DJ R.E.A. Holdings plc: Annual reports and accounts 2019
R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Annual reports and accounts 2019
07-May-2020 / 15:06 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
R.E.A. HOLDINGS PLC (the "company")
ANNUAL FINANCIAL REPORT
The company's annual report for the year ended 31 December 2019 (including
notice of the annual general meeting to be held on 11 June 2020) (the
"annual report") will shortly be available for downloading from the group's
website at www.rea.co.uk [1]. 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.
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 [2].
The sections below entitled "Chairman's statement", "Dividends", "Risks and
uncertainties", "Viability statement", "Going concern" and "Directors'
confirmation of responsibility" 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 of the notes to
the financial statements below.
HIGHLIGHTS
Overview
· 2019 was a difficult trading period for the group, with weak CPO and
CPKO prices impacting on what was otherwise strong operational
performance. The strengthening of prices witnessed at the end of 2019 and
the start of 2020 was brought to a halt by the Covid-19 pandemic with the
consequential collapse in the global economy
· At the beginning of April 2020, the Indonesian government deemed certain
activities, notably agriculture and plantations, as essential and,
accordingly these are not restricted because of Covid-19. The group's
estates are currently operating normally and to-date the pandemic has had
no effect on the group's ability to deliver CPO and CPKO to its buyers
· The pandemic has adversely affected the CPO and CPKO markets in which
prices have fallen. Going forward, low levels of planting and replanting
in Indonesia in recent years are expected to result in slower growth in
CPO and CPKO supply and, as demand for vegetable oils is restored, prices
are likely to recover
Financial
· Revenue up to $125.0 million (2018: $105.5 million) with the uplift in
CPO prices towards the end of the year and stock sales carried over from
2018
· Cost of sales increased to $121.8 million (2018: $99.6 million) largely
reflecting the swing in stock movements, with operational costs otherwise
similar to 2018
· EBITDA increased to $18.2 million (2018: $12.3 million) benefitting from
higher selling prices in the second half
· Pre-tax loss of $43.7 million (2018: loss of $5.5 million) due to
negative foreign exchange charge of $8.6 million adversely affecting
finance cost, a depreciation charge increased by $4.3 million and a net
impairment loss of $3.3 million following the decision not to extend the
KMS land allocation
· Repayment date of GBP30.9 million nominal of 8.75 per cent sterling notes
extended in March 2020 from August 2020 to August 2025
Agricultural operations
· A second record year for FFB production at 800,666 tonnes (2018: 800,050
tonnes) despite both an industry wide decline as palms entered a resting
phase and several periods of unusually low rainfall in the second half
· FFB yield per mature hectare over 24 tonnes (2018: 23 tonnes)
· Increase in third party FFB purchased to 198,737 tonnes (2018: 191,228
tonnes)
· Extraction rates continuing to improve with CPO averaging 23.0 per cent
(2018: 22.5 per cent) owing to the focus on modifications, upgrading and
rigorous maintenance in the mills
Stone and coal interests
· Arrangements with a neighbouring coal company for the opening and
quarrying of the andesite stone concession held by the group's local
partners
· Contractor appointed to mine the Kota Bangun coal concession held by the
group's local partners, though currently on hold due to Covid-19 and low
coal prices
Sustainability
· Ranked 8 out of 99 companies producing, processing and trading palm oil
by ZSL's SPOTT assessment of disclosures and commitment to environmental,
social and governance best practice in 2019
· KMS, the group's most recently matured estate, RSPO certified at the
start of 2020
Outlook
· Cost saving and efficiency measures implemented in 2019 expected to
achieve significant cost savings in 2020
· Capital expenditure limited to completing the mill works and to bunding
and resupplying 1,000 hectares of mature areas previously damaged by
periodic flooding, while extension planting remains on hold pending a
sustained recovery in the CPO price and financial performance
· In light of Covid-19, the group is engaged in positive discussions with
its Indonesian bankers to postpone loan repayments due in 2020
· Crop production to date in 2020 is slightly ahead of budget and, with
extraction rates achieving expected levels and mill operations continuing
to improve, the outlook is positive, subject to the immediate impacts and
risks of Covid-19
CHAIRMAN'S STATEMENT
?Trading conditions during 2019 were difficult. Prices of crude palm oil
("CPO") and crude palm kernel oil ("CPKO") remained weak for most of the
year. Only towards the end of 2019, when demand for CPO was clearly
exceeding supply and global stocks started to fall significantly, did the
CPO price start to recover. Consequently, notwithstanding ongoing
improvements in operational performance, pressure on margins resulted in an
operating loss for the year of $9.1 million, a small reduction on the
operating loss of $10.7 million in 2018.
Improvements were made in crop yields with fresh fruit bunches ("FFB")
harvested of 800,666 tonnes, marginally ahead of the 800,050 tonnes in 2018.
Although FFB in 2019 was below the original target of 900,000 tonnes, it
represented a second record year for the group producing a yield per mature
hectare of 24.2 tonnes. These improvements should be viewed in the context
of an industry wide decline in FFB production reflecting palms entering a
resting phase following generally very high levels of cropping in 2018 as
well as several periods of unusually low rainfall in the second half of
2019. Measured against these benchmarks, the group's operational performance
compares favourably. Third party harvested FFB totalled 198,737 tonnes
against 191,228 tonnes in 2018.
Production of CPO in 2019 increased to 224,856 tonnes, compared with 217,721
tonnes in 2018, while CPKO production fell slightly to 15,305 tonnes,
compared to 16,095 tonnes in 2018. The reduced CPKO production was entirely
due to the temporary suspension of production to allow for maintenance work
at one of the kernel crushing plants during the first half of 2019, during
which period, uncrushed kernels were sold to third parties. Both CPO and
CPKO extraction yields increased to, respectively, 23.0 per cent and 40.7
percent in 2019 compared with, respectively, 22.5 per cent and 40.2 per cent
in 2018, as a consequence of the focus on the modifications, upgrading and
rigorous maintenance programme in the group's three mills. The majority of
these works are due to be completed during 2020, with some works carried
over from 2019 owing to delays with contractors and in supplies of
materials. Such delays also postponed completion of the expansion of the
group's newest mill at Satria until later in 2020 or early 2021.
Revenue for 2019 amounted to $125.0 million, compared with $105.5 in 2018,
the increase largely reflecting the uplift in CPO prices towards the end of
the year and the sales at the start of 2019 of both CPO and CPKO stocks
carried over from 2018. Overall, however, cost of sales were higher in 2019
at $121.8 million, compared with $99.6 million in 2018, principally as a
result of the swing in stock movements from $(10.2 million) in 2018 to $9.1
million in 2019. Estate operating costs overall in 2019 were similar to
those of 2018, notwithstanding increases in labour costs. Field and
harvesting costs were well controlled, but mill processing costs were
significantly over budget reflecting running inefficiencies pending
completion of necessary maintenance and upgrading work. As in 2018, extra
despatch costs were incurred in trucking unusually high volumes of CPO and
CPKO to the downstream loading point because of low river levels coinciding
with the period of peak production in the second half of the year.
Earnings before interest, taxation, depreciation and amortisation
("EBITDA"), improved from $12.3 million in 2018 to $18.2 million in 2019. As
anticipated at the time of publication of the 2019 half yearly report, the
EBITDA of the second half at $18.3 million was significantly better than
that of the first half of $(0.1) million, reflecting the weighting of the
group's crops to the second half and better selling prices in the last
quarter of 2019. With an increase in the depreciation charge of $4.3 million
over that charged in 2018 and the impact of adverse exchange rate movements
on finance costs, the group incurred a loss before tax in 2019 of $43.7
million, compared with $5.5 million in 2018. Significant steps were taken in
2019 to reduce costs and, whilst these had a limited impact on the results
for the year, the group is aiming for a reduction in 2020 of some $10
million against the level of costs that would have been incurred without the
cost reduction and efficiency measures.
