R.E.A. HOLDINGS PLC (FRA:GB000234) R.E.A. Holdings plc: Annual report in respect of 2020
Transparency directive : regulatory news
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R.E.A. Holdings plc (RE.)
R.E.A. HOLDINGS PLC (the "company")
ANNUAL FINANCIAL REPORT 2020
The company's annual report for the year ended 31 December 2020 (including notice of the annual general meeting to be held on 10 June 2021) (the "annual report") will shortly be available for downloading from the group's website at www.rea.co.uk.
A copy of the notice of annual general meeting will also be available to download from the Investors section (under Shareholder information) of the website. The company has arranged for shareholders to be able to listen to the live proceedings of the meeting via an audio webcast available to shareholders via the internet. Shareholders are advised to check the home page of the website for details of how to access the AGM webcast.
Upon completion of bulk printing, copies of the annual report will be despatched to persons entitled thereto and will be submitted to the National Storage Mechanism to be made available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The sections below entitled "Chairman's statement", "Dividends", "Principal risks and uncertainties", "Viability statement", "Going concern" and "Directors' responsibilities" have been extracted without material adjustment from the annual report. The basis of presentation of the financial information set out below is detailed in note 1 to the financial statements below.
HIGHLIGHTS
Overview
Financial
Agricultural operations
Stone and coal interests
Outlook
CHAIRMAN'S STATEMENT
2020 was a year of two halves. While operationally, satisfactory crop yields were achieved, the sharp fall in the market prices of CPO and CPKO immediately following the onset of the Covid-19 pandemic had a significant negative impact on results for the first half. As prices steadily recovered through the second half, there was a corresponding improvement in financial performance.
Operationally, the impact of Covid-19 on the group has been limited. The group experienced delays in deliveries of some supplies, as well as travel restrictions that prevented or delayed employees and contractors from returning to the estates. Changes to work practices, on-site testing of employees and other preventative measures, as recommended in the Indonesian government's guidelines, have been introduced and it is pleasing to report that, to date, only some 0.2 per cent of the work force has been infected with Covid-19, the majority with no serious symptoms as categorised by the Indonesian health department.
Climatic factors and respect for the environment are integral to the operations of an agricultural group and the directors are conscious of, and seek to mitigate as far as possible, the impacts of climate change. For some years the group has been monitoring and publishing its carbon footprint calculated by using PalmGHG, a tool developed by the Roundtable on Sustainable Palm Oil. For 2020, emissions are now disclosed under "Sustainability" in the "Strategic report" of the annual report in accordance with the recently implemented Streamlined Energy and Carbon Reporting rules ("SECR"); emissions under PalmGHG as well as SECR will continue to be published on the group's website at www.rea.co.uk.
After an encouraging start to the year, the CPO price fell sharply to a low of $510 per tonne, CIF Rotterdam, in mid May, reflecting the dramatic slowdown in world demand as a result of Covid-19. The recovery in the second half of the year saw prices closing the year at $940 per tonne as a result of restocking in India and China and reduced production in the major producing countries.
Unfortunately, producers were not able to realise the full benefit of the price increase as the Indonesian government made changes to the export levy scale in order to fund continuing subsidies to Indonesian manufacturers of biodiesel, who were under pressure from relatively low crude oil prices, and to support measures designed to benefit the oil palm industry.
Notwithstanding the impact of export duty and the increased export levy (as set out in the company's press release in December 2020), gross margins in 2020 were a considerable improvement on 2019. The average selling price for the group's CPO in 2020, on an FOB basis at the port of Samarinda, net of export levy and duty, was $558 (2019: $453) per tonne. The average selling price for the group's CPKO, on the same basis, was $601 (2019: $533) per tonne.
Despite the impact of delayed crop ripening and excessively wet weather in the second half of the year, as well as some shortfall in the availability of harvesters who were unable to travel to the estates due to Covid-19 related travel restrictions, the group achieved a good production outcome in 2020. FFB at 785,850 tonnes were slightly short of the total for 2019 of 800,666 tonnes, producing a yield per mature hectare of 22.6 tonnes (2019: 24.2 tonnes). Third party harvested FFB was similarly impacted in 2020, with FFB totalling 185,515 tonnes compared with 198,737 tonnes in 2019.
CPO production totalled 213,536 tonnes in 2020 compared with 224,856 tonnes in 2019, reflecting both the lower level of FFB and lower extraction rates. CPO extraction rates, which averaged 22.5 per cent for the year compared with 23.0 per cent in 2019, were squeezed by a combination of delays in completing scheduled works in the mills and some inefficiencies in loose fruit collection during the peak crop period in the latter months of the year. The mill works were delayed by a shortage of spare parts and the unavailability of contractors during the worst periods of the Covid-19 pandemic. Production of both CPKO and palm kernels fared better by contrast at, respectively, 16,164 (2019: 15,305) tonnes and 47,186 tonnes (2019: 46,326).
