Source - RNS
RNS Number : 3850L
United Cacao Limited SEZC
30 September 2016
 

30 September 2016

United Cacao Limited SEZC

("United Cacao" or the "Company")

 

Half Yearly Report for the Period Ended 30 June 2016

 

United Cacao Limited SEZC (AIM: CHOC), the AIM-quoted cacao plantation company based in Peru, announces its unaudited half yearly results for the period ending 30 June 2016. All figures are in US dollars unless otherwise indicated.

 

Highlights during the period:

§ 1,837 hectares (4,539 acres) of cacao planted as of 30 June 2016. This comprised of 1,643 hectares (4,059 acres) of planted corporate estate and 194 hectares (479 acres) of Programa Alianza Producción Estratégica Cacao ("PAPEC"), the Company's innovative small-farmer programme.

§ The Company owns titled, freehold land of, in aggregate, 3,985 hectares (9,847 acres) as of 30 June 2016.

§ Land privatization applications encompassing 12,097 hectares (29,892 acres) submitted to the Peruvian agricultural authorities, at their invitation, on 24 May 2016. The principal land application, comprising approximately 10,000 hectares, is situated near a large regional city and logistically well-located for future development; the remaining 2,097 hectares under application is immediately adjacent to the Company's existing estate.

§ Successful litigation results from the Federal Supreme Court of Peru on 12 January 2016, which re-affirmed the Loreto Superior Court of Appeals decision of 26 March 2015 and the Superior Court of Justice's original 30 September 2014 decision. These rulings definitively confirm the Company's freehold properties' environmental permitting and agricultural zoning since 1997.

§ A settlement in the Company's favour registered on 8 February 2016 at the District Court of Hamburg in Germany under which Rettet den Regenwald e.V. shall: (i) pay to the Company monetary compensation; and (ii) immediately publish clarification statements on its websites and Twitter for defamatory comments previously published and since removed.

§ Continued positive interaction with the relevant Peruvian national regulatory authorities regarding the definitive approval of the Company's environmental certification documentation.

 

Highlights post the period end:

§ First revenues recorded on 24 September 2016. To date, 605 kg of dried fermented beans have been delivered to the local buying agent of a premium Swiss confectionary company.

§ The first direct commercial sales, potentially via dedicated container-load, is expected to take place in July 2017.

§ Evolution and strengthening of the Board and management as the Company enters next chapter of production and revenue generation.

§ Establishment of a US$2,000,000 working capital facility from Mr Dennis Melka and Mr Graeme Brown.

 

Dennis Melka, Group Managing Director, commented:

"The Company, now one of the largest cacao estates globally, has achieved important milestones during the course of 2016 that lay the foundation for continued growth and creation of shareholder value

 

"The delivery of first revenues and the continued favourable macro factors driving demand for our Peruvian cacao mean we can approach the future with optimism.  

 

"We continue to have positive interactions with the relevant Peruvian regulatory authorities regarding the definitive approval of the Company's environmental certification documentation and we look forward to updating shareholders on progress in due course."

 

 

For more information, please visit www.unitedcacao.com or contact:

 

United Cacao Limited SEZC

+1 345 815 2710

Dennis Melka


Anthony Kozuch

 


Strand Hanson (Financial & Nominated Adviser)

+44 (0) 20 7409 3494

James Harris / James Spinney / Ritchie Balmer




Beaufort Securities (Joint Broker)

+44 (0) 20 7382 8300

Jon Belliss / Elliot Hance




Kallpa Securities SAB (Joint Broker)

+51 1 630 7500

Ricardo Carrion




Tavistock (PR Adviser)

+44 (0) 20 7920 3150

Jos Simson/Simon Hudson/Niall Walsh


 

 

Operational Update

The Company remains in the early stages of its long-term development plan and continues to believe it can change the production paradigm in the cacao industry and deliver the confectionary market a high quality, child-free labour input that is produced in the world's lowest cost production zone. As part of this objective, the Company achieved a number of positive operational milestones in this regard.

 

These milestones are in the context of what the Company believes are truly exciting industry developments in its favour:

§ Declining Global Production: Production from the core West African and Asian markets has continued to decline over the last five years. In 2011, the entire industry produced approximately 4.31 million tonnes of cacao according to the ICCO versus estimated production of 4.15 million tonnes for 2016. Despite buoyant cacao pricing, the key origin markets continue to contract year-over-year. The Board believes that there is no compelling rationale at this time to see a reversal of this situation in West Africa or Southeast Asia.

§ Rising Confectionary Demand: Demand for cacao beans from the confectionary industry has risen from approximately 3.93 million tonnes in 2011 to an estimated 4.22 million tonnes for 2016.

§ Rising Consumer Awareness of Child Labour: The child labour epidemic that plagues West African cacao, approximately 74 per cent. of the industry, raises numerous challenges for confectionary producers in the North American and European markets from an ethical and consumer point of view. Latin American producers in Peru, Ecuador and Nicaragua are well-positioned to benefit from increased consumer awareness of this tragic issue.

§ Demand for Fine Flavour: The market for premium confectionary remains robust and, in fact, is constrained by the availability of fine flavour beans.

 

In the context of these favourable industry trends, the Company is excited about its three-fold strategy: (i) bring the estate into production with a focus on operational excellence; (ii) establish a large land bank through the Peruvian Government's on-going land privatization process; and (iii) continue the growth of the PAPEC and corporate planted areas. Taking each in turn:

 

i. Bringing the Estate into Production:

First revenues were reported on 24 September 2016; this represents a tangible milestone after several years of investment. As part of our focus on operational excellence, we are looking into the implementation of various software systems to track the productivity of each planted block and the co-operation with Asian based industry veterans who previously oversaw large cacao estates in Southeast Asia.

 

ii. Land Bank Strategy:

Peru is globally unique in that it is still possible to privatise freehold land from the Peruvian state that is highly apt for tropical plantations crops such as palm oil, rubber and cacao. Whilst the process takes time and careful planning, the opportunity is unique in the context of well-documented land scarcity in Southeast Asia and West Africa. Subject to positive progress on the Company's existing land applications over the coming months, we may be inclined to submit additional land privatisation applications. These applications would leverage the in-house expertise accumulated within the Company and potentially provide an important asset for the future.

 

We fully expect large Asian agribusiness groups to enter Peru over the next three years due to the increasing positive profile of Peru in the world market, the significant improvement of palm oil pricing (approximately +50 per cent. since early 2016) and continued expansion of the Peruvian highway system in the states of Ucayali and Loreto which improve agricultural export logistics. The entry of one or several of these groups will dramatically change the agricultural industry in Peru and we feel it prudent to seek to build a large land bank in anticipation of these developments.

 

iii. Continued Growth:

At the moment, the Company continues with an expansion of the PAPEC programme to a total of 200 hectares by year-end and a further 200 hectares by year-end 2017. This pace of development, subject to sufficient working capital, is maintainable each year going forward.  Furthermore, subject to further deliberation of the Board and raising of the required capital, it would be ideal to expand the corporate estate at the rate of 250 hectares per annum. The Company has identified an area of 250 hectares for potential planting in 2017 on freehold land already partly prepared by the Company, but has not yet initiated final development work. Subject to sufficient working capital, the Company will seek to commence planting on this area during 2017 and to maintain this pace of growth in the years ahead. The Company has developed significant in-house know-how on the ideal nursery, ground preparation and planting techniques. Based on our experience to date, each 250 hectare expansion block requires approximately US$3,000,000 of total capital commitment over a four year period of which approximately 40 per cent. is spent in year one and the remainder spread evenly over the following three years.

 

Focus on Fine Flavour

We are pleased with the development of the Sacha Gold material, a high-yield fine flavour material. This genetic material has recently been highlighted in the confectionary trade media and we expect to expand its usage into our PAPEC programme and corporate estate.

 

Environmental Certification

With respect to environmental certification, there have been delays associated with the recent change of government in Peru. We now see the process as fully 'back-on-track' after various delays, and we expect to update shareholders in due course.

 

Board Changes

As the Company has transitioned to revenue producing, the Board and key stake-holders have agreed to enhance the Company's corporate governance. As a result, the following changes have been made:

§ On 7 September 2016, Graeme Iain Brown, an experienced plantation developer with extensive industry relationships in Southeast Asia, was appointed non-executive director, with Roberto Tello concurrently stepping down. 

§ On 16 September 2016, Constantine Gonticas, an existing non-executive director, became Interim Non-Executive Chairman.

§ As announced today, Nicolas van Broekhoven, a fund manager with experience investing in the plantation sector, has today appointed a Non-Executive Director of the Company.

§ Also announced today, Dennis Melka will be stepping down from the board of directors of the Company to assume the position of Group Managing Director. Mr. Melka's day-to-day responsibilities and existing employment contract within the Company will remain unchanged.

§ The Board is currently finalising the appointment of a further non-executive director and a further announcement will be made in due course.

 

Funding

The Company entered into a working capital loan facility on 29 September 2016 for up to US$2,000,000 with Mr Dennis Melka and Mr Graeme Brown (the "Loan"). The Loan, which is unsecured, matures on 31 December 2017 and is interest free until 31 December 2016. Thereafter, the facility accrues interest at a rate of 7.0 per cent. per annum payable in full at maturity.

 

At the time the Loan was entered into, Dennis Melka and Graeme Brown were directors of the Company and, as such, related parties of the Company pursuant to Rule 13 of the AIM Rules for Companies. Therefore, the Company entering into the Loan facility with Dennis Melka and Graeme Brown is a related party transaction pursuant to AIM Rule 13.

