Harvest update, Board change and potential merger

Harvest update, Board change and potential merger

Landkom International PLC (AIM: LKI, "Landkom" or "the Group"), the Ukrainian producer of high value oilseed rape ("OSR") and wheat, announces OSR harvest results; a general harvest, costs and land bank update; Board changes; and that the Group is in preliminary discussions regarding a potential merger.

Harvest
The OSR harvest was completed on 20 August 2009. Improvements in the Group's operational efficiencies have resulted in the harvesting of 2.75 times more hectares (ha) of OSR some two weeks earlier compared to last year. Planting of OSR is also far advanced compared to 2008.

The Group has harvested 39,437 tonnes of OSR (accepted by silos as clean and dry) from 14,630 ha, including 675 ha which were severely damaged due to rain and hail. This represents a yield of 2.7 tonnes per ha. Of this OSR crop, 37,714 tonnes has now been sold at an average price (including VAT) of $327 per tonne.

The Group expects to publish the results of its winter wheat harvest within the next few days from a total area of 11,454 ha. By the end of the year, the Group will have harvested 2,988 ha of barley, isis and other crops.

The aggregate harvested land areas, totaling 29,062 ha, are based solely on GPS-mapped areas. Previously, the Group has reported planted and harvested land areas based on mapped areas, adjusted for contours.

In order to provide comparative data, average yields achieved in last year's harvests (2008) were 2.8 and 2.6 tonnes per ha for OSR and winter wheat respectively based on the yield calculation methodology which the Group is now using. This methodology is based on accepted silo dry and clean tonnages and GPS-mapped areas, making no allowance for contours or third party handling arrangements. The previously reported yields for 2008 were 3.1 and 3.8 tonnes per ha for OSR and winter wheat respectively.

Costs
As planned, the Group this financial year to date has exceeded its target of reducing administrative expenses by at least a third compared to 2008. Administrative expenses for the period to end June 2009 will be reported at the time of the interim results in the first half of September.

Land bank
The Group implemented a land rationalisation programme at the start of this year and has achieved its targeted reductions. The land bank now stands at 66,080 ha under lease, of which 45,800 ha have been registered in the Group's name with local Ukrainian land registries. The average lease length is approximately nine years. The current land bank better matches the Group's current planting plan while decreasing the costs associated with unused land bank.

As part of this rationalisation programme, Landkom conducted a detailed audit of its land bank, following which three separate and previously unaccounted for arrangements were identified which were in relation to securing land leases. These arrangements were entered into in late 2007 and early 2008. As a result, the Group, which is operating under tight cash constraints, has incurred additional payment liabilities.

The Group expects that these additional payment liabilities in aggregate could amount to between $2.0 million and $2.5 million, although approximately 30% has been settled. Whilst the Group expects to negotiate satisfactory payment terms for the outstanding liabilities over the term of the leases, should agreement not be reached, the land may be returned along with crop in the ground planted for harvest in 2010. The land related to these arrangements totaled 10,300 ha of which 5,300 is included in the 45,800 ha, stated above and the remainder is in the process of being transferred to the Group.

The Board is undertaking an internal investigation of the operating policies and procedures to confirm the full extent of the issues referred to above and to ensure no such occurrences happen in the future.

Board changes
On 5 May 2009, Landkom announced that Richard Spinks had decided to step down as Chief Executive following this year's harvest and once a suitable replacement had been found. As announced separately today, he has now stepped down from the Board with immediate effect. The Board is now in advanced discussions with an external candidate and expects to make an announcement shortly.

In the interim, Stephen Pickup, in addition to being Chief Financial Officer, has been appointed acting Chief Executive. Ben Adams, who like Stephen joined during 2008 as Farming Director, is directing all farming activities.

Potential merger
Landkom is in preliminary discussions and due diligence regarding a potential merger with another substantial Ukrainian farming operation. At this stage, the Board envisages that consideration for the potential transaction would be the issue of shares in Landkom representing less than 50% of the post-transaction issued shares in the Group, and thereby would be a substantial transaction but not a reverse takeover pursuant to the AIM Rules for Companies. However there can though be no certainty that this potential transaction will proceed.

For further information:
Landkom International Plc (www.landkominternational.com)
Neil Balfour, Chairman
+44 (0) 1462 790175
Stephen Pickup, Chief Financial Officer

Liberum Capital
Simon Atkinson
+44 (0)20 3100 2000

College Hill
Simon Whitehead
Adrian Duffield
+44 (0)20 7457 2020

 

 

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