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The CPO price, CIF Rotterdam, opened the year at $517 per tonne and fell to
a low of $481 per tonne in July before recovering slowly to reach $860 per
tonne by the end of 2019. In the wake of the Covid-19 pandemic, the price
has since fallen back with reduced demand in the wake of the dramatic
slowdown in the world economies. The price is currently trading at $525 per
tonne. CPKO prices opened the year at $783 per tonne, CIF Rotterdam, rose to
a high in mid January before falling back to $529 in early June, largely
reflecting subdued demand generally and good availability of the competitor
coconut oil, and then recovered to $1,080 per tonne by the end of 2019. The
CPKO price currently stands at $605 per tonne.
The average selling price for the group's CPO for 2019 on an FOB basis at
the port of Samarinda, net of export levy and duty, was $453 per tonne
(2018: $472 per tonne). The average selling price for the group's CPKO, on
the same basis, was $533 per tonne (2018: $792 per tonne).
Development of the group's land bank of some 6,000 hectares that are
available for immediate extension planting continues to be on hold pending a
sustained recovery in the CPO price and in the group's financial
performance. In the meantime, some 1,000 hectares of mature areas that have
been damaged over the years by periodic flooding are being bunded and
resupplied.
As previously reported, good progress was made in 2019 by the principal coal
concession holding company to reopen the concession at Kota Bangun.
Refurbishment of the loading point on the Mahakam River and the conveyor
crossing the concession were completed and the requisite licences obtained.
A contractor was appointed to provide mining services and to manage the port
facility, as well as funding all further expenditure required for
infrastructure, land compensation and mobilisation in exchange for a
participation in the mine's profits. Following further test drilling and
development of a mine plan, it was expected that mobilisation and mining
would commence by mid 2020. As a result of the Covid-19 pandemic, however,
these plans are currently on hold and it is unlikely that mining operations
will commence until the end of 2020 at the earliest.
The group is also finalising arrangements with a neighbouring coal company
for the opening and quarrying of the andesite stone concession on similar
terms to those agreed for the Kota Bangun coal concession. Work is expected
to commence in the second half of 2020.
As at 31 December 2019 the group had total equity (including preference
share capital) of $239.7 million, compared with $246.8 million at 31
December 2018. In October 2019, the company issued 3,441,000 ordinary shares
for cash at a price of GBP1.45p per share. Non-controlling interests at 31
December 2019 amounted to $13.0 million, compared with $14.5 million at 31
December 2018.
Net indebtedness, including GBP30.9 million ($39.0 million) of 8.75 per cent
guaranteed sterling notes that were due to mature in August 2020, amounted
to $207.8 million at 31 December 2019, compared with $189.6 million at 31
December 2018. On 31 March 2020, the holders of the sterling notes approved
proposals to extend the repayment date to 31 August 2025. In consideration
for agreeing to these proposals, the notes will now be repayable at a
premium of 4 pence per GBP1.00 nominal loan note and the company has issued to
noteholders 4,010,760 warrants, each warrant entitling the holder to
subscribe for a period of 5 years, one new ordinary share in the company at
a subscription price of GBP1.26 per share.
The group has repayments due on its indebtedness in Indonesia to PT Bank
Mandiri (Persero) Tbk ("Mandiri"). The group has had extensive negotiations
with Mandiri over the past twelve months with a view to obtaining additional
loans sufficient to finance the repayments falling due on its existing
Indonesian rupiah borrowings. However, following measures to control the
spread of Covid-19 (including the closure of bank offices), the group has
been informed that all state banks have ceased new lending. The group is
therefore now seeking the agreement of Mandiri to postpone repayments due
during the rest of 2020.
In view of the difficult trading conditions prevailing during 2019, the
payment of the fixed semi-annual dividends on the 9 per cent cumulative
preference shares that fell due in June and December 2019 were deferred.
With the major improvement in the CPO price at the end of 2019 and into 2020
it was hoped that the payment of preference dividends arising in 2020 could
be resumed and that the deferred dividends could be caught up progressively.
Unfortunately, the subsequent disruption wrought by the Covid-19 pandemic
has meant that this plan has had to be placed on hold. The directors are
well aware that preference shares are bought for income and will aim to
recommence the payment of dividends as soon as circumstances permit.
However, until there is a recovery in CPO prices and greater certainty as to
the future, preference dividends will have to continue to be deferred.
As dividends on the preference shares are now more than six months in
arrears, the company is not permitted to pay dividends on its ordinary
shares. Notwithstanding this requirement and based on the financial results
for 2019, the directors would not have considered it appropriate to declare
or recommend the payment of any dividend on the ordinary shares at this
time.
As already noted, the beginning of 2020 saw continued strength in CPO
prices, largely reflecting low levels of CPO stocks and vegetable oil
consumption exceeding supply. This underlying price firmness was brought to
a halt as a direct result of the Covid-19 pandemic. The consequential
collapse in the global economy had an immediate impact on the CPO market and
demand initially fell dramatically. This was reflected in a fall in the CPO
price from $860 per tonne on 1 January 2020 to $540 per tonne on 30 April
2020.
At current CPO price levels, the group should be able to operate at slightly
above a cash break even position over the year as a whole, excluding debt
repayments and preference dividends. With crops weighted to the July to
December period, unit cash costs are normally lower in the second half of
each year than in the first half, but average selling prices for the first
half of 2020 will benefit from the higher CPO prices prevailing at the start
of the year. Crop levels and harvested FFB continue to be in line with
expectations and mill operations continue to improve. However, there is the
possibility of operational disruption should the existing lockdown in
Indonesia be extended in a way that would reduce or halt group production or
restrict the group's ability to deliver its production to customers,
although it should be noted that the current lockdown in Indonesia
explicitly excludes agricultural business.
In the longer term, low levels of replanting and little new planting taking
place in Indonesia are likely to result in much slower growth in both CPO
and CPKO production than in the recent past. Given a return to recent levels
of demand for vegetable oils, further improvement in prices are therefore
likely and consequently provide a positive outlook for the group.
DAVID J BLACKETT
Chairman
DIVIDENDS
In view of the difficult trading conditions prevailing during 2019, 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 2019 should be deferred. With the major improvement in the CPO
price going into January 2020, the directors had hoped to pay preference
dividends arising in 2020 and progressively to catch up the preference
dividend arrears. Unfortunately, the subsequent disruption wrought by
Covid-19 has meant that this plan has had to be put on hold. The directors
are well aware that preference shares are bought for income and will aim to
recommence the payment of dividends as soon as circumstances permit.
However, until there is a recovery in CPO prices and greater certainty as to
the future, preference dividends will have to continue to be deferred.
While the dividends on the preference shares are more than six months' in
arrears, the company is not permitted to pay dividends on its ordinary
shares. In view of the results reported for 2019, 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 2019 even if this were
permitted.
ANNUAL GENERAL MEETING
The sixtieth annual general meeting of R.E.A. Holdings plc will be held at
32 - 36 Great Portland Street, London W1W 8QX on 11 June 2020 at 10.00 am.
Attendance
The company has been closely monitoring the evolving situation relating to
the outbreak of Coronavirus (Covid-19), including the current restrictions
from the UK Government and Public Health England prohibiting public
gatherings of more than two people and non-essential travel, save in certain
limited circumstances.
Pending further guidance, shareholders are advised that they should not
attend the Annual General Meeting in person and any person who attempts to
attend the meeting in person will be refused entry.