 

The independent directors, as defined by the AIM Rules for the purposes of AIM Rule 13 (being Constantine Gonticas and Anthony Kozuch), having consulted with the Company's nominated adviser, Strand Hanson Limited, consider that the terms of the Loan are fair and reasonable insofar as the Company's shareholders are concerned.

 

The Board continues to assess its funding requirements on an ongoing basis and expects to make a decision in the coming months on the appropriate course of action as the Company transitions into revenue generation.

 

 

United Cacao Limited SEZC and Subsidiaries

Consolidated Statement of Financial Position

At 30 June 2016 and 2015 and at 31 December 2015

Note

As of 30 June

As of  December 31


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)

Assets





Current assets





Cash

4

609,583

2,636,240

4,666,287

Other accounts receivable, net

6

90,058

4,681

15,170

Accounts receivable to related parties

5(a)

298

512

-

Inventory, net

7

170,518

193,242

208,944

Prepaid expenses


80,026

64,977

65,988


___________

____________

____________


950,483

2,899,652

4,956,389


___________

____________

____________









8

16,316,544

11,597,404

14,493,846


___________

____________

____________


16,316,544

11,597,404

14,493,846


___________

____________

____________






17,267,027

14,497,056

19,450,235


___________

____________

____________













9

1,019,508

-

828,184

10

274,687

485,745

384,676

5(a)

588

-

-


___________

____________

____________


1,294,783

485,745

1,212,860


___________

____________

____________





9

3,733,141

-

3,759,478



___________

___________

___________

Total liabilities


5,027,924

485,745

4,972,338


___________

___________

___________

Shareholders' equity, net

11





19,172

18,590

19,172


20,129,054

18,775,776

20,129,054

Other reserves


2,409,481

799,022

2,287,647


(10,318,604)

(5,582,077)

(7,957,976)


___________

____________

____________


12,239,103

14,011,311

14,477,897


___________

____________

____________






17,267,027

14,497,056

19,450,235


___________

____________

____________

 

 

United Cacao Limited SEZC and Subsidiaries

Consolidated Statement of Comprehensive Income

For the six-month period ended 30 June 2016 and 2015, and for the year ended 31 December 2015

Note

For six months ended at
30 June

For year-end at 31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Pre-operating expenses





Administrative expenses

14

   (1,962,444)

(1,775,487)

(3,940,522)


___________

____________

____________

Pre-operating loss


(1,962,444)

(1,775,487)

(3,940,522)






Other expenses





Financial expenses


(377,786)

-

(129,941)

Exchange rate differences, net

3

(20,398)

(88,339)

(158,912)


___________

____________

____________

Loss before income tax


(2,360,628)

(1,863,826)

(4,229,375)










(2,360,628)

(1,863,826)

(4,229,375)


___________

____________

____________





16

(0.25)

(0.20)

(0.23)


___________

____________

____________





 

 


United Cacao Limited SEZC and Subsidiaries

 

Consolidated statements of changes in equity

For the six-month period ended 30 June 2016 and 2015, and 31 December 2015




Other reserves






_________________________




Issued

capital

Share Premium

Shared based payment reserve

Senior Note equity component

Accumulated

losses

Total


US$

US$

US$

US$

US$

US$








Balance as of 1 January 2015

18,430

18,613,436

566,743

-

(3,718,251)

15,480,358

Net loss

-

-

-

-

(1,863,826)

(1,863,826)

Capital contributions, note 11(b)

160

162,340

-

-

-

162,500

Share based payments, note 12(b)

-

-

232,279

-

-

232,279


___________

___________

___________

___________

___________

___________

Balance as of 30 June 2015 (unaudited)

    18,590

18,775,776

799,022

-

(5,582,077)

14,011,311


___________

___________

___________

___________

___________

___________








Balance as of 1 January 2016 (unaudited)

19,172

20,129,054

1,064,046

1,223,601

(7,957,976)

14,477,897

Net loss

-

-

-

-

(2,360,628)

(2,360,628)

Share based payments, note 12(b)

-

-

121,834

-

-

121,834


___________

___________

___________

___________

___________

___________

Balance as of 30 June 2016 (unaudited)

19,172

20,129,054

1,185,880

1,223,601

(10,318,604)

12,239,103


___________

___________

___________

___________

___________

___________








Balance as of 1 January 2015 (audited)

18,430

18,613,436

566,743

-

(3,718,251)

15,480,358

Net loss

-

-

-

-

(4,229,375)

(4,229,375)

Capital contributions, note 11(b)

742

1,515,618

-

-

-

1,516,360

Share based payments, note 12(b)

-

-

497,303

-

(10,350)

486,953

Secured Convertible Bond, 9(c)

-

-

-

1,223,601

-

1,223,601


___________

___________

___________

___________

___________

___________








Balance as of 31 December 2015 (audited)

19,172

20,129,054

1,064,046

1,223,601

(7,957,976)

14,477,897


___________

___________

___________

___________

___________

___________


United Cacao Limited SEZC and Subsidiaries

Consolidated Statements of Cash Flows

For the six-month period ended 30 June 2016 and 2015, and for the year ended 31 December 2015


For six-month period ended
30 June

For year-end

31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Operating activities -




Net loss

(2,360,628)

(1,863,826)

(4,229,375)


___________

____________

____________

Reconciliation of net income to cash used in operating activities:




Share based payments provision, note 14(a)

96,740

164,286

345,169

Allowance for VAT impairment, note 14(a)

87,768

34,395

70,536

Allowance for PAPEC, note 14(a)

31,782

-

104,431

Depreciation, note 8(d)

52,904

4,335

40,889

Write-off seedlings, note 14(a)

1,449

3,183

11,980

Accrued interest expenses, note 9

164,987

-

54,549

Gain for disposal of vehicle

-

-

(1,738)

Amortization

22

-

21

Other, net

185,669

(33,572)

(5,100)

Net changes in assets and liabilities accounts:




Decrease (increase) in other accounts receivable

(200,875)

 1,805,901

1,484,723

Decrease (increase) inventory

 38,426

(127,946)

(143,648)

Decrease (increase) prepaid expenses

(14,038)

27,564

26,553

Increase (decrease) trade and other accounts payable

(319,596)

40,010

98,227

Increase (decrease) in payable to related parties

588

(107,028)

-

Cash collections from related parties, note 5(a)

6,117

567

136,127

Cash payments to related parties

(2,605)

(1,079)

(236,618)


___________

____________

____________

Net cash used in operating activities

(2,231,290)

(53,210)

(2,243,274)


___________

____________

____________

Investment activities -




Acquisition of land, equipment, vehicles and bearer plants, note 8

(1,825,414)

(3,437,299)

(6,220,309)

Acquisition of vehicles to related parties, note 5(c)

-

-

(107,028)

Additions to intangibles

-

-

(425)

Disposal of vehicle and lands, note 5(a)

-

14,790

14,790


___________

____________

____________

Net cash used in investment activities

(1,825,414)

(3,422,509)

(6,312,972)


___________

____________

____________

Financing activities -




Capital contributions, net

-

162,500

1,516,360

Proceeds from issuance of convertible bonds, net

-

-

5,756,714


___________

____________

____________

Net cash provided by financing activities

-

162,500

7,273,074


___________

____________

____________

Net decrease in cash

(4,056,704)

(3,313,219)

(1,283,172)

Cash at beginning of the period

4,666,287

5,949,459

5,949,459


___________

____________

____________





Cash at the end of the period

609,583

2,636,240

4,666,287


___________

____________

____________





Non-cash transaction:




Depreciation and share-based payment reserve capitalized as land, agriculture machinery, vehicles, bearer plants, equipment and construction in progress, net

143,314

178,184

347,409





 

 

United Cacao Limited SEZC and Subsidiaries

Notes to the Consolidated Financial Statement

For the six-month period ended 30 June 2016 and 2015, and for the year ended 31 December 2015

 1.         Identification and business activity of the Company

(a)        Identification -

United Cacao Limited SEZC (hereinafter "the Company" or "UCL") is an investment holding Company incorporated in the Cayman Islands on 21 May 2013 and licensed by the Special Economic Zone Authority of the Cayman Islands Government.

 

As of 30 June 2016, there was no majority shareholder in the registry of the Company; however, East Pacific Capital Private Limited, an entity controlled by the Chairman and CEO, holds approximately 27 percent of the Company's capital stock (27 percent as of 31 December 2015).

 

The legal domicile of the Company is Cricket Square, Hutchins Drive, PO Box 2681 Grand Cayman KY1-1111, Cayman Islands. Also the Company maintains an office at HSBC House, 68 West Bay Road, PO Box 10315, Georgetown, Grand Cayman, KY1-1003, Cayman Islands.

 

(b)        Business activity -

UCL is a holding company for its Peruvian subsidiaries, Cacao Del Peru Norte S.A.C. ("CDPN") and Cooperativa de Cacao Peruano S.A.C. (CCP) (the "Subsidiaries"), which operate in the agricultural sector. The Company's participation in its Subsidiaries is as follows:

 


Ownership in capital as of 31 December 2015

__________________________________________________

Incorporated in

Direct

Indirect


%

%







British Virgin Islands

100.00

-




Perú

99.99

0.01

Perú

99.99

0.01

 

As of 30 June 2016 and 31 December 2015, the Company and its Subsidiaries are involved in the ownership development and management of cacao estates which consists of acquisition, development and preparation of land for planting. As of 30 June 2016, the Company, through its operating subsidiaries owned agriculturally, titled land of 3,985 hectares (unaudited), cleared 2,032 hectares (unaudited) and planted 1,643 hectares of land (unaudited, excludes PAPEC hectares) (compare with titled land 3,985 (unaudited), cleared 2,032 hectares (unaudited) and planted 1,469 hectares of land (unaudited, excludes PAPEC hectares), as of December 31, 2015), see note 8(b).

