Interim Results
R.E.A.Hldgs PLC
05 September 2007
R.E.A. HOLDINGS PLC - 2007 INTERIM RESULTS
Highlights
==========
• Revenue of £12,202,000 (2006 £9,064,000), an increase of 35%
• Earnings before interest, tax, depreciation, amortization and biological gain
of £9,063,000 (2006 £3,967,000), an increase of 128%
• Profit attributable to ordinary shareholders of £5,460,000 (2006 £3,143,000),
an increase of 74%
• Anticipated ordinary dividends in respect of 2007 totalling 2p per ordinary
share (2006 - 1p); first interim dividend of 1p per ordinary share declared
for payment on 5 October 2007
• To provide some additional return to shareholders in a year of favourable
crude palm oil prices, proposed capitalisation issue of 1,085,795 new 9 per
cent cumulative preference shares to ordinary shareholders on the basis of one
new preference share for every 30 ordinary shares
• Fresh fruit bunch crop to end August 2007 19,000 tonnes ahead of budget;
budgeted crop for 2007 of 380,000 tonnes remains realistic
• Land from existing land bank immediately available for planting increased by
6,000 hectares with expectation of a further increase of about 5,000 hectares
by year end
• To offset possibility of further delays in titling balance of existing land
bank, conditional agreement reached to acquire a further 20,000 hectares of
plantable land in East Kalimantan for $3.8 million; acquisition expected to
be completed prior to year end, whereupon acquired land will be immediately
available for planting
• Further consolidation of financial position resulting at 30 June 2007 in group
cash and liquid resources of £21 million and indebtedness of £46 million (of
which £11 million owed to banks and balance represented by medium term notes)
• Proposed placing of 1,064,581 new preference shares at 105p per share as a
first and minor step towards meeting anticipated future funding requirements
of the planned continuing expansion; the group will also seek additional
medium term debt for drawdown over two or more years from 2008
• Current net returns from sales of crude palm oil at historically high levels;
while this continues, the group is well placed to benefit
Summary of results for the six months to 30 June 2007
=====================================================
6 months to 6 months to
30 June 30 June
2007 2006 Change
£'000 £'000 %
Revenue 12,202 9,064 + 35
Earnings before interest, tax, depreciation,
amortisation and biological gain 9,063 3,967 + 128
Profit before tax 8,799 5,505 + 60
Profit for the period 5,989 3,763 + 59
Profit attributable to ordinary shareholders 5,460 3,143 + 74
Earnings per ordinary share (diluted) 16.9p 10.7p + 58
Dividend per ordinary share 1.0p nil n/a
Chairman's statement
====================
Results
Group profit before tax for the six months to 30 June 2007 amounted to
£8,799,000, some 60 per cent ahead of the profit before tax of the corresponding
period of 2006 of £5,505,000. The results principally reflect the combination of
an increased gross profit for the period of £9,786,000 (against £4,803,000)
partly offset by a lower biological gain at £1,024,000 (against £1,926,000).
As discussed under 'Operations' below, crops for the six month period were in
fact slightly lower than in the preceding year. Accordingly, the increased gross
profit was mainly the result of the substantially higher prices that the group
was able to achieve for its crude palm oil ('CPO') during the period. Although
not large in the context of the group's overall results, the group also
benefited from a better contribution from its palm kernel production since, with
its recently constructed palm kernel crushing plant now in full operation, the
group is able to process kernels into palm kernel oil and sell that oil rather
than, as previously, selling unprocessed kernels.
The directors continue to refine the methodology applied in valuing the group's
estates for reporting purposes. In particular, with the estates owned by the
company's principal subsidiary, PT REA Kaltim Plantations ('REA Kaltim'), now
approaching full maturity and with the still wholly immature areas owned by
other subsidiaries of the company expanding, the directors consider that it is
no longer appropriate to value all of the estates on a single discount rate
(17.5 per cent at 31 December 2006). Instead, they consider that estate
valuations should reflect a discount rate specific to each subsidiary (at 30
June 2007, 17.5 per cent in the case of REA Kaltim and 19 per cent in the case
of the other subsidiaries). The directors have also reviewed the initial costs
of oil palm extension development and have concluded that, with increasing
levels of expenditure on infrastructural establishment, the costs of
infrastructural development should no longer be treated as an input to the
creation of biological assets but should be capitalised and depreciated as
permanent infrastructure. The reported gain on biological assets has been struck
after reflecting these refinements.