Revenue for 2020 amounted to $139.1 million, approximately 11 per cent higher than the $125.0 million for 2019, reflecting the higher prices for CPO and CPKO during the second half of the year. With a full year's benefit of the cost saving initiatives implemented during 2019, cost of sales was successfully reduced by some 10 per cent to $110.2 million compared with $121.8 million in 2019. These improvements led to a doubling of earnings before interest, taxation, depreciation and amortisation ("EBITDA") to $36.8 million in 2020 (2019: $18.2 million) and a significant improvement in the operating result, a profit of $8.8 million in 2020 (2019: loss of $9.1 million).
Finance costs for the year totalled $23.1 million compared with $31.9 million in 2019, although the comparison is distorted by exchange rate movements (arising in relation to sterling and rupiah borrowings) which produced a loss of $0.3 million in 2020 compared with a loss of $8.6 million in 2019. Moreover, additional finance costs of $2.2 million were incurred in 2020 in connection with the extension of the repayment date of the £30.9 million 8.75 per cent sterling notes from 2020 to 2025. Excluding such movements, with the reduction in average borrowings between 2019 and 2020, finance charges were slightly lower in 2020 at $20.6 million against $23.3 million in 2019.
Impairment costs, consisting principally of provisions against costs of transferring land to smallholder schemes and expenditure on a land allocation that has been relinquished and therefore written off, amounted to $9.5 million compared with $3.3 million in 2019. In consequence, the group made a loss before tax of $23.2 million compared with $43.7 million in 2019.
Immediate cash constraints and the prospect of the very significant debt repayments falling due in 2021 and 2022 caused the directors again to defer payment of dividends on the preference shares.
Group equity (including preference share capital) at 31 December 2020 totalled $225.8 million compared with $239.7 million at 31 December 2019. The group's local partner in REA Kaltim supported the group in increasing the equity of REA Kaltim during 2020, converting $7.5 million of loans to REA Kaltim into new equity. Similar changes to the capital structures of CDM, KMS and SYB resulted in new equity being contributed by the minority shareholders of those subsidiaries resulting in an overall increase in the equity of REA Kaltim and its subsidiaries of $9.9 million. As a result, non-controlling interests at 31 December 2020 amounted to $20.0 million compared with $13.0 million at 31 December 2019.
Current liabilities shown by the consolidated balance at 31 December 2020 amounted to $113.1 million, reflecting the inclusion of amounts totalling $30.5 million of loans from the group's Indonesian bankers, PT Bank Mandiri (Persero) Tbk ("Mandiri"), to SYB and KMS that would have been classified as non-current liabilities were it not for certain breaches by those companies of loan covenants applicable at the balance sheet date. Mandiri has subsequently waived the breaches in question.
Bank indebtedness was reduced by $15.8 million in 2020, although the reduction was in part financed by increased pre-sale advances from customers against forward sale commitments of CPO and CPKO. As at 31 December 2020, net indebtedness amounted to $189.4 million, compared with $207.8 million at 31 December 2019.
Proposals are currently under discussion with Mandiri whereby the existing Mandiri loans to REA Kaltim and SYB would be repaid and replaced with new loans to those companies. The working capital facility provided to REA Kaltim would also be repaid and replaced with two new annual revolving working capital facilities. The new term loans would provide additional funding to the group and would be repayable over a period of eight years while the new working capital facilities would be renewable annually. The proposals are subject to approval by the credit committee of Mandiri. If approved, net bank funding available to the group over the three years to end 2023 would be substantially increased.
Concurrently with the discussions with Mandiri, the directors have been exploring other financing options, including equity (in the form of ordinary or preference shares), equity linked instruments and trade finance with the aim of strengthening the group's balance sheet and addressing the arrears of preference dividend.
Provided that CPO prices remain at current levels, the directors believe that cash flows are currently adequate to support payment of the current year's preference share dividends but, pending greater certainty on future cash flows, they are not yet in a position to provide guidance regarding payment of the arrears of preference dividend, which now stand at 18p per share. The directors recognise the importance of paying these arrears and will aim progressively to catch up such arrears as soon as circumstances prudently permit.