 

The Company's Board of Directors and Management have established business plans and assumptions to ensure the continuity of the Company. In this sense, the continuity of the business operations depends of the success of such plans. The main plan established by the Board is the purchase of agricultural land in order to plant and harvest approximately 2,000 hectares of cacao.

 

 2.         Significant accounting policies and practices

(a)       Basis of preparation -

Declaration of compliance -

These consolidated financial statements of the Company for the six-month period ended 30 June 2016 and 2015, and for the year ended 31 December 2015 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU").

 

Responsibility for the information -

The information contained in these consolidated financial statements are the responsibility of Management and the Board of the Company, which expressly state they have fully implemented the principles and criteria contained in the International Financial Reporting Standards ("IFRS") as adopted by EU as of 30 June 2016 and 31 December 2015.

 

Basis of measurement -

The consolidated financial statements have been prepared under the historical cost basis, from the accounting records kept by the Company. The accompanying consolidated financial statements are presented in U.S. Dollars (functional and presentation currency).

 

Used of judgments and estimates -

The preparation of financial information in accordance with IFRS as adopted by the EU requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial information and the reported amounts of income and expenses during the reporting period. Although these estimates are based on Management's best knowledge of the amount, event or actions, actual events ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

 

Information about significant areas of estimation, uncertainly and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are described in note (f) below. IFRS also require management to exercise its judgment in the process of applying the Company's accounting policies.

 

(b)       Going Concern -

The financial statements relating to the Company have been prepared on a going concern basis, which assumes that the Company will continue its operations and will be able to meet its liabilities as they fall due for the foreseeable future. Management considers that the Company has sufficient funds for the foreseeable future that is for at least twelve months from the date of this document.

 

 

(c)        New and revised IFRS adopted by the EU -

The accounting policies adopted are consistent with those applied in previous years, except that the Company has adopted the new and revised IFRS and IAS's that are mandatory for periods beginning on or after 1 January 2015, as described below:

 

-           Annual Improvements 2010-2012 Cycle

These improvements did not generate impacts on the Group's financial statements. They include:

 

IFRS 8 Operating Segments

The amendment clarifies that:

An entity must disclose the judgments made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are "similar".

 

The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.

 

This amendment is not relevant for the Group.

 

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

The amendment clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data by either adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset. This amendment did not have any impact to the Group during the current period.

 

IAS 24 Related Party Disclosures

The amendment clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant for the Group as it does not receive any management services from other entities.

 

-           Annual Improvements 2011-2013 Cycle

These improvements did not generate impacts on the Group's financial statements. They include:

 

IFRS 13 Fair Value Measurement

The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable). The Group does not apply the portfolio exception in IFRS 13.

 

IFRS 3 Business Combinations

This amendment did not have any impact to the Group during the current period.

 

IFRS 40 Investment property

This amendment to clarify that IAS 40 and IFRS 3 are not mutually exclusive. IAS 40 assists users to distinguish between investment property and owner-occupied property. Preparers also need to consider the guidance in IFRS 3 to determine whether the acquisition of an investment property is a business combination. This amendment did not have any impact to the Group during the current period.

 

-           Annual Improvements 2012-2014 Cycle

 

These improvements did not generate impacts on the Group's financial statements. They include:

 

IAS 19 "Defined Benefit Plans: Employee Contributions"

Applicable for annual periods beginning on or after February 1, 2015. The amendments clarify how an entity should account for contributions made by employees or third parties that are linked to services to defined benefit plans, based on whether those contributions are dependent on the number of years of service provided by the employee. This amendment did not have any impact to the Group during the current period.

 

The Group has not yet adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

(d)       Basis of consolidation-

The consolidated financial statements comprise the financial statements of the Company and the controlled entities. Control is presumed when the Company owns, directly or indirectly, more than half of the voting rights of the issued share capital of Subsidiaries, and has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All balances, sales and other transactions between the Company and its Subsidiaries have been eliminated in full, including the realized and unrealized gains and losses resulting from such transactions.

 

(e)       Segment Reporting-

Operating segments are reporting in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of operating segments, has been identified as the Board of Directors and the Financial Controller.

 

(f)        Estimates and assumptions -

The preparation of the consolidated financial statements requires management to use estimates and assumptions to determine the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses for the six-month period ended 30 June 2016 and 31 December 2015.

 

These accounting judgments and estimates are based on the best knowledge by Management of material events and circumstances, taking into account historical experience; however, the actual results obtained in future periods may differ from the estimated amounts. The Company and Subsidiaries' Management do not expect that these changes, if any, will have a significant effect on the consolidated financial statements.

 

Significant estimates and assumptions are as follows:

 

-           Fair value of financial assets and liabilities.

-           Determination of the useful life and depreciation method of Property, plant and equipment.

-           Estimation of the provision for impairment of long-lived assets.

-           Estimation of the provision for contingencies arising from legal processes and administrative procedures.

-           Stock options valuation (share-based payments) and senior note equity component

 

Any difference between estimates and actual results thereafter is recorded in year's results in which it occurs.

 

(g)        Foreign currency transactions -

Functional and presentation currency -

The functional currency was determined by Management at the Company and its Subsidiaries and is the U.S. Dollar, which is also its presentation currency.

 

Transactions and balances in foreign currency -

Transactions in foreign currencies are initially recorded at the functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchange ruling as of the date of the consolidated statements of financial position. Gains or losses from exchange difference resulting from the settlement of such transactions and translation of monetary assets and liabilities in foreign currencies at rates of exchange ruling as of the date of the consolidated statements of financial position are recognized in the consolidated statements of comprehensive income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated to the functional currency using the exchange rates as of the dates of the initial transactions.

 

(h)       Financial assets -

Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

 

All financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Company and its Subsidiaries determine the classification of its financial assets at initial recognition.

 

The Company and its Subsidiaries' financial assets include cash, and other receivable. For the six-month period ended 30 June 2016 and 31 December 2015 the Company and its Subsidiaries do not have financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale investments, or derivatives designated as hedging instruments.

 

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, these financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Gains and losses are recognized in the consolidated statements of comprehensive income when the loans and receivables are derecognized or impaired, as well as through the amortization process.

 

Amortized cost

Any premium or discount in the debt instruments classified into the loans and receivables category is considered in the calculation of the amortized cost by applying the effective interest rate methodology, recognizing the accrued interest in the "Financial income" caption of the income statements.

 

(i)         Impairment of financial assets -

The Company and its Subsidiaries assess at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred 'loss event'), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate (for example, the effective interest rate calculated at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statements of comprehensive income.

 

If, in a subsequent year, the amount of the estimated impairment loss decreases and the loss can be related to an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced up to the point where the carrying value of the assets does not exceed its amortized cost as of the reduction date. Any subsequent reduction related to an impairment loss will be recognized in the consolidated statements of comprehensive income.

 

(j)         Cash -

Cash in the consolidated statements of financial position comprise current bank accounts.

 

(k)        Inventories -

Inventories correspond mainly to cacao seeds and supplies. Such are valued at the lower of cost and net realizable value. Costs incurred in bringing each product to its present location and condition is accounted for as follows:

 

-           Inventory -

At acquisition cost, using the weighted average cost method.

 

-           Inventory in transit -

At specific acquisition cost.

 

Management periodically assesses the devaluation and obsolescence of these assets. Obsolescence and devaluation are recorded when it is estimated that these are necessary changes to the assets based on technical areas of the Company.

 

(l)        Land, vehicles, agriculture machinery, bearer plants, equipment and construction in progress,

net -

Land, vehicles, agriculture machinery, bearer plants and equipment are stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any.

 

The initial cost comprises the purchase price, including import duties and non-refundable purchase taxes and any directly attributable cost necessary to place and bring the asset to its working condition. For land, including subsequent costs and charges related to preparation and adaptation in order to use as growing field. Other subsequent disbursements related to repair and maintenance costs are recognized in the results of the period when incurred. Subsequent disbursements that will result in future economic benefits, in excess of the originally assessed standard of performance, are capitalized as an additional cost.

 

Land is not be depreciated. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

 


Years



Roads

25

Buildings

15

Agriculture machinery

10

Vehicles

5

Furniture and fixtures

10

Computer equipment

4

Other equipment

10

 

When selling or retiring vehicles and equipment, the cost and associated accumulated depreciation is eliminated, and any gain or loss arising on such disposal is included in the consolidated statements of comprehensive income.

 

Construction in progress -

Construction in progress includes the costs incurred for the construction of assets and other expenses directly attributable to such constructions, accrued during its execution. Constructions in progress are capitalized when completed and its depreciation is measured and recorded since the moment when they are put into use.

 

To capitalize directly attributable personnel expenses, the Company identifies each one of the areas and time dedicated to the planning, execution and management of the construction.

 

The book value of an asset is provisioned immediately to its recoverable amount if the carrying amount of the asset is greater than its estimated recoverable value.

 

(m)       Impairment of long-lived assets -

Whenever events or circumstances indicate that the carrying amount of long-term duration assets may not be recoverable, the Company assesses the value of land, vehicles and equipment; and biological assets to verify that there is no impairment. When the book value exceeds its recoverable value, an impairment loss is recognized in the consolidated statements comprehensive income.