The group's profits effectively arise in US dollars (the functional currency of
the group) and are translated into sterling for reporting purposes. Weakness in
the US dollar during the six months to 30 June 2007 (with an average US dollar
to sterling exchange rate of £1=$1.98, against £1=$1.80 for the corresponding
period of 2006) meant that the reported percentage increase in the group's
profits for the six months to June 2007 was less than would have been the case
had the group reported in US dollars.
Ordinary dividend
CPO prices are at the moment at levels significantly above the average level of
the last ten years (which was some $450 per tonne CIF Rotterdam) but there can
be no certainty that this will continue. If it does not, the directors are
anxious to ensure that the group will have the cash resources necessary to
finance completion of any extension planting in hand (including any necessary
attendant additions of buildings and capital equipment). With extension planting
continuing at a rapid rate, this perforce constrains the rate at which the
directors feel that they can prudently declare, or recommend the payment of,
ordinary dividends.
The directors do appreciate that many shareholders invest not only for capital
growth but also for income and that the payment of dividends is important. After
several years in which no dividends were paid on the ordinary shares, ordinary
dividends were resumed in February 2007 when an interim dividend in lieu of
final of 1p per ordinary share was paid in respect of 2006. With the expectation
of increasing crops from the group's expanding oil palm hectarage, the directors
believe that, notwithstanding the cash constraints of the development programme,
the group should be able to support progressive increases in ordinary dividends
from the modest level established in respect of 2006. They do however envisage
that, because of the cash constraints referred to above, the rate of progression
will be steady rather than dramatic. Moreover, the directors intend that any new
level of dividend set in respect of any given year should be sustainable in
subsequent years.
On this basis, the directors have declared a first interim dividend in respect
of 2007 of 1p per ordinary share payable on 5 October 2007 to shareholders on
the register of members on 14 September 2007. Absent unforeseen circumstances,
the directors intend to declare a second interim dividend, in lieu of final, in
respect of 2007, for payment early in 2008, of a further 1p per ordinary share,
making a total dividend of 2p per ordinary share in respect of the year (2006 -
1p).
The directors recognise that annual dividends totalling 2p per ordinary share
may be thought not to reflect fully recent improvements in the group's financial
position and prospects, particularly in a year in which the group is benefiting
from favourable CPO prices. Accordingly, with the aim of providing some
additional return to ordinary shareholders while conserving the group's cash
resources, the directors further propose that the company should make a
capitalisation issue to ordinary shareholders of 1,085,795 new 9 per cent
cumulative preference shares on the basis of one new preference share for every
30 ordinary shares held on 1 October 2007. Shareholders are being sent a
separate circular setting out details of the proposed capitalisation issue.
Operations
Fresh fruit bunches ('FFB') harvested during the six months to 30 June 2007
totalled 165,000 tonnes. Although some 8,000 tonnes ahead of budget, this FFB
crop was, as noted earlier, below the crop of 191,000 tonnes achieved in the
corresponding period of 2006. This was in line with the budget expectation that,
given the distribution of rainfall during 2005 and 2006 and the normal pattern
of cropping cycles, crops in 2007 would be weighted towards the second half
(whereas crops in 2006 were weighted towards the first half). Crops for July and
August 2007 have been running ahead of the levels achieved in July and August
2006 and support the projection of higher crops in the second half of 2007. The
FFB crop to end August 2007 amounted to 229,000 tonnes and was 19,000 tonnes
ahead of budget. This suggests that the budgeted crop for 2007 of 380,000 tonnes
remains a realistic projection.
Crude palm oil ('CPO') and palm kernel production for the six months to 30 June
2007 amounted to, respectively, 40,700 tonnes (43,900 tonnes) and 7,000 tonnes
(7,400 tonnes) reflecting extraction rates of 24.5 per cent for CPO (23.0 per
cent) and 4.2 per cent (3.9 per cent) for kernels.
With the kernel crushing plant fully operational during the period, kernels were
further processed into crude palm kernel oil ('CPKO'). Production of CPKO for
the six months to 30 June 2007 amounted to 3,042 tonnes, reflecting an
extraction rate of 43.5 per cent.
Rainfall in the half year averaged 2,790 millimetres (2006 - 2,070 millimetres)
across the group's estates, a high level that augurs well for cropping over the
coming months. There were some limited periods of very heavy rains with
consequent flooding. Fortunately, operational disruption was much less than
during flooding in previous years because, with the group now having a fully
operational oil mill on each side of the Belayan river (which bisects the
group's estates), FFB no longer has to be transported across the Belayan.
