Final Results
February 19 2003 - 11:11AM
UK Regulatory
HIGHLAND TIMBER PLC
PRELIMINARY ANNOUNCEMENT OF AUDITED RESULTS
The Directors announce the audited statement of results for the year to 31
December 2002 as follows:
PROFIT AND LOSS ACCOUNT
Restated
Year ended Year ended
31 December 2002 31 December 2001
Before Diminution Total Before Diminution Total
diminution in value diminution in value
in value of forests in value of forests
of forests of forests
�'000 �'000 �'000 �'000 �'000 �'000
Turnover 1,604 - 1,604 1,097 - 1,097
Cost of sales (1,175) - (1,175) (885) - (885)
Gross profit 429 - 429 212 - 212
Operating expenses (513) (650) (1,163) (427) 106 (321)
Operating (loss)/ (84) (650) (734) (215) 106 (109)
profit
Interest receivable - - - 5 - 5
Interest payable (209) - (209) (217) - (217)
(293) (650) (943) (427) 106 (321)
Other income 33 - 33 - - -
(Loss)/profit on (260) (650) (910) (427) 106 (321)
ordinary activities
before taxation
Taxation - - - - - -
Retained (loss)/ (260) (650) (910) (427) 106 (321)
profit for the period
(Loss)/profit per (2.94)p (7.36)p (10.30)p (4.83)p 1.20p (3.63)p
share
There is no difference between the loss on ordinary activities before taxation
and the retained loss for the year stated above, and their historical
equivalents
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Restated
Year ended Year ended
31 December 2002 31 December 2001
Total Total
�'000 �'000
Loss for the financial (910) (321)
period
Prior year adjustment (176) -
Total gains and losses recognised since (1,086) (321)
last financial statements
BALANCE SHEET
Restated
As at As at
31 December 31 December
2002 2001
�'000 �'000
Fixed assets
Tangible fixed assets 10,592 12,012
Current assets
Debtors: amounts falling due within one year 169 39
Creditors: amounts falling due within one
year
5% Convertible Unsecured Loan Stock (1,350) -
Other creditors (1,578) (1,458)
Net current liabilities (2,759) (1,419)
Total assets less current liabilities 7,833 10,593
Creditors: amounts falling due after more
than one year
Term bank loan (750) (750)
5% Convertible Unsecured Loan Stock - (1,850)
(750) (2,600)
Net assets 7,083 7,993
Capital and reserves
Called up share capital 4,416 4,416
Share premium account 5,285 5,285
Profit and loss account (2,618) (1,708)
Total equity shareholders' funds 7,083 7,993
CASH FLOW STATEMENT
Restated
Year ended Year ended
31 December 31 December
2002 2001
�'000 �'000
Net cash inflow from operating activities 637 424
Return on investments and servicing of
finance
* Interest received - 5
* Interest paid (209) (217)
Net cash outflow from return on investments (209) (212)
and servicing of finance
Capital expenditure
* Purchase of tangible fixed assets - (971)
* Proceeds of sale of fixed assets 1 -
Net cash inflow/(outflow) from capital 1 (971)
expenditure
Net cash inflow/(outflow) before financing 429 (759)
Financing
* Redemption of part of the 5% Convertible (500) -
Unsecured Loan Stock
* Term bank loan - (875)
Net cash outflow from financing (500) (875)
Decrease in cash and overdrafts in the year (71) (1,634)
At 1 Jan 2002 Cashflow At 31 Dec 2002
�'000 �'000 �'000
Analysis of net debt
Cash at bank, in hand and (1,389) (71) (1,460)
overdrafts
Debt due in less than one year - (1,350) (1,350)
Debt due after more than one year (2,600) 1,850 (750)
Net debt (3,989) 429 (3,560)
2002 2001
�'000 �'000
Reconciliation of net cash flow movement to
debt
Decrease in cash and overdrafts in the year (71) (1,634)
Cash inflow from debt financing of under 1 year (1,350) -
Cash outflow from debt financing of over 1 year 1,850 875
429 (759)
Net debt brought forward (3,989) (3,230)
Net debt carried forward (3,560) (3,989)
Notes
1 The above financial information does not constitute statutory accounts within
the meaning of Section 240 of the Companies Act 1985. Full accounts for the
year ended 31 December 2001, on which the auditors, Grant Thornton, gave an
unqualified report, have been delivered to the Registrar of Companies.
Statutory accounts for the year ended 31 December 2002 will be delivered to the
Registrar of Companies in due course.
2 In compiling the financial statements for the year ended 31 December 2002 the
Company has changed its accounting policy in respect of cost of sales. The
previous policy assumed that the replanting and growth of the remaining crops
after felling would generally maintain the value of the forests and allow
regular harvesting without depreciation. This meant that when trees were felled
there was no automatic transfer to cost of sales to match the income but where
the remaining forest's value fell below historic cost then there was a charge
made to exceptional items of the diminution of the value of the forest. The new
policy allocates an equivalent proportion to the related sale of the original
cost of the forest as a cost of sale and will more accurately match the cost of
sales with turnover.
Had the accounting policy not been changed, the loss for the year to 31
December 2002 would have been �51,000 lower, and for the year ended 31 December
2001, the loss would have been �157,000 lower. The impact of the change in
accounting policy on the cumulative reserves at 1 January 2001 is to decrease
the reserves by �19,000.