 

The recoverable value is the higher between the net sale price and its value in use. The net sale price is the amount that can be obtained from the sale of an asset on a free market, while the value in use is the present value of estimated future cash flows from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for each asset or cash generating unit.

 

(n)       Administrative and other expenses recognition -

Costs and expenses are recognized on an accrual basis, regardless of when they are paid, and are recorded in the periods to which they relate.

 

(o)        Share based payments -

The Company operates an equity settled share based option scheme under which the entity receives services from employees' in consideration for equity instruments (options) of the Company. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. The fair value of the employees' services received in exchange for the grant of options is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of any non-market service and performance vesting conditions. The total amount expensed is recognized over the vesting period, which is the period over which all the specified conditions are satisfied. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest based on the vesting conditions. The dilutive effect of outstanding stock options is reflected as additional share dilution in the computation of diluted earnings per share, when it is applicable (further details are given in Note 16).

 

(p)        Compound financial instruments -

The Company recognizes separately the components of a financial instrument that creates (a) a financial liability of the company and (b) grants an option to the holder of the instrument to convert it into an equity instrument of the company.

 

The classification of the liability and equity components of a convertible instrument is not revised as a result of a change in the likelihood that a conversion option will be exercised, even when exercise of the option may appear to have become economically advantageous to some holders.

 

The Company, as an issuer of a Secured Convertible Bond with a call option instrument which may convert into ordinary shares, determines initially the carrying amount of the liability component by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity instrument represented by the option to convert the warrant instrument into ordinary shares is then determined by deducting the fair value of the financial liability from the fair value of the compound financial instrument as a whole.

 

(q)       Income tax -

Current income tax

Assets and liabilities for current income tax are measured by the amount expected to be recovered or paid to the Tax Authority. The tax rates and tax laws used to compute the amount are those in effect on the date of closing of the reporting period reported in Peru.

 

Deferred income tax

Deferred tax is recognized using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured at the tax rates that have been enacted and are expected to apply in the year when the asset is realized or the liability is settled. The measurement of deferred assets and deferred liabilities reflects the tax consequences that arise from the manner in which the Company and its Subsidiaries expect, as of the date of the consolidated statement of financial position, to recover or settle the carrying amount of its assets and liabilities.

 

Value added tax -

Revenue, expenses and assets are recognized excluding the amount of Value Added Tax (VAT), except:

 

-           When the VAT incurred on a purchase of asset or service is not recoverable from the Tax Authorities, in which case, the VAT is recognized as part of the cost of acquisition of the asset or as part of the expenditure, as appropriate;

-           Receivables and payables that are already expressed by the amount of VAT included.

 

(r)        Provisions -

Provisions are recognized when the Company and its Subsidiaries have a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the consolidated statements of comprehensive income, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

 

(s)        Share capital -

Ordinary shares are classified as equity. Any excess above the par value of shares received upon issuance of those shares is classified as "share premium".

 

(t)        New accounting pronouncements -

New and revised IFRS adopted by the EU that are not mandatorily effective (but allow early application) for the year ending 31 December 2015:

 

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations, applicable for annual periods beginning on or after January 2016.

The amendments to IFRS 11 provide guidance on how to account for the acquisition of an interest in a joint operation in which the activities constitute a business as defined in IFRS 3 Business Combinations. Specifically, the amendments state that the relevant principles on accounting for business combinations in IFRS 3 and other standards (e.g. IAS 36 Impairment of Assets regarding impairment testing of a cash generating unit to which goodwill on acquisition of a joint operation has been allocated) should be applied. The same requirements should be applied to the formation of a joint operation if and only if an existing business is contributed to the joint operation by one of the parties that participate in the joint operation. A joint operator is also required to disclose the relevant information required by IFRS 3 and other standards for business combinations.

Amendments to IAS 1 disclosure initiative, applicable for annual periods beginning on or after January 2016.

The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify:

-           The materiality requirements in IAS 1.

-           That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated.

-           That entities have flexibility as to the order in which they present the notes to financial statements.

-           That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and amortization, applicable for annual periods beginning on or after January 2016.

The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortization of an intangible asset. This presumption can only be rebutted in the following two limited circumstances: when the intangible asset is expressed as a measure of revenue or when it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

Annual improvements in the 2012-2014 cycle are applicable for annual periods beginning on or after January 2016.

These improvements relate to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits, and IAS 34 Interim Financial Reporting and are effective from 1 January 2016.

Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants are applicable for annual periods beginning on or after January 2016. The amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture define a bearer plant and require biological assets that meet the definition of a bearer plant to be accounted for as property, plant and equipment in accordance with IAS 16, instead of IAS 41. In terms of the amendments, bearer plants can be measured using either the cost model or the revaluation model set out in IAS 16. On the initial application of the amendments, entities are permitted to use the fair value of items of bearer plant as their deemed cost as at the beginning of the earliest period presented. Any difference between the previous carrying amount and fair value should be recognized in opening retained earnings at the beginning of the earliest period presented. The produce growing on bearer plants continues to be accounted for in accordance with IAS 41.

 2.1.      Change in accounting policy

The Company's Board decided to early adopt amendments to IAS 16 "Property, Plant and Equipment" and IAS 41 "Agriculture"; which change the scope of IAS 16 to include biological assets that meet the definition of bearer plants (e.g. fruit trees). Agricultural products grown in the bearer plants (e.g. fruit that grows on a tree) will remain within the scope of IAS 41. As a result of these amendments, bearer plants (production plants) will be subject to all the requirements for recognition and measurement of IAS 16, including the choice between the cost model and the revaluation model. In addition, government grants related to bearer plants will be accounted for in accordance with IAS 20 instead of IAS 41. This standard is effective for annual periods beginning on or after 1 January 2016.

This early adoption has no significant accounting effects in the consolidated financial statement considering the early start-up stage of the Company's activities (indicated in note 1). For the six-month period ended 30 June 2016 and 31 December 2015, the Company considered the costs incurred in the planted cacao tree as bearer plants, valued at its historical cost. Based on this amendment, these costs are considered as bearer plants under IAS 16, also valued at its historical cost. See (l).

Then table below describes the main modification on the financial statements as of 31 December 2014:

 

 

 

Balance

 Reported 2014

Accounting Policy Change

Modified

Balances 2014


US$

US$

US$





Consolidated statements of financial position -




Biological assets

1,722,976

(1,722,976)

-

Land, agriculture, machinery, vehicles and constructions in progress, net

6,392,266

1,722,976

8,115,242

 

Standards and Interpretations issued by the IASB but not yet adopted by the EU -

As of the date of these financial statements, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following standards and amendments to the existing standards, which were not endorsed for use in the EU as of 31 December 2015 and cannot be applied by the entities preparing their financial statements in accordance with IFRS as adopted by the EU:

 

-           IFRS 9 "Financial Instruments", not yet endorsed by the EU.

             In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory.

-           IFRS 14 "Regulatory Deferral Accounts," not yet endorsed by the EU.

             IFRS 14 permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for 'regulatory deferral account balances' in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements. IFRS 14 is effective for an entity's first annual IFRS financial statements for annual periods beginning on or after 1 January 2016, with earlier application permitted.

-           IFRS 15 "Revenue from contracts with customers," not yet endorsed by the EU.

             IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2018 with early adoption permitted.

-           Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture, not yet endorsed by the EU.

             These amendments clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture requiring full recognition in the investor's financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations) and the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognized only to the extent of the unrelated investors' interests in that associate or joint venture. These amendments are effective for annual periods beginning on or after January 1, 2016.

-           Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception, not yet endorsed by the EU.

             The amendments address issues that have arisen in the context of applying the consolidation exception for investment entities. The amendments confirm that the exemption from preparing consolidated financial statements for an intermediate parent entity is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all of its subsidiaries at fair value. A subsidiary that provides services related to the parent's investment activities should not be consolidated if the subsidiary itself is an investment entity. These amendments are effective for annual periods beginning on or after 1 January 2016.

 

-           Amendments to IAS 27 Equity Method in Separate Financial Statements, not yet endorsed by the EU.

             IAS 27 Separate Financial Statements requires an entity to account for its investments in subsidiaries, joint ventures and associates either at cost or in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement for entities that have not yet adopted IFRS 9). The amendments allow an entity to apply also the equity method in accounting for its investments in subsidiaries, joint ventures and associates in its separate financial statements. The accounting option must be applied by category of investments. The amendments also clarify that when a parent ceases to be an investment entity, or becomes an investment entity, it shall account for the change from the date when the change in status occurred. These amendments are effective for annual periods beginning on or after 1 January 2016.

The Company is in the process of evaluating the impact of the application of these rules, if any, on its consolidated financial statements and disclosures in the notes of the consolidated financial statements.

 

 3.         Transactions and balances in foreign currency

The main foreign exchange operations are stated in "Nuevos Soles" (Peruvian currency), which are carried out at market exchange rates published by the Peruvian Superintendencia de Banca y Seguros y AFP. At 30 June 2016, the exchange rates issued for Nuevos Soles for that institution were US$0.3038 for buying and US$0.3043 for sale (US$0.3146 and US$0.3151 at 30 June 2015 and US$0.2930 and US$0.2934 as of 31 December 2015, respectively), and have been applied by the Company for the accounts of assets and liabilities.

 

The Company had the following assets and liabilities denominated in Nuevos Soles:

 


At 30 June

At 31 December


___________________________



2016

2015

2015


S/.