The group aims to recover its loans from the coal concession holding companies and to withdraw from its coal interests as soon as practicable. Following a recovery in Indonesian coal prices, activity is now resuming at the Kota Bangun coal concession held by the group's local partners in its stone and coal interests with a view to commencing operations later in 2021. Additional revenues are expected to accrue to the concession holding company, PT Indo Pancadasa Agrotama ("IPA"), from fees charged to two neighbouring coal concessions that are planning to ship coal through IPA's port, as well as potentially through the sale of building sand recovered from the overburden that will be removed when mining recommences.
During 2020, the stone concession holding company entered into an agreement with a neighbouring coal company to supply andesite stone for a new road to be built by the coal company through the group's estates. After being put on hold for much of the year due to Covid-19, road building works are now being progressed. For both the coal mining and stone quarrying projects, it is intended that the appointed contractors will fund the required development expenditure in exchange for a participation in the profits from the mine or quarry.
The first few months of 2021 have seen continuing firm CPO prices. At reference prices (being prices broadly equivalent to CIF Rotterdam prices) between $770 and $1,000 per tonne, an Indonesian exporter of CPO receives, after deduction of export duty and levy, substantially the same net price per tonne. However, the CPO price, CIF Rotterdam, currently stands at $1,240 per tonne and exporters benefit from approximately half of the excess of this price over $1,000. With these good prices, the group's financial position and outlook continues to improve. Production is at good levels, and maintenance and completion of repair works throughout the operations should enhance efficiencies between the estates and mills leading to improving extraction rates. Whilst some capital expenditure will necessarily be incurred on replacement of plant, replanting of the oldest plantings and limited extension planting, completion of the extension of the group's newest mill, which was delayed by the Covid-19 pandemic, will ensure that the group continues to have sufficient processing capacity for the foreseeable future. With better cash flows, the group looks forward to strengthening the group balance sheet and addressing the arrears on the preference dividend.
David J BLACKETT Chairman
DIVIDENDS
In view of the difficult trading conditions prevailing during 2020 and the group's financial performance, the directors concluded that the payment of the fixed semi-annual dividends on the 9 per cent cumulative preference shares that fell due on 30 June and 31 December 2020 should be deferred and that the half yearly preference dividends that were due on 30 June 2019 and 31 December 2019 should also continue to be deferred.
Provided that CPO prices remain at current levels, the preference dividends arising on 30 June 2021 and 31 December 2021 are expected to be paid during the year. The group recognises the importance of paying the arrears on the preference dividend, which now stand at 18p per share, and aims progressively to catch up the preference dividend arrears as soon as circumstances prudently permit.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends on its ordinary shares. In view of the results reported for 2020, the directors would not anyway have considered it appropriate to declare or recommend the payment of any dividend on the ordinary shares in respect of 2020 even if this were permitted.
ANNUAL GENERAL MEETING
The sixty first annual general meeting of R.E.A. Holdings plc will be held at 32-36 Great Portland Street, London W1W 8QX on 10 June 2021 at 10.00 am.
Attendance
Ordinarily, the company welcomes shareholders to attend the annual general meeting in person and particularly so after the restrictions necessitated by the Covid-19 pandemic that prevented in-person meetings in 2020. At the time of publication of this Notice, however, the UK Government's guidance with respect to Covid-19 does not permit the company to hold large in-person meetings. Accordingly, the annual general meeting is to be held as a closed meeting with the minimum attendance required to form a quorum.
Shareholders and others entitled to attend will not be permitted to attend the annual general meeting in person but can be represented by the chairman of the meeting acting as their proxy.
Shareholders are: a) strongly encouraged to submit a proxy vote on each of the resolutions in the notice in advance of the meeting:
(i) via the website of the registrars, Link Group ("Link"), at www.signalshares.com (and so that the appointment is received by the service by no later than 10.00 am on 8 June 2021) or via the CREST electronic proxy appointment service; or
(ii) by completing, signing and returning a form of proxy to Link as soon as possible and, in any event, so as to arrive by no later than 10.00 am on 8 June 2021
and given the restrictions on attendance, shareholders are strongly encouraged to appoint the chairman of the meeting as their proxy rather than a named person who will not be permitted to attend the meeting.
b) encouraged to submit ahead of the meeting any questions for the directors, together with the name of the submitting shareholder (and, if different, the name of the registered shareholder as it appears on the company's register of members) to the following email address: AGM2021@rea.co.uk so as to be received by no later than 5.00 pm on 7 June 2021. Shareholders are directed to the notes pages of the notice for guidance on members' rights to ask questions and when the company will cause them to be answered.