The CPO price over the first half of 2007 averaged US$686 per tonne, CIF
Rotterdam, as compared with an average of US$432 per tonne for the first half of
2006. One effect of this was a significant increase in the price of cooking oil
in the Indonesian domestic market which press reports indicate has been the
subject of much debate in Indonesian government circles. A proposed scheme for
the sale by Indonesian CPO producers of a proportion of their production in the
domestic market at a discount to world market prices was not implemented.
Instead the rate of duty levied by the Indonesian government on CPO exports was
increased at the end of the period to 6.5 per cent. Duty is charged on a
gazetted price which broadly tracks the price of CPO FOB Indonesian ports. It
has recently been reported that the rate of duty will be further changed so as
to apply a sliding scale, with a new maximum rate of 10 per cent when the
gazetted price rises above US$850 per tonne. The current gazetted price is
US$816 per tonne on which duty on the new sliding scale will be charged at 7.5
per cent.
As already announced in the company's annual report for 2006, the group has
entered into a forward contract for the sale of a proportion of its expected CPO
production up to 30 June 2008 at an average price of US$620 per tonne CIF
Rotterdam. The tonnage outstanding under this contract at 30 June 2007 amounted
to 24,000 tonnes, being 2,000 tonnes per month for the 12 month period to 30
June 2008.
Land allocations and development
At the end of 2006, the group's land allocations comprised some 65,416 hectares
of which 30,106 hectares are held by REA Kaltim and 15,310 hectares and 20,000
hectares by, respectively, PT Sasana Yudha Bhakti ('SYB') and PT Kartanegara
Kumala Sakti ('KKS'), two 95 per cent subsidiaries of the company. Of these
allocations, the entire REA Kaltim area and 5,110 hectares of the SYB areas were
fully titled at 31 December 2006.
Major efforts were made during the six months to 30 June 2007 to move forward
the titling process in relation to the remaining land allocations. In the case
of SYB, these efforts have borne fruit in that the group has now advanced the
titling process to the point at which it can commence planting approximately
6,000 hectares of the hitherto untitled SYB areas and can reasonably expect to
have the remainder of those areas available for planting by the end of 2007.
Full hak guna usaha ('HGU') titles should then follow automatically. Completion
of the titling process has involved some minor changes to the borders of certain
of the areas involved and, when all HGU titles to the SYB areas have been
issued, it is likely that the total area under HGU will exceed the allocated
15,310 hectares by up to 1,000 hectares.
The position in relation to the KKS areas is less satisfactory with completion
of the titling process in respect of these areas awaiting the issue of a decree
by the Ministry of Forestry that will allow implementation of a new provincial
development plan that has been drawn up and approved by the provincial
government of East Kalimantan. Issue of this decree, which is being negotiated
between the Ministry of Forestry and the East Kalimantan provincial authorities,
has been reported to be imminent for some time but remains pending (although it
is reported that the provincial authorities are urging strongly that the decree
be issued in the near future).
Whilst the directors are confident that the required Ministry of Forestry decree
will be issued in due course and that the KKS areas will become available for
planting, the timing of such decree remains uncertain. With the current
extension planting programme rapidly exhausting that part of the group's land
bank that is available for immediate development, the directors have been
concerned to ensure that the group's expansion programme is not suddenly brought
to a halt.
To this end, the group has recently reached agreement to acquire, subject to
satisfaction of certain conditions as respects the furtherance of the titling
process, an area of approximately 20,000 hectares in respect of which
agricultural development permits are at an advanced stage. Although not
contiguous with the group's existing planted areas, the land (which is
deforested and highly suitable for planting with oil palms) lies within the
Kutai district of East Kalimantan (in which all of the group's existing land
areas are located) and should be capable of being managed without material
addition to the group's central overheads. The consideration for the acquisition
has been agreed at some $3.8 million (to be paid in cash) on terms that the
group will bear all further costs to be incurred in securing full HGU titles. It
is expected that the acquisition will be completed before the end of 2007
whereupon the land acquired will be immediately available for planting.
The group is continuing previously reported negotiations in respect of several
other land areas in East Kalimantan that are within the general vicinity of the
existing operations. The directors are optimistic that these negotiations will
lead in due course to further additions to the group's land bank although it is
clear that interest in oil palm development in East Kalimantan has increased and
that competition for land suitable for development is intensifying.
