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
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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
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