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 our registrars, Link Asset Services ("Link"), at
www.signalshares.com (and so that the appointment is received by the
service by no later than 10.00 am on 9 June 2020) 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 9 June 2020
and given the restrictions on attendance, shareholders are strongly
encouraged to appoint the chairman of the meeting as their proxy rather than
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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 as it
appears on the company's register of members, to the following email
address: AGM2020@rea.co.uk so as to be received by no later than 5.00 pm
on 9 June 2020. You 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 proceedings
of the meeting via a telephone dial in which can be accessed at any time
from 15 minutes prior to the meeting until the conclusion of the meeting
using the following dial in details +44 (0)20 3651 8923 and conference
code 46081227#. If you are intending to call from overseas, please contact
the company secretary at AGM2020@rea.co.uk, who can provide you with an
appropriate telephone number. Please note that shareholders will not be
able to use this to actively participate in the meeting by voting on the
resolutions or asking questions. Accordingly and as noted above,
shareholders are urged to vote on the resolutions and to submit any
questions they have in advance of the meeting;
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
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 64.5 in the
company's current 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.
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 of the company 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 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 currently faces potential impacts from the Covid-19 pandemic. This
pandemic is unprecedented in the history of the group and there are
therefore no precedents against which the risks that it entails can be
assessed. At this juncture, there has been no material adverse impact on the
group's day to day operations although there has been a negative impact on
markets for CPO and CPKO, the extent of which is covered in the "Strategic
report" in the annual report. Potential further consequences of Covid-19
could include 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. The group's ability to withstand
such negative financial impact will be dependent upon the continuing support
of its stakeholders which cannot be predicted.
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.
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 to the current discussions on the
termination of UK membership of the European Union ("Brexit"). The directors
expect that certain outcomes may result in a movement in sterling against
the US dollar and Indonesian 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. Were there
to be an outcome that resulted in a reduction in UK interest rates, this may
negatively impact the level of the technical provisions of the REA Pension
Scheme but given the Scheme's estimated funding position, the directors do
not expect that this impact 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.
The directors have considered the potential impact on the group of global
climate change. Between 5 and 10 per cent of the group's existing plantings
are in areas that are low lying and prone to flooding if not protected by
bunding. Were climate change to cause an increase in water levels in the
rivers running though the estates, this could be expected to increase the
requirement for bunding or, if the increase was so extreme that bunding
became impossible, could lead to the loss of low lying plantings. Changes to
levels and regularity of rainfall and sunlight hours could also adversely
affect production. However, it seems likely that any climate change impact
negatively affecting group production would similarly affect many other oil
palm growers in South East Asia leading to a reduction in CPO and CPKO
supply. This would be likely to result in higher prices for CPO and CPKO
which should provide at least some offset against reduced production.
Apart from the Covid-19 Pandemic, which represents the single greatest risk
to the group at this time, risks assessed by the directors as being of
particular significance are those detailed below under:
· "Agricultural operations - Produce prices"
· "General - Funding"
· "Agricultural operations - Climatic factors"
· "Agricultural operations - Other operational factors".
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" below and, as respects climatic and other factors,
the negative impact that could result from adverse incidence of such risks.
Risk Potential impact Mitigating or other
relevant
considerations
Agricultural
operations
Climatic factors
Material variations A loss of crop or Over a long period,
from the norm in reduction in the crop levels should
climatic conditions quality of harvest be reasonably
resulting in loss of predictable
potential revenue
Unusually low levels A reduction in Operations are
of rainfall that lead subsequent crop located in an area
to a water levels resulting in of high rainfall.
availability below the loss of potential Notwithstanding
minimum required for revenue; the some seasonal
the normal development reduction is likely variations, annual
of the oil palm to be broadly rainfall is usually
proportional to the adequate for normal
cumulative size of development
the water deficit
Overcast conditions Delayed crop Normal sunshine
formation resulting hours in the
in loss of potential location of the
revenue operations are well
suited to the
cultivation of oil
palm
Low levels of rainfall Inability to obtain The group has
disrupting river delivery of estate established a
transport or, in an supplies or to permanent
extreme situation, evacuate CPO and downstream loading
bringing it to a CPKO (possibly facility, where the
standstill leading to river is tidal. In
suspension of addition, road
harvesting) access between the
ports of Samarinda
and Balikpapan and
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the estates offers
a viable
alternative route
for transport with
any associated
additional cost
more than
outweighed by
avoidance of the
potential negative
impact of
disruption to the
business cycle by
any delay in
evacuating CPO
Cultivation risks
Failure to achieve A reduction in The group has
optimal upkeep harvested crop adopted standard
standards resulting in loss of operating practices
potential revenue designed to achieve
required upkeep
standards
Pest and disease A loss of crop or The group adopts
damage to oil palms reduction in the best agricultural
and growing crops quality of harvest practice to limit
resulting in loss of pests and diseases
potential revenue
Other operational
factors
Shortages of necessary Disruption of The group maintains
inputs to the operations or stocks of necessary
operations, such as increased input inputs to provide
fuel and fertiliser costs leading to resilience and has
reduced profit established biogas
margins plants to improve
its self-reliance
in relation to fuel
A hiatus in FFB crops becoming The group
harvesting, collection rotten or over-ripe endeavours to
or processing of FFB leading either to a maintain a
crops loss of CPO sufficient
production (and complement of
hence revenue) or to harvesters within
the production of its workforce to
CPO that has an harvest expected
above average free crops and to
fatty acid content maintain resilience
and is saleable only in its palm oil
at a discount to mills with each of
normal market prices the mills operating
separately and some
ability within each
mill to switch from
steam based to
biogas or diesel
based electricity
generation
Disruptions to river The requirement for The group's bulk
transport between the CPO and CPKO storage storage facilities
main area of exceeding available have adequate
operations and the capacity and forcing capacity and
Port of Samarinda or a temporary further storage
delays in collection cessation in FFB facilities are
of CPO and CPKO from harvesting or afforded by the
the transhipment processing with a fleet of barges.
terminal resultant loss of Together, these
crop and have hitherto
consequential loss always proved
of potential revenue adequate to meet
the group's
requirements for
CPO and CPKO
storage and may be
expanded to
accommodate
anticipated
increases in
production
Occurrence of an Material loss of The group maintains
uninsured or potential revenues insurance at levels
inadequately insured or claims against that it considers
adverse event; certain the group reasonable against
risks (such as crop those risks that
loss through fire or can be economically
other perils), for insured and
which insurance cover mitigates uninsured
is either not risks to the extent
available or is reasonably feasible
considered by management
disproportionately practices
expensive, are not
insured
Produce prices
Volatility of CPO and Reduced revenue from Price swings should
CPKO prices which as the sale of CPO and be moderated by the
primary commodities CPKO production and fact that the
may be affected by a consequent annual oilseed
levels of world reduction in cash crops account for
economic activity and flow the major
factors affecting the proportion of world
world economy, vegetable oil
including levels of production and
inflation and interest producers of such
rates crops can reduce or
increase their
production within a
relatively short
time frame
Restriction on sale of Reduced revenue from The Indonesian
the group's CPO and the sale of CPO and government allows
CPKO at world market CPKO production and the free export of
prices including a consequent CPO and CPKO but
restrictions on reduction in cash applies a sliding
Indonesian exports of flow scale of duties on
palm products and exports, which is
imposition of high varied from time to
export duties (as has time in response to
occurred in the past prevailing prices,
for short periods) to allow producers
economic margins.