The company:
a) has arranged for shareholders to be able to listen to the live proceedings of the meeting via an audio webcast available to shareholders via the internet. Shareholders are advised to check the home page of the group's website at www.rea.co.uk for details of how to access the AGM webcast. Please note that shareholders will not be able to actively participate in the meeting by voting on the resolutions during the webcast. Accordingly, and as noted above, shareholders are encouraged to vote on the resolutions and to submit questions in advance of the meeting, although questions may also be submitted via the webcast during the meeting; and
b) will continue to closely monitor the situation in the lead up to the meeting and will make any further updates about the meeting on the home page and the Investors section (under Regulatory news) of the group's website at www.rea.co.uk. Shareholders are accordingly requested to watch the group's website for any such further updates.
The health and wellbeing of the company's shareholders, directors and employees, is of paramount importance and the company shall take such further steps in relation to the meeting as are appropriate with this in mind.
The directors and the chairman of the meeting and any person so authorised by the directors reserve the right, as set out in article 67 in the company's articles of association, to take such action as they think fit for securing the safety of people at the meeting and promoting the orderly conduct of business at the meeting.
PRINCIPAL RISKS AND UNCERTAINTIES
The group's business involves risks and uncertainties. Identification, assessment, management and mitigation of the risks associated with environmental, social and governance matters forms part of the group's system of internal control for which the board has ultimate responsibility. The board discharges that responsibility as described in "Corporate governance" in the annual report.
Those principal risks and uncertainties that the directors currently consider to be material or prospectively material are described below. There are or may be other risks and uncertainties faced by the group (such as future natural disasters or acts of God, such as the Covid-19 pandemic) that the directors currently deem immaterial, or of which they are unaware, that may have a material adverse impact on the group.
In addition to the risks that have long been normal aspects of its business, the group faced potential impacts from the Covid-19 pandemic in 2020 and continues to do so. Assessment of the continuing risk of this pandemic is measured against the impacts experienced to date and the likelihood of further impacts in the future. The pandemic has had limited direct effect on the group's day to day operations, albeit that it has necessitated changes to certain working practices, but there was a negative impact on markets for CPO and CPKO in 2020, the extent of which is covered elsewhere in the "Strategic report". Potential future consequences of Covid-19 could include a further economic downturn depressing prices for CPO and CPKO, adverse effects on employee health, loss of production and inability to make deliveries of palm products. Each of these could then negatively affect the group's finances. However, as economies have firmed, CPO and CPKO prices have strengthened and with the gradual rollout of vaccines, the risks associated with Covid-19 to the group's employees, production, deliveries and markets are diminishing.
The risks detailed below as relating to "Agricultural operations - Expansion" and "Stone and coal interests" are prospective rather than immediate material risks because the group is currently not expanding its agricultural operations and the stone and coal concessions in which the group holds interests are not currently being mined. However, such risks will apply when, as is contemplated, expansion and mining are resumed or commence. The effect of an adverse incident relating to the stone and coal interests, as referred to below, could impact the ability of the stone and coal companies to repay their loans. As noted in the "Strategic report" of the annual report, it is ultimately the group's intention to withdraw from its coal interests.
Material risks, related policies and the group's successes and failures with respect to environmental, social and governance matters and the measures taken in response to any failures are described in more detail under "Sustainability" in the annual report. Where risks are reasonably capable of mitigation, the group seeks to mitigate them. Beyond that, the directors endeavour to manage the group's finances on a basis that leaves the group with some capacity to withstand adverse impacts from identified areas of risk, but such management cannot provide insurance against every possible eventuality.
The directors have carefully reviewed the potential impact on its operations of the various possible outcomes following the termination of UK membership of the European Union ("Brexit"). Such outcomes may result in a movement in sterling against the dollar and rupiah with consequential impact on the group dollar translation of its sterling costs and sterling liabilities. The directors do not believe that such impact (which could be positive or negative) would be material in the overall context of the group. Beyond this, and considering that the group's entire operations are in Indonesia, the directors do not see Brexit as posing a significant risk to the group.
Risks assessed by the directors as being of particular significance, including climate change, are those detailed below under:
The directors' assessment, as respects produce prices and funding, reflects the key importance of those risks in relation to the matters considered in the "Viability statement" in the "Directors' report" of the annual report and, as respects climatic and other factors, the negative impact that could result from adverse incidence of such risks.
VIABILITY STATEMENT
The group's business activities, together with the factors likely to affect its future development, performance and position are described in the "Strategic report" of the annual report which also provides (under the heading "Finance") a description of the group's cash flow, liquidity and financing adequacy and treasury policies. In addition, note 23 to the consolidated financial statements in the annual report includes information as to the group's policy, objectives, and processes for managing capital, its financial risk management objectives, details of financial instruments and hedging policies and exposures to credit and liquidity risks.