The group's target for extension development for 2007 is 6,500 hectares. It has
been the normal pattern of recent years that targeted development takes place to
a greater extent in the second half of each year than the first (development in
the first half having to compete with work on completion of planting of areas
developed in the preceding year). In addition, the 2007 programme has been
delayed to an extent by the hitherto untitled SYB areas being released for
planting a little later than had been hoped. Nevertheless, the directors
consider that, absent further unforeseen delays and weather constraints, the
group can still realistically hope to complete its targeted programme by year
end or early 2008 (and without affecting planned further expansion in 2008).
Financing
The group continued during the first half of 2007 to consolidate its financial
position. In January 2007, REA Finance BV issued a further £7,000,000 nominal of
9.5 per cent guaranteed sterling notes 2015/17 ('sterling notes') at 99.6574 per
cent of par, to increase the nominal amount of sterling notes in issue to the
full £22,000,000 proposed. This was followed in April 2007 by the issue of
1,500,000 new ordinary shares of the company by way of a placing with
institutional investors at a price of 450p per share to raise £6.5 million net
of expenses. Bank debt was reduced by £8,628,000 during the six months to 30
June 2007.
Indebtedness of the group at 30 June 2007 stood at £46,449,000 and the group's
cash and liquid resources at £20,810,000 with the indebtedness principally
comprising the £22,000,000 nominal of sterling notes, $30,000,000 of 7.5 per
cent dollar notes 2012/14 of the company and group indebtedness to banks of
£11,774,000.
While the group's net realisations from CPO sales remain at present levels, the
group should continue to benefit from substantial positive cash flows from its
operating activities. However, the group is engaged in a major expansion of its
planted areas requiring what is, in terms of the group's present size, very
large capital investment. The directors do not expect that this capital
investment can be met only from the cash flows from operating activities but
anticipate that (on the assumption that there is no curtailment of existing
plans) it will in addition require, over the next three years, not only the
entire current liquid resources of the group but also further funding.
As a first and minor step towards meeting this requirement for further capital
and with a view to maintaining the proportion of its total equity that is
represented by preference capital, the company is proposing to issue 1,064,581
new 9 per cent cumulative preference shares for cash at a price of 105p per
share by way of a placing with institutional investors. The group will also be
seeking further medium term debt to be drawn down over a period of two or more
years from 2008 onwards in amounts that should not materially increase from its
current level the percentage of total equity that is represented by debt.
Corporate governance
With the continuing growth in the company's market capitalisation on the London
Stock Exchange, it is apparent that the company's corporate governance policies
are receiving greater scrutiny from some institutional shareholders and external
commentators than has previously been the case. The directors fully accept the
importance of ensuring that the group's affairs are managed effectively and with
integrity and acknowledge that the Combined Code on Corporate Governance (the
'Code') provides a model for achieving this. The company has always sought to
apply the principles of the Code in a manner proportionate to its size and will
continue to do so but reserving the right enshrined in the Code, when it is
appropriate to the individual circumstances of the company, not to comply with
certain Code principles and to explain why.
With the company becoming larger, the directors consider that it is appropriate
to bring the company into fuller compliance with the Code. To that end, the
membership of the audit and remuneration committees has recently been
reconstituted so that the audit committee now comprises Mr Green-Armytage
(chairman) and Mr Killick and the remuneration committee comprises Mr
Green-Armytage (chairman), Mr Killick and Mr Robinow.
In the opinion of the directors, these changes to the audit and remuneration
committees bring those committees into full compliance with the principles of
the Code but they acknowledge that a few institutions may disagree on the
grounds that such institutions consider that non-executive directors who have
served on the board of the company for more than nine years (as Mr
Green-Armytage has done) can never be treated as independent non-executive
directors. The directors do not agree with this view. Whilst the Code states
that service by a director for more than nine years is to be taken into account
by the board in assessing the independence of the director concerned, it is not,
in terms of the Code, determinative of independence. Moreover, all of the long
serving directors of the company have, hitherto, been re-elected annually after
endorsement of their independence by their co-directors as required by the Code
and with the support of the vast majority of shareholders.