The extension of
this sliding scale
to incorporate an
export levy to fund
biodiesel subsidies
is designed to
support the local
price of CPO and
CPKO
Distortion of world Depression of The imposition of
markets for CPO and selling prices for controls or taxes
CPKO by the imposition CPO and CPKO if on CPO or CPKO in
of import controls or arbitrage between one area can be
taxes in consuming markets for expected to result
countries, for competing vegetable in greater
example, by imposition oils proves consumption of
of reciprocal trade insufficient to alternative
barriers or tariffs compensate for the vegetable oils
between major market distortion within that area
economies created and the
substitution
outside that area
of CPO and CPKO for
other vegetable
oils
Expansion
Failure to secure in Inability to The group holds
full, or delays in complete, or delays significant fully
securing, the land or in completing, the titled or allocated
funding required for planned extension land areas suitable
the group's planned planting programme for planting. It
extension planting with a consequential works continuously
programme reduction in the to maintain up to
group's prospective date permits for
growth the planting of
these areas and
aims to manage its
finances to ensure,
in so far as
practicable, that
it will be able to
fund any planned
extension planting
programme
A shortfall in A possible adverse The group maintains
achieving the group's effect on market flexibility in its
planned extension perceptions as to planting programme
planting programme the value of the to be able to
impacting negatively company's securities respond to changes
the continued growth in circumstances
of the group
Environmental, social
and governance
practices
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DJ R.E.A. Holdings plc: Annual reports and accounts -5-
Failure by the Reputational and The group has
agricultural financial damage established
operations to meet the standard practices
standards expected of designed to ensure
them as a large that it meets its
employer of obligations,
significant economic monitors
importance to local performance against
communities those practices and
investigates
thoroughly and
takes action to
prevent recurrence
in respect of any
failures identified
Criticism of the Reputational and The group is
group's environmental financial damage committed to
practices by sustainable
conservation development of oil
organisations palm and has
scrutinising land obtained RSPO
areas that fall within certification for
a region that in most of its current
places includes operations. All
substantial areas of group oil palm
unspoilt primary rain plantings are on
forest inhabited by land areas that
diverse flora and have been
fauna previously logged
and zoned by the
Indonesian
authorities as
appropriate for
agricultural
development. The
group maintains
substantial
conservation
reserves that
safeguard landscape
level biodiversity
Community relations
A material breakdown Disruption of The group seeks to
in relations between operations, foster mutually
the group and the host including blockages beneficial economic
population in the area restricting access and social
of the agricultural to oil palm interaction between
operations plantings and mills, the local villages
resulting in reduced and the
and poorer quality agricultural
CPO and CPKO operations. In
production particular, the
group gives
priority to
applications for
employment from
members of the
local population,
encourages local
farmers and
tradesmen to act as
suppliers to the
group, its
employees and their
dependents and
promotes
smallholder
development of oil
palm plantings
Disputes over Disruption of The group has
compensation payable operations, established
for land areas including blockages standard procedures
allocated to the group restricting access to ensure fair and
that were previously to the area the transparent
used by local subject of the compensation
communities for the disputed negotiations and
cultivation of crops compensation encourages the
or as respects which local authorities,
local communities with whom the group
otherwise have rights has developed good
relations and who
are therefore
generally
supportive of the
group, to assist in
mediating
settlements
Individuals party to a Disruption of The group has
compensation agreement operations, established
subsequently denying including blockages standard procedures
or disputing aspects restricting access to ensure fair and
of the agreement to the areas the transparent
subject of the compensation
compensation negotiations and
disputed by the encourages the
affected individuals local authorities,
with whom the group
has developed good
relations and who
are therefore
generally
supportive of the
group, to assist in
mediating
settlements
Stone and coal
interests
Operational factors
Failure by external Under recovery of The stone and coal
contractors to achieve receivables concession
agreed production companies endeavour
volumes with optimal to use experienced
stripping values or contractors, to
extraction rates supervise them
closely and to take
care to ensure that
they have equipment
of capacity
appropriate for the
planned production
volumes
External factors, in Delays to or under Deliveries are not
particular weather, recovery of normally time
delaying or preventing receivables critical and
delivery of extracted adverse external
stone and coal factors would not
normally have a
continuing impact
for more than a
limited period
Geological Unforeseen The stone and coal
assessments, which are extraction concession
extrapolations based complications companies seek to
on statistical causing cost ensure the accuracy
sampling, proving overruns and of geological
inaccurate production delays or assessments of any
failure to achieve extraction
projected production programme
Prices
Local competition Reduced revenue and There are currently
reducing stone prices a consequent no other stone
and volatility of reduction in quarries in the
international coal recovery of vicinity of the
prices receivables stone concessions
and the cost of
transporting stone
should restrict
competition. The
high quality of the
coal in the main
coal concession may
limit volatility
Imposition of Reduced revenue and The Indonesian
additional royalties a consequent government has not
or duties on the reduction in to date imposed
extraction of stone or recovery of measures that would
coal receivables seriously affect
the viability of
Indonesian stone
quarrying or coal
mining operations
Unforeseen variations Inability to supply Geological
in quality of deposits product within the assessments ahead
specifications that of commencement of
are, at any extraction
particular time, in operations should
demand with have identified any
consequent loss of material variations
revenue in quality
Environmental, social
and governance
practices
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DJ R.E.A. Holdings plc: Annual reports and accounts -6-
Failure by the stone Reputational and The areas of the
and coal interests to financial damage stone and coal
meet the expected concessions are
standards relatively small
and should not be
difficult to
supervise. The
stone and coal
concession
companies are
committed to
international
standards of best
environmental and
social practice
and, in particular,
to proper
management of waste
water and
reinstatement of
quarried and mined
areas on completion
of extraction
operations
General
Currency
Strengthening of Adverse exchange As respects costs
sterling or the movements on those and sterling
Indonesian rupiah components of group denominated
against the dollar costs and funding shareholder
that arise in capital, the group
Indonesian rupiah or considers that this
sterling risk is inherent in
the group's
business and
structure and must
simply be accepted.
As respects
borrowings, where
practicable the
group seeks to
borrow in dollars
but, when borrowing
in another
currency, considers
it better to accept
the resultant
currency risk than
to hedge that risk
with hedging
instruments
Funding
Bank debt repayment Inability to meet The group maintains
instalments and other liabilities as they good relations with
debt maturities fall due its bankers and
coincide with periods other holders of
of adverse trading and debt who have
negotiations with generally been
bankers and investors receptive to
are not successful in reasonable requests
rescheduling to moderate debt
instalments, extending profiles when
maturities or circumstances
otherwise concluding require; moreover,
satisfactory the directors
refinancing believe that the
arrangements fundamentals of the
group's business
will normally
facilitate
procurement of
additional equity
capital should this
prove necessary
Counterparty risk
Default by a supplier, Loss of any The group maintains
customer or financial prepayment, unpaid strict controls
institution sales proceeds or over its financial
deposit exposures which
include regular
reviews of the
creditworthiness of
counterparties and
limits on exposures
to counterparties.
