CHOC.L Regulatory News (CHOC)

29 September 2015

United Cacao Limited SEZC

("United Cacao" or the "Company")

Half Yearly Report for the Period Ended 30 June 2015

United Cacao (AIM: CHOC), the AIM-listed cacao plantation company based in Peru, announces its unaudited half yearly results for the period ending 30 June 2015. All figures are in US dollars unless otherwise indicated.

Highlights:

· The Company achieved a total planted area of 1,167 hectares ("ha") comprised of 1,150 ha of owned estates and an additional 17 ha under the Programa Alianza Producción Estratégica Cacao ("PAPEC") programme (compared with a total planted area of 556 ha at 31 December 2014).

· 3,787 ha of agriculturally titled, freehold land owned by the Company (compared with 3,602 ha at 31 December 2014).

· Decisive court ruling by the Loreto Superior Court of Appeals on 26 March 2015 reconfirming the agricultural zoning and regulatory approval process for the Company's estates.

· On 17 April 2015, the launch of the PAPEC programme, an innovative small farmer out-grower scheme designed to lift thousands of families out of poverty and provide the Company with stable, long-term processing income.

· Successful dual listing of the Company's share capital on the Lima Stock Exchange (Bolsa de Valores de Lima) on 19 June 2015.

By year-end 2015, the Company expects to achieve a total planted area of 1,950 hectares comprised of 1,750 ha of owned estates and 200 hectares under PAPEC. By year-end 2016, the Company expects to achieve total planted area of 3,000 ha, comprised of 2,500 ha of owned estates and 500 ha under the PAPEC program, subject to the availability of sufficient working capital. Remaining planting works on the Company's owned estates, to achieve the objective, as stated in the Company's AIM Admission Documentation, of 3,250 ha (planted owned estates), are expected to be completed during first half 2017. 

The Company intends to maintain the PAPEC programme planting rate at approximately 250 ha per annum until after the Company achieves expected EBITDA and net income profitability in 2018 and 2019, respectively. Once the Company achieves net income profitability, the PAPEC programme would then be expanded rapidly in subsequent years to achieve the previously stated objective of 3,250 ha of small farmer out-grower estates (as announced on 21 April 2015), thereby taking the Company's total planted project area to approximately 6,500 ha by 2021.

Mr Dennis Melka, Executive Chairman and CEO commented:

"We are delighted at the progress the Company has made thus far in 2015. We are now the largest cacao estate in Peru, which is the global low-cost location for the production of cacao, and by year-end, we expect to be the largest cacao estate in Latin America. Upon completion of planting of the Company's owned estates in early 2017, we expect to be the largest corporate cacao estate in the world. Whilst the global chocolate confectionary market continues to grow, the three main cacao producing countries, Cote d'Ivoire, Ghana and Indonesia, are all now experiencing a contraction in production, thereby providing a significant opportunity for the Company. Our small farmer out-grower programme, PAPEC, continues to advance and improve the livelihoods of hundreds of families near our estate. "

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

United Cacao Limited SEZC and Subsidiaries

Consolidated Statement of Financial Position

At 30 June 2015 and 2014 and at 31 December 2014

United Cacao Limited SEZC and Subsidiaries

Consolidated Statement of Comprehensive Income

For the six-month period ended 30 June 2015 and 2014, and for the year ended 31 December 2014

United Cacao Limited SEZC and Subsidiaries

Consolidated Statements of Changes in Equity

For the six-month period ended 30 June 2015 and 2014, and 31 December 2014

United Cacao Limited SEZC and Subsidiaries

Consolidated Statements of Cash Flows

For the six-month period ended 30 June 2015 and 2014, and for the year ended 31 December 2014

United Cacao Limited SEZC and Subsidiaries

Notes to the Consolidated Historical Financial Information

For the six-month period ended 30 June 2015 and 2014, and for the year ended 31 December 2014

1. Identification and business activity of the Company

United Cacao Limited SEZC (hereinafter "the Company" or "UCL") is an investment holding company for its Peruvian subsidiaries: Cacao del Peru Norte S.A.C. ("CDPN") and Cooperativa de Cacao Peruano S.A.C. ("CCP") (hereinafter the "Subsidiaries"), which operate in the agricultural sector in Peru.

The Company's participation in its Subsidiaries is as follows:

The legal domicile of the Company is Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman KY1-1111, Cayman Islands.

At 30 June 2015 and 31 December 2014, the Company and its Subsidiaries are in the initial phases of cacao cultivation, which consists of land purchases, clearing and planting. The Company, through its operating subsidiaries, has acquired and titled 3,787 hectares (unaudited), cleared 1,945 hectares (unaudited) and planted 1,150 hectares (unaudited) of land at 30 June 2015 (acquired, cleared and planted 3,602, 1,945 and 556 hectares of land (unaudited) respectively, as of 31 December 2014).

2. Significant accounting policies and practices

(a) Basis of preparation -

Declaration of compliance -

The interim condensed financial statements at 30 June 2015 and for the six-month period then ended have been prepared in accordance with IAS 34, "Interim Financial Reporting", as adopted by the European Union. The interim condensed financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's annual financial statements as of 31 December 2014 and their accompanying notes.

