Dekel Agri Vision : 2022 Annual Report and Financial Statements

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DEKEL AGRI-VISION PLC

CONSOLIDATED FINANCIAL STATEMENTS

AS OF 31 DECEMBER 2022

EUROS IN THOUSANDS

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INDEX

Chairman's Statement

Company Information

Information on the Board of Directors

Professional Advisers

Directors' Report

Chairman's Statement on Corporate Governance

Statement of Directors' Responsibilities

Independent Auditors' Report

Consolidated Statements of Financial Position

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

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CHAIRMAN'S STATEMENT

Summary

The Palm Oil Operation experienced a surge in CPO prices during 2022, reaching unprecedented levels. This significantly contributed to our financial performance during a period of very low production due to an atypically weak high season. Additionally, our mill operations performed well demonstrated by the improved CPO extraction rate and effective operating cost management, despite global inflation. These factors collectively established a solid foundation that allowed the Palm Oil Operation to achieve a strong EBITDA of €4.6m.

The Cashew Operation achieved notable progress during 2022 including first production and first sales revenue, despite equipment delays resulting in a much longer than expected commission phase and a net loss of €2.3m. With all key equipment on site prior to year end, commercial production is now well underway and we believe that the financial performance of the Cashew Operation will significantly improve during 2023.

Palm Oil Operation

CPO production volumes started well in January 2022, however, the expected high season, which typically peaks from February through May did not materialize as usual. Consequently, this marked the weakest high season in the Company's history. It is important to note that this decline in production was experienced across the region. Nonetheless, local experts anticipated that this variation is temporary, and we have seen a significant improvement in the 2023 high season so far.

We achieved record prices for CPO and PKO in 2022 as global inflationary pressures post Covid-19 created supply constraints which was compounded by the war in Ukraine which hampered the supply of sunflower oil, a substitution for CPO. We saw some easing in the global supply constraints as the year progressed and CPO prices softened to around $US1,000 towards the end of 2022, still well above the long term CPO price average of around €800 per tonne. We anticipate CPO prices may soften further as 2023 progresses although to this point, CPO prices remain above historical averages and supportive of a strong 2023 year of financial performance. Whilst seasonal and annual variations in CPO prices are inevitable, we remain positive on the medium to long term outlook for CPO prices given challengers bringing more supply to the market and demand side robustness due to the necessity nature of vegetable oils and therefore CPO, the largest consumed vegetable oil world-wide.

After a lengthy consultation period, the Roundtable on Sustainable Palm Oil ('RSPO') finally provided a clear pathway in H2 2022 of the information required to complete the Company estates audit and we are now preparing the works required with the objective of completing the audits of the Palm Oil Mill and Company estates at the same time. The two key final reports requested by RSPO for the estates audit were a LUCA (land use change analysis) and HCV-HCS (High Conservation Value - High Carbon Stock) assessment. Both reports were commissioned post period end in early 2023 and we expect to receive these reports in early Q3 2023. With these reports completed we will be able to engage RSPO auditors to complete the audit and we will update the market as soon as this audit process has commenced.

Cashew Operation

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The Cashew Operation achieved key milestones in 2022 including first production and first sales. However, the ramp in production has been hindered by supplier delays including the sorting and shelling equipment delivery being well behind schedule from the Italian supplier. The Company attempted to mitigate delays by taking over the logistics of shipment directly rather than await consolidation in Italy by the Cashew operation vendor and utilising substitute shelling equipment in order to continue the testing and commissioning of the entire Cashew Operation. Now with all key equipment now on site we commenced commercial production including the first quarterly market reporting. We expect a material improvement in production in 2023 and strong progression towards the Cashew Operation becoming a positive contributor to group profitability after reporting a €2.3 million net loss in 2022.

The Directors firmly believe that, given time, the Cashew Operation has the potential to surpass the Palm Oil Operation in terms of profit contribution to the Group. Our approach to the development of the Cashew project allows for significant capacity expansion within a short period. With a nameplate capacity of 15,000 tonnes per annum ('tpa'), the plant's production can be increased by 50% at no additional cost by adding a third shift, thus reaching a production capacity of 15,000tpa. Moreover, with a capital expenditure of €5-6 million, the mill's capacity can be doubled to 30,000tpa, which the Directors estimate could generate approximately €35-40 million in annual revenues based on current prices.

Other Projects

While we have future expansion plans, including the processing of a third commodity and clean energy initiatives, these projects are currently on hold as we prioritize the ramp up of the Cashew Operation, which we believe will play a pivotal role in enhancing the Group's financial performance in 2023 and beyond.

Group Financial Performance

A summary of the Group financial performance for FY2022, in addition to the comparatives for the previous 5 years, is outlined in the table below.

	FY2022	FY2021	FY 2020	FY 2019	FY 2018	FY 2017
FFB collected (tonnes)	116,733	190,020	154,151	176,019	146,036	171,696
CPO production (tonnes)	25,751	39,953	34,002	37,649	33,077	38,736
CPO sales (tonnes)	26,016	39,092	34,008	37,713	32,692	38,373
Average CPO price per tonne	€1,025	€868	€602	€491	€542	€680
Total Revenue (all products)	€31.2m	€37.4m	€22.5m	€20.9m	€20.9m	€30.2m
Gross Margin	€5.1m	€6.5m	€2.3m	€1.7m	€1.7m	€6.9m
Gross Margin %	16.7%	17.4%	10.2%	8.1%	8.3%	22.8%
Overheads	€3.9m	€3.8m	€2.8m	€3.2m	€3.2m	€3.6m

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