Sales are generally
made on the basis
of cash against
documents
Regulatory exposure
New, and changes to, Restriction on the The directors are
laws and regulations group's ability to not aware of any
that affect the group retain its current specific planned
(including, in structure or to changes that would
particular, laws and continue operating adversely affect
regulations relating as currently the group to a
to land tenure, work material extent;
permits for expatriate current regulations
staff and taxation) restricting the
size of oil palm
growers in
Indonesia will not
impact the group
for the foreseeable
future
Breach of the various Civil sanctions and, The group
continuing conditions in an extreme case, endeavours to
attaching to the loss of the affected ensure compliance
group's land rights rights or with the continuing
and the stone and coal concessions conditions
concessions (including attaching to its
conditions requiring land rights and
utilisation of the concessions and
rights and that its activities
concessions) or and the activities
failure to maintain of the stone and
all permits and coal concession
licences required for companies are
the group's operations conducted within
the terms of the
licences and
permits that are
held and that
licences and
permits are
obtained and
renewed as
necessary
Failure by the group Reputational damage The group has
to meet the standards and criminal traditionally had,
expected in relation sanctions and continues to
to bribery, corruption maintain, strong
and slavery controls in this
area because
Indonesia, where
all of the group's
operations are
located, has been
classified as
relatively high
risk by the
International
Transparency
Corruption
Perceptions Index
Restrictions on Constraints on the Maintenance of good
foreign investment in group's ability to relations with
Indonesian mining recover its local partners to
concessions, limiting investment ensure that returns
the effectiveness of appropriately
co-investment reflect agreed
arrangements with arrangements
local partners
Country exposure
Deterioration in the Difficulties in In the recent past,
political or economic maintaining Indonesia has been
situation in Indonesia operational stable and the
standards Indonesian economy
particularly if has continued to
there was a grow but, in the
consequential late 1990s,
deterioration in the Indonesia
security situation experienced severe
economic turbulence
and there have been
subsequent
occasional
instances of civil
unrest, often
attributed to
ethnic tensions, in
certain parts of
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DJ R.E.A. Holdings plc: Annual reports and accounts -7-
Indonesia. The
group has never,
since the inception
of its East
Kalimantan
operations in 1989,
been adversely
affected by
regional security
problems
Introduction of Restriction on the The directors are
exchange controls or transfer of fees, not aware of any
other restrictions on interest and circumstances that
foreign owned dividends from would lead them to
operations in Indonesia to the UK believe that, under
Indonesia with potential current political
consequential conditions, any
negative Indonesian
implications for the government
servicing of UK authority would
obligations and impose exchange
payment of controls or
dividends; loss of otherwise seek to
effective management restrict the
control group's freedom to
manage its
operations
Mandatory reduction of Forced divestment of The group accepts
foreign ownership of interests in there is a
Indonesian plantation Indonesia at below significant
operations market values with possibility that
consequential loss foreign owners may
of value be required over
time to divest
partially ownership
of Indonesian oil
palm operations but
has no reason to
believe that such
divestment would be
at anything other
than market value.
Moreover, the group
has local
participation in
all its Indonesian
subsidiaries
Miscellaneous
relationships
Disputes with staff Disruption of The group
and employees operations and appreciates its
consequent loss of material dependence
revenues upon its staff and
employees and
endeavours to
manage this
dependence in
accordance with
international
employment
standards as
detailed under
"Employees" in
"Sustainability" in
the annual report
Breakdown in Reliance on the The group
relationships with the Indonesian courts endeavours to
local shareholders in for enforcement of maintain cordial
the company's the agreements relations with its
Indonesian governing its local investors by
subsidiaries arrangements with seeking their
local partners with support for
the uncertainties decisions affecting
that any juridical their interests and
process involves and responding
with any failure of constructively to
enforcement likely any concerns that
to have a material they may have
negative impact on
the value of the
stone and coal
interests because
the concessions are
legally owned by the
group's local
partners
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" in 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 24 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 "Risks and uncertainties" section of the Strategic 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
crude palm oil ("CPO") and crude palm kernel oil ("CPKO") over which it has
no control. The further risks associated with the unprecedented disruption
wrought by Covid-19 are also addressed in this section of the report.
As respects funding risk, the group has material indebtedness, in the form
of bank loans and listed notes. Some $14.1 million of bank term indebtedness
falls due for repayment during 2020 and a further $40.4 million over the
period 2021 to 2022. Additionally, a working capital loan of $5.0 million is
subject to annual renewal in November of each year. The GBP30.9 million ($40.5
million) of 8.75 per cent guaranteed sterling notes that were due for
repayment on 31 August 2020 (the "sterling notes") will now be repayable on
31 August 2025 following a resolution of the noteholders on 31 March 2020 to
extend the repayment date, detailed under "Capital structure" in the
Strategic report in the annual report. Subsequently, it has also been agreed
to defer all repayments of loans from the non-controlling shareholder until
2025. The $27.0 million of 7.5 per cent dollar notes 2022 (the "dollar
notes") will become repayable in June 2022.
In view of the material component of the group's indebtedness falling due in
the period to 31 December 2022 as described above, the directors have chosen
this period for their assessment of the long-term viability of the group.
In operational terms, the group's performance continues to be satisfactory
with crops at acceptable levels, extraction rates on an improving trend and
the group's extension planting programme deferred so as to minimise capital
expenditure in 2020. However, for most of 2019 the group had to contend with
a low CPO price. Steps were taken to reduce costs and, whilst these had a
limited impact in 2019, the group is aiming for a reduction of some $10
million per annum from 2020 onwards against the level of costs that would
have been incurred without the cost saving measures.
With the long awaited recovery in CPO prices in late 2019 and early 2020 and
vegetable oil consumption exceeding supply with stocks of CPO falling, the
group was optimistic that this would enable it to rebuild much needed
liquidity. Unfortunately, with the arrival of Covid-19, prices of CPO
started to fall away. At current CPO prices, the group would hope to be able
to operate at slightly above a cash break even position over the year as a
whole, excluding debt repayments and preference dividends. With crops
weighted to the July to December period, unit cash costs are normally lower
in the second half of each year than in the first half, but average selling
prices for the first half of 2020 will benefit from the higher CPO prices
prevailing at the start of the year.
Works to complete the extension of the group's newest oil mill and to
enhance the efficiency of the two older mills commenced in 2019 and are to
be completed by early 2021. Thereafter, no further mills will be required
for the foreseeable future as the group will have sufficient mill capacity
to meet projected increases in mill throughput. This should mean that, as
cash flows recover, increased cash generation can be used to reduce debt
levels.
The recently agreed arrangements for the andesite stone concession and
planned resumption of mining at the Kota Bangun coal concession, both as
detailed under "Stone and coal interests" in the Strategic report should, in
due course, provide additional sources of cash through the repayment of
loans due to the group.
As noted above, the group has repayments falling due on its bank
indebtedness to Mandiri in 2020. The group has had extensive negotiations
with Mandiri over the past twelve months with a view to obtaining additional
loans sufficient to finance the repayments falling due on its existing
Indonesian rupiah borrowings. Following measures to control the spread of
Covid-19 (including the closure of bank offices), the group has been
informed that all Indonesian state banks have ceased new lending. The group
is therefore now seeking the agreement of Mandiri to reschedule repayments
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DJ R.E.A. Holdings plc: Annual reports and accounts -8-
due on the group's existing loans from Mandiri. The latter has confirmed its
willingness to discuss such rescheduling.
For some time, the group has been hoping to reorganise its local bank
borrowings by converting Indonesian rupiah borrowings to dollar borrowings
which attract a lower rate of interest than rupiah borrowings. In the event,
this has not to-date proved possible which, as it transpires, is fortuitous
because in the period since 1 January, the rupiah fell from $1 = Rp13,901 to
$1 = Rp16,500, though has since recovered to $1 = Rp15,000. Based on the
group's opening balances due to Mandiri equivalent to $126.9 million, at an
exchange rate of $1 = Rp15,000, the group's indebtedness to Mandiri will
have been reduced by approximately $9 million. Moreover, the dollar
equivalent of the rupiah interest cost will have been reduced
proportionately.
Provided that CPO prices recover back to the levels prevailing at the start
of 2020, the directors believe that the group's cash generation capabilities
can be aligned with its cash requirements. However, the group faces serious
risks not only in relation to the timing of a recovery in CPO prices, but
also in relation to the possible operational impacts of Covid-19 which may
restrict estate operations and the group's ability to deliver CPO and CPKO
to its buyers although this is not currently an issue.
Following the refinancing of the sterling notes and subject to the eventual
impact on CPO prices and the group's operations of Covid-19, the directors
expect an improving outlook for the group's internally generated cash flows
will permit the group to repay or refinance the group indebtedness falling
due for repayment during the period of assessment.
Based on the foregoing, 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 2022 and to remain viable during
that period. However, as the CPO price, the willingness of Mandiri to adjust
the term of its loans to the group to the extent necessary in varying
different circumstances and the prospective liquidity issues that could
result in a downside scenario are not wholly within management's control,
this expectation is subject to material uncertainties.