The "Principal risks and uncertainties" section of the "Strategic report" in the annual report describes the material risks faced by the group and actions taken to mitigate those risks. In particular, there are risks associated with the group's local operating environment and the group is materially dependent upon selling prices for CPO and CPKO over which it has no control. Possible risks associated with the Covid-19 pandemic and emerging risks are also addressed in this section of the report.
The group has material indebtedness, in the form of bank loans and listed notes. At 31 December 2020 (after reflecting the waiver of covenant breaches referred to in "Capital structure" under the heading "Finance" in the "Strategic report" of the annual report), the equivalent of $54.1 million rupiah denominated term bank loans were due for repayment over the period 2021 to 2023 and, in addition, a rupiah working capital loan, equivalent to $5.0 million, was subject to annual renewal in November of each year. Of the listed notes, $27.0 million of 7.5 per cent dollar notes 2022 (the "dollar notes") are due for repayment on 30 June 2022. In view of the material component of the group's indebtedness falling due in the period to 31 December 2023, the directors have chosen this period for their assessment of the long term viability of the group.
The group's present level of indebtedness reflects a number of challenges that have confronted the group in recent years. Over the period 2015 to 2017, group crops fell considerably short of the levels that had been expected. The reasons for this were successfully identified and addressed but, as crops recovered to better levels, the group had to contend with falling CPO prices. The resultant negative cash flow impact over a number of years had to be financed and led to the group assuming greater debt obligations from funding sources that nevertheless continued to be forthcoming.
The closing months of 2019 saw a sharp recovery in CPO prices and the group was optimistic at the outset of 2020 that the forthcoming year would see a considerable improvement in the group's financial position. Unfortunately, as the Covid-19 pandemic spread in 2020, CPO prices fell away and, notwithstanding the increase in operating cashflows (before working capital movements) to $37.7 million (2019: $12.2 million), the group's performance for the year fell short of initial expectations. Nevertheless, progress was made during 2020 in improving the group's financial position.
A combination of cost reductions and a recovery in CPO prices in the second half of the year meant that earnings before interest, taxation, depreciation and amortisation for the year amounted to $36.8 million against $18.2 million in the preceding year. The maturity date of the £30.9 million nominal of 8.75 per cent sterling notes (the "sterling notes") issued by REA Finance B.V. (and guaranteed by the company) was extended by five years to 31 August 2025 and the group's local partner in its principal Indonesian subsidiary, REA Kaltim, agreed to support an increase in the capital of REA Kaltim by converting debt to equity thus reducing indebtedness to the local partner by $7.5 million. In addition, gross bank indebtedness was reduced by $15.8 million, although this reduction was in part financed by increased pre-sale advances from customers against forward commitments of CPO and CPKO (all such commitments being on the basis of pricing fixed shortly ahead of delivery by reference to market prices prevailing at that time). In addressing each of these elements, the group was able to support current borrowing levels but addressing the group's capital structure for the longer term remains its objective.
Bank term loans at 31 December 2020 comprised three separate loans from PT Bank Mandiri (Persero) Tbk ("Mandiri") to group companies. As noted under "Liquidity and financing adequacy" in the "Strategic report", proposals are currently under discussion between the group and Mandiri whereby the existing Mandiri loans to REA Kaltim and SYB would be repaid and replaced with new loans to those companies. The working capital facility provided to REA Kaltim would also be repaid and replaced with two new annual revolving working capital facilities. The new term loans would provide additional funding to the group and would be repayable over a period of eight years. The new working capital facilities would be renewable annually. The proposals are subject to approval by the credit committee of Mandiri. If approved, net bank funding available to the group over the three years to end 2023 would be substantially increased. This would materially improve the projected group cash flows over the period to 31 December 2023.
As noted under "Capital structure" in the "Strategic report" of the annual report, at 31 December 2020, two of the group companies in receipt of loans from Mandiri, SYB and KMS, were in breach of certain loan covenants. The breaches in question have been subsequently waived by Mandiri. The breaches principally arose as a result of insufficient revenue generation in SYB and KMS during 2020. With the better CPO prices now prevailing, SYB and KMS can reasonably expect significantly higher revenues in 2021 and should therefore be able to meet the loan covenants applicable to their existing loans from Mandiri and, in the case of SYB, the loan covenants expected to be attached to the proposed replacement Mandiri loan to SYB.
The group's agricultural operations continue to perform satisfactorily and the group is now benefiting from considerably improved prices for CPO and CPKO. Following the rise in the CPO price in the second half of 2020, the Indonesian government announced changes to the export levy scale. An effect of the changes is that, at reference prices between $770 and $1,000 per tonne, an exporter of Indonesian CPO receives, after deduction of export duty and levy, substantially the same net price per tonne. This means that the group can reasonably expect that the net prices that it receives from sale of its CPO and CPKO production to remain stable at current levels for the immediate future even if international CPO prices fall to an extent.