S/.

S/.


(unaudited)

(unaudited)

(audited)





Assets




Cash

149,714

1,348,437

481,590

Other accounts receivable

196,721

18,359

32,935


____________

____________

____________


346,435

1,366,796

514,525


____________

____________

____________





Liabilities




Trade and other accounts payable

778,398

1,206,256

997,861


____________

____________

____________


778,398

1,206,256

997,861


____________

____________

____________





Net (liability) asset position

(431,963)

160,540

(483,336)


____________

____________

____________

 

At 30 June 2016 and 31 December 2015, the Company and its Subsidiaries do not use derivative instruments to reduce the foreign exchange risk.

 

During the six-month period ended 30 June 2016, the net loss originated from exchange differences was US$20,398 (a net gain of US$ 88,339 for the six-month period ended 30 June 2015). During the year 2015, the net loss amounted to US$158,912. All of these effects are presented in the "Exchange rate differences, net" caption in the interim and annual consolidated statement of comprehensive income, respectively.

 

 4.         Cash

The Company and its subsidiaries held current accounts mainly in Peruvian and Singaporean banks and are denominated in Nuevos Soles and U.S. dollars. These funds are freely available and do not earn interest.

 5.         Transactions and balances with related parties

(a)        The Company carried out the following transactions with related parties:

 


At 30 June

At 31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Revenue




Income from disposal of vehicle and lands (c)

-

14,790

14,790


____________

____________

____________

















Cash received /(paid) (b)




Cacao de la Amazonía S.A.C.

2,633

-

-

Cacao de Requena Este S.A.C.

103

-

-

Plantaciones Loreto S.A.C.

103

456

425

Plantaciones de Napo S.A.C.

102

-

-

Cacao de Requena Oeste S.A.C.

87

-

-

Plantaciones de San Francisco S.A.C.

61

-

317

Plantaciones de Loreto Este S.A.C.

36

-

-

Plantaciones del Peru Este S.A.C.

36

-

-

Plantaciones de Iquitos S.A.C.

32

-

133

Plantaciones de Lima S.A.C.

-

-

235,551

Plantaciones de Tamshiyacu S.A.C.

-

111

104

Plantaciones de Pucallpa S.A.C.

-

-

88

Cash paid to related parties

(2,605)

(567)

(236,618)


____________

____________

____________


588

-

-


____________

____________

____________





Cash granted/ (collected) (b)




Cacao de la Amazonía S.A.C.

4,298

-

1,573

Plantaciones de Ucayali S.A.C.

1,065

708

694

Plantaciones de Napo Sur S.A.C.

162

-

-

Plantaciones de Pucallpa S.A.C.

145

-

-

Plantaciones de Loreto Este S.A.C.

123

-

27

Plantaciones del Peru Este S.A.C.

118

-

107,055

Plantaciones de Loreto S.A.C.

106

121

1,089

Plantaciones de Marín S.A.C.

98

-

5

Cacao de Requena Oeste S.A.C.

96

-

82

Plantaciones de San Francisco S.A.C.

59

25,000

25,089

Plantaciones de Iquitos S.A.C.

39

-

114

Plantaciones de Lima S.A.C.

35

-

129

Plantaciones de Napo S.A.C.

28

-

-

Cacao de Requena Este S.A.C.

28

-

135

Plantaciones de Tamshiyacu S.A.C.

15

-

-

Plantaciones de Napo Norte S.A.C.

-

-

135

Cash collected from related parties

(6,117)

(25,317)

(136,127)


____________

____________

____________


298

512

-


____________

____________

____________

Secured Convertible Bond




Book value of Secured Convertible Bond due 30 June 2019, note 9(b)

1,275,000

1,275,000

-

Accrued interest expense

27,249

27,249

-


____________

____________

____________


1,302,249

1,302,249

-









 

(b)        The Company received and performed money transfers from/to its related parties during the year to cover temporary working capital needs. These transfers do not accrue interest and have maturities for less than 30 days. 

 

(c)        Corresponds to the sale of vehicles by Cacao Del Peru Norte S.A.C. to Plantaciones de Ucayali S.A.C during 2015.

 

(d)        Key management compensation

Key management comprises the Directors and Executive Officers of the Company. During the six-month period ended 30 June 2016 and 2015, the compensation of key management personnel amounted to US$135,000 and US$135,000 (US$89,250 during the year 2015), which corresponds to short-term employee benefits. No post-retirement and termination benefits are paid to key management. There were no share-based payment pertaining to key management during the six-month period ended 30 June 2016 and 2015, respectively (US$127,745, during year 2015).

 

Classified by Directors -

 


Salary and Bonus

Share-based payment


US$

US$




For the six-month period ended 30 June 2016



Dennis Melka (Executive Chairman)

105,000

-

Anthony Kozuch (Executive Director)

30,000

-


___________

___________





135,000

-


___________

___________




For the six-month period ended 30 June 2015



Dennis Melka (Executive Chairman)

105,000

-

Anthony Kozuch (Executive Director)

30,000

-


___________

___________





135,000

-


___________

___________










For year-end 31 December 2015



Dennis Melka (Executive Chairman)

276,750

41,162

Anthony Kozuch (Executive Director)

60,000

86,583


___________

___________





336,750

127,745


___________

___________

 

 

 6.            Others accounts receivable, net

(a)        This item is made up as follows:

 


As of 30 June

As of 31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Tax credit of VAT (b)

313,666

189,757

225,898

Estimate PAPEC (d)

136,213

-

104,431

Advances to suppliers (c)

43,354

-

5,102

Guarantee deposit for operating lease

2,130

2,205

2,054

Account receivable from shareholder

25,000

-

-

Other

19,574

2,476

8,014


____________

____________

____________


539,937

194,438

345,499

Less: Estimation for impairment of accounts receivable (e)

(449,879)

(189,757)

(330,329)


____________

____________

____________






90,058

4,681

15,170


____________

____________

____________

 

(b)        Corresponds to the tax credit of VAT generated from the purchases of goods and services in accordance with the tax regime described in note 13. Management and its tax advisors have assessed the form and timing of the recoverability of such tax credit, and have decided to record a provision for the full amount.

 

(c)        Relates to advances granted to domestic suppliers which have been fully applied to invoices received during the next quarter.

 

(d)        Productive Strategic Alliance Program of Cocoa ("PAPEC") is a small farmer financing mechanism established by Cooperativa de Cacao Peruano S.A.C. to promote the cacao industry in communities around its plantations. As of 30 June 2016, there were 147 participants who planted 194 hectares of cacao compared with 187 hectares of cacao planted as of 31 December 2015. The Company is financing approximately S/6,800 per hectare. The interest rate is 11.0% which accretes to the loan and in the fourth year, the participant begins to pay back cash to reduce the loan balance. Based on the terms of the PAPEC program, the Company undertakes to pay 75% of the benchmark price for wet beans up to US$4,000 per tonne or 65% of any price above US$4,000 per tonne. As of 31 December 2015, the Company has givens loans of approximately US$103,964 with an accumulated interest of approximately US$467. As of 30 June 2016, the Company has givens loans of approximately US$132,976 with an accumulated interest of approximately US$3,237.

 

 

(e)        The movement of the allowance for doubtful accounts is as follows:

 

 


As of 30 June

As of 31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Opening balance

330,329

155,361

155,362

Additions, note14 (a)

119,550

34,396

174,967


____________

____________

____________





Ending balance

449,879

189,757

330,329


____________

____________

____________

 

As of 30 June 2016 corresponds to: (i) an amount of US$313,666 related to the full amount of tax credit of VAT from the purchase of goods and services recognized as expense due to the uncertainty of its recoverability and (ii) an amount of US$136,213 related to PAPEC recognized as expense.

 

(f)         All receivables at each reporting date are current. Any receivables are neither past due nor impaired. The Company considers that the carrying amount of the other receivables does not differ significantly from the estimated fair value at each reporting date.

 

 7.         Inventory, net

 

(a)        This item is made up as follows:

 


As of 30 June 2016

As of 30 June 2015


2015


US$

US$


US$






Fertilizer and agricultural consumables (b)

152,643

193,242


186,027

Fuel

9,655

-


22,917

Inventory in transit

8,220

-


-


__________

__________


__________







170,518

193,242


208,944


__________

__________


__________

 

(b)        Corresponds to fertilizers and other agricultural consumables to be used in the Company's operations. In Management's opinion, it is not necessary to record a provision for inventory obsolescence as of 30 June 2016 and 2015, and 31 December 2015.