GOING CONCERN
Factors affecting the development of the group are summarised in the first
paragraph of the Viability statement above. The directors have, in
particular, considered the principal risks and uncertainties faced by the
group which are set out in the "Risks and uncertainties" section of the
Strategic report, and have reviewed key sensitivities which could impact on
the liquidity of the group.
As at 31 December 2019, the group had cash and cash equivalents of $9.5
million and borrowings of $217.3 million (in both cases as set out in note
24 to the group financial statements). Subsequent to the year end, the group
has extended the repayment date of the sterling notes to 31 August 2025 and
has also reached agreement to defer all repayments due on loans from the
non-controlling shareholder until 2025. In addition, the group has asked
Mandiri to consider rescheduling repayments due on the group's existing
loans from Mandiri and the latter has confirmed its willingness to discuss
such rescheduling.
Absent the extraordinary circumstances brought about by the Covid-19
pandemic, the directors would expect that, 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 group should be able to operate
within its available borrowings for at least 12 months from the date of
approval of the financial statements.
However, following the recent Covid-19 pandemic, the CPO price has fallen
from $860 per tonne CIF Rotterdam at 1 January 2020 to $540 on 30 April
2020. Further there is the possibility of operational disruption should the
existing lockdown in Indonesia be extended in a way that would reduce or
halt group production or restrict the group's ability to deliver its
production to customers (although it should be noted that the current
lockdown in Indonesia explicitly excludes agricultural business). In these
circumstances, the group could experience liquidity issues and might require
waivers from Mandiri to avoid breaching bank covenants. However, in this
downside scenario, the directors expect that Mandiri would be receptive to
requests to adjust the terms of its loans to the group to an extent that
reflects the fact that the issues to be addressed will have arisen as a
result of Covid-19 and will be short term in nature, especially given that
Covid-19 should not impact on the group's longer-term prospects once the CPO
price returns to pre Covid-19 levels.
For these reasons, the directors have concluded that it is appropriate to
prepare the financial statements on a going concern basis. However, as the
CPO price and prospective liquidity issues under the downside scenario are
not wholly within management's control, these factors represent a material
uncertainty which may cast significant doubt upon the group's and the
company's continued ability to operate as a going concern, such that they
may be unable to realise their assets and discharge their liabilities in the
normal course of business.
DIRECTORS' CONFIRMATION OF RESPONSIBILITY
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:
· the financial statements, prepared in accordance with International
Financial Reporting Standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the company and the
undertakings included in the consolidation taken as a whole;
· the "Strategic report" section of the annual report includes a fair
review of the development and performance of the business and the position
of the company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
· the annual report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the company's position, performance, business model
and strategy.
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 2019
2019 2018
$'000 $'000
Revenue 124,986 105,479
Net gain arising from changes in fair value
of agricultural produce inventory
5,127 305
Cost of sales:
Depreciation and amortisation (27,287) (23,014)
Other costs (94,495) (76,571)
_______ _______
Gross profit 8,331 6,199
Distribution costs (1,348) (1,258)
Administrative expenses (16,097) (15,668)
_______ _______
Operating loss (9,114) (10,727)
Investment revenues 595 292
Impairment of non-current assets (3,267) -
Profit on disposal of subsidiary - 10,373
Finance costs (31,890) (5,412)
_______ _______
Loss before tax (43,676) (5,474)
Tax 22,303 (12,734)
_______ _______
Loss for the year (21,373) (18,208)
_______ _______
Attributable to:
Ordinary shareholders (17,814) (22,021)
Preference shareholders - 8,353
Non-controlling interests (3,559) (4,540)
_______ _______
(21,373) (18,208)
_______ _______
Basic and diluted loss per 25p ordinary
share (US cents)
(43.1) (54.4)
All operations for both years are continuing
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
$'000 $'000
Loss for the year (21,373) (18,208)
_______ _______
Other comprehensive income
Items that may be reclassified to profit or
loss:
Exchange differences on translation of 59 14,087
foreign operations
Deferred tax on exchange differences (1,589) 3,110
_______ _______
1,648 17,197
Items that will not be reclassified to
profit and loss:
Actuarial (losses) / gains (316) 1,732
Deferred tax on actuarial losses / (gains) 79 (425)
_______ _______
(237) 1,307
_______ _______
Total comprehensive income for the year (19,962) 296
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DJ R.E.A. Holdings plc: Annual reports and accounts -9-
_______ _______
Attributable to:
Ordinary shareholders (16,403) (3,517)
Preference shareholders - 8,353
Non-controlling interests (3,559) (4,540)
_______ _______
(19,962) 296
_______ _______
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2019
2019 2018
$'000 $'000
Non-current assets
Goodwill 12,578 12,578
Intangible assets 2,135 2,581
Property, plant and equipment 394,356 407,164
Land 38,598 41,276*
Financial assets: stone and coal interests 50,329 46,011
Deferred tax assets 12,642 10,088
Non-current receivables 3,889 2,158*
_______ _______
Total non-current assets 514,527 521,856
_______ _______
Current assets
Inventories 18,565 22,637
Biological assets 2,764 2,589
Trade and other receivables 53,760 50,714
Cash and cash equivalents 9,528 26,279
_______ _______
Total current assets 84,617 102,219
_______ _______
Total assets 599,144 624,075
_______ _______
Current liabilities
Trade and other payables (63,452) (59,779)
Current tax liabilities - -
Bank loans (19,168) (13,966)
Sterling notes (38,996) -
Other loans and payables (14,457) (718)
_______ _______
Total current liabilities (136,073) (74,463)
_______ _______
Non-current liabilities
Bank loans (107,757) (117,008)
Sterling notes - (38,213)
Dollar notes (26,804) (23,724)
Deferred tax liabilities (51,941) (79,247)
Other loans and payables (23,879) (30,146)
_______ _______
Total non-current liabilities (210,381) (288,338)
_______ _______
Total liabilities (346,454) (362,801)
_______ _______
Net assets 252,690 261,274
_______ _______
Equity
Share capital 133,586 132,528
Share premium account 47,358 42,401
Translation reserve (26,032) (42,470)
Retained earnings 84,779 114,360
_______ _______
239,691 246,819
Non-controlling interests 12,999 14,455
_______ _______
Total equity 252,690 261,274
_______ _______
* Restated
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Share Share Translation Retained Sub Non- Total
capital premium reserve earnings total controlling Equity
interests
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 132,528 42,401 (50,897) 135,074 259,1 17,629 276,73
January 06 5
2018
Loss for - - - (13,668) (13,6 (4,540) (18,20
the year 68) 8)
Other
comprehens
ive income
for the
year - - 15,831 1,307 17,13 1,366 18,504
8
Disposal - - (7,404) - (7,40 - (7,404
of 4) )
subsidiary
Dividends
to
preference
shareholde
rs - - - (8,353) (8,35 - (8,353
3) )
_____ _____ _____ _____ _____ _____ _____
At 31 132,528 42,401 (42,470) 114,360 246,8 14,455 261,27
December 19 4
2018
Loss for - - - (17,814) (17,8 (3,559) (21,37
the year 14) 3)
Other
comprehens
ive income
for the
year - - 987 (179) 808 603 1,411
Adjustment
in respect
of
deferred
tax
provision
release
- - 15,451 (11,588) 3,863 - 3,863
Issue of
new
ordinary
shares
(cash) 1,058 5,079 - - 6,137 - 6,137
Costs of - (122) - - (122) - (122)
issue
New equity
from
non-contro
lling
shareholde - - - - - 1,500 1,500
r
_____ _____ _____ _____ _____ _____ _____
At 31 133,586 47,358 (26,032) 84,779 239,6 12,999 252,69
December 91 0
2019
_____ _____ _____ _____ _____ _____ _____
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
$'000 $'000
Net cash from / (used in) operating 2,185 (25,876)*
activities
_______ _______
Investing activities
Interest received 595 94
Proceeds on disposal of property, plant and 7,639 -
equipment
Purchases of property, plant and equipment (18,133) (23,793)
Purchases of intangible assets (20) (33)
Expenditure on land (4,552) (1,990)*
Loans to stone and coal interests (4,319) (5,593)
Proceeds of disposal of subsidiary - 2,793
_______ _______
Net cash used in investing activities (18,790) (28,522)*
_______ _______
Financing activities
Preference dividends paid - (8,353)
Repayment of bank borrowings (14,512) (105,768)
New bank borrowings drawn 4,999 119,847
New borrowings from related party 5,437 13,440
Repayment of borrowings from related party (5,437) (13,440)
Repayment of borrowings from - (6,469)
non-controlling shareholder
New borrowings from non-controlling 1,758 -
shareholder
New equity from non-controlling shareholder 1,500 -
Proceeds of issue of ordinary shares, less 6,015 -
costs of issue
Proceeds of issue of 2022 dollar notes 3,000 -
Redemption of 2020 sterling notes - (1,307)
Proceeds of sale of investments - 2,730
Repayment of balances from divested - 50,027
subsidiary
Settlement of bank loan by purchaser of - 24,748
subsidiary
Repayment of lease liabilities (2,303) -
_______ _______
Net cash from financing activities 457 75,455
_______ _______
Cash and cash equivalents
Net (decrease) / increase in cash and cash (16,148) 21,057
equivalents
Cash and cash equivalents at beginning of 26,279 5,543
year
Effect of exchange rate changes (603) (321)
_______ _______
Cash and cash equivalents at end of year 9,528 26,279
_______ _______
* Restated
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 2019 (the "2019 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 2019
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 2019 financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the
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DJ R.E.A. Holdings plc: Annual reports and accounts -10-
European Union as at the date of authorisation of those accounts, the
accompanying financial information does not itself contain sufficient
information to comply with IFRS.