The award of indemnity costs on successful conclusion of the arbitration proceedings, brought against one of the coal concession companies to which the group has advanced monies, resulted in recovery in January 2021 of $5.8 million of the group's advances. If, as is expected, the coal concession company concerned commences mining in the near future, further repayments of group advances can be expected. As detailed under "Stone and coal interests" in the "Strategic report" of the annual report, the group can also expect the stone concession company to which the group has advanced monies to commence repayment of those advances.
Whilst the group will continue to incur capital expenditure on necessary replacement of plant, replanting of the oldest plantings and limited extension planting, completion of the extension of the group's newest mill (which was delayed by the Covid-19 pandemic) will provide the group with sufficient processing capacity for the foreseeable future. Annual capital expenditure on the plantation operations going forward can therefore be expected to be nearer to the level incurred in 2020 than the much higher levels seen in earlier years. This should mean that the group's improving cash flows can be used to reduce indebtedness, the level of pre-sale advances and address the arrears of preference dividend.
Concurrently with the discussions with Mandiri, the group has been exploring alternative sources of finance, including equity (in the form of ordinary or preference shares), equity linked instruments and trade finance to strengthen the group's balance sheet. The group is confident that funding from pre-sale advances can if necessary be continued at current levels and that the group's improving financial position will support further financing if required.
Based on the foregoing and whether or not the current proposals for the replacement of the existing Mandiri loans are agreed, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the period to 31 December 2023 and to remain viable during that period.
GOING CONCERN
Factors likely to affect the group's future development, performance and position are described in the "Strategic report" of the annual report. The directors have carefully considered those factors, together with the principal risks and uncertainties faced by the group as well as emerging risks which are set out in the "Principal risks and uncertainties" section of the "Strategic report" in the annual report, and have reviewed key sensitivities which could impact on the liquidity of the group.
As at 31 December 2020, the group had cash and cash equivalents of $11.8 million and borrowings of $201.2 million (in both cases as set out in note 23 to the group financial statements).
As noted under "Liquidity and financing adequacy" in the "Strategic report" of the annual report, proposals are currently under discussion between the group and Mandiri whereby the existing Mandiri loans to REA Kaltim and SYB would be repaid and replaced with new loans to those companies. The working capital facility provided to REA Kaltim would also be repaid and replaced with two new annual revolving working capital facilities. The new term loans would provide additional funding to the group and would be repayable over a period of eight years. The new working capital facilities would be renewable annually. The proposals are subject to approval by the credit committee of Mandiri. If approved, the proposals would mean that the bank repayments falling due over the 12 month period following the date of approval of the financial statements will be more than covered by the additional funding provided.
As noted under, and for the reason given in, the "Viability statement" above, the group does not expect the breaches of loan covenants by SYB and KMS that occurred in 2020 to recur in 2021.
Concurrently with the discussions with Mandiri, the group has been exploring alternative sources of finance, including equity (in the form of ordinary or preference shares), equity linked instruments and trade finance to strengthen the group's balance sheet. The group is confident that funding from pre-sale advances can if necessary be continued at current levels and that the group's improving financial position will support further financing if required.
As noted in the "Viability statement" above, the group's agricultural operations continue to perform satisfactorily and the group is benefiting from considerably improved prices for CPO and CPKO which seem set to continue for the immediate future, with a currently favourable balance of supply and demand. In addition, the group has received a recent repayment of an advance made to the stone and coal concession companies that are provided with loan funding by the group and can reasonably anticipate further repayments.
Having regard to the foregoing, based on the group's forecasts and projections (taking into account reasonable possible changes in trading performance and other uncertainties) and having regard to the group's cash position and available borrowings, the directors expect that, whether or not the current proposals for the replacement of the existing Mandiri loans are agreed, the group should be able to operate within its available borrowings for at least 12 months from the date of approval of the financial statements.
For these reasons, the directors have concluded that it is appropriate to prepare the financial statements on a going concern basis.
DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
To the best of the knowledge of each of the directors, they confirm that:
The current directors of the company and their respective functions are set out in the "Board of directors" section of the annual report.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020
The company is exempt from preparing and disclosing its profit and loss account. All operations for both years are continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2020
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation The accompanying financial statements and notes 1 to 16 below (together the "accompanying financial information") have been extracted without material adjustment from the financial statements of the group for the year ended 31 December 2020 (the "2020 financial statements"). The auditor has reported on those accounts; the reports were unqualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006. Copies of the 2020 financial statements will be filed in the near future with the Registrar of Companies. The accompanying financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 of the company.
