Dekel Agri Vision : 2019 Annual Report Audited Accounts

DEKEL AGRI-VISION PLC

(Formerly Dekeloil Public Ltd)

CONSOLIDATED FINANCIAL STATEMENTS

AS OF 31 DECEMBER 2019

EUROS IN THOUSANDS

INDEX

Page
Chairman's Statement	3-8
Company Information
9
Information on the Board of Directors
10
Professional Advisers
11
Directors' Report
12-15
Chairman's Statement on Corporate Governance
16-22
Statement of Directors' Responsibilities
23
Independent Auditors' Report
24-25
Consolidated Statements of Financial Position	26-28
Consolidated Statements of Comprehensive Income	29
Consolidated Statements of Changes in Equity	30
Consolidated Statements of Cash Flows	31-32
Notes to Consolidated Financial Statements	33-69

CHAIRMAN'S STATEMENT

The list of highlights to open this year's Chairman's Statement was as long as we had hoped it would be at the start of 2019.

• • The corporate name change to Dekel Agri-Vision ("Dekel"), an identity that better reflects our objective to build a West African focused multi-commodity, multi-project agriculture company that places local smallholders and communities at the centre of operations;

• • a 14% increase in annual crude palm oil ("CPO") production to 37,649 tonnes at our 100% owned project at Ayenouan in Côte d'Ivoire;

• • an over 50% increase in global CPO prices to over US$850 per tonne in the last 8 weeks of 2019;

• • the refinancing of long-term debt on improved terms with AgDevCo, a UK government-backed social impact investor in the African agriculture sector;

• • the roll-out of various ESG initiatives;

• • the commencement of the development of our cashew processing project at Tiebissou, Côte d'Ivoire.

In the event, none of the above secured top billing. Instead, this year's Chairman Statement opens with a post period event that is still ongoing, the coronavirus pandemic. The all-encompassing nature of COVID-19 and the measures being taken by governments across the world to suppress it, have disrupted societies, sectors and businesses all over the world in a way that has not been experienced for generations. The global palm oil industry has been no exception.

With countries in lockdown, global demand for palm oil and more specifically the everyday food and personal care products that palm oil is used in has contracted sharply, resulting in CPO prices falling. Rather than heralding a return to historic averages, the US$850 plus CPO prices have proved to be temporary with global benchmarks retrenching to the US$500 level they traded at for most of 2018 and 2019. As recently as

January, we were expecting Ayenouan's 2020 EBITDA and profits after tax to at least challenge 2017's record of €4.5m and €1.6m respectively. With prices threatening to retest last year's cyclical lows on the back of lower global demand for CPO, 2017's record profits will remain intact for another year. At the time of preparing this report we have seen international prices rebound to around US$600 and there are reasons to be optimistic that prices may improve further as key buying countries, most notably India and China, begin to restock CPO supplies over the next 6-12 months.

Our priority during the period ahead remains to continue operating our CPO production mill at Ayenouan as efficiently as possible, while at all times ensuring the safety and wellbeing of our staff on the ground and the communities in which we operate. With this in mind, we take great pride in Dekel being one of the few businesses not to have reduced local staffing levels during the crisis. Employing over 300 staff and working closely with thousands of smallholders, we take our responsibility to our local communities seriously and in line with this we adhere to the latest COVID-19 guidelines and advice of the government of Côte d'Ivoire.

At the time of writing, Côte d'Ivoire has escaped the worst of the pandemic in terms of lock down impacts and as a result, operations at both Ayenouan and at Tiebissou where we are constructing a large-scale cashewprocessing project, have been able to continue with minimal disruption with the objective of being operational Q2 2021. So too has the desktop work we have carried out to evaluate the feasibility of potential new projects.

Ayenouan Palm Oil Project

At the beginning of the year under review, management was hopeful that fruit yields and global CPO prices would bounce back strongly from 2018's lows. Forecasts that the poor peak harvest season in 2018 would revert to an improved 2019 proved correct with fresh fruit bunches delivered to the mill for processing during 2019 up 21% to 176,019 tonnes, which in turn fed through to a 14% year on year increase in CPO production to 37,649 tonnes and a 15% increase in CPO sales to 37,713 tonnes.

Global CPO prices took longer to recover and spent much of the year trading at around €500 per tonne, briefly dipping below this level in the summer months. In the second half, it became clear that concerns over a supply glut that had weighed heavily on prices were overdone as international stock levels of CPO decreased. Together with new initiatives in south east Asia to increase biodiesel production, of which CPO is a key feed stock, prices rose strongly during the latter months, so much so that they finished the year around the €800 per tonne level. Due to the five weeks it takes for local pricing to reflect moves in global benchmarks, the strong bounce in prices was too late to have a positive impact on the average CPO price for the year, which came in at €491 per tonne, a 9% reduction on 2018's average of €542 per tonne. As a mark of how challenging trading conditions have been, the average CPO prices for 2018 and 2019 rank as among the worst in the last 15 years.

Faced with such a challenging pricing environment, our focus at Ayenouan has been on costs and efficiency. Importantly, this has not come at the expense of Dekel's ESG credentials. ESG has always been front and centre of Dekel's activities. Our collaborative business model is one that is centred on working closely with local smallholders and communities who grow and deliver fruit to our mill for processing. Our ESG initiatives do not begin and end with our business model. In terms of the environment, we have been working hard to secure RSPO (Roundtable for Sustainable Palm Oil) certification for Ayenouan. This process is continuing to advance. An audit and final confirmation of our operations had been due to take place this year but we expect some form of delay due to the pandemic. We are confident that once the virus subsides, the well-advanced certification process can be taken through the final phases of audit resulting in its completion as soon as possible. RSPO is recognised globally as a certification standard for sustainable palm oil and becoming a certified producer would therefore be a major milestone for the Company which has been a RSPO member since 2008.

In terms of social impact initiatives at Ayenouan, the year under review saw Dekel trial with over 250 small holders a sustainable financing solution focused on enabling farmers to acquire and apply fertiliser during periods of low as well as high fresh fruit bunch ("FFB") prices. With the application of fertiliser and best management practice, we estimate farmers can potentially double their yields. Our financing solution is not based on grants or long-term loans. Rather, a gradual increase in the fertilisation programme is recovered on a monthly basis from FFB delivered to the mill which helps to keep funds loaned to farmers to a manageable level. It also encourages farmers to deliver FFB to our mill to continue to gain access to the