 8.         Land, agriculture machinery, vehicles and equipment, net

(a)        The movement and composition of this item is as follows:

 


Land

    Buildings

  Roads

Agriculture Machinery

Vehicles

Furniture
and Fixtures

Computer Equipment

Other
Equipment

Bearer Plants (f)

Construction in Progress (e)

Other Assets in Progress

Total


US$

            US$

   US$

US$

US$

US$

US$

US$

US$

US$

US$

US$














Cost













Balance at 1 January 2016

5,743,004

359,101

747,594

1,002,503

522,062

42,890

31,719

335,313

4,297,737

1,789,315

14,755

14,885,993

Additions (b)

26,227

-

-

-

2,372

2,710

3,144

9,479

1,906,688

18,108

-

1,968,728

Stock Options, note 12 (b)

-

-

-

-

-

-

-

-

25,094

-

-

25,094

Transfers

-

367,060

1,432,430

-

-

-

-

14,755

-

(1,799,490)

(14,755)

-


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

Balance at 30 June 2016

5,769,231

726,161

2,180,024

1,002,503

524,434

45,600

34,863

359,547

6,229,519

7,933

-

16,879,815


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________














Accumulated depreciation













Balance at 1 January 2016

-

2,163

14,952

169,717

153,873

1,933

11,511

37,998

-

-

-

392,147

Additions (d)

-

23,958

19,727

50,125

52,404

2,215

4,820

17,875

-

-

-

171,124


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

Balance at 30 June 2016

-

26,121

34,679

219,842

206,277

4,148

16,331

55,873

-

-

-

563,271


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________














Net cost at 30 June 2016

5,769,231

700,040

2,145,345

782,661

318,157

41,452

18,532

303,674

6,229,519

7,933

-

16,316,544


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

 

 

Cost













Balance at 1 January 2015

3,694,054

-

-

936,539

587,322

5,025

14,857

165,133

1,722,976

1,140,713

-

8,266,619

Additions (b)

23,414

-

-

65,964

31,272

8,607

11,916

48,844

3,205,745

151,728

-

3,547,490

Disposals and retirements

-

-

-

-

(18,795)

-

-

-

-

-

-

(18,795)

Stock Options, note 12 (b)

-

-

-

-

-

-

-

-

67,993

-

-

67,993


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

Balance at 30 June 2015

3,717,468

-

-

1,002,503

599,799

13,632

26,773

213,977

4,996,714

1,292,441

-

11,863,307


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________














Accumulated depreciation













Balance at 1 January 2015

-

-

-

77,305

61,339

323

3,698

8,712

-

-

-

151,377

Additions (d)

-

-

-

49,487

53,823

566

3,054

7,596

-

-

-

114,526


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

Balance at 30 June 2015

-

-

-

126,792

115,162

889

6,752

16,308

-

-

-

265,903


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________














Net cost at 30 June 2015

3,717,468

-

-

875,711

484,637

12,743

20,021

197,669

4,996,714

1,292,441

-

11,597,404


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________














 

Cost













Balance at 1 January 2015

3,694,054

-

-

936,539

587,322

5,025

14,857

165,133

1,722,976

1,140,713

-

8,266,619

Additions (b)

2,048,950

-

-

113,964

60,563

37,865

16,862

86,485

2,432,977

1,755,297

14,755

6,567,718

Disposals and retirements

-

-

-

(48,000)

(18,795)

-

-

(23,333)

-

-

-

(90,128)

Stock Options, note 12 (b)

-

-

-

-

-

-

-

-

141,784

-

-

141,784

Transfers

-

359,101

747,594

-

(107,028)

-

-

107,028

-

(1,106,695)

-

-


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

Balance at 31 December 2015

5,743,004

359,101

747,594

1,002,503

522,062

42,890

31,719

335,313

4,297,737

1,789,315

14,755

14,885,993


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________














 

 

Accumulated depreciation













Balance at 1 January 2015

-

-

-

77,305

61,339

323

3,698

8,712

-

-

-

151,377

Additions (d)

-

2,163

14,952

92,412

98,277

1,610

7,813

29,286

-

-

-

246,513

Transfers

-

-

-

-

(5,743)

-

-

-

-

-

-

(5,743)


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

Balance at 31 December 2015

-

2,163

14,952

169,717

153,873

1,933

11,511

37,998

-

-

-

392,147


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________














Net cost at 31 December 2015

5,743,004

356,938

732,642

832,786

368,189

40,957

20,208

297,315

4,297,737

1,789,315

14,755

14,493,846


___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________

___________















(b)        During the six-month period ended at 30 June 2016 and 2015, the Company did not acquire any additional agriculture land and acquired 185 hectares of agricultural land, respectively for a total cost amounting to US$23,159 for the period ending 30 June 2015. Improvements include costs of approximately during the six month ended at 30 June 2016 and 2015 for US$26,277 and US$255, respectively (US$2,028,957 during 2015) related to the preparation and adaptation in order to use the land as a growing field.

 

Additionally, the Company acquired during six-month period ended 30 June and 2016 and 2015 equipment and vehicles for an amount of approximately US$2,372 and US$97,236, respectively, which were principally trucks, motorcycles and heavy construction equipment (compared with US$174,527 during 2015).

 

(c)        The Company keeps insurance contracts on its main non-land assets, in accordance with the policy established by Management. In Management's opinion, its insurance policies are consistent with industry practice. The risk of potential losses for claims considered in the insurance policy is reasonable considering the type of assets held.

 

(d)        The depreciation for the six-month period ended 30 June 2016 and 2015 and for the year ended 31 December 2015, was allocated as follows:

 


For six-month period ended
30 June

For year-end
31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Land

118,220

110,191

205,625

Administrative expenses, note 14 (a)

52,904

4,335

40,888


__________

__________

__________






171,124

114,526

246,513


__________

__________

__________

 

(e)        Construction in progress correspond to disbursements related to the construction of roads necessary for transportation from and to the plantations as well as to costs incurred in the fields of the operating locations.

 

(f)         For the six-month period ended 30 June 2016 and 2015, the Company planted 174 and 368 hectares (unaudited) in the final growing fields, respectively. During the six-month ended 30 June 2016 and 2015, the Company incurred costs amounting to US$1,906,688 and US$3,205,745, respectively, that mainly correspond to disbursements for the preparation of agricultural land, treatment of seeds in the nursery and operating costs for planting seedlings in the final growing field, payroll dedicated to such activities (salaries), and other consumables (US$2,432,977 during 2015).

 

(g)        As of 30 June 2016 and 31 December 2015, Management has assessed the recoverable amount of its long-term assets and did not find any impairment indicated.

 9.         Secured Convertible Bond

(a)        This item is made up as follows:

 


As of 30 June 2016

2015


US$

US$




Face value of senior notes (b)

6,080,000

6,080,000

Less: Senior note equity component (c)

(1,292,316)

(1,292,316)

Less: Transaction costs on liability component

(254,571)

(254,571)


___________

___________

Liability component at initial recognition

4,533,113

4,533,113




Add: Accretion of interest on the senior notes

219,536

54,549


___________

___________





4,752,649

4,587,662


___________

___________




Classification for maturity:



Current portion

1,019,508

828,184

Non - current portion

3,733,141

3,759,478


___________

___________





4,752,649

4,587,662


___________

___________

 

The fair value of the Secured Convertible Bond is as follows:

 


30 June 2016


___________________________________

Secured Convertible Bond

US$

US$


(face value)

(fair value)




27 October 2015

6,080,000

4,533,113


___________

___________





6,080,000

4,533,113


___________

___________




Accretion of interest on the Secured Convertible Bond


219,536



___________






4,752,649



___________

 

(b)        The Secured Convertible Bond was issued in one series for a total amount of US$6,080,000 on 27 October 2015 and is listed on the ISDX Growth Market; which have the maturity date on 30 June 2019 (unless previously prepaid by acceleration), bear a cash interest coupon of 7 percent per annum and is payable semi-annually (commencing on 27 October 2015).

 

For the six-month period ended 30 June 2016 and 31 December 2015 the Secured Convertible Bond were issued to third parties and directors of the Company; whose total face value for each group amounted to US$4,805,000 and US$1,275,000; respectively, see note 5(a).

 

(c)        At maturity, Bondholders may choose to either convert the outstanding principal of the Bonds into Ordinary Shares at a conversion price of US$3.40 per share (approximately 262 pence) or to redeem it in cash. At maturity, the maximum number of Ordinary Shares that may be issued under Tranche one, assuming full conversion to equity is 1,788,235.

 

Based on accounting policies described in note 2(p), the value of the equity component is determined as follow:

 


30 June 2016


US$



Contractual value of the compound instrument

6,080,000

Less: Fair value of Secured Convertible Bond without transaction costs

(4,787,684)


___________

Fair value liability component

1,292,316

Less: Transaction costs on equity component

(68,715)


___________




1,223,601


___________

 

For the six-month ended 30 June 2016 and 31 December 2015, interest expense was approximately US$377,786 and US$129,941, which is included in the "Financial expenses" caption in the consolidated statement of comprehensive income. Interest paid during for the six-month ended 30 June 2016 and 31 December 2015 amounted to US$212,800 and US$75,392, respectively.           

 

10.        Trade and other accounts payable

(a) This item is made up as follows:

 


As of 30 June

As of 31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Trade payables (b)

24,799

302,517

238,375


____________

____________

____________

Other:




Wages payable

20,513

3,900

21,356

Vacation payable

84,157

76,345

70,796

Taxes and contributions

42,094

39,650

40,637

Social benefits

8,772

9,238

8,524

Other

94,352

54,095

4,988


____________

____________

____________


249,888

183,228

146,301


____________

____________

____________






274,687

485,745

384,676


____________

____________

____________

 

 

(b)   For the six-month period ended 30 June 2016 and 2015, and for the year ended 31 December 2015, mainly corresponds to the provision for professional services payable such as audit, legal and accounting services.

 

 

11.        Shareholders' equity, net

(a)        Issued capital -

At 30 June 2016 and December 2015, the Company's share capital amounted to US$19,172, which is represented by 19,171,574 ordinary shares issued and fully paid as set out. All of which have a par book value of US$0.001:

 


As of 30 June 2016

As of 31 December 2015

Class of shares

Number

Number




Ordinary shares (previously Class A shares)

4,500,000

4,500,000

Ordinary shares (previously Class A-1 shares)

6,020,000

6,020,000

Ordinary shares (previously Class A-2 shares)

2,910,000

2,910,000

Public ordinary shares issuance, note 1(c)

5,000,000

5,000,000

Ordinary shares (exercised options)

267,500

267,500

Public ordinary share issuance

474,074

474,074


___________

___________





19,171,574

19,171,574


___________

___________

 

All classes of shares have the same rights, mainly related to voting rights (one vote per share), dividends as the Board may from time to time declare, and others.