Whilst the 2020 financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and with the Companies Act 2006, as at the date of authorisation of those accounts the accompanying financial information does not itself contain sufficient information to comply with IFRS.
The 2020 financial statements and the accompanying financial information were approved by the board of directors on 26 April 2020.
2. Revenue
3. Segment information
In the table below, the group's sales of goods are analysed by geographical destination and the carrying amount of net assets is analysed by geographical area of asset location. The group operates in two segments: the cultivation of oil palms and stone and coal interests. In 2020 and 2019, the latter did not meet the quantitative thresholds set out in IFRS 8 "Operating segments" and, accordingly, no analyses are provided by business segment.
4. Agricultural produce inventory movement
The net (loss) / gain arising from changes in fair value of agricultural produce inventory represents the movement in the carrying value of such inventory after reflecting the movement in the fair value of the FFB input into that inventory (measured at fair value at point of harvest) less the amount of the movement in such inventory at historic cost (which is included in cost of sales).
5. Administrative expenses
6. Impairments and similar charges
The group intends to transfer some further areas of land developed by the group to plasma cooperatives. It is hoped that all costs incurred in respect of such areas can be recovered in full, but this may not be possible. Accordingly, an impairment provision has been made against the costs in question.
The land compensation payments are in respect of certain outstanding warranty obligations relating to the subsidiary divested in 2018, PT Putra Bongan Jaya.
In both the current and prior year, the write off of expenditure on land represents costs incurred by the group on a land allocation (izin lokasi) that has been relinquished. Having regard to evolving environmental considerations and prospective titling problems arising from conflicting land claims, the group concluded that renewal should not be sought following expiry of the land allocations concerned.
In 2019, an amount of $1.7 million relating to the correction of an understatement of non-current receivables comprising loans to third parties by the company was set off against the write off of expenditure on land.
7. Finance costs
Other finance charges in 2020 include $1.1 million being the present value of the premium payable on redemption discounted at the coupon rate.
Amounts included as additions to property, plant and equipment arose on borrowings applicable to the Indonesian operations and reflected a capitalisation rate of 1.2 per cent (2019: nil per cent); there is no directly related tax relief.
8. Tax
Taxation is provided at the rates prevailing for the relevant jurisdiction. For Indonesia, the current and deferred taxation provision is based on a tax rate of 20 per cent (2019: 25 per cent) and for the United Kingdom, the taxation provision reflects a corporation tax rate of 19 per cent (2019: 19 per cent) and a deferred tax rate of 19 per cent (2019: 17 per cent).
The rate of corporation tax in the United Kingdom had been expected to reduce from 19 per cent to 17 per cent from 1 April 2020 however in March 2020 it was announced that the rate would continue at 19 per cent. In March 2021 it was announced that UK corporation tax rates would rise to 25 per cent from 2023.
The main rate of corporation tax in Indonesia is reducing from 25 per cent to 22 per cent in 2021 then to 20 per cent for accounting periods after 2022. In computing the deferred tax liabilities, it is assumed that as neither deferred tax assets nor liabilities will crystallise in the immediate future then calculations based on a rate of 20 per cent are appropriate.
9. Dividends
In view of the difficult trading conditions prevailing during 2020 and the group's financial performance, the directors concluded that the payment of the fixed semi-annual dividends on the 9 per cent cumulative preference shares that fell due on 30 June and 31 December 2020 should be deferred and that the half yearly preference dividends that were due on 30 June 2019 and 31 December 2019 should also continue to be deferred.
Provided that CPO prices remain at current levels, the preference dividends arising on 30 June 2021 and 31 December 2021 are expected to be paid during the year. Whilst the group recognises the importance of paying the arrears on the preference dividend, which now stand at 18p per share, it is not yet in a position to provide guidance as to when it might be able to commence doing so. The directors are well aware that preference shares are bought for income and aim progressively to catch up the preference dividend arrears as soon as circumstances prudently permit.
While the dividends on the preference shares are more than six months in arrear, the company is not permitted to pay dividends on its ordinary shares. In view of the results reported for 2020, the directors would not anyway have considered it appropriate to declare or recommend the payment of any dividend on the ordinary shares in respect of 2020 even if this were permitted.
10. Loss per share
* Being net loss attributable to ordinary shareholders
11. Property, plant and equipment
The depreciation charge for the year includes $56,000 (2019: $95,000) which has been capitalised as part of additions to plantings and buildings and structures.
At the balance sheet date, the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to $2.6 million (2019: $3.4 million).
At the balance sheet date, property, plant and equipment of $141.3 million (2019: $153.5 million) had been charged as security for bank loans.