The 2019 financial statements and the accompanying financial information
were approved by the board of directors on 7 May 2020.
2. Revenue
2019 2018
$'000 $'000
Sales of goods 124,000 105,297
Revenue from services 986 182
_______ _______
124,986 105,479
Investment revenue 595 292
_______ _______
Total revenue 125,581 105,771
_______ _______
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 2019 and 2018, the
latter did not meet the quantitative thresholds set out in IFRS 8 "Operating
segments" and, accordingly, no analyses are provided by business segment.
2019 2018
$'m $'m
Sales by geographical location:
Indonesia 125.0 105.5
Rest of World - -
_______ _______
125.0 105.5
_______ _______
Carrying amount of net (liabilities) /
assets by geographical area of asset
location:
UK, Continental Europe and Singapore (68.0) (46.4)*
Indonesia 320.7 307.7*
_______ _______
252.7 261.3
_______ _______
* Incorrectly stated as $26.4m and $234.9m in 2018
4. Agricultural produce inventory movement
The net 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 fresh fruit bunch
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
2019 2018
$'000 $'000
(Profit) / loss on disposal of property, (707) 10
plant and equipment
Indonesian operations 13,480 14,728
Head office and other corporate functions 5,928 5,696
_______ _______
18,701 20,434
Amount included as additions to property,
plant and equipment
(2,604) (4,766)
_______ _______
16,097 15,668
_______ _______
6. Impairment of non-current assets
In 2019 the group has recognised a net impairment on non-current assets of
$3.3 million, of which $5.0 million is a write off of expenditure on land
and set off against this is a correction to non-current assets.
The $5.0 million impairment relates to the write off of the cost of certain
land rights in the group's subsidiary KMS. The company had an izin lokasi
dated 16 July 2018 which was valid for one year. However when the izin
lokasi expired in July 2019 the decision was made not to renew. This land is
currently zoned as forest and although it is open for conversion to
agricultural use it is also subject to conflicting land rights which would
be costly to resolve.
Set off against this is 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.
7. Finance costs
2019 2018
$'000 $'000
Interest on bank loans and overdrafts 14,664 15,485
Interest on dollar notes 1,859 1,877
Interest on sterling notes 3,462 4,085
Interest on other loans 1,539 2,549
Interest on lease liabilities 311 -
Change in value of sterling notes arising
from exchange fluctuations
1,357 (2,297)
Change in value of loans arising from 7,246 (12,547)
exchange fluctuations
Other finance charges 1,488 1,022
_______ _______
31,926 10,174
Amount included as additions to property,
plant and equipment
(36) (4,762)
_______ _______
31,890 5,412
_______ _______
Amounts included as additions to property, plant and equipment arose on
borrowings applicable to the Indonesian operations and reflected a
capitalisation rate of nil per cent (2018: 15.9 per cent); there is no
directly related tax relief.
8. Tax
2019 2018
$'000 $'000
Current tax:
UK corporation tax - -
Overseas withholding tax 1,289 1,552
Foreign tax 737 9
_______ _______
Total current tax 2,026 1,561
_______ _______
Deferred tax:
Current year (24,329) 10,628
Prior year - 545
_______ _______
Total deferred tax (24,329) 11,173
_______ _______
Total tax (22,303) 12,734
_______ _______
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 25 per cent (2018: 25 per cent) and for the United Kingdom, the
taxation provision reflects a corporation tax rate of 19 per cent (2018: 19
per cent) and a deferred tax rate of 17 per cent (2018: 18 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.
9. Dividends
2019 2018
$'000 $'000
Amounts recognised as distributions to
equity holders:
Preference dividends of 9p per share (2018: - 8,353
9p per share)
_______ _______
- 8,353
_______ _______
In view of the difficult trading conditions prevailing during 2019, 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 2019 (totalling $8.5 million) should be deferred. With the major
improvement in the CPO price going into January 2020, the directors had
hoped to pay preference dividends arising in 2020 and progressively to catch
up the preference dividend arrears. Unfortunately, the subsequent disruption
wrought by Covid-19 has meant that this plan has had to be put on hold. The
directors are well aware that preference shares are bought for income and
will aim to recommence the payment of dividends as soon as circumstances
permit. However, until there is a recovery in CPO prices and greater
certainty as to the future, preference dividends will have to continue to be
deferred.
While the dividends on the preference shares are more than six months' in
arrears, the company is not permitted to pay dividends on its ordinary
shares. In view of the results reported for 2019, 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 2019 even if this were
permitted.
10. Loss per share
2019 2018
$'000 $'000
Basic and diluted loss for the purpose of
calculating loss per share*
(17,814) (22,021)
_______ _______
'000 '000
Weighted average number of ordinary shares
for the purpose of basic and diluted loss
per share
41,358 40,510
_______ _______
* Being net loss attributable to ordinary shareholders
11. Property, plant and equipment
Plantings Buildings Plant, Construction Total
and equipment in progress
structures and
vehicles
vehicles
$'000 $'000 $'000 $'000 $'000
Cost:
At 1 January 2018 201,369 274,640 112,749 5,076 593,8
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DJ R.E.A. Holdings plc: Annual reports and accounts -11-
34
Additions 7,617 12,228 2,545 6,165 28,55
5
Disposals - - (6,000) (258) - (6,25
property, plant 8)
and equipment
Disposal of (26,437) (47,075) (1,730) (1,487) (76,7
subsidiary 29)
Transfers - 2,494 18 (2,512) -
to/(from)
construction in
progress
__ ___ __ ___ __ ___ ___ __ __
___
At 31 December 182,549 236,287 113,324 7,242 539,4
2018 02
__ ___ __ ___ __ ___ ___ __ __
___
At 1 January 2019 182,549 236,930 114,963 7,242 541,6
restated* 84
Additions 2,367 3,068 5,518 7,275 18,22
8
Reclassifications (7,012) 10,227 3,525 (6,858) (118)
and adjustments
Disposals - (2,575) (4,436) (1,799) - (8,81
property, plant 0)
and equipment
__ ___ __ ___ __ ___ ___ __ __
___
At 31 December 175,329 245,789 122,207 7,659 550,9
2019 84
__ ___ __ ___ __ ___ ___ __ __
___
* Balances at 1 January 2019 have been restated to include
right of use assets
Accumulated
depreciation:
At 1 January 2018 26,961 32,379 52,153 - 111,4
93
Charge for year 9,861 5,651 6,499 - 22,01
1
Disposals - - - (249) - (249)
property, plant
and equipment
Disposal of (257) (209) (551) - (1,01
subsidiary 7)
__ ___ __ ___ __ ___ ___ __ __
___
At 31 December 36,565 37,821 57,852 - 132,2
2018 38
Charge for year 9,734 6,904 10,183 - 26,82
1
Reclassifications - 414 (854) - (440)
and adjustments
Disposals - (91) (124) (1,776) - (1,99
property, plant 1)
and equipment
_____ ____ _ _____ _____ _____
At 31 December 46,208 45,015 65,405 - 156,6
2019 28
_____ _____ _____ _____ _____
Carrying amount:
At 31 December 129,121 200,774 56,802 7,659 394,3
2019 56
__ ___ __ ___ __ ___ ___ __ __
___
At 31 December 145,984 198,466 55,472 7,242 407,1
2018 64
__ ___ __ ___ __ ___ ___ __ __
___
The depreciation charge for the year includes $95,000 (2018: $103,000) 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 $3.4 million (2018: $1.1 million).