Responsibility for the information -The information contained in these consolidated financial statements is the responsibility of the Management and the Board of the Company, which expressly state that they have fully implemented the principles and criteria contained in the International Financial Reporting Standards ("IFRS") adopted by EU as of 30 June 2015 and 31 December 2014.

The financial information for the six-month period then ended 30 June 2015 has been reviewed but not audited by the Group's auditors. The financial information for the year ended 31 December 2014 and for the six-month period ended 30 June 2014, are abridged from the statutory accounts and have been reported on by the Group's auditors, Ernst & Young, and have been filed with the Registrar of Companies. The report of the auditors thereon was unqualified and did not contain a statements, nor did it contain any matters to which the auditors drew attention without qualifying their audit report.

Basis of measurement -

The interim consolidated financial statements at 30 June 2015 have been prepared under the historical cost basis, from the accounting records kept by the Company. The accompanying interim consolidated financial statements are presented in U.S. dollars (functional and presentation currency).

(b) Going Concern-

The historical financial information relating to the Company has 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 in 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 -

During the six-month period the EU has been endorsed a number of amendments to IFRSs that are first effective for the current accounting period of the Group and the Company. Of these, the following developments are relevant to the Group's financial statements:

- Improvements to IFRSs Annual improvements to IFRSs 2010-2012 cycle, effective since 1 February 2015.

- Improvements to IFRSs Annual improvements to IFRSs 2011-2013 cycle, effective since 1 February 2015.

Due to the structure of the Company and its Subsidiaries and the nature of its operations, adoption of these standards had no significant effect on its consolidated financial position and results; therefore it was not necessary to modify the comparative consolidated financial statements of the Company.

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

At the date of these interim consolidated financial statements, IFRS as adopted by the EU does 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 at 30 June 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",

- IFRS 14 "Regulatory Deferral Accounts",

- IFRS 15 "Revenue from contracts with customers",

- Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture,

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

- Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations,

- Amendments to IAS 1 Disclosure initiative,

- Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation,

- Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants,

- Amendments to IAS 27 Equity Method in Separate Financial Statements,

- Annual improvements 2012-2014 Cycle,

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 Superintendency of Banking and Insurance and AFP. At 30 June 2015, the exchange rates issued for Nuevos Soles for that institution were US$0.3146 for buying and US$0.3151 for sale (US$0.3483 and US$0.3486 at 30 June 2014 and US$0.3346 and US$0.3355 as of 31 December 2014, 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 2015 and 31 December 2014, the Company and its Subsidiaries do not use derivative instruments to reduce foreign exchange risk.

During the six-month period ended 30 June 2015, the net loss originated from exchange differences was US$88,339 (a net gain of US$12,351 for the six-month period ended 30 June 2014). During the year 2014, the net loss amounted to US$105,344. 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:

(b) The Company conducts its operation with related parties under the same conditions as those carried out by third parties, therefore there is no difference in pricing or base tax settlement. In relation to the payment terms, they do not differ from policies granted to third parties.

(c) Key management compensation -

Key management comprises the Directors and Executive Officers of the Company. During the six-month period ended 30 June 2015 and 2014, the compensation of key management personnel amounted to US$154,606 and US$2,260 (US$33,267 during the year 2014), 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 2015 and 2014, respectively (US$143,613 during year 2014).

Classified by Directors -

(d) Income from disposal of vehicles and land -

Corresponds to the sale of vehicles to Plantaciones de Ucayali S.A.C. and the sale of land to Plantaciones de Loreto S.A.C., respectively.

(e) Management operating services -

Corresponds to operational support and management services provided by related party Grupo Palmas del Peru S.A.C.

6. Others accounts receivable, net

(a) This item is made up as follows:

(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) At 31 December 2014, this balance corresponds to an account receivable provided by IPO contributions collected by the Company's broker. This balance was credited to the Company on 6 January 2015.

(e) All receivables at each reporting date are current. Neither receivables are past due nor impaired. The Company considers that the carrying amount of the other receivables do not differ significantly from their estimated fair value at each reporting date.

7. Inventory, net

At 30 June 2015, this 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 2015.

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

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

(b) During the six-month period ended 30 June 2015 and 2014, the Company acquired 185 and 652 hectares of agricultural land for a total cost amounting to US$23,159 and US$70,204, respectively (740 hectares during the year 2014 for a total cost amounting to US$107,768). Additions in the cost of land also include costs of approximately US$255 and US$733,738, respectively (US$2,738,721 during year 2014) related to the preparation and adaptation in order to use the land as a growing field.

(c) At 30 June 2015, the Company and its subsidiaries keep insurance contracts on certain assets, in accordance with Management's policies. In Management's opinion, insurance policy is consistent with industry practice and 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 2015 and 2014 for the year ended 31 December 2014, was allocated as follows:

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

(f) As of 30 June 2015 and 31 December 2014, Management has assessed the recoverable amount of its long-term assets and did not identify any impairment requirement.