12. Sterling notes
The sterling notes comprise £30.9 million nominal of 8.75 per cent guaranteed 2025 sterling notes (2019: £30.9 million nominal) issued by the company's subsidiary, REA Finance B.V. ("REAF").
On 1 April 2020 a proposal to extend the repayment date for the sterling notes from 31 August 2020 to 31 August 2025 was implemented. In accordance with the terms of the proposal the company issued a total of 4,010,760 warrants to subscribe, for a period of five years, for ordinary shares in the capital of the company at a price of £1.26 per share to the holders of the sterling notes on the basis of 130 warrants per £1,000 nominal of sterling notes held at the close of business (London time) on 24 March 2020.
The sterling notes are guaranteed by the company and another wholly owned subsidiary of the company, REAS, and are secured principally on unsecured loans made by REAS to Indonesian plantation operating subsidiaries of the company. Unless previously redeemed or purchased and cancelled by the issuer, the sterling notes are now repayable on 31 August 2025. A premium of 4p per £1 nominal of sterling notes will now be paid on redemption of the sterling notes on 31 August 2025 (or earlier in the event of default) or on surrender of the sterling notes in satisfaction, in whole or in part, of the subscription price payable on exercise of the warrants on the final subscription date (namely 15 July 2025).
The repayment obligation in respect of the sterling notes of £30.9 million ($42.1 million) is carried in the balance sheet net of the unamortised balance of the note issuance costs plus the present value of the premium payable on redemption discounted at the coupon rate.
13. Share capital
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution and resolved to be distributed, of a fixed cumulative preferential dividend of 9 per cent per annum on the nominal amount paid up on such preference shares. The preference shares shall rank for dividend in priority to the payment of any dividend to the holders of any other class of shares. In the event of the company being wound up, holders of the preference shares shall be entitled to the amount paid up on the nominal value of such shares together with any arrears and accruals of the fixed dividend thereon, irrespective of whether such dividend has been declared or earned or not. The preference shares shall rank on a winding up or other return of capital in priority to any other shares of the company for the time being in issue.
Subject to the rights of the holders of preference shares, holders of ordinary shares are entitled to share equally with each other in any dividend paid on the ordinary share capital and, on a winding up of the company, in any surplus assets available for distribution among the members.
Changes in share capital
14. Movement in net borrowings
15. Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the company and its subsidiaries are dealt with in the company's individual financial statements.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each of the categories specified in IAS 24 "Related party disclosures". Further information about the remuneration of, and fees paid in respect of services provided by, individual directors is provided in the audited part of the "Directors' remuneration report" of the annual report.
Loan from related party
During the year, R.E.A. Trading Limited ("REAT"), a related party, made unsecured loans to the company on commercial terms. REAT is owned by Richard Robinow (a director of the company) and his brother who, with members of their family, also own Emba Holdings Limited, a substantial shareholder in the company. Total loans outstanding at 31 December 2020 were $4.0 million (2019: nil). The maximum amount loaned was $6.1 million (2019: $5.4 million, all of which had been repaid by 31 December 2019). Total interest paid during the year was $165,000 (2019: $83,000). This disclosure is also made in compliance with the requirements of Listing Rule 9.8.4(10).
16. Events after the reporting period
There have been no material post balance sheet events that would require disclosure in, or adjustment to, these financial statements.
Current liabilities shown by the consolidated balance at 31 December 2020 amounted to $113.1 million, reflecting the inclusion of bank loans totalling $30.5 million from the group's Indonesian bankers, Mandiri, to SYB and KMS that would have been classified as non-current liabilities were it not for certain breaches by those companies of loan covenants applicable at the balance sheet date. Mandiri has subsequently waived the breaches in question. If the waivers had been received before the balance sheet date, such loans would have been classified as non-current liabilities.
References to group operating companies in Indonesia are as listed under the map on page 5 of the annual report.
The terms "FFB", "CPO" and "CPKO" mean, respectively, "fresh fruit bunches", "crude palm oil" and "crude palm kernel oil".
References to "dollars" and "$" are to the lawful currency of the United States of America.
References to "rupiah" are to the lawful currency of Indonesia.
References to "sterling" or "pounds sterling" are to the lawful currency of the United Kingdom.
Press enquiries to: R.E.A. Holdings plc Tel: 020 7436 7877 |
| ISIN: | GB0002349065 |
| Category Code: | ACS |
| TIDM: | RE. |
| LEI Code: | 213800YXL94R94RYG150 |
| Sequence No.: | 100677 |
| EQS News ID: | 1188356 |
| End of Announcement | EQS News Service |
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