 

(b)        Share premium -

This item is made up for the share premium account, as follows:

 


Nominal
value

Ordinary shares issued

Share
capital

Share premium


US$

Number

US$

US$






As of 31 December 2014


18,430,000

18,430

18,613,436






New ordinary shares exercised options (i)

0.001

267,500

268

312,232

New Ordinary Shares Issued (ii)

0.001

474,074

474

1,203,386



____________

____________

____________






As of 31 December 2015


19,171,574

19,172

20,129,054






As of 30 June 2016


19,171,574

19,172

20,129,054



____________

____________

____________

 

 

(i)         On 5 January 2015, the Company´s Chairman, Dennis Melka, exercised options for 150,000 ordinary shares of US$0.001 at an exercise price of US$1.00 per Ordinary Share and 10,000 Ordinary Shares at an exercise price of US$1.25 per Ordinary Share.

 

On 27 October 2015, an employee exercised options for 50,000 ordinary shares of US$0.001 at an exercise price of US$1.00 per Ordinary Share, 20,000 Ordinary Shares at an exercise price of US$1.25 per Ordinary Share and 37,500 Ordinary Shares at an exercise price of US$2.00 per Ordinary Share.

 

Closing

Subscription Shares Number

Net Proceeds



US$




5 January 2015

160,000

162,340

27 October 2015

107,500

149,892

 

(ii)       On 27 October 2015, the Company completed a US$1,203,278 equity placement in Peru, net of transaction costs, through the placing of 474,074 new ordinary shares with par value of US$0.001 each at a placing price of US$2.70 (approximately 176 pence at the time) per Ordinary Share.

 

Closing

Subscription Shares Number

Net Proceeds



US$




27 October 2015

474,074

1,203,860




 

(c)        Other reserves -

 

Share-based payments -

The share-based payment reserve is used to recognize the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration, see Note 12 for further details of these plans.

 

Senior note equity component -

Represents the equity component of the senior notes issued on 27 October 2015, see note 9. When the initial carrying amount of a compound financial instrument is allocated to its equity and liability components, the equity component is assigned the residual amount after deducting the fair value of the instrument as a whole the amount separately determined for the liability component.

 

12.        Share based payments

(a)        The Company operates a share option scheme for the benefit of its employees. Grants are made at the discretion of the Board of Directors.

(b)        The movement on options in issue under this scheme is set out below:

 


For six-months period ended
at 30 June

For year-end at
31 December


2016

2015

2015


Number of share options

Weighted average exercise price

Number of share options

Weighted average exercise price

Number of share options

Weighted average exercise price



US$


US$


US$

Outstanding at the beginning of the period

1,872,500

1.47

2,140,000

1.43

2,140,000

1.43

Granted during the period

-

-

-

-

-

-

Exercised

-

-

(160,000)

1.02

(267,500)

1.17


___________

______

___________

______

___________

______








Outstanding at the end of the period

1,872,500

1.47

1,980,000

1.47

1,872,500

1.47


___________

______

___________

______

___________

______








Exercisable at the end of the year

902,500

1.47

1,010,000

1.46

902,500

1.47


___________

______

___________

______

___________

______

 

Based on the calculation of the total fair value of the options granted, during the six-month period ended 30 June 2016 and 2015, the Company recognized a total charge through the consolidated statements of comprehensive income of US$96,740 and US$164,286, respectively (US$345,169 during 2015) and a charge of US$25,094 and US$67,993 during for the six-month period ended 2016 and 2015 to bearer plants for the portion related to operating personnel (US$141,784 during 2015). The total fair value amounted to US$121,834 (US$497,303 during 2015) was accredited to "Stock options reserve" caption in the consolidated statement of changes in equity.

                                                                                                    

13.        Tax situation

(a)        UCL is subject to the tax and regulatory regime established by the Special Economic Zone Authority of The Cayman Islands.

 

(b)        Peruvian tax regime -

Peruvian Subsidiaries are subject to the Peruvian tax law. As of 30 June 2016 and 31 December 2015, the statutory Income Tax rate was 28 and 30 percent, respectively, on the taxable income, calculated on the period results in Soles.

 

From the financial year 2015, in response to the Law 30296 published on 31 December 2014 and effective from 1 January 2015, the tax rate applicable on taxable income, after deducting the workers' profit sharing will be as follows:

 

-           Year 2015 and 2016: 28 per cent.

-           Years 2017 and 2018: 27 per cent.

-           Year 2019 onwards: 26 per cent.

 

Legal persons not domiciled in Peru and individuals are subject to retention of an additional tax on dividends received. In attention to Law 30296, the additional tax on dividends is as follows:

 

-           4.1 per cent of the profits generated until 31 December 2014.

-           For profits generated from 2015, whose distribution is made after that date will be the following:

 

-           2015 and 2016: 6.8 per cent.

-           2017 and 2018: 8 per cent.

-           2019 onwards: 9.3 per cent.

 

 

According to Law No. 27037 - Taxation of Investment Promotion in the Amazon (hereinafter "the Amazon Law"), if the Peruvian Subsidiaries qualify for the requirements of this Law, they could enjoy tax benefits related to the value added tax, such as exemption from the sale of goods for consumption in the Amazon, services and construction contracts made in this area, special tax credit of 25 or 50 per cent depending on the area in which the activities of the Peruvian Subsidiaries and the nature of activity are carried out, and that tax exemption on the import of goods contained in the Appendix to Decree Law No. 21503 and specified and fully released in the common tariff annexed to the protocol amending of the Convention Colombian Peruvian Customs Cooperation (PECO), 1938. Furthermore, in compliance with the Amazon Law, the Peruvian Subsidiaries may also access the related tax benefits on income tax, which basically consist of obtaining reduced rates of 0 percent, 5 percent and 10 percent depending on the activities to be performed, the specific area where they develop and the type of crop.

 

Tax benefits related to income tax and value added tax will be effective until 2048, except for the benefit of the tax exemption for the import of goods to be consumed in the Amazon region, which expires in 2018.

 

According to the Amazon Law, the Subsidiaries may use the benefits indicated in the previous paragraph only if all the requirements below are fulfilled:

 

(i)        The head office must be in the Amazon, where the administration and accounting is carried out.

(ii)       The administration shall be held in the Amazon.

(iii)      The accounting records and the individual responsible of keeping the books shall be located in the Amazon.

(iv)       The company must be registered in the registry office of the Amazon.

(v)        At least 70 percent of the assets must be in the Amazon.

(vi)       Production should be in the Amazon. Service companies cannot provide services outside the Amazon. Goods produced in the Amazon may be placed inside or outside the Amazon.

 

During for the six-month period ended 30 June 2016 and 2015 and for the year ended 31 December 2015,

the Company and its Subsidiaries are performing procedures to comply with the requirements of the Tax Authorities, and thus enjoy the benefits of the Amazon Law.

 

(b.1)     Transfer pricing transactions -

            For the purpose of determining the income tax, the transfer pricing of transactions with related companies and companies residing in areas of low or no taxation, should be supported by documentation and information on the valuation methods used and the criteria used for its determination. To date, the transfer pricing rules are in force in Peru and these regulate transactions with related companies and local or foreign companies domiciled in tax havens must be carried at market value. Based on the analysis of the Company's and Subsidiaries operations, in Management's opinions and of its legal advisors, as a result of the application of these standards will not result in significant contingencies for the Company and its Subsidiaries during for the six-month period ended 30 June 2016 and 2015 and for the year ended 31 December 2015.

 

(b.2)     Tax Authority reviews -

            The Peruvian Tax Authority is entitled to review and, if applicable, amend the income tax calculated by the Company's Subsidiaries up to four years after the tax return was filed. Due to the interpretations likely to be given by the Peruvian Tax Authority on current legal regulations, it is not possible to determine, as of this date, if whether the reviews to be conducted will result or not in liabilities for the Company and its Subsidiaries, therefore, any increased tax or surcharge that could arise from possible tax reviews will be applied to the consolidated results of the year in which is determined. In Management's opinion and of its tax advisors, any additional tax settlement will not be significant for the consolidated financial statements during for the six-month period ended 30 June 2016 and 2015 and for the year ended 31 December 2015.

 

(b.3)    During the six-month period ended 30 June 2016 and 2015 and for the year ended 31 December 2015, the Company's Subsidiaries generated tax losses. According to the recovery system chosen by the Management, the tax loss can be carried forward indefinitely and offset up to a maximum of 50 per cent of taxable earnings for each year. The amount of the tax loss carry forward is subject to the outcome of the reviews referred to in paragraph (b.2) above.

 

            At 30 June 2016 and 2015, Cacao Del Peru Norte S.A.C. had tax losses declared to the tax administration amounting to S/10,482,905 and S/9,401,285, respectively (equivalent to US$ 3,184,358 and US$2,754,551, respectively). The Subsidiaries are in start-up phase and Management expects to have taxable income over the long term. In addition, as explained in literal (b.2), Subsidiaries are subjected to the Tax Administrator's review in order to offset any tax losses. Management assessed there is no certainty about when the Company would be able to apply its carry forward tax losses. Thus, Management has decided not to recognize deferred tax asset on the carry forward tax loss as of 30 June 2016 and 31 December 2015.