CHAIRMAN'S STATEMENT
I began my statement last year by pointing out that, although 2001 had been a
disappointing year for UK investors with the All-Share Index falling by 15%,
forestry had proved to be a relatively stable investment. As you are all aware
2002 was an even worse year for equity markets with the All-Share Index falling
by a further 25% as investors became more concerned about uncertainties over
the prospects for many of the world's leading economies and the dangers of a
war against Iraq.
Timber markets in the UK remained depressed. The FIM Timber Index fell by 13.1%
during the year. The decline in small roundwood prices has been even more
marked as the pulp industry became more reliant on recycled material. The
picture from New Zealand was more encouraging and timber prices expressed in
the local currency have strengthened modestly. Exports to Asia, and
particularly to China and Korea, have increased and there has been a welcome
improvement in the exchange rate.
Accounting Policy
As was announced in the Interim Report, your Board has decided to make a change
in the accounting policy for the Company's freehold properties. When timber is
felled the proportion of the original purchase price which is attributable to
the trees actually cut down is now included in the Cost of Sales. Each year's
reported profits are therefore reduced and the value of the woodland assets in
the balance sheet correspondingly reduced. This change requires the results for
previous years to be restated to allow valid comparisons to be made. However,
shareholders should note that the change makes no difference to the estimated
net asset value of the Company's shares which I report to you each year based
on valuations of the forests.
Results
Turnover reached a record level of �1.6 million, some 46% more than the
previous year. Biological growth in the Company's forests has continued to be
very satisfactory and more felling will take place as soon as better prices can
be achieved in the UK.
Due to the poor timber prices in the UK, it has been necessary to recognise
some diminution in the value of the UK forests, amounting to �650,000. The
operating loss before this item was �84,000 compared with a restated loss of �
215,000 for the previous year. After taking the diminution into account, the
loss before tax amounted to �910,000 or 10.30p per share compared with a
restated loss of �321,000 or 3.63p per share. The Company's accounting policies
do not, of course, permit increases arrived at by valuation to be reflected in
the balance sheet. These are however reflected in the table of valuations
included in this Statement.
Managers
The name of our managers in New Zealand has been changed from TFF Limited to
Renewable Resources Limited, to make clearer the link with their US parent
company, GMO Renewable Resources LLC.
Borrowings
During the year, �500,000 5% Convertible Unsecured Loan Stock 2003 was redeemed
at 93p per �1 Stock which, after expenses, gave the Company a profit of �
33,000. The remaining �1,350,000 of Stock becomes repayable on 30 June 2003. To
the extent that the sum due on the redemption of the Stock is not available
from current cash resources, the Company's UK bankers have agreed in principle
to increase the overdraft to cover the balance.
Valuation of Assets
In accordance with our well-established practice, the Directors give their best
estimate of the value of the Company's forest assets in the table below.
Independent valuations are obtained for each forest once every three years.
This year we received an independent valuation for one UK property and the
Managers gave opinions on value of all the other properties. The total value
was �12,270,000 which gives an estimated net asset value of 99.2p per share
compared with 101.2p per share last year.
Value of Forest Assets at 31 December 2002
Historic Balance Valuation
cost sheet value
�'000 �'000 �'000
UK
Freehold forests (6 properties) 7,809 6,795 6,831
New Zealand
Freehold forests (5 properties) 2,306 2,230 2,763
Forestry rights (5 properties) 1,586 1,567 2,676
3,892 3,797 5,439
TOTAL (16 properties) 11,701 10,592 12,270
For next year's Report, we expect to have independent valuations of five UK
properties and three New Zealand properties.
Corporate Strategy
The Company's policy continues to be to seek to achieve the highest possible
level of total return for shareholders. Although there are no current plans for
expansion, the Board feels it is important to have the flexibility to act at
short notice if any opportunity arises which is deemed to be in the best
interest of shareholders. Accordingly, resolutions to empower the Board to
allot shares are being put forward again at the Annual General Meeting.
Outlook
Underlying the financial results for 2002 are very different stories from the
UK and New Zealand. In the UK, the potential supply of timber from domestic and
other European sources has, at least in the short term, outstripped demand.
Timber prices have therefore been weak and this has also affected the capital
value of forest assets. In New Zealand, on the other hand, local and overseas
demand for timber has been relatively strong and prices have responded
favourably. This factor, together with the faster natural growth rate of the
trees, has been responsible for a healthy increase in forest valuations. The
move in the exchange rate from New Zealand $3.44 to New Zealand $3.06 to pound
sterling has further enhanced the valuations in pound sterling terms. Overall
results are therefore a combination of disappointing figures from the UK and
more encouraging ones from New Zealand. UK shareholders are thus continuing to
benefit from the Company's policy of geographic diversification.
One of the problems facing the Board over the next year is what recommendation
to put to shareholders when the future of the Company is determined at the
Annual General Meeting in 2004. In this connection, it is reassuring to know
that the physical growth of our trees continues at a good rate and that the
Company's assets are being well managed by our representatives in the UK and in
New Zealand. Shareholders should also note that several of our forests are
approaching maturity so whenever prices recover we can supply timber on
profitable terms.
.................******.
I J S Henderson
Chairman
19 February 2003
END