:
Trade and other payables (7,122) (3,512)
Current tax liabilities (141) (121)
Obligations under finance leases (354) (318)
Bank loans (2,180) (2,680)
Other loans and payables (149) (142)
------ ------
Total current liabilities (9,946) (6,773)
------ ------
Non-current liabilities:
Bank loans (19,913) (12,790)
Convertible loan stock - (2,337)
US dollar notes (2,852) -
Deferred tax liabilities (17,372) (14,971)
Obligations under finance leases (190) (347)
Other loans and payables (1,702) (1,823)
------ ------
Total non-current liabilities (42,029) (32,268)
------ ------
Total liabilities (51,975) (39,041)
------ ------
Net assets 44,133 35,336
====== ======
Equity:
Share capital 14,788 13,533
Share premium account 2,627 3,885
Capital redemption reserve 3,240 3,240
Warrants 1,162 1,164
Translation reserve (5,858) (9,129)
Equity reserve - 370
Retained earnings 21,668 17,148
------ ------
37,627 30,211
Minority interests 6,506 5,125
------ ------
Total equity 44,133 35,336
====== ======
Consolidated statement of recognised income and
expense for the year ended 31 December 2005 2005 2004
=============================================== £'000 £'000
Exchange translation differences 3,522 (2,726)
Tax on items taken directly to equity 352 125
------ ------
Net income /(loss) recognised directly in equity 3,874 (2,601)
Profit for the year 6,299 6,537
------ ------
Total recognised income and expense for the year 10,173 3,936
====== ======
Attributable to:
Ordinary shareholders 7,791 2,621
Preference shareholders 765 639
Minority interests 1,617 676
------ ------
10,173 3,936
====== ======
Reconciliation of movements in equity
for the year ended 31 December 2005 2005 2004
===================================== £'000 £'000
Total recognised income and expense for the year 10,173 3,936
Issue of new ordinary shares arising on conversion
of convertible loan stock 7 541
Issue of new ordinary shares arising on restructuring
of the balance of the convertible loan stock and
write off of debt and equity issuance costs (384) -
Issue of preference shares - 1,600
Issue of ordinary shares on exercise of warrants 2 47
Dividends to minority shareholders of a subsidiary (236) (163)
Dividends to preference shareholders (765) (639)
------ ------
8,797 5,322
Equity at beginning of year 35,336 30,014
------ ------
Equity at end of year 44,133 35,336
====== ======
Consolidated cash flow statement
for the year ended 31 December 2005 2005 2004
=================================== £'000 £'000
Operating profit 10,680 10,790
Depreciation of property, plant and equipment 806 639
Amortisation of prepaid operating lease rentals 19 9
Biological gain (4,133) (2,986)
Gain on disposal of property, plant and equipment (5) (7)
Loss on disposal of investment 9 -
------ ------
Operating cash flows before movements in working capital 7,376 8,445
Increase in inventories (116) (218)
(Increase) / decrease in receivables (647) 12
Increase / (decrease) in payables 2,933 (2,912)
Exchange differences (505) 367
------ ------
Cash generated by operations 9,041 5,694
Taxes paid (59) (118)
Interest paid (1,008) (800)
------ ------
Net cash from operating activities 7,974 4,776
------ ------
Investing activities
Interest received 98 54
Proceeds on disposal of property, plant and equipment 15 15
Purchases of property, plant and equipment (2,931) (1,048)
Expenditure on biological assets (5,660) (2,264)
Expenditure on operating leases (332) (108)
Purchase of investments - (1,067)
Disposal of investments 1,058 -
------ ------
Net cash used in investing activities (7,752) (4,418)
------ ------
Financing activities
Preference dividends paid (765) (639)
Repayment of borrowings (17,463) (11,108)
Repayment of obligations under finance leases (158) (411)
Proceeds of issue of ordinary share capital less expenses (138) 47
Proceeds of issue of preference share capital less expenses - 1,600
New borrowings raised 22,093 4,654
Issue costs of US dollar notes (49) -
------ ------
Net cash used in financing activities 3,520 (5,857)
------ ------
Cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents 3,742 (5,499)
Cash and cash equivalents at beginning of year 1,061 6,790
Effect of exchange rate changes 204 (230)
------ ------
Cash and cash equivalents at end of year 5,007 1,061
====== ======
Accounting policies
===================
The accounting policies are as set out in the company's interim report for the
six months ended 30 June 2005, and have been consistently applied.
Notes
=====
Revenue 2005 2004
------- £'000 £'000
Sales of goods 14,770 15,939
Revenue from services 174 113
------ ------
14,944 16,052
Other operating income 6 1,059
Investment income 98 157
------ ------
Total revenue 15,048 17,268
====== ======
Other operating income includes a gain on repurchase of debt of £nil (2004
£876,000).
Segment information
-------------------
In the table below, the group's sales are analysed by geographical origin and
the carrying amount of segment net assets and additions to property, plant and
equipment by geographical area of location. No analyses are provided by business
segment as the group has only one business segment.