At the balance sheet date, property, plant and equipment of $153.5 million
(2018: $153.0 million) had been charged as security for bank loans.
12. Sterling notes
The sterling notes comprise GBP30.9 million nominal of 8.75 per cent
guaranteed 2020 sterling notes (2018: GBP30.9 million nominal) issued by the
company's subsidiary, REA Finance B.V..
On 1 April 2020 the 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 GBP1.26 per share to the holders of
the sterling notes on the basis of 130 warrants per GBP1,000 nominal of
sterling notes held at the close of business (London time) on 24 March 2020.
The sterling notes are thus now due for repayment on 31 August 2025. A
premium of 4p per GBP1 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 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 repayable on 31 August 2025.
The repayment obligation in respect of the sterling notes of GBP30.9 million
($40.5 million) is carried in the balance sheet net of the unamortised
balance of the note issuance costs.
If a person or group of persons acting in concert obtains the right to
exercise more than 50 per cent of the votes that may generally be cast at a
general meeting of the company, each holder of sterling notes has the right
to require that the notes held by such holder be repaid at 101 per cent of
the nominal value, plus any interest accrued thereon up to the date of
completion of the repayment.
13. Share capital
2019 2018
GBP'000 GBP'000
Authorised (in sterling):
85,000,000 - 9 per cent cumulative
preference shares of GBP1 each (2018:
85,000,000)
85,000 85,000
50,000,000 - ordinary shares of 25p each
(2018: 50,000,000)
12,500 12,500
_______ _______
97,500 97,500
_______ _______
$'000 $'000
Issued and fully paid (in dollars):
72,000,000 - 9 per cent cumulative
preference shares of GBP1 each (2018:
72,000,000)
116,516 116,516
43,950,529 - ordinary shares of 25p each
(2018: 40,509,529)
18,071 17,013
132,500 - ordinary shares of 25p each held
in treasury (2018: 132,500)
(1,001) (1,001)
_______ _______
133,586 132,528
_______ _______
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 value of the shares and to repayment, on a winding up
of the company, of the amount paid up on the preference shares and any
arrears of the fixed dividend in priority to any distribution on the
ordinary shares. 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:
9 per cent
cumulative
preference Ordinary
shares shares
of GBP1 each of 25p each
Issued and fully paid: No. No.
At 1 January 2018 72,000,000 40,509,529
_______ _______
At 31 December 2018 72,000,000 40,509,529
_______ _______
Issued during the year - 3,441,000
_______ _______
At 31 December 2019 72,000,000 43,950,529
_______ _______
On 2 October 2019, 3,441,000 new ordinary shares of 25p each were issued,
fully paid, by way of a placing (aggregate nominal value GBP860,250). These
shares were placed at a price of GBP1.45 per share to the following: Mirabaud
Pereire Nominees Limited, Emba Holdings Limited (a related party), Carol
Gysin (director) and David Blackett (director) for a total consideration of
GBP4,989,000 ($6,027,000). The middle market price at close of business on 27
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September 2019 (being the date at which the terms were fixed) was GBP1.56.
There have been no changes in preference share capital or ordinary shares
held in treasury during the year.
14. Movement in net borrowings
2019 2018
$'000 $'000
Change in net borrowings resulting from
cash flows:
(Decrease) / increase in cash and cash
equivalents, after exchange rate effects
(16,751) 20,736
Net decrease / (increase) in bank 4,409 (14,079)
borrowings
Net (increase) / decrease in related (1,711) 6,469
party borrowings
_______ _______
(14,413) 13,126
Issue of 2022 dollar notes (3,000) -
Redemption of 2020 sterling notes - 1,307
Amortisation of sterling note issue (420) (497)
expenses
Amortisation of dollar notes issue (80) (75)
expenses
_______ _______
(17,913) 13,861
Currency translation differences (363) 11,053
Net borrowings at beginning of year (189,551) (214,465)
_______ _______
Net borrowings at end of year (207,827) (189,551)
_______ _______
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.
2019 2018
$'000 $'000
Short term benefits 1,041 1,564
Termination benefits - -
_______ _______
1,041 1,564
_______ _______
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. The maximum amount loaned was $5.4 million, all of which had
been repaid by 31 December (2018: $13.4 million). Total interest paid during
the year was $83,000 (2018: $243,000). This disclosure is also made in
compliance with the requirements of Listing Rule 9.8.4.
16. Events after the reporting period
On 31 March 2020, a general meeting of holders of the sterling notes agreed
proposals to extend the repayment date of the sterling notes to 31 August
2025. As consideration for this, the sterling notes will now be repayable at
GBP1.04 per GBP1.00 nominal on 31 August 2025 and the company has issued to
noteholders 4,010,760 warrants each entitling the warrant holder to
subscribe, for a period of five years, one new ordinary share in the capital
of the company at a subscription price of GBP1.26 per share.
Since the year end, the impact of the Covid-19 has had a significant impact
on the group in terms of the reduction in the CPO price from $860, CIF
Rotterdam, at 1 January 2020 to $540 on 30 April 2020. The directors
consider the Covid-19 pandemic to be a non-adjusting post balance sheet
event. However, should the pandemic result in a depressed CPO price for a
prolonged period, this could impact the directors' assessment of the
valuation of property, plant and equipment and recognition of deferred tax
assets (see "Plantation assets" and "Deferred tax assets" in note 1 in the
annual report). Further there is the possibility of operational disruption
should the existing lockdown in Indonesia be extended in a way that would
reduce or halt group production or restrict the group's ability to deliver
its production to customers (although it should be noted that the current
lockdown in Indonesia explicitly excludes agricultural business). In these
circumstances, the group could experience liquidity issues and might require
waivers from Mandiri to avoid breaching bank covenants. However, in this
downside scenario, the directors expect that Mandiri would be receptive to
requests to adjust the terms of its loans to the group to an extent that
reflects the fact that the issues to be addressed will have arisen as a
result of Covid-19 and will be short term in nature, especially given that
Covid-19 should not impact on the group's longer-term prospects once the CPO
price returns to pre Covid-19 levels (see statement on "Going concern" in
the "Directors' report" of the annual report).
Press enquiries to:
R.E.A. Holdings plc
Tel: 020 7436 7877
ISIN: GB0002349065
Category Code: ACS
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 62299
EQS News ID: 1038845
End of Announcement EQS News Service
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