9. Biological assets

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

For the six-month period ended 30 June 2015 and 2014, the Company cleared 0 and 35 hectares (unaudited) land for cultivation, respectively (50 hectares [unaudited] for year-end at 31 December 2014). Likewise, the Company planted 594 and 108 hectares (unaudited) in the final growing fields, respectively (527 hectares [unaudited] for year-end at 31 December 2014).

During the six-month period ended 30 June 2015 and 2014, the Company incurred costs amounting to US$3,205,745 and US$440,855, respectively (US$1,447,538 for year-end at 31 December 2014) that mainly correspond to disbursements for the preparation of agricultural land, treatment of seeds in nursery and operating costs for planting seedlings in the field, payroll dedicated to such activities (salaries), and other consumables.

(b) At 30 June 2015 and 31 December 2014, the Company has defined that its biological assets are measured at cost, which is similar to their fair value at such dates, mainly because of the following:

- The Company is in a pre-operational stage and is expected to enter the harvesting stage during 2017.

- Biological assets correspond to planting of seedlings in the field.

- There has been limited biological transformation.

- Changes in international prices do not impact the business at this stage.

10. Trade and other accounts payable

This item is made up as follows:

11. Shareholders' equity, net

(a) Issued capital -

At 30 June 2015 and 2014, the Company's share capital amounted to US$18,590 and US$13,430, which is represented by 18,590,000 and 13,430,000 ordinary shares issued and fully paid, respectively; which have a par value of US$0.001 per share.

On 5 January 2015, the Company's Chairman & CEO, Dennis Melka, exercised 150,000 options at an exercise price of US$1.00 per share and 10,000 options at an exercise price of $1.25 per share.

All 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) Additional capital -

Corresponds to the excess above the par value of shares received upon issuance of those shares (share premium).

(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.

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 of options in issue under this scheme is set out below:

During the first six months of 2015, there were no additional option grants to employees.

Based on the calculation of the total fair value of the options granted, during the six-month period ended 30 June 2015 and 2014, the Company recognized a total charge through the statement of consolidated comprehensive income of US$164,286 and US$90,752 (US$336,505 for year-end at 31 December 2014) and a charge of US$67,993, to biological assets (for portion related to operating personnel). The total fair value amounted to US$ 232,279 (US$ 440,890 for year-end at 31 December 2014) was accredited into 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 2015 and 31 December 2014, the statutory income tax rate is 28 and 30 percent on taxable income, respectively, calculated on the period results in Nuevos Soles.

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 6.8 percent for year 2015 (4.1 percent for year 2014).

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 percent 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%, 5% and 10% 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 2015.

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 of the company must be in the Amazon, where the administration and accounting is carried out.

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

(iii) The accounting records and the individual responsible for 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% of the assets of the Company must be in the Amazon.

(vi) The company's production should be in the Amazon. Service companies cannot provide services outside the Amazon. Goods produced in the Amazon may be sold inside or outside the Amazon.

At 30 June 2015 and 31 December 2014, the Company and its subsidiaries are seeking 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, these regulate that 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 at 30 June 2015 and 31 December 2014.

(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 subsidiary 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, therefore, any increased tax or surcharge that could arise from possible tax reviews will be applied to the 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 historical financial information at 30 June 2015 and 31 December 2014.

At 30 June 2015, the Company's Subsidiaries generated tax losses amounting to S/.1,866,976, equivalent to US$587,284 (S/.3,426,599 equivalent to US$780,199 at 31 December 2014). 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 percent 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 the prior paragraph above.

The Subsidiaries are in the initial phases of cacao cultivation and Management expects to have taxable income over the long term. In addition, as explained in 13b.2, Subsidiaries are subject to the Tax Administrator's review in order to offset any tax losses. Management assessed that 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 any deferred tax assets on the carry forward tax loss as of 30 June 2015 and 31 December 2014.

14. Administrative expenses

(a) This item is made up as follows:

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

(c) Personnel expenses are made up as follows:

15. Contingencies

Certain non-governmental organizations have expressed concern on the internet related to the environmental impact of the Company's activities. In the opinion of the Company's Management and its legal counsel, the Company is in compliance with the administrative, legal, social, and environmental requirements to conduct its agricultural investments. Thus, in the Company's opinion, there is no litigation or other contingencies that have a significant impact on the consolidated historical financial information of the Company and its Subsidiaries at 30 June 2015 and 31 December 2014. On 26 March 2015, the Superior Court of Appeals of Loreto State ruled 3-0 in the Company's favor fully validating the agricultural zoning of the Company's freehold land and the on-going agricultural activities of the Company.

16. Loss per share

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

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 2015 and 31 December 2014, because they would generate an antidilutive effect.

17. Segment information

The Company's activities consist of agricultural operations related to cacao cultivation. The Board of Directors and the Financial Officer 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 the Company's management with meaningful information. Consequently, all activities relate to this one segment. All non-current assets are located in the Subsidiaries' country of domicile, being Peru.