2005 2004
£'m £'m
Sales by geographical market:
United Kingdom 0.2 0.1
Europe 0.6 -
Indonesia 8.8 11.4
Rest of Asia 5.3 4.6
------ ------
14.9 16.1
====== ======
Carrying amount of segment net assets by
geographical area of asset location:
United Kingdom 0.9 (3.2)
Indonesia 43.2 38.5
------ ------
44.1 35.3
====== ======
Biological assets 2005 2004
----------------- £'000 £'000
Beginning of year 51,765 50,128
Additions to planted area and costs to maturity 5,660 2,264
Net biological gain 4,133 2,986
Exchange differences 6,592 (3,613)
Transfers 42 -
------ ------
End of year 68,192 51,765
====== ======
Finance costs 2005 2004
------------- £'000 £'000
Interest on bank loans and overdrafts 1,302 1,065
Interest on convertible loan stock 95 211
Interest on US dollar notes 94 -
Interest on other loans 168 252
Interest on obligations under finance leases 64 69
------ ------
1,723 1,597
Less: Amount included as additions to biological assets (967) (606)
------ ------
756 991
Other finance charges 277 26
Exchange loss on repayment of long term intra-group
foreign currency loans 123 739
------ ------
1,156 1,756
====== ======
Amount included as additions to biological assets arose on the general pool of
borrowings applicable to the Indonesian operations and reflected a
capitalisation rate of 40.6 per cent (2004 - 31.3 per cent).
Tax 2005 2004
--- £'000 £'000
Current tax:
UK corporation tax - -
Foreign tax 79 118
------ ------
Total current tax 79 118
------ ------
Deferred tax:
Current year 3,244 2,536
Attributable to an increase in the rate of tax - -
------ ------
Total deferred tax 3,244 2,536
------ ------
Total tax 3,323 2,654
====== ======
Dividends 2005 2004
--------- £'000 £'000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share 765 639
Ordinary dividends - -
------ ------
765 639
====== ======
Earnings per share 2005 2004
------------------ £'000 £'000
Earnings for the purpose of basic earnings per share
being net profit attributable to ordinary shareholders 4,520 4,783
Interest on convertible loan stock (net of tax) 66 148
------ ------
Earnings for the purpose of diluted earnings per share 4,586 4,931
====== ======
'000 '000
Weighted average number of ordinary shares for
the purpose of basic earnings per share 22,631 19,755
Effect of dilutive potential ordinary shares 4,784 7,656
------ ------
Weighted average number of ordinary shares for
the purpose of diluted earnings per share 27,415 27,411
====== ======
Events after the balance sheet date
-----------------------------------
The litigation previously commenced or threatened against the company and
certain of its directors and subsidiaries by interests associated with Mr M E
Zukerman ('the MEZ group') was settled on 23 January 2006.
Pursuant to the litigation settlement with the MEZ group:
• the group paid $6 million to the MEZ group as additional interest on
former loans to the company's subsidiary, PT REA Kaltim Plantations and in
settlement of various claims by the MEZ group for fees for past services and
financial support; and
• the company acquired the 12.3 per cent minority interest in the issued
ordinary share capital of the company's subsidiary, Makassar Investments
Limited, owned by the MEZ group for a consideration comprising the issue by the
company to the MEZ group of $19 million nominal of US dollar notes.
On 22 February 2006, the company issued 1,372,000 ordinary shares, fully paid,
to Mirabaud Pereire Nominees Limited by way of a placing at a subscription price
of 260p per share. The net proceeds amounted to £3.44 million. The agreement in
respect of the placing was made on 14 February 2006. The closing mid-market
price of the existing ordinary shares on 13 February 2006 was 321.5p.
On 19 April 2006, the company issued 2,828,000 ordinary shares fully paid at a
subscription price of 260p per share. Of these ordinary shares, 1,104,856 were
issued pursuant to an open offer and 1,723,144 were issued to Mirabaud Pereire
Nominees Limited by way of a placing. The estimated net proceeds amounted to
£6.80 million.
Financial information and publication of annual report
------------------------------------------------------
Whilst the financial information included in this preliminary announcement (the
'preliminary financial information') has been computed in accordance with IFRS,
this announcement does not itself contain sufficient information to comply with
IFRS. The company expects to publish its 2005 annual report, incorporating its
consolidated financial statements, in early May 2006.
The preliminary financial information does not constitute statutory accounts of
the company for the years ended 31 December 2004 or 2005, but is derived from
those accounts. Statutory accounts for 2004 have been delivered to the Registrar
of Companies and those for 2005 will be delivered following the company's 2006
annual general meeting. The auditors have reported on those accounts; their
reports were unqualified and did not contain statements under sections 237(2)
or (3) of the Companies Act 1985.
This announcement was approved by the board of the company on 27 April 2006. The
2006 annual general meeting is being convened for 8 June 2006.
This information is provided by RNS
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