 

14.        Administrative expenses

(a)        This item is made up as follows:

 


For six month period ended
30 June

For year-end

31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Services provided by third parties (b)

772,007

640,846

1,979,880

Personnel expenses (c)

688,259

670,025

1,033,084

Provision for share based payments, note 12(b)

96,740

164,286

345,169

Allowance for VAT impairment, note 6(e)

119,550

34,396

174,967

Depreciation, note 8(d)

52,904

4,335

40,888

Taxes

25,617

4,235

12,555

Write-off of seedlings

1,449

3,183

11,980

Amortization

22

-

21

Other

205,896

254,181

341,978


____________

____________

____________






1,962,444

1,775,487


3,940,522


____________

____________

____________

 

 

(b)        The services provided by third parties is further broken down as follows:

 


For six-month period ended
30 June

For year ended 31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Advisory services

367,402

104,864

476,239

Payroll services

102,802

63,074

168,738

Accounting and administrative services

90,911

51,124

257,795

Legal services

79,147

91,889

219,380

Other labor services

34,335

207,187

341,656

Travel expenses

13,673

87,221

173,835

Bank expenses

9,726

10,101

22,568

Other

74,011

25,386

319,669


____________

____________

____________






772,007

640,846


1,979,880


____________

____________

____________

 

(c)        Personnel expenses are made up as follows:

      


For six month period ended
30 June

For year ended as of 31 December


___________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Wages and salaries

506,317

478,304

682,174

Ordinary benefits

88,832

73,330

93,319

Social security contributions

37,747

11,156

26,299

Vacation expenses

29,425

35,947

49,338

Other

25,938

71,288

181,954


____________

____________

____________






688,259

670,025


1,033,084


____________

____________

____________

 

15.        Contingencies

Certain non-governmental organizations have expressed concern on the internet and AIM related to the environmental impact of the Company's activities.

 

In accordance with the opinion of the Company's Management and legal counsel, the Company operates in full compliance with all applicable Peruvian environmental laws relating to planning, land use, development, operation and plantation standards. It operates on freehold land zoned for agricultural purposes by the relevant government authorities of Loreto, Peru. Additionally, on 12 January 2016, the Federal Supreme Court of Peru re-affirmed the Loreto Superior Court of Appeals' ruling on 26 March 2015 (previously detailed via RNS on 29 September 2015), which itself originally confirmed the Company's environmental permitting and agricultural zoning since 1997. Further to this and as previously disclosed in its Admission Document, on 10 September 2013, the Company submitted its terms of reference for the environmental reporting documentation, known locally as a PAMA. The authorities requested that the Company submit a PAMA due to the on-going nature of agricultural activities on the Company's land; since that time the authorities have not issued documentation to the Company changing this position nor requesting an alternative environmental certification. The Company's terms of reference for the PAMA were approved by the relevant authorities on 9 October 2013. As part of this PAMA, United Cacao's community participation plan was submitted to the relevant authorities on 4 September 2014 and subsequently approved. Final approval of the PAMA is expected during the course of Q4 2016.

 

Thus, in the Company's opinion, this situation will not have a significant impact and there is no litigation or other contingencies on the consolidated financial statements of the Company and its Subsidiaries as of 30 June 2016 and 31 December 2015.

 

16.        Loss per share

 

The following reflects the loss and share data used in the basic and diluted loss per share computations:

 


For six-month period ended
30 June

For year-end

31 December


__________________________________



2016

2015

2015


US$

US$

US$


(unaudited)

(unaudited)

(audited)





Numerator




Net loss attributable to equity holders of the parent for basic and diluted earnings

(2,360,628)

(1,863,826)

(4,229,375)


____________

____________

____________

Denominator




Weighted average number of ordinary shares for basic and diluted earnings per share

9,559,525

9,215,096

18,696,678


____________

____________

____________





Basic and diluted loss per share (average)

(0.25)

(0.20)

(0.23)


____________

____________

____________

 

The Company has granted stock options to certain employees whose corresponding number of shares related to outstanding options (see note 12) may have a dilutive effect in earnings per share in future periods. However, these options were not considered in the earnings per share calculation as of 30 June 2016 and 31 December 2015, because they would generate an antidilutive effect.

 

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorization of these consolidated financial statements.

 

17.        Financial risk management

The activities of the Company and its Subsidiaries are exposed to market risks during the normal course of their operations; however, Management, based on its technical knowledge and experience, intends to diminish the potential adverse effects in its financial performance, establishing policies for credit, liquidity, currency and interest risks.

 

The Company's Management is aware of market conditions and, based on its knowledge and experience, manages liquidity, interest rate, currency and credit risks following the policies adopted by the Board. The most important aspects of managing these risks are:

 

(a)        Market risks-

The market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rates, currency and equity products. In case of the Company and its Subsidiaries, the financial instruments affected by the market risks include bank deposits, receivable and payable accounts which are exposed to currency, interest rates, credit and liquidity risks.

 

(b)        Currency risk -

The Company and its Subsidiaries obtain financing for working capital and investments in U.S. Dollars, so there is no exchange rate risk. The Company's Subsidiaries are in start-up stage so there are some purchases in foreign currency (mainly Soles). Management believes that future fluctuations in the exchange rate of the Peruvian currency against the U.S. Dollar will not significantly affect the results of the Company's future operations.

 

The following table demonstrates the sensitivity to a reasonably possible change in the Nuevos Soles (Peruvian Currency - S/.) exchange rate, with all other variables held constant. The impact on the Company's results before income tax is due to changes in the fair value of monetary assets and liabilities:

 

Change in S/. rates

(Increase) decrease of net loss for the year ended at 30 June


_______________________________________


2016

2015


US$

US$




%



+5

6,582

2,495

+10

13,165

4,990

-5

(6,582)

(2,495)

-10

(13,165)

(4,990)

 

(c)        Credit risk -

Credit risk is the risk that a counterparty does not perform its assumed obligations in a financial instruments or a commercial contract, and this causes a financial loss. The Company and its subsidiaries are exposed to credit risk from its operating and financial activities, including deposits in banks and financial institutions and other financial instruments.

 

Financial instruments and bank deposits -

The credit risk on bank balances is managed by the Finance Department in accordance with Company's policies. The counterparty credit limits are reviewed by Management and the Board of Directors.

 

The limits are set to minimize the concentration of risks and therefore mitigate financial losses from potential counterparty defaults. The Company and its subsidiaries' maximum exposure to credit risk for the components of the consolidated statements of financial position as of 30 June 2016 and 31 December 2015 is the carrying amount as illustrated in notes 4 and 6.

 

In Management's opinion, as of 30 June 2016 and 31 December 2015, the Company does not consider that those concentrations imply unusual risk for its operations.

 

(d)        Liquidity risk -

Liquidity risk originates from the inability to obtain funds necessary to meet the Company's financial obligations.

 

The administration of the liquidity risk implies keeping enough cash as well as having the availability to obtain financing through adequate credit sources and the capability to liquidate transactions.

 

As of 30 June 2016 and 31 December 2015, the Company's subsidiaries are in the initial agricultural growth stage and have the financing support of its shareholders. In Management's opinion, the Company and its subsidiaries are not exposed to a significant risk of liquidity risk.

 

(e)        Interest rate risk -

The Company's exposure to this risk arises from changes in interest rates, mainly for those long-term financial obligations which would keep at variable interest rates. The Company seeks to minimize this risk by maintaining a balance between fixed and variable interest rates on its obligations balanced. When assuming new loans or debt, Management applies its criterion in order to decide whether a fixed or variable rate is more favorable to the Company during an expected period until the new liability's maturity.

 

As explained in note 9, as of 30 June 2016, the Company maintained financial obligations related to Secured Convertible Bond, which are subject to fixed interest rates. As of 30 June 2016, the Company did not maintain financial obligations at variable interest rate.

 

In that sense, The Board considers that the Company is not exposed to significant fluctuations in interest rates.

 

(f)         Capital management -

The primary objective of the Company and its Subsidiaries capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.

 

The Company and its Subsidiaries manage its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Company and its Subsidiaries may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

 

No changes were made in the objectives, policies or processes for managing capital during the six-month period ended 30 June 2016 and 2015 and for the year ended 31 December 2015.

 

18.        Fair value information

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

 

In Management's opinion, the fair value of the Company and its Subsidiaries financial instruments is not significantly different from their carrying values; therefore, the disclosure of this information has no effect on the consolidated financial statement during the six-month period ended 30 June 2016 and 2015 and for the year ended 31 December 2015.

 

The following table presents an analysis of the financial instruments that are measured at fair value as of 30 June 2016:

 


2016



____________________________



Book value

Fair value


 



US$

US$


 





 

Secured Convertible Bond


4,752,649

6,686,602


 

 

 

The following table presents an analysis of the financial instruments that are measured at fair value as of 31 December 2015:

 


2015



____________________________



Book value

Fair value


 



US$

US$


 





 

Secured Convertible Bond


4,587,662

4,954,470


 

 

 




 

 

19.        Segment information

The Company's activities consist of agricultural operations related to cacao cultivation. The Board of Directors and the Financial Controller are together considered be the chief operating decision makers. The business is managed as one entity, and activities are not split into any further regional or product subdivisions in the internal management reporting as any such split would not provide management with meaningful information. Consequently, all activities are related to this one segment. All non-current assets are located in the Subsidiaries' country of domicile, being Peru.

 

20.        Commitments

There were no capital commitments during the six-month period ended 30 June 2016 and 2015 and for the year ended 31 December 2015.

 

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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