The directors do accept that, as the company continues to develop, further
refreshment of the board will become appropriate (and this in turn will
facilitate refreshment of the board committees). Currently, with the rapid
expansion of areas under cultivation and with only a small executive in London,
the group is facing the dual challenge in its Indonesian operations of further
building relationships with Indonesian co-investors, subsidiary company
directors, counterparties and authorities and of simultaneously broadening, and
increasing the resilience of, its local management. The directors consider that
successfully addressing these immediate issues and preserving the continuity
that this demands are higher priorities than the recruitment and induction of
new directors to the company's board. As the group develops, so will the
composition of the board change but the directors are firmly of the view that
the change should be evolutionary.
Proposed incentive plan
The group is proposing to introduce a long term incentive plan for staff
occupying key positions in the group's Indonesian operations. It is anticipated
that members of staff participating in the plan will be awarded notional
interests in ordinary shares of the company which will vest subject to
performance and which, to the extent vested, will in the future convert to cash
sums equivalent to the gains (if any) that would have been realised had the
participating members of staff actually acquired, at market price on 1 January
2007, the numbers of ordinary shares comprised in the notional holdings awarded
to them and then realised those shares at prevailing market prices on the dates
on which the vested notional holdings are converted to cash.
It is expected that the total number of notional ordinary shares to be awarded
initially will be 130,000 and that the performance criteria to which the vesting
of notional holdings will be subject will be measured over a period of four
years commencing in 2007.
Full details of the plan and of the awards made under it will be included in the
annual report for 2007. No director of the company will participate in the plan.
Prospects
As already noted, the group is fortunate in its current ability to realise net
returns from sales of its CPO that are at historically high levels. The benefits
of this are obvious but it would be foolish to believe that the existing
position as respects CPO sales will continue indefinitely. Prices of primary
commodities have been cyclical since biblical times and are likely to remain so.
Moreover, as has already been seen in relation to duty on CPO exports from
Indonesia, high prices bring with them risks of increased taxation.
Having said this, it seems possible that CPO prices could remain at good levels
for a while longer. Within the overall vegetable oil complex, conventional
demand for food use continues to grow, fuelled by growth in world population and
by economic growth in various rapidly developing areas, especially China and
India. Prices are being further underpinned by efforts to develop bio-fuels.
These represent a significant new factor in vegetable oil markets.
Although the longer term influence that bio-fuels will have on vegetable oil
prices is not yet clear, the directors envisage that their impact may be
two-fold. First, if vegetable oil prices fall, the economics of converting
vegetable oil to bio-diesel will improve. Given the enormous potential demand
for bio-fuels, if these can be produced at economic prices, this should ensure
that vegetable oil surpluses can be absorbed much more rapidly than has been the
case in the past. This is likely to provide an underlying base level of support
for vegetable oil markets and should mean that the average price of vegetable
oils over the normal commodity cycle will be higher than in the past. Secondly,
the directors believe that, as is currently the case in the US where former
soybean areas are being planted with corn for ethanol production, land that has
conventionally been used to grow oil seeds may be turned over to other crops
destined for the bio-fuel market. This would reduce supplies to the vegetable
oil complex with a positive effect on the supply demand balance within that
complex.
While CPO prices remain at good levels, the group, with the prospect of steadily
increasing crops from its expanding planted hectarage, is well placed to
benefit. Certainly, the resultant cash flows will be very helpful to successful
realisation of the group's primary objective. That objective remains the
establishment of a major CPO production unit that, through efficiency and volume
of throughput on a fixed overhead base, can produce CPO at a unit cost that is
as low as, and ideally lower than, that of other producers of CPO and competitor
vegetable oils. The group continues to progress towards this objective and, as
it does so, further growth in the value of the group can be expected.
Consolidated income statement for the six months ended 30 June 2007
===================================================================
6 months to 6 months to Year to
30 June 30 June 31 December
2007 2006 2006
Note £'000 £'000 £'000
Revenue 2 12,202 9,064 17,833
Cost of sales 4 (2,416) (4,261) (8,060)
------ ------ ------
Gross profit 9,786 4,803 9,773
Net gain arising from changes in
fair value of biological assets 8 1,024 1,926 4,677
Other operating income - 5 5
Distribution costs (184) (93) (283)
Administrative expenses (1,184) (1,188) (3,004)
------ ------ ------
Operating profit 9,442 5,453 11,168
Investment revenues 2 363 751 344
Finance costs 5 (1,006) (699) (887)
------ ------ ------
Profit before tax 8,799 5,505 10,625
Tax 6 (2,810) (1,742) (3,171)
------ ------ ------
Profit for the period 5,989 3,763 7,454
====== ====== ======
Attributable to:
Ordinary shareholders 5,460 3,143 6,208
Preference shareholders 515 450 965
Minority interest 14 170 281
------ ------ ------
5,989 3,763 7,454
====== ====== ======
Earnings per 25p ordinary share 7
Basic 17.3p 11.5p 21.5p
Diluted 16.9p 10.7p 20.3p
All operations in all periods are continuing.
Consolidated balance sheet as at 30 June 2007
=============================================
30 June 30 June 31 December
2007 2006 2006
Note £'000 £'000 £'000
Non-current assets
Goodwill 6,262 6,798 6,417
Biological assets 8 77,776 69,173 73,212
Property, plant and equipment 14,958 12,743 14,615
Prepaid operating lease rentals 2,680 1,017 2,643
Deferred tax assets 4,708 5,357 5,445
Non-current receivables 1,080 1,662 1,141
------- ------- -------
Total non-current assets 107,464 96,750 103,473
------- ------- -------
Current assets
Inventories 3,480 2,608 2,600
Trade and other receivables 2,404 1,680 2,022
Cash and cash equivalents 20,810 9,014 19,014
------- ------- -------
Total current assets 26,694 13,302 23,636
------- ------- -------
Total assets 134,158 110,052 127,109
------- ------- -------
Current liabilities
Trade and other payables (3,385) (3,266) (4,305)
Current tax liabilities (113) (136) (112)
Obligations under finance leases (49) (161) (154)
Bank loans (4,104) (4,730) (10,969)
Other loans and payables (205) (152) (202)
------- ------- -------
Total current liabilities (7,856) (8,445) (15,742)
------- ------- -------
Non-current liabilities
Bank loans (7,670) (18,378) (9,821)
Sterling notes 9 (20,015) - (13,984)
US dollar notes (14,594) (12,889) (14,953)
Deferred tax liabilities (17,798) (17,049) (16,961)
Obligations under finance leases (17) (172) (17)
Other loans and payables (2,224) (1,796) (1,793)
Total non-current liabilities (62,318) (50,284) (57,529)
------- ------- -------
Total liabilities (70,174) (58,729) (73,271)
------- ------- -------
Net assets 63,984 51,323 53,838
======= ======= =======
Equity
Issued share capital 19,593 18,884 19,218
Share premium account 17,144 9,172 10,995
Warrants - 1,162 -
Translation reserve 10 (13,283) (8,802) (11,523)
Special reserve (non-distributable) - 2,768 1,892
Retained earnings 40,217 28,043 32,950
------- ------- -------
63,671 51,227 53,532
Minority Interests 313 96 306
------- ------- -------
Total equity 63,984 51,323 53,838
======= ======= =======
Consolidated statement of recognised income and expense
for the six months ended 30 June 2007
=======================================================
6 months to 6 months to Year to
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Exchange translation differences (1,811) (3,357) (6,166)
Tax on items taken directly to equity 39 148 224
------- ------- -------
Net income recognised directly in equity (1,772) (3,209) (5,942)
Profit for the period 5,989 3,763 7,454
Share based payment - deferred tax credit 226 - 967
------- ------- -------
Total recognised income and expense
for the period 4,443 554 2,479
======= ======= =======
Attributable to:
Ordinary shareholders 3,922 199 1,508
Preference shareholders 515 450 965
Minority interests 6 (95) 6
------- ------- -------
4,443 554 2,479
======= ======= =======
Reconciliation of movements in equity for the six months ended 30 June 2007
===========================================================================
6 months to 6 months to Year to
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Total recognised income and expense
for the period 4,443 554 2,479
Issue of new ordinary shares by way of
placings and open offer (net of costs) 6,529 10,334 10,367
Issue of new preference shares by way of
placings (net of costs) - 3,067 3,071
Issue of new ordinary shares on
exercise of share options - - 82
Issue of new ordinary shares on
exercise of warrants - - 876
Subscriptions of new shares by
minority interest in subsidiaries - - 110
Dividends to minority shareholders of
a subsidiary - (60) -
Dividends to preference shareholders (515) (450) (965)
Dividend to ordinary shareholders (311) - -
Liquidation distribution to preference
shareholders in a subsidiary - - (2,304)
Acquisition of minority interest in
a subsidiary - (4,011) (4,011)
Redemption of shares in a subsidiary
held by minorities - (2,224) -
------- ------- -------
10,146 7,190 9,705
Equity at beginning of period 53,838 44,133 44,133
------- ------- -------
Equity at end of period 63,984 51,323 53,838
======= ======= =======
Consolidated cash flow statement for the six months ended 30 June 2007
======================================================================
6 months to 6 months to Year to
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Operating activities
Operating profit 9,442 5,453 11,168
Depreciation of property, plant and equipment 635 428 843
Amortisation of prepaid operating lease rentals 35 12 50
Amortisation of sterling and US dollar note
issue expenses 57 - 31
Biological gain (1,024) (1,926) (4,677)
------- ------- -------
Operating cash flows before movements
in working capital 9,145 3,967 7,415
Increase in inventories (966) (691) (762)
(Increase)/decrease in receivables (408) 459 542
Decrease in payables (1,182) (2,766) (1,454)
Exchange translation differences (585) (336) 125
------- ------- -------
Cash generated by operations 6,004 633 5,866
Taxes paid (322) (45) (119)
Interest paid (724) (699) (1,482)
------- ------- -------
Net cash from operating activities 4,958 (111) 4,265
------- ------- -------
Investing activities
Interest received 363 156 344
Purchases of property, plant and equipment (1,351) (3,488) (6,471)
Expenditure on biological assets (5,457) (4,006) (10,094)
Expenditure on operating leases (139) (426) (1,539)
Costs incurred in acquisition of
minority interest in a subsidiary - (198) (199)
------- ------- -------
Net cash from investing activities (6,584) (7,962) (17,959)
------- ------- -------
Financing activities
Ordinary dividends paid (311) - -
Preference dividends paid (515) (450) (965)
Repayment of borrowings (8,628) - (2,015)
Repayment of obligations under finance leases (103) (200) (329)
Proceeds of issue of new share capital in
subsidiaries to minority shareholders - - 110
Proceeds of issue of preference share
capital less expenses - 3,067 3,071
Proceeds of issue of ordinary share
capital less expenses 6,529 10,334 10,376
Proceeds of issue of new ordinary shares
on exercise of warrants - - 876
Liquidation distribution to preference
shareholders in a subsidiary - (3,094) (3,094)
Issue of US dollar notes (net of expenses) - (30) 2,901
Issue of sterling notes (net of expenses) 6,659 - 13,981
New bank borrowings raised - 2,639 3,494
------- ------- -------
Net cash from financing activities 3,631 12,266 28,406
------- ------- -------
Cash and cash equivalents
Net increase in cash and cash equivalents 2,005 4,193 14,712
Cash and cash equivalents at
beginning of period 19,014 5,007 5,007
Effect of exchange rate changes (209) (186) (705)
------- ------- -------
Cash and cash equivalents at end of period 20,810 9,014 19,014
======= ======= =======
Notes to the consolidated financial statements
==============================================
1. Basis of accounting
The consolidated financial statements for the six months ended 30 June 2007 have
been prepared in accordance with International Financial Reporting Standards
(IFRS) endorsed for use by the EU at that date and in accordance with the
provisions of the Companies Act 1985. The group accounting policies are set out
in the annual report and financial statements for 2006. The consolidated interim
financial information has been prepared in accordance with those accounting
policies and with IAS 34 'Interim Financial Reporting'.
2. Revenue 6 months to 6 months to Year to
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Sales of goods 12,103 9,010 17,724
Revenue from services 99 54 109
------- ------- -------
12,202 9,064 17,833
Other operating income - 5 5
Investment revenues 363 751 344
------- ------- -------
Total revenue 12,565 9,820 18,182
======= ======= =======
Investment revenues comprises:
Interest receivable 363 157 -
Exchange gain on repayment of preference
shares held by minority shareholders
in a subsidiary - 594 344
------- ------- -------
363 751 344
======= ======= =======
3. Segment information
The group operates in only one business segment and hence no analysis of results
by segment is required.
4. Cost of sales
Cost of sales of £2,416,000 (2006: £4,261,000) is stated net of a deduction of
£1,627,000 (2006: £369,000) in respect of an increase in inventories of
agricultural produce (which are stated at fair value).
5. Finance costs 6 months to 6 months to Year to
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Interest on bank loans 610 1,098 2,043
Interest on US dollar notes 586 482 1,081
Interest on sterling notes 1,113 - 105
Interest on other loans - - 33
Interest on obligations under finance leases 5 22 34
------- ------- -------
2,314 1,602 3,296
Amount included as additions to
biological assets (1,468) (849) (1,960)
Amount capitalised on acquisition - (54) (57)
------- ------- -------
846 699 1,279
Other finance charges 160 - 203
Exchange gain on repayment of preference
shares held by minority interests in
a subsidiary - - (595)
------- ------- -------
1,006 699 887
======= ======= =======
6. Tax 6 months to 6 months to Year to
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Current tax:
UK corporation tax - - -
Foreign tax 828 40 119
------- ------- -------
Total current tax 828 40 119
------- ------- -------
Deferred tax:
Current year 1,947 1,702 3,052
Attributable to a reduction in
the rate of UK tax 35 - -
------- ------- -------
Total deferred tax 1,982 1,702 3,052
------- ------- -------
Total tax 2,810 1,742 3,171
======= ======= =======
The element of the deferred tax charge relating to the reduction in the UK
corporation tax rate from 30% to 28% arises from the resultant reduction in net
UK deferred tax assets. This adjustment is reflected in the profit and loss
account, the statement of recognised income and expense or directly to equity,
as appropriate.
7. Earnings per share 6 months to 6 months to Year to
30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Earnings for the purpose of earnings per share* 5,460 3,143 6,208
======= ======= =======
* being profit attributable to ordinary shareholders
'000 '000 '000
Weighted average number of ordinary shares
for the purpose of basic earnings per share 31,503 27,210 28,857
Effect of dilutive potential ordinary shares 805 2,105 1,666
------- ------- -------
Weighted average number of ordinary shares
for the purpose of diluted earnings per share 32,308 29,315 30,523
======= ======= =======
8. Biological assets 30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Beginning of period 73,212 68,192 68,192
Reclassification of expenditure in prior
years between land, plantations and
other non-current assets - - (758)
Additions to planted area and
costs to maturity 5,457 4,006 10,113
Net biological gain 1,024 1,926 4,677
Exchange differences (1,917) (4,951) (9,012)
------- ------- -------
End of period 77,776 69,173 73,212
======= ======= =======
Net biological gain comprises:
Gain arising from changes in fair value
attributable to physical changes 1,024 2,336 3,828
Gain/(loss) arising from changes in fair
value attributable to price changes - (410) 252
Gain in relation to prior
year reclassification - - 597
------- ------- -------
1,024 1,926 4,677
======= ======= =======
9. Sterling notes
Sterling notes comprise £22,000,000 of 9.5 per cent guaranteed sterling notes
issued for cash by the company's subsidiary, REA Finance B.V., of which
£7,000,000 were issued during the period at 99.6574 per cent of par. The book
value at 30 June 2007 is stated after deducting an amount of £662,000 being the
net benefit of a cross currency interest rate swap (note 10).
10. Translation reserve
In February 2007, REA Finance B.V., a subsidiary company, entered into a cross
currency interest rate swap ('CCIRS') with a major international bank as a cash
flow hedge for the interest and principal obligations relating to the sterling
notes. In accordance with International Financial Reporting Standards, the
obligations under the CCIRS have been marked to market, with a net amount of
£303,000 credited to a hedge reserve included in the consolidated balance sheet
within the translation reserve.
11. Movement in net borrowings 30 June 30 June 31 December
2007 2006 2006
£'000 £'000 £'000
Change in net borrowings resulting
from cash flows:
Increase in cash and cash equivalents 2,005 4,193 14,712
Repayment/(increase) in borrowings 8,628 (2,409) (1,478)
------- ------- -------
10,633 1,784 13,234
Issue of US dollar notes less expenses - - (2,927)
Issue of US dollar notes for the acquisition
of minority interest in a subsidiary - (10,728) (10,729)
Issue of sterling notes less expenses (6,659) - (13,984)
Lease repayments 103 - 329
New leases - (20) -
------- ------- -------
4,077 (8,964) (14,077)
Currency translation differences 1,168 2,130 3,675
Net borrowings at beginning of period (30,884) (20,482) (20,482)
------- ------- -------
Net borrowings at end of period (25,639) (27,316) (30,884)
======= ======= =======
12. Basis of preparation
The interim financial information contained in this report has not been audited
and does not constitute statutory accounts for the purpose of Section 240 of the
Companies Act 1985. It complies with applicable International Financial
Reporting Standards and has been prepared on the basis of the stated accounting
policies which are the policies set out in the 2006 annual report. The figures
for the year ended 31 December 2006 are abridged and have been based on figures
extracted from the statutory accounts filed with the Registrar of Companies on
which the auditors gave an unqualified report.
This information